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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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GLOBALSTAR TELECOMMUNICATIONS LIMITED
CEDAR HOUSE
41 CEDAR AVENUE
HAMILTON HM12, BERMUDA
TELEPHONE: (441) 295-2244
COMMISSION FILE NUMBER 0-25456
JURISDICTION OF INCORPORATION: BERMUDA
IRS IDENTIFICATION NUMBER: 13-3795510
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GLOBALSTAR, L.P.
3200 ZANKER ROAD
SAN JOSE, CALIFORNIA 95134
TELEPHONE: (408) 933-4000
COMMISSION FILE NUMBER: 333-25461
JURISDICTION OF INCORPORATION: DELAWARE
IRS IDENTIFICATION NUMBER: 13-3759824
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
GLOBALSTAR TELECOMMUNICATIONS LIMITED
COMMON STOCK, $1.00 PAR VALUE NASDAQ NATIONAL MARKET
</TABLE>
The registrants have filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
and have been subject to such filing requirements for the past 90 days.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
contained in Globalstar Telecommunications Limited's 1999 definitive proxy
statement.
As of March 5, 1999, there were 82,020,021 shares of Globalstar
Telecommunications Limited common stock outstanding, and the aggregate market
value of such shares (based on the closing price on the Nasdaq National Market)
held by non-affiliates of Globalstar Telecommunications Limited was
approximately $1.2 billion.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Globalstar Telecommunications Limited's 1999 definitive proxy
statement are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
GENERAL DESCRIPTION OF BUSINESS
On November 23, 1994, Globalstar Telecommunications Limited ("GTL" or "the
Company") was incorporated as an exempted company under the Companies Act 1981
of Bermuda. On February 14, 1995, GTL completed an initial public offering of
40,000,000 shares of common stock (as adjusted to give effect to GTL's
two-for-one stock splits effected in the form of 100% stock dividends paid in
1997 and 1998). Effective February 22, 1995, GTL purchased 10,000,000 ordinary
partnership interests from Globalstar, L.P. ("Globalstar"), a development stage
limited partnership. At December 31, 1998, GTL had a 34.8% ownership interest in
the ordinary partnership interests of Globalstar, and its sole business is
acting as a general partner in Globalstar.
Globalstar was founded by Loral Corporation ("Old Loral") and QUALCOMM
Incorporated ("Qualcomm"). Effective April 23, 1996, a merger between Old Loral
and Lockheed Martin Corporation ("Lockheed Martin") was completed. In
conjunction with the merger, Old Loral's space and communications businesses,
including its direct and indirect interests in Globalstar, GTL, Space
Systems/Loral, Inc. ("SS/L") and other affiliated businesses, as well as certain
other assets and liabilities, were transferred to Loral Space & Communications
Ltd. ("Loral"), a Bermuda company. Globalstar is a Delaware limited partnership
whose managing general partner is Loral/QUALCOMM Satellite Services, L.P.
("LQSS"); the general partner of LQSS is Loral/QUALCOMM Partnership, L.P.
("LQP"), a Delaware limited partnership, the partners of which are subsidiaries
of Loral and Qualcomm. The managing general partner of LQP is Loral General
Partner, Inc., a subsidiary of Loral. As a result, Loral is the managing general
partner of Globalstar and owned approximately 43% of Globalstar as of December
31, 1998.
Recent Developments
On March 15, 1999, Globalstar successfully launched four satellites aboard
a Soyuz launch vehicle from the Baikonur Cosmodrome in Kazakhstan, bringing the
total satellites in orbit to 16. This launch followed Globalstar's successful
launch on February 8, 1999 of four satellites from the Baikonur Cosmodrome
following the execution of a Technology Safeguard Agreement among the
governments of Russia, Kazakhstan and the United States. As of March 15, 1999,
in addition to the 16 satellites in orbit, Globalstar had eight completed
satellites on hand and 28 more in final integration and test.
On January 21, 1999, GTL sold $350 million of 8% Convertible Redeemable
Preferred Stock due 2011 (the "Preferred Stock"). The Preferred Stock will be
convertible into shares of GTL common stock at a conversion price of $23.2563
per share. Loral purchased $150 million face amount of the $350 million of
Preferred Stock offered to maintain its ownership percentage. GTL used the
proceeds to purchase 8% convertible redeemable preferred partnership interests
("8% RPPIs") in Globalstar, and Globalstar will use the funds to continue the
construction and deployment of its system. In the event of conversion of the 8%
RPPIs, GTL's ownership of ordinary partnership interests would increase to
38.8%.
BUSINESS SEGMENT
Globalstar will operate in one industry segment, global mobile telephony.
BUSINESS
BUSINESS OVERVIEW
Globalstar has begun to launch and is preparing to operate a worldwide,
low-earth orbit ("LEO") satellite-based digital telecommunications system (the
"Globalstar(TM) System"). As of March 15, 1999,
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Globalstar has launched 16 of the 52 satellites (including four in-orbit spares)
that will complete its full constellation and is scheduled to commence service
in September 1999 with at least 32 satellites.
The Globalstar System has been designed to address the substantial and
growing demand for telecommunications services worldwide, particularly in
developing countries. More than three billion people today live without
residential telephone service, many of them in rural areas where the cost of
installing wireline service is prohibitively high. Moreover, even where
telephone infrastructure is available in developing countries, outdated
equipment often leads to unreliable local service and limited international
access.
The Globalstar System's worldwide coverage is designed to enable its
service providers to extend modern telecommunications services to millions of
people who currently lack basic telephone service and to enhance wireless
telecommunications in areas underserved or not served by existing or future
cellular systems, providing a telecommunications solution in parts of the world
where the build-out of terrestrial systems cannot be economically justified.
Globalstar users will make and receive calls through a variety of
Globalstar user terminals ("Globalstar Phones"), including hand-held and
vehicle-mounted units similar to today's cellular telephones, fixed telephones
similar either to phone booths or ordinary wireline telephones, and data
terminals and facsimile machines. Dual-mode and tri-mode Globalstar Phones will
provide access to both the Globalstar System and the subscriber's land-based
cellular service. Each Globalstar Phone will communicate through one or more
satellites to a local Globalstar service provider's interconnection point (known
as a gateway) which will, in turn, connect into existing telecommunications
networks.
Globalstar achieved a significant milestone on April 30, 1998, when
Qualcomm chairman Irwin Jacobs successfully placed a call from San Diego through
the Globalstar System to Globalstar chairman Bernard Schwartz in New York City.
In the call, an in-orbit Globalstar satellite received and relayed Mr. Jacobs's
signal to the system's test-bed gateway in San Diego, which switched the call
into the Public Switched Telephone Network ("PSTN"). The call was carried for
the entire duration of the satellite pass, through multiple satellite beam
switching, validating the adaptation of code division multiple access ("CDMA")
technology to Globalstar service, including variable rate vocoders, gateway
software and switching, and the PSTN interconnect. Voice quality was consistent
with the standards set by terrestrial CDMA implementations and no voice delay or
interruption occurred as the call passed through multiple satellite beams during
the call.
As of December 31, 1998, each of the elements of the Globalstar
System -- space and ground segments, user terminal supply, service provider
arrangements, licensing and system integration -- was on schedule to permit
Globalstar to commence commercial operations in September 1999 with at least 32
satellites in orbit, and to complete its 52-satellite constellation, including
four in-orbit spares, by the end of 1999.
Space Segment. On March 15, 1999, Globalstar successfully launched four
satellites aboard a Soyuz launch vehicle from the Baikonur Cosmodrome in
Kazakhstan, bringing the total satellites in orbit to 16. This launch followed
Globalstar's successful launch on February 8, 1999 of four satellites from the
Baikonur Cosmodrome following the execution of a Technology Safeguard Agreement
among the governments of Russia, Kazakhstan and the United States. Globalstar
had previously launched its first group of four satellites on February 14, 1998
and its second group of four satellites on April 24, 1998. The first 12
Globalstar satellites have reached their final orbital positions and are
currently being used to test basic system functionality, including the system's
inter-satellite hand-off capabilities, and the latest four satellites are
expected to reach their final orbital positions and begin operations testing in
April 1999. As of March 15, 1999, in addition to the 16 satellites in orbit,
Globalstar had eight completed satellites on hand and 28 more in final
integration and test.
In September 1998, a malfunction of a Zenit 2 rocket resulted in the loss
of 12 Globalstar satellites shortly after lift-off from the Baikonur Cosmodrome
and resulted in a delay in the program schedule. The cost of the launch vehicle
and the lost satellites was substantially insured. As a result of the launch
failure, Globalstar implemented its contingency plan, which provides for a
flexible launch strategy that enables it to select among a number of launch
service suppliers in order to improve its ability to commence service as
planned. Globalstar has reserved six Soyuz launches of four satellites each (two
of which have already
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occurred as of March 15, 1999), six Delta 2 launches of four satellites each, an
Ariane launch of up to six satellites and two Zenit launches, all in 1999, with
options for additional launches in 2000. Production is proceeding for the
remaining satellites to meet scheduled launch dates.
Ground Segment. Globalstar's primary Satellite Operations Control Center
("SOCC") and back-up facility, which performed well in support of the Globalstar
launches, are fully-operational and are currently performing command and control
functions for the in-orbit satellites. Qualcomm has completed 38 gateways, of
which eight are already installed in Texas, France, Italy, Canada, Argentina,
China, South Africa and South Korea. The initial gateways helped monitor the
launch and orbital placement of Globalstar's first 16 satellites. Qualcomm has
released an upgraded, commercial version of its gateway operating software,
which is now undergoing testing and evaluation. Globalstar expects these eight
gateways to be fully operational by the commencement of commercial service, and
expects an additional eight gateways to be installed and operational by the end
of 1999. These 16 gateways will cover 61 countries that account for
approximately 58% of Globalstar's business plan.
User Terminals. Ericsson, Qualcomm and Telital are manufacturing
approximately 300,000 handheld and fixed user terminals under contracts
totalling $353 million from Globalstar and its service providers. The first
generation handheld Globalstar Phones are expected to weigh about twelve ounces
and be available in attractive designs with dimensions (excluding antenna) of
approximately 6.25" x 2" x 1.75". Globalstar users will be able to access
terrestrial wireless systems, where available, through dual and tri-mode
portable and mobile user terminals. Qualcomm will offer a tri-mode handset that
can access Globalstar, Advanced Mobile Phone System ("AMPS"), the U.S. analog
cellular standard, and digital cellular systems using CDMA technology.
Ericsson's and Telital's Globalstar/Global System for Mobile Communications
("GSM") dual mode phones will feature the GSM interface familiar to wireless
customers in Europe and many other areas of the world.
Service Providers. Globalstar and its partners have been seeking alliances
with service providers throughout the world and have entered into a number of
agreements in specific territories. Globalstar believes that these relationships
with in-country service providers will facilitate the granting of local
regulatory approvals -- particularly where its service provider and the
licensing authority are one and the same -- as well as provide local marketing
and technical expertise. Globalstar's local service providers have already
obtained some or all of the regulatory approvals they will need to provide
service in 32 nations, including China, the United States, Canada, Russia,
Brazil, Indonesia, Saudi Arabia and Ukraine. Due to general economic conditions
in Asia, Hyundai has withdrawn as a Globalstar service provider. Globalstar has
found a replacement in Finland and has identified a replacement in India, but
has been prevented from signing a new service provider agreement for India by
litigation brought by Hyundai's former in-country partner. The injunction
prohibiting such an agreement is currently on appeal. If Globalstar cannot
proceed in a timely manner to engage an adequate replacement service provider
for India, Globalstar will not be able to offer service in that country, and its
results of operations could be adversely affected.
In July 1998, as a result of a transaction in which Loral purchased
Globalstar partnership interests from certain other Globalstar partners, $210
million was placed in escrow by such Globalstar partners for the purchase of
Globalstar gateways and handsets.
Licensing. In January 1995, the Federal Communications Commission (the
"FCC") granted authority for the construction, launch and operation of the
Globalstar System and assigned spectrum for its user links. Later that year, the
1995 World Radiocommunication Conference allocated feeder link spectrum on an
international basis for mobile satellite services ("MSS") systems such as
Globalstar, and in November 1996, the FCC authorized Globalstar's feeder links.
In September 1997, Globalstar applied to the FCC for authorization to launch and
operate satellite systems at 2 GHz and 40 GHz. If these applications are granted
(as to which there can be no assurance), Globalstar would be in a position to
expand its capacity substantially.
Systems Integration. Globalstar is using its in-orbit satellites and
installed gateways to perform extensive tests of system functionality to ensure
reliable, high quality service, including simulations of high-traffic
conditions. In tests, the Globalstar System has delivered voice quality
comparable to terrestrial CDMA and landline phones. Multiple satellite coverage
and soft hand-offs of calls have occurred without
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dropped calls, and the second generation gateway software is providing both
immediate handset connectivity and a seamless interface with the public
telephone networks. To date, none of the Globalstar satellites has experienced a
failure or significant anomaly.
Expenditures and Commitments. Through December 31, 1998, Globalstar
incurred costs of approximately $2.7 billion for the design and construction of
the space and ground segments. Costs incurred during 1998 were approximately
$871 million. Qualcomm is in the process of completing its revision to cost
estimates for its portion of the ground segment. Due to additional scope and
cost growth and based on preliminary information, Globalstar expects the
increase from Qualcomm to be less than 3% of the total project cost. The
Qualcomm estimate is still subject to further review by Globalstar. As of
December 31, 1998, and including the effect of the preliminary Qualcomm
estimate, Globalstar's budgeted expenditures were $3.17 billion for the design,
construction and deployment of the Globalstar System to commence commercial
service and $340 million for budgeted financing costs. In addition to
expenditures for operating costs and debt service, Globalstar anticipates
further expenditures on system software for the improvement of system
functionality and the addition of new features beyond those planned for the
commencement of commercial service. Globalstar expects to achieve positive cash
flow in the third quarter of 2000. Substantial additional financing will be
required if there are delays in the commencement of commercial service and, in
any event, after the commencement of commercial service and before positive cash
flow is achieved. Although Globalstar believes it will be able to obtain these
additional funds, there can be no assurance that such funds will be available on
favorable terms or on a timely basis, if at all.
Globalstar has agreed, subject to its partners' approval, to purchase from
SS/L 12 additional spare satellites for which the cost and payment terms have
not as yet been negotiated. It is anticipated that approximately $100 million
will be expended for these spare satellites by commencement of commercial
service. In addition, in order to accelerate the deployment of gateways around
the world, Globalstar has agreed to help finance approximately $80 million of
the cost of up to 32 of the initial 38 gateways. The contracts for the 38
gateways aggregate approximately $345 million. Ericsson, Qualcomm and Telital
are in the process of manufacturing approximately 300,000 handheld and fixed
user terminals under contracts totaling $353 million from Globalstar and its
service providers. Globalstar has agreed to finance approximately $151 million
of the cost of handheld and fixed user terminals. Globalstar expects to recoup
such costs upon acceptance by the service providers of the gateways and user
terminals.
In January 1999, GTL completed a private offering of $350 million of the
Preferred Stock (of which Loral purchased $150 million face amount to maintain
its ownership percentage). GTL in turn used the net proceeds from its offering
to purchase 8% RPPIs of Globalstar. Globalstar in turn will use the proceeds for
the construction and deployment of its system.
As of January 31, 1999, Globalstar has raised or received commitments for
approximately $3.3 billion. Globalstar intends to raise the remaining funds
required, of approximately $600 million, prior to the initiation of commercial
service from a combination of sources including: high yield debt issuance (which
may include an equity component), bank financing, equity issuance, financial
support from the Globalstar partners, projected service provider payments and
anticipated payments from the sale of gateways and Globalstar subscriber
terminals.
Globalstar, a development stage company, has incurred costs (excluding
depreciation) of $145 million, $87 million and $60 million for the years ended
December 31, 1998, 1997 and 1996, respectively. Globalstar had total assets of
$2.7 billion, $2.1 billion and $943 million as of December 31, 1998, 1997 and
1996, respectively.
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GLOBALSTAR STRATEGIC PARTNERS
Globalstar has selected strategic partners whose marketing, operating and
technical expertise will enhance Globalstar's capabilities. These partners are
playing key roles in the construction, operation and marketing of the Globalstar
System. Globalstar's founding partners are Loral and Qualcomm, the leading
supplier of CDMA digital telecommunications technology. Globalstar's other
strategic partners are:
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TELECOMMUNICATIONS TELECOMMUNICATIONS EQUIPMENT AND
SERVICE PROVIDERS AEROSPACE SYSTEMS MANUFACTURERS
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- AirTouch Communications, Inc. - Alcatel
- China Telecom (Hong Kong) Group Ltd. - Alenia Spazio S.p.A
- Dacom Corporation - DaimlerChrysler Aerospace A.G.
- Elsacom - Hyundai Electronics Industries Co.
Ltd.
- TE.SA.M. - Space Systems/Loral, Inc.
- Vodafone Group Plc
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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, 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 to meet the needs of individual end users.
Worldwide Coverage and Access. The Globalstar System's worldwide coverage
has been designed to enable its service providers to extend modern
telecommunications services rapidly and economically to significant numbers of
people who currently lack basic telephone services and to enhance wireless
telecommunications in areas underserved or not served by existing or
contemplated cellular systems. Globalstar expects to provide a communications
solution in parts of the world where the build-out of terrestrial systems cannot
be economically justified. The Globalstar System has also been designed to
enable international travelers to make and receive calls at a unique telephone
number through their mobile Globalstar Phones anywhere in the world where
Globalstar service is authorized by local regulatory authorities.
Multiple Satellite Coverage; Soft Handoff. CDMA digital communications
technology combined with continuous multiple satellite coverage and signal path
diversity (a patented SS/L method of signal reception not available to competing
systems) will enable the Globalstar System to provide service to a wide variety
of locations, with less potential for signal blockage from buildings, terrain or
other natural features. Globalstar Phones have been designed to operate with a
single satellite in view, although typically signals from two to four satellites
overhead will be combined to provide service. Therefore, the loss of an
individual satellite is not expected to result in any gap in global coverage.
Each mobile Globalstar Phone has been designed to communicate with as many as
three satellites simultaneously, combining the signals received to ensure
maximum service quality. Globalstar's in-orbit tests have shown that, as
satellites constantly move in and out of view, they are seamlessly added to and
removed from the calls in progress, thereby reducing the risk of call
interruption.
Superior Call Quality; Increased Privacy. Based on extensive space based
tests of the Globalstar System, Globalstar expects that Qualcomm's CDMA digital
technology will enable Globalstar to provide digital voice services which will
have clarity, quality and privacy similar to those of existing land line and
land-based CDMA wireless systems.
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Efficient Use of Satellite Resources. The Globalstar System's use of
multiple satellites to communicate with each Globalstar Phone 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 approximately 22,000 miles. Globalstar believes that its
system will also entail noticeably less voice delay than medium-earth orbit
systems and, in many cases, than LEO systems requiring on-board satellite
decoding, recoding, echo cancellation and other on-board call processing to
support satellite-to-satellite switching systems.
EMPLOYING A SYSTEM ARCHITECTURE DESIGNED TO MINIMIZE COST AND RISK
Simple, Cost-Effective System Architecture. To achieve low cost, reduce
technological risk and accelerate its deployment, Globalstar has devised a
system architecture using small satellites incorporating well-established design
features, and located the system's call processing and switching operations on
the ground, where they are accessible for maintenance and can benefit from
continuing technological advances. Hand-held and vehicle-mounted Globalstar
Phones are anticipated to be priced comparably and will be similar in function
to current digital cellular telephones. Dual-mode and tri-mode Globalstar Phones
will be able to access both Globalstar and a variety of local land-based analog
and digital cellular services, where available. Multiple manufacturers will be
licensed to manufacture Globalstar Phones in order to promote competition and
reduce prices.
Low-Cost Service. Globalstar intends to offer its service providers
effective average prices substantially lower than those announced by its
anticipated principal competitors. Globalstar's service providers will set their
own retail pricing and will pay to Globalstar wholesale prices generally
expected to range between $0.35 and $0.55 per minute. As a result of its pricing
commitments to its service providers or as a result of competitive pressures,
Globalstar may not be in a position to pass on to its service providers
unexpected increases in the cost of constructing the Globalstar System. However,
Globalstar believes that its low system and operating costs and high gross
margins at target pricing and usage levels provide it with substantial
additional pricing flexibility if necessary to meet competition.
Simple Space Segment of Proven Design. To achieve lower cost, reduce
technological risk and accelerate deployment of the Globalstar System,
Globalstar's system architecture uses small satellites incorporating a
well-established repeater design that acts essentially as a simple "bent pipe,"
relaying signals received directly to the ground. The Globalstar space segment
is being manufactured under fixed-price contracts with SS/L.
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 $6 million to $10 million (depending on the capacity
desired), a service provider can extend basic telephone service to fixed
terminals on a national basis in countries as large as Saudi Arabia and mobile
service to cover an area almost as large as Western Europe. Each country with a
Globalstar gateway will have access to domestic service without the imposition
of international tail charges on in-country calls, thereby offering subscribers
the lowest possible cost for domestic calls, which account for the vast majority
of all cellular calls today.
Competitively Priced Globalstar Phones. Ericsson, Qualcomm, and Telital
are in the process of manufacturing approximately 300,000 handheld and fixed
user terminals under contracts totaling $353 million from Globalstar and its
service providers. After these initial production runs, Globalstar anticipates
that competitive pressures and manufacturing efficiencies will reduce the cost
of mobile and private fixed Globalstar Phones to less than $750 each. Private
fixed Globalstar Phones will provide wireless local loop to government offices,
businesses and homes beyond the current coverage area of the PSTN.
Fully-installed,
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turn-key public telephone booths equipped with security features and credit,
debit and phone-card reading capabilities are expected to cost between $4,000
and $6,000, depending on the number of units sharing a fixed antenna. In
addition, dual mode and tri-mode Globalstar Phones will permit a Globalstar
handset to access GSM, and CDMA-based digital cellular systems, and future
phones are planned that will access additional modulations.
LEVERAGING THE CAPABILITIES OF GLOBALSTAR'S STRATEGIC PARTNERS
Loral has overall management responsibility for the design, construction,
deployment and operation of the Globalstar System. Globalstar's strategic
partners will play key roles in the design, construction, operation and
marketing of the Globalstar System.
Telecommunications service providers AirTouch, China Telecom, Dacom,
Elsacom, TE.SA.M. 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 73 countries
around the world in which they have particular marketing strength and experience
and access to an established customer base. To maintain their service provider
rights on an exclusive basis, these service providers and additional service
providers are required to make minimum payments to Globalstar equal to 50% of
target revenues. Based upon current targets (which are currently subject to
adjustment based upon an updated market analysis), such minimum payments total
approximately $5 billion through 2006. There can be no assurance that the
service providers will elect to retain their exclusivity and make such payments.
Globalstar expects to add additional service providers in order to provide
coverage throughout the world. Each service provider will, subject to obtaining
required local regulatory approvals, market and distribute Globalstar service in
its designated territories and own and operate the gateways necessary to serve
its markets.
Telecommunications equipment and aerospace systems manufacturers SS/L,
Alcatel, Alenia, Daimler Chrysler Aerospace and Hyundai have designed
Globalstar's satellites, which are now being built and deployed under a fixed
price contract with SS/L. Qualcomm, using its CDMA technology, is designing and
will manufacture Globalstar Phones and gateways and has licensed its user
terminal technology to Ericsson and Telital.
THE GLOBALSTAR SYSTEM
Globalstar intends to offer low-cost, high quality telecommunications
services throughout the world. The Globalstar System will be comprised of a
52-satellite LEO constellation (including four in-orbit spare satellites) and a
ground segment consisting of two SOCCs and two ground operations control centers
("GOCCs"), Globalstar gateways in each region served, and mobile and fixed
Globalstar Phones. Globalstar will own and operate the satellite constellation,
the SOCCs and the GOCCs. The remaining elements of the system will be owned by
Globalstar's service providers and their subscribers. The descriptions of the
Globalstar System are based upon current design and are subject to modification
in light of future technical and regulatory developments.
Globalstar Services and Globalstar Phones. Globalstar's most important
service will be voice telephony service, which Globalstar is expected to offer
through telephone booth-like installations and other fixed telephones located in
areas without any landline or cellular telephone coverage, and through hand-held
and vehicle-mounted Globalstar Phones, similar to existing cellular telephones.
Globalstar is also expected to offer paging, facsimile and messaging services
and position location capabilities, which may be integrated with its voice
services or marketed separately, as well as environmental and asset monitoring
from remote locations and other forms of data transmission.
Voice Services
Based on terrestrial simulations and space-based tests of the Globalstar
System, Globalstar expects that its digital voice services will have clarity,
quality and privacy similar to those of existing digital land-based cellular
systems. Moreover, the system has been designed to minimize call interruptions
("dropped calls") resulting from movements on the part of the user or the
satellites. Globalstar is expected to offer the full range of voice services
provided by modern land-based telephone networks, including options such as call
forwarding, conferencing, call waiting, call transfer and reverse charging
("collect calls"). Globalstar's voice
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services will be digital in nature and therefore difficult for unauthorized
listeners to intercept and decode and, as a result, will be more secure than
those offered by analog systems such as existing cellular telephones. The
Globalstar System will function best when there is an unobstructed line-of-sight
between the user and one or more of the Globalstar satellites overhead.
Competing systems without Globalstar's path diversity depend on each user
maintaining contact with a single satellite. Obstacles such as buildings, trees
or mountainous terrain may degrade service quality, more so than would be the
case with terrestrial cellular systems, and service may not be available in the
core of high-rise buildings.
By planning for volume production and utilizing commercially available
off-the-shelf components where possible, Globalstar expects that its Globalstar
Phones, unlike those of certain other proposed MSS systems, will be priced
comparably to current state-of-the-art digital cellular telephones. Qualcomm has
agreed to design and manufacture a number of versions of Globalstar Phones. It
has granted a license to manufacture Globalstar Phones to each of Ericsson and
Telital and has agreed to license at commercially reasonable royalty rates at
least one additional qualified Globalstar Phone manufacturer.
Fixed Globalstar Phones for No-Telephone Areas. The majority of the
world's population does not have access to any of the basic telephone services
that are available to most residents of developed nations. Public installations
of one or more Globalstar Phones, configured as telephone booths and powered by
local generators or solar panels connected to a directional antenna aimed at the
satellites overhead, would be important resources for remote villages currently
lacking basic telephone service. Government officials, among other individuals,
as well as commercial enterprises in remote areas such as mining and logging
operations, are expected to utilize private, fixed Globalstar Phones which will
operate like landline telephones, but will be connected to directional
Globalstar antennae. Directional antennae also provide for more efficient use of
the system's capacity.
Mobile Globalstar Phones for No-Cellular Areas. In certain regions,
land-based cellular systems cannot be economically justified because of their
population density or geographic characteristics. As a satellite-based system
with worldwide coverage, Globalstar can efficiently offer both hand-held and
vehicle-mounted mobile service in these areas through its single-mode mobile
Globalstar Phones. These units are expected to be similar in function and cost
to today's full-featured cellular telephones. Unlike cellular telephones,
however, these units will have the ability to operate (both for making and
receiving calls) in virtually every inhabited area of the world where Globalstar
service is authorized.
Globalstar mobile terminals will all be equipped with omnidirectional
antennae, similar to cellular telephone antennae, that connect equally well
regardless of the direction in which they are pointed. Each mobile terminal will
communicate with all satellites in view and will have the built-in signal
processing intelligence to constantly seek out and select the strongest signal
transmitted from overhead, combining the signals received to ensure maximum
service quality. Further, Globalstar Phones will automatically vary their power
output as necessary to maintain call quality and connectivity. As a result of
this efficiently-managed power system, mobile Globalstar Phones are expected to
draw less power, on average, than conventional cellular telephones and are
therefore expected to enjoy longer battery life.
Dual-Mode and Tri-Mode Globalstar Phones for Local and Global
Roaming. Current cellular system subscribers who need a mobile telephone that
also works when they travel to areas without compatible cellular coverage (or
that have no cellular coverage at all) will be offered Globalstar service
through dual-mode and tri-mode handsets and vehicle-mounted units. Dual-mode and
tri-mode telephones will also permit the user to access Globalstar service when
cellular access is temporarily blocked by interference, terrain or
over-capacity. Like Globalstar's single-mode mobile telephones, dual-mode and
tri-mode telephones will enable the user to make and receive calls through a
unique access number anywhere in the world where service is authorized.
Dual-mode and tri-mode Globalstar Phones can be programmed by the service
provider to automatically utilize the chosen land-based cellular service
whenever it is available and to otherwise process the call through Globalstar;
they can also be programmed for manual selection between Globalstar and the
land-based cellular system. Dual-mode and tri-mode Globalstar Phones are being
developed for the most widely-based conventional cellular modulations. The
dual-mode pairs are expected to include: Globalstar/CDMA, Globalstar/AMPS and
Globalstar/GSM.
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Other Services
Messaging and Paging Services. In addition to supporting voice services,
the Globalstar System is also expected to function as a worldwide paging and
alphanumeric messaging service. Hand-held or vehicle-mounted Globalstar Phones
are currently being designed with a built-in paging and messaging feature that
allows the user to receive a page or a short alphanumeric message while the unit
is in a very-low-power "quiet listening only" mode. Separate Globalstar
messaging and paging units may also be developed by Globalstar or by third party
vendors. The Globalstar System can readily support these functions without
taxing system resources since, as compared with voice services, messages and
pages have a relatively low data content and do not require instantaneous,
two-way transmission.
Remote Monitoring. Globalstar data terminals integrated with automatic
sensing equipment of various kinds can provide a continuous stream of valuable
information concerning natural events such as weather conditions, seismic shifts
and forest fires, as well as the condition of remote assets, such as oil and gas
pipelines and electric utility transmission lines.
Facsimile and Other Data Services. The Globalstar System is expected to
support fax traffic, as well as transmissions of digital computer data.
Position Location. Frequent, accurate readings of position location for
large numbers of vehicles is critical information for the efficient management
of fleets of trucks and railcars. Qualcomm's OmniTRACS system, which relays
position location information to a central location and offers messaging
capabilities, is expected to be deployed on the Globalstar System and offered to
Globalstar service providers to address this need.
Satellite Constellation
Globalstar service will be delivered through a constellation of 48 small,
low-cost LEO satellites orbiting the earth in eight circular inclined planes
with six satellites per plane which will provide a clear communications link
with the Globalstar Phones and gateways below. Each satellite will transmit 16
spot beams, which will generate coverage cells on the surface of the Earth for
links between users and gateways via the satellites. Each satellite's coverage
area will have a typical diameter of 3,600 miles on the Earth's surface,
resulting in an average area covered per satellite of approximately ten million
square miles, an area larger than the area of China or the United States. Each
spot beam will cover an average area of approximately 600,000 square miles, an
area larger than that of any state in the United States or any country in
Western Europe.
Path Diversity from Multiple Satellites. The satellite constellation will
orbit the Earth in a coordinated pattern 750 nautical miles above the surface of
the Earth designed to provide users with continuous overlapping coverage from
multiple satellites with diverse angles of view or "path diversity." The
satellites will provide multiple-satellite global coverage in all areas of the
world except for a small portion of the polar regions. This constellation and
orbital plane design is expected to improve service quality significantly
relative to current analog systems.
LEO satellites are in constant motion overhead, relative to a user on the
Earth's surface, and, as a result, the beam from the satellite transmitting a
call could be blocked at any time by a building or natural obstruction, placing
the user in the beam's shadow and interfering with or interrupting the call.
Similar effects may occur when a mobile user changes position. Globalstar Phones
can operate with a single satellite in view, although typically two to four
satellites will be overhead. This supports the benefits of path diversity for
mobile terminals and also means that, in contrast to medium-earth orbit systems
with fewer satellites and competing LEO systems lacking this feature, the loss
of individual satellites will usually not result in gaps in global coverage.
Globalstar's mobile terminals are designed to communicate with as many as three
satellites simultaneously, combining the signals received to provide improved
call quality and, when another satellite moves into an optimal position,
reliably "handing off" the call to such satellite without interruption. This
combination of path diversity and CDMA is a patented SS/L technology designed to
minimize call fading, resulting in fewer dropped calls and higher overall call
quality.
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Low-Cost Satellites. Globalstar has chosen a satellite architecture
designed to offer reliable, high quality service and minimize technological
risks. Globalstar's satellites will incorporate a repeater design which will act
essentially as a "bent pipe," relaying received signals directly to the ground.
This design follows the proven philosophy used in all commercial communications
satellites currently in operation. Globalstar's call processing and switching
operations are on the ground, where they are accessible for maintenance and can
benefit from continuing technological advances. By contrast, competing systems
whose satellites switch calls in space from satellite to satellite require
on-board digital signal processing. Globalstar believes that this design results
in higher system costs and precludes the accessible maintenance and easy upgrade
to reflect technological advances which Globalstar can accomplish on the ground
without a need to launch replacement satellites. Globalstar also believes that
such systems' inherent ability to switch international calls in space, bypassing
local service providers, many of which are state-owned, may limit their
desirability in the eyes of some local regulatory authorities.
No Perceptible Voice Delay. Globalstar expects that its combination of a
low-earth orbit and simple repeaters will reduce voice delays over its system to
between 150 and 200 milliseconds, a delay which is not perceptible to the
subscriber in a normal phone conversation. Voice delays are comprised of a
propagation delay, as signals move from the Earth to the satellite and back, and
processing delays on-board the satellite. By contrast, geosynchronous satellite
communications entail a noticeable voice delay of approximately 600
milliseconds. Globalstar expects, based on its own analysis, that medium-earth
orbit systems such as that proposed by ICO Global ("ICO") may entail voice
delays of between 250 and 300 milliseconds. Although a competing time division
multiple access ("TDMA") system has an orbit lower than Globalstar's, thus
reducing propagation delay somewhat, Globalstar believes that in most cases this
advantage is more than offset by the additional processing delay entailed by the
TDMA system's need to decode, recode, perform echo cancellation and otherwise
process signals in space and the need, in many cases, for satellite-to-satellite
linkages, with additional on-board processing at each step. However, quality
differentials may not be of significant competitive importance in communications
markets in developing countries that currently lack even basic telephone
coverage.
Constellation Life. The satellites in the first-generation constellation
are designed to operate at full performance for a minimum of seven and a half
years, after which time the cumulative effects of the space environment are
expected to gradually reduce operating performance. The constellation has been
designed so that the loss of a few satellites will, in most cases, not result in
gaps in global coverage. In order to provide additional assurance of system
integrity in the event of premature satellite failure, however, Globalstar plans
to launch four spare satellites to be relocated in space as required.
Depending on the level of demand for services and the remaining effective
capacity of the first-generation constellation, a second generation of
satellites will be designed, built and launched. Globalstar currently expects to
place a second-generation constellation in service in 2005 and 2006. While the
precise technical capabilities and costs of the second generation of Globalstar
satellites cannot be currently foreseen, the second-generation constellation may
be designed with significantly greater call capacity than the first. In
connection with such an increase in call capacity, Globalstar may be required to
seek additional spectrum allocations from the applicable regulatory authorities.
There is no assurance that such spectrum, if requested, would be obtained.
Implementation and operation of a second-generation system will also require
obtaining U.S. and other regulatory authorizations, and there is no assurance
that these authorizations, if requested, would be obtained.
The Ground Segment
Globalstar's SOCCs will track and control the satellite constellation using
telemetry and command units located in various gateways around the world and
telemetry stations in two locations, at least one of which will be in the United
States. The SOCCs will control satellite orbit positioning, maneuvers and
station keeping, and will monitor satellite health and status in all subsystems.
The SOCCs will also plan and implement satellite lifecycle maintenance
procedures, including orbit adjustment maneuvers.
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The GOCCs, which will be in continuous operation 24 hours a day, will be
responsible for planning and controlling satellite utilization by gateway
terminals and coordinating information received from the SOCCs. In addition to
these planning functions, the GOCCs will be responsible for monitoring system
performance, collecting information for billings to service providers and
ensuring that the gateways do not exceed allocated system capacity. The GOCCs
will be responsible for dynamically allocating system capacity among nearby
regions to optimally service changing patterns of demand. The primary SOCC and
primary GOCC will be located at Globalstar's headquarters, with backup
facilities at another location.
The gateways are the interconnection points between the Globalstar
satellite constellation and existing land-based telecommunications networks.
Each gateway will contain up to four tracking antennae and radio frequency front
ends that track the satellites orbiting in their view. A typical gateway is
expected to cost between $6 million and $10 million, depending upon the number
of subscribers being serviced by the gateway and assuming that the gateway will
be located at the site of an existing cellular or other appropriate
telecommunications switch. The Globalstar System is designed to prevent
unauthorized use in those countries that have not licensed a Globalstar service
provider. A single gateway is expected to be able to provide fixed coverage over
an area larger than Saudi Arabia and mobile coverage over an area almost as
large as Western Europe. As a result of the low cost of its gateways, Globalstar
expects that its service providers will install gateways in most of the major
traffic-generating countries in which they offer service. Each country with a
Globalstar gateway will have access to domestic service without the imposition
of international tail charges, thereby offering subscribers the lowest possible
cost for domestic calls, which account for the vast majority of all cellular
calls today.
Although Globalstar has commissioned the design of the gateways to be used
with the Globalstar System, ownership and operation of the gateways will be the
responsibility of service providers in each country or region in which
Globalstar operations are authorized. Qualcomm executed the initial Globalstar
gateway design work under its original development contract with Globalstar. In
1997 and 1998, in order to accelerate the deployment of gateways around the
world, Globalstar placed $345 million in orders with Qualcomm for 38 production
gateways. Globalstar has now resold substantially all of these gateways to its
strategic partners and other service providers, subject to performance
acceptance. Globalstar is providing a total of $80 million in vendor financing
for the first 32 of these gateway sales, which it expects to recover upon
resale.
GLOBALSTAR SYSTEM CAPACITY
The estimated capacity of the Globalstar System is anticipated to be in the
range of approximately 800 million to 1 billion call minutes per month assuming
equal fixed and mobile usage. However, Globalstar's total effective system
capacity will depend on a number of variables. The number of call minutes per
month the system can support will depend primarily on (i) the total bandwidth
available to CDMA MSS systems, (ii) the number of systems sharing that
bandwidth, (iii) the total number of subscribers, (iv) the type of Globalstar
Phones (fixed or mobile) used and (v) the level of average system availability
required. Capacity will also depend upon a number of other variables, including
(a) the peak hour system utilization pattern, (b) average call length and (c)
the distribution of Globalstar Phones in use over the surface of the Earth.
COMPETITION
Competition in the telecommunications industry is intense, fueled by rapid
and continuous technological advances and alliances between industry
participants on an international scale. Iridium L.L.C. ("Iridium") is currently
providing the same global personal telecommunications service proposed by
Globalstar, and several other competing systems are in various stages of
development. Iridium's current availability could adversely affect Globalstar's
competitive position. A number of satellite-based telecommunications systems not
involved in the FCC's proceeding for MSS systems have also been proposed using
geostationary satellites and, in one case, the 2 GHz band for a medium-earth
orbit system.
Globalstar's most direct competitors are Iridium and ICO. ICO was not an
applicant or a licensee in the MSS proceeding, but has filed a request with the
FCC to operate in a different frequency band not available for use by MSS
systems under current international guidelines in place until 2000. Comsat
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Corporation ("Comsat"), the U.S. signatory to International Maritime Satellite
Organization ("Inmarsat"), has been granted authority by the FCC to participate
in the procurement of facilities of the system proposed by ICO, subject to
certain conditions. 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. This
application is currently pending before the FCC, and the procurement order
remains subject to reconsideration at the FCC and judicial review. Comsat has
been instructed in the past by the U.S. government to seek to ensure that ICO
does not receive preferred access to any market and that non-discriminatory
access to such areas for all mobile satellite communications networks be
established, subject to spectrum coordination and availability. Nonetheless,
because ICO is affiliated with Inmarsat and because its investors include
state-owned telecommunications monopolies in a number of countries, there can be
no assurance that ICO will not be given preferential treatment in the local
licensing process in those countries.
Constellation Communications, Inc. ("Constellation") and Mobile
Communications Holdings, Inc. ("MCHI") were granted FCC licenses in July 1997,
after the FCC waived its financial qualification requirements with respect to
such applicants. In granting such licenses, the FCC found that such applicants
had failed to demonstrate that they were financially qualified. It is not
certain that they will be able to raise sufficient funds to construct, launch
and operate their proposed systems. Even if ultimately built, such systems are
not planned to enter the market until significantly after Globalstar's targeted
in-service date.
In addition to competing for investment capital, subscribers and service
providers in markets all over the world, the MSS systems, including Globalstar,
also compete with each other for the limited spectrum available for MSS
operations. Unlike CDMA systems such as Globalstar, MCHI and Constellation,
which permit multiple systems to operate within the same band, the design of
Iridium's TDMA system requires a separate frequency segment dedicated
specifically for its use. If more than two CDMA systems become operational, CDMA
systems like Globalstar will effectively have a smaller spectrum segment within
which to operate their user uplinks in the U.S. While CDMA permits spectrum
sharing among competing systems, the capacity available to each system sharing
such spectrum decreases as the number of systems operating in the band
increases. The degree of decrease depends on a number of complex technological
factors associated with each system's particular design including transmitter
polarization and efficiency of spectrum usage. If the total number of operating
MSS systems in the CDMA portion of the L-band (i.e., 1610-1621.35 MHz) and
S-band (i.e., 2483.5-2500 MHz) increases from two to three and the other two
operating CDMA systems have technical characteristics similar to Globalstar's
and all such systems experience full capacity usage, then Globalstar estimates
that its capacity over a given area would decrease by approximately 25%.
The FCC has no authority to extend the U.S. band plan for CDMA and TDMA Big
LEO systems to other countries. However, it has stated that it plans to express
the view in discussions with other administrations that global satellite systems
are more likely to succeed if individual administrations adopt complementary
systems for licensing them. The European Union has adopted a band plan virtually
identical to the U.S. band plan.
Geostationary-based satellite systems, including American Mobile Satellite
Corporation and Comsat's Planet-1 are providing, and other proposed
geostationary-based satellite systems, including Asia Pacific Mobile
Telecommunications (APMT), Afro-Asian Satellite (ACS), PT Asia Cellular
Satellites (ACeS), Thuraya Satellite Communications Company and Satphone, plan
to provide, satellite-based telecommunications services in areas proposed to be
serviced by Globalstar. Certain of these systems are being proposed by
governmental entities. Because some of these systems involve relatively simple
ground control requirements and are expected to deploy no more than two
satellites, they may succeed in deploying and marketing their systems before
Globalstar. In addition, coordination of standards among regional geostationary
systems could enable these systems to provide worldwide service to their
subscriber base, thereby increasing the competition to Globalstar. For example,
Comsat offers a global mobile satellite service (Planet-l) with existing
Inmarsat satellites, a six-pound, laptop-size phone, costing $3,000 with an
expected per-minute usage rate of $3.00.
It is expected that as land-based telecommunications service expands to
regions currently not served by wireline or cellular services, demand for
Globalstar service in those regions may be reduced. If such systems
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are constructed at a more rapid rate than that anticipated by Globalstar, the
demand for Globalstar service may be reduced at rates higher than those assumed
by Globalstar. Globalstar may also face competition in the future from companies
using new technologies and new satellite systems. New technology could render
Globalstar obsolete or less competitive by satisfying consumer demand in
alternative ways, or through the introduction of incompatible telecommunications
standards. A number of these new technologies, even if they are not ultimately
successful, could have an adverse effect on Globalstar as a result of their
initial marketing efforts. Globalstar's business would be adversely affected if
competitors began operations or expanded existing operations in Globalstar's
target markets before completion of its system.
RESEARCH AND DEVELOPMENT
Globalstar has entered into a contract with Qualcomm whereby Qualcomm is
performing certain development tasks related to the Globalstar System. In
addition, Globalstar is performing certain in-house engineering tasks that are
classified as development costs. Total development costs incurred for the years
ended December 31, 1998, 1997 and 1996 were $86 million, $62 million, and $42
million, respectively.
PATENTS AND PROPRIETARY RIGHTS
In connection with the Globalstar System, Globalstar's design and
development efforts have yielded 16 patents issued and 30 patents pending in the
United States, as well as 17 patents issued and 100 patents pending
internationally for various aspects of communication satellite system design and
implementation of CDMA technology relating to the Globalstar System. Qualcomm
has obtained 189 issued patents and 463 patents pending in the United States
applicable to Qualcomm's implementation of CDMA. The issued patents cover, among
other things, Globalstar's process of combining signals received from multiple
satellites to improve the signal received and minimize call fading.
There can be no assurance that any of the pending patent applications by
Globalstar will be issued. Moreover, because the U.S. patent application process
is confidential, there can be no assurance that third parties, including
competitors of Globalstar, do not have patents pending that could result in
issued patents which Globalstar would infringe. In such an event, Globalstar
could be required to redesign its system or satellite, as the case may be, or
pay royalties to obtain a license, which could increase cost or delay
implementation of the system or construction of the satellite, as the case may
be.
FOREIGN OPERATIONS
At December 31, 1998, 1997 and 1996, Globalstar had substantially all of
its long-lived assets located in the United States with the exception of its
in-orbit satellites. See "Certain Factors that May Affect Future
Results -- Globalstar faces risks inherent in foreign operations" and
"-- Globalstar faces special risks by doing business in developing markets and
faces currency risks" for a discussion of the risks related to operating
internationally.
EMPLOYEES
As of December 31, 1998, Globalstar had approximately 260 full-time
employees, none of whom is subject to any collective bargaining agreement.
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CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This annual report on Form 10-K contains forward-looking statement within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. In addition,
from time to time, Globalstar or GTL or their representatives have made or may
make forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but are not limited to, various filings made by
Globalstar or GTL with the Securities and Exchange Commission, press releases or
oral statements made by or with the approval of an authorized executive officer
of Globalstar or GTL. Actual results could differ materially from those
projected or suggested in any forward-looking statements as a result of a wide
variety of factors and conditions, including, but not limited to, the factors
summarized below.
THE GLOBALSTAR SYSTEM IS NOT YET OPERATIONAL, AND UNTIL IT IS, WE CAN'T PREDICT
CUSTOMER DEMAND FOR THE SERVICE.
The Globalstar system is still being deployed, and cannot begin commercial
operations until at least 32 satellites are working in orbit, the necessary
ground equipment and user terminals are in place and service providers are
licensed in the countries to be served. The cost of installing the Globalstar
system has been revised upward from our original estimates, and further
increases are possible. Until the system is fully deployed and tested, we cannot
be certain that it will perform as designed. Even if the system operates as it
should, we cannot be certain that the market we anticipate will develop.
LAUNCH FAILURES MAY DELAY GLOBALSTAR'S PROGRAM SCHEDULE.
Satellite launches are risky, with about 15% of attempts ending in failure.
Globalstar has already had one launch failure, and more failures may occur
within the course of its launch campaign. If another launch fails, the resulting
increased costs, including those associated with delay, could have a material
adverse effect on the financial condition and results of operations of
Globalstar.
Space Systems/Loral has agreed to arrange for the launch of all of
Globalstar's remaining 36 satellites. Globalstar's contracts with Space
Systems/Loral are subject to pricing adjustments in light of future market
conditions, which may, in turn, be influenced by international political
developments. If there is an adverse change in launch vehicle market conditions
that prohibits Globalstar from using the launch vehicles provided by Space
Systems/Loral, Globalstar's launch costs could increase significantly. If this
should happen, Globalstar may not be able to find replacement launch vehicles at
a cost or on terms acceptable to it.
Some of Globalstar's remaining launches will be on foreign launch vehicles
that are subject to U.S. export control regulations. Changes in governmental
policies or political leadership in the United States, Russia, Kazakhstan,
France or Ukraine could affect the cost, availability, timing or overall
advisability of using these launch providers. In addition, a deterioration in
the relationships between the United States and these countries, a change in
government policy or legislation or other factors could adversely affect
licenses already granted.
GLOBALSTAR'S SATELLITES HAVE A LIMITED LIFE AND ARE VULNERABLE TO THE HARSH
ENVIRONMENT OF SPACE.
Globalstar's satellites are carefully built and tested and have certain
redundant systems in case of failure. However, in-orbit failure may result from
various causes, including:
- component failure;
- loss of power or fuel;
- inability to control positioning of the satellite
- solar and other astronomical events; and
- space debris.
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Repair of satellites in space is not feasible. The factors that affect the
useful lives of Globalstar's satellites include the quality of construction,
gradual degradation of solar panels and the durability of components. Random
failure of satellite components may result in damage to or loss of a satellite
before the end of its expected life. Because it will have a large constellation
and a number of spare satellites, Globalstar currently does not intend to insure
against failures that may occur after its satellites have been successfully
launched into space.
The first-generation Globalstar satellites are designed to operate for a
minimum of seven and a half years, after which time performance is expected to
decline gradually. We do not know how long the first generation constellation
will actually last. Globalstar plans to use funds from operations and, possibly,
proceeds from additional financings, to deploy a second generation of
satellites. However, enough money might not be available when needed, leaving
Globalstar without a second-generation constellation.
GLOBALSTAR HAS SUBSTANTIAL DEBT THAT CONTAINS COVENANTS RESTRICTING ITS
ACTIVITIES.
Globalstar has outstanding $1.45 billion principal amount of senior notes
as of December 31, 1998. Globalstar also has a $250 million credit facility
expiring December 15, 2000 and, in addition, expects to use $430 million of
committed vendor financing and payment deferrals. Globalstar will depend on its
cash flow from future operations to service this debt. Any delay in commercial
service and any failure to develop a revenue stream quickly will adversely
affect its ability to service these debt obligations.
Covenants contained in the credit agreement, the indentures governing the
senior notes and future debt instruments will limit Globalstar management's
options for dealing with business issues. The credit agreement, indentures and
future debt instruments will also limit Globalstar's ability to pay dividends on
its partnership interests. If the credit agreement's guarantees expire, its
financial covenants will impose additional limitations on Globalstar's ability
to incur new debt. We can't be sure that these restrictions and Globalstar's
debt will not materially and adversely affect Globalstar's ability to finance
its future operations or capital needs or to engage in other business
activities. They may also require Globalstar to issue equity on terms which
dilute existing shareholders.
A failure to comply with the terms of the credit agreement, the indentures
or other agreements could result in an event of default under those agreements.
This in turn could permit acceleration of the related debt and result in a
default under other debt instruments.
Because GTL is a general partner of Globalstar, it is jointly and severally
liable with the other general partner for the recourse debt and other recourse
obligations of Globalstar to the extent Globalstar is unable to pay such debts.
GLOBALSTAR WILL REQUIRE ADDITIONAL FINANCING.
Barring unexpected adverse developments, Globalstar will need approximately
$600 million more capital before it can begin commercial service in September
1999 as planned. As of December 31, 1998, and including the effect of a
preliminary revision to Qualcomm's cost estimate, Globalstar's budgeted
expenditures were $3.17 billion for the design, construction and deployment of
the Globalstar system to commence commercial service and $340 million for
budgeted financing costs. More money will be needed if there are delays in
beginning service and, in any event, after the beginning of service and before
positive cash flow. Although Globalstar believes it will be able to obtain the
money it needs, it might not be able to do so on favorable terms or on a timely
basis if at all.
Any delay in raising the necessary funds will delay the start of commercial
service. If the start of service is significantly delayed, a larger proportion
of Globalstar's debt service requirements will become due before Globalstar has
positive cash flow, which will increase the amount of money Globalstar needs.
GLOBALSTAR MAY ENCOUNTER DELAY AND INCREASED COST.
A number of factors may cause delay in the construction, deployment and
commercial operation of the Globalstar system and Globalstar's achievement of
positive cash flow. These factors, many of which are beyond Globalstar's
control, include:
- regulatory delays;
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- delay in the integration of Globalstar's system into the land-based
network;
- changes in technical specifications;
- construction delays;
- delays in the integration or testing of the system by Globalstar vendors;
- launch delays or failures;
- financing delays;
- inadequate marketing efforts by service providers; and
- slower-than-anticipated consumer acceptance.
GLOBALSTAR'S SYSTEM IS EXPOSED TO RISKS INHERENT IN LARGE-SCALE COMPLEX
TELECOMMUNICATIONS SYSTEMS USING ADVANCED TECHNOLOGIES.
The integration of a worldwide satellite-based system like Globalstar's
presents significant technological challenges. The Globalstar system will
require the integration of advanced digital communications in many devices,
including personal handsets, public telephone networks, gateways in remote
regions of the earth and satellites operating in space. In addition,
Globalstar's system involves testing, production and deployment of significantly
more satellites than have been deployed in most other systems.
Globalstar's failure to install its system, or any of its diverse and
dispersed parts, could delay the start of operations or prevent Globalstar from
being a commercial success.
GLOBALSTAR DEPENDS ON SERVICE PROVIDERS TO MARKET ITS SERVICE AND IMPLEMENT
IMPORTANT PARTS OF ITS SYSTEM AND ON OTHER THIRD PARTIES TO COMPLETE ITS SYSTEM.
Globalstar depends on independent service providers to supply the ground
equipment and user terminals and market Globalstar service in each country where
they plan to operate, and we cannot be sure that these service providers will be
successful. We expect that these service providers will operate in more than 100
countries, many of which have developing economies. Globalstar's strategy of
focusing on areas which lack basic telephone service exposes it to the risk that
customers in these economies will not be able to afford the service.
Globalstar currently has no service provider for India, due to the
withdrawal of a service provider. Although it has identified a replacement, a
legal dispute could prevent Globalstar from signing a new service provider
agreement for that country. If Globalstar cannot replace its service provider
for India on time, Globalstar will not be able to offer service in that country.
Globalstar service providers could fail to obtain local partners and
acquire and install the necessary gateways or obtain the regulatory licenses
needed for complete global service in their countries. If Globalstar is unable
to offer service in any particular region or country, it will not benefit from
the potential demand in that region or country.
Some Globalstar partners and other third parties are designing and building
parts of Globalstar's telecommunications system. The failure of these partners
or other parties to perform as expected could delay the start of Globalstar's
commercial service and increase costs.
GLOBALSTAR FACES RISKS INHERENT IN FOREIGN OPERATIONS.
Globalstar expects that most of its business will be conducted outside of
the United States. International operations are subject to changes in domestic
and foreign government regulations and telecommunications standards, tariffs or
taxes and other trade barriers. Political, economic or social instability or
other developments, including currency fluctuations, could also adversely affect
Globalstar's operations. In addition, Globalstar's contracts may be governed by
foreign law or enforceable only in foreign jurisdictions. As a result Globalstar
may find it hard to enforce its rights under these agreements if there is a
dispute.
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GLOBALSTAR FACES SPECIAL RISKS BY DOING BUSINESS IN DEVELOPING MARKETS AND FACES
CURRENCY RISKS.
Globalstar's largest potential markets are in developing countries or
regions that are substantially underserved and are not expected to be served by
existing telecommunications systems. Developing countries are more likely than
industrialized countries to experience market, currency and interest
fluctuations, and may have higher inflation. In addition, these countries
present risks relating to government policy, price and wage, exchange control,
tax related and social instability, and expropriation and other economic,
political and diplomatic conditions.
Although Globalstar anticipates that it will receive payments from its
service providers in U.S. dollars, limited availability of U.S. currency in some
local markets may prevent a service provider from making payments in U.S.
dollars. In addition, exchange rate fluctuations may affect Globalstar's ability
to control the prices charged for its services.
SPACE SYSTEMS/LORAL, GLOBALSTAR'S PRIME CONTRACTOR, IS THE TARGET OF A GRAND
JURY INVESTIGATION; CONGRESS HAS HELD RELATED HEARINGS.
Space Systems/Loral could be accused of criminal violations of the export
control laws arising out of the participation of its employees in a committee
formed to review the findings of the Chinese regarding the 1996 crash of a Long
March rocket in China. Whether or not Space Systems/Loral is indicted or
convicted, Space Systems/Loral will remain subject to the State Department's
general statutory authority to prohibit exports of satellites and related
services if it finds a violation of the Arms Export Control Act that puts the
exporter's reliability in question. Further, the State Department can suspend
export privileges whenever it determines that grounds for debarment exist and
that such suspension "is reasonably necessary to protect world peace or the
security or foreign policy of the United States." If Space Systems/Loral were to
be indicted and convicted of a criminal violation of the Arms Export Control
Act, it
- would be subject to a fine of $1 million per violation;
- could be debarred from certain export privileges; and
- could be debarred from participation in government contracts.
If Space Systems/Loral loses its export privileges, Globalstar will be
unable to launch its satellites outside the United States, which would delay the
start of its commercial service and result in increased launch costs.
A committee of the U.S. House of Representatives, chaired by Representative
Cox, is investigating U.S. satellite export policy toward China. The committee
recently issued a report which has been declassified in part. The other portions
of the report, which could be issued shortly, could contain negative comments
about SS/L's compliance with the export control laws.
Further, we cannot assure you that future export licenses for satellites
will be granted in the same manner and time as in the past after the State
Department takes over the licensing from the Commerce Department in March 1999.
GLOBALSTAR'S BUSINESS IS REGULATED, CAUSING UNCERTAINTY AND ADDITIONAL COSTS.
Globalstar's operations are and will continue to be subject to United
States and foreign regulation. Globalstar's system must be authorized in each of
the markets in which its service providers intend to provide service. Globalstar
and its service providers may not be able to obtain or retain all regulatory
approvals needed for operations. Regulatory changes, such as those resulting
from judicial decisions and/or adoption of treaties, legislation or regulation
in countries where Globalstar intends to operate, may also significantly affect
Globalstar's business.
Glonass, the Russian global navigation satellite system, operates worldwide
in frequency bands adjacent to and including spectrum authorized for use by
Globalstar and other systems for user uplinks. Glonass has proposed to migrate
to lower frequencies. This migration could have an adverse effect on
Globalstar's use of its authorized frequencies. While we do not expect this to
have a material adverse effect upon Globalstar's capacity, Glonass's actions may
reduce Globalstar capacity in some markets.
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<PAGE> 19
GLOBALSTAR FACES INTENSE COMPETITION FROM BOTH DIRECT AND INDIRECT COMPETITORS,
AND ADDITIONAL DIRECT COMPETITORS PLAN TO ENTER THE MARKET SOON.
Iridium L.L.C. was the first low earth orbit constellation to begin global
personal telecommunications service although, unlike Globalstar, its announced
marketing focus is the international business community.
ICO Global is a similar worldwide system affiliated with International
Maritime Satellite Organization, also known as "Inmarsat," which is an
international organization. ICO Global has filed a request with the Federal
Communications Commission to operate in a different frequency band not available
for use by systems like Globalstar's under current international guidelines
until 2000. Because ICO Global's investors include many state-owned
telecommunications monopolies, ICO Global could receive preferential treatment
in the local licensing process in those countries.
If Constellation Communications, Inc. and Mobile Communications Holdings,
Inc., which have held licenses from the Federal Communications Commission since
July 1997, attract financing, build their system and begin operations, they will
become direct competitors as well.
In addition to competing for investment capital, subscribers and service
providers in markets all over the world, the mobile satellite services systems,
including Globalstar, also compete with each other for the limited spectrum
available for mobile satellite services operations. Unlike code division
multiple access systems such as Globalstar, Constellation and Mobile
Communications Holdings, which permit multiple systems to operate within the
same frequency band, the design of Iridium's system requires a separate
frequency segment dedicated specifically for its use. If more than two code
division multiple access systems become operational, a system like Globalstar
will have a smaller spectrum segment within which to operate its user uplinks in
the U.S.
Existing fixed satellite systems, including that of American Mobile
Satellite Corporation and Comsat Corporation's Planet-1, and proposed systems
from Asia Pacific Mobile Telecommunications, Afro-Asian Satellite, PT Asia
Cellular Satellites, Thuraya Satellite Communications Company and Satphone, also
provide, or are planning to provide, competing service on a regional basis at
potentially lower costs but at lower levels of service quality.
Technological advances and a continuing trend toward strategic alliances in
the telecommunications industry could give rise to significant new competitors.
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 believe
that there will be significant demand for their services, actual demand will not
become known until such systems are operational. If the capacity of Globalstar
and competing systems exceeds demand, price competition could be particularly
intense.
NEW TECHNOLOGIES AND THE EXPANSION OF LAND-BASED SYSTEMS MAY REDUCE DEMAND FOR
GLOBALSTAR'S SERVICE.
The extension of land-based telecommunications services to regions
currently underserved or not served by wireline or cellular services may reduce
demand for Globalstar service in those regions. If these land-based
telecommunications services are built more quickly than Globalstar anticipates,
demand for Globalstar's service may be reduced sooner than Globalstar now
assumes.
Globalstar may also face competition in the future from companies using new
technologies and new satellite systems. The space and communications industries
are subject to rapid advances and innovations in technology. New technology
could render Globalstar obsolete or less competitive by satisfying consumer
demand in more attractive ways or through the introduction of incompatible
standards. In addition, Globalstar depends on technologies developed by third
parties, and we cannot be certain that such technologies will continue to be
available to Globalstar on a timely basis or on reasonable terms.
19
<PAGE> 20
GLOBALSTAR COULD FACE LIABILITY BASED ON ALLEGED HEALTH RISKS.
There has been adverse publicity concerning alleged health risks associated
with the use of portable hand-held telephones which have transmitting antennae.
Because hand-held Globalstar telephones will use on average lower power to
transmit signals than traditional cellular telephones, Globalstar does not
believe that proposed new guidelines from the Federal Communications Commission
will require any significant modifications of its system or of its hand-held
telephones. Even so, we cannot be certain that these guidelines, or any
associated health issues, will not have an adverse effect on Globalstar's
business.
GLOBALSTAR RELIES ON KEY PERSONNEL.
Globalstar needs highly qualified personnel. Except for Mr. Bernard L.
Schwartz, Chairman and Chief Executive Officer of GTL and the Chief Executive
Officer and Chairman of the General Partners' Committee of Globalstar, none of
GTL's or Globalstar's officers has an employment contract with GTL, Globalstar
or its managing general partner nor does GTL or Globalstar maintain "key man"
life insurance. The departure of any of the key executives could have an adverse
effect on Globalstar's business.
THE YEAR 2000 PROBLEM COULD CAUSE COMPLICATIONS.
Some computer systems and software programs may not function properly in
the year 2000 and beyond because of a once common programming standard which
used two digits instead of four digits to signify a year. These computer systems
and software programs read the year 1999 as "99" and not "1999". Because of
this, the year 2000 may appear as the year 1900, which could result in system
failures or disruptions. This problem is often referred to as the "Year 2000"
problem.
If Globalstar is unable to fix a serious Year 2000 problem, there could be
an interruption or failure of Globalstar's operations. Likewise, if Globalstar's
suppliers or service providers are unable to fix a material Year 2000 problem, a
resulting interruption or failure of their business could hurt Globalstar.
GLOBALSTAR AND OTHER COMPANIES INVOLVED IN GLOBALSTAR'S SYSTEM HAVE POTENTIAL
CONFLICTS OF INTEREST WHICH COULD RESULT IN DECISIONS ADVERSE TO GLOBALSTAR'S
INTERESTS.
Potential conflicts of interest include the following:
- Globalstar partners, or their affiliates, are suppliers of the major
parts of Globalstar's telecommunications system. They also manufacture
the system elements which will be sold to service providers and
subscribers.
- During the construction and deployment of its system, Globalstar is
dependent upon the management skills of Loral and technologies developed
by Loral and others.
- Globalstar has entered into contracts for the design of parts of its
system with affiliates of its managing general partner.
- Partners and affiliates of Globalstar, including companies affiliated
with or controlled by Loral, will be among Globalstar's main customers.
Accordingly, they may have conflicts of interest with respect to the
terms of Globalstar's service provider agreements.
- If Globalstar is unable to offer its service to a service provider on
competitive terms in a particular country or region, the service
provider, which may be a partner of Globalstar's, may act as a service
provider to a competing system in that region or country while at the
same time serving as a Globalstar service provider in other markets.
- Globalstar is currently managed by a committee of its general partners, a
majority of the representatives on which may be designated by Loral,
which in turn owns Space Systems/Loral, Globalstar's prime contractor.
20
<PAGE> 21
A CHANGE OF CONTROL OF GTL OR REDUCTION IN OUR OWNERSHIP OF GLOBALSTAR COULD
RESULT IN GTL HAVING TO PAY ADDITIONAL TAXES AND BECOMING SUBJECT TO ONEROUS
REQUIREMENTS UNDER THE INVESTMENT COMPANY ACT.
If either of the following occurs, GTL will become a limited partner in
Globalstar and will no longer appoint representatives to serve on its committee
of general partners:
- a change of control of GTL at a time when GTL owns less than 50% of the
Globalstar partnership interests outstanding, including changes in GTL's
board of directors; or
- a sale or other disposition of partnership interests following which
GTL's equity interest is reduced to less than 5%, without prior approval
by the managing general partner of Globalstar or by the limited partners
of Globalstar.
If GTL were to become a limited partner in Globalstar, GTL could be deemed
to be an investment company under the Investment Company Act of 1940. If this
happened, GTL would become subject to the registration and other requirements of
that law. In order to register, GTL might be required to reincorporate as a
domestic U.S. corporation and would thereafter be subject to U.S. tax on its
worldwide income. GTL currently intends to conduct its operations so as to avoid
being deemed an investment company under the Investment Company Act.
THERE ARE RISKS REGARDING FORWARD-LOOKING STATEMENTS.
Some statements or information contained in this document are not
historical facts but are "forward-looking statements" (as such terms is defined
in the Private Securities Litigation Reform Act of 1995). They can be identified
by the use of forward-looking words such as "believes", "expects", "plans",
"may", "will", "should", or "anticipates" or their negatives or other variations
of these words or other comparable words, or by discussions of strategy that
involve risks and uncertainties. Some of the factors which may cause future
results and performance to differ from what we may imply here are:
- Globalstar is a development-stage company that may continue to lose
money, have negative cash flow, require additional money and suffer
delays in meeting its targets;
- Globalstar satellites are subject to launch risks;
- governments may change regulations or institute new rules, which could
have an impact on our operations;
- the Globalstar system is large-scale and complex;
- Globalstar depends on its service providers;
- Globalstar faces intense competition;
- Globalstar owes significant amounts of money.
We warn you that forward-looking statements are only predictions. Actual
events or results may differ materially as a result of risks that we face,
including those set forth elsewhere in this section. These are representative of
factors that could affect the outcome of the forward-looking statements.
ITEM 2. PROPERTIES
Globalstar currently leases approximately 104,000 square feet of office
space in San Jose, California. The lease expires in August 2000 and Globalstar
has options to renew for up to an additional ten years. In addition, Globalstar
leases 12,000 square feet for its back-up GOCC in El Dorado Hills, California.
The lease expires in November 2006 with options to renew for up to an additional
six years. Management is pursuing additional facilities space to accommodate
growth.
21
<PAGE> 22
ITEM 3. LEGAL PROCEEDINGS
Neither Globalstar nor GTL is a party to any pending legal proceedings
material to its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
22
<PAGE> 23
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
(A) MARKET PRICE AND DIVIDEND INFORMATION
The Company's common stock is traded on the Nasdaq National Market
("Nasdaq") under the symbol "GSTRF." The following table presents the reported
high and low sale prices of the Company's common stock as reported on Nasdaq.
The sale prices for the common stock have been adjusted to reflect the
two-for-one stock splits effected in the form of 100% stock dividends paid to
the shareholders on May 28, 1997 and June 8, 1998.
<TABLE>
<CAPTION>
MARKET PRICE
-----------------------------
1998 1997
----------- --------------
HIGH LOW HIGH LOW
---- --- ---- ------
<S> <C> <C> <C> <C>
Quarter ended:
March 31,.................................. $37 1/8 $19 $17 13/16 $12 1/2
June 30,................................... 36 1/8 25 3/4 16 3/4 11 7/8
September 30,.............................. 28 1/8 9 5/8 26 3/4 13 1/2
December 31,............................... 22 1/8 8 5/16 29 3/4 19 1/2
</TABLE>
Except for dividend payments by the Company on its Convertible Redeemable
Preferred Stock issued in January 1999 and distributions by Globalstar on its 8%
RPPIs also issued in January 1999, the Company and Globalstar do not currently
anticipate paying any dividends or 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 commencement of operations and achievement
of positive cash flow. GTL has not declared or paid any cash dividends on its
common stock, and Globalstar has not made any distributions on its ordinary
partnership interests. GTL is a holding company, the sole asset of which is its
partnership interests 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. To the extent permitted by
applicable law and the agreements relating to its 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). Globalstar's credit agreement and the indentures
related to the 11 3/8% Senior Notes, the 11 1/4% Senior Notes, the 10 3/4%
Senior Notes and the 11 1/2% Senior Notes restrict the ability of Globalstar to
pay cash distributions on its ordinary partnership interests. Cash distributions
by Globalstar may also be restricted by future debt covenants. GTL intends to
promptly distribute as dividends to the holders of its common stock the
distributions made to it by Globalstar, less any amounts required to be retained
for the payment of taxes, for repayment of any liabilities, and to fund
contingencies.
(B) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
As of December 31, 1998, there were 737 holders of record of GTL's Common
Stock.
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<PAGE> 24
ITEM 6. SELECTED FINANCIAL DATA
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1998(1) 1997 1996 1995
------- -------- -------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Equity in net loss applicable to ordinary
partnership interests of Globalstar, L.P..... $50,561 $ 24,152 $ 15,080 $ 12,632
Net loss....................................... 50,561 24,152 15,080 12,632
Net loss per share -- basic and diluted(2)..... 0.67 0.43 0.38 0.32
CASH FLOW DATA:
Used in investing activities................... (1,112) (153,140) (299,500) (185,750)
Provided by equity transactions................ 1,112 153,140 185,750
Provided by borrowings......................... 299,500
Dividends paid per common share
RATIO OF EARNINGS TO FIXED CHARGES............. 1x 1x 1x N/A
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investment in Globalstar, L.P........ $580,428 $612,716 $482,676 $173,118 $ --
Total assets......................... 580,428 612,716 482,676 173,118 190
Convertible preferred equivalent
obligations(3)..................... 301,410 300,358
Shareholders' equity................. 580,428 309,627 180,639 173,118 124
Shareholders' equity per share(2).... 7.08 5.06 4.52 4.33 2.59
</TABLE>
- ---------------
(1) Includes GTL's proportionate share of Globalstar's $17.3 million loss from
launch failure.
(2) Restated to reflect two-for-one stock splits in May 1997 and June 1998.
(3) All convertible preferred equivalent obligations were converted into common
stock in 1998.
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<PAGE> 25
GLOBALSTAR, L.P.
(In thousands, except per partnership interest amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
--------------------------------
PRE-CAPITAL
CUMULATIVE SUBSCRIPTION
MARCH 23, 1994 MARCH 23 PERIOD(1)
(COMMENCEMENT (COMMENCEMENT ------------
OF OPERATIONS) TO YEARS ENDED DECEMBER 31, OF OPERATIONS) TO JANUARY 1 TO
DECEMBER 31, ----------------------------------------- DECEMBER 31, MARCH 22,
1998 1998(3) 1997 1996 1995 1994 1994
---- ------- ---- ---- ---- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Operating expenses............. 404,033 146,684 88,071 61,025 80,226 28,027 6,872
Interest income................ 57,777 17,141 20,485 6,379 11,989 1,783
Net loss applicable to ordinary
partnership interests........ 406,978 151,740 88,788 71,969 68,237 26,244 6,872
Net loss per weighted average
ordinary partnership interest
outstanding -- basic and
diluted...................... 2.69 1.74 1.53 1.50 0.73
Cash distributions per ordinary
partnership interest.........
OTHER DATA:
Deficiency of earnings to cover
fixed charges(2)............. 330,475 184,683 81,869 N/A N/A
CASH FLOW DATA:
Used in operating activities... 206,749 24,958 68,615 51,756 38,368 23,052
Used in investing activities... 2,014,396 684,834 619,538 379,130 280,345 50,549
Provided by partners' capital
transactions................. 898,320 14,825 132,990 284,714 318,630 147,161
Provided by (used in) other
financing activities......... 1,379,564 287,552 998,137 95,750 (1,875)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 56,739 $ 464,154 $ 21,180 $ 71,602 $ 73,560
Globalstar System under construction...................... 2,365,362 1,626,913 891,033 400,257 71,996
Total assets.............................................. 2,670,025 2,149,053 942,913 505,391 151,271
Vendor financing liability................................ 371,170 197,723 130,694 42,219
Debt...................................................... 1,396,175 1,099,531 96,000
Redeemable preferred partnership interests................ 303,089 302,037
Ordinary partners' capital................................ 602,401 380,828 315,186 386,838 112,944
</TABLE>
- ---------------
(1) Reflects certain costs incurred by Loral and Qualcomm prior to March 23,
1994, which were reimbursed by Globalstar through a capital subscription
credit or agreement for repayment in connection with the $275.0 million
capital subscription and commencement of Globalstar's operations on March
23, 1994.
(2) The ratio of earnings to fixed charges is not meaningful as Globalstar is in
the development stage and, accordingly, has incurred operating losses.
(3) The results of operations for 1998 include a $17.3 million loss from launch
failure.
25
<PAGE> 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Globalstar Telecommunications Limited ("GTL" or the "Company") is a holding
company that acts as a general partner of Globalstar, L.P. ("Globalstar") and
has no other business. The Company's sole asset is its investment in Globalstar
and GTL's results of operations reflect its share of the results of operations
of Globalstar on an equity accounting basis. Therefore, matters discussed in
this section address the financial condition and results of operations of
Globalstar.
Except for the historical information contained herein, the matters
discussed in this Management's Discussion and Analysis of Financial Condition
and Results of Operations, are forward-looking statements that involve risks and
uncertainties, many of which may be beyond Globalstar's or GTL's control. Actual
results may differ materially from any forward-looking projections due to such
risks and uncertainties.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased from $464.2 million as of December 31,
1997 to $56.7 million as of December 31, 1998. The net decrease resulted from
the expenditures for the Globalstar System under construction of $562.8 million,
net cash used in operating activities of $25 million, financing of production
gateways and user terminals totaling $117.0, and preferred distributions on the
6 1/2% convertible redeemable preferred partnership interests issued in 1996
("6 1/2% RPPIs") of $5.0 million, offset by the net proceeds of $287.6 million
received from issuance of Globalstar's 11 1/2% senior notes, the proceeds from
the sale of partnership interests to China Telecom (Hong Kong) Group Ltd.
("China Telecom") of $18.8 million and $1.1 million received from the exercise
of certain warrants and stock options.
Current liabilities increased by $257.4 million as compared to the prior
year, to $401.2 million at December 31, 1998, primarily as a result of the
classification of a portion of vendor financing due within one year and the
timing of payments to Globalstar contractors and accrued interest on the senior
notes.
Globalstar plans to begin a regional roll-out of commercial service in
September 1999 with a minimum of eight gateways in operation. By the end of
1999, Globalstar expects to have a total of at least 16 gateways in operation.
All of the 38 gateways on order have been manufactured and are ready for
installation.
On March 15, 1999, Globalstar successfully launched four satellites aboard
a Soyuz launch vehicle from the Baikonur Cosmodrome in Kazakhstan, bringing the
total satellites in orbit to 16. This launch followed Globalstar's successful
launch on February 8, 1999 of four satellites from the Baikonur Cosmodrome
following the execution of a Technology Safeguard Agreement among the
governments of Russia, Kazakhstan and the United States. Globalstar had
previously launched its first group of four satellites on February 14, 1998 and
its second group of four satellites on April 24, 1998. The first 12 Globalstar
satellites have reached their final orbital positions and are currently being
used to test basic system functionality, including the system's inter-satellite
hand-off capabilities, and the latest four satellites are expected to reach
their final orbital positions and begin operations testing in April 1999. As of
March 15, 1999, in addition to the 16 satellites in orbit, Globalstar had eight
completed satellites on hand and 28 more in final integration and test. In
September 1998, a malfunction of a Zenit 2 rocket resulted in the loss of 12
Globalstar satellites shortly after lift-off from the Baikonur Cosmodrome and
resulted in a delay in the program schedule. The cost of the launch vehicle and
the lost satellites was substantially insured. For the remainder of 1999,
Globalstar's current launch plan includes nine additional launches of four
satellites each, using a mix of Delta and Soyuz rockets. According to the plan,
Globalstar will deploy an operational constellation of a minimum of 32
satellites by September 1999 and a total of 52 satellites (including four
in-orbit spares) by the end of 1999.
Through December 31, 1998, Globalstar incurred costs of approximately $2.7
billion for the design and construction of the space and ground segments. Costs
incurred during 1998 were approximately $871 million. Qualcomm is in the process
of completing its revision to cost estimates for its portion of the ground
segment. Due to additional scope and cost growth and based on preliminary
information, Globalstar expects the increase from Qualcomm to be less than 3% of
the total project cost. The Qualcomm estimate is still subject to further review
by Globalstar. As of December 31, 1998, and including the effect of the
preliminary Qualcomm estimate, Globalstar's budgeted expenditures were $3.17
billion for the design, construction and deployment of
26
<PAGE> 27
the Globalstar System to commence commercial service and $340 million for
budgeted financing costs. In addition to expenditures for operating costs and
debt service, Globalstar anticipates further expenditures on system software for
the improvement of system functionality and the addition of new features beyond
those planned for the commencement of commercial service. Globalstar expects to
achieve positive cash flow in the third quarter of 2000. Substantial additional
financing will be required if there are delays in the commencement of commercial
service and, in any event, after the commencement of commercial service and
before positive cash flow is achieved. Although Globalstar believes it will be
able to obtain these additional funds, there can be no assurance that such funds
will be available on favorable terms or on a timely basis, if at all.
Globalstar has agreed, subject to its partners' approval, to purchase from
SS/L 12 additional spare satellites for which the cost and payment terms have
not as yet been negotiated. It is anticipated that approximately $100 million
will be expended for these spare satellites by commencement of commercial
service. In addition, in order to accelerate the deployment of gateways around
the world, Globalstar has agreed to help finance approximately $80 million of
the cost of up to 32 of the initial 38 gateways. The contracts for the 38
gateways aggregate approximately $345 million. Ericsson, Qualcomm and Telital
are in the process of manufacturing approximately 300,000 handheld and fixed
user terminals under contracts totaling $353 million from Globalstar and its
service providers. Globalstar has agreed to finance approximately $151 million
of the cost of handheld and fixed user terminals. Globalstar expects to recoup
such costs upon acceptance by the service providers of the gateways and user
terminals.
SS/L provides Globalstar with approximately $330 million of billings
deferred as follows -- $224 million of vendor financing and $106 million of
orbital incentives. SS/L subcontractors have assumed a portion of the vendor
financing commitments totaling approximately $116 million. The $224 million of
vendor financing consists of three tranches -- $110 million, $90 million and $24
million. Only the $90 million is interest bearing and bears interest at the
30-day LIBOR rate plus 3% per annum. Globalstar will repay the $110 million and
the $24 million tranches as follows: 50% will be paid over five years in equal
monthly installments following the launch and acceptance of 24 or more
satellites (the "Preliminary Constellation") and the remaining 50% will be paid
over five years in equal monthly installments following the launch and
acceptance of 48 or more satellites (the "Full Constellation"). Payment of the
$90 million interest bearing vendor financing will be due beginning March 31,
1999. Interest and principal will be repaid in 20 equal quarterly installments
over the next five years. Approximately $47 million of the orbital incentives
will be paid at both the Preliminary Constellation Date and Full Constellation
Date with the remainder being paid with the delivery of the remaining
satellites.
On March 4, 1998, Qualcomm entered into a deferred payment agreement with
Globalstar providing for $100 million of vendor financing. The deferred payments
accrue interest at a rate of 5.75% per annum, which is added to the outstanding
principal balance quarterly. Beginning January 1, 2000, Globalstar will make
eight equal quarterly principal payments. The final payment including all unpaid
interest is due October 1, 2001.
In April 1998, China Telecom, through a subsidiary, exercised a warrant to
purchase 937,500 Globalstar ordinary partnership interests for $18,750,000. In
addition, China Telecom has a warrant to acquire an additional 937,500
Globalstar ordinary partnership interests for $18,750,000 after commencement of
service. Globalstar had previously granted these warrants to China Telecom in
connection with service provider arrangements in China under which China
Telecommunications Broadcast Satellite Corporation ("ChinaSat") will act as the
sole distributor of Globalstar service in China.
On April 30, 1998, GTL redeemed all of its outstanding Convertible
Preferred Equivalent Obligations ("CPEOs"). As of April 30, 1998, all the
holders of the CPEOs had converted their holdings into 20,123,230 shares of GTL
common stock. As a result of such conversion, the 6 1/2% RPPIs were converted
into 4,769,230 Globalstar ordinary partnership interests. In connection with the
redemption, GTL issued 539,322 additional shares of GTL common stock in
satisfaction of a required interest make-whole payment. A corresponding dividend
make-whole payment was also made by Globalstar for which an additional 134,830
Globalstar ordinary partnership interests were issued. Dividend payments and
related increase in the 6 1/2% RPPIs were $22.2 million and $21.2 million for
the years ended December 31, 1998 and 1997,
27
<PAGE> 28
respectively. The interest make-whole payment and related dividend make-whole
payment were recorded as interest expense and dividends, by GTL and Globalstar,
respectively. The conversion of the CPEOs and the 6 1/2% RPPIs will result in
annual cash savings of approximately $20.1 million.
On July 6, 1998, Loral, the managing general partner of Globalstar,
purchased 4.2 million Globalstar ordinary partnership interests (corresponding
to approximately 16.8 million equivalent shares of GTL common stock) from
certain founding service providers for $420 million in cash. The founding
service providers participating in this transaction have deposited half of their
proceeds ($210 million) into escrow accounts to be used for the purchase of
Globalstar gateways and user terminals. Concurrently, entities advised by or
associated with Soros Fund Management L.L.C. ("Soros") purchased 8.4 million
shares of GTL common stock owned by Loral for $245 million in cash. The shares
of GTL common stock acquired by Soros are restricted for U.S. securities law
purposes. With respect to such shares, GTL has agreed to file a shelf
registration statement and have such registration statement declared effective
within one year from the closing date.
On January 21, 1999, GTL sold $350 million of 8% Convertible Redeemable
Preferred Stock due 2011 (the "Preferred Stock"). The Preferred Stock will be
convertible into shares of GTL common stock at a conversion price of $23.2563
per share. Loral purchased $150 million face amount of the $350 million of
Preferred Stock offered, to maintain its ownership percentage. GTL used the
proceeds to purchase 8% convertible redeemable preferred partnership interests
("8% RPPIs") in Globalstar, and Globalstar will use the funds for the
construction and deployment of the Globalstar System.
As of January 31, 1999, Globalstar has raised or received commitments for
approximately $3.3 billion. Globalstar intends to raise the remaining funds
required, of approximately $600 million, by the initiation of commercial service
from a combination of sources including: high yield debt issuance (which may
include an equity component), bank financing, equity issuance, financial support
from the Globalstar partners, projected service provider payments and
anticipated payments from the sale of gateways and Globalstar subscriber
terminals.
RESULTS OF OPERATIONS
Comparison of Results for the Years Ended December 31, 1998 and 1997
Globalstar is a development stage partnership and has not commenced
commercial operations. For the period March 23, 1994 (commencement of
operations) to December 31, 1998, Globalstar has recorded cumulative net losses
applicable to ordinary partnership interests of $407.0 million. The net loss
applicable to ordinary partnership interests for 1998 increased to $151.7
million as compared to $88.8 million for 1997. The net loss for 1998 increased
primarily as a result of the launch failure, increased activity in the
development of Globalstar user terminals and increased in-house engineering and
marketing expenses. Globalstar is expending significant funds for the
construction, launch, testing and deployment of the Globalstar System and
expects such losses to continue until commencement of commercial operations.
Globalstar earned interest income of $57.8 million on cash and cash
equivalent balances since commencement of operations. Interest income for 1998
was $17.1 million as compared to $20.5 million for 1997, as a result of lower
average cash balances available for investment during the current period.
Operating Expenses. Development costs represent the development of
Globalstar user terminals and Globalstar's continuing in-house engineering. For
1998, these costs were $86.3 million as compared to $62.5 million for 1997.
Development costs increased as a result of increased activity in the development
of Globalstar user terminals and in-house engineering.
Marketing, general and administrative expenses were $43.1 million and $25.6
million for 1998 and 1997, respectively. The increases in marketing, general and
administrative expenses are primarily the result of an increase in the number of
employees and an increase in marketing costs as Globalstar gears up for
operations.
28
<PAGE> 29
On September 9, 1998, a malfunction of a Zenit 2 rocket resulted in the
loss of 12 Globalstar satellites. A $17.3 million loss on the launch failure was
recorded in the third quarter of 1998, which reflects the cost of the launch
vehicle, satellites and related capitalized costs, net of insurance proceeds of
$190.5 million.
Depreciation. Globalstar intends to capitalize all costs, including
interest as applicable, associated with the design, construction and deployment
of the Globalstar System, except costs associated with the development of the
Globalstar user terminals and certain technologies under a cost sharing
arrangement with Qualcomm. Globalstar will not record depreciation expense on
the Globalstar System under construction until the commencement of commercial
operations, as assets are placed into service.
Income Taxes. Globalstar is organized as a limited partnership. As such,
no income tax provision or benefit is included in the consolidated financial
statements of Globalstar which are incorporated herein by reference since U.S.
income taxes are the responsibility of its partners. Generally, taxable income
or loss, deductions and credits of Globalstar will be passed through to its
partners.
Comparison of Results for the Years Ended December 31, 1997 and 1996
The net loss applicable to ordinary partnership interests for 1997
increased to $88.8 million as compared to $72.0 million for 1996 due to an
increase in total operating costs and preferred distributions, partially offset
by an increase in interest income.
Interest income during 1997 was $20.5 million as compared to $6.4 million
for 1996, as a result of higher average cash balances available for investment
during 1997.
Operating Expenses. Development costs of $62.5 million for 1997 represent
the development of Globalstar user terminals and Globalstar's continuing
in-house engineering. This compares with $42.2 million of development costs
incurred during 1996. The increase during 1997 is primarily the result of the
increased activity in the development of the Globalstar user terminals.
Marketing, general and administrative expenses were $25.6 million for 1997
as compared to $18.9 million incurred during 1996. The increase in marketing,
general and administrative expenses is primarily the result of an increase in
the number of employees, as Globalstar gears up for operations and increased
advertising costs.
TAXATION
The Company will be subject to U.S. federal, state and local corporate tax
on its share of Globalstar's income that 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. 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, the Company believes that there generally will be no U.S. taxes
on its share of Globalstar's Foreign Income. The IRS may disagree, however,
and/or may promulgate regulations that would recharacterize a substantial
portion of the Company's income as derived from U.S. sources and as effectively
connected with a U.S. trade or business so as to subject that income to regular
U.S. federal income tax and a 30% branch profits tax.
In addition, any portion of the Company's income from sources outside the
United States, realized through Globalstar or otherwise, may be subject to
taxation by certain foreign countries. However, the extent to which these
countries may require the Company or Globalstar to pay tax or to make payments
in lieu of tax cannot be determined in advance. To the extent that Globalstar
bears a higher foreign tax because any holder of its Ordinary Partnership
Interests (including the Company) is not subject to United States tax on its
share of Globalstar's foreign income, the additional foreign tax will be
specially allocated to such partner and will reduce amounts distributed by
Globalstar to such partner with respect to the Ordinary Partnership Interests
held by such partner.
29
<PAGE> 30
YEAR 2000 ISSUE
Globalstar's Year 2000 Program is proceeding on schedule. The Year 2000
Issue is the result of computer programs which were written using two digits
rather than four to signify a year (i.e., the year 1999 is denoted as "99" and
not "1999"). Computer programs written using only two digits may recognize the
year 2000 as the year 1900. This could result in a system failure or
miscalculations causing disruption of operations.
Globalstar has implemented a Year 2000 program (the "Year 2000 Program")
for its internal products, system and equipment, as well as for key vendor
supplied products, system and equipment. As part of the Year 2000 Program,
Globalstar is assessing the Year 2000 capabilities of, among other things, its
satellites, ground equipment, research and development activities, and facility
management systems. The Year 2000 Program consists of the following phases:
Inventory of Year 2000 items, Assessment (including prioritization), Remediation
(including modification, upgrading and replacement), Testing and Auditing. This
five-step program is divided into five major sections covering both information
and non-information technology systems: 1) business systems, 2) technical
systems, 3) imbedded hardware/firmware, 4) products and services and 5)
vendor-supplied services. As of February 28, 1999, Globalstar has completed
approximately 95% of the inventory phase and approximately 28% of its assessment
phase. Globalstar expects to complete the first three phases, through the
remediation phase, of the Year 2000 Program during the second quarter of 1999.
The testing phase will be completed during the third quarter of 1999, prior to
the anticipated in-service date of Globalstar. The fifth phase, the audit phase,
commenced in January 1999, and is expected to continue through the third quarter
of 1999 to accommodate re-audits if deemed necessary.
Both internal and external resources are being utilized to execute
Globalstar's plan. The program to address Year 2000 has been underway since July
1997. The incremental costs incurred through December 31, 1998 for this effort
by Globalstar were approximately $600,000. Based on its efforts to date
Globalstar anticipates additional incremental expenses of approximately $800,000
will be incurred to substantially complete the effort.
Based upon the accomplishments to date, no contingency plans are expected
to be needed. As risks are identified, contingency plans will be developed and
implemented as necessary. However, because of the progress achieved to date and
Globalstar's expectations that its Year 2000 program will be substantially
complete in the third quarter of calendar 1999, Globalstar believes adequate
time will be available to insure alternatives can be developed, assessed and
implemented prior to a Year 2000 issue having a material negative impact on its
operations. However, there can be no assurance that such modifications and
conversions, if required, will be completed on a timely basis.
The cost of the program and the dates on which Globalstar believes it will
substantially complete Year 2000 modifications are based on management's best
estimates. Such estimates were derived using software surveys and programs to
evaluate calendar date exposures and numerous assumptions of future events,
including the continued availability of certain resources, third-party Year 2000
readiness and other factors. Because none of these estimates can be guaranteed,
actual results could differ materially and adversely from those anticipated.
Specific factors that might cause an adjustment of costs are: number of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, the ability to validate supplier certification and similar
uncertainties.
Globalstar's failure to remediate a material Year 2000 problem could result
in an interruption or failure of certain basic business operations. These
failures could materially and adversely effect Globalstar's results of
operations, liquidity and financial condition. Globalstar is also assessing the
Year 2000 readiness of its key third-party suppliers. Information requests have
been distributed to such suppliers and replies are being evaluated. If the risk
is deemed material, on-site visits to suppliers will be conducted to verify the
adequacy of the information received. In addition, Globalstar has commenced
discussions with its service providers to determine the status of their Year
2000 capabilities. However, due to the general uncertainty of the Year 2000
problem, including uncertainty with regard to third-party suppliers and service
providers, especially those in developing countries, Globalstar is unable to
determine at this time whether the consequences of Year 2000 failures will have
an adverse material impact on Globalstar's results of operations, liquidity or
financial condition. There can be no assurance that the Company's Year 2000
Program will be successful in avoiding
30
<PAGE> 31
any interruption or failure of certain basic business operations, which may have
a material adverse effect on the Company's results of operations or financial
position.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"),
which requires that all derivative instruments be recorded on the balance sheet
at their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. Globalstar has not yet determined the impact that the
adoption of SFAS 133 will have on its earnings or financial position. Globalstar
is required to adopt SFAS 133 on January 1, 2000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 1998, the fair value of Globalstar's long-term debt and
interest bearing vendor financing (collectively, "long-term obligations") is
estimated to be $1.3 billion using quoted market prices or, in the case of
vendor financing, recorded value. The long-term obligations carrying value
exceeded fair value by $334 million. Market risk on long-term obligations is
estimated as the potential increase in annual interest expense resulting from a
hypothetical one percent increase in interest rates and amounts to $15 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
31
<PAGE> 32
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Information required for this item is presented in GTL's 1999 definitive
proxy statement which is incorporated herein by reference.
EXECUTIVE OFFICERS OF GTL
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Bernard L. Schwartz.......... 73 Chairman and Chief Executive Officer
Gregory J. Clark............. 56 Vice Chairman and President
Michael P. DeBlasio.......... 62 Senior Vice President and Director
Douglas G. Dwyre*............ 66 Senior Vice President and Director
William Adler................ 52 Vice President and Assistant Secretary
Jeanette Clonan.............. 50 Vice President -- Communications and Investor Relations
Nicholas C. Moren............ 52 Vice President and Treasurer
Anthony J. Navarra........... 51 Vice President
Harvey B. Rein............... 45 Vice President and Controller
Thomas B. Ross............... 69 Vice President -- Government Relations
Richard J. Townsend.......... 48 Vice President and Chief Financial Officer
Stephen C. Wright............ 42 Vice President
Eric J. Zahler............... 48 Vice President and Secretary
</TABLE>
EXECUTIVE OFFICERS OF GLOBALSTAR
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Bernard L. Schwartz.......... 73 Chief Executive Officer and Chairman of the General
Partners' Committee
Gregory J. Clark............. 56 Vice Chairman of the General Partners' Committee
Douglas G. Dwyre*............ 66 President
Anthony J. Navarra*.......... 51 Executive Vice President, Strategic Development
William Adler................ 53 Vice President, Legal and Regulatory Affairs
Gerard Canavan............... 50 Senior Vice President, Marketing
Gloria Everett............... 55 Senior Vice President, Operations
John Klineberg............... 60 Executive Vice President, Satellite Constellation
Establishment
Joel Schindall............... 58 Senior Vice President, Systems Development
Robert A. Wiedeman........... 60 Vice President, Systems and Regulatory Engineering
Stephen C. Wright............ 42 Vice President and Chief Financial Officer
- ---------------
* Effective March 31, 1999, Mr. Dwyre retired from his positions as President of Globalstar
and Senior Vice President of GTL. In connection therewith, Mr. Navarra was appointed as
acting chief operating officer of Globalstar effective March 8, 1999.
</TABLE>
32
<PAGE> 33
Mr. Schwartz has been Chief Executive Officer and Chairman of the General
Partners' Committee of Globalstar since 1994. Mr. Schwartz has also been the
Chairman and Chief Executive Officer of GTL since 1995, and has served as
director of GTL since 1994. Mr. Schwartz has been the Chairman and Chief
Executive Officer of Loral since March 1996 and had been Chairman and Chief
Executive of Old Loral since 1972. He has been Chairman of the Board of
Directors of SS/L since February 1991. He is also Chairman and Chief Executive
Officer of K&F Industries, Inc., as well as a director of Reliance Group
Holdings, Inc. and certain of its subsidiaries, Sorema International Holding
N.V. and First Data Corporation. Mr. Schwartz is also a Trustee of New York
University Medical Center.
Dr. Clark has been the Vice Chairman of the General Partners' Committee of
Globalstar and Vice Chairman and President of GTL since March 1998, and has
served as director of GTL since March 1998. Since January 1998, he has been the
President and Chief Operating Officer of Loral. Prior to that time, Dr. Clark
was President of News Technology Group, a division of News Corporation since
September 1994. Prior to that, Dr. Clark was Director of Science and Technology
of IBM in Australia since 1988.
Mr. DeBlasio has been Senior Vice President and Director of GTL since May
1996. Mr. DeBlasio has been First Senior Vice President of Loral since February
1998 and Senior Vice President and Chief Financial Officer of Loral since March
1996 and had been Senior Vice President, Finance and Chief Financial Officer of
Old Loral since 1979. Mr. DeBlasio is also a director of SS/L.
Mr. Dwyre became a director of GTL in March 1999, and until his retirement
was President of Globalstar from March 1994. Mr. Dwyre also served as Senior
Vice President of GTL from May 1996 to March 1999. Prior to that, Mr. Dwyre was
President of Northern Telecom's STC Submarine Systems from 1988 to 1992.
Mr. Adler has been Vice President of Legal and Regulatory Affairs of
Globalstar since January 1996 and Assistant Secretary of GTL since May 1996. He
was a partner with Fleischman and Walsh, L.L.P. from May 1994 to November 1995,
specializing in domestic and international telecommunications law, regulation
legislation and policy. Prior to that, he was the Executive Director of Federal
Regulatory Relations with Pacific Telesis Group.
Ms. Clonan has been Vice President, Communications and Investor Relations
of GTL since March 1998. Ms. Clonan has also been Vice President, Communications
and Investor Relations of Loral since November 1996. Prior to that, Ms. Clonan
was Director--Corporate Communications from June 1996. Prior to that, Ms. Clonan
was Vice President--Corporate Relations of Jamaica Water Securities since
September 1992.
Mr. Moren has been Vice President and Treasurer of GTL since 1995. Mr.
Moren has been Senior Vice President of Loral since February 1998 and Vice
President and Treasurer of Loral since March 1996 and had been Vice President
and Treasurer of Old Loral since April 1991.
Mr. Navarra has been appointed acting Chief Operating Office of Globalstar
effective March 1999. Prior to that, Mr. Navarra was Executive Vice President,
Strategic Development of Globalstar since March 1994 and Vice President of GTL
since 1995. He was Executive Vice President, Business Development at Loral
Aerospace Corp. from 1992 to 1994.
Mr. Rein has been Vice President and Controller of GTL since May 1996. Mr.
Rein has been Vice President and Controller of Loral since April 1996 and had
been Assistant Controller of Old Loral since 1985.
Mr. Ross has been Vice President, Government Relations of GTL since
November 1996. From June 1995 to November 1996, Mr. Ross was Vice President,
Communications of GTL. Mr. Ross has also been Vice President, Government
Relations of Loral since November 1996. From April 1996 to November 1996, Mr.
Ross was Vice President, Communications of Loral. From April 1994 to May 1995,
he served at the White House as Special Assistant to the President and Senior
Director of Public Affairs for the National Security Council.
Mr. Townsend has been Vice President and Chief Financial Officer of GTL
since March 1999. Since October 1998, he has been Senior Vice President and
Chief Financial Officer of Loral. Prior to that, Mr. Townsend was Corporate
Controller and Director of Strategy for ITT Industries since 1997. Prior to
that, he was Vice President of Finance Worldwide Industries for IBM and various
other financial management positions with IBM since April 1979.
33
<PAGE> 34
Mr. Wright has been Vice President and Chief Financial Officer of
Globalstar since January 1996 and Vice President of GTL since May 1996. He was a
Production Director from April 1995 to December 1995 at SS/L. Prior to that
time, he was a Business Manager at SS/L.
Mr. Zahler has been Vice President and Secretary of GTL since May 1996. Mr.
Zahler has been Senior Vice President of Loral since February 1998 and Vice
President, Secretary and General Counsel of Loral since March 1996 and had been
Vice President and General Counsel of Old Loral since 1992. Prior to that time,
he was a partner in the law firm of Fried, Frank, Harris, Shriver & Jacobson.
Mr. Canavan has been a Senior Vice President of Globalstar since February
1998. Prior to that time, he was Vice President of Global Network Operations at
IBM Global Network since May 1995, and Vice President of Network Applications
Services at IBM Global Network since July 1994. Prior to that, he held various
positions at Sprint, in business development and planning, product management
and marketing since May 1989.
Ms. Everett has been Senior Vice President of Globalstar since February
1998. Prior to that time, she was Vice President, Network Engineering and
Operations, with AirTouch Communications.
Dr. Klineberg has been Executive Vice President of Satellite Constellation
Establishment of Globalstar since January 1998. Dr. Klineberg was Executive Vice
President, Globalstar Program at SS/L from 1995 to January 1998. Prior to that
time, Dr. Klineberg held a variety of technical and management positions with
NASA, including Director of the Goddard Space Flight Center and NASA's Lewis
Research Center.
Dr. Schindall has been Senior Vice President of Systems Development for
Globalstar since May 1997. Prior to that time, Dr. Schindall was Vice President
of Systems Applications for Globalstar since May 1994. Prior to that time, he
was President of Conic, a division of Old Loral.
Mr. Wiedeman has been Vice President of Systems and Regulatory Engineering
for Globalstar since March 1994. Prior to that time, he was Vice President of
Loral Aerospace Corp.
ITEM 11: EXECUTIVE COMPENSATION
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under Items 11, 12 and 13 is presented in GTL's 1999
definitive proxy statement which is incorporated herein by reference.
34
<PAGE> 35
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Index to Financial Statements............................... F-1
Globalstar Telecommunications Limited (A General Partner of
Globalstar, L.P.)
Independent Auditors' Report.............................. F-2
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statements of Shareholders' Equity........................ F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................. F-7
Globalstar, L.P. (A development stage limited partnership)
Independent Auditors' Report.............................. F-14
Consolidated Balance Sheets............................... F-15
Consolidated Statements of Operations..................... F-16
Consolidated Statements of Ordinary Partners' Capital and
Subscriptions Receivable............................... F-17
Consolidated Statements of Cash Flows..................... F-18
Notes to Consolidated Financial Statements................ F-19
</TABLE>
35
<PAGE> 36
(a) 3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS OF EXHIBIT
- ------- -----------------------
<S> <C>
3.1 Memorandum of Association of Globalstar Telecommunications
Limited(1)
3.2 Bye-Laws of Globalstar Telecommunications Limited, as
amended, and including Schedule III annexed thereto
regarding the 8% Series A Convertible Redeemable Preferred
Shares due 2011*
4.1 Indenture dated as of February 15, 1997 relating to
Globalstar's and Globalstar Capital Corporation's 11 3/8%
Senior Notes due 2004(2)
4.2 Indenture dated as of June 1, 1997 relating to Globalstar's
and Globalstar Capital Corporation's 11 1/4% Senior Notes
due 2004(3)
4.3 Indenture dated as of October 15, 1997 relating to
Globalstar's and Globalstar Capital Corporation's 10 3/4%
Senior Notes due 2004(4)
4.4 Indenture dated as of May 20, 1998 relating to Globalstar's
and Globalstar Capital Corporation's 11 1/2% Senior Notes
due 2005(5)
10.1 Amended and Restated Agreement of Limited Partnership of
Globalstar L.P., dated as of January 26, 1999, among
Loral/Qualcomm Satellite Services, L.P., Globalstar
Telecommunications Limited, AirTouch Satellite Services,
Inc., Dacom Corporation, Dacom International, Inc., Hyundai
Corporation, Hyundai Electronics Industries Co., Ltd.,
Loral/DASA Globalstar, L.P., Loral Space & Communications
Ltd., San Giorgio S.p.A., Telesat Limited, TE. SA. M., and
Vodafone Satellite Services Limited*
10.2 Subscription Agreements by and between Globalstar, L.P., and
each of AirTouch Communications, Alcatel Spacecom, Loral
General Partner, Inc., Hyundai/Dacom and Vodastar Limited(1)
10.3 Subscription Agreement by and between Globalstar, L.P. and
Loral/Qualcomm Satellite Services, L.P.(1)
10.4 Subscription Agreement by and between Globalstar, L.P. and
Finmeccanica S.p.A.(1)
10.5 Subscription Agreement by and between Globalstar, L.P. and
China Telecommunications Broadcast Satellite Corporation*
10.6 Form of Service Provider Agreements by and between
Globalstar, L.P. and each of AirTouch Satellite Services,
Inc., Finmeccanica S.p.A., Loral Globalstar, L.P.,
Loral/DASA Globalstar, L.P., Hyundai/Dacom, TE. SA. M., and
Vodastar Limited(1)
10.7 Development Agreement by and between Qualcomm Incorporated
and Globalstar, L.P.(1)
10.8 Contract between Globalstar, L.P. and Space Systems/Loral,
Inc.(1)
10.9 Contract for the Development of Certain Portions of the
Ground Operations Control Center between Globalstar and
Loral Western Development Laboratories(1)
10.10 Contract for the Development of Satellite Orbital Operations
Centers between Globalstar and Loral Aerosys, a division of
Loral Aerospace Corporation(1)
10.11 1994 Stock Option Plan(6)+
10.12 Amendment to 1994 Stock Option Plan(7)+
10.13 Revolving Credit Agreement dated as of December 15, 1995, as
amended on March 25, 1996, among Globalstar, certain banks
parties thereto and Chemical Bank, as Administrative
Agent(2)
10.14 Second Amendment to Revolving Credit Agreement dated July
31, 1997 among Globalstar, certain banks parties thereto and
The Chase Manhattan Bank, as Administrative Agent(4)
10.15 Third Amendment to Revolving Credit Agreement dated as of
October 15, 1997 among Globalstar, certain banks parties
thereto and The Chase Manhattan Bank, as Administrative
Agent(4)
10.16 Fourth Amendment to Revolving Credit Agreement dated as of
November 13, 1998 among Globalstar, certain banks parties
thereto and The Chase Manhattan Bank, as Administrative
Agent*
</TABLE>
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS OF EXHIBIT
- ------- -----------------------
<S> <C>
10.17 Exchange and Registration Rights Agreement, dated as of
December 31, 1994, among Globalstar, L.P. and AirTouch
Satellite Services, Inc., Finmeccanica S.p.A., Loral
Globalstar, L.P., Loral/DASA Globalstar, L.P.,
Hyundai/Dacom, TE. SA. M., and Vodastar Limited (1)
10.18 Amendment to the Exchange and Registration Rights Agreement,
dated as of April 8, 1998, among Globalstar, L.P.,
Globalstar Telecommunications Limited and Telesat Limited*
10.19 Warrant Agreement dated as of February 19, 1997 relating to
Warrants to purchase 4,129,000 shares of Common Stock of
Globalstar Telecommunications Limited(2)
10.20 Registration Rights Agreement dated February 19, 1997
relating to Globalstar's 11 3/8% Senior Notes due 2004 and
the Company's Warrants to purchase 4,129,000 shares of
Common Stock issued in connection therewith(2)
10.21 Registration Rights Agreement dated June 13, 1997 relating
to Globalstar's and Globalstar Capital Corporation's 11 1/4%
Senior Notes due 2004(3)
10.22 Registration Rights Agreement dated October 29, 1997
relating to Globalstar's and Globalstar Capital
Corporation's 10 3/4% Senior Notes due 2004(4)
10.23 Registration Rights Agreement dated May 20, 1998 relating to
Globalstar's and Globalstar Capital Corporation's 11 1/2%
Senior Notes due 2005(5)
10.24 Registration Rights Agreement dated as of July 6, 1998
relating to 8,400,000 shares of Common Stock by and among
Globalstar Telecommunications Limited, Loral Space &
Communications Ltd., Quantum Partners LDC, Quasar Strategic
Partners LDC and Quantum Industrial Partners LDC.(8)
10.25 Exchange Agreement dated as of September 28, 1998 relating
to 717,600 shares of Common Stock by and between Loral Space
& Communications Ltd., DACOM Corporation and DACOM
International, Inc.(9)
10.26 Registration Rights Agreement dated as of January 26, 1999
relating to the Company's 8% Convertible Redeemable
Preferred Stock*
12 Statement Regarding Computation of Ratios*
21 List of Subsidiaries of the Registrant*
23 Consent of Deloitte & Touche LLP*
27 Financial Data Schedule (EDGAR only)*
</TABLE>
- ---------------
(1) Incorporated by reference to GTL's Registration Statement on Form S-1 (No.
33-86808).
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1996.
(3) Incorporated by reference to Globalstar's Registration Statement on Form
S-4 (No. 333-25461).
(4) Incorporated by reference to Globalstar's Registration Statement on Form
S-4 (No. 333-41229).
(5) Incorporated by reference to Globalstar's Registration Statement on Form
S-4 (No. 333-57749).
(6) Incorporated by reference to the Company's Registration Statement on Form
S-3 (No. 333-6477).
(7) Incorporated by reference to the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1997
(8) Incorporated by reference to Schedule 13D filed by Loral Space &
Communications Ltd. on August 3, 1998.
(9) Incorporated by reference to Schedule 13D filed by Loral Space &
Communications Ltd. on February 10, 1999.
* Filed herewith.
+ Management compensation plan.
(b) Reports on Form 8-K
None.
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GLOBALSTAR TELECOMMUNICATIONS LIMITED
By: /s/ BERNARD L. SCHWARTZ
------------------------------------
Bernard L. Schwartz
(Chairman of the Board and
Chief Executive Officer)
Date: March 30, 1999
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ BERNARD L. SCHWARTZ Chairman of the Board and Chief March 30, 1999
- --------------------------------------------------- Executive Officer
Bernard L. Schwartz
/s/ GREGORY J. CLARK Director and President March 30, 1999
- ---------------------------------------------------
Gregory J. Clark
/s/ DOUGLAS DWYRE Director March 30, 1999
- ---------------------------------------------------
Douglas Dwyre
/s/ SIR RONALD GRIERSON Director March 30, 1999
- ---------------------------------------------------
Sir Ronald Grierson
/s/ ROBERT B. HODES Director March 30, 1999
- ---------------------------------------------------
Robert B. Hodes
/s/ E. JOHN PEETT Director March 30, 1999
- ---------------------------------------------------
E. John Peett
/s/ MICHAEL B. TARGOFF Director March 30, 1999
- ---------------------------------------------------
Michael B. Targoff
/s/ A. ROBERT TOWBIN Director March 30, 1999
- ---------------------------------------------------
A. Robert Towbin
/s/ MICHAEL P. DEBLASIO Director March 30, 1999
- ---------------------------------------------------
Michael P. DeBlasio
/s/ RICHARD J. TOWNSEND Principal Financial Officer March 30, 1999
- ---------------------------------------------------
Richard J. Townsend
/s/ HARVEY B. REIN Principal Accounting Officer March 30, 1999
- ---------------------------------------------------
Harvey B. Rein
</TABLE>
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of New
York, State of New York, on March 30, 1999.
GLOBALSTAR, L.P.
By: Loral/QUALCOMM Satellite
Services,
L.P., its General Partner
By: Loral/QUALCOMM Partnership,
L.P.,
its General Partner
By: Loral General Partner, Inc., its
General Partner
By: /s/ BERNARD L. SCHWARTZ
------------------------------------
Bernard L. Schwartz
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the general
partner of the Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ BERNARD L. SCHWARTZ Chairman of the Board and Chief March 30, 1999
- --------------------------------------------------- Executive Officer
Bernard L. Schwartz
/s/ GREGORY J. CLARK Director March 30, 1999
- ---------------------------------------------------
Gregory J. Clark
/s/ ERIC J. ZAHLER Director March 30, 1999
- ---------------------------------------------------
Eric J. Zahler
</TABLE>
<PAGE> 40
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
GLOBALSTAR TELECOMMUNICATIONS LIMITED (A General Partner of
Globalstar, L.P.)
Independent Auditors' Report.............................. F-2
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statements of Shareholders' Equity........................ F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................. F-7
GLOBALSTAR, L.P. (A development stage limited partnership)
Independent Auditors' Report.............................. F-14
Consolidated Balance Sheets............................... F-15
Consolidated Statements of Operations..................... F-16
Consolidated Statements of Ordinary Partners'
Capital and Subscriptions Receivable................... F-17
Consolidated Statements of Cash Flows..................... F-18
Notes to Consolidated Financial Statements................ F-19
</TABLE>
F-1
<PAGE> 41
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF GLOBALSTAR TELECOMMUNICATIONS LIMITED:
We have audited the accompanying balance sheets of Globalstar
Telecommunications Limited (a Bermuda company and a General Partner of
Globalstar, L.P.) as of December 31, 1998 and 1997 and the related statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Globalstar Telecommunications Limited as of
December 31, 1998 and 1997 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
San Jose, California
February 16, 1999
F-2
<PAGE> 42
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
Investment in Globalstar, L.P.:
Redeemable preferred partnership interests................ $ -- $303,089
Ordinary partnership interests............................ 568,394 297,417
Ordinary partnership warrants............................. 12,034 12,210
--------- --------
Total assets...................................... $ 580,428 $612,716
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Interest payable.......................................... $ -- $ 1,679
Convertible preferred equivalent obligations
($310,000 principal amount)............................... -- 301,410
Commitments and contingencies (Note 4)
Shareholders' equity:
Common stock, $1.00 par value, 600,000,000 shares
authorized (82,016,679 and 30,638,152 issued and
outstanding
at December 31, 1998 and 1997, respectively)........... 82,017 30,638
Paid-in capital........................................... 588,802 318,643
Warrants.................................................. 12,034 12,210
Accumulated deficit....................................... (102,425) (51,864)
--------- --------
Total shareholders' equity.................................. 580,428 309,627
--------- --------
Total liabilities and shareholders' equity........ $ 580,428 $612,716
========= ========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 43
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Equity in net loss applicable to ordinary partnership
interests of Globalstar, L.P............................. $ 50,561 $ 24,152 $ 15,080
Dividend income on Globalstar, L.P. redeemable preferred
partnership interests.................................... (22,197) (21,202) (17,370)
Interest expense on convertible preferred equivalent
obligations.............................................. 22,197 21,202 17,370
-------- -------- --------
Net loss................................................... $ 50,561 $ 24,152 $ 15,080
======== ======== ========
Net loss per share -- basic and diluted.................... $ 0.67 $ 0.43 $ 0.38
======== ======== ========
Weighted average shares outstanding -- basic and diluted... 75,252 55,924 40,000
======== ======== ========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 44
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
COMMON STOCK
---------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL WARRANTS DEFICIT TOTAL
------ ------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996.................................... 10,000 $10,000 $175,750 $ (12,632) $173,118
Warrants issued in connection with the Globalstar credit
agreement................................................. $ 22,601 22,601
Net loss.................................................... (15,080) (15,080)
------ ------- -------- -------- --------- --------
Balance, December 31, 1996.................................. 10,000 10,000 175,750 22,601 (27,712) 180,639
Exercise of warrants........................................ 4,185 4,185 129,327 (22,601) 110,911
Exercise of rights.......................................... 1,131 1,131 28,845 29,976
Stock split................................................. 15,317 15,317 (15,317)
Exercise of stock options................................... 5 5 38 43
Warrants issued in connection with Globalstar, L.P.'s
11 3/8% Senior Notes...................................... 12,210 12,210
Net loss.................................................... (24,152) (24,152)
------ ------- -------- -------- --------- --------
Balance, December 31, 1997.................................. 30,638 30,638 318,643 12,210 (51,864) 309,627
Exercise of warrants........................................ 33 33 1,180 (176) 1,037
Conversion of convertible preferred equivalent obligations
and stock issued on related make-whole interest payment... 10,331 10,331 309,919 320,250
Stock split................................................. 40,997 40,997 (40,997)
Exercise of stock options................................... 18 18 57 75
Net loss.................................................... (50,561) (50,561)
------ ------- -------- -------- --------- --------
Balance, December 31, 1998.................................. 82,017 $82,017 $588,802 $ 12,034 $(102,425) $580,428
====== ======= ======== ======== ========= ========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 45
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- ----------- ---------
<S> <C> <C> <C>
Operating activities:
Net loss.................................................. $ (50,561) $ (24,152) $ (15,080)
Equity in net loss applicable to ordinary partnership
interests of Globalstar, L.P............................ 50,561 24,152 15,080
Increase in redemption value of redeemable preferred
partnership interests................................... (351) (1,052) (858)
Dividends accrued on redeemable preferred partnership
interests in excess of cash received.................... 1,679 (1,679)
Amortization of convertible preferred equivalent
obligations issue costs................................. 351 1,052 858
Change in operating liability:
Interest payable........................................ (1,679) 1,679
--------- ----------- ---------
Net cash provided by (used in) operating activities......... -- -- --
--------- ----------- ---------
Investing activities:
Purchase of ordinary partnership interests in Globalstar,
L.P..................................................... (1,112) (140,930)
Purchase of redeemable preferred partnership interests in
Globalstar, L.P......................................... (299,500)
Purchase of warrants in Globalstar, L.P................... (12,210)
--------- ----------- ---------
Net cash used in investing activities....................... (1,112) (153,140) (299,500)
--------- ----------- ---------
Financing activities:
Net proceeds from issuance of common stock upon exercise
of options and warrants................................. 1,112 43
Payment of debt offering costs............................ (10,500)
Sale of convertible preferred equivalent obligations...... 310,000
Proceeds from issuance of warrants in connection with sale
of Globalstar, L.P.'s 11 3/8%
Senior Notes............................................ 12,210
Proceeds from exercise of guarantee warrants.............. 110,911
Proceeds from exercise of GTL rights...................... 29,976
--------- ----------- ---------
Net cash provided by financing activities................... 1,112 153,140 299,500
--------- ----------- ---------
Net increase (decrease) in cash and cash equivalents........ -- -- --
Cash and cash equivalents, beginning of period.............. -- -- --
--------- ----------- ---------
Cash and cash equivalents, end of period.................... $ -- $ -- $ --
========= =========== =========
Noncash transactions:
Warrants issued in connection with the Globalstar credit
agreement............................................... $ 22,601
=========
Conversion of redeemable preferred partnership interests
into ordinary partnership interests and receipt of
related dividend make-whole payment..................... $ 320,250
=========
Common stock issued upon conversion of convertible
preferred equivalent obligations and related interest
make-whole payment...................................... $ 320,250
=========
Supplemental information:
Interest paid during the year............................. $ 5,037 $ 20,150 $ 14,833
========= =========== =========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 46
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
On November 23, 1994, Globalstar Telecommunications Limited ("GTL") was
incorporated as an exempted company under the Companies Act 1981 of Bermuda.
GTL's financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America.
GTL's sole business is acting as a general partner of Globalstar, L.P.
("Globalstar"), a development stage limited partnership, which is building and
will operate a worldwide, low-earth orbit satellite-based wireless digital
telecommunications system (the "Globalstar System"). The Globalstar System's
world-wide coverage is designed to enable its service providers to extend modern
telecommunications services to millions of people who currently lack basic
telephone service and to enhance wireless communications in areas underserved or
not served by existing or future cellular systems, providing a
telecommunications solution in parts of the world where the build-out of
terrestrial systems cannot be economically justified.
Loral Space & Communications Ltd. ("Loral"), through a subsidiary and
intermediate limited partnerships, is the managing general partner of
Globalstar. As of December 31, 1998, Loral owned 24,760,430 (approximately 43%)
ordinary partnership interests of Globalstar, including 8,273,782 shares of
GTL's outstanding common stock. On July 6, 1998, Loral purchased 4.2 million
Globalstar ordinary partnership interests (corresponding to approximately 16.8
million equivalent shares of GTL common stock) from certain founding service
providers for $420 million in cash. The founding service providers participating
in this transaction have deposited half of their proceeds ($210 million) into
escrow accounts to be used for the purchase of Globalstar gateways and user
terminals. Concurrently, entities advised by or associated with Soros Fund
Management L.L.C. ("Soros") purchased 8.4 million shares of GTL common stock
owned by Loral for $245 million in cash. The shares of GTL common stock acquired
by Soros are restricted for U.S. securities law purposes. With respect to such
shares, GTL has agreed to file a shelf registration statement and have such
registration statement declared effective within one year from the closing date.
On April 23, 1996, a merger between Loral Corporation ("Old Loral") and
Lockheed Martin Corporation ("Lockheed Martin") was completed. In conjunction
with the merger, Old Loral's direct and indirect interests in GTL and Globalstar
were transferred to Loral.
As of December 31, 1998, GTL owned 20,242,593 (34.8%) of Globalstar's
58,180,093 outstanding ordinary partnership interests. As GTL's investment in
Globalstar is GTL's only asset, GTL is dependent upon Globalstar's success and
achievement of profitable operations for the recovery of its investment.
Globalstar is a development stage limited partnership which may encounter
problems, delays and expenses, many of which may be beyond Globalstar's control.
These may include, but are not limited to, problems related to technical
development of the system, testing, regulatory compliance, manufacturing and
assembly, potential launch failures which could delay the program schedule, the
competitive and regulatory environment in which Globalstar will operate,
marketing problems and costs and expenses that may exceed current estimates.
There can be no assurance that substantial delays in any of the foregoing
matters would not delay Globalstar's achievement of profitable operations and
affect the recoverability of GTL's investment. All expenses necessary to
maintain GTL's operations are borne by Globalstar.
Globalstar will operate in one industry segment, Global Mobile Telephony.
In each of 1998 and 1997, GTL issued two-for-one stock splits to
shareholders in the form of 100% stock dividends. Accordingly, all GTL share and
per share amounts, excluding the balance sheet and statement of stockholders'
equity have been restated to reflect the stock splits (see Note 5).
F-7
<PAGE> 47
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment in Globalstar, L.P.
GTL accounts for its investment in Globalstar's ordinary partnership
interests on the equity basis, recognizing its allocated share of net loss for
each period since its initial investment on February 22, 1995. This investment
includes the fair value of warrants received or acquired from Globalstar in 1996
and 1997 (see Notes 4 and 5). The excess carrying value of this investment over
GTL's interest in Globalstar's ordinary partners' capital is attributable to the
Globalstar System Under Construction. Amortization of this excess will begin
upon Globalstar's commencement of commercial service. Dividend income on GTL's
investment in Globalstar's Redeemable Preferred Partnership Interests includes
accretion of the carrying amount of the investment to their ultimate redemption
value prior to conversion (see Note 3).
Stock Based Compensation
As permitted by Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation," ("SFAS 123") GTL accounts for
stock-based awards to employees using the intrinsic value method in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25").
Income Taxes
GTL was incorporated in Bermuda. Bermuda does not have an income, profits
or capital gains tax. As a partner in Globalstar, however, GTL will be subject
to U.S. tax on its share of Globalstar's income that is effectively connected
with the conduct of a trade or business in the U.S. and may be subject to tax in
some foreign jurisdictions on portions of its share of the partnership's foreign
source income. Commencing with its investment in Globalstar, GTL has been
allocated its proportionate share of partnership tax losses. The ultimate
realizability of these tax loss carryforwards is dependent upon the ability of
Globalstar to generate U.S. income, subject to certain other restrictions
imposed by the U.S. Internal Revenue Code. Accordingly, no provision for Bermuda
or U.S. income tax expense or benefit is included in GTL's Statements of
Operations.
Earnings Per Share
GTL follows Statement of Financial Accounting Standards No. 128, Earnings
Per Share ("SFAS 128") in presenting basic and diluted earnings per share. Due
to GTL's net losses for the years ended December 31, 1998, 1997 and 1996,
diluted weighted average shares outstanding excludes the assumed conversion of
GTL's Convertible Preferred Equivalent Obligations prior to their conversion
into 6.7 million, 20.1 million, and 16.8 million common shares for 1998, 1997
and 1996, respectively, (see Note 3) and the assumed exercise of outstanding
options and warrants into 5.8 million, 8.5 million and 17.4 million common
shares, for 1998, 1997 and 1996, respectively, as their effect would have been
anti-dilutive. Accordingly, basic and diluted weighted average common shares
outstanding are based on the weighted average common shares outstanding for
1998, 1997 and 1996.
Comprehensive Income
Effective January 1, 1998, GTL adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("SFAS 130"). During the
periods presented, GTL had no changes in equity from transactions or other
events and circumstances from non-owner sources. Accordingly, a statement of
comprehensive loss has not been provided as comprehensive loss equals net loss
for all periods presented.
F-8
<PAGE> 48
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. REDEMPTION OF CONVERTIBLE PREFERRED EQUIVALENT OBLIGATIONS AND CONVERSION OF
REDEEMABLE PREFERRED PARTNERSHIP INTERESTS
During 1996, GTL issued 6.2 million shares of its 6 1/2% Convertible
Preferred Equivalent Obligations due 2006, par value $50 per share (the
"CPEOs"). The net proceeds of $299.5 million were used by GTL to purchase
4,769,230 of 6 1/2% convertible redeemable preferred partnership interests
("6 1/2% RPPIs") in Globalstar. Costs incurred in connection with the issuance
of the CPEOs were netted against the proceeds of the offering. Interest expense
included accretion of the carrying value of the CPEOs to redemption value prior
to their conversion.
On April 30, 1998, GTL redeemed all of its outstanding CPEOs. As of April
30, 1998, all the holders of the CPEOs had converted their holdings into
20,123,230 shares of GTL common stock. As a result of such conversion, the
6 1/2% RPPIs were converted into 4,769,230 Globalstar ordinary partnership
interests. In connection with the redemption, GTL issued 539,322 additional
shares of GTL common stock in satisfaction of a required interest make-whole
payment. A corresponding dividend make-whole payment was also made by Globalstar
for which an additional 134,830 Globalstar ordinary partnership interests were
issued. Such make-whole payments are reflected as dividend income and interest
expense in the accompanying statements of operations.
4. SENIOR NOTE WARRANTS
On February 13, 1997, GTL and Globalstar sold units consisting of $500
million aggregate principal amount of Globalstar's 11 3/8% Senior Notes due 2004
and warrants to purchase 4,129,000 shares of GTL common stock in a private
offering. GTL was allocated $12,210,000 of the offering proceeds for these
warrants which were used to purchase warrants for Globalstar's ordinary
partnership interests.
There were 4,069,325 warrants outstanding as of December 31, 1998, that
were exercisable at a price of $17.394 per share and expire on February 15,
2004. Any proceeds from the exercise of the warrants will be used to purchase
Globalstar ordinary partnership interests.
5. SHAREHOLDERS' EQUITY
Common Stock
In May 1997 and June 1998, GTL issued two-for-one stock splits in the form
of a 100% stock dividend. Accordingly, all GTL share and per share amounts,
excluding the balance sheets and statements of shareholders' equity, have been
restated to reflect the two-for-one stock splits. Prior to the stock splits,
GTL's equity securities and convertible securities were represented by
equivalent Globalstar partnership interests on an approximate one-for-one basis.
Globalstar's partnership interests were not affected by the GTL stock splits
and, accordingly, GTL's equity securities and convertible securities are now
represented by equivalent Globalstar partnership interests on an approximate
four-for-one basis.
Partners in Globalstar have the right to exchange their ordinary
partnership interests into common stock of GTL on an approximate one-for-four
basis following the Full Constellation Date, as defined, of the Globalstar
System and after at least two consecutive quarters of positive net income,
subject to certain annual limitations. GTL has reserved approximately 152
million shares for this purpose.
8% Convertible Preferred Stock
On January 21, 1999, GTL sold $350 million of 8% Convertible Preferred
Stock due 2011 (the "Preferred Stock"). The Preferred Stock has an aggregate
liquidation preference equal to its $350 million aggregate redemption value and
a mandatory redemption date of February 15, 2011. Dividends accrue at 8% per
annum and are payable quarterly. The Preferred Stock is convertible into shares
of GTL common stock at
F-9
<PAGE> 49
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. SHAREHOLDERS' EQUITY -- (CONTINUED)
a conversion price of $23.2563 per share, subject to adjustment for certain
antidilution events. As of January 21, 1999, the Preferred Stock was convertible
into 15,049,685 shares of GTL common stock. Loral purchased $150 million face
amount of the Preferred Stock issued, in order to maintain its ownership
interest in Globalstar.
The Preferred Stock has limited voting rights. With respect to dividend
rights and rights upon liquidation, winding up and dissolution, the Preferred
Stock ranks senior to common stock and to all other future series of preferred
stock or other class of capital stock of GTL, the terms of which do not
expressly provide that such series or class ranks senior to or on parity with
the Preferred Stock. Prior to its mandatory redemption date, the Preferred Stock
is redeemable (at a premium which declines over time) by GTL beginning in
February 2002 (or beginning in February 2000 if GTL's stock price exceeds
certain defined price ranges). Payments due on the Preferred Stock may be made
in cash, GTL common stock or a combination of both at the option of GTL. In the
event accrued and unpaid dividends accumulate to an amount equal to six
quarterly dividends, holders of the majority of the outstanding shares of
Preferred Stock will be entitled to elect additional members to GTL's Board of
Directors.
GTL used the net proceeds of approximately $340 million to purchase $350
million face amount of 8% convertible redeemable preferred partnership interests
of Globalstar having terms substantially similar to those of the Preferred
Stock.
Guarantee Warrants
On December 15, 1995, Globalstar entered into a $250 million credit
agreement (the "Globalstar Credit Agreement") with a group of banks. Lockheed
Martin, Space Systems/Loral ("SS/L"), a subsidiary of Loral, and certain
Globalstar partners guaranteed $206.3 million, $11.7 million and $32.0 million
of the Globalstar Credit Agreement, respectively. In addition, Loral agreed to
indemnify Lockheed Martin for any liability in excess of $150 million. In
exchange for the guarantee and indemnity, GTL issued warrants to purchase
16,741,272 shares of GTL common stock at $6.625 per share as follows: Loral and
SS/L 4,550,088 warrants, Lockheed Martin 10,044,760 warrants and certain
Globalstar partners 2,146,424 warrants. As part of this transaction, Globalstar
issued GTL warrants to purchase an additional 1,131,168 ordinary partnership
interests of Globalstar. In addition, GTL distributed to the holders of its
common stock rights to subscribe for and purchase 4,524,672 GTL shares for a
price of $6.625 per share of which Loral received rights to purchase 636,688
shares and Loral agreed to purchase all shares not purchased upon exercise of
the rights. In March 1997, the warrants to purchase 16,741,272 shares of GTL
common stock were exercised for proceeds of approximately $110.9 million. In May
1997, GTL shareholders exercised the rights to purchase 4,524,672 shares of GTL
common stock (including 700,696 shares purchased by Loral) for $6.625 per share
for proceeds of $30.0 million. GTL used the total proceeds of $140.9 million to
purchase 5,316,486 Globalstar ordinary partnership interests for $26.50 per
interest.
Stock Option Arrangements
Officers, directors and employees of Globalstar are eligible to participate
in GTL's 1994 Stock Option Plan (the "Plan"), which provides for nonqualified
and incentive stock options. The Plan is administered by a stock option
committee (the "Committee"), appointed by the GTL Board of Directors. The
Committee determines the option price, exercise date and the expiration date of
each option (provided no option shall be exercisable after ten years from the
date of grant). Proceeds received by GTL for options exercised will in turn be
used to purchase Globalstar ordinary partnership interests under a four-for-one
exchange arrangement.
As described in Note 2, GTL accounts for its stock-based compensation using
the intrinsic value method
F-10
<PAGE> 50
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. SHAREHOLDERS' EQUITY -- (CONTINUED)
in accordance with APB 25, and its related interpretations. Accordingly, no
compensation expense based on the fair value method has been recognized in GTL's
financial statements for stock-based compensation.
SFAS No. 123 requires the disclosure of pro forma net income and earnings
per share as though GTL had adopted the fair value method. Under SFAS 123, the
fair value of stock-based awards to employees is calculated through the use of
option pricing models, even though such models were developed to estimate the
fair value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from GTL's stock option awards. These
models also require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated
values. GTL's calculations were made using the Black-Scholes option pricing
model with the following weighted average assumptions: expected life, six months
following vesting; stock volatility, 30%; risk free interest rates, 4.44% to
6.55% based on date of grant in 1998 and 1997, and 6.25% in 1996; and no
dividends during the expected term. GTL's calculations are based on a multiple
option valuation approach and forfeitures are recognized as they occur. If the
computed fair values of the 1998, 1997 and 1996 awards had been amortized to
Globalstar's expense over the vesting period of the awards, GTL's pro forma net
loss would have increased by $854,000 ($0.01 per diluted share) to $51,415,000
($0.68 per diluted share) in 1998, by $685,000 ($0.01 per diluted share) to
$24,837,000 ($0.44 per diluted share) in 1997, and $223,000 to $15,303,000
($0.38 per diluted share) in 1996.
F-11
<PAGE> 51
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. SHAREHOLDERS' EQUITY -- (CONTINUED)
A summary of the status of the GTL stock option plan for the years ended
December 31, 1998, 1997 and 1996 is presented below:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
--------- ---------
<S> <C> <C>
Outstanding at January 1, 1996.............................. 441,600 4.1563
Granted (weighted average fair value of $4.51 per share).... 488,000 13.7250
Forfeited................................................... (4,800) 4.1563
--------- --------
Outstanding at December 31, 1996............................ 924,800 9.2060
Granted (weighted average fair value of $7.10 per share).... 527,800 21.9650
Forfeited................................................... (58,800) 11.1610
Exercised................................................... (10,360) 4.1563
--------- --------
Outstanding at December 31, 1997............................ 1,383,440 $14.0286
Granted (weighted average fair value of $5.73 per share).... 810,400 19.4155
Forfeited................................................... (54,000) 18.5642
Exercised................................................... (18,150) 4.1563
--------- --------
Outstanding at December 31, 1998............................ 2,121,690 $16.0552
--------- --------
Options exercisable at December 31, 1998.................... 291,890 $ 7.8347
========= ========
Options exercisable at December 31, 1997.................... 95,240 $ 4.1563
========= ========
At December 31, 1996 no options were exercisable.
</TABLE>
The options generally expire ten years from the date of grant and become
exercisable over the period stated in each option, generally ratably over a
five-year period. All options granted were non-qualified stock options with an
exercise price equal to fair market value at the date of grant. As of December
31, 1998, 349,800 shares of common stock were available for future grant under
the Plan.
The following table summarizes information about GTL's outstanding stock
options at December 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
---------------------------------- ------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICE RANGE NUMBER LIFE-YEARS PRICE NUMBER PRICE
- -------------------- --------- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$4.16................................... 379,490 6.70 $ 4.1563 177,890 $4.1563
$12.59 to $16.38........................ 1,080,800 8.71 13.7417 114,000 13.5747
$21.47 to $29.78........................ 661,400 8.90 26.6629
--------- ---- -------- ------- -------
2,121,690 8.41 $16.0552 291,890 $7.8347
========= ==== ======== ======= =======
</TABLE>
Stock Option Transactions
GTL and Globalstar have agreed that upon the exercise of options under the
GTL 1994 Stock Option Plan by optionees who are employees of Globalstar or any
of its controlling entities, Globalstar will issue to GTL one Globalstar
ordinary partnership interest for every four shares of common stock issued to
the
F-12
<PAGE> 52
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. SHAREHOLDERS' EQUITY -- (CONTINUED)
optionee. During 1998 and 1997, GTL purchased 4,538 and 2,590 Globalstar
ordinary partnership interests, respectively, with the proceeds from the
issuance of the common stock pursuant to GTL option exercises.
6. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------
MARCH 31, JUNE 30, SEPT. 30,(*) DEC. 31,
--------- -------- ------------ --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1998:
Equity in net loss applicable to ordinary
partnership interests of Globalstar.............. $7,290 $13,279 $14,555 $15,437
Net loss........................................... 7,290 13,279 14,555 15,437
Net loss per share--basic and diluted.............. 0.12 0.18 0.18 0.19
1997:
Equity in net loss applicable to ordinary
partnership interests of Globalstar.............. $4,380 $ 6,323 $ 7,278 $ 6,171
Net loss........................................... 4,380 6,323 7,278 6,171
Net loss per share--basic and diluted.............. 0.11 0.11 0.12 0.10
</TABLE>
- ---------------
(*) Results of operations for the quarter ended September 30, 1998, include
GTL's proportionate share of Globalstar's $17.3 million loss from launch
failure.
F-13
<PAGE> 53
INDEPENDENT AUDITORS' REPORT
To the Partners of Globalstar, L.P.:
We have audited the accompanying consolidated balance sheets of Globalstar,
L.P. (a development stage limited partnership) and its subsidiaries
(collectively, the "Partnership") as of December 31, 1998 and 1997, and the
related consolidated statements of operations, partners' capital and
subscriptions receivable and cash flows for each of the three years in the
period ended December 31, 1998 and cumulative. These consolidated financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Partnership at December 31,
1998 and 1997, and the results of its operations and its cash flows for the
periods stated above in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
San Jose, California
February 16, 1999
F-14
<PAGE> 54
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEETS
(In thousands, except partnership interests)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 56,739 $ 464,154
Insurance proceeds receivable............................. 28,500
Production gateways and user terminals.................... 145,509 28,513
Other current assets...................................... 5,540 1,113
---------- ----------
Total current assets.............................. 236,288 493,780
Property and equipment, net................................. 4,958 2,574
Globalstar System under construction:
Space segment............................................. 1,678,514 1,252,569
Ground segment............................................ 686,848 374,344
---------- ----------
2,365,362 1,626,913
Deferred financing costs.................................... 15,845 14,631
Other assets................................................ 47,572 11,155
---------- ----------
Total assets...................................... $2,670,025 $2,149,053
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable.......................................... $ 14,240 $ 1,272
Payable to affiliates..................................... 216,542 105,357
Vendor financing liability................................ 127,180
Accrued expenses.......................................... 11,679 8,312
Accrued interest.......................................... 31,549 28,869
---------- ----------
Total current liabilities......................... 401,190 143,810
Deferred revenues........................................... 25,811 23,652
Vendor financing liability, net of current portion.......... 243,990 197,723
Deferred interest payable................................... 458 420
11 3/8% Senior notes payable ($500,000 principal amount).... 479,566 475,579
11 1/4% Senior notes payable ($325,000 principal amount).... 306,949 303,641
10 3/4% Senior notes payable ($325,000 principal amount).... 320,997 320,311
11 1/2% Senior notes payable ($300,000 principal amount).... 288,663
Commitments and contingencies (Notes 3,5,6,7,8,12 and 14)
Redeemable preferred partnership interests (4,769,230
outstanding at December 31, 1997)......................... 303,089
Ordinary partners' capital:
Ordinary partnership interests (58,180,093 and 52,319,076
outstanding at December 31, 1998 and 1997,
respectively).......................................... 573,421 368,618
Warrants.................................................. 28,980 12,210
---------- ----------
Total ordinary partners' capital.................. 602,401 380,828
---------- ----------
Total liabilities and partners' capital........... $2,670,025 $2,149,053
========== ==========
</TABLE>
See notes to consolidated financial statements.
F-15
<PAGE> 55
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per ordinary partnership interest)
<TABLE>
<CAPTION>
CUMULATIVE
MARCH 23,
1994
YEARS ENDED DECEMBER 31, (COMMENCEMENT OF
------------------------------------------ OPERATIONS) TO
1996 1997 1998 DECEMBER 31, 1998
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Operating expenses:
Development costs...................... $ 42,152 $ 62,478 $ 86,253 $275,016
Marketing, general and
administrative...................... 18,873 25,593 43,116 111,702
Loss from launch failure............... 17,315 17,315
--------- --------- -------- --------
Total operating expenses................. 61,025 88,071 146,684 404,033
Interest income.......................... 6,379 20,485 17,141 57,777
--------- --------- -------- --------
Net loss................................. 54,646 67,586 129,543 346,256
Preferred distributions and related
increase in redeemable preferred
partnership interests.................. 17,323 21,202 22,197 60,722
--------- --------- -------- --------
Net loss applicable to ordinary
partnership interests.................. $ 71,969 $ 88,788 $151,740 $406,978
========= ========= ======== ========
Net loss per ordinary partnership
interest--basic and diluted............ $ 1.53 $ 1.74 $ 2.69
========= ========= ========
Weighted average ordinary partnership
interests outstanding--basic and
diluted................................ 47,000 50,981 56,323
========= ========= ========
</TABLE>
See notes to consolidated financial statements.
F-16
<PAGE> 56
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF ORDINARY PARTNERS' CAPITAL AND
SUBSCRIPTIONS RECEIVABLE
(IN THOUSANDS)
ORDINARY PARTNERS' CAPITAL
<TABLE>
<CAPTION>
ORDINARY
PARTNERSHIP
INTERESTS WARRANTS TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Capital subscription, March 23, 1994........................
General partner (18,000 interests)........................ $ 50,000 50$,000....
Limited partner (18,000 interests)........................ 225,000 225,000...
Cost of raising capital..................................... (2,400) (2,400)
Net losses -- pre-capital subscription period:
Year ended December 31, 1993.............................. (11,510) (11,510)
January 1, 1994 to March 22, 1994......................... (6,872) (6,872)
Net loss applicable to ordinary partnership
interests -- March 23, 1994 (commencement of operations)
to December 31, 1994...................................... (26,244) (26,244)
Capital subscription, December 31, 1994
(1,000 limited partnership interests)..................... 18,750 18,750
---------- ---------- --------
Capital balances, December 31, 1994......................... 246,724 246,724
Sale of 10,000 general partnership interests to GTL,
February 22, 1995......................................... 185,750 185,750
Warrant agreement in connection with debt guarantee......... $ 22,601 22,601
Net loss applicable to ordinary partnership
interests -- Year ended December 31, 1995................. (68,237) (68,237)
---------- ---------- --------
Capital balances -- December 31, 1995....................... 364,237 22,601 386,838
Stock compensation transactions by managing general partner
for the benefit of Globalstar............................. 317 317
Net loss applicable to ordinary partnership
interests -- Year ended December 31, 1996................. (71,969) (71,969)
---------- ---------- --------
Capital balances -- December 31, 1996....................... 292,585 22,601 315,186
Exercise of warrants in March 1997.......................... 163,488 (22,601) 140,887
Warrant agreement in connection with issuance
of senior notes........................................... 12,210 12,210
Stock compensation transactions by managing general partner
for the benefit of Globalstar............................. 1,290 1,290
Sale of ordinary partnership interests in connection with
GTL stock option exercises................................ 43 43
Net loss applicable to ordinary partnership
interests -- Year ended December 31, 1997................. (88,788) (88,788)
---------- ---------- --------
Capital balances -- December 31, 1997....................... 368,618 12,210 380,828
Exercise of warrants........................................ 1,213 (176) 1,037
Stock compensation transactions by managing general partner
for the benefit of Globalstar............................. 1,284 1,284
Sale of ordinary partnership interests in connection with
GTL stock option exercises................................ 75 75
Conversion of redeemable preferred partnership interests
into ordinary partnership interests and related dividend
make-whole payment -- April 1998.......................... 320,250 320,250
Warrants issued to China Telecom to acquire ordinary
partnership interests..................................... 31,917 31,917
Exercise of warrants by China Telecom -- April 1998......... 33,721 (14,971) 18,750
Net loss applicable to ordinary partnership
interests -- Year ended December 31, 1998................. (151,740) (151,740)
---------- ---------- --------
Capital balances -- December 31, 1998....................... $ 573,421 $ 28,980 $602,401
========== ========== ========
SUBSCRIPTIONS RECEIVABLE
Capital subscriptions:
March 23, 1994............................................ $ 275,000 $275,000
December 31, 1994......................................... 18,750 18,750
---------- --------
Total subscriptions....................................... 293,750 293,750
---------- --------
Cash received............................................. (148,661) (148,661)
Credit for pre-capital subscription costs................. (11,309) (11,309)
---------- --------
(159,970) (159,970)
---------- --------
Subscriptions receivable, December 31, 1994............... 133,780 133,780
Cash received........................................... (133,780) (133,780)
---------- --------
Subscriptions receivable, December 31, 1995, 1996, 1997
and 1998................................................ $ -- $ --
========== ========
</TABLE>
See notes to consolidated financial statements.
F-17
<PAGE> 57
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
CUMULATIVE
MARCH 23,
1994
(COMMENCEMENT
OF
YEARS ENDED DECEMBER 31, OPERATIONS) TO
----------------------------------- DECEMBER 31,
1996 1997 1998 1998
--------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Operating activities:
Net loss.................................................. $ (54,646) $ (67,586) $ (129,543) $ (346,256)
Loss from launch failure.................................. 17,315 17,315
Deferred revenues......................................... 1,739 2,159 25,811
Stock compensation transactions........................... 317 1,290 1,284 2,891
Depreciation and amortization............................. 724 1,016 1,730 3,983
Changes in operating assets and liabilities:
Other current assets.................................... (100) (507) (4,427) (5,540)
Other assets............................................ (107) (706) (9,768) (10,581)
Accounts payable........................................ 1,723 (2,017) 13,654 14,855
Payable to affiliates................................... (3,553) (1,488) 79,271 79,094
Accrued expenses........................................ 2,147 1,383 3,367 11,679
--------- ---------- ---------- -----------
Net cash used in operating activities....................... (51,756) (68,615) (24,958) (206,749)
--------- ---------- ---------- -----------
Investing activities:
Globalstar System under construction...................... (490,776) (735,880) (946,264) (2,573,177)
Insurance proceeds from launch failure.................... 162,000 162,000
Payable to affiliates for Globalstar System under
construction............................................ 19,921 42,908 31,914 128,648
Capitalized interest accrued.............................. 5,211 39,552 16,757 61,520
Accounts payable.......................................... 608 (1,112) (686) (1,123)
Vendor financing liability................................ 88,475 67,029 173,447 371,170
--------- ---------- ---------- -----------
Cash used for Globalstar System........................... (376,561) (587,503) (562,832) (1,850,962)
Production gateways and user terminals.................... (28,513) (116,996) (145,509)
Purchases of property and equipment....................... (935) (1,870) (4,114) (8,926)
Deferred FCC license costs................................ (1,634) (1,652) (892) (8,999)
Purchases of investments.................................. (126,923)
Maturity of investments................................... 126,923
--------- ---------- ---------- -----------
Net cash used in investing activities....................... (379,130) (619,538) (684,834) (2,014,396)
--------- ---------- ---------- -----------
Financing activities:
Net proceeds from issuance of $500,000, 11 3/8% Senior
Notes................................................... 472,090 472,090
Proceeds from warrants issued in connection with $500,000,
11 3/8%
Senior Notes............................................ 12,210 12,210
Net proceeds from issuance of $325,000 11 1/4% Senior
Notes................................................... 301,850 301,850
Net proceeds from issuance of $325,000 10 3/4% Senior
Notes................................................... 320,197 320,197
Net proceeds from issuance of $300,000 11 1/2% Senior
Notes................................................... 287,552 287,552
Deferred financing costs.................................. (250) (2,125)
Proceeds from capital subscriptions receivable............ 282,441
Payment of accrued capital raising costs.................. (2,400)
Sale of ordinary partnership interests.................... 140,930 19,862 346,542
Sale of redeemable preferred partnership interests to
GTL..................................................... 299,500 299,500
Distributions on redeemable preferred partnership
interests............................................... (14,833) (20,150) (5,037) (40,020)
Prepaid interest on redeemable preferred partnership
interests............................................... 47 47
Borrowings under long-term revolving credit facility...... 106,000 65,000 171,000
Repayment of borrowings under long-term revolving credit
facility................................................ (10,000) (161,000) (171,000)
--------- ---------- ---------- -----------
Net cash provided by financing activities................... 380,464 1,131,127 302,377 2,277,884
--------- ---------- ---------- -----------
Net increase (decrease) in cash and cash equivalents........ (50,422) 442,974 (407,415) 56,739
Cash and cash equivalents, beginning of period.............. 71,602 21,180 464,154
--------- ---------- ---------- -----------
Cash and cash equivalents, end of period.................... $ 21,180 $ 464,154 $ 56,739 $ 56,739
========= ========== ========== ===========
Noncash transactions:
Payable to affiliates..................................... $ 9,308
===========
Accrual of capital raising costs.......................... $ 2,400
===========
Deferred FCC license costs................................ $ 2,235
===========
Warrants issued in exchange for debt guarantee............ $ 22,601
===========
Increase in redemption value of preferred partnership
interests............................................... $ 2,537 $ 1,052 $ 351 $ 3,940
========= ========== ========== ===========
Ordinary partnership interests distributed upon conversion
of redeemable preferred partnership interests and
related dividend make-whole payment..................... $ 320,250 $ 320,250
========== ===========
Warrants issued to China Telecom to acquire ordinary
partnership interests................................... $ 31,917 $ 31,917
========== ===========
Supplemental information:
Interest paid............................................. $ 674 $ 48,528 $ 147,580 $ 196,920
========= ========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-18
<PAGE> 58
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Globalstar, L.P. ("Globalstar"), a Delaware limited partnership with a
December 31 fiscal year end, was formed in November 1993. It had no activities
until March 23, 1994, when it received capital subscriptions for $275 million
and commenced operations. The accompanying financial statements reflect the
operations of the Partnership from that date.
On April 23, 1996, a merger between Loral Corporation ("Old Loral") and
Lockheed Martin Corporation ("Lockheed Martin") was completed. In conjunction
with the merger, Old Loral's direct and indirect interests in Globalstar,
Globalstar Telecommunications Limited ("GTL"), Space Systems/Loral, Inc.
("SS/L") and other affiliated businesses, as well as certain other assets and
liabilities, were transferred to Loral Space & Communications Ltd., a Bermuda
company (and with its subsidiaries "Loral").
The managing general partner of Globalstar is Loral/QUALCOMM Satellite
Services, L.P. ("LQSS"). The general partner of LQSS is Loral/QUALCOMM
Partnership, L.P. ("LQP"), a Delaware limited partnership comprised of
subsidiaries of Loral and Qualcomm. The managing general partner of LQP is Loral
General Partner, Inc. ("LGP"), a subsidiary of Loral.
Globalstar was founded to design, construct and operate a worldwide,
low-earth orbit ("LEO") satellite-based wireless digital telecommunications
system (the "Globalstar System"). The Globalstar System's worldwide coverage is
designed to enable its service providers to extend modern telecommunications
services to millions of people who currently lack basic telephone service and to
enhance wireless communications in areas underserved or not served by existing
or future cellular systems, providing a telecommunications solution in parts of
the world where the build-out of terrestrial systems cannot be economically
justified. On January 31, 1995, the U.S. Federal Communications Commission
("FCC") granted the necessary license to a wholly-owned subsidiary of LQP to
construct, launch and operate the Globalstar System. LQP has agreed to use such
license for the exclusive benefit of Globalstar.
On November 23, 1994, GTL was incorporated as an exempted company under the
Companies Act 1981 of Bermuda. GTL's sole business is acting as a general
partner of Globalstar. On February 14, 1995, GTL completed an initial public
offering of 40,000,000 shares of common stock resulting in net proceeds of
$185,750,000. Effective February 22, 1995, GTL purchased 10,000,000 partnership
interests from Globalstar with the net proceeds of the initial public offering.
The partners in Globalstar have the right to convert their partnership interests
into shares of GTL common stock on an approximate one-for-four basis following
the Full Constellation Date, as defined, of the Globalstar System and after at
least two consecutive reported fiscal quarters of positive net income, subject
to certain annual limitations. As of December 31, 1998, GTL owned 20,242,593
(34.8%) of Globalstar's outstanding ordinary partnership interests.
As of December 31, 1998, Loral owned 24,760,430 (approximately 43%)
ordinary partnership interests of Globalstar, including 8,273,782 shares of
GTL's outstanding common stock. On July 6, 1998, Loral purchased 4.2 million
Globalstar ordinary partnership interests (corresponding to approximately 16.8
million equivalent shares of GTL common stock) from certain founding service
providers for $420 million in cash. The founding service providers participating
in this transaction have deposited half of their proceeds ($210 million) into
escrow accounts to be used for the purchase of Globalstar gateways and user
terminals. Concurrently, entities advised by or associated with Soros Fund
Management L.L.C. ("Soros") purchased 8.4 million shares of GTL common stock
owned by Loral for $245 million in cash. Soros acquired from Loral shares of GTL
common stock, which are restricted for U.S. securities law purposes. With
respect to such shares, GTL has agreed to file a shelf registration statement
and have such registration statement declared effective within one year from the
closing date.
Globalstar will operate in one industry segment, Global Mobile Telephony.
F-19
<PAGE> 59
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND BUSINESS -- (CONTINUED)
In each of 1998 and 1997, GTL issued two-for-one stock splits to
shareholders in the form of 100% stock dividends. Accordingly, all GTL share and
per share amounts, have been restated to reflect the stock splits (see Note 11).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Company
Globalstar is devoting substantially all of its present efforts to the
launch, licensing, construction and testing of the Globalstar System, and
establishing its business. Globalstar's planned principal operations have not
commenced and accordingly, Globalstar is a development stage company as defined
in Statement of Financial Accounting Standards No. 7, Accounting and Reporting
by Development Stage Enterprises ("SFAS 7").
Globalstar may encounter problems, delays and expenses, many of which may
be beyond Globalstar's control. These may include, but are not limited to,
launch delays and launch failures (see Note 5), in-orbit failures, problems
related to technical development of the system, testing, regulatory compliance,
manufacturing and assembly, the competitive and regulatory environment in which
Globalstar will operate, marketing problems and costs and expenses that may
exceed current estimates. There can be no assurance that substantial delays in
any of the foregoing matters would not delay Globalstar's achievement of
profitable operations.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the amounts of expenses reported for the period. Actual results
could differ from estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Globalstar
and its wholly-owned subsidiaries, including Globalstar Capital Corporation. All
intercompany accounts and transactions are eliminated.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid
investments with original maturities of three months or less.
Concentration of Credit Risk
Financial instruments which potentially subject Globalstar to
concentrations of credit risk are cash and cash equivalents. Globalstar's cash
and cash equivalents are maintained with high-credit-quality financial
institutions. The creditworthiness of such institutions is generally substantial
and management believes that its credit evaluation, approval and monitoring
processes mitigate potential credit risks.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the respective
assets, generally three to eight years. Leasehold improvements are amortized
over the shorter of the lease term or the estimated useful lives of the
improvements.
F-20
<PAGE> 60
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Globalstar System Under Construction
Globalstar System under construction expenditures include and will include
progress payments and costs for the design, manufacture, test, launch and launch
insurance for 52 low-earth orbit satellites, including four in-orbit spare
satellites (the "Space Segment"), and ground and satellite operations control
centers, gateways and user terminals (the "Ground Segment").
Globalstar intends to depreciate the Space Segment over 7 1/2 years and to
depreciate the Ground Segment over eight years as assets are placed in service.
Commercial service is currently anticipated to commence in September 1999.
Losses from unsuccessful launches and in-orbit failures of Globalstar's
satellites, net of insurance proceeds, are recorded in the period incurred (see
Note 5).
Costs incurred related to the development of certain technologies, pursuant
to a cost sharing arrangement included in Globalstar's contract with Qualcomm,
and for the engineering and development of user terminals, are being charged to
operations as incurred.
Deferred Financing Costs and Interest
Deferred financing costs represent costs incurred in obtaining a long-term
credit facility and the estimated fair value of a warrant agreement in
connection with a guarantee of this facility (see Note 7). Such costs are being
amortized over the term of the credit facility as interest. Total amortization
of deferred financing costs for the years ended December 31, 1998, 1997 and 1996
was approximately $4.9 million, $4.9 million and $5.1 million, respectively.
Accumulated amortization totaled $15.0 million and $10.1 million at December 31,
1998 and 1997, respectively.
Interest costs incurred during the construction of the Globalstar System
are capitalized. Total interest costs capitalized for the years ended December
31, 1998, 1997 and 1996 was approximately $178.7 million, $95.9 million and $9.9
million, respectively.
Other Assets
Other assets includes the fair value of warrants issued to China Telecom
(see Note 11) and expenditures, including license fees, legal fees and direct
engineering and other technical support, for obtaining the required FCC
licenses. Such amounts will be amortized over 7 1/2 years, the expected life of
the first generation satellites.
Deferred Revenues
Advance payments from Globalstar strategic partners to secure exclusive
rights to Globalstar service territories are deferred. These advance payments
are recoverable by the service providers, through credits against a portion of
the service fees payable to Globalstar, after the commencement of services.
Vendor Financing
Globalstar's contracts with SS/L and Qualcomm call for a portion of the
contract price to be deferred as vendor financing and to be repaid, over as long
as a five-year period, commencing upon various dates (see Note 6). Amounts
deferred as vendor financing are capitalized as costs of the assets to which
they relate as incurred.
F-21
<PAGE> 61
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Notes Payable
Interest accrues on the $500 million, $325 million, $325 million and $300
million principal amount senior notes at 11 3/8%, 11 1/4%, 10 3/4% and 11 1/2%
per annum, respectively. Globalstar is increasing the carrying value of the
senior notes payable to their ultimate redemption value.
Preferred Partnership Distributions
Distributions are accrued on redeemable preferred partnership interests at
the stated rate per annum. Globalstar increases the carrying value of redeemable
preferred partnership interests to their ultimate redemption value.
Distributions are recorded as reductions against the ordinary partnership
capital accounts (see Note 10).
Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS 123") Globalstar accounts for
stock-based awards to employees using the intrinsic value method in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25").
Net (Loss) Income Allocation
Net losses are allocated among the partners in proportion to their
percentage interests until the adjusted capital account of a partner is reduced
to zero, then in proportion to, and to the extent of, positive adjusted capital
account balances and then to the general partners.
Net income is allocated among the partners in proportion to, and to the
extent of, the distributions made to the partners from distributable cash flow
for the period, as defined, then in proportion to and to the extent of negative
adjusted capital account balances and then in accordance with percentage
interests.
Under the terms of the Partnership Agreement, adjusted partners' capital
accounts are calculated in accordance with the principles of U.S. Treasury
Regulations governing the allocation of taxable income and loss including
adjustments to reflect the fair market value (including intangibles) of
partnership assets upon certain capital transactions including a sale of
partnership interests. Such adjustments are not permitted under generally
accepted accounting principles and, accordingly, are not reflected in the
accompanying consolidated financial statements.
Income Taxes
Globalstar was organized as a Delaware limited partnership. As such, no
income tax provision (benefit) is included in the accompanying consolidated
financial statements since U.S. income taxes are the responsibility of its
partners. Generally, taxable income (loss), deductions and credits of Globalstar
will be passed proportionately through to its partners.
Earnings Per Ordinary Partnership Interest
Globalstar follows Statement of Financial Accounting Standards No. 128,
Earnings per Share ("SFAS 128") in presenting basic and diluted earnings per
interest. Due to Globalstar's net losses for the years ended December 31, 1998,
1997 and 1996, diluted weighted average ordinary partnership interests
outstanding excludes the assumed conversion of the 6 1/2% redeemable preferred
partnership interests ("6 1/2% RPPIs") prior to their conversion into 1.6
million, 4.8 million and 4.0 million ordinary partnership interests for
F-22
<PAGE> 62
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
1998, 1997 and 1996, respectively (see Note 10) and excludes the assumed
issuance of ordinary partnership interests upon exercise of GTL's outstanding
options and warrants of 2.6 million, 2.8 million and 5.5 million ordinary
partnership interests for 1998, 1997, and 1996, respectively, as their effect
would have been anti-dilutive. Accordingly, basic and diluted weighted average
ordinary partnership interests outstanding is based on net loss applicable to
ordinary partnership interests and the weighted average ordinary partnership
interests outstanding for 1998, 1997 and 1996.
Comprehensive Income
Effective January 1, 1998, Globalstar adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130").
During the periods presented, Globalstar had no changes in ordinary partner's
capital from transactions or other events and circumstances from non-owners
sources. Accordingly, a statement of comprehensive loss has not been provided as
comprehensive loss equals net loss for all periods presented.
New Accounting Pronouncements
For the year ended 1998, Globalstar adopted Statement of Financial
Accounting Standards No. 132, Employers' Disclosures About Pensions and Other
Postretirement Benefits ("SFAS 132"). See Note 12.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"),
which requires that all derivative instruments be recorded on the balance sheet
at their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. Globalstar has not yet determined the impact that the
adoption of SFAS 133 will have on its earnings or financial position. Globalstar
is required to adopt SFAS 133 on January 1, 2000.
Reclassifications
Certain reclassifications have been made to conform prior year amounts to
the current year presentation.
3. PRODUCTION GATEWAYS AND USER TERMINALS
In order to accelerate the deployment of gateways around the world,
Globalstar has agreed to help finance approximately $80 million of the cost of
up to 32 of the initial 38 gateways. The contracts for the 38 gateways aggregate
approximately $345 million. Ericsson, Qualcomm and Telital are in the process of
manufacturing approximately 300,000 handheld and fixed user terminals under
contracts totaling $353 million from Globalstar and its service providers.
Globalstar has agreed to finance approximately $151 million of the cost of these
handheld and fixed user terminals. Globalstar expects to recoup such costs upon
the acceptance by the service providers of the gateways and user terminals.
Amounts reflected in the consolidated balance sheets represent the amounts
financed under the above contracts as of December 31, 1998 and 1997.
F-23
<PAGE> 63
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
------ -------
(IN THOUSANDS)
<S> <C> <C>
Leasehold improvements...................................... $1,546 $ 612
Furniture and office equipment.............................. 7,380 4,200
------ -------
8,926 4,812
Accumulated depreciation and amortization................... (3,968) (2,238)
------ -------
$4,958 $ 2,574
====== =======
</TABLE>
Globalstar's property and equipment is located in the U.S. Depreciation and
amortization expense for the years ended December 31, 1998, 1997 and 1996, was
$1.7 million, $1.0 million, and $0.7 million, respectively.
5. GLOBALSTAR SYSTEM UNDER CONSTRUCTION
The Space Segment
Globalstar has a contract with SS/L, an affiliate of Loral and a limited
partner of LQSS, to design, manufacture, test and launch 56 satellites. The
price of the contract consists of three parts, the first for non-recurring work
at a price not to exceed $117.1 million, the second for recurring work at a
fixed price of $15.6 million per satellite (including certain performance
incentives of up to approximately $1.9 million per satellite) and the third for
launch services and insurance. In addition, Globalstar agreed to purchase from
SS/L eight additional satellites at a cost of $180 million.
Globalstar has agreed, subject to receipt of its partners' approval, to
purchase from SS/L 12 additional spare satellites for which the cost and payment
terms have not as yet been negotiated. It is anticipated that approximately $100
million will be expended for these spare satellites by commencement of
commercial service. On September 9, 1998, a malfunction of a Zenit 2 rocket,
launched from the Baikonur Cosmodrome in Kazakhstan, resulted in the loss of 12
Globalstar satellites. A $17.3 million loss from the launch failure was recorded
in the third quarter of 1998, which reflects the value of the satellites and
related capitalized costs, net of insurance proceeds. Globalstar activated its
contingency launch plan and expects to initiate commercial service in September
1999. As a result, Globalstar expects to have a satellite constellation
consisting of 52 satellites, including four in-orbit spares, by the end of 1999.
SS/L has agreed to obtain launch vehicles and arrange for the launch of all
52 Globalstar satellites, on Globalstar's behalf, and obtain insurance to cover
the replacement cost of satellites or launch vehicles lost in the event of a
launch failure. The total estimated cost for launch services and launch
insurance for all 52 satellites, including four in-orbit spares, is $684
million, net of insurance recoveries and subject to equitable adjustment in
light of future conditions, which may, in turn, be influenced by international
political developments. Any change in such assumptions may result in an increase
in the costs paid by Globalstar, which may be substantial. Termination by
Globalstar of this contract would result in termination fees, which may be
substantial.
SS/L has entered into fixed-price subcontracts aggregating approximately
$775 million, with certain of Globalstar's direct or indirect limited partners.
Some of these contracts are subject to adjustment.
Globalstar's space segment contract with SS/L calls for a portion of the
contract price to be deferred as vendor financing (see Note 6).
F-24
<PAGE> 64
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. GLOBALSTAR SYSTEM UNDER CONSTRUCTION -- (CONTINUED)
The Ground Segment
Globalstar has entered into a contract with Qualcomm providing for the
design, development, manufacture, installation, testing and maintenance of four
gateways, two ground operations control centers and 300 pre-production
subscriber terminals. The contract provides for reimbursement to Qualcomm,
subject to a cap for certain joint development efforts, for contract costs
incurred, plus a 12% fee thereon. Termination by Globalstar of its contract with
Qualcomm would result in delays and termination fees, which may be substantial.
A portion of the ground operations control center software is being developed by
Globalstar.
As of December 31, 1998, and prior to the potential effect of Qualcomm's
current preliminary revision to cost estimates and as a result of arrangements
with Qualcomm for $100 million of contract payment deferrals (see Note 6),
Globalstar expects the total ground segment expenditure to be approximately $950
million, net of such deferrals, through the in-service date.
Globalstar will receive from Qualcomm or its licensee(s) a payment of
approximately $400,000 for each installed gateway sold to a Globalstar service
provider. In addition, Globalstar will receive a payment of up to $10 on each
Globalstar user terminal sold, until Globalstar funding of that design has been
recovered.
Globalstar has entered into an agreement with Lockheed Martin for the
development and delivery of two satellite operations control centers and 33
telemetry and command units for the Globalstar System. The fixed contract price
is approximately $34.2 million and provides for reimbursement to Lockheed Martin
for contract costs incurred such as labor, materials, travel, license fees,
royalties and general and administrative expenses. Lockheed Martin will receive
a 12% fee under the contract, 6% of which is payable at the time the costs are
incurred with the remainder payable upon achievement of certain milestones.
Globalstar will own any intellectual property produced under this contract.
Total System Cost
Through December 31, 1998, Globalstar incurred costs of approximately $2.7
billion for the development, design and construction of the space and ground
segments. Costs incurred during 1998 were approximately $871 million. Qualcomm
is in the process of completing its revision to cost estimates for its portion
of the ground segment. Due to additional scope and cost growth and based on
preliminary information, Globalstar expects the increase from Qualcomm to be
less than 3% of the total project cost. The Qualcomm estimate is still subject
to further review by Globalstar. As of December 31, 1998, and including the
effect of the preliminary Qualcomm estimate, Globalstar's budgeted expenditures
were $3.17 billion for the design, construction and deployment of the Globalstar
System to commence commercial service and $340 million for budgeted financing
costs. In addition to expenditures for operating costs, and debt service,
Globalstar anticipates further expenditures on system software for the
improvement of system functionality and the addition of new features beyond
those planned for the commencement of commercial service. Substantial additional
financing will be required if there are delays in the commencement of commercial
service and, in any event, after the commencement of commercial service and
before positive cash flow is achieved. Although Globalstar believes it will be
able to obtain these additional funds, there can be no assurance that such funds
will be available on favorable terms or on a timely basis, if at all.
As of January 31, 1999, and after giving effect to the net proceeds from
the issuance of the 8% convertible redeemable preferred partnership interests
("8% RPPIs") issued in January 1999 (see Note 11), Globalstar will have raised
or received commitments for approximately $3.3 billion. Globalstar intends to
raise the remaining funds required, of approximately $600 million, by the
initiation of commercial service in September 1999, from a combination of
sources including: high yield debt issuance (which may include an equity
F-25
<PAGE> 65
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. GLOBALSTAR SYSTEM UNDER CONSTRUCTION -- (CONTINUED)
component), bank financing, equity issuance, financial support from the
Globalstar partners, projected service provider payments, and anticipated
payments from the sale of gateways and Globalstar user terminals.
6. VENDOR FINANCING LIABILITY
SS/L provides Globalstar with approximately $330 million of billings
deferred as follows -- $224 million of vendor financing and $106 million of
orbital incentives. SS/L subcontractors have assumed a portion of the vendor
financing commitments totaling approximately $116 million. The $224 million of
vendor financing consists of three tranches -- $110 million, $90 million and $24
million. Only the $90 million is interest bearing and bears interest at the
30-day LIBOR rate plus 3% per annum. Globalstar will repay the $110 million and
the $24 million tranches as follows: 50% will be paid over 5 years in equal
monthly installments following the launch and acceptance of 24 or more
satellites (the "Preliminary Constellation") and the remaining 50% will be paid
over 5 years in equal monthly installments following the launch and acceptance
of 48 or more satellites (the "Full Constellation"). Payment of the $90 million
interest bearing vendor financing will be due beginning March 31, 1999. Interest
and principal will be repaid in 20 equal quarterly installments over the next
five years. Approximately $47 million of the orbital incentives will be paid at
both the Preliminary Constellation Date and Full Constellation Date with the
remainder being paid with the delivery of the remaining satellites.
On March 4, 1998, Qualcomm entered into a deferred payment agreement with
Globalstar providing for $100 million of vendor financing. The deferred payments
accrue interest at a rate of 5.75% per annum, which is added to the outstanding
principal balance quarterly. Globalstar will make eight equal principal payments
on a quarterly basis commencing on January 1, 2000 with final payment due
October 1, 2001 including all then unpaid accrued interest.
7. CREDIT FACILITY
On December 15, 1995, Globalstar entered into a $250 million credit
agreement (the "Globalstar Credit Agreement") with a group of banks. Lockheed
Martin, Qualcomm, SS/L and another Globalstar partner have guaranteed $206.3
million, $21.9 million, $11.7 million and $10.1 million of the Globalstar Credit
Agreement, respectively. In addition, Loral agreed to indemnify Lockheed Martin
for any liability in excess of $150 million. The Globalstar Credit Agreement
provides that Globalstar may select loans at varying interest rates, including
the Eurodollar rate plus 5/8%. Globalstar pays a commitment fee on the unused
portion. The Globalstar Credit Agreement contains covenants requiring Globalstar
to meet certain financial ratios including minimum net worth of $200 million and
limits additional indebtedness and the payment of cash distributions. The
Globalstar Credit Agreement expires on December 15, 2000.
In exchange for the guarantee and indemnity, GTL issued warrants to
purchase 16,741,272 shares of GTL common stock at $6.625 per share as follows:
Loral and SS/L 4,550,088 warrants, Lockheed Martin 10,044,760 warrants, Qualcomm
1,468,524 warrants and another Globalstar partner 677,900 warrants. As part of
this transaction, Globalstar issued GTL warrants to purchase an additional
1,131,168 ordinary partnership interests of Globalstar. In addition, GTL
distributed to the holders of its common stock rights to subscribe for and
purchase 4,524,672 GTL shares for a price of $6.625 per share of which Loral
received rights to purchase 636,688 shares and Loral agreed to purchase all
shares not purchased upon exercise of the rights. In March 1997, the warrants to
purchase 16,741,272 shares of GTL common stock were exercised for proceeds of
approximately $110.9 million. In May 1997, GTL shareholders exercised the rights
to purchase 4,524,672 shares of GTL common stock (including 700,696 shares
purchased by Loral) for $6.625 per share for proceeds of $30.0 million. GTL used
the total proceeds of $140.9 million to purchase 5,316,486 Globalstar ordinary
partnership interests for $26.50 per interest.
F-26
<PAGE> 66
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. CREDIT FACILITY -- (CONTINUED)
In addition, Globalstar also agreed to pay to Loral and the other
guaranteeing partners a fee equal to 1.5% per annum of the average quarterly
amount outstanding under the Globalstar Credit Agreement (the "Guarantee Fee").
Payment of the Guarantee Fee, classified as deferred interest payable in
Globalstar's balance sheet, is being deferred and subordinated, with interest at
LIBOR plus 3%, until after the termination date of the Globalstar Credit
Agreement. Globalstar's managing general partner may also defer payment of such
fee if it determines that such deferral is necessary to comply with the terms of
any applicable credit agreement or indenture.
8. COMMITMENTS
Globalstar leases its primary facility from Lockheed Martin under a
non-cancelable operating lease expiring in 2000. The lease contains renewal
options for up to an additional ten years. The following table presents the
future minimum lease payments required under operating leases that have an
initial lease term in excess of one year (in thousands):
<TABLE>
<S> <C>
1999.............................................. $3,246
2000.............................................. 2,218
2001.............................................. 160
2002.............................................. 160
2003.............................................. 160
Thereafter........................................ 455
------
Total minimum lease payments...................... $6,399
======
</TABLE>
Rent expense for the years ended December 31, 1998, 1997 and 1996, was
approximately $3.1 million, $1.8 million, and $1.1 million, respectively.
Included in rent expense are payments to Lockheed Martin of $2.7 million, $1.5
million, and $0.9 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
9. SENIOR NOTES AND WARRANTS
In February 1997, GTL and Globalstar sold units consisting of $500 million
aggregate principal amount of Globalstar's 11 3/8% Senior Notes due 2004 and
warrants to purchase 4,129,000 shares of GTL common stock in a private offering.
GTL was allocated $12,210,000 of the offering proceeds for these warrants which
were used to purchase warrants for Globalstar's ordinary partnership interests.
The notes may not be redeemed prior to February 2002 and are subject to a
prepayment premium prior to 2004. The effective interest rate on this note is
13.33%. Interest is paid semi-annually.
There were 4,069,325 warrants outstanding as of December 31, 1998, that
were exercisable at a price of $17.394 per share and expire on February 15,
2004. Any proceeds from the exercise of the warrants will be used to purchase
Globalstar ordinary partnership interests.
In June 1997, Globalstar sold $325 million principal amount of 11 1/4%
Senior Notes due 2004 in a private offering. The notes may not be redeemed prior
to June 2002 and are subject to a prepayment premium prior to 2004. The
effective interest rate on this note is 13.57%. Interest is paid semi-annually.
In October 1997, Globalstar sold $325 million principal amount of 10 3/4%
Senior Notes due 2004 in a private offering. The notes may not be redeemed prior
to November 2002 and are subject to a prepayment premium prior to 2004. The
effective interest rate on this note is 11.63%. Interest is paid semi-annually.
F-27
<PAGE> 67
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SENIOR NOTES AND WARRANTS -- (CONTINUED)
In May 1998, Globalstar sold $300 million principal amount of 11 1/2%
Senior Notes due 2005 in a private offering. The notes may not be redeemed prior
to June 2003 and are subject to a prepayment premium prior to 2005. The
effective interest rate on this note is 13.12%. Interest is paid semi-annually.
The Senior Notes rank pari passu with all of Globalstar's existing senior
notes. The indentures for the notes contain certain covenants that among other
things limit the ability of Globalstar to incur additional debt, issue preferred
stock, or pay dividends and certain distributions. In certain limited
circumstances involving a change of control of Globalstar, as defined, each note
is redeemable at the option of the holder for 101% of the principal amount plus
accrued interest.
10. CONVERSION OF REDEEMABLE PREFERRED PARTNERSHIP INTERESTS
During 1996, GTL purchased 4,769,230 6 1/2% convertible redeemable
preferred partnership interests ("6 1/2% RPPIs") in Globalstar using the net
proceeds of $299.5 million from GTL's sale of its Convertible Preferred
Equivalent Obligations (the "CPEOs").
On April 30, 1998, GTL redeemed all of its CPEOs, $310 million aggregate
principal amount. As of April 30, 1998, all the holders of the CPEOs converted
their holdings into 20,123,230 shares of GTL common stock. As a result of such
conversion, Globalstar's 6 1/2% RPPIs were converted into 4,769,230 ordinary
partnership interests. In connection with the redemption, GTL issued 539,322
additional shares of GTL common stock in satisfaction of a required interest
make whole payment. A corresponding dividend make-whole payment was also made by
Globalstar for which an additional 134,830 ordinary partnership interests were
issued.
11. ORDINARY PARTNERS' CAPITAL
Initial Capital Subscriptions
Prior to the commencement of Globalstar's operations on March 23, 1994,
Loral and Qualcomm undertook independent efforts at their own risk to explore
the feasibility of a Globalstar-type system. Efforts to develop the Globalstar
System were formalized with the initial funding of Globalstar on March 23, 1994
through capital subscriptions of $50,000,000 for 18,000,000 general partner
interests and $225,000,000 for an aggregate of 18,000,000 limited partner
interests. In connection with the initial capital subscriptions, the partners of
Globalstar agreed to reimburse Loral and Qualcomm for certain expenditures
totaling $18,382,000 incurred related to such efforts from January 1, 1993
through March 22, 1994. These expenditures included development costs and
marketing, general and administrative expenses related to the Globalstar System.
In addition, costs of $2,235,000 were incurred in connection with the FCC
license application. The aggregate expenditures by Loral and Qualcomm of
$20,617,000 were reimbursed through a credit of $11,309,000 issued to the
general partner as a reduction of its required capital subscription payment and
a payment to Qualcomm of $9,308,000. The reimbursed expenses of $18,382,000 have
been charged to partners' capital as of the date of the capital subscription
agreement and allocated to the partners' capital accounts in accordance with the
partnership agreement. The $2,235,000 of costs relating to the FCC license
application are included in other assets in the accompanying balance sheet.
Capital Contribution
In April 1998, China Telecom (Hong Kong) Group Ltd. ("China Telecom"),
through a subsidiary, exercised a warrant to acquire 937,500 Globalstar ordinary
partnership interests for $18,750,000. In addition, China Telecom has a warrant
to acquire an additional 937,500 Globalstar ordinary partnership interests for
F-28
<PAGE> 68
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. ORDINARY PARTNERS' CAPITAL -- (CONTINUED)
$18,750,000 after commencement of service. Globalstar had previously granted
these warrants to China Telecom in connection with service provider arrangements
in China under which China Telecommunications Broadcast Satellite Corporation
("ChinaSat") will act as the sole distributor of Globalstar service in China.
The fair value of the warrants issued to China Telecom was approximately $31.9
million and has been recorded in the accompanying balance sheet in other assets
and will be amortized over 7 1/2 years, the expected life of the first
generation of satellites.
GTL Stock Splits
In May 1997 and June 1998, GTL issued two-for-one stock splits of its
common stock in the form of a 100% stock dividend. Accordingly, all GTL share
and per share amounts have been restated to reflect the stock splits. Prior to
the stock splits, GTL's equity securities and convertible securities were
represented by equivalent Globalstar partnership interests on an approximate
one-for-one basis. Globalstar's partnership interests were not affected by the
GTL stock splits and, accordingly, GTL's equity securities and convertible
securities are now represented by equivalent Globalstar partnership interests on
an approximate four-for-one basis.
8% Convertible Redeemable Preferred Partnership Interests
On January 21, 1999, Globalstar sold to GTL $350 million face amount of 8%
RPPIs in Globalstar in connection with GTL's offering of $350 million of 8%
Convertible Preferred Stock due 2011 (the "Preferred Stock"). Dividends on the
8% RPPIs and the Preferred Stock accrue at 8% per annum and are payable
quarterly. Globalstar will use the funds for the construction and deployment of
the Globalstar System.
The Preferred Stock is convertible into shares of GTL common stock at a
conversion price of $23.2563 per share, subject to adjustment for certain
antidilution events. As of January 21, 1999, the Preferred Stock was convertible
into 15,049,685 shares of GTL common stock. Loral purchased $150 million face
amount of the Preferred Stock issued, in order to maintain its ownership
interest in Globalstar. The Preferred Stock has limited voting rights. With
respect to dividend rights and rights upon liquidation, winding up and
dissolution, the Preferred Stock ranks senior to common stock and to all other
future series of preferred stock or other class of capital stock of GTL the
terms of which do not expressly provide that such series or class ranks senior
to or on parity with the Preferred Stock. Prior to its mandatory redemption
date, the Preferred Stock is redeemable (at a premium which declines over time)
by GTL beginning in February 2002 (or beginning in February 2000 if GTL's stock
price exceeds certain defined price ranges). Payments due on the Preferred Stock
may be made in cash, GTL common stock or a combination of both at the option of
GTL. In the event accrued and unpaid dividends accumulate to an amount equal to
six quarterly dividends, holders of the majority of the outstanding shares of
Preferred Stock will be entitled to elect additional members to GTL's Board of
Directors.
The 8% RPPIs rank senior to ordinary partnership interests and have terms
substantially similar to the Preferred Stock. However, they are subordinate to
all existing and future liabilities of Globalstar, and cash distributions
thereon are limited to the amount of the partnership capital accounts that are
maintained for such interests. The 8% RPPIs will convert to ordinary partnership
interests upon any conversion of the Preferred Stock into GTL common stock.
Payments due on the 8% RPPIs may be made in cash, Globalstar ordinary
partnership interests or a combination of both at the option of Globalstar.
F-29
<PAGE> 69
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. ORDINARY PARTNERS' CAPITAL -- (CONTINUED)
Stock Option Arrangements
Officers and employees of Globalstar are eligible to participate in GTL's
1994 Stock Option Plan (the "Plan"), which provides for nonqualified and
incentive stock options. The Plan is administered by a stock option committee
(the "Committee"), appointed by the GTL Board of Directors. The Committee
determines the option price, exercise date and the expiration date of each
option (provided no option shall be exercisable after ten years from the date of
grant). Proceeds received by GTL for options exercised will be used to purchase
Globalstar ordinary partnership interests under a four-for-one exchange
arrangement.
Globalstar issued 4,538 and 2,590 ordinary partnership interests during
1998 and 1997, respectively, in exchange for proceeds from GTL option exercises.
On September 14, 1995, Loral, in its capacity as managing general partner,
granted certain of its officers options to purchase 560,000 shares of the GTL
common stock owned by Loral at an exercise price of $5.00 per share. The
exercise price was greater than the market price at grant date. These options
are immediately exercisable, of which 240,000 options were exercised in 1998,
and expire 12 years from date of grant.
In October 1996 and in January 1998, Loral, in its capacity as managing
general partner, granted certain of its officers options to purchase 608,000 and
20,000 shares, respectively, of GTL common stock owned by Loral at a price
$6.3438 and $12.50 below market price on the grant date. These options vest over
a three year period and expire 10 years from date of grant; no options were
exercised or cancelled during 1998.
Loral granted options of Loral common stock to certain officers and
employees of Globalstar as follows: April 1996, 94,000 shares at $10.50 per
share, of which 13,200 shares were exercised in 1998; December 1996, 5,000
shares at $18.9397 per share, which were cancelled in 1997; April 1997, 5,000
shares at $13.75 per share, of which 1,000 shares were exercised and 4,000
shares were cancelled in 1998; February 1998, 1,000 shares at $24.4375 per share
and October 1998, 300 shares at $13.50 per share.
As described in Note 2, Globalstar accounts for its stock-based
compensation using the intrinsic value method in accordance with APB 25,
Accounting for Stock Issued to Employees and its related interpretations. Except
for $1,284,000, $1,290,000 and $317,000 of compensation expense in 1998, 1997
and 1996, respectively, related to the below market option grants issued by
Loral, no compensation expense has been recognized in Globalstar's consolidated
financial statements for stock-based compensation.
SFAS 123 requires the disclosure of pro forma net income and earnings per
share as if Globalstar adopted the fair value method. Under SFAS 123, the fair
value of stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from Globalstar's stock option awards.
These models also require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated
values. Globalstar's calculations were made using the Black-Scholes option
pricing model with the following weighted average assumptions: expected life,
six months following vesting; stock volatility, 30%; risk free interest rates,
4.44% to 6.55% based on date of grant in 1998 and 1997, and 6.25% in 1996; and
no dividends during the expected term. Globalstar's calculations are based on a
multiple option valuation approach and forfeitures are recognized as they occur.
If the computed fair values of the 1998, 1997 and 1996 awards (including the
stock-based awards made by Loral to its officers and directors on Globalstar's
behalf) had been amortized to expense over the vesting period of the awards, the
pro forma net loss applicable to ordinary partnership interests would have
increased by $2,563,000 to $154,303,000 ($2.74 per ordinary partnership
interest) in 1998, $2,536,000
F-30
<PAGE> 70
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. ORDINARY PARTNERS' CAPITAL -- (CONTINUED)
to $91,324,000 ($1.79 per ordinary partnership interest) in 1997, and $1,054,000
to $73,023,000 ($1.55 per ordinary partnership interest) in 1996.
A summary of the status of the GTL stock option plan for the years ended
December 31, 1998, 1997 and 1996 is presented below:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
--------- ----------
<S> <C> <C>
Outstanding at January 1, 1996.............................. 441,600 $ 4.1563
Granted (weighted average fair value of $4.51 per share).... 488,000 13.7250
Forfeited................................................... (4,800) 4.1563
--------- ----------
Outstanding at December 31, 1996............................ 924,800 9.2060
Granted (weighted average fair value of $7.10 per share).... 527,800 21.9650
Forfeited................................................... (58,800) 11.1610
Exercised................................................... (10,360) 4.1563
--------- ----------
Outstanding at December 31, 1997............................ 1,383,440 14.0286
Granted (weighted average fair value of $5.73 per share).... 810,400 19.4155
Forfeited................................................... (54,000) 18.5642
Exercised................................................... (18,150) 4.1563
--------- ----------
Outstanding at December 31, 1998............................ 2,121,690 $ 16.0552
========= ==========
Options exercisable at December 31, 1998.................... 291,890 $ 7.8347
========= ==========
Options exercisable at December 31, 1997.................... 95,240 $ 4.1563
========= ==========
</TABLE>
At December 31, 1996, no options were exercisable.
The options generally expire ten years from the date of grant and become
exercisable over the period stated in each option, generally ratably over a
five-year period. All options granted were non-qualified stock options with an
exercise price equal to fair market value at the date of grant. As of December
31, 1998, 349,800 shares of common stock were available for future grant under
the Plan.
The following table summarizes information about GTL's outstanding stock
options at December 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------ ------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICE RANGE NUMBER LIFE-YEARS PRICE NUMBER PRICE
- -------------------- --------- ------------ -------- ------- --------
<S> <C> <C> <C> <C> <C>
$4.16..................................... 379,490 6.70 $ 4.1563 177,890 $4.1563
$12.59 to $16.38.......................... 1,080,800 8.71 13.7417 114,000 13.5747
$21.47 to $29.78.......................... 661,400 8.90 26.6629
--------- ---- -------- ------- -------
2,121,690 8.41 $16.0552 291,890 $7.8347
========= ==== ======== ======= =======
</TABLE>
F-31
<PAGE> 71
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. PENSIONS AND OTHER EMPLOYEE BENEFITS
Pensions
Prior to April 23, 1996, Globalstar employees were eligible to participate
in the employee benefit plans of Old Loral. Globalstar was charged for the
actual costs of these benefits which for the period March 23, 1994, through
December 31, 1995, amounted to $1.0 million, including $0.2 million relating to
pensions and retiree health care and life insurance benefits. In April 1996,
separate pension, post-retirement health care and life insurance and employee
savings plans were established by Globalstar.
The Company maintains a pension plan and a supplemental retirement plan.
These plans are defined benefit pension plans and members in certain locations
may contribute to the pension plan in order to receive enhanced benefits.
Eligibility for participation in these plans varies and benefits are based on
members' compensation and years of service. The Company's funding policy is to
fund the pension plan in accordance with the Internal Revenue Code and
regulations thereon and to fund the supplemental retirement plan on an actuarial
basis, including service cost and amortization amounts. Plan assets are
generally invested in U.S. government and agency obligations and listed stocks
and bonds.
Other Benefits
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for retired employees and dependents.
Participants are eligible for these benefits when they retire from active
service and meet the eligibility requirements for the Company's pension plan.
These benefits are funded primarily on a pay-as-you-go basis with the retiree
generally paying a portion of the cost through contributions, deductibles and
coinsurance provisions.
F-32
<PAGE> 72
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. PENSIONS AND OTHER EMPLOYEE BENEFITS -- (CONTINUED)
Effective December 31, 1998 the Company adopted SFAS 132. Prior years'
disclosures have been restated. The following tables provide a reconciliation of
the changes in the plans' benefit obligations and fair value of assets for the
years ended December 31, 1998 and 1997, and a statement of the funded status as
of December 31, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
1998 1997 1998 1997
------ ------ ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Reconciliation of benefit obligation
Obligation at January 1...................... $5,172 $3,893 $ 838 $ 641
Service cost................................. 415 334 66 39
Interest cost................................ 419 347 61 49
Participant contributions.................... 84 38 12
Actuarial (gain) loss........................ 258 560 (67) 111
Benefit payments............................. (21) (2)
------ ------ ----- -----
Obligation at December 31.................... 6,348 5,172 889 838
------ ------ ----- -----
Reconciliation of fair value of plan assets
Fair value of plan assets at January 1....... 4,808 4,156 32 30
Actual return on plan assets................. 923 614 2 2
Employer contributions....................... 9 3
Participant contributions.................... 84 38 12
Benefit payments............................. (21) (3)
------ ------ ----- -----
Fair value of plan assets at December 31..... 5,815 4,808 34 32
------ ------ ----- -----
Funded status
Funded status at December 31................. (533) (364) (855) (806)
Unrecognized (gain) loss..................... (171) (7) 497 602
------ ------ ----- -----
Net amount recognized in accrued
liabilities................................ $ (704) $ (371) $(358) $(204)
====== ====== ===== =====
</TABLE>
The following table provides the components of net periodic benefit cost
for the plans for the years ended December 31, 1998, 1997 and 1996, respectively
(in thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------- --------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost....................... $415 $334 $213 $ 66 $ 39 $29
Interest cost...................... 419 347 195 61 49 32
Expected return on plan assets..... (461) (393) (258) (3) (3) (2)
Amortization of net (gain) loss.... (40) (40) (27) 39 36 26
---- ---- ---- ---- ---- ---
Net periodic benefit cost.......... $333 $248 $123 $163 $121 $85
==== ==== ==== ==== ==== ===
</TABLE>
F-33
<PAGE> 73
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. PENSIONS AND OTHER EMPLOYEE BENEFITS -- (CONTINUED)
The principal actuarial assumptions were:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................... 7.00% 7.25% 7.75%
Expected return on plan assets.............................. 9.50% 9.50% 9.50%
Rate of compensation increase............................... 4.25% 4.50% 4.50%
</TABLE>
Actuarial assumptions used a health care cost trend rate of 8.75%
decreasing gradually to 5.25% by 2003. Assumed health care cost trend rates have
a significant effect on the amounts reported for the health care plans. A 1%
change in assumed health care cost trend rates for 1998 would have the following
effects:
<TABLE>
<CAPTION>
1% INCREASE 1% DECREASE
----------- -----------
<S> <C> <C>
Effect on total service and interest cost components of
net periodic postretirement health care benefit cost... $ 27,000 $ (21,000)
Effect on the health care component of the accumulated
postretirement benefit obligation...................... 136,000 (126,000)
</TABLE>
Employee Savings Plan
In April 1996, Globalstar adopted an employee savings plan which provides
that Globalstar match the contributions of participating employees up to a
designated level. Under this plan, the matching contributions in Loral common
stock, GTL common stock or cash were approximately $460,000, $350,000 and
$180,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
13. FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
fair value.
The carrying amounts of cash and cash equivalents approximates fair value
because of the short maturity of those instruments. The fair value of vendor
financing approximates its carrying amount due to the lack of market quotations
and the nature of such financing. The fair value of the Senior Notes is based on
market quotations.
F-34
<PAGE> 74
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. FINANCIAL INSTRUMENTS -- (CONTINUED)
The estimated fair values of Globalstar's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents...... $ 56,739 $ 56,739 $464,154 $464,154
Vendor financing............... 371,170 371,170 197,723 197,723
10 3/4% Senior notes........... 320,997 230,800 320,311 316,100
11 1/4% Senior notes........... 306,949 240,500 303,641 325,000
11 3/8% Senior notes........... 479,566 370,000 475,579 502,500
11 1/2% Senior notes........... 288,663 220,900
</TABLE>
14. RELATED PARTY TRANSACTIONS
In addition to the transactions described in Notes 3, 5, 6, 7, 8, 9, 10, 11
and 12, Globalstar has a number of other transactions with its affiliates.
Globalstar believes that the arrangements are as favorable to Globalstar as
could be obtained from unaffiliated parties. The following describes these
related-party transactions.
Globalstar has granted to SS/L an irrevocable, royalty-free, non-exclusive
license to use certain intellectual property expressly developed in connection
with the SS/L agreement provided that SS/L will not use, or permit others to
use, such license for the purpose of engaging in any business activity that
would be in material competition with Globalstar. Globalstar has similarly
agreed that it will not license such intellectual property if it will be used
for the purpose of designing or building satellites that would be in competition
with SS/L.
Globalstar has granted to Qualcomm an irrevocable, non-exclusive, worldwide
perpetual license to intellectual property owned by Globalstar in the Ground
Segment and developed pursuant to the Qualcomm agreement. Qualcomm may, pursuant
to such grant, use the intellectual property for applications other than the
Globalstar System provided that Qualcomm may not for a period of three years
after its withdrawal as a strategic partner or prior to the third anniversary of
the Full Constellation Date, whichever is earlier, engage in any business
activity that would be in competition with the Globalstar System. The grant of
intellectual property to Qualcomm described above is generally royalty free.
Under certain specified circumstances, however, Qualcomm will be required to pay
a 3% royalty fee on such intellectual property.
A support agreement was entered into among Qualcomm, Loral and Globalstar
pursuant to which Qualcomm agreed to assist Globalstar and SS/L with
Globalstar's system design, support Globalstar and Loral with respect to various
regulatory matters, and assist Globalstar and Loral in their marketing efforts
with respect to Globalstar. For the years ended December 31, 1998, 1997 and
1996, Qualcomm has received approximately $187,000, $894,000, and $1,823,000,
respectively, for costs incurred in rendering such support and assistance.
In October 1998, Globalstar entered into agreements with AirTouch Satellite
Services and TE.SA.M., two of its limited partners, for approximately $7 million
under which these partners would provide support for integration and testing of
the Globalstar System at certain of the partners' gateways.
Qualcomm has agreed to grant at least one vendor a nonexclusive worldwide
license to use Qualcomm's intellectual property to manufacture and sell gateways
to Globalstar's service providers. The foregoing license would 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
F-35
<PAGE> 75
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. RELATED PARTY TRANSACTIONS -- (CONTINUED)
approximately $400,000 per gateway in recoupment expenses payable to
Globalstar). Thus far, no other vendor has committed to manufacture gateways.
Qualcomm has granted a license to manufacture Globalstar Phones to Ericsson and
Telital and has also agreed to grant a similar license to at least one
additional qualified manufacturer to enable it to manufacture and sell the
Globalstar Phones to service providers.
Subsidiaries of Loral have formed joint ventures with partners which have
executed service provider agreements granting the joint ventures exclusive
rights to provide Globalstar service to users in Brazil, Canada and Mexico as
long as specified minimum levels of subscribers are met. Similar exclusive
service provider agreements have been entered into with certain of Globalstar's
limited partners for specific countries. These service providers will receive
certain discounts from Globalstar's expected pricing schedule generally over a
five-year period. Globalstar has also agreed to provide Qualcomm, under certain
circumstances, with capacity on the Globalstar System for its OmniTRACS services
at its most favorable rates and to grant to Qualcomm the exclusive right to
utilize the Globalstar System to provide OmniTRACS-like services.
Globalstar has entered into consulting agreements with certain limited
partners. Costs incurred under these arrangements for the years ended December
31, 1998, 1997 and 1996, were approximately $309,000, $143,000, and $496,000,
respectively. Globalstar anticipates that similar agreements may be entered into
with other strategic partners in the future.
Globalstar has granted to Hyundai Electronics Industries Co., Ltd.
("Hyundai") certain rights, including certain sub-contract rights with respect
to its satellite constellation and the right, at Hyundai's election, to act as
Globalstar's exclusive licensee authorized to manufacture and sell Globalstar
Phones in South and North Korea.
Current payable and vendor financing due to affiliates is (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
SS/L.................................................. $358,207 $211,843
Qualcomm.............................................. 225,811 90,817
Other affiliates...................................... 3,694 420
-------- --------
Total due to affiliates............................... $587,712 $303,080
======== ========
</TABLE>
Commencing on the Full Constellation Date, LQP, the general partner of
LQSS, will receive a managing partner's allocation equal to 2.5% of Globalstar's
revenues up to $500 million plus 3.5% of revenues in excess of $500 million.
Loral and Qualcomm ultimately will receive 80% and 20%, respectively, of such
distribution. Should Globalstar incur a net loss in any year following
commencement of operations, the allocation for that year will be reduced by 50%
and LQP will reimburse Globalstar for allocation payments, if any, received in
any prior quarter of such year, sufficient to reduce its management allocation
for the year to 50%. No allocations have been made to date. The Managing
Partners 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 Partners allocation were made.
15. REGULATORY MATTERS
Globalstar and its operations are, and will be, subject to substantial U.S.
and international regulation, including required regulatory approvals in each
country in which Globalstar intends to provide service. Globalstar's business
may be significantly affected by regulatory activities.
F-36
<PAGE> 76
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS OF EXHIBIT
- ------- -----------------------
<S> <C>
3.1 Memorandum of Association of Globalstar Telecommunications
Limited(1)
3.2 Bye-Laws of Globalstar Telecommunications Limited, as
amended, and including Schedule III annexed thereto
regarding the 8% Series A Convertible Redeemable Preferred
Shares due 2011*
4.1 Indenture dated as of February 15, 1997 relating to
Globalstar's and Globalstar Capital Corporation's 11 3/8%
Senior Notes due 2004(2)
4.2 Indenture dated as of June 1, 1997 relating to Globalstar's
and Globalstar Capital Corporation's 11 1/4% Senior Notes
due 2004(3)
4.3 Indenture dated as of October 15, 1997 relating to
Globalstar's and Globalstar Capital Corporation's 10 3/4%
Senior Notes due 2004(4)
4.4 Indenture dated as of May 20, 1998 relating to Globalstar's
and Globalstar Capital Corporation's 11 1/2% Senior Notes
due 2005(5)
10.1 Amended and Restated Agreement of Limited Partnership of
Globalstar L.P., dated as of January 26, 1999, among
Loral/Qualcomm Satellite Services, L.P., Globalstar
Telecommunications Limited, AirTouch Satellite Services,
Inc., Dacom Corporation, Dacom International, Inc., Hyundai
Corporation, Hyundai Electronics Industries Co., Ltd.,
Loral/DASA Globalstar, L.P., Loral Space & Communications
Ltd., San Giorgio S.p.A., Telesat Limited, TE. SA. M., and
Vodafone Satellite Services Limited*
10.2 Subscription Agreements by and between Globalstar, L.P., and
each of AirTouch Communications, Alcatel Spacecom, Loral
General Partner, Inc., Hyundai/Dacom and Vodastar Limited(1)
10.3 Subscription Agreement by and between Globalstar, L.P. and
Loral/Qualcomm Satellite Services, L.P.(1)
10.4 Subscription Agreement by and between Globalstar, L.P. and
Finmeccanica S.p.A.(1)
10.5 Subscription Agreement by and between Globalstar, L.P. and
China Telecommunications Broadcast Satellite Corporation*
10.6 Form of Service Provider Agreements by and between
Globalstar, L.P. and each of AirTouch Satellite Services,
Inc., Finmeccanica S.p.A., Loral Globalstar, L.P.,
Loral/DASA Globalstar, L.P., Hyundai/Dacom, TE. SA. M., and
Vodastar Limited(1)
10.7 Development Agreement by and between Qualcomm Incorporated
and Globalstar, L.P.(1)
10.8 Contract between Globalstar, L.P. and Space Systems/Loral,
Inc.(1)
10.9 Contract for the Development of Certain Portions of the
Ground Operations Control Center between Globalstar and
Loral Western Development Laboratories(1)
10.10 Contract for the Development of Satellite Orbital Operations
Centers between Globalstar and Loral Aerosys, a division of
Loral Aerospace Corporation(1)
10.11 1994 Stock Option Plan(6)+
10.12 Amendment to 1994 Stock Option Plan(7)+
10.13 Revolving Credit Agreement dated as of December 15, 1995, as
amended on March 25, 1996, among Globalstar, certain banks
parties thereto and Chemical Bank, as Administrative
Agent(2)
10.14 Second Amendment to Revolving Credit Agreement dated July
31, 1997 among Globalstar, certain banks parties thereto and
The Chase Manhattan Bank, as Administrative Agent(4)
10.15 Third Amendment to Revolving Credit Agreement dated as of
October 15, 1997 among Globalstar, certain banks parties
thereto and The Chase Manhattan Bank, as Administrative
Agent(4)
10.16 Fourth Amendment to Revolving Credit Agreement dated as of
November 13, 1998 among Globalstar, certain banks parties
thereto and The Chase Manhattan Bank, as Administrative
Agent*
</TABLE>
<PAGE> 77
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS OF EXHIBIT
- ------- -----------------------
<S> <C>
10.17 Exchange and Registration Rights Agreement, dated as of
December 31, 1994, among Globalstar, L.P. and AirTouch
Satellite Services, Inc., Finmeccanica S.p.A., Loral
Globalstar, L.P., Loral/DASA Globalstar, L.P.,
Hyundai/Dacom, TE. SA. M., and Vodastar Limited (1)
10.18 Amendment to the Exchange and Registration Rights Agreement,
dated as of April 8, 1998, among Globalstar, L.P.,
Globalstar Telecommunications Limited and Telesat Limited*
10.19 Warrant Agreement dated as of February 19, 1997 relating to
Warrants to purchase 4,129,000 shares of Common Stock of
Globalstar Telecommunications Limited(2)
10.20 Registration Rights Agreement dated February 19, 1997
relating to Globalstar's 11 3/8% Senior Notes due 2004 and
the Company's Warrants to purchase 4,129,000 shares of
Common Stock issued in connection therewith(2)
10.21 Registration Rights Agreement dated June 13, 1997 relating
to Globalstar's and Globalstar Capital Corporation's 11 1/4%
Senior Notes due 2004(3)
10.22 Registration Rights Agreement dated October 29, 1997
relating to Globalstar's and Globalstar Capital
Corporation's 10 3/4% Senior Notes due 2004(4)
10.23 Registration Rights Agreement dated May 20, 1998 relating to
Globalstar's and Globalstar Capital Corporation's 11 1/2%
Senior Notes due 2005(5)
10.24 Registration Rights Agreement dated as of July 6, 1998
relating to 8,400,000 shares of Common Stock by and among
Globalstar Telecommunications Limited, Loral Space &
Communications Ltd., Quantum Partners LDC, Quasar Strategic
Partners LDC and Quantum Industrial Partners LDC.(8)
10.25 Exchange Agreement dated as of September 28, 1998 relating
to 717,600 shares of Common Stock by and between Loral Space
& Communications Ltd., DACOM Corporation and DACOM
International, Inc.(9)
10.26 Registration Rights Agreement dated as of January 26, 1999
relating to the Company's 8% Convertible Redeemable
Preferred Stock*
12 Statement Regarding Computation of Ratios*
21 List of Subsidiaries of the Registrant*
23 Consent of Deloitte & Touche LLP*
27 Financial Data Schedule (EDGAR only)*
</TABLE>
- ---------------
(1) Incorporated by reference to GTL's Registration Statement on Form S-1 (No.
33-86808).
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1996.
(3) Incorporated by reference to Globalstar's Registration Statement on Form
S-4 (No. 333-25461).
(4) Incorporated by reference to Globalstar's Registration Statement on Form
S-4 (No. 333-41229).
(5) Incorporated by reference to Globalstar's Registration Statement on Form
S-4 (No. 333-57749).
(6) Incorporated by reference to the Company's Registration Statement on Form
S-3 (No. 333-6477).
(7) Incorporated by reference to the Company's Annual Report on Form 10-K for
the Year Ended December 31, 1997
(8) Incorporated by reference to Schedule 13D filed by Loral Space &
Communications Ltd. on August 3, 1998.
(9) Incorporated by reference to Schedule 13D filed by Loral Space &
Communications Ltd. on February 10, 1999.
* Filed herewith.
+ Management compensation plan.
<PAGE> 1
1
B Y E - L A W S
of
GLOBALSTAR TELECOMMUNICATIONS LIMITED
INTERPRETATION
1. In these Bye-Laws unless the context otherwise requires
"Bermuda" means the Islands of Bermuda;
"Board" means the Board of Directors of the Company or the
Directors present at a meeting of Directors at which there is a quorum;
"Company" means the company incorporated in Bermuda under the
name of Globalstar Telecommunications Limited on the 23rd day of
November, 1994;
"the Companies Acts" means every Bermuda statute from time to time in
force concerning companies insofar as the same applies to the Company;
"Globalstar" means Globalstar, L.P., a limited Partnership
organised under the laws of the State of Delaware, U.S.A.;
"Independent Directors" means the two Directors of the Company designated
as such by the Shareholders from time to time and who are not employed by, or
otherwise affiliated with, Loral, a Strategic Partner or any of their respective
affiliates;
<PAGE> 2
2
"Loral", means Loral Corporation, a company organised under the
laws of the State of New York, U.S.A.;
"LQP" means Loral/QUALCOMM Partnership, L.P., a limited
partnership organised under the laws of the State of Delaware, U.S.A.;
"LQSS" means Loral/QUALCOMM Satellite Services, L.P., a limited
partnership organised under the laws of the State of Delaware, U.S.A.;
"paid up" means paid up or credited as paid up;
"Register" means the Register of Shareholders of the Company;
"Registered offices" means the registered office for the time
being of the Company;
"Resolution" means a resolution of the Shareholders or, where required, of
a separate class or separate classes of Shareholders, adopted either in general
meeting or by written resolution, in accordance with the provisions of these
Bye-Laws;
"Seal" means the common seal of the Company and includes any
duplicate thereof;
"Secretary" includes a temporary or assistant Secretary and any
person appointed by the Board to perform any of the duties of the
Secretary;
"Shareholder" means a shareholder or member of the Company;
<PAGE> 3
3
"Strategic Partners" means the limited partners in any of
Globalstar, LQSS and LQP;
"these Bye-Laws" means these Bye-Laws in their present form or as
from time to time amended;
for the purposes of these Bye-Laws a corporation shall be deemed to be
present in person if its representative duly authorised pursuant to the
Companies Acts is present;
words importing the singular number only include the plural
number and vice versa;
words importing the masculine gender only include the feminine
and neuter genders respectively;
words importing persons include companies or associations or
bodies of persons, whether corporate or un-incorporate;
reference to writing shall include typewriting, printing, lithography,
photography and other modes of representing or reproducing words in a legible
and non-transitory form;
any words or expressions defined in the Companies Acts in force at the
date when these Bye-Laws or any part thereof are adopted shall bear the same
meaning in these Bye-Laws or such part (as the case may be).
REGISTERED OFFICE
2. The Registered Office shall be at such place in Bermuda as the Board shall
from time to time appoint.
<PAGE> 4
4
SHARE RIGHTS
3. Subject to any special rights conferred on the holders of any share or class
of shares, any share in the Company may be issued with or have attached thereto
such preferred, deferred, qualified or other special rights or such
restrictions, whether in regard to dividend, voting, return of capital or
otherwise, as the Company may by Resolution determine or, if there has not been
any such determination or so far as the same shall not make specific provision,
as the Board may determine.
4. The Board shall be authorized to issue preference shares and such shares may
be issued from time to time, in one or more series with such designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as may be designated by the
Board prior to the issuance of such series, and the Board is hereby expressly
authorized to fix by resolution or resolutions prior to such issuance such
designations, preferences and relative, participating, optional or other special
rights, or qualifications, limitations or restrictions, including without
limiting the generality of the foregoing, the following:
(i) the designation of such series or class;
(ii) the dividend rate of such series or class, the conditions and dates
upon which such dividends will be payable, the relation which such
dividends will bear to the dividends payable on any other class or classes
of shares or any other series of any class of shares of
<PAGE> 5
5
the Company, and whether such dividends will be cumulative or non-voting;
(iii) the redemption provisions and times, prices and other terms and
conditions of such redemption, if any, for such series or class, which may
include provisions that they are to be redeemed on the happening of a
specified event or on a given date, that they are liable to be redeemed at
the option of the Company or that if authorized by the Memorandum of
Association of the Company, that they are liable to be redeemed at the
option of the holder;
(iv) the terms and amount of any sinking fund provided for the purchase or
redemption of the shares of such series or class;
(v) the terms and conditions, if any, on which shares of such series or
class shall be convertible into, or exchangeable for, shares of the
Company or any other securities, including the price or prices, or the
rates of exchange thereof,
(vi) the voting rights, if any;
(vii) the restrictions, if any, on the issue or reissue of any additional
preference shares; and
(viii) the rights of the holders of such series or class upon the
liquidation, dissolution, or distribution of assets of the Company.
<PAGE> 6
6
The designations, preferences and relative, participating, optional or other
special rights, or qualifications, limitations or restrictions thereof, of each
additional series, if any, may differ from those of any or all other series
already outstanding.
MODIFICATION OF RIGHTS
5. Subject to the Companies Acts, all or any of the special rights for the time
being attached to any class of shares for the time being issued may from time to
time (whether or not the Company is being wound up) be altered or abrogated with
the consent in writing of the holders of not less than seventy five percent of
the issued shares of that class or with the sanction of a resolution passed at a
separate general meeting of the holders of such shares voting in person or by
proxy. To any such separate general meeting, all the provisions of these
Bye-Laws as to general meetings of the Company shall mutatis mutandis apply, but
so that the necessary quorum shall be two or more persons holding or
representing by proxy any of the shares of the relevant class, that every holder
of shares of the relevant class shall be entitled on a poll to one vote for
every such share held by him and that any holder of shares of the relevant class
present in person or by proxy may demand a poll; provided, however, that if the
Company or a class of Shareholders shall have only one Shareholder present in
person or by proxy, one Shareholder shall constitute the necessary quorum.
6. The special rights conferred upon the holders of any shares or class of
shares shall not, unless otherwise
<PAGE> 7
7
expressly provided in the rights attaching to or the terms of issue of such
shares, be deemed to be altered by the creation or issue of further shares
ranking pari passu therewith.
SHARES
7. Subject to the provisions of these Bye-Laws, the unissued shares of the
Company (whether forming part of the original capital or any increased capital)
shall be at the disposal of the Board, which may offer, allot, grant options
over or otherwise dispose of them to such persons, at such times and for such
consideration and upon such terms and conditions as the Board may determine.
8. The Board may in connection with the issue of any shares exercise all powers
of paying commission and brokerage conferred or permitted by law.
9. Except as ordered by a court of competent jurisdiction or as required by law,
no person shall be recognised by the Company as holding any share upon trust and
the Company shall not be bound by or required in any way to recognise (even when
having notice thereof) any equitable, contingent, future or partial interest in
any share or any interest in any fractional part of a share or (except only as
otherwise provided in these Bye-Laws or by law) any other right in respect of
any share except an absolute right to the entirety thereof in the registered
holder.
CERTIFICATES
<PAGE> 8
8
10. The preparation, issue and delivery of certificates shall be governed by the
Companies Acts. In the case of a share held jointly by several persons, delivery
of a certificate to one of several joint holders shall be sufficient delivery to
all.
11. If a share certificate is defaced, lost or destroyed it may be replaced
without fee but on such terms (if any) as to evidence and indemnity and to
payment of the costs and out of pocket expenses of the Company in investigating
such evidence and preparing such indemnity as the Board may think fit and, in
case of defacement, on delivery of the old certificate to the Company.
12. All certificates for share or loan capital or other securities of the
Company (other than letters of allotment, scrip certificates and other like
documents) shall, except to the extent that the terms and conditions for the
time being relating thereto otherwise provide, be issued under the Seal. The
Board may by resolution determine, either generally or in any particular case,
that any signatures on any such certificates need not be autographic but may be
affixed to such certificates by some mechanical means or may be printed thereon
or that such certificates need not be signed by any persons.
LIEN
13. The Company shall have a first and paramount lien on every share (not being
a fully paid share) for all moneys, whether presently payable or not, called or
payable, at a date fixed by or in accordance with the terms of issue of
<PAGE> 9
9
such share in respect of such share, and the Company shall also have a first and
paramount lien on every share (other than a fully paid share) standing
registered in the name of a Shareholder, whether singly or jointly with any
other person, for all the debts and liabilities of such Shareholder or his
estate to the Company, whether the same shall have been incurred before or after
notice to the Company of any interest of any person other than such Shareholder,
and whether the time for the payment or discharge of the same shall have
actually arrived or not, and notwithstanding that the same are joint debts or
liabilities of such Shareholder or his estate and any other person, whether a
Shareholder or not. The Company's lien on a share shall extend to all dividends
payable thereon. The Board may at any time, either generally or in any
particular case, waive any lien that has arisen or declare any share to be
wholly or in part exempt from the provisions of this Bye-Law.
14. The Company may sell, in such manner as the Board may think fit, any share
on which the Company has a lien but no sale shall be made unless some sum in
respect of which the lien exists is presently payable nor until the expiration
of fourteen days after a notice in writing, stating and demanding payment of the
sum presently payable and giving notice of the intention to sell in default of
such payment, has been served on the holder for the time being of the share.
15. The net proceeds of sale by the Company of any shares on which it has a lien
shall be applied in or towards
<PAGE> 10
10
payment or discharge of the debt or liability in respect of which the lien
exists so far as the same is presently payable, and any residue shall (subject
to a like lien for debts or liabilities not presently payable as existed upon
the share prior to the sale) be paid to the holder of the share immediately
before such sale. For giving effect to any such sale the Board may authorise
some person to transfer the share sold to the purchaser thereof. The purchaser
shall be registered as the holder of the share and he shall not be bound to see
to the application of the purchase money, nor shall his title to the share be
affected by any irregularity or invalidity in the proceedings relating to the
sale.
CALLS ON SHARES
16. The Board may from time to time make calls upon the Shareholders in respect
of any moneys unpaid on their shares (whether on account of the par value of the
shares or by way of premium) and not by the terms of issue thereof made payable
at a date fixed by or in accordance with such terms of issue, and each
Shareholder shall (subject to the Company serving upon him at least fourteen
days notice specifying the time or times and place of payment) pay to the
Company at the time or times and place so specified the amount called on his
shares. A call may be revoked or postponed as the Board may determine.
17. A call may be made payable by installments and shall be deemed to have been
made at the time when the resolution of the Board authorizing the call was
passed.
<PAGE> 11
11
18. The joint holders of a share shall be jointly and severally liable to pay
all calls in respect thereof.
19. If a sum called in respect of the share shall not be paid before or on the
day appointed for payment thereof the person from whom the sum is due shall pay
interest on the sum from the day appointed for the payment thereof to the time
of actual payment at such rate as the Board may determine, but the Board shall
be at liberty to waive payment of such interest wholly or in part.
20. Any sum which, by the terms of issue of a share, becomes payable on
allotment or at any date fixed by or in accordance with such terms of issue,
whether on account of the nominal amount of the share or by way of premium,
shall for all the purposes of these Bye-Laws be deemed to be a call duly made,
notified and payable on the date on which, by the terms of issue, the same
becomes payable and, in case of non-payment, all the relevant provisions of
these Bye-Laws as to payment of interest, forfeiture or otherwise shall apply as
if such sum had become payable by virtue of a call duly made and notified.
21. The Board may on the issue of shares differentiate between the allottees or
holders as to the amount of calls to be paid and the times of payment.
FORFEITURE OF SHARES
22. If a Shareholder fails to pay any call or installment of a call on the day
appointed for payment thereof, the Board may at any time thereafter during such
time as any part of such call or installment remains unpaid serve a
<PAGE> 12
12
notice on him requiring payment of so much of the call or installment as is
unpaid, together with any interest which may have accrued.
23. The notice shall name a further day (not being less than 14 days from the
date of the notice) on or before which, and the place where, the payment
required by the notice is to be made and shall state that, in the event of
non-payment on or before the day and at the place appointed, the shares in
respect of which such call is made or installment is payable will be liable to
be forfeited. The Board may accept the surrender of any share liable to be
forfeited hereunder and, in such case, references in these Bye-laws to
forfeiture shall include surrender.
24. If the requirements of any such notice as aforesaid are not complied with,
any share in respect of which such notice has been given may at any time
thereafter, before payment of all calls or installments and interest due in
respect thereof has been made, be forfeited by a resolution of the Board to that
effect. Such forfeiture shall include all dividends declared in respect of the
forfeited shares and not actually paid before the forfeiture.
25. When any share has been forfeited, notice of the forfeiture shall be served
upon the person who was before forfeiture the holder of the share; but no
forfeiture shall be in any manner invalidated by any omission or neglect to give
such notice as aforesaid.
26. A forfeited share shall be deemed to be the property of the Company and may
be sold, re-offered or otherwise
<PAGE> 13
13
disposed of either to the person who was, before forfeiture, the holder thereof
or entitled thereto or to any other person upon such terms and in such manner as
the Board shall think fit, and at any time before a sale, re-allotment or
disposition the forfeiture may be cancelled on such terms as the Board may think
fit.
27. A person whose shares have been forfeited shall thereupon cease to be a
Shareholder in respect of the forfeited shares but shall, notwithstanding the
forfeiture, remain liable to pay to the Company all moneys which at the date of
forfeiture were presently payable by him to the Company in respect of the shares
with interest thereon at such rate as the Board may determine from the date of
forfeiture until payment, and the Company may enforce payment without being
under any obligation to make any allowance for the value of the shares
forfeited.
28. An affidavit in writing that the deponent is a Director or the Secretary and
that a share has been duly forfeited on the date stated in the affidavit shall
be conclusive evidence of the facts therein stated as against all persons
claiming to be entitled to the share. The Company may receive the consideration
(if any) given for the share on the sale, re-allotment or disposition thereof
and the Board may authorise some person to transfer the share to the person to
whom the same is sold, re-allotted or disposed of, and he shall thereupon be
registered as the holder of the share and shall not be bound to see to the
application of the purchase money (if any) nor shall his title to the share be
affected by any irregularity or invalidity in the
<PAGE> 14
14
proceedings relating to the forfeiture, sale, re-allotment or disposal of the
share.
REGISTER OF SHAREHOLDERS
29. The Secretary shall establish and maintain the Register of Shareholders at
the Registered Office in the manner prescribed by the Companies Acts. Unless the
Board otherwise determines, the Register of Shareholders shall be open to
inspection in the manner prescribed by the Companies Acts between 10.00 a.m. and
12.00 noon on every working day. Unless the Board so determines, no Shareholder
or intending Shareholder shall be entitled to have entered in the Register any
indication of any trust or any equitable, contingent, future or partial interest
in any share or any interest in any fractional part of a share and if any such
entry exists or is permitted by the Board it shall not be deemed to abrogate any
of the provisions of Bye-Law 9.
REGISTER OF DIRECTORS AND OFFICERS
30. The Secretary shall establish and maintain a register of the Directors and
Officers of the Company as required by the Companies Acts. The register of
Directors and Officers shall be open to inspection in the manner prescribed by
the Companies Acts between 10:00 a.m. and 12:00 noon on every working day.
TRANSFER OF SHARES
31. Subject to the Companies Acts and to such of the restrictions contained in
these Bye-Laws as may be applicable, any Shareholder may transfer all or any of
his
<PAGE> 15
15
shares by an instrument of transfer in the usual common form or in any other
form which the Board may approve.
32. The instrument of transfer of a share shall be signed by or on behalf of the
transferor and where any share is not fully-paid the transferee, and the
transferor shall be deemed to remain the holder of the share until the name of
the transferee is entered in the Register in respect thereof. All instruments of
transfer when registered may be retained by the Company. The Board may, in its
absolute discretion and without assigning any reason therefor, decline to
register any transfer of any share which is not a fully-paid share.
The Board may also decline to register any transfer unless:-
(a) the instrument of transfer is duly stamped and lodged with the
Company, accompanied by the certificate for the shares to which it
relates, and such other evidence as the Board may reasonably require
to show the right of the transferor to make the transfer,
(b) the instrument of transfer is in respect of only one class of share,
(c) where applicable, the permission of the Bermuda Monetary Authority
with respect thereto has been obtained.
Subject to any directions of the Board from time to time in force, the Secretary
may exercise the powers and discretions of the Board under this Bye-Law and
Bye-Laws 31 and 33.
<PAGE> 16
16
33. If the Board declines to register a transfer it shall, within three months
after the date on which the instrument of transfer was lodged, send to the
transferee notice of such refusal.
34. No fee shall be charged by the Company for registering any transfer,
probate, letters of administration, certificate of death or marriage, power of
attorney, distringas or stop notice, order of court or other instrument relating
to or affecting the title to any share, or otherwise making an entry in the
Register relating to any share.
TRANSMISSION OF SHARES
35. In the case of the death of a Shareholder, the survivor or survivors, where
the deceased was a joint holder, and the estate representative, where he was
sole holder, shall be the only person recognised by the Company as having any
title to his shares; but nothing herein contained shall release the estate of a
deceased holder (whether the sole or joint) from any liability in respect of any
share held by him solely or jointly with other persons. For the purpose of this
Bye-Law, estate representative means the person to whom probate or letters of
administration has or have been granted in Bermuda or, failing any such person,
such other person as the Board may in its absolute discretion determine to be
the person recognised by the Company for the purpose of this Bye-Law.
36. Any person becoming entitled to a share in consequence of the death of a
Shareholder or otherwise by operation of
<PAGE> 17
17
applicable law may, subject as hereafter provided and upon such evidence being
produced as may from time to time be required by the Board as to his
entitlement, either be registered himself as the holder of the share or elect to
have some person nominated by him registered as the transferee thereof. If the
person so becoming entitled elects to be registered himself, he shall deliver or
send to the Company a notice in writing signed by him stating that he so elects.
If he shall elect to have his nominee registered, he shall signify his election
by signing an instrument of transfer of such share in favour of his nominee. All
the limitations, restrictions and provisions of these Bye-Laws relating to the
right to transfer and the registration of transfer of shares shall be applicable
to any such notice or instrument of transfer as aforesaid as if the death of the
Shareholder or other event giving rise to the transmission had not occurred and
the notice or instrument of transfer was an instrument of transfer signed by
such Shareholder.
37. A person becoming entitled to a share in consequence of the death of a
Shareholder or otherwise by operation of applicable law shall (upon such
evidence being produced as may from time to time be required by the Board as to
his entitlement) be entitled to receive and may give a discharge for any
dividends or other moneys payable in respect of the share, but he shall not be
entitled in respect of the share to receive notices of or to attend or vote at
general meetings of the Company or, save as aforesaid, to exercise in respect of
the share any of the rights or privileges of a Shareholder until he shall have
become registered as the
<PAGE> 18
18
holder thereof. The Board may at any time give notice requiring such person to
elect either to be registered himself or to transfer the share and if the notice
is not complied with within sixty days the Board may thereafter withhold payment
of all dividends and other moneys payable in respect of the shares until the
requirements of the notice have been complied with.
38. Subject to any directions of the Board from time to time in force, the
Secretary may exercise the powers and discretions of the Board under Bye-Laws
35, 36 and 37.
INCREASE OF CAPITAL
39. The Company may from time to time increase its capital by such sum to be
divided into shares of such par value as the Company by Resolution shall
prescribe.
40. The Company may, by the Resolution increasing the capital, direct that the
new shares or any of them shall be offered in the first instance either at par
or at a premium or (subject to the provisions of the Companies Acts) at a
discount to all the holders for the time being of shares of any class or classes
in proportion to the number of such shares held by them respectively or make any
other provision as to the issue of the new shares.
41. The new shares shall be subject to all the provisions of these Bye-Laws with
reference to lien, the payment of calls, forfeiture, transfer, transmission and
otherwise.
ALTERATION OF CAPITAL
<PAGE> 19
19
42. The Company may from time to time by Resolution:-
(a) divide its shares into several classes and attach thereto
respectively any preferential, deferred, qualified or special
rights, privileges or conditions;
(b) consolidate and divide all or any of its share capital into shares
of larger par value than its existing shares;
(c) sub-divide its shares or any of them into shares of smaller par
value than is fixed by its memorandum, so, however, that in the
sub-division the proportion between the amount paid and the amount,
if any, unpaid on each reduced share shall be the same as it was in
the case of the share from which the reduced share is derived;
(d) make provision for the issue and allotment of shares which do not
carry any voting rights;
(e) cancel shares which, at the date of the passing of the resolution in
that behalf, have not been taken or agreed to be taken by any
person, and diminish the amount of its share capital by the amount
of the shares so cancelled; and
(f) change the currency denomination of its share capital.
Where any difficulty arises in regard to any division, consolidation, or
sub-division under this Bye-Law, the Board
<PAGE> 20
20
may settle the same as it thinks expedient and, in particular, may arrange for
the sale of the shares representing fractions and the distribution of the net
proceeds of sale in due proportion amongst the Shareholders who would have been
entitled to the fractions, and for this purpose the Board may authorise some
person to transfer the shares representing fractions to the purchaser thereof,
who shall not be bound to see to the application of the purchase money nor shall
his title to the shares be affected by any irregularity or invalidity in the
proceedings relating to the sale.
43. Subject to the Companies Act and to any confirmation or consent required by
law or these Bye-Laws, the Company may by Resolution from time to time convert
any preference shares into redeemable preference shares.
REDUCTION OF CAPITAL
44. Subject to the Companies Acts, its memorandum and any confirmation or
consent required by law or these Bye-Laws, the Company may from time to time by
Resolution authorise the reduction of its issued share capital or any capital
redemption reserve fund or any share premium or contributed surplus account in
any manner.
45. In relation to any such reduction, the Company may by Resolution determine
the terms upon which such reduction is to be effected including in the case of a
reduction of part only of a class of shares, those shares to be affected.
GENERAL MEETINGS AND WRITTEN RESOLUTIONS
<PAGE> 21
21
46. (a) The Board shall convene and the Company shall hold general
meetings as Annual General Meetings in accordance with the
requirements of the Companies Acts at such times and places as the
Board shall appoint. The Board may, whenever it thinks fit, and
shall, when required by the Companies Acts, convene general meetings
other than Annual General Meetings which shall be called Special
General Meetings.
(b) Except in the case of the removal of auditors and
Directors, anything which may be done by resolution of the
Company in general meeting or by resolution of a meeting of
any class of the Shareholders of the Company may, without a
meeting and without any previous notice being required, be
done by resolution in writing, signed by all of the
Shareholders or their proxies, or in the case of a
Shareholder that is a corporation (whether or not a company
within the meaning of the Companies Acts) on behalf of such
Shareholder, being all of the Shareholders of the Company
who at the date of the resolution in writing would be
entitled to attend a meeting and vote on the resolution.
Such resolution in writing may be signed by, or in the case
of a Shareholder that is a corporation (whether or not a
company within the meaning of the Companies Acts), on
behalf of, all the Shareholders of the Company, or any
class thereof, in as many counterparts as may be necessary.
<PAGE> 22
22
(c) For the purposes of this Bye-Law, the date of the
resolution in writing is the date when the resolution is
signed by, or in the case of a Shareholder that is a
corporation (whether or not a company within the meaning of
the Companies Acts), on behalf of, the last Shareholder to
sign and any reference in any enactment to the date of
passing of a resolution is, in relation to a resolution in
writing made in accordance with this section, a reference
to such date.
(d) A resolution in writing made in accordance with this Bye-Law is as
valid as if it had been passed by the Company in general meeting or,
if applicable, by a meeting of the relevant class of Shareholders of
the Company, as the case may be. A resolution in writing made in
accordance with this section shall constitute minutes for the
purposes of the Companies Acts and these Bye-Laws.
NOTICE OF GENERAL MEETINGS
47. An Annual General Meeting shall be called by not less than five days notice
in writing and a Special General Meeting shall be called by not less than five
days notice in writing. The notice shall be exclusive of the day on which it is
served or deemed to be served and of the day for which it is given, and shall
specify the place, day and time of the meeting, and, in the case of a Special
General Meeting, the general nature of the business to be considered. Notice of
every general meeting shall be given in any manner permitted by Bye-Laws 120 and
121 to all Shareholders other
<PAGE> 23
23
than such as, under the provisions of these Bye-Laws or the terms of issue of
the shares they hold, are not entitled to receive such notice from the Company.
Notwithstanding that a meeting of the Company is called by shorter notice than
that specified in this Bye-Law, it shall be deemed to have been duly called if
it is so agreed:-
(a) in the case of a meeting called as an Annual General Meeting, by all
the Shareholders entitled to attend and vote thereat;
(b) in the case of any other meeting, by a majority in number of the
Shareholders having the right to attend and vote at the meeting,
being a majority together holding not less than 95 percent in
nominal value of the shares giving that right.
48. The accidental omission to give notice of a meeting or (in cases where
instruments of proxy are sent out with the notice) the accidental omission to
send such instrument of proxy to, or the non-receipt of notice of a meeting or
such instrument of proxy by, any person entitled to receive such notice shall
not invalidate the proceedings at that meeting.
PROCEEDINGS AT GENERAL MEETINGS
49. No business shall be transacted at any general meeting unless a quorum is
present when the meeting proceeds to business, but the absence of a quorum shall
not preclude the appointment, choice or election of a chairman which shall not
be treated as part of the business of the meeting. Save as otherwise provided by
these Bye-Laws, at least two
<PAGE> 24
24
Shareholders present in person or by proxy and entitled to vote shall be a
quorum for all purposes; provided, however, that if the Company shall have only
one Shareholder, one Shareholder present in person or by proxy shall constitute
the necessary quorum.
50. If within five minutes (or such longer time as the chairman of the meeting
may determine to wait) after the time appointed for the meeting, a quorum is not
present, the meeting, if convened on the requisition of Shareholders, shall be
dissolved. In any other case, it shall stand adjourned to such other day and
such other time and place as the chairman of the meeting may determine and at
such adjourned meeting two Shareholders present in person or by proxy (whatever
the number of shares held by them) shall be a quorum provided that if the
Company shall have only one Shareholder, one Shareholder present in person or by
proxy shall constitute the necessary quorum. The Company shall give not less
than five days notice of any meeting adjourned through want of a quorum and such
notice shall state that the sole Shareholder or, if more than one, two
Shareholders present in person or by proxy (whatever the number of shares held
by them) shall be a quorum.
51. A meeting of the Shareholders or any class thereof may be held by means of
such telephone, electronic or other communication facilities as permit all
persons participating in the meeting to communicate with each other
simultaneously and instantaneously and participation in such a meeting shall
constitute presence in person at such meeting.
<PAGE> 25
25
52. Each Director shall be entitled to attend and speak at any general meeting
of the Company.
53. The Chairman (if any) of the Board or, in his absence, the President shall
preside as chairman at every general meeting. If there is no such Chairman or
President, or if at any meeting neither the Chairman nor the President is
present within five minutes after the time appointed for holding the meeting, or
if neither of them is willing to act as chairman, the Directors present shall
choose one of their number to act or if one Director only is present he shall
preside as chairman if willing to act. If no Director is present, or if each of
the Directors present declines to take the chair, the persons present and
entitled to vote on a poll shall elect one of their number to be chairman.
54. The chairman of the meeting may, with the consent of any meeting at which a
quorum is present (and shall if so directed by the meeting), adjourn the meeting
from time to time and from place to place but no business shall be transacted at
any adjourned meeting except business which might lawfully have been transacted
at the meeting from which the adjournment took place. When a meeting is
adjourned for three months or more, notice of the adjourned meeting shall be
given as in the case of an original meeting.
55. Save as expressly provided by these Bye-Laws, it shall not be necessary to
give any notice of an adjournment or of the business to be transacted at an
adjourned meeting.
VOTING
<PAGE> 26
26
56. Save where a greater majority is required by the Companies Acts or these
Bye-Laws, any question proposed for consideration at any general meeting shall
be decided on by a simple majority of votes cast.
57. At any general meeting, a resolution put to the vote of the meeting shall be
decided on a show of hands unless (before or on the declaration of the result of
the show of hands or on the withdrawal of any other demand for a poll) a poll is
demanded by:-
(a) the chairman of the meeting; or
(b) at least three Shareholders present in person or represented by
proxy; or
(c) any Shareholder or Shareholders present in person or represented by
proxy and holding between them not less than one tenth of the total
voting rights of all the Shareholders having the right to vote at
such meeting; or
(d) a Shareholder or Shareholders present in person or represented by
proxy holding shares conferring the right to vote at such meeting,
being shares on which an aggregate sum has been paid up equal to not
less than one tenth of the total sum paid up on all such shares
conferring such right.
Unless a poll is so demanded and the demand is not withdrawn, a declaration by
the chairman that a resolution has, on a show of hands, been carried or carried
unanimously or by a particular
<PAGE> 27
27
majority or not carried by a particular majority or lost shall be final and
conclusive, and an entry to that effect in the minute book of the Company shall
be conclusive evidence of the fact without proof of the number of votes recorded
for or against such resolution.
58. If a poll is duly demanded, the result of the poll shall be deemed to be the
resolution of the meeting at which the poll is demanded.
59. A poll demanded on the election of a chairman, or on a question of
adjournment, shall be taken forthwith. A poll demanded on any other question
shall be taken in such manner and either forthwith or at such time (being not
later than three months after the date of the demand) and place as the chairman
shall direct. It shall not be necessary (unless the chairman otherwise directs)
for notice to be given of a poll.
60. The demand for a poll shall not prevent the continuance of a meeting for the
transaction of any business other than the question on which the poll has been
demanded and it may be withdrawn at any time before the close of the meeting or
the taking of the poll, whichever is the earlier.
61. On a poll, votes may be cast either personally or by proxy.
62. A person entitled to more than one vote on a poll need not use all his votes
or cast all the votes he uses in the same way.
63. In the case of an equality of votes at a general meeting, whether on a show
of hands or on a poll, the
<PAGE> 28
28
chairman of such meeting shall not be entitled to a second or casting vote.
64. In the case of joint holders of a share, the vote of the senior who tenders
a vote, whether in person or by proxy, shall be accepted to the exclusion of the
votes of the other joint holders, and for this purpose seniority shall be
determined by the order in which the names stand in the Register in respect of
the joint holding.
65. A Shareholder who is a patient for any purpose of any statute or applicable
law relating to mental health or in respect of whom an order has been made by
any Court having jurisdiction for the protection or management of the affairs of
persons incapable of managing their own affairs may vote, whether on a show of
hands or on a poll, by his receiver, committee, curator bonis or other person in
the nature of a receiver, committee or curator bonis appointed by such Court and
such receiver, committee, curator bonis or other person may vote on a poll by
proxy, and may otherwise act and be treated as such Shareholder for the purpose
of general meetings.
66. No Shareholder shall, unless the Board otherwise determines, be entitled to
vote at any general meeting unless all calls or other sums presently payable by
him in respect of shares in the Company have been paid.
67. If (i) any objection shall be raised to the qualification of any voter or
(ii) any votes have been counted which ought not to have been counted or which
might have been rejected or (iii) any votes are not counted which
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29
ought to have been counted, the objection or error shall not vitiate the
decision of the meeting or adjourned meeting on any resolution unless the same
is raised or pointed out at the meeting or, as the case may be, the adjourned
meeting at which the vote objected to is given or tendered or at which the error
occurs. Any objection or error shall be referred to the chairman of the meeting
and shall only vitiate the decision of the meeting on any resolution if the
chairman decides that the same may have affected the decision of the meeting.
The decision of the chairman on such matters shall be final and conclusive.
PROXIES AND CORPORATE REPRESENTATIVES
68. The instrument appointing a proxy shall be in writing under the hand of the
appointor or of his attorney authorised by him in writing or, if the appointor
is a corporation, either under its seal or under the hand of an officer,
attorney or other person authorised to sign the same.
69. Any Shareholder may appoint a standing proxy or (if a corporation)
representative by depositing at the Registered Office a proxy or (if a
corporation) an authorisation and such proxy or authorisation shall be valid for
all general meetings and adjournments thereof or, resolutions in writing, as the
case may be, until notice of revocation is received at the Registered Office.
Where a standing proxy or authorisation exists, its operation shall be deemed to
have been suspended at any general meeting or adjournment thereof at which the
Shareholder is present or in respect to which the Shareholder has specially
appointed a proxy or
<PAGE> 30
30
representative. The Board may from time to time require such evidence as it
shall deem necessary as to the due execution and continuing validity of any such
standing proxy or authorisation and the operation of any such standing proxy or
authorisation shall be deemed to be suspended until such time as the Board
determines that it has received the requested evidence or other evidence
satisfactory to it.
70. Subject to Bye-Law 69, the instrument appointing a proxy together with such
other evidence as to its due execution as the Board may from time to time
require, shall be delivered at the Registered Office (or at such place as may be
specified in the notice convening the meeting or in any notice of any
adjournment or, in either case or the case of a written resolution, in any
document sent therewith) prior to the holding of the relevant meeting or
adjourned meeting at which the person named in the instrument proposes to vote
or, in the case of a poll taken subsequently to the date of a meeting or
adjourned meeting, before the time appointed for the taking of the poll, or, in
the case of a written resolution, prior to the effective date of the written
resolution and in default the instrument of proxy shall not be treated as valid.
71. Instruments of proxy shall be in any common form or in such other form as
the Board may approve and the Board may, if it thinks fit, send out with the
notice of any meeting or any written resolution forms of instruments of proxy
for use at that meeting or in connection with that written resolution. The
instrument of proxy shall be deemed to confer authority to demand or join in
demanding a poll and
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31
to vote on any amendment of a written resolution or amendment of a resolution
put to the meeting for which it is given as the proxy thinks fit. The instrument
of proxy shall unless the contrary is stated therein be valid as well for any
adjournment of the meeting as for the meeting to which it relates.
72. A vote given in accordance with the terms of an instrument of proxy shall be
valid notwithstanding the previous death or insanity of the principal, or
revocation of the instrument of proxy or of the authority under which it was
executed, provided that no intimation in writing of such death, insanity or
revocation shall have been received by the Company at the Registered Office (or
such other place as may be specified for the delivery of instruments of proxy in
the notice convening the meeting or other documents sent therewith) one hour at
least before the commencement of the meeting or adjourned meeting, or the taking
of the poll, or the day before the effective date of any written resolution at
which the instrument of proxy is used.
73. Subject to the Companies Acts, the Board may at its discretion waive any of
the provisions of these Bye-Laws related to proxies or authorisations and, in
particular, may accept such verbal or other assurances as it thinks fit as to
the right of any person to attend and vote on behalf of any Shareholder at
general meetings or to sign written resolutions.
APPOINTMENT AND REMOVAL OF DIRECTORS
<PAGE> 32
32
74. The number of Directors shall be such number not less than five nor more
than fifteen as the Company by Resolution may from time to time determine and,
subject to the Companies Act and these Bye-Laws, shall serve until re-elected or
their successors are appointed at the next Annual General Meeting. The Board
shall nominate for election to the Board at each Annual General Meeting two
independent Directors.
75. Without prejudice to the power of the Company by Resolution in pursuance of
any of the provisions of these Bye-laws to appoint any person to be a Director,
any vacancy on the Board may be filled by the Directors, so long as a quorum of
Directors remains in office.
76. The Company may in a Special General Meeting called for that purpose remove
a Director provided notice of any such meeting shall be served upon the Director
concerned not less than 14 days before the meeting and he shall be entitled to
be heard at that meeting. Any vacancy created by the removal of a Director at a
Special General Meeting may be filled at the Meeting by the election of another
Director in his place or, in the absence of any such election, by the Board.
RESIGNATION AND DISQUALIFICATION OF DIRECTORS
77. The office of a Director shall be vacated upon the happening of any of the
following events:
(a) if he resigns his office by notice in writing delivered to the
Registered Office or tendered at a meeting of the Board;
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33
(b) if he becomes of unsound mind or a patient for any purpose of any
statute or applicable law relating to mental health and the Board
resolves that his office is vacated;
(c) if he becomes bankrupt or compounds with his creditors;
(d) if he is prohibited by law from being a Director;
(e) if he ceases to be a Director by virtue of the Companies Acts or is
removed from office pursuant to these Bye-Laws.
DIRECTORS' FEES AND ADDITIONAL REMUNERATION AND EXPENSES
78. The amount, if any, of Directors' fees shall from time to time be determined
by the resolution of the Board (or any committee thereof so authorized by the
Board). Each Director may be paid his reasonable travelling, hotel and
incidental expenses in attending and returning from meetings of the Board or
committees constituted pursuant to these Bye-Laws or general meetings and shall
be paid all expenses properly and reasonably incurred by him in the conduct of
the Company's business or in the discharge of his duties as a Director. Any
Director who, by request, goes or resides abroad for any purposes of the Company
or who performs services which in the opinion of the Board go beyond the
ordinary duties of a Director may be paid such extra remuneration (whether by
way of salary, commission, participation in profits or otherwise) as the Board
may determine, and such extra remuneration shall be in addition
<PAGE> 34
34
to any remuneration provided for by or pursuant to any other Bye-Law.
DIRECTORS' INTERESTS
79. (a) A Director may hold any other office or place of profit
with the Company (except that of auditor) in conjunction
with his office of Director for such period and upon such
terms as the Board may determine, and may be paid such
extra remuneration therefor (whether by way of salary,
commission, participation in profits or otherwise) as the
Board may determine, and such extra remuneration shall be
in addition to any remuneration provided for by or pursuant
to any other Bye-Law.
(b) A Director may act by himself or his firm in a professional
capacity for the Company (otherwise than as auditor) and he
or his firm shall be entitled to remuneration for
professional services as if he were not a Director.
(c) Subject to the provisions of the Companies Acts, a Director
may notwithstanding his office be a party to, or otherwise
interested in, any transaction or arrangement with the
Company or in which the Company is otherwise interested;
and be a Director or other officer of, or employed by, or a
party to any transaction or arrangement with, or otherwise
interested in, any body corporate promoted by the Company
or in which the Company is interested. The Board may also
cause the voting power conferred
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35
by the shares in any other company held or owned by the
Company to be exercised in such manner in all respects as it
thinks fit, including the exercise thereof in favour of any
resolution appointing the Directors or any of them to be
directors or officers of such other company, or voting or
providing for the payment of remuneration to the directors
or officers of such other company.
(d) So long as, where it is necessary, he declares the nature
of his interest at the first opportunity at a meeting of
the Board or by writing to the Directors as required by the
Companies Acts, a Director shall not by reason of his
office be accountable to the Company for any benefit which
he derives from any office or employment to which these
Bye-Laws allow him to be appointed or from any transaction
or arrangement in which these Bye-Laws allow him to be
interested, and no such transaction or arrangement shall be
liable to be avoided on the ground of any interest or
benefit.
(e) Subject to the Companies Acts and any further disclosure
required thereby, a general notice to the Directors by a
Director or officer declaring that he is a director or
officer or has an interest in a person and is to be
regarded as interested in any transaction or arrangement
made with that person, shall be a sufficient
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36
declaration of interest in relation to any transaction or
arrangement so made.
POWERS AND DUTIES OF THE BOARD
80. Subject to the provisions of the Companies Acts and these Bye-Laws and to
any directions given by the Company by Resolution, the Board shall manage the
business of the Company and may pay all expenses incurred in promoting and
incorporating the Company and may exercise all the powers of the Company. No
alteration of these Bye-Laws and no such direction shall invalidate any prior
act of the Board which would have been valid if that alteration had not been
made or that direction had not been given. The powers given by this Bye-Law
shall not be limited by any special power given to the Board by these Bye-Laws
and a meeting of the Board at which a quorum is present shall be competent to
exercise all the powers, authorities and discretions for the time being vested
in or exercisable by the Board.
81. The Board may exercise all the powers of the Company to borrow money and to
mortgage or charge all or any part of the undertaking, property and assets
(present and future) and uncalled capital of the Company and to issue debentures
and other securities, whether outright or as collateral security for any debt,
liability or obligation of the Company or of any other persons.
82. All cheques, promissory notes, drafts, bills of exchange and other
instruments, whether negotiable or transferable or not, and all receipts for
money paid to the Company shall be signed, drawn, accepted, endorsed or
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37
otherwise executed, as the case may be, in such manner as the Board shall from
time to time by resolution determine.
83. The Board on behalf of the Company may provide benefits, whether by the
payment of gratuities or pensions or otherwise, for any person including any
Director or former Director who has held any executive office or employment with
the Company or with any body corporate which is or has been a subsidiary or
affiliate of the Company or a predecessor in the business of the Company or of
any such subsidiary or affiliate, and to any member of his family or any person
who is or was dependent on him, and may contribute to any fund and pay premiums
for the purchase or provision of any such gratuity, pension or other benefit, or
for the insurance of any such person.
84. The Board may from time to time appoint one or more of its body to be a
managing director, joint managing director or an assistant managing director or
to hold any other employment or executive office with the Company for such
period and upon such terms as the Board may determine and may revoke or
terminate any such appointments. Any such revocation or termination as aforesaid
shall be without prejudice to any claim for damages that such Director may have
against the Company or the Company may have against such Director for any breach
of any contract of service between him and the Company which may be involved in
such revocation or termination. Any person so appointed shall receive such
remuneration (if any) (whether by way of salary, commission, participation in
profits or otherwise)
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38
as the Board may determine, and either in addition to or in lieu of his
remuneration as a Director.
DELEGATION OF THE BOARD'S POWERS
85. The Board may by power of attorney appoint any company, firm or person or
any fluctuating body of persons, whether nominated directly or indirectly by the
Board, to be the attorney or attorneys of the Company for such purposes and with
such powers, authorities and discretions (not exceeding those vested in or
exercisable by the Board under these Bye-Laws) and for such period and subject
to such conditions as it may think fit, and any such power of attorney may
contain such provisions for the protection and convenience of persons dealing
with any such attorney and of such attorney as the Board may think fit, and may
also authorise any such attorney to sub-delegate all or any of the powers,
authorities and discretions vested in him.
86. The Board may entrust to and confer upon any Director or officer any of the
powers exercisable by it upon such terms and conditions with such restrictions
as it thinks fit, and either collaterally with, or to the exclusion of, its own
powers, and may from time to time revoke or vary all or any of such powers but
no person dealing in good faith and without notice of such revocation or
variation shall be affected thereby.
87. The Board may delegate any of its powers, authorities and discretions to
committees, consisting of such person or persons (whether a member or members of
its body or not) as it thinks fit. Any committee so formed shall, in the
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exercise of the powers, authorities and discretions so delegated, conform to any
regulations which may be imposed upon it by the Board.
PROCEEDINGS OF THE BOARD
88. The Board may meet for the despatch of business, adjourn and otherwise
regulate its meetings as it thinks fit. Questions arising at any meeting shall
be determined by a majority of votes. In the case of an equality of votes the
motion shall be deemed to have been lost. A Director may, and the Secretary on
the requisition of a Director shall, at any time summon a meeting of the Board.
89. Notice of a meeting of the Board shall be deemed to be duly given to a
Director if it is given to him personally or by word of mouth or sent to him by
post, cable, telex, telecopier or other mode of representing or reproducing
words in a legible and non-transitory form at his last known address or any
other address given by him to the Company for this purpose. A Director may waive
notice of any meeting either prospectively or retrospectively.
90. (a) The quorum necessary for the transaction of the business of
the Board may be fixed by the Board and, unless so fixed at
any other number, shall be two individuals. Any Director
who ceases to be a Director at a meeting of the Board may
continue to be present and to act as a Director and be
counted in the quorum until the termination of the meeting
if no other Director objects and if otherwise a quorum of
Directors would not be present.
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40
(b) A Director who to his knowledge is in any way, whether
directly or indirectly, interested in a contract or
proposed contract, transaction or arrangement with the
Company and has complied with the provisions of the
Companies Acts and these Bye-Laws with regard to disclosure
of his interest shall be entitled to vote in respect of any
contract, transaction or arrangement in which he is so
interested and if he shall do so his vote shall be counted,
and he shall be taken into account in ascertaining whether
a quorum is present.
91. So long as a quorum of Directors remains in office, the continuing Directors
may act notwithstanding any vacancy in the Board but, if no such quorum remains,
the continuing Directors or a sole continuing Director may act only for the
purpose of calling a general meeting.
92. The Chairman (if any) of the Board or, in his absence, the President shall
preside as chairman at every meeting of the Board. If there is no such Chairman
or President, or if at any meeting the Chairman or the President is not present
within five minutes after the time appointed for holding the meeting, or is not
willing to act as chairman, the Directors present may choose one of their number
to be chairman of the meeting.
93. The meetings and proceedings of any committee consisting of two or more
members shall be governed by the provisions contained in these Bye-Laws for
regulating the meetings and proceedings of the Board so far as the same are
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41
applicable and are not superseded by any regulations imposed by the Board.
94. A resolution in writing signed by all the Directors for the time being
entitled to receive notice of a meeting of the Board or by all the members of a
committee for the time being shall be as valid and effectual as a resolution
passed at a meeting of the Board or, as the case may be, of such committee duly
called and constituted. Such resolution may be contained in one document or in
several documents in the like form each signed by one or more of the Directors
or members of the committee concerned.
95. A meeting of the Board or a committee appointed by the Board may be held by
means of such telephone, electronic or other communication facilities as permit
all persons participating in the meeting to communicate with each other
simultaneously and instantaneously and participation in such a meeting shall
constitute presence in person at such meeting.
96. All acts done by the Board or by any committee or by any person acting as a
Director or member of a committee or any person duly authorised by the Board or
any committee, shall, notwithstanding that it is afterwards discovered that
there was some defect in the appointment of any member of the Board or such
committee or person acting as aforesaid or that they or any of them were
disqualified or had vacated their office, be as valid as if every such person
had been duly appointed and was qualified and had continued to be a Director,
member of such committee or person so authorised.
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42
OFFICERS
97. The officers of the Company shall include a President and a Vice-President
or a Chairman and a Deputy Chairman who shall be Directors and shall be elected
by the Board as soon as possible after the statutory meeting and each Annual
General Meeting. In addition, the Board may appoint any person whether or not he
is a Director to hold such office as the Board may from time to time determine.
Any person elected or appointed pursuant to this Bye-Law shall hold office for
such period and upon such terms as the Board may determine and the Board may
revoke or terminate any such election or appointment. Any such revocation or
termination shall be without prejudice to any claim for damages that such
officer may have against the Company or the Company may have against such
officer for any breach of any contract of service between him and the Company
which may be involved in such revocation or termination. Save as provided in the
Companies Acts or these Bye-Laws, the powers and duties of the officers of the
Company shall be such (if any) as are determined from time to time by the Board.
MINUTES
98. The Directors shall cause minutes to be made and books kept for the purpose
of recording -
(a) all appointments of officers made by the
Directors;
(b) the names of the Directors and other persons (if any) present at
each meeting of Directors and of any committee;
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43
(c) of all proceedings at meetings of the Company, of the holders of any
class of shares in the Company, and of committees;
(d) of all proceedings of managers (if any).
SECRETARY
99. The Secretary shall be appointed by the Board at such remuneration (if any)
and upon such terms as it may think fit and any Secretary so appointed may be
removed by the Board.
The duties of the Secretary shall be those prescribed by the Companies Acts
together with such other duties as shall from time to time be prescribed by the
Board.
100. A provision of the Companies Acts or these Bye-Laws requiring or
authorising a thing to be done by or to a Director and the Secretary shall not
be satisfied by its being done by or to the same person acting both as Director
and as, or in the place of, the Secretary.
THE SEAL
101. (a) The Seal shall consist of a circular metal device with the
name of the Company around the outer margin thereof and the
country and year of incorporation across the centre
thereof. Should the Seal not have been received at the
Registered Office in such form at the date of adoption of
this Bye-Law then, pending such receipt, any document
requiring to be sealed with the Seal
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44
shall be sealed by affixing a red wafer seal to the document with
the name of the Company, and the country and year of incorporation
type written across the centre thereof.
(b) The Board shall provide for the custody of every Seal. A
Seal shall only be used by authority of the Board or of a
committee constituted by the Board. Subject to these
Bye-laws, any instrument to which a Seal is affixed shall
be signed by two Directors or the Secretary and one
Director, or by any two persons whether or not Directors or
the Secretary, who have been authorised either generally or
specifically to attest to the use of a Seal; provided that
the Secretary or a Director may affix a Seal attested with
his signature only to authenticate copies of these
Bye-Laws, the minutes of any meeting or any other documents
requiring authentication.
DIVIDENDS AND OTHER PAYMENTS
102. The Board may from time to time declare cash dividends or distributions out
of contributed surplus to be paid to the Shareholders according to their rights
and interests including such interim dividends as appear to the Board to be
justified by the position of the Company. The Board may also pay any fixed cash
dividend which is payable on any shares of the Company half yearly or on such
other dates, whenever the position of the Company, in the opinion of the Board,
justifies such payment.
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45
103. Except insofar as the rights attaching to, or the terms of issue of, any
share otherwise provide:-
(a) all dividends or distributions out of contributed surplus may be
declared and paid according to the amounts paid up on the shares in
respect of which the dividend or distribution is paid, and an amount
paid up on a share in advance of calls may be treated for the
purpose of this Bye-Law as paid-up on the share;
(b) dividends or distributions out of contributed surplus may be
apportioned and paid pro rata according to the amounts paid-up on
the shares during any portion or portions of the period in respect
of which the dividend or distribution is paid.
104. The Board may deduct from any dividend, distribution or other moneys
payable to a Shareholder by the Company on or in respect of any shares all sums
of money (if any) presently payable by him to the Company on account of calls or
otherwise in respect of shares of the Company.
105. No dividend, distribution or other moneys payable by the Company on or in
respect of any share shall bear interest against the Company.
106. Any dividend, distribution, interest or other sum payable in cash to the
holder of shares may be paid by cheque or warrant sent through the post
addressed to the holder at his address in the Register or, in the case of joint
holders, addressed to the holder whose name stands
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46
first in the Register in respect of the shares at his registered address as
appearing in the Register or addressed to such person at such address as the
holder or joint holders may in writing direct. Every such cheque or warrant
shall, unless the holder or joint holders otherwise direct, be made payable to
the order of the holder or, in the case of joint holders, to the order of the
holder whose name stands first in the Register in respect of such shares, and
shall be sent at his or their risk and payment of the cheque or warrant by the
bank on which it is drawn shall constitute a good discharge to the Company. Any
one of two or more joint holders may give effectual receipts for any dividends,
distributions or other moneys payable or property distributable in respect of
the shares held by such joint holders.
107. Any dividend or distribution out of contributed surplus unclaimed for a
period of six years from the date of declaration of such dividend or
distribution shall be forfeited and shall revert to the Company and the payment
by the Board of any unclaimed dividend, distribution, interest or other sum
payable on or in respect of the share into a separate account shall not
constitute the Company a trustee in respect thereof.
108. With the sanction of a Resolution the Board may direct payment or
satisfaction of any dividend or distribution out of contributed surplus wholly
or in part by the distribution of specific assets, and in particular of paid-up
shares or debentures of any other company, and where any difficulty arises in
regard to such distribution or dividend the Board
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may settle it as it thinks expedient, and in particular, may authorise any
person to sell and transfer any fractions or may ignore fractions altogether,
and may fix the value for distribution or dividend purposes of any such specific
assets and may determine that cash payments shall be made to any Shareholders
upon the footing of the values so fixed in order to secure equality of
distribution and may vest any such specific assets in trustees as may seem
expedient to the Board.
RESERVES
109. The Board may, before recommending or declaring any dividend or
distribution out of contributed surplus, set aside such sums as it thinks proper
as reserves which shall, at the discretion of the Board, be applicable for any
purpose of the Company and pending such application may, also at such
discretion, either be employed in the business of the Company or be invested in
such investments as the Board may from time to time think fit. The Board may
also without placing the same to reserve carry forward any sums which it may
think it prudent not to distribute.
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CAPITALIZATION OF PROFITS
110. The Board may, at any time and from time to time pass a resolution to the
effect that it is desirable to capitalize all or any part of any amount for the
time being standing to the credit of any reserve or fund which is available for
distribution or to the credit of any share premium account or any capital
redemption reserve fund. Accordingly such amount may by resolution of the Board
be set free for distribution amongst the Shareholders or any class of
Shareholders who would be entitled thereto if distributed by way of dividend and
in the same proportions, on the footing that the same be not paid in cash but be
applied either in or towards paying up amounts for the time being unpaid on any
shares in the Company held by such Shareholders respectively or in payment up in
full of unissued shares, debentures or other obligations of the Company, to be
allotted and distributed credited as fully paid among such Shareholders, or
partly in one way and partly in the other, provided that for purpose of this
Bye-law, a share premium account and a capital redemption reserve fund may be
applied only in paying up of unissued shares to be issued to such Shareholders
credited as fully paid and provided further that any sum standing to the credit
of a share premium account may only be applied in crediting as fully paid shares
of the same class as that from which the relevant share premium was derived.
111. Where any difficulty arises in regard to any distribution under the last
preceding Bye-Law, the Board may settle the same as it thinks expedient and, in
particular,
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may authorise any person to sell and transfer any fractions or may resolve that
the distribution should be as nearly as may be practicable in the correct
proportion but not exactly so or may ignore fractions altogether, and may
determine that cash payments should be made to any Shareholders in order to
adjust the rights of all parties, as may seem expedient to the Board. The Board
may appoint any person to sign on behalf of the persons entitled to participate
in the distribution any contract necessary or desirable for giving effect
thereto and such appointment shall be effective and binding upon the
Shareholders.
RECORD DATES
112. Notwithstanding any other provisions of these Bye-Laws, the Company may by
Resolution or the Board may fix any date as the record date for any dividend,
distribution, allotment or issue and for the purpose of identifying the persons
entitled to receive notices of general meetings. Any such record date may be on
or at any time before or after any date on which such dividend, distribution,
allotment or issue is declared, paid or made or such notice is despatched.
ACCOUNTING RECORDS
113. The Board shall cause to be kept accounting records sufficient to give a
true and fair view of the state of the Company's affairs and to show and explain
its transactions, in accordance with the Companies Acts.
114. The records of account shall be kept at the Registered Office or at such
other place or places as the Board thinks
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fit, and shall at all times be open to inspection by the Directors: PROVIDED
that if the records of account are kept at some place outside Bermuda, there
shall be kept at an office of the Company in Bermuda such records as will enable
the Directors to ascertain with reasonable accuracy the financial position of
the Company at the end of each three month period. No Shareholder (other than an
officer of the Company) shall have any right to inspect any accounting record or
book or document of the Company except as conferred by law or authorised by the
Board or by Resolution.
115. A copy of every balance sheet and statement of income and expenditure,
including every document required by law to be annexed thereto, which is to be
laid before the Company in general meeting, together with a copy of the
auditors' report, shall be sent to each person entitled thereto in accordance
with the requirements of the Companies Acts.
AUDIT
116. Save and to the extent that an audit is waived in the manner permitted by
the Companies Acts, auditors shall be appointed and their duties regulated in
accordance with the Companies Acts, any other applicable law and such
requirements not inconsistent with the Companies Acts as the Board may from time
to time determine.
SERVICE OF NOTICES AND OTHER DOCUMENTS
117. Any notice or other document (including a share certificate) may be served
on or delivered to any Shareholder by the Company either personally or by
sending
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it through the post (by airmail where applicable) in a pre-paid letter addressed
to such Shareholder at his address as appearing in the Register or by delivering
it to or leaving it at such registered address. In the case of joint holders of
a share, service or delivery of any notice or other document on or to one of the
joint holders shall for all purposes be deemed as sufficient service on or
delivery to all the joint holders. Any notice or other document if sent by post
shall be deemed to have been served or delivered seven days after it was put in
the post, and in proving such service or delivery, it shall be sufficient to
prove that the notice or document was properly addressed, stamped and put in the
post.
118. Any notice of a general meeting of the Company shall be deemed to be duly
given to a Shareholder if it is sent to him by cable, telex, telecopier or other
mode of representing or reproducing words in a legible and non-transitory form
at his address as appearing in the Register or any other address given by him to
the Company for this purpose. Any such notice shall be deemed to have been
served twenty-four hours after its despatch.
119. Any notice or other document delivered, sent or given to a Shareholder in
any manner permitted by these Bye-Laws shall, notwithstanding that such
Shareholder is then dead or bankrupt or that any other event has occurred, and
whether or not the Company has notice of the death or bankruptcy or other event,
be deemed to have been duly served or delivered in respect of any share
registered in the name of such Shareholder as sole or joint holder unless his
name shall,
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at the time of the service or delivery of the notice or document, have been
removed from the Register as the holder of the share, and such service or
delivery shall for all purposes be deemed as sufficient service or delivery of
such notice or document on all persons interested (whether jointly with or as
claiming through or under him) in the share.
WINDING UP
120. If the Company shall be wound up, the liquidator may, with the sanction of
a Resolution of the Company and any other sanction required by the Companies
Acts, divide amongst the Shareholders in specie or kind the whole or any part of
the assets of the Company (whether they shall consist of property of the same
kind or not) and may for such purposes set such values as he deems fair upon any
property to be divided as aforesaid and may determine how such division shall be
carried out as between the Shareholders or different classes of Shareholders.
The liquidator may, with the like sanction, vest the whole or any part of such
assets in trustees upon such trust for the benefit of the contributories as the
liquidator, with the like sanction, shall think fit, but so that no Shareholder
shall be compelled to accept any shares or other assets upon which there is any
liability.
INDEMNITY
121. Subject to the proviso below, every Director, officer of the Company and
member of a committee constituted under Bye-Law 90 shall be indemnified out of
the funds of the
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53
Company against all civil liabilities, loss, damage or expense (including but
not limited to liabilities under contract, tort and statute or any applicable
foreign law or regulation and all reasonable legal and other costs and expenses
properly payable) incurred or suffered by him as such Director, officer or
committee member and the indemnity contained in this Bye-Law shall extend to any
person acting as a Director, officer or committee member in the reasonable
belief that he has been so appointed or elected notwithstanding any defect in
such appointment or election PROVIDED ALWAYS that the indemnity contained in
this Bye-Law shall not extend to any matter which would render it void pursuant
to the Companies Acts.
122. Every Director, officer and member of a committee duly constituted under
Bye-Law 90 of the Company shall be indemnified out of the funds of the Company
against all liabilities incurred by him as such Director, officer or committee
member in defending any proceedings, whether civil or criminal, in which
judgment is given in his favour, or in which he is acquitted, or in connection
with any application under the Companies Acts in which relief from liability is
granted to him by the court.
123. To the extent that any Director, officer or member of a committee duly
constituted under Bye-Law 90 is entitled to claim an indemnity pursuant to these
Bye-Laws in respect of amounts paid or discharged by him, the relative indemnity
shall take effect as an obligation of the Company to reimburse the person making
such payment or effecting such discharge.
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54
ALTERATION OF BYE-LAWS
124. These Bye-Laws may be amended from time to time in the manner provided for
in the Companies Acts.
<PAGE> 55
55
ANNEX
SCHEDULE III
8% Series A Convertible Redeemable Preferred Shares due 2011
Globalstar Telecommunications Limited, an exempted company organized
under the laws of Bermuda (the "Company"), certifies that pursuant to the
authority contained in its Memorandum of Association (the "Memorandum of
Association") and its Bye-Laws (the "Bye-Laws"), and in accordance with Bermuda
law, the Board of Directors (or a duly authorized committee thereof) of the
Company at meetings duly called and held on January 13, 1999, and January 20,
1999, duly approved and adopted the following resolution, which resolution
remains in full force and effect on the date hereof:
RESOLVED, that pursuant to the authority vested in the Board of
Directors by the Memorandum of Association and Bye-Laws, the Board of Directors
does hereby designate, create, authorize and provide for the issue of a series
of preference stock having the following designation, voting powers, preferences
and relative, participating, optional and other special rights:
Capitalized terms used herein are defined in Section 15.
1. Number and Designation. The Company shall have a class of
preference shares, which shall be designated as its 8% Series A Convertible
Redeemable Preferred Shares due 2011 (the "Series A Preferred Shares"), par
value U.S.$0.01 per share, with 8,400,000 shares initially
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56
authorized and, subject to the limitations set forth herein, such number of
additional shares as are authorized from time to time by resolution of the Board
of Directors of the Company and as set forth in the Bye-Laws of the Company.
Unless otherwise specified, references herein to any "Section" refer to the
Section number specified in this Schedule III.
2. Issuance. The Company may issue Series A Preferred Shares from
time to time as may be determined by the Board of Directors (or any committee
thereof) of the Company.
3. Registered Form; Liquidation Preference; Registrar. Certificates
for Series A Preferred Shares shall be issuable only in registered form and only
with a liquidation preference of U.S.$50 per share. The Company hereby appoints
The Bank of New York as its initial Registrar and Transfer Agent (the
"Registrar") for the Series A Preferred Shares.
4. Registration; Transfer. (a) The Series A Preferred Shares have
not been registered under the United States Securities Act of 1933 (the
"Securities Act") and may not be resold, pledged or otherwise transferred prior
to the date when they no longer constitute "restricted securities" for purposes
of Rule 144(k) under the Securities Act other than (i) to the Company, (ii) to
"qualified institutional buyers" ("QIBs") pursuant to and in compliance with
Rule 144A ("Rule 144A") under the Securities Act, (iii) pursuant to and in
compliance with Rule 904 of Regulation S under the Securities Act, (iv) to
"accredited
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investors" as defined in Rule 501(a) under the Securities Act, (v) pursuant to
an exemption from registration under the Securities Act, or (vi) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of Bermuda or any state of the
United States. Until such time as determined by the Company and the Registrar,
certificates evidencing the Series A Preferred Shares shall contain a legend
(the "Restricted Shares Legend") evidencing the foregoing restrictions in
substantially the form set forth on the form of Series A Preferred Share
attached hereto as Exhibit A.
(b) Series A Preferred Shares issued to QIBs in reliance on Rule
144A, as provided in the Purchase Agreement, shall be issued in the form of one
or more permanent global Series A Preferred Shares in definitive, fully
registered form with the global legend (the "Global Shares Legend") and the
Restricted Shares Legend set forth on the form of Series A Preferred Share
attached hereto as Exhibit A (each, a "Global Series A Preferred Share"), which
shall be deposited on behalf of the holders of the Series A Preferred Shares
represented thereby with the Registrar, at its New York office, as custodian for
The Depository Trust Company, New York, New York ("DTC") or its nominee and
their respective successors (the "Depositary"), and registered in the name of
the Depositary or a nominee of the Depositary, duly executed by the Company and
countersigned and registered by the Registrar as hereinafter provided. The
aggregate liquidation preference of the Global Series A Preferred Share may from
time to time be increased or
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58
decreased by adjustments made on the records of the Registrar and the Depositary
or its nominee as hereinafter provided.
(c) This paragraph shall apply only to a Global Series A Preferred
Share deposited with or on behalf of the Depositary. The Company shall execute
and the Registrar shall, in accordance with this Section, countersign and
deliver initially one or more Global Series A Preferred Shares that (i) shall be
registered in the name of Cede & Co. or other nominee of the Depositary and (ii)
shall be delivered by the Registrar to Cede & Co. or pursuant to instructions
received from Cede & Co. or held by the Registrar as custodian for the
Depositary pursuant to an agreement between the Depositary and the Registrar.
Members of, or participants in, the Depositary ("Agent Members") shall have no
rights under this Schedule with respect to any Global Series A Preferred Share
held on their behalf by the Depositary or by the Registrar as the custodian of
the Depositary or under such Global Series A Preferred Share, and the Depositary
may be treated by the Company, the Registrar and any agent of the Company or the
Registrar as the absolute owner of such Global Series A Preferred Share for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent
the Company, the Registrar or any agent of the Company or the Registrar from
giving effect to any written certification, proxy or other authorization
furnished by the Depositary or impair, as between the Depositary and its Agent
Members, the operation of customary practices of the Depositary governing the
exercise of the rights of a holder of a beneficial interest in any Global
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59
Series A Preferred Share. Except as provided in Section 5(b), owners of
beneficial interests in Global Series A Preferred Shares will not be entitled to
receive physical delivery of certificated Series A Preferred Shares.
(d) Purchasers of Series A Preferred Shares who are not QIBs will
receive certificated Series A Preferred Shares bearing the Restricted Shares
Legend ("Restricted Series A Preferred Shares"). Restricted Series A Preferred
Shares will bear a Restricted Shares Legend unless removed in accordance with
Section 5 and may not be exchanged for a Global Series A Preferred Share, or
interest therein, at any time, except as set forth in clause (iv) of paragraph
(b) of Section 5.
(e) No certificate evidencing Series A Preferred Shares shall be
valid unless it bears the countersignature of the Registrar.
5. Paying Agent and Conversion Agent. (a) The Company shall maintain
in the Borough of Manhattan, City of New York, State of New York (i) an office
or agency where Series A Preferred Shares may be presented for payment (the
"Paying Agent") and (ii) an office or agency where Series A Preferred Shares may
be presented for conversion (the "Conversion Agent"). The Company may appoint
the Registrar, the Paying Agent and the Conversion Agent and may appoint one or
more additional paying agents and one or more additional conversion agents in
such other locations as it shall determine. The term "Paying Agent" includes any
additional paying agent and, with respect to payments hereunder by delivery of
Common Shares, may include the
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Common Share Transfer Agent, and the term "Conversion Agent" includes any
additional conversion agent. The Company may change any Paying Agent or
Conversion Agent without prior notice to any holder. The Company shall notify
the Registrar of the name and address of any Paying Agent or Conversion Agent
appointed by the Company. If the Company fails to appoint or maintain another
entity as Paying Agent or Conversion Agent, the Registrar shall act as such. The
Company or any of its Affiliates may act as Paying Agent, Registrar, coregistrar
or Conversion Agent.
Neither the Company nor the Registrar shall be required (A) to
issue, countersign or register the transfer of or exchange any Series A
Preferred Share during a period beginning at the opening of business 15 days
before the day of the mailing of a notice of redemption of Series A Preferred
Shares selected for redemption under Section 10 and ending at the close of
business on the day of such mailing or (B) to register the transfer of or
exchange any Series A Preferred Share so selected for redemption in whole or in
part, except the unredeemed portion of any Series A Preferred Share being
redeemed in part.
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61
(b) Notwithstanding any provision to the contrary herein, so long as
a Global Series A Preferred Share remains outstanding and is held by or on
behalf of the Depositary, transfers of a Global Series A Preferred Share, in
whole or in part, or of any beneficial interest therein, shall only be made in
accordance with Section 4 and this Section 5; provided, however, that beneficial
interests in a Global Series A Preferred Share may be transferred to persons who
take delivery thereof in the form of a beneficial interest in the same Global
Series A Preferred Share in accordance with the transfer restrictions set forth
in the Restricted Shares Legend:
(i) Except for transfers or exchanges made in accordance with any of
clauses (b)(ii) through (v) of this Section 5, transfers of a Global
Series A Preferred Share shall be limited to transfers of such Global
Series A Preferred Share in whole, but not in part, to nominees of the
Depositary or to a successor of the Depositary or such successor's
nominee.
(ii) If an owner of a beneficial interest in a Global Series A
Preferred Share deposited with the Depositary or with the Registrar as
custodian for the Depositary wishes at any time to transfer its interest in
such Global Series A Preferred Share to a person who is required to take
delivery thereof in the form of Restricted Series A Preferred Shares, such
owner may, subject to the rules and procedures of the Depositary, cause the
exchange of such interest for one or more certificates evidencing such
Restricted Series A
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Preferred Shares. Upon receipt by the Registrar, at its office in The City
of New York of (A) instructions from the Depositary directing the Registrar
to countersign and deliver one or more Restricted Series A Preferred Shares
equal in number of shares to the beneficial interest in the Global Series A
Preferred Share to be exchanged, such instructions to contain the name or
names of the designated transferee or transferees, the number of Restricted
Series A Preferred Shares to be so issued and appropriate delivery
instructions, (B) a certificate in the form of Exhibit B attached hereto
given by the transferor, to the effect set forth therein, (C) if such
transfer is made pursuant to Section 4(a)(iv), a certificate in the form of
Exhibit C attached hereto given by the person acquiring the Restricted
Series A Preferred Shares for which such interest is being exchanged, to the
effect set forth therein, and (D) such other certifications, legal opinions
or other information as the Company, the Depositary or the Registrar may
reasonably require to confirm that such transfer is being made pursuant to
an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act, then the Registrar will instruct the
Depositary to reduce or cause to be reduced such Global Series A Preferred
Share by the number of shares of the beneficial interest therein to be
exchanged and to debit or cause to be debited from the account of the person
making such transfer the beneficial interest in the Global Series A
Preferred Share that is being transferred, and
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63
concurrently with such reduction and debit, the Company shall execute, and
the Registrar shall countersign and deliver, one or more Restricted Series A
Preferred Shares representing the same number of shares in accordance with
the instructions referred to above.
(iii) If a holder of Restricted Series A Preferred Shares wishes at
any time to transfer all or part of such Restricted Series A Preferred
Shares to a person who is required to take delivery thereof in the form of
Restricted Series A Preferred Shares, such holder may, subject to the
restrictions on transfer set forth herein and in the certificate
representing such Restricted Series A Preferred Shares, cause the exchange
of such Restricted Series A Preferred Shares for one or more certificates
evidencing such Restricted Series A Preferred Shares. Upon receipt by the
Registrar, at its office in The City of New York of (A) such Restricted
Series A Preferred Shares, duly endorsed as provided herein, (B)
instructions from such holder directing the Registrar to authenticate and
deliver one or more certificates evidencing Restricted Series A Preferred
Shares, such instructions to contain the name of the transferee and the
number of the Restricted Series A Preferred Shares to be so issued and
appropriate delivery instructions, (C) a certificate from the holder of the
Restricted Series A Preferred Shares to be exchanged in the form of Exhibit
B attached hereto given by the transferor, to the effect set forth therein,
(D) if such transfer is made pursuant to clause
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64
4(a)(iv), a certificate in the form of Exhibit C attached hereto given by
the person acquiring the Restricted Series A Preferred Shares for which such
shares are being exchanged, to the effect set forth therein, and (E) such
other certifications, legal opinions or other information as the Company or
the Registrar may reasonably require to confirm that such transfer is being
made pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act, then the Registrar shall
cancel or cause to be canceled such Restricted Series A Preferred Share and
concurrently therewith, the Company shall execute, and the Registrar shall
countersign and deliver, one or more Restricted Series A Preferred Shares
representing the number of shares transferred in accordance with the
instructions referred to above.
(iv) If a holder of Restricted Series A Preferred Shares wishes at
any time to transfer all or part of such Restricted Series A Preferred
Shares to a person who is eligible to take delivery thereof in the form of a
beneficial interest in a Global Series A Preferred Share, such holder may,
subject to the restrictions on transfer set forth herein and in the
certificate representing such Restricted Series A Preferred Shares, cause
the exchange of such Restricted Series A Preferred Shares for beneficial
interests in a Global Series A Preferred Share. Upon receipt by the
Registrar, at its office in The City of New York of (A) such Restricted
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Series A Preferred Shares, duly endorsed as provided herein, (B)
instructions from such holder directing the Registrar to increase the Global
Series A Preferred Share, such instructions to contain the name of the
transferee and appropriate account information, (C) a certificate from the
holder of the Restricted Series A Preferred Shares to be exchanged in the
form of Exhibit B attached hereto given by the transferor, to the effect set
forth therein, and (D) such other certifications, legal opinions or other
information as the Company, the Depositary or the Registrar may reasonably
require to confirm that such transfer is being made pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of
the Securities Act, then the Registrar shall cancel or cause to be canceled
such Restricted Series A Preferred Shares and concurrently therewith, the
Registrar will instruct the Depositary to increase or cause to be increased
the Global Series A Preferred Share by the aggregate number of shares of the
Restricted Series A Preferred Shares to be exchanged and to credit or cause
to be credited to the account of the transferee the beneficial interest in
the Global Series A Preferred Share that is being transferred.
(v) In the event that a Global Series A Preferred Share is exchanged
for Series A Preferred Shares in definitive registered form pursuant to this
Section, prior to the effectiveness of a Shelf Registration Statement with
respect to such Series A Preferred Shares, such Series A Preferred Shares
may be exchanged
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only in accordance with such procedures as are substantially consistent with
the provisions of clauses (ii), (iii) and (iv) above (including the
certification requirements intended to ensure that such transfers comply
with Rule 144A or are otherwise exempt under the Securities Act, as the case
may be) and such other procedures as may from time to time be adopted by the
Company, the Depositary or the Registrar.
(c) Except in connection with a Shelf Registration Statement
contemplated by and in accordance with the terms of the Registration Rights
Agreement relating to the Series A Preferred Shares, Common Shares issuable (A)
as dividends thereon, (B) on conversion thereof or (C) in redemption thereof,
and any securities into which such Series A Preferred Shares or Common Shares
shall be converted or into which they shall be changed by operation of law or
otherwise (collectively, the "Registrable Securities"), if Series A Preferred
Shares are issued upon the transfer, exchange or replacement of Series A
Preferred Shares bearing the Restricted Shares Legend, or if a request is made
to remove such Restricted Shares Legend on Series A Preferred Shares, the Series
A Preferred Shares so issued shall bear the Restricted Shares Legend, or the
Restricted Shares Legend shall not be removed, as the case may be, unless there
is delivered to the Company and the Registrar such satisfactory evidence, which
may include an opinion of counsel licensed to practice law in the State of New
York, as may be reasonably required by the Company or the Registrar, that
neither the legend nor the restrictions on transfer set forth therein are
required to ensure that transfers thereof
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comply with the provisions of Rule 144A or Rule 144 or, with respect to
Restricted Series A Preferred Shares, that such Series A Preferred Shares are
not "restricted securities" within the meaning of Rule 144 under the Securities
Act. Upon provision of such satisfactory evidence, the Registrar, at the
direction of the Company, shall countersign and deliver Series A Preferred
Shares that do not bear the Restricted Shares Legend.
(d) The Registrar shall have no responsibility for any actions taken
or not taken by the Depositary.
(e) Each holder of a Series A Preferred Share agrees to indemnify
the Company and the Registrar against any liability that may result from the
transfer, exchange or assignment of such holder's Series A Preferred Share in
violation of any provision of this Schedule and/or applicable U.S. Federal or
State securities law; provided, however, that such indemnity shall not apply to
acts of wilful misconduct or gross negligence on the part of the Company or the
Registrar, as the case may be.
(f) Payments (whether in cash or, as permitted by Section 11, in
Common Shares) due on the Series A Preferred Shares shall be payable at the
office or agency of the Company maintained for such purpose in The City of New
York and at any other office or agency maintained by the Company for such
purpose. If any such payment is in cash, it shall be payable by United States
dollar check drawn on, or wire transfer (provided that appropriate wire
instructions have been received by the Registrar at least 15 days prior to the
applicable date of payment) to a United States dollar
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account maintained by the holder with, a bank located in New York City; provided
that at the option of the Company payment of dividends in cash may be made by
check mailed to the address of the person entitled thereto as such address shall
appear in the Series A Preferred Share Register.
6. Dividend Rights. (a) The Company shall pay, and the holders of
the Series A Preferred Shares shall be entitled to receive, cumulative dividends
from the date of initial issuance of such Series A Preferred Shares at a rate of
8% per annum on the amount of the liquidation preference of the Series A
Preferred Shares. Dividends will be computed on the basis of a 360-day year of
twelve 30-day months and will be payable quarterly, subject to Section 11, (i)
in cash, (ii) by delivery of Common Shares or (iii) through any combination of
the foregoing in arrears on February 15, May 15, August 15 and November 15 of
each year (each a "Dividend Payment Date"), commencing May 15, 1999, until the
liquidation preference thereof is paid or made available for payment provided,
however., that if such date is not a Business Day, then the Dividend Payment
Date shall be the next Business Day. The Company may elect not to declare
dividend payments on any Dividend Payment Date; provided, however, that
dividends on the Series A Preferred Shares will accrue whether or not the
Company has earnings or profits, whether or not there are funds legally
available for the payment of such dividends and whether or not dividends are
declared. Dividends will accumulate to the extent they are not paid on the
Dividend Payment Date for the period to which they relate. The Company will take
all actions required or permitted under The Companies Act 1981
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of Bermuda (the "Companies Act") to permit the payment of dividends on the
Series A Preferred Shares. Arrearages of unpaid dividends ("Accumulated
Dividends") will not themselves bear interest or be added to the liquidation
preference of the Series A Preferred Shares.
(b) Pursuant to the terms of the Registration Rights Agreement, if
(i) on or prior to April 26, 1999, a shelf registration statement
(the "Shelf Registration Statement") with respect to resales of the
Registrable Securities has not been filed with the SEC;
(ii) on or prior to August 24, 1999, the Shelf Registration
Statement is not declared effective; or
(iii) the Shelf Registration Statement has been declared effective
by the SEC and such Shelf Registration Statement ceases to be effective or
to be usable as contemplated by Section 2(b) of the Registration Rights
Agreement at any time during the Shelf Registration Period (as defined in
the Registration Rights Agreement) (without being succeeded by a
post-effective amendment to such Shelf Registration Statement that cures
such failure and that is itself declared effective) for any period of 10
consecutive days or for any 20 days in any 180-day period in connection
with resales of Transfer Restricted Securities (provided, that the Company
will have the option of suspending the effectiveness of the Shelf
Registration Statement, or of notifying holders
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of Transfer Restricted Securities that the Shelf Registration Statement
shall be deemed not to be effective without becoming obligated to pay
Preferred Stock Liquidated Damages for periods of up to a total of 60 days
in any calendar year if the Board of Directors of the Company determines
that compliance with the disclosure obligations necessary to maintain the
effectiveness of the Shelf Registration Statement at such time could
reasonably be expected to have an adverse effect on the Company or a
pending corporate transaction) (each of the foregoing clauses (i) through
(iii), a "Registration Default"), additional dividends ("Preferred Stock
Liquidated Damages") will accrue on the Series A Preferred Shares, from
and including the date of such Registration Default to but excluding the
day on which such Registration Default has been cured. In the event of
each such Registration Default, the Company shall pay Preferred Stock
Liquidated Damages to each holder of Series A Preferred Shares that are
Transfer Restricted Securities at a rate of 0.50% per annum of the
liquidation preference of such Series A Preferred Shares, which shall
accrue from the date of the Registration Default to and including the 30th
day following such Registration Default and increase by 0.50% for each
subsequent 30 day period; provided, however, that such Preferred Stock
Liquidated Damages may not accrue at any time at a rate greater than 2.00%
per annum of the liquidation preference of the Series A Preferred Shares.
Following the cure of all Registration Defaults, the accrual of Preferred
Stock
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Liquidated Damages with respect to such Series A Preferred Shares shall
cease (without in any way limiting the effect of any subsequent
Registration Default).
7. Payment of Dividend; Mechanics of Payment; Dividend Rights
Preserved. (a) Dividends on any Series A Preferred Share which are payable, and
are punctually paid or duly provided for, on any Dividend Payment Date shall be
paid in arrears to the person in whose name such Series A Preferred Share (or
one or more predecessor Series A Preferred Shares) is registered at the close of
business on the next preceding February 1, May 1, August 1 and November 1 (each,
together with any record date established for the payment of Accumulated
Dividends, a "Dividend Record Date").
(b) No dividend whatsoever shall be declared or paid upon, or any
sum set apart for the payment of dividends upon, any outstanding share of the
Series A Preferred Shares with respect to any dividend period unless all
dividends for all preceding dividend periods have been declared and paid, or
declared and a sufficient sum set apart for the payment of such dividends, upon
all outstanding Series A Preferred Shares. Unless full cumulative dividends on
all outstanding Series A Preferred Shares for all past dividend periods shall
have been declared and paid, or declared and a sufficient sum for the payment
thereof set apart, then:
(i) no dividend (other than (A) with respect to Junior Shares or
Parity Shares, a dividend payable solely in any Junior Shares or Parity
Shares, respectively, or (B) with respect to Parity Shares,
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a partial dividend paid pro rata on such Parity Shares and the Series A
Preferred Shares) shall be declared or paid upon, or any sum set apart for
the payment of dividends upon, any Junior Shares or Parity Shares,
respectively;
(ii) no other distribution shall be declared or made upon, or any
sum set apart for the payment of any distribution upon, any Junior Shares
or Parity Shares, other than a distribution consisting solely of Junior
Shares or Parity Shares, respectively;
(iii) no Junior Shares or Parity Shares or any warrants, rights,
calls or options exercisable for or convertible into any Parity Share or
Junior Share shall be purchased, redeemed or otherwise acquired (other
than in exchange for other Junior Shares or Parity Shares, respectively)
by the Company or any of its subsidiaries; and
(iv) no monies shall be paid into or set apart or made available for
a sinking or other like fund for the purchase, redemption or other
acquisition of any Junior Shares or Parity Shares or any warrants, rights,
calls or options exercisable for or convertible into any Parity Share or
Junior Share by the Company or any of its subsidiaries.
Holders of the Series A Preferred Shares will not be entitled to any
dividends, whether payable in cash, property or stock, in excess of the full
cumulative
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dividends as herein described. In the event that the Company fails to pay the
dividends due for an aggregate of six quarterly payments (whether or not
consecutive), the holders will have the rights and remedies set forth in Section
8.
(c) Dividends (including Accumulated Dividends) may be paid, subject
to Section 11, (i) in cash, (ii) by delivery of Common Shares or (iii) through
any combination of the foregoing. The Company will notify the Registrar and make
a public announcement no later than the close of business on the tenth Business
Day prior to the Record Date for each dividend as to whether it will pay such
dividend and, if so, the form of consideration it will use to make such payment.
(d) Any Accumulated Dividends on any Series A Preferred Share may be
paid, subject to Section 11, by the Company in any lawful manner (which shall
include the establishment of a record date not more then 45 days prior to the
payment thereof) not inconsistent with the requirements of any securities
exchange on which the Series A Preferred Shares may be listed, and upon such
notice (which shall precede the record date by at least ten Business Days) as
may be required by such exchange, if, after notice given by the Company to the
Registrar of the proposed payment pursuant to this clause (d), such manner of
payment shall be deemed practicable by the Registrar.
(e) Subject to the foregoing provisions of this Section 7, each
Series A Preferred Share delivered under this Schedule upon registration of
transfer of or in
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exchange for or in lieu of any other Series A Preferred Share shall carry the
rights to dividends accumulated and unpaid, and to accrue, which were carried by
such other Series A Preferred Share.
(f) The holder of record of a Series A Preferred Share at the close
of business on a Dividend Record Date with respect to the payment of dividends
on the Series A Preferred Shares will be entitled to receive such dividends with
respect to such Series A Preferred Share on the corresponding Dividend Payment
Date, notwithstanding the conversion of such share after such Dividend Record
Date and prior to such Dividend Payment Date. A Series A Preferred Share
surrendered for conversion during the period from the close of business on any
Dividend Record Date to the opening of business of the corresponding Dividend
Payment Date must be accompanied by a payment in cash, Common Shares or a
combination thereof, depending on the method of payment that the Company has
chosen to pay such dividend, in an amount equal to such dividend payable on such
Dividend Payment Date, unless such Series A Preferred Share has been called for
redemption on a redemption date occurring during the period from the close of
business on any Dividend Record Date to the close of business on the Business
Day immediately following the corresponding Dividend Payment Date. The dividend
payment with respect to a Series A Preferred Share called for redemption on a
date during the period from the close of business on any Dividend Record Date to
the close of business on the Business Day immediately following the
corresponding Dividend Payment Date will be payable on such Dividend Payment
Date to the
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record holder of such share on such Dividend Record Date if such share has been
converted after such Dividend Record Date and prior to such Dividend Payment
Date. Notwithstanding the immediately preceding three sentences of this Section
7(f), no payment shall be owed or payable to or by any converting holder if the
Board of Directors of the Company shall have elected to defer the dividend
payment to be made on such Dividend Payment Date pursuant to Section 6(a).
Fractional Common Shares will not be issued upon conversion, but in lieu thereof
the Company will pay a cash adjustment in the manner set forth in Section 11(c).
(g) Except as provided with respect to a Provisional Redemption, no
payment or adjustment will be made upon conversion of Series A Preferred Shares
for accumulated and unpaid dividends or for dividends with respect to the Common
Shares issued upon such conversion.
8. Voting Rights. (a) Holders of Series A Preferred Shares will not
be entitled to any voting rights unless (i) required by law or (ii) the Company
has not paid scheduled dividend payments for an aggregate of six quarterly
payments, whether or not consecutive (a "Voting Rights Triggering Event"). If a
Voting Rights Triggering Event occurs while any Series A Preferred Shares are
outstanding, the number of directors constituting the Board of Directors of the
Company will be adjusted to permit the holders of the then Outstanding Series A
Preferred Shares, voting separately and as a class, to elect such number of
members to the Board of Directors of the Company as will constitute at least 20%
of the then existing Board of
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76
Directors before such election (rounded to the nearest whole number), provided,
however, that such number shall be no less than one nor greater than two (the
"Series A Preferred Share Directors"), and the number of members of the
Company's Board of Directors will be immediately and automatically increased by
one or two, as the case may be. The voting rights set forth in the preceding
sentence will continue until such time as all dividends in arrears on the Series
A Preferred Shares are paid in full, at which time the term of any Series A
Preferred Share Director shall terminate. At any time after voting power to
elect Directors shall have become vested and be continuing in the holders of the
Series A Preferred Shares pursuant to the second preceding sentence, or if a
vacancy shall exist in the offices of Series A Preferred Share Directors, the
Board of Directors may, and upon written request of the holders of record of at
least 25% of the Outstanding Series A Preferred Shares addressed to the Chairman
of the Board of the Company, shall, call a special meeting of the holders of the
Series A Preferred Shares for the purpose of electing the Series A Preferred
Share Directors that such holders are entitled to elect. At any meeting held for
the purpose of electing Series A Preferred Share Directors, the presence in
person or by proxy of the holders of at least a majority of the Outstanding
Series A Preferred Shares shall be required to constitute a quorum of such
Series A Preferred Shares. Any vacancy occurring in the office of a Series A
Preferred Share Director may be filled by the remaining Series A Preferred Share
Director unless and until such vacancy shall be filled by the holders of the
Series A Preferred Shares.
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The Series A Preferred Share Directors shall agree, prior to their election to
office, to resign upon any termination of the right of the holders of Series A
Preferred Shares to vote as a class for Directors as herein provided, and upon
such termination the Series A Preferred Share Directors then in office shall
forthwith resign.
(b) In addition to the voting rights set forth above, the approval
of the holders of at least two-thirds of the then Outstanding Series A Preferred
Shares voting or consenting, as the case may be, as one class, will be required
for the Company to (i) amend the Memorandum of Association, this Schedule or the
Bye-Laws or (ii) so long as the Company owns preferred partnership interests of
Globalstar purchased with the proceeds of the issuance of Series A Preferred
Shares, to waive any rights under, or agree to the modification of the terms of
such preferred partnership interests, in either case (i) or (ii), so as to
affect adversely the rights, preferences, privileges or voting rights of holders
of the Series A Preferred Shares or authorize the issuance of any additional
Series A Preferred Shares (other than Series A Preferred Shares to be sold
pursuant to the Purchase Agreement); provided, however, that no such
modification or amendment may, without the consent of the holders of each
Outstanding Series A Preferred Share affected thereby, (i) change the Mandatory
Redemption Date, or the due date of any dividend on, any Series A Preferred
Shares, or reduce the liquidation preference or redemption price thereof or the
rate of dividends thereon, or change the place of payment where, or the coin or
currency in which, any Series A Preferred Share or any payment thereon
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is payable, or impair the right to institute suit for the enforcement of any
such payment on or after the Mandatory Redemption Date (or on or after other
redemption dates), or adversely affect the rights to convert any Series A
Preferred Share as provided in Section 12, or adversely affect the right to
require the Company to redeem the Series A Preferred Shares as provided in
Section 10, or modify the provisions of this Schedule with respect to the
ranking of the Series A Preferred Shares in a manner adverse to the holders,
(ii) alter the voting rights with respect to the Series A Preferred Stock or
reduce the percentage of the Outstanding Series A Preferred Shares the consent
of whose holders is required for any such modification, or the consent of whose
holders is required for any waiver of compliance with provisions of this
Schedule or (iii) modify any of the provisions of this Section 8 except to
increase any such percentage or to provide that certain other provisions of this
Schedule cannot be modified or waived without the consent of the holder of each
Outstanding Series A Preferred Share affected thereby.
(c) The Company will not authorize or issue any new class of Senior
Shares or any obligation or security convertible or exchangeable into or
evidencing a right to purchase shares of any class or series of Senior Shares,
without the approval of the holders of at least two-thirds of the then
Outstanding Series A Preferred Shares, voting or consenting, as the case may be,
as one class.
(d) Except as set forth in Section 8(c) with respect to Senior
Shares, neither (i) the creation,
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authorization or issuance of any Junior Shares, Parity Shares or Senior Shares
or (ii) the increase or decrease in the amount of authorized capital stock of
any class, including any preference shares, shall require the consent of the
holders of the Series A Preferred Shares or shall be deemed to affect adversely
the rights, preferences, privileges, special rights or voting rights of holders
of Series A Preferred Shares. Furthermore, the consent of the holders of Series
A Preferred Shares will not be required for the Company to authorize, create (by
way of reclassification or otherwise) or issue any Parity Shares or any
obligation or security convertible or exchangeable into, or evidencing a right
to purchase, shares of any class or series of Parity Shares.
9. Ranking. (a) The Series A Preferred Shares will, with respect to
dividend rights and rights on liquidation, winding-up and dissolution, rank (i)
senior to all Common Shares (whether issued in one or more classes) and to each
other class of capital stock or series of preference shares created after
January 21, 1999 by the Company, the terms of which do not expressly provide
that it ranks on a parity with the Series A Preferred Shares as to dividend
rights and rights on liquidation, winding-up and dissolution of the Company
(collectively referred to, together with all Common Shares (whether issued in
one or more classes) of the Company, as "Junior Shares"); (ii) on a parity with
additional Series A Preferred Shares issued by the Company and each other class
of capital stock or series of preference shares created after January 21, 1999
by the Company, the terms of which expressly provide that such
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class or series will rank on a parity with the Series A Preferred Shares as to
dividend rights and rights on liquidation, winding-up and dissolution of the
Company (collectively referred to as "Parity Shares"); and (iii) junior to each
class of capital stock or series of preference shares created after January 21,
1999 in compliance with Section 8(c) by the Company, the terms of which
expressly provide that such class or series will rank senior to the Series A
Preferred Shares as to dividend rights and rights upon liquidation, winding-up
and dissolution of the Company (collectively referred to as "Senior Shares").
(b) No dividend whatsoever shall be declared or paid upon, or any
sum set apart for the payment of dividends upon, any outstanding share of the
Series A Preferred Shares with respect to any dividend period unless all
dividends for all preceding dividend periods have been declared and paid, or
declared and a sufficient sum set apart for the payment of such dividends, upon
all outstanding Senior Shares.
(c) In the event of any liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary, the holders of the Series A
Preferred Shares then Outstanding shall be entitled to receive, prior and in
preference to any distribution of any of the assets of the Company to the
holders of Common Shares or Junior Shares by reason of their ownership thereof,
an amount equal to $50 per share for each outstanding Series A Preferred Share,
plus, without duplication, an amount in cash equal to all accumulated and unpaid
dividends (including Preferred
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Stock Liquidated Damages) thereon to the date fixed for liquidation, dissolution
or winding-up (including an amount equal to a pro rata dividend for the period
from the last Dividend Payment Date to the date fixed for liquidation,
dissolution or winding-up). If upon the occurrence of such event the assets thus
distributed among the holders of Series A Preferred Shares shall be insufficient
to permit the payment to such holders of the full preferential amount, the
entire assets of the Company legally available for distribution shall be
distributed ratably based upon their respective liquidation preference, among
the holders of the Series A Preferred Shares pari passu with the holders of all
Parity Shares. After payment of the full preferential amount (and, if
applicable, an amount equal to a pro rata dividend to the holders of Outstanding
Series A Preferred Shares), such holders shall not be entitled to any further
participation in any distribution of assets of the Company.
10. Redemption. (a) The Company may redeem, in whole or in part (the
"Provisional Redemption"), at any time on or prior to February 15, 2002, at the
redemption price of 104.6% of the aggregate liquidation preference of the Series
A Preferred Shares to be redeemed (the "Provisional Redemption Date"), in the
event that the Current Market Value of the Common Stock equals or exceeds the
following Trigger Percentages of the prevailing Conversion Price then in effect
for at least 20 trading days in any consecutive 30-day trading day period ending
on the trading day prior to the date of mailing of the notice of Provisional
Redemption (the "Notice Date"), if redeemed in the 12-month period ending on
February 15 of the following years:
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Year Trigger Percentage
---- ------------------
2000 170%
2001 160%
2002 150%
Upon any Provisional Redemption, the Company will make an additional
payment (the "Dividend Make-Whole Payment") with respect to the Series A
Preferred Shares called for redemption, whether or not such Series A Preferred
Shares are converted into Common Shares between the Notice Date and the
Provisional Redemption Date, in an amount equal to the sum of (i) the present
value of the aggregate amount of dividends that would otherwise have accrued
from the Provisional Redemption Date through February 15, 2002 (the "Dividend
Make-Whole Period") and (ii) the amount of any accumulated and unpaid dividends
(including a prorated dividend for any partial dividend period) and Preferred
Stock Liquidated Damages, if any, to the Provisional Redemption Date. Such
present value shall be calculated using the bond equivalent yield on U.S.
Treasury notes or bills having a remaining term nearest in length to that of the
Dividend Make-Whole Period as of the Notice Date.
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(b) The Series A Preferred Shares may be redeemed at any time
commencing on or after February 20, 2002, in whole or from time to time in part,
at the election of the Company (the "Optional Redemption"), at a redemption
price equal to the percentage of the liquidation preference set forth below plus
accumulated and unpaid dividends (including an amount equal to a prorated
dividend for any partial dividend period) and Preferred Stock Liquidated
Damages, if any, to the date of redemption (the "Optional Redemption Date"), if
redeemed in the 12-month period commencing on the dates set forth below:
Date Percentage
- ---- ----------
February 20, 2002 104.6%
February 19, 2003 103.4%
February 19, 2004 102.3%
February 19, 2005 101.1%
February 19, 2006 and thereafter 100.0%
(c) The Series A Preferred Shares (if not earlier redeemed or converted)
shall be mandatorily redeemed by the Company on February 15, 2011 (the
"Mandatory Redemption Date" provided, however, that is such date is not a
Business Day, then the Mandatory Redemption Date shall be the next Business
Day), at a redemption price of 100% of the liquidation preference per share plus
accumulated and unpaid dividends and Preferred Stock Liquidated Damages, if any,
to the Mandatory Redemption Date.
(d) The Company may, as provided in Section 11, make any payments in
respect of the liquidation preference due on
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the Series A Preferred Shares on the Provisional Redemption Date, the Optional
Redemption Date or the Mandatory Redemption Date, (i) in cash, (ii) by delivery
of Common Shares or (iii) through any combination of the foregoing.
(e) No Provisional Redemption or Optional Redemption may be authorized or
made unless, prior to giving the applicable redemption notice, all accumulated
and unpaid dividends for periods ended prior to the date of such redemption
notice shall have been paid in cash or, subject to Section 11, in Common Shares.
(f) In the event of a redemption of fewer than all the Series A Preferred
Shares, the Series A Preferred Shares will be chosen for redemption by the
Registrar from the Outstanding Series A Preferred Shares not previously called
for redemption, pro rata or by lot or by such other method as the Registrar
shall deem fair and appropriate, provided that the Company may redeem (an
"Odd-lot Redemption") all shares held by holders of fewer than 100 Series A
Preferred Shares (or by holders that would hold fewer than 100 Series A
Preferred Shares following such redemption) prior to its redemption of other
Series A Preferred Shares. If fewer than all the Series A Preferred Shares
represented by any share certificate are so to be redeemed, (i) the Company
shall issue a new certificate for the shares not redeemed and (ii) if any shares
represented thereby are converted before termination of the conversion right
with respect to such shares, such converted shares shall be deemed (so far as
may be) to be the shares represented by such share certificate that was selected
for redemption. Series A
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Preferred Shares which have been converted during a selection of Series A
Preferred Shares to be redeemed shall be treated by the Registrar as outstanding
for the purpose of such selection but not for the purpose of the payment of the
Redemption Price.
(g) In the event the Company elects to effect a Provisional Redemption or
an Optional Redemption, the Company shall (i) make a public announcement of the
redemption (including a statement of the form of consideration it will use to
effect the same) and (ii) give a redemption notice (the "Redemption Notice") to
the holders not fewer than 30 days nor more than 60 days before the redemption
date (the "Redemption Date"). Whenever a Redemption Notice is required to be
delivered to the holders, such Notice shall provide the information set forth
below and be given by first class mail, postage prepaid to each holder of Series
A Preferred Shares to be redeemed, at such holder's address appearing in the
Series A Preferred Share Register. All Redemption Notices shall identify the
Series A Preferred Shares to be redeemed (including CUSIP number) and shall
state:
(i) the Redemption Date;
(ii) the redemption price (the "Redemption Price") and the form
of consideration the Company will use to satisfy the Redemption Price;
(iii) if fewer than all the outstanding Series A Preferred Shares are to
be redeemed, the identification (and, in the case of partial redemption, the
certificate
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number, the total number of shares represented thereby and the
number of such shares being redeemed on the Redemption Date) of the particular
Series A Preferred Shares to be redeemed;
(iv) that on the Redemption Date the Redemption Price, together with
(subject to Section 10(k)) dividends accumulated and unpaid to the Redemption
Date (including an amount equal to a prorated dividend for any partial dividend
period), will become due and payable upon each such Series A Preferred Share to
be redeemed and that dividends thereon will cease to accrue on and after said
date;
(v) the conversion price (and, if applicable, the amount of cash payable
on conversion pursuant to Section 12(d)(xii)), the date on which the right to
convert Series A Preferred Shares to be redeemed will terminate and the place
or places where such Series A Preferred Shares may be surrendered for
conversion; and
(vi) the place or places where such Series A Preferred Shares are to be
surrendered for payment of the Redemption Price.
The Redemption Notice shall be given by the Company or, at the Company's
request, by the Registrar in the name and at the expense of the Company;
provided that if the Company so requests, it shall provide the Registrar
adequate time, as reasonably determined by the Registrar, to deliver such
notices in a timely fashion.
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(h) Prior to any Redemption Date, the Company shall deposit with the
Registrar or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust) an amount of consideration sufficient to pay
the Redemption Price of and (except to the extent payable to a holder of Series
A Preferred Shares on a Dividend Record Date prior to the Redemption Date)
accrued but unpaid dividends (including an amount equal to a prorated dividend
for any partial dividend period) on all the Series A Preferred Shares which are
to be redeemed on that date other than any Series A Preferred Shares called for
redemption on that date which have been converted in Common Shares prior to the
date of such deposit. If any Series A Preferred Share called for redemption is
converted, any consideration deposited with the Registrar or with any Paying
Agent or so segregated and held in trust for the redemption of such Series A
Preferred Share shall (subject to any right of the holder of such Series A
Preferred Share or any predecessor Series A Preferred Share to receive accrued
but unpaid dividends thereon as provided in Section 7(f) or a Dividend
Make-Whole Payment as provided in Section 10(a)) be paid or delivered to the
Company upon Company Order or, if then held by the Company, shall be discharged
from such trust.
(i) Notice of redemption having been given as aforesaid, the Series A
Preferred Shares so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified, and from and after such date
(unless the Company shall default in the payment of the Redemption Price and
accrued but unpaid dividends) dividends on such Series A Preferred Shares shall
cease to accrue and
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such shares shall cease to be convertible into Common Shares. Upon surrender of
any such Series A Preferred Shares for redemption in accordance with said
notice, such Series A Preferred Shares shall be redeemed, subject to Section
7(f), by the Company at the Redemption Price, together with (except to the
extent payable to a holder of Series A Preferred Shares on a Dividend Record
Date prior to the Redemption Date) accrued but unpaid dividends and Preferred
Stock Liquidated Damages, if any, to the Redemption Date. If any Series A
Preferred Share called for redemption shall not be so paid upon surrender
thereof for redemption, the Redemption Price thereof, exclusive of accrued but
unpaid dividends, shall, until paid, bear interest from the Redemption Date at
the dividend rate payable on the Series A Preferred Shares.
(j) Any certificate that represents more than one Series A Preferred Share
and is to be redeemed only in part shall be surrendered at any office or agency
of the Company designated for that purpose (with, if the Company or the
Registrar so requires, due endorsement by, or a written instrument of transfer
in form satisfactory to the Company and the Registrar duly executed by, the
holder thereof or his attorney duly authorized in writing), and the Company
shall execute, and the Registrar shall countersign and deliver to the holder of
such Series A Preferred Share without service charge, a new Series A Preferred
Share certificate or certificates, representing any number of Series A Preferred
Shares as requested by such holder, in aggregate amount equal to and in exchange
for the number of
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shares not redeemed and represented by the Series A Preferred Share certificate
so surrendered.
(k) If a Series A Preferred Share is redeemed subsequent to a Dividend
Record Date with respect to any Dividend Payment Date specified above and on or
prior to such Dividend Payment Date, then any accumulated but unpaid dividends
will be paid to the person in whose name such Series A Preferred Share is
registered at the close of business on such Dividend Record Date.
11. Method of Payments.
The Company may make any payments due on the Series A Preferred Shares,
including dividend payments and redemption payments described in Section 11(b),
(i) in cash, (ii) by delivery of Common Shares or (iii) through any combination
of the foregoing, provided, however, that if Globalstar shall have paid the
scheduled distribution or redemption payment on the Preferred Partnership
Interests corresponding to such payment in cash, the Company shall make such
payment in cash. The Company, at its option, may make dividend payments
notwithstanding the fact that it shall not have received a distribution on the
Preferred Partnership Interests for the corresponding Dividend Payment Date.
(b) The Company will make each dividend payment, Provisional Redemption
payment (including the associated Dividend Make-Whole Payment), Optional
Redemption payment and Mandatory Redemption payment on the Series A Preferred
Shares in cash, except to the extent it has elected to make all or any portion
of such payment in Common Shares. The
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Company may not make any such payment, or any portion thereof (other than a
Mandatory Redemption payment, or portion thereof), in Common Shares unless, on
the date of such payment, the Shelf Registration Statement covers the resale of
such shares and is effective or is no longer required to be effective. If the
Company elects to make any such payment, or any portion thereof, in Common
Shares, such shares shall be valued for such purpose (i) in the case of any
dividend payment, Provisional Redemption payment, Dividend Make-Whole Payment,
Optional Redemption payment, or portion thereof, at 95% of the Average Market
Value and (ii) in the case of any Mandatory Redemption payment, or portion
thereof (A) if on the date of such payment the Shelf Registration Statement
covers the resale of such shares and is effective or, pursuant to the
Registration Rights Agreement, is no longer required to be effective, at 100% of
the Average Market Value and (B) otherwise, at 90% of the Average Market Value.
If, as a matter of Bermuda law, the Company is not able to issue Common Shares
in payment of the Mandatory Redemption price, then the Company may, at its
option, cause the Series A Preferred Shares to be converted on the Mandatory
Redemption Date into the same number of Common Shares as the Company could
otherwise have issued in satisfaction of the Mandatory Redemption price,
provided that the Company has given the holders of Series A Preferred Shares
notice of the exercise of such option at least 30 days prior to the Mandatory
Redemption Date.
(c) No fractional Common Shares will be delivered to the holders, but the
Company will instead pay a cash adjustment to each holder that would otherwise
be entitled
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to a fraction of a Common Share. The amount of such cash adjustment will be
determined based on the proceeds received by the Registrar from the sale of that
number of Common Shares, which the Company will deliver to the Registrar for
such purpose, equal to the aggregate of all such fractions (round up to the
nearest whole share). The Registrar is authorized and directed to sell such
shares at the best available prices and distribute the proceeds to the holders
in proportion to their respective interests therein. The Company will pay the
expenses of the Registrar with respect to such sale, including brokerage
commissions.
(d) Any portion of any payment on or in respect of the Series A Preferred
Shares that is declared and not paid through the delivery of Common Shares will
be paid in cash.
(e) Prior to the issuance of any Common Shares pursuant to this Section
11, the Company shall have provided for the listing or quotation of such Common
Shares on the Nasdaq National Market or any other securities exchange in the
United States upon which the Common Shares are then listed or quoted.
12. Conversion. (a) Subject to and upon compliance with the provisions of
this Schedule, at the option of the holder thereof, any Series A Preferred Share
may be converted at any time on or after March 22, 1999 at the liquidation
preference thereof into fully paid and nonassessable Common Shares (calculated
as to each conversion to the nearest 1/100 of a share), at the Conversion Price,
determined as hereinafter provided, in effect at the time of conversion. Such
conversion right
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shall expire at the close of business on the Business Day next preceding the
Mandatory Redemption Date. In case a Series A Preferred Share is called for
redemption, such conversion right in respect of the Series A Preferred Share so
called shall expire at the close of business on the Business Day next preceding
the Redemption Date, unless the Company defaults in making the payment due upon
redemption.
The price at which Common Shares shall be delivered upon conversion
(herein called the "Conversion Price") shall be initially $23.2563 per Common
Share. The Conversion Price shall be adjusted in certain instances as provided
in Section 12(d) and Section 12(e).
(b) In order to exercise the conversion privilege, the holder of any
Series A Preferred Share to be converted shall surrender the certificate for
such share, duly endorsed or assigned to the Company or in blank, at any office
or agency of the Company maintained for that purpose, accompanied by written
notice to the Company at such office or agency that the holder elects to convert
such share or, if fewer than all the Series A Preferred Shares represented by a
single share certificate are to be converted, the number of shares represented
thereby to be converted. Except as provided in Section 10(a) or 7(f), no payment
or adjustment shall be made upon any conversion on account of any dividends
accrued on the Series A Preferred Shares surrendered for conversion or on
account of any dividends on the Common Shares issued upon conversion. In no
event shall the Company be obligated to pay any converting holder any unpaid
Accumulated Dividends upon conversion.
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Series A Preferred Shares shall be deemed to have been converted
immediately prior to the close of business on the day of surrender of such
shares for conversion in accordance with the foregoing provisions, and at such
time the rights of the holders of such shares as holders shall cease, and the
person or persons entitled to receive the Common Shares issuable upon conversion
shall be treated for all purposes as the record holder or holders of such Common
Shares at such time. As promptly as practicable on or after the conversion date,
the Company shall issue and shall deliver at such office or agency a certificate
or certificates for the number of full Common Shares issuable upon conversion,
together with payment in lieu of any fraction of a share, as provided in Section
12(c).
In the case of any conversion of fewer than all the Series A Preferred
Shares evidenced by a certificate, upon such conversion the Company shall
execute and the Registrar shall countersign and deliver to the holder thereof,
at the expense of the Company, a new certificate or certificates representing
the number of unconverted Series A Preferred Shares.
(c) No fractional Common Shares shall be issued upon the conversion of a
Series A Preferred Share. If more than one Series A Preferred Share shall be
surrendered for conversion at one time by the same holder, the number of full
Common Shares which shall be issuable upon conversion thereof shall be computed
on the basis of the aggregate number of Series A Preferred Shares so
surrendered. Instead of any fractional Common Share which would otherwise be
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issuable upon conversion of any Series A Preferred Share, the Company shall pay
a cash adjustment in respect of such fraction in an amount equal to the same
fraction of the closing price (as defined in Section 12(d)(vii)) per Common
Share at the close of business on the Business Day prior to the day of
conversion.
(d) The conversion price shall be adjusted from time to time by the
Company as follows:
(i) if the Company shall hereafter pay a dividend or make a distribution
to holders of the outstanding Common Shares in Common Shares, the Conversion
Price in effect at the opening of business on the date following the date fixed
for the determination of shareholders entitled to receive such dividend or
other distribution shall be reduced by multiplying such Conversion Price by a
fraction of which the numerator shall be the number of Common Shares
outstanding at the close of business on the Common Share Record Date (as
defined in Section 12(d)(vii)) fixed for such determination and the denominator
shall be the sum of such number of shares and the total number of shares
constituting such dividend or other distribution, such reduction to become
effective immediately after the opening of business on the day following the
Common Share Record Date. If any dividend or distribution of the type described
in this Section 12(d)(i) is declared but not so paid or made, the Conversion
Price shall again be adjusted to the Conversion Price which would then be in
effect if such dividend or distribution had not been declared;
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95
(ii) if the Company shall offer or issue rights or warrants to holders of
its outstanding Common Shares entitling them to subscribe for or purchase
Common Shares at a price per share less than the Current Market Price (as
defined in Section 12(d)(vii)) on the Common Share Record Date fixed for the
determination of shareholders entitled to receive such rights or warrants, the
Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect at the opening of
business on the date after such Common Share Record Date by a fraction of which
the numerator shall be the number of Common Shares outstanding at the close of
business on the Common Share Record Date plus the number of Common Shares which
the aggregate offering price of the total number of Common Shares subject to
such rights or warrants would purchase at such Current Market Price and of
which the denominator shall be the number of Common Shares outstanding at the
close of business on the Common Share Record Date plus the total number of
additional Common Shares subject to such rights or warrants for subscription or
purchase. Such adjustment shall become effective immediately after the opening
of business on the day following the Common Share Record Date fixed for
determination of shareholders entitled to purchase or receive such rights or
warrants. To the extent that Common Shares are not delivered pursuant to such
rights or warrants, upon the expiration or termination of such rights or
warrants the Conversion Price shall again be adjusted to be the Conversion
Price which would then be in effect had the adjustments made upon the issuance
of such rights or
<PAGE> 96
96
warrants been made on the basis of delivery of only the number of Common Shares
actually delivered. If such rights or warrants are not so issued, the
Conversion Price shall again be adjusted to be the Conversion Price which would
then be in effect if such date fixed for the determination of shareholders
entitled to receive such rights or warrants had not been fixed. In determining
whether any rights or warrants entitle the holders to subscribe for or purchase
Common Shares at less than such Current Market Price, and in determining the
aggregate offering price of such Common Shares, there shall be taken into
account any consideration received for such rights or warrants, with the value
of such consideration, if other than cash, to be determined by the Board of
Directors;
(iii) if the outstanding Common Shares shall be subdivided into a greater
number of Common Shares, the Conversion Price in effect at the opening of
business on the day following the day upon which such subdivision becomes
effective shall be proportionately reduced, and, conversely, if the outstanding
Common Shares shall be combined into a smaller number of Common Shares, the
Conversion Price in effect at the opening of business on the day following the
day upon which such combination becomes effective shall be proportionately
increased, such reduction or increase, as the case may be, to become effective
immediately after the opening of business on the day following the day upon
which such subdivision or combination becomes effective;
<PAGE> 97
97
(iv) if the Company shall, by dividend or otherwise, distribute to holders
of its Common Shares any class of capital stock of the Company (other than any
dividends or distributions to which Section 12(d)(i) applies) or evidences of
its indebtedness, cash or other assets (including securities, but excluding any
rights or warrants of a type referred to in Section 12(d)(ii) and dividends and
distributions paid exclusively in cash and excluding any capital stock,
evidences of indebtedness, cash or assets distributed upon a merger or
consolidation to which Section 12(e) applies) (the foregoing hereinafter in
this Section 12(d)(iv) called the "Distributed Securities"), then, in each such
case, the Conversion Price shall be reduced so that the same shall be equal to
the price determined by multiplying the Conversion Price in effect immediately
prior to the close of business on the Common Share Record Date (as defined in
Section 12(d)(vii)) with respect to such distribution by a fraction of which
the numerator shall be the Current Market Price (determined as provided in
Section 12(d)(vii)) on such date less the fair market value (as determined by
the Board of Directors, whose determination shall be conclusive and described
in a resolution of the Board of Directors) on such date of the portion of the
Distributed Securities
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98
so distributed applicable to one Common Share and the denominator shall be such
Current Market Price, such reduction to become effective immediately prior to
the opening of business on the day following the Common Share Record Date;
provided, however, that, in the event the then fair market value (as so
determined) of the portion of the Distributed Securities so distributed
applicable to one Common Share is equal to or greater than the Current Market
Price on the Common Share Record Date, in lieu of the foregoing adjustment,
adequate provision shall be made so that each holder of Series A Preferred
Shares shall have the right to receive upon conversion of a Series A Preferred
Share (or any portion thereof) the amount of Distributed Securities such holder
would have received had such holder converted such Series A Preferred Share (or
portion thereof) immediately prior to such Common Share Record Date. If such
dividend or distribution is not so paid or made, the Conversion Price shall
again be adjusted to be the Conversion Price which would then be in effect if
such dividend or distribution had not been declared. If the Board of Directors
determines the fair market value of any distribution for purposes of this
Section 12(d)(iv) by reference to the actual or when issued trading market for
any securities constituting all or part of such distribution, it must in doing
so consider the prices in such market over the same period used in computing
the Current Market Price pursuant to Section 12(d)(vii) to the extent possible.
Rights or warrants distributed by the Company to holders of Common Shares
entitling the holders thereof to subscribe for or purchase shares of the
Company's capital stock (either initially or under certain circumstances),
which rights or warrants, until the occurrence of a specified event or events
("Dilution Trigger Event"): (A) are deemed to be transferred with such Common
Shares; (B) are not exercisable; and (C) are also issued in respect
<PAGE> 99
99
of future issuances of Common Shares, shall be deemed not to have been
distributed for purposes of this Section 12(d)(iv) (and no adjustment to the
Conversion Price under this Section 12(d)(iv) shall be required) until the
occurrence of the earliest Dilution Trigger Event, whereupon such rights and
warrants shall be deemed to have been distributed and an appropriate adjustment
to the Conversion Price under this Section 12(d)(iv) shall be made. If any such
rights or warrants, including any such existing rights or warrants distributed
prior to the first issuance of Series A Preferred Shares, are subject to
subsequent events, upon the occurrence of each of which such rights or warrants
shall become exercisable to purchase different securities, evidences of
indebtedness or other assets, then the occurrence of each such event shall be
deemed to be such date of issuance and record date with respect to new rights
or warrants (and a termination or expiration of the existing rights or
warrants, without exercise by the holder thereof). In addition, in the event of
any distribution (or deemed distribution) of rights or warrants, or any
Dilution Trigger Event with respect thereto, that was counted for purposes of
calculating a distribution amount for which an adjustment to the Conversion
Price under this Section 12(d) was made, (1) in the case of any such rights or
warrants which shall all have been redeemed or repurchased without exercise by
any holders thereof, the Conversion Price shall be readjusted upon such final
redemption or repurchase to give effect to such distribution or Dilution
Trigger Event, as the case may be, as though it were a cash distribution, equal
to the
<PAGE> 100
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per share redemption or repurchase price received by a holder or holders of
Common Shares with respect to such rights or warrants (assuming such holder had
retained such rights or warrants), made to all holders of Common Shares as of
the date of such redemption or repurchase, and (2) in the case of such rights
or warrants which shall have expired or been terminated without exercise by any
holders thereof, the Conversion Price shall be readjusted as if such rights and
warrants had not been issued.
Notwithstanding any other provision of this Section 12(d)(iv) to the
contrary, rights, warrants, evidences of indebtedness, other securities, cash
or other assets (including, without limitation, any rights distributed pursuant
to any shareholder rights plan) shall be deemed not to have been distributed
for purposes of this Section 12(d)(iv) if the Company makes proper provision so
that each holder of Series A Preferred Shares who converts a Series A Preferred
Share (or any portion thereof) after the date fixed for determination of
shareholders entitled to receive such distribution shall be entitled to receive
upon such conversion, in addition to the Common Shares issuable upon such
conversion, the amount and kind of such distributions that such holder would
have been entitled to receive if such holder had, immediately prior to such
determination date, converted such Series A Preferred Share into a Common
Share.
For purposes of this Section 12(d)(iv) and Sections 12(d)(i) and (ii), any
dividend or distribution to which this Section 12(d)(iv) is applicable that
also
<PAGE> 101
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includes Common Shares, or rights or warrants to subscribe for or purchase
Common Shares to which Section 12(d)(ii) applies (or both), shall be deemed
instead to be (A) a dividend or distribution of the evidences of indebtedness,
assets, shares of capital stock, rights or warrants other than such Common
Shares or rights or warrants to which Section 12(d)(ii) applies (and any
Conversion Price reduction required by this Section 12(d)(iv) with respect to
such dividend or distribution shall then be made) immediately followed by (B) a
dividend or distribution of such Common Shares or such rights or warrants (and
any further Conversion Price reduction required by Sections 12(d)(i) or
12(d)(ii) with respect to such dividend or distribution shall then be made),
except that (1) the Common Share Record Date of such dividend or distribution
shall be substituted as "the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution", "the Common Share
Record Date fixed for such determination" and "the Common Share Record Date"
within the meaning of Section 12(d)(i) and as "the date fixed for the
determination of shareholders entitled to receive such rights or warrants",
"the Common Share Record Date fixed for the determination of the shareholders
entitled to receive such rights or warrants" and "such Common Share Record
Date" for purposes of Section 12(d)(ii), and (2) any Common Shares included in
such dividend or distribution shall not be deemed "outstanding at the close of
business on the date fixed for such determination" for the purposes of Section
12(d)(i).
<PAGE> 102
102
(v) If the Company shall, by dividend or otherwise, distribute to holders
of its Common Shares cash (excluding any cash that is distributed upon a merger
or consolidation to which Section 12(e) applies or as part of a distribution
referred to in Section 12(d)(iv)) in an aggregate amount that, combined
together with (A) the aggregate amount of any other such distributions to
holders of its Common Shares made exclusively in cash within the 12 months
preceding the date of payment of such distribution, and in respect of which no
adjustment pursuant to this Section 12(d)(v) has been made, and (B) the
aggregate of any cash plus the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a
resolution of the Board of Directors) of consideration payable in respect of
any tender offer by the Company for all or any portion of the Common Shares
concluded within the 12 months preceding the date of payment of such
distribution, and in respect of which no adjustment pursuant to Section
12(d)(vi) has been made, exceeds 20% of the product of the Current Market Price
(determined as provided in Section 12(d)(vii)) on the Common Share Record Date
with respect to such distribution times the number of Common Shares outstanding
on such date, then, and in each such case, immediately after the close of
business on such date, the Conversion Price shall be reduced so that the same
shall equal the price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on such Common Share Record Date by
a fraction (1) the numerator of which shall be equal to the Current Market
Price on the Common Share
<PAGE> 103
103
Record Date less an amount equal to the quotient of (x) the excess of such
combined amount over such 20% and (y) the number of Common Shares outstanding
on the Common Share Record Date and (2) the denominator of which shall be equal
to the Current Market Price on such Common Share Record Date; provided,
however, that, if the portion of the cash so distributed applicable to one
Common Share is equal to or greater than the Current Market Price of the Common
Shares on the Common Share Record Date, in lieu of the foregoing adjustment,
adequate provision shall be made so that each holder of Series A Preferred
Shares shall have the right to receive upon conversion of a Series A Preferred
Share (or any portion thereof) the amount of cash such holder would have
received had such holder converted such Series A Preferred Share (or portion
thereof) immediately prior to such Common Share Record Date. If such dividend
or distribution is not so paid or made, the Conversion Price shall again be
adjusted to be the Conversion Price which would then be in effect if such
dividend or distribution had not been declared. Any cash distribution to
holders of Common Shares as to which the Company makes the election permitted
by Section 12(d)(xii) and as to which the Company has complied with the
requirements of such Section 12(d)(xii) shall be treated as not having been
made for all purposes of this Section 12(d)(v).
(vi) if a tender offer made by the Company or any of its subsidiaries for
all or any portion of the Common Shares expires and such tender offer (as
amended upon the expiration thereof) requires the payment to shareholders
<PAGE> 104
104
(based on the acceptance (up to any maximum specified in the terms of the
tender offer) of Purchased Shares) of an aggregate consideration having a fair
market value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a resolution of the Board of Directors)
that, combined together with (A) the aggregate of the cash plus the fair market
value (as determined by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Board of Directors), as of the
expiration of such tender offer, of consideration payable in respect of any
other tender offers, by the Company or any of its subsidiaries for all or any
portion of the Common Shares expiring within the 12 months preceding the
expiration of such tender offer and in respect of which no adjustment pursuant
to this Section 12(d)(vi) has been made and (B) the aggregate amount of any
distributions to all holders of the Common Shares made exclusively in cash
within 12 months preceding the expiration of such tender offer and in respect
of which no adjustment pursuant to Section 12(d)(v) has been made, exceeds 20%
of the product of the Current Market Price (determined as provided in Section
12(d)(vii)) as of the last time (the "Expiration Time") tenders could have been
made pursuant to such tender offer (as it may be amended) times the number of
Common Shares outstanding (including any tendered shares) at the Expiration
Time, then, and in each such case, immediately prior to the opening of business
on the day after the date of the Expiration Time, the Conversion Price shall be
adjusted so that the same shall equal the price determined by multiplying the
<PAGE> 105
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Conversion Price in effect immediately prior to the close of business on the
date of the Expiration Time by a fraction of which the numerator shall be the
number of Common Shares outstanding (including any tendered shares) at the
Expiration Time multiplied by the Current Market Price of the Common Shares on
the trading day next succeeding the Expiration Time and the denominator shall
be the sum of (x) the fair market value (determined as aforesaid) of the
aggregate consideration payable to shareholders based on the acceptance (up to
any maximum specified in the terms of the tender offer) of all shares validly
tendered and not withdrawn as of the Expiration Time (the shares deemed so
accepted, up to any such maximum, being referred to as the "Purchased Shares")
and (y) the product of the number of Common Shares outstanding (less any
Purchased Shares) at the Expiration Time and the Current Market Price of the
Common Shares on the trading day next succeeding the Expiration Time, such
reduction (if any) to become effective immediately prior to the opening of
business on the day following the Expiration Time. If the Company is obligated
to purchase shares pursuant to any such tender offer, but the Company is
permanently prevented by applicable law from effecting any such purchases or
all such purchases are rescinded, the Conversion Price shall again be adjusted
to be the Conversion Price which would then be in effect if such tender offer
had not been made. If the application of this Section 12(d)(vi) to any tender
offer would result in an increase in the Conversion Price, no adjustment shall
be made for such tender offer under this Section 12(d)(vi).
<PAGE> 106
106
(vii) For purposes of this Section 12(d), the following terms shall have
the meaning indicated:
"closing price" with respect to any securities on any day means the
closing price on such day or, if no such sale takes place on such day, the
average of the reported high and low prices on such day, in each case on
the Nasdaq National Market or the New York Stock Exchange, as applicable,
or, if such security is not listed or admitted to trading on such national
market or exchange, on the principal national securities exchange or
quotation system in the United States on which such security is quoted or
listed or admitted to trading, or, if not quoted or listed or admitted to
trading on any national securities exchange or quotation system in the
United States, the average of the high and low prices of such security on
the over-the-counter market on the day in question as reported by the
National Quotation Bureau Incorporated or a similar generally accepted
reporting service in the United States, or, if not so available, in such
manner as furnished by any New York Stock Exchange member firm selected
from time to time by the Board of Directors for that purpose, or a price
determined in good faith by the Board of Directors, whose determination
shall be conclusive and described in a resolution of the Board of
Directors.
"Common Share Record Date" shall mean, with respect to any dividend,
distribution or other transaction or event in which the holders of Common
<PAGE> 107
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Shares have the right to receive any cash, securities or other property or
in which the Common Shares (or other applicable security) is exchanged for
or converted into any combination of cash, securities or other property,
the date fixed for determination of shareholders entitled to receive such
cash, securities or other property (whether such date is fixed by the
Board of Directors or by statute, contract or otherwise).
"Current Market Price" means the average of the daily closing prices
per Common Share for the 10 consecutive trading days immediately prior to
the date in question; provided, however, that (A) if the "ex" date (as
hereinafter defined) for any event (other than the issuance or
distribution requiring such computation) that requires an adjustment to
the Conversion Price pursuant to Section 12(d)(i), (ii), (iii), (iv), (v)
or (vi) occurs during such 10 consecutive trading days, the closing price
for each trading day prior to the "ex" date for such other event shall be
adjusted by multiplying such closing price by the same fraction by which
the Conversion Price is so required to be adjusted as a result of such
other event, (B) if the "ex" date for any event (other than the issuance
or distribution requiring such computation) that requires an adjustment to
the Conversion Price pursuant to Section 12(d)(i), (ii), (iii), (iv), (v)
or (vi) occurs on or after the "ex" date for the issuance or distribution
requiring such computation and prior to the day in question, the
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108
closing price for each trading day on and after the "ex" date for such
other event shall be adjusted by multiplying such closing price by the
reciprocal of the fraction by which the Conversion Price is so required to
be adjusted as a result of such other event and (C) if the "ex" date for
the issuance or distribution requiring such computation is prior to the
day in question, after taking into account any adjustment required
pursuant to clause (A) or (B) of this proviso, the closing price for each
trading day on or after such "ex" date shall be adjusted by adding thereto
the amount of any cash and the fair market value (as determined by the
Board of Directors in a manner consistent with any determination of such
value for purposes of Section 12(d)(iv) or (v), whose determination shall
be conclusive and described in a resolution of the Board of Directors) of
the evidences of indebtedness, shares of capital stock or assets being
distributed applicable to one Common Share as of the close of business on
the day before such "ex" date. For purposes of any computation under
Section 12(d)(vi), the Current Market Price on any date shall be deemed to
be the average of the daily closing prices per Common Share for such day
and the next two succeeding trading days; provided, however, that, if the
"ex" date for any event (other than the tender offer requiring such
computation) that requires an adjustment to the Conversion Price pursuant
to Section 12(d)(i), (ii), (iii), (iv), (v) or (vi) occurs on or after the
Expiration Time for the tender or
<PAGE> 109
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exchange offer requiring such computation and prior to the day in
question, the closing price for each trading day on and after the "ex"
date for such other event shall be adjusted by multiplying such closing
price by the reciprocal of the fraction by which the Conversion Price is
so required to be adjusted as a result of such other event. For purposes
of this paragraph, the term "ex" date (1) when used with respect to any
issuance or distribution, means the first date on which the Common Shares
trade regular way on the relevant exchange or in the relevant market from
which the closing price was obtained without the right to receive such
issuance or distribution, (2) when used with respect to any subdivision or
combination of Common Shares, means the first date on which the Common
Shares trade regular way on such exchange or in such market after the time
at which such subdivision or combination becomes effective and (3) when
used with respect to any tender or exchange offer means the first date on
which the Common Shares trade regular way on such exchange or in such
market after the Expiration Time of such offer. Notwithstanding the
foregoing, whenever successive adjustments to the Conversion Price are
called for pursuant to this Section 12(d), such adjustments shall be made
to the Current Market Price as may be necessary or appropriate to
effectuate the intent of this Section 12(d) and to avoid unjust or
inequitable results, as determined in good faith by the Board of
Directors.
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"fair market value" shall mean the amount which a willing buyer
would pay a willing seller in an arm's-length transaction.
(viii) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such price;
provided, however, that any adjustments which by reason of this Section
12(d)(viii) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 12
shall be made by the Company and shall be made to the nearest cent. No
adjustment need be made for a change in the par value or no par value of the
Common Shares.
(ix) Whenever the Conversion Price is adjusted as herein provided, the
Company shall promptly file with the Registrar an Officers' Certificate setting
forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. Promptly after delivery of
such certificate, the Company shall prepare a notice of such adjustment of the
Conversion Price setting forth the adjusted Conversion Price and the date on
which each adjustment becomes effective and shall mail such notice of such
adjustment of the Conversion Price to each holder of Series A Preferred Shares
at such holder's last address appearing on the register of holders maintained
for that purpose within 20 days of the effective date of such adjustment.
Failure to deliver such notice shall not affect the legality or validity of any
such adjustment.
<PAGE> 111
111
(x) In any case in which this Section 12(d) provides that an adjustment
shall become effective immediately after a Common Share Record Date for an
event, the Company may defer until the occurrence of such event issuing to the
holder of any Series A Preferred Share converted after such Common Share Record
Date and before the occurrence of such event the additional Common Shares
issuable upon such conversion by reason of the adjustment required by such
event over and above the Common Shares issuable upon such conversion before
giving effect to such adjustment.
(xi) For purposes of this Section 12(d), the number of Common Shares at
any time outstanding shall not include shares held in the treasury of the
Company. The Company shall not pay any dividend or make any distribution on
Common Shares held in the treasury of the Company.
(xii) In lieu of making any adjustment to the Conversion Price pursuant to
Section 12(d)(v), the Company may elect to reserve an amount of cash for
distribution to the holders of Series A Preferred Shares upon the conversion of
the Series A Preferred Shares so that any such holder converting Series A
Preferred Shares will receive upon such conversion, in addition to the Common
Shares and other items to which such holder is entitled, the full amount of
cash which such holder would have received if such holder had, immediately
prior to the Common Share Record Date for such distribution of cash, converted
its Series A Preferred Shares into Common Shares, together with any interest
accrued with respect to such amount, in accordance with this Section
12(d)(xii). The
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Company may make such election by providing an Officers' Certificate to the
Registrar to such effect on or prior to the payment date for any such
distribution and depositing with the Registrar on or prior to such date an
amount of cash equal to the aggregate amount that the holders of Series A
Preferred Shares would have received if such holders had, immediately prior to
the Common Share Record Date for such distribution, converted all the Series A
Preferred Shares into Common Shares. Any such funds so deposited by the Company
with the Registrar shall be invested by the Registrar in unconditional U.S.
Government obligations with a maturity not more than three months from the date
of issuance. Upon conversion of Series A Preferred Shares by a holder thereof,
such holder shall be entitled to receive, in addition to the Common Shares
issuable upon conversion, an amount of cash equal to the amount such holder
would have received if such holder had, immediately prior to the Common Share
Record Date for such distribution, converted its Series A Preferred Shares into
Common Shares, along with such holder's pro rata share of any accrued interest
earned as a consequence of the investment of such funds. Promptly after making
an election pursuant to this Section 12(d)(xii), the Company shall give or
shall cause to be given notice to all holders of Series A Preferred Shares of
such election, which notice shall state the amount of cash per Series A
Preferred Share such holders shall be entitled to receive (excluding interest)
upon conversion of the Series A Preferred Shares as a consequence of the
Company having made such election.
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113
(e) Subject to Section 13, in case of any consolidation of the Company
with, or merger of the Company into, any other corporation, or in case of any
merger of another corporation into the Company (other than a merger which does
not result in any reclassification, conversion, exchange or cancelation of
outstanding shares of Common Shares of the Company), or in case of any sale,
conveyance or transfer of all or substantially all the assets of the Company,
the holder of each Series A Preferred Share then outstanding shall have the
right thereafter, during the period such Series A Preferred Share shall be
convertible as specified in Section 12(a), to convert such Series A Preferred
Share only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger,
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conveyance or transfer by a holder of the number of shares of Common Shares of
the Company into which such Series A Preferred Share might have been converted
immediately prior to such consolidation, merger, conveyance or transfer,
assuming such holder of Common Shares of the Company failed to exercise his
rights of election, if any, as to the kind or amount of securities, cash and
other property receivable upon such consolidation, merger, conveyance or
transfer (provided that, if the kind or amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance or transfer is
not the same for each Common Share of the Company in respect of which such
rights of election shall not have been exercised ("nonelecting share"), then for
the purpose of this Section 12 the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance or transfer by
each nonelecting share shall be deemed to be the kind and amount so receivable
per share by a plurality of the nonelecting shares). Such securities shall
provide for adjustments which, for events subsequent to the effective date of
the triggering event, shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 12. The above provisions of this
Section 12 shall similarly apply to successive consolidations, mergers,
conveyances or transfers.
(f) In case:
(i) the Company shall declare a dividend (or any other distribution) on
its Common Shares payable otherwise than in cash out of its earned surplus; or
(ii) the Company shall authorize the granting to all holders of its Common
Shares of rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any other rights; or
(iii) of any reclassification of the Common Shares of the Company (other
than a subdivision or combination of its outstanding Common Shares), or of any
consolidation or merger to which the Company is a party and for which approval
of any shareholders of the Company is required, or the sale, conveyance or
transfer of all or substantially all the assets of the Company; or
(iv) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
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then the Company shall cause to be filed with the Registrar and at each office
or agency maintained for the purpose of conversion of Series A Preferred Shares,
and shall cause to be mailed to all holders at their last addresses as they
shall appear in the Series A Preferred Shares Register, at least 20 Business
Days (or 10 Business Days in any case specified in clause (i) or (ii) above)
prior to the applicable date hereinafter specified, a notice stating (x) the
date on which a record is to be taken for the purpose of such dividend,
distribution, rights or warrants, or, if a record is not to be taken, the date
as of which the holders of Common Shares of record to be entitled to such
dividend, distribution, rights or warrants are to be determined or (y) the date
on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective, and the
date as of which it is expected that holders of Common Shares of record shall be
entitled to exchange their Common Shares for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up. Failure to give the notice required by
this Section 12(f) or any defect therein shall not affect the legality or
validity of any dividend, distribution, right, warrant, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up,
or the vote upon any such action.
(g) The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Shares, for the
purpose of
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effecting the conversion of Series A Preferred Shares, the full number of Common
Shares then issuable upon the conversion of all outstanding Series A Preferred
Shares.
(h) The Company will pay any and all taxes that may be payable in respect
of the issue or delivery of Common Shares on conversion of Series A Preferred
Shares pursuant hereto. The Company shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the issue and
delivery of Common Shares in a name other than that of the holder of the Series
A Preferred Share or Series A Preferred Shares to be converted, and no such
issue or delivery shall be made unless and until the Person requesting such
issue has paid to the Company the amount of any such tax, or has established to
the satisfaction of the Company that such tax has been paid or is not payable.
13. Consolidation, Merger, Conveyance or Transfer. Without the vote or
consent of the holders of a majority of the then Outstanding Series A Preferred
Shares, the Company may not consolidate or merge with or into, or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
assets to, any person unless (a) the entity formed by such consolidation or
merger (if other than the Company) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made (in any such case,
the "resulting entity") is a corporation organized and existing under the laws
of Bermuda, the United States or any State thereof or the District of Columbia;
(b) if the Company is not the resulting entity, the Series A Preferred Shares
are
<PAGE> 117
117
converted into or exchanged for and become shares of such resulting entity,
having in respect of such resulting entity the same (or more favorable) powers,
preferences and relative, participating, optional or other special rights that
the Series A Preferred Shares had immediately prior to such transaction; (c)
immediately after giving effect to such transaction, no Voting Rights Triggering
Event has occurred and is continuing and (d) the Company shall have delivered to
the Registrar an Officers' Certificate and an opinion of counsel, each stating
that such consolidation, merger, conveyance or transfer complies with this
Section 13 and that all conditions precedent herein provided for relating to
such transaction have been complied with.
14. SEC Reports; Reports by Company. So long as any Series A Preferred
Shares are outstanding, the Company shall file with the SEC and, within 15 days
after it files them with the SEC, with the Registrar and, if requested, furnish
to the holders of Series A Preferred Shares all annual and quarterly reports and
the information, documents, and other reports that the Company is required to
file with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act ("SEC
Reports"). In the event the Company is not required or shall cease to be
required to file SEC Reports, pursuant to the Exchange Act, the Company will
nevertheless file such reports with the SEC (unless the SEC will not accept such
a filing). Whether or not required by the Exchange Act to file SEC Reports with
the SEC, so long as any Series A Preferred Shares are Outstanding, the Company
will furnish or cause to be furnished copies of the SEC Reports to the holders
of Series A Preferred Shares at the time the Company
<PAGE> 118
118
is required to make such information available to the Registrar and to
prospective investors who request it in writing. In addition, the Company has
agreed that, for so long as any Series A Preferred Shares remain outstanding, it
will furnish to the holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under Securities Act.
<PAGE> 119
119
15. Definitions. For purposes of this Schedule, the following terms shall
have the meaning set forth below:
"Accumulated Dividends" has the meaning set forth in Section 6(a).
"Agent Members" has the meaning set forth in Section 4(c).
"Average Market Value" of the Common Shares means the arithmetic average
of the Current Market Value of the Common Shares for the ten trading days ending
on the fifth Business Day prior to (i) in the case of the payment of any
dividend, the Record Date for such dividend and (ii) in the case of any other
payment, the date of such payment.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in The City of New York are
authorized or obligated by law or executive order to be closed.
"Bye-Laws" has the meaning set forth in the Recitals.
"Closing Date" means any Closing Date under the Purchase
Agreement.
"closing price" has the meaning set forth in Section 12(d)(vii).
"Common Share Record Date" has the meaning set forth in Section
12(d)(vii).
"Common Shares" means common shares of the Company, par value
$1.00 per share.
<PAGE> 120
120
"Companies Act" has the meaning set forth in Section 6(a).
"Company" has the meaning set forth in the Recitals.
"Company Order" means a written request or order signed in the name of the
Company by its Chairman of the Board, its President or a Vice President and by
its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary.
"Conversion Agent" has the meaning set forth in Section 5(a).
"Conversion Price" has the meaning set forth in Section 12(a).
"Current Market Value" of the Common Shares means the average of the high
and low sale prices of the Common Shares as reported on the Nasdaq National
Market or any national securities exchange in the United States upon which the
Common Shares are then listed, for the trading day in question.
"Current Market Price" has the meaning set forth in Section
12(d)(vii).
"Depositary" has the meaning set forth in Section 4(b).
"Dilution Trigger Event" has the meaning set forth in Section
12(d)(iv).
"Distributed Securities" has the meaning set forth in Section
12(d)(iv).
<PAGE> 121
121
"Dividend Make-Whole Payment" has the meaning set forth in
Section 10(a).
"Dividend Make-Whole Period" has the meaning set forth in Section
10(a).
"Dividend Payment Date" means each February 15, May 15, August 15 and
November 15 ; provided, however, that if such date shall not be a Business Day,
then such date shall be the next Business Day.
"Dividend Record Date" has the meaning set forth in Section 7(a).
"DTC" has the meaning set forth in Section 4(b).
"Expiration Time" has the meaning set forth in Section 12(d)(vi).
"fair market value" has the meaning set forth in Section
12(d)(vii).
"Global Series A Preferred Share" has the meaning set forth in
Section 4(b).
"Global Shares Legend" has the meaning set forth in Section 4(b).
"Globalstar" means Globalstar, L.P., a Delaware limited
partnership.
"Initial Purchasers" means Bear, Stearns & Co. Inc., Donaldson,
Lufkin & Jenrette Securities Corporation, Lehman Brothers Inc., C.E.
Unterberg, Towbin, CIBC Oppenheimer Corp. and ING Baring Furman Selz
LLC.
<PAGE> 122
122
"Junior Shares" has the meaning set forth in Section 9(a).
"Mandatory Redemption Date" has the meaning set forth in Section 10(c);
provided, however, that if such date shall not be a Business Day, then such date
shall be the next Business Day.
"Memorandum of Association" has the meaning set forth in the
Recitals.
"nonelecting share" has the meaning set forth in Section 12(e).
"Notice Date" has the meaning set forth in Section 10(a).
"Odd-lot Redemption" has the meaning set forth in Section 10(f).
"Officers' Certificate" means a certificate of the Company signed in the
name of the Company by its Chairman of the Board, its President or a Vice
President and by its Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary.
"Optional Redemption" has the meaning set forth in Section 10(b).
"Optional Redemption Date" has the meaning set forth in Section
10(b).
"Ordinary Partnership Interests" means the ordinary partnership
interests of Globalstar.
<PAGE> 123
123
"Outstanding" means when used with respect to Series A Preferred Shares
means, as of the date of determination, all Series A Preferred Shares
theretofore authenticated and delivered under this Schedule, except (a) Series A
Preferred Shares theretofore converted into Common Shares in accordance with
Section 12 and Series A Preferred Shares theretofore canceled by the Registrar
or delivered to the Registrar for cancelation; (b) Series A Preferred Shares for
whose payment or redemption money in the necessary amount has been theretofore
deposited with the Registrar or any Paying Agent (other than the Company) in
trust or set aside and segregated in trust by the Company (if the Company shall
act as its own Paying Agent) for the holders of such Series A Preferred Shares;
provided that, if such Series A Preferred Shares are to be redeemed, notice of
such redemption has been duly given pursuant to this Schedule or provision
therefor satisfactory to the Registrar has been made; and (c) Series A Preferred
Shares (x) that are mutilated, destroyed, lost or stolen which the Company has
decided to pay or (y) in exchange for or in lieu of which other Series A
Preferred Shares have been authenticated and delivered pursuant to this
Schedule; provided, however, that, in determining whether the holders of the
Series A Preferred Shares have given any request, demand, authorization,
direction, notice, consent or waiver or taken any other action hereunder, Series
A Preferred Shares owned by the Company or any other obligor upon the Series A
Preferred Shares or any affiliate (other than, in the case of Section 8(b) and
Section 8(c), Loral and its subsidiaries) of the Company or of such other
obligor shall
<PAGE> 124
124
be disregarded and deemed not to be Outstanding, except that, in determining
whether the Registrar shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent, waiver or other action, only
Series A Preferred Shares which the Registrar has actual knowledge of being so
owned shall be so disregarded. Series A Preferred Shares so owned which have
been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Registrar the pledgee's right so to act
with respect to such Series A Preferred Shares and that the pledgee is not the
Company or any other obligor upon the Series A Preferred Shares or any affiliate
of the Company or of such other obligor.
"Parity Shares" has the meaning set forth in Section 9(a).
"Paying Agent" has the meaning set forth in Section 5(a).
"Preferred Partnership Interests" means the 8% Convertible Redeemable
Preferred Partnership Interests of Globalstar purchased by the Company with the
proceeds of the issuance of the Series A Preferred
Shares.
"Preferred Stock Liquidated Damages" has the meaning set forth in
Section 6(b).
"Provisional Redemption" has the meaning set forth in
Section 10(a).
"Provisional Redemption Date" has the meaning set forth in
Section 10(a).
<PAGE> 125
125
"Purchase Agreement" means the Purchase Agreement dated
January 21, 1999, among the Company, Globalstar, Loral Space &
Telecommunications Ltd. and the Initial Purchasers.
"Purchased Shares" has the meaning set forth in Section 12(d)(vi).
"QIBs" has the meaning set forth in Section 4(a).
"Redemption Date" has the meaning set forth in Section 10(g).
"Redemption Notice" has the meaning set forth in Section 10(g).
"Redemption Price" has the meaning set forth in Section 10(g).
"Registrar" has the meaning set forth in Section 3.
"Registrable Securities" has the meaning set forth in
Section 5(c).
"Registration Default" has the meaning set forth in Section 6(b).
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of January 26, 1999, among the Company, Globalstar and the Initial
Purchasers.
"Restricted Series A Preferred Shares" has the meaning set forth
in Section 4(d).
"Restricted Shares Legend" has the meaning set forth in
Section 4(a).
<PAGE> 126
126
"resulting entity" has the meaning set forth in Section 13.
"Rule 144A" has the meaning set forth in Section 4(a).
"SEC" means the Securities and Exchange Commission, as from time to time
constituted, created under the Securities Exchange Act of 1934, or, if at any
time after the adoption of this Schedule such commission is not existing and
performing the duties now assigned to it, then the body performing such duties
at such time.
"SEC Reports" has the meaning set forth in Section 14.
"Securities Act" has the meaning set forth in Section 4(a).
"Senior Shares" has the meaning set forth in Section 9(a).
"Series A Preferred Share Directors" has the meaning set forth in
Section 8(a).
"Series A Preferred Shares" has the meaning set forth in Section
1.
"Shelf Registration Statement" means the shelf registration statement in
respect of the Registrable Securities (other than Registrable Securities
beneficially owned by Loral) required pursuant to the Registration Rights
Agreement to be filed with the SEC with respect to resales of the Registrable
Securities (other than Registrable Securities beneficially owned by Loral).
<PAGE> 127
127
"Transfer Restricted Securities" means each Registrable Security (other
than Registrable Securities beneficially owned by Loral) until the later of (A)
the second anniversary of the last Closing Date pursuant to the Purchase
Agreement and (B) such time as (1) such Registrable Security shall no longer
constitute a restricted security for purposes of Rule 144(k) of the Securities
Act or (2) such Registrable Security has been sold pursuant to the Shelf
Registration Statement.
"Voting Rights Triggering Event" has the meaning set forth in
Section 8(a).
IN WITNESS WHEREOF, the Company has caused this Schedule to be duly
executed by Gregory J. Clark, President of the Company, and attested by Eric J.
Zahler, Vice President and Secretary of the Company, this 26th day of January,
1999.
GLOBALSTAR TELECOMMUNICATIONS
LIMITED
by: /s/ Gregory J. Clark
________________________
Name: Gregory J. Clark
Title: President
ATTEST:
by: /s/ Eric J. Zahler
______________________
Name: Eric J. Zahler
Title: Vice President and
Secretary
<PAGE> 128
128
EXHIBIT A
FACE OF SECURITY
[Restricted Shares Legend (include if Security is not registered under the U.S.
Securities Act of 1933): THE SECURITY EVIDENCED HEREBY (OR ITS PREDECESSOR) (AND
(1) THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE AND (2) THE COMMON
STOCK ISSUABLE IN PAYMENT OF DIVIDENDS OR REDEMPTION OBLIGATIONS ON THIS
SECURITY) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER
SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND
MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE
SECURITY EVIDENCED HEREBY (AND (1) THE COMMON STOCK INTO WHICH THIS SECURITY IS
CONVERTIBLE AND (2) THE COMMON STOCK ISSUABLE IN PAYMENT OF DIVIDENDS OR
REDEMPTION OBLIGATIONS ON THIS SECURITY) IS HEREBY NOTIFIED THAT THE SELLER MAY
BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES
ACT PROVIDED BY RULE 144A THEREUNDER (OTHER THAN WITH RESPECT TO THE COMMON
STOCK). THE HOLDER OF THE SECURITY EVIDENCED HEREBY (AND (1) THE COMMON STOCK
INTO WHICH THIS SECURITY IS CONVERTIBLE AND (2) THE COMMON STOCK ISSUABLE IN
PAYMENT OF DIVIDENDS OR REDEMPTION OBLIGATIONS ON THIS SECURITY) AGREES FOR THE
BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY (AND (1) THE COMMON STOCK INTO
WHICH THIS SECURITY IS CONVERTIBLE AND (2) THE COMMON STOCK ISSUABLE IN PAYMENT
OF DIVIDENDS OR REDEMPTION OBLIGATIONS ON THIS SECURITY) MAY BE RESOLD, PLEDGED
OR OTHERWISE TRANSFERRED,
<PAGE> 129
129
ONLY (1) (a) OTHER THAN WITH RESPECT TO THE COMMON STOCK, TO A PERSON WHO THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING
OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" AS
DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS
ACQUIRING SUCH SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION IN A
MINIMUM LIQUIDATION PREFERENCE OF NOT LESS THAN $250,000, (c) OUTSIDE THE UNITED
STATES TO A NON-U.S. PERSON IN A TRANSACTION COMPLYING WITH RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (d) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND, IN EACH CASE, BASED UPON AN OPINION OF
COUNSEL IF THE COMPANY SO REQUESTS) (2) TO THE COMPANY OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN
ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED
STATES AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN CLAUSE (A) ABOVE.
IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND
TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH REGISTRAR AND
TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH
THE FOREGOING RESTRICTIONS.]
<PAGE> 130
130
[Global Shares Legend (include if Security is issued as a global certificate):
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OF PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO. HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE PREFERRED
STOCK SCHEDULE REFERRED TO BELOW.
IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND
TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH REGISTRAR AND
TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH
THE FOREGOING RESTRICTIONS.]
Number of Shares
Number: ________ Shares
144A CUSIP NO.: 379364 50 8
IAI CUSIP NO.: 379364 60 7
<PAGE> 131
131
Series A 8% Convertible Redeemable Preferred Stock due 2011
of
GLOBALSTAR TELECOMMUNICATIONS LIMITED
GLOBALSTAR TELECOMMUNICATIONS LIMITED, an exempted company organized under
the laws of Bermuda (the "Company"), hereby certifies that [HOLDER] (the
"Holder") is the registered owner of fully paid and non-assessable preference
securities of the Company designated the Series A 8% Convertible Redeemable
Preferred Stock due 2011, par value U.S.$0.01 and liquidation preference
U.S.$50.00 per share (the "Preferred Stock"). The shares of Preferred Stock are
transferable on the books and records of the Registrar, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer. The designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Preferred Stock represented
hereby are issued and shall in all respects be subject to the provisions of the
schedule to the Bye-Laws of the Company dated January 26, 1999, as the same may
be amended from time to time in accordance with its terms (the "Preferred Stock
Schedule"). Capitalized terms used herein but not defined shall have the meaning
given them in the Preferred Stock Schedule. The Company will provide a copy of
the Preferred Stock Schedule to a Holder without charge upon written request to
the Company at its principal place of business.
<PAGE> 132
132
Reference is hereby made to select provisions of the Preferred Stock set
forth on the reverse hereof, and to the Preferred Stock Schedule, which select
provisions and the Preferred Stock Schedule shall for all purposes have the same
effect as if set forth at this place.
Upon receipt of this certificate, the Holder is bound by the Preferred
Stock Schedule and is entitled to the benefits thereunder.
Unless the Transfer Agent's valid countersignature appears hereon, the
shares of Preferred Stock evidenced hereby shall not be entitled to any benefit
under the Preferred Stock Schedule or be valid or obligatory for any purpose.
<PAGE> 133
133
IN WITNESS WHEREOF, the Company has executed this certificate as of the
date set forth below.
GLOBALSTAR TELECOMMUNICATIONS LIMITED,
By: ____________________________
Name:
Title:
[Seal]
By: ____________________________
Name:
Title:
Dated:
COUNTERSIGNED AND REGISTERED
THE BANK OF NEW YORK
as Transfer Agent,
By:
Authorized Signatory
Dated:
<PAGE> 134
REVERSE OF SECURITY
GLOBALSTAR TELECOMMUNICATIONS LIMITED
Series A 8% Convertible Redeemable Preferred Stock due 2011
Dividends on each share of Preferred Stock shall be payable at a rate per
annum set forth in the face hereof or as provided in the Preferred Stock
Schedule (including Preferred Stock Liquidated Damages). Dividends may be paid,
at the option of the Company, in cash, or, subject to certain limitations, in
shares of Common Stock of the Company or a combination of cash and shares of
Common Stock of the Company.
The shares of Preferred Stock shall be redeemable as provided in the
Preferred Stock Schedule. The shares of Convertible Preferred Stock shall be
convertible into the Company's Common Stock in the manner and according to the
terms set forth in the Preferred Stock Schedule.
The Company shall furnish to any Holder upon request and without charge, a
full summary statement of the designations, voting rights preferences,
limitations and special rights of the shares of each class or series authorized
to be issued by the Company so far as they have been fixed and determined and
the authority of the Board of Directors to fix and determine the designations,
voting rights, preferences, limitations and special rights of the class and
series of shares of the Company.
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers the shares of
Preferred Stock evidenced hereby to:
<PAGE> 135
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)
and irrevocably appoints:
agent to transfer the shares of Preferred Stock evidenced hereby on the books of
the Transfer Agent and Registrar. The agent may substitute another to act for
him or her.
Date:
Signature: ______________________________
(Sign exactly as your name appears on the other side of this Convertible
Preferred Stock Certificate)
<PAGE> 136
Signature Guarantee:______________________________*
- --------
*Signature must be guaranteed by an "eligible guarantor institution"
(i.e., a bank, stockbroker, savings and loan association or credit union)
meeting the requirements of the Registrar, which requirements include membership
or participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934.
<PAGE> 137
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Preferred Stock)
The undersigned hereby irrevocably elects to convert (the "Conversion")
_________ shares of Series A 8% Convertible Redeemable Preferred Stock due 2011
(the "Preferred Stock"), represented by stock certificate No(s). (the "Preferred
Stock Certificates") into shares of common stock, par value U.S.$1.00 per share
("Common Stock"), of Globalstar Telecommunications Limited (the "Company")
according to the conditions of the schedule to the Company's Bye-Laws
establishing the terms of the Preferred Stock (the "Preferred Stock Schedule"),
as of the date written below. If shares are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates. No fee will
be charged to the holder for any conversion, except for transfer taxes, if any.
A copy of each Preferred Stock Certificate is attached hereto (or evidence of
loss, theft or destruction thereof).*
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Preferred Stock shall be made pursuant to registration of the
Common Stock under the Securities Act of 1933 (the "Act"), or pursuant to any
exemption from registration under the Act.
Any holder, upon the exercise of its conversion rights in accordance with the
terms of the Preferred Stock Schedule
<PAGE> 138
and the Preferred Stock, agrees to be bound by the terms of the Registration
Rights Agreement.
Capitalized terms used but not defined herein shall have the meanings ascribed
thereto in or pursuant to the Preferred Stock Schedule.
Date of Conversion:___________________________________
Applicable Conversion Price:__________________________
Number of shares of
Preferred Stock to be Converted:______________________
Number of shares of
Common Stock to be Issued:____________________________
Signature:____________________________________________
Name:_________________________________________________
Address:**____________________________________________
Fax No.:______________________________________________
*The Company is not required to issue shares of Common Stock until the original
Preferred Stock Certificate(s) (or evidence of loss, theft or destruction
thereof) to be converted are received by the Company or its Transfer Agent. The
Company shall issue and deliver shares of Common Stock to an overnight courier
not later than three business days following receipt of the original Preferred
Stock Certificate(s) to be converted.
**Address where shares of Common Stock and any other payments or certificates
shall be sent by the Company.
<PAGE> 139
3
[Global Share Schedule: (include if Security is issued as a global
certificate)]
SCHEDULE A
SCHEDULE OF EXCHANGES FOR GLOBAL SECURITY
The initial number of Series A Preferred Shares represented by this Global
Series A Preferred Share shall be _______. The following exchanges of a part of
this Global Series A Preferred Share have been made:
- -------------------------------------------------------------------------
Number of
shares
Amount of represented
decrease in Amount of by this
number of increase in Global
shares number of Series A
represented shares Preferred
by this represented Share
Global by this following Signature of
Series A Global Series such authorized
Date of Preferred A Preferred decrease or officer of
Exchange Share Share increase Registrar
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
<PAGE> 140
4
EXHIBIT B
FORM OF TRANSFER CERTIFICATE
(Transfers pursuant to ' 5(b)(ii),
' 5(b)(iii) or ' 5(b)(iv) of the Schedule)
The Bank of New York, as Transfer Agent
101 Barclay Street, Floor 21 West
New York, New York 10286
Att: Stock Transfer
Administration
Re: Globalstar Telecommunications Limited
8% Series A Convertible Redeemable Preferred Shares due 2011 (the
"Series A Preferred Shares")
Reference is hereby made to Schedule III (the "Schedule") to the Bye-laws
of Globalstar Telecommunications Limited. Capitalized terms used but not defined
herein shall have the meanings given them in the Schedule.
This letter relates to __________ Series A Preferred Shares (the
"Securities") which are held [in the form of the [Restricted] [Global] Security
(CUSIP No. __) with the
<PAGE> 141
5
Depositary]** in the name of [name of transferor] (the "Transferor") to effect
the transfer of the Securities.
In connection with such request, and in respect of Securities, the
Transferor does hereby certify the Securities are being transferred (i) in
accordance with applicable securities laws of any state of the United States or
any other jurisdiction and (ii) in accordance with their terms:
CHECK ONE BOX BELOW:
(1) to a transferee that the Transferor reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A
under the Securities Act purchasing for its own account or for
the account of a qualified institutional buyer in a
transaction meeting the requirements of Rule 144A;
<PAGE> 142
6
(2) to a transferee that the Transferor reasonably believes is
an institutional "accredited investor" as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act that is
acquiring such Securities for investment purposes and not for
distribution and is acquiring at least $250,000 aggregate
liquidation preference of Series A Preferred Shares for its
own account or for one or more accounts (each of which is
acquiring at least $250,000 aggregate liquidation preference)
as to which the transferee exercises sole investment
discretion;
(3) outside the United States to a Non-U.S. Person
in a transaction complying with Rule 904 of
Regulation S under the Securities Act;
(4) pursuant to an exemption from registration
under the Securities Act provided by Rule 144
thereunder (if available); or
(5) in accordance with another exemption from the registration
requirements of the Securities Act (based upon an opinion of
counsel if the Company so requests).
<PAGE> 143
7
[Name of Transferor]
by: ________________________
Name:
Title:
Dated:
cc: Globalstar Telecommunications Limited
Cedar House
41 Cedar Avenue
Hamilton HM12 Bermuda
Att.: Corporate Secretary
<PAGE> 144
EXHIBIT C
FORM OF ACCREDITED INVESTOR TRANSFEREE CERTIFICATE
(Transfers pursuant to ' 5(b)(ii) or
' 5(b)(iii) of the Schedule)
The Bank of New York, as Transfer Agent
101 Barclay Street, Floor 21 West
New York, New York 10286
Att: Stock Transfer
Administration
Re: Globalstar Telecommunications Limited
8% Series A Convertible Redeemable Preferred Shares due 2011 ( the "Series
A Preferred Shares")
Reference is hereby made to Schedule III (the "Schedule") to the Bye-laws
of Globalstar Telecommunications, Limited. Capitalized terms used but not
defined herein shall have the meanings given them in the Schedule.
This letter relates to ________ Series A Preferred Shares (the
"Securities") which are held [in the form of the [Restricted] [Global] Series A
Preferred Share (CUSIP No. ___) with the Depositary] in the name of [name of
transferor] (the "Transferor") to effect the transfer of the Securities to the
undersigned.
In connection with such request, and in respect of the Securities, we
confirm that:
1. We understand that the Securities have not been registered under the
U.S. Securities Act of 1933 (the "Securities
<PAGE> 145
2
Act"), and are being sold to us in a transaction that is exempt from the
registration requirements of the Securities Act.
2. We are a corporation, partnership or other entity having such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of an investment in the Securities, and we are (or any
account for which we are purchasing under paragraph 4 below is) an accredited
investor as defined in Rule 501(a) under the Securities Act, able to bear the
economic risk of the proposed investment in the Securities.
3. We are acquiring the Securities for our own account (or for accounts as
to which we exercise sole investment discretion and have authority to make, and
do make, the statements contained in this letter) and not with a view to any
distribution of the Securities, subject, nevertheless, to the understanding that
the disposition of our property shall at all times be and remain within our
control.
4. We are, and each account (if any) for which we are purchasing
Securities is, purchasing Securities having an aggregate liquidation preference
of not less than $250,000.
5. We understand that (a) the Securities will be delivered to us in
registered form only and that the certificate delivered with respect to the
Securities will bear a legend substantially to the following effect:
THE SECURITY EVIDENCED HEREBY (OR ITS PREDECESSOR) (AND (1) THE COMMON STOCK
INTO WHICH THIS SECURITY IS CONVERTIBLE AND (2)
<PAGE> 146
3
THE COMMON STOCK ISSUABLE IN PAYMENT OF DIVIDENDS OR REDEMPTION OBLIGATIONS ON
THIS SECURITY) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES
ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY (AND (1) THE COMMON STOCK INTO WHICH
THIS SECURITY IS CONVERTIBLE AND (2) THE COMMON STOCK ISSUABLE IN PAYMENT OF
DIVIDENDS OR REDEMPTION OBLIGATIONS ON THIS SECURITY) IS HEREBY NOTIFIED THAT
THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF
THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER (OTHER THAN WITH RESPECT TO
THE COMMON STOCK). THE HOLDER OF THE SECURITY EVIDENCED HEREBY (AND (1) THE
COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE AND (2) THE COMMON STOCK
ISSUABLE IN PAYMENT OF DIVIDENDS OR REDEMPTION OBLIGATIONS ON THIS SECURITY)
AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY (AND (1) THE COMMON
STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE AND (2) THE COMMON STOCK ISSUABLE
IN PAYMENT OF DIVIDENDS OR REDEMPTION OBLIGATIONS ON THIS SECURITY) MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) OTHER THAN WITH RESPECT
TO THE COMMON STOCK, TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE
SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b)
TO AN INSTITUTIONAL "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A)(1), (2), (3)
OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING SUCH SECURITY FOR INVESTMENT
PURPOSES AND
<PAGE> 147
4
NOT FOR DISTRIBUTION IN A MINIMUM LIQUIDATION PREFERENCE OF NOT LESS THAN
$250,000, (c) OUTSIDE THE UNITED STATES TO A NON-U.S. PERSON IN A TRANSACTION
COMPLYING WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (d) PURSUANT
TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE) OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND, IN EACH CASE, BASED UPON
AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS) (2) TO THE COMPANY OR (3)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN
EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF
THE UNITED STATES AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF
THE RESALE RESTRICTIONS SET FORTH IN CLAUSE (A) ABOVE.
IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND
TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH REGISTRAR AND
TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH
THE FOREGOING RESTRICTIONS.
and (b) such certificates will be reissued without the foregoing legend
only in accordance with the terms of the Schedule.
6. We agree that in the event that at some future time we wish to dispose
of any of the Securities, we will not do so unless:
<PAGE> 148
5
(a) the Securities are sold to the Company;
(b) the Securities are sold to a qualified institutional buyer in
compliance with Rule 144A under the Securities Act;
(c) the Securities are sold to an accredited investor, as defined in Rule
501(a) under the Securities Act, acquiring at least $250,000 liquidation
preference of the Securities that, prior to such transfer, furnishes to the
Transfer Agent a signed letter containing certain representations and
agreements relating to the restrictions on transfer of the Securities (the form
of which letter can be obtained from such Transfer Agent);
(d) the Securities are sold outside the United States in compliance with
Rule 903 or Rule 904 under the Securities Act;
(e) the Securities are sold by us pursuant to Rule 144 under the
Securities Act; or
(f) the Securities are sold pursuant to an effective registration
statement under the Securities Act.
Very truly yours,
[PURCHASER]
by: __________________________
Name:
Title:
Dated:
cc: Globalstar Telecommunications Limited
Cedar House
41 Cedar Avenue
Hamilton HM12 Bermuda
<PAGE> 1
CONFORMED AS AMENDED
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
GLOBALSTAR, L.P.
=====================
Dated as of
January 26, 1999
=====================
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I. ORGANIZATIONAL MATTERS
SECTION 1.1. Continuation...............................................2
SECTION 1.2. Name.......................................................2
SECTION 1.3. Registered Office; Principal Office........................3
SECTION 1.4. Power of Attorney..........................................3
SECTION 1.5. Term.......................................................5
SECTION 1.6. Title to Partnership Property..............................5
SECTION 1.7. Effectiveness of Partnership Agreement.....................5
ARTICLE II. DEFINITIONS
SECTION 2.1. Definitions................................................5
ARTICLE III. PURPOSE
SECTION 3.1. Purpose...................................................25
ARTICLE IV. CAPITAL CONTRIBUTIONS
SECTION 4.1. General Partners..........................................26
SECTION 4.2. Limited Partners..........................................27
SECTION 4.3. Additional Contribution...................................27
SECTION 4.4. Additional Limited Partners...............................27
SECTION 4.5. Capital Accounts..........................................27
SECTION 4.6. Interest..................................................29
SECTION 4.7. No Withdrawal.............................................29
SECTION 4.8. Loans.....................................................29
SECTION 4.9. Preemptive Rights.........................................29
SECTION 4.10. Sale of Partnership Interests and Partnership
Securities................................................31
SECTION 4.11. Business Plans............................................32
SECTION 4.12. Limitation on a Limited Partner's Ownership..................34
ARTICLE V. ALLOCATIONS, DISTRIBUTIONS AND SERVICE PROVIDER AGREEMENTS
SECTION 5.1. Allocations Generally.....................................34
SECTION 5.2. Regulatory Allocations....................................36
SECTION 5.3. Other Allocations When Book Value Differs from Tax
Basis.....................................................39
SECTION 5.4. Special Allocation of Foreign Taxes.......................39
SECTION 5.5. Distributions.............................................40
<PAGE> 3
SECTION 5.6. Service Provider Agreements...............................43
SECTION 5.7. Terms of PPIs.............................................43
SECTION 5.8. Guaranteed Payments.......................................43
SECTION 5.9. Allocations Relating to Issue of Partnership
Interests.................................................44
ARTICLE VI. MANAGEMENT AND OPERATION OF BUSINESS
SECTION 6.1. Management................................................44
SECTION 6.2. Limitations on Authority of Committee and the
General Partners..........................................49
SECTION 6.3. Change of Control and Reduction in Interest...............53
SECTION 6.4. Certificate of Limited Partnership........................54
SECTION 6.5. Reliance by Third Parties.................................55
SECTION 6.6. Compensation, Expenses and Reimbursement of
General Partners..........................................56
SECTION 6.7. Outside Activities........................................57
SECTION 6.8. Partnership Funds.........................................58
SECTION 6.9. Loans from the General Partners...........................58
SECTION 6.10. Indemnification of Partners...............................59
SECTION 6.11. Liability of General Partners.............................61
SECTION 6.12. Other Matters Concerning the General Partners.............62
SECTION 6.13. Conversion to Corporate Form..............................63
SECTION 6.14. FCC Compliance............................................64
ARTICLE VII. RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
SECTION 7.1. Limitation of Liability...................................64
SECTION 7.2. Management of Business....................................64
ARTICLE VIII. BOOKS, RECORDS, ACCOUNTING AND REPORTS
SECTION 8.1. Records and Accounting....................................65
SECTION 8.2. Fiscal Year...............................................65
SECTION 8.3. Reports and Annual Meeting................................65
SECTION 8.4. Disclosure to Limited Partners............................66
SECTION 8.5. Determination of Book Value of Partnership Assets.........67
ARTICLE IX. TAX MATTERS
SECTION 9.1. Preparation of Tax Returns................................69
SECTION 9.2. Tax Elections.............................................69
SECTION 9.3. Tax Controversies.........................................69
SECTION 9.4. Taxation as a Partnership.................................70
(ii)
<PAGE> 4
ARTICLE X. TRANSFER OF INTERESTS
SECTION 10.1. Transfer..................................................70
SECTION 10.2. Transfer of Interests of General Partners.................71
SECTION 10.3. Transfer of Interests of Limited Partners.................73
SECTION 10.4. Certain Transfers.........................................76
ARTICLE XI. ADMISSION OF SUBSTITUTE PARTNERS
SECTION 11.1. Admission of Successor Limited Partner....................77
SECTION 11.2. Admission of Successor General Partner....................78
SECTION 11.3. Amendment of Agreement and of Certificate of
Limited Partnership.......................................78
ARTICLE XII. WITHDRAWAL OR REMOVAL
SECTION 12.1. Withdrawal or Removal of the General Partners.............79
SECTION 12.2. Right of the Managing General Partner to Become a
Limited Partner...........................................81
SECTION 12.3. Withdrawal of Limited Partner.............................81
ARTICLE XIII. DISSOLUTION AND LIQUIDATION
SECTION 13.1. Dissolution...............................................81
SECTION 13.2. Continuation of the Business of the Partnership
after Dissolution.........................................82
SECTION 13.3. Winding Up and Liquidation................................83
SECTION 13.4. Cancellation of Certificate of Limited Partnership........85
SECTION 13.5. Return of Capital.........................................86
SECTION 13.6. Waiver of Partition.......................................86
SECTION 13.7. Deficit Upon Liquidation..................................86
ARTICLE XIV. AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
SECTION 14.1. Amendments to be Adopted Without Consent of the
Partners..................................................86
SECTION 14.2. Amendment Procedures......................................87
ARTICLE XV. GENERAL PROVISIONS
SECTION 15.1. Addresses and Notices.....................................87
SECTION 15.2. Titles and Captions.......................................88
SECTION 15.3. Pronouns and Plurals......................................88
SECTION 15.4. Further Action............................................88
SECTION 15.5. Binding Effect............................................89
SECTION 15.6. Integration...............................................89
(iii)
<PAGE> 5
SECTION 15.7. Creditors.................................................89
SECTION 15.8. Waiver....................................................89
SECTION 15.9. Counterparts..............................................89
SECTION 15.10. Dispute Resolution........................................89
SECTION 15.11. Applicable Law............................................91
SECTION 15.12. Confidentiality...........................................91
SECTION 15.13. Invalidity of Provisions..................................94
SCHEDULE A -- Schedule of Partners
SCHEDULE B -- Related Party Transactions
SCHEDULE C -- Provisions Relating to Preferred Partnership Interests
(iv)
<PAGE> 6
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
GLOBALSTAR, L.P.
This AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is
entered into and shall be effective as of the 26th day of January, 1999, by and
among Loral/QUALCOMM Satellite Services, L.P., a Delaware limited partnership
("LQSS" or the "Managing General Partner"), Globalstar Telecommunications
Limited, a company organized under the laws of Bermuda ("GTL", together with
LQSS, the "General Partners"), and all of the limited partners set forth on the
signature page hereto (collectively referred to herein as the "Limited
Partners"), pursuant to the provisions of the Delaware Revised Uniform Limited
Partnership Act (the "Delaware Act"), on the following terms and conditions:
WHEREAS, LQSS formed Globalstar, L.P. (the "Partnership"), a
Delaware limited partnership, pursuant to that certain Certificate of Limited
Partnership of Globalstar, L.P., filed November 19, 1993, with the Secretary of
State of the State of Delaware;
WHEREAS, the Limited Partners (other than Finmeccanica S.p.A. and
TeleSat Limited) or their predecessors were admitted into the Partnership on
March 23, 1994, pursuant to that certain Amended and Restated Agreement of
Limited Partnership of Globalstar, L.P., dated as of March 23, 1994, by and
among LQSS and the Limited Partners (the "Original Partnership Agreement");
WHEREAS, GTL had filed a registration statement on Form S-1, No.
33-86808, pursuant to which it made offerings (the "GTL Initial Offerings") of
shares of its common stock;
WHEREAS, in contemplation of the GTL Initial Offerings, the
Partnership had pursuant to Section 4.10 of the Original Partnership Agreement,
effected a recapitalization in November 1994 to provide for a 6-for-1 split of
its Partnership Interests (as defined below);
WHEREAS, Finmeccanica S.p.A. ("Finmeccanica") was admitted into the
Partnership as a Limited Partner and GTL was admitted into the Partnership as a
General Partner on December 31, 1994 and the Original Partnership Agreement was
amended and restated on December 31, 1994 (the "Amended and Restated Partnership
Agreement") to provide for such admission, the contribution of the proceeds from
the GTL Initial Offerings to the
<PAGE> 7
Partnership and the creation of a committee (the "Committee") comprised of
representatives of LQSS and GTL to manage the Partnership;
WHEREAS, GTL made an offering (the "CPEO Offering") of 6 1/2%
Convertible Preferred Equivalent Obligations due 2006 (the "CPEOs") on March 6,
1996 and in connection therewith the Amended and Restated Partnership
Agreement was amended;
WHEREAS, TeleSat Limited was admitted as a partner on April 8, 1998
and in connection therewith the Amended and Restated Partnership Agreement was
further amended;
WHEREAS, on January 26, 1999, GTL made an offering (the "Preferred
Stock Offering") of 8% convertible redeemable preferred Stock due 2011 and in
connection therewith the Amended and Restated Partnership Agreement was further
amended; and
NOW, THEREFORE, the Partners, in consideration of the premises and
their mutual agreements as hereinafter set forth, do hereby agree to amend and
restate the Amended and Restated Partnership Agreement as follows:
ARTICLE I.
ORGANIZATIONAL MATTERS
SECTION 1.1. Continuation. Subject to the provisions of this
Agreement, the Partnership hereby continues as a limited partnership pursuant to
the provisions of the Delaware Act. The rights and obligations of the Partners
and the administration and termination of the Partnership shall be governed by
this Agreement and the Delaware Act.
SECTION 1.2. Name. The name of the Partnership shall be, and the
business of the Partnership shall be conducted under the name of, "Globalstar,
L.P." The Partnership's business may be conducted under any other name or names
deemed advisable by the Committee, including the name of a General Partner or
any Affiliate (as defined below) of a General Partner. The Committee, upon the
Consent of the Partners (as defined below), may change the name of the
Partnership at any time and from time to time. Notice will be given to the
Limited Partners within ten (10) days after any change in the name of the
Partnership.
SECTION 1.3. Registered Office; Principal Office. The registered
office of the Partnership in the State of Delaware shall be located at c/o
Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801, and
the registered agent for
-2-
<PAGE> 8
service of process on the Partnership at such registered office shall be
Corporation Trust Company. The principal office of the Partnership shall be 3200
Zanker Road, San Jose, CA 95164, or such other place as the Partnership may from
time to time designate to the Partners. Notice will be given to the Limited
Partners within ten (10) days after any change in the principal office of the
Partnership. The Partnership may maintain offices at such other place as it
deems advisable unless such offices create undue adverse tax consequences for
the Partners.
SECTION 1.4. Power of Attorney. (a) Each Limited Partner hereby
irrevocably appoints and empowers each General Partner and each of the General
Partner's authorized officers and attorneys-in-fact with full power of
substitution as its true and lawful agent and attorney-in-fact (the "Attorney"),
with full power and authority in its name, place and stead, for so long as such
Attorney is a General Partner or an authorized officer or attorney-in-fact of a
General Partner, to:
(i) make, execute, acknowledge, publish and file in the appropriate
public offices (A) any duly approved amendments to this Agreement or to
the Certificate of Limited Partnership pursuant to the Delaware Act and to
the laws of any state in which such documents are required to be filed;
(B) any certificates, instruments or documents as may be required by, or
may be appropriate under, the laws of any state or other jurisdiction in
which the Partnership is doing or intends to do business; (C) any other
instrument which may be required to be filed by the Partnership under the
laws of any state or other jurisdiction or by any governmental agency, or
which the Committee deems advisable to file; (D) any documents which may
be required to effect the continuation of the Partnership, the admission,
withdrawal or substitution of any Partner pursuant to Article XI or
Article XII hereof, the dissolution and termination of the Partnership
pursuant to the terms of this Agreement, or the surrender of any rights or
the assumption of any additional responsibilities by the General Partners
or the Committee; and (E) any document which may be required to effect an
amendment to this Agreement to correct any mistake, omission or
inconsistency, or to cure any ambiguity herein, to the extent such
amendment is permitted by Section 14.1 hereof; and
(ii) sign, execute, swear to and acknowledge all ballots, consents,
approvals, waivers, certificates and other instruments appropriate or
necessary, to make, evidence, give, confirm or ratify any vote, consent,
-3-
<PAGE> 9
approval, agreement or other action which is made or given by the Partners
hereunder or is consistent with the terms of this Agreement and/or
appropriate or necessary to effectuate the terms or intent of this
Agreement; provided, however, that when the consent or approval of the
Partners is required under the terms of this Agreement, an Attorney may
exercise the power of attorney made in this subsection (ii) only after the
necessary consent or approval has been received.
(b) To the maximum extent permitted by applicable law, the foregoing
grant of authority (i) is a special power of attorney, coupled with an interest,
and it shall survive the death, incompetency, disability, liquidation,
dissolution, bankruptcy or termination of any Partner and shall extend to such
Partner's heirs, successors, assigns and personal representatives; (ii) may be
exercised by an Attorney for each and every Limited Partner acting as
attorney-in-fact for each and every Limited Partner; and (iii) shall survive the
assignment by any Limited Partner of all or any portion of its Partnership
Interest and shall be fully binding upon such assignee but not on the assignor.
Each Limited Partner hereby agrees to be bound by any representations made by an
Attorney acting in good faith pursuant to such power of attorney in furtherance
of the Partnership's business. Each Limited Partner shall execute and deliver to
either General Partner, within fifteen (15) days after receipt of a request
therefor, such further designations, powers of attorney and other instruments as
the Committee deems necessary to effectuate this Agreement and the purposes of
the Partnership.
SECTION 1.5. Term. The Partnership commenced upon the completion of
filing for record of the Certificate of Limited Partnership for the Partnership
in accordance with the Delaware Act and shall continue in existence until the
earlier termination of the Partnership in accordance with the provisions of
Article XIII hereof.
SECTION 1.6. Title to Partnership Property. All property owned by
the Partnership, whether real or personal, tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner,
individually, shall have any ownership of such property. The Partnership shall
hold all of its assets in its own name; provided, however, that it may hold
marketable securities in street name.
SECTION 1.7. Effectiveness of Partnership Agreement. This Agreement
shall become effective as of the date hereof.
-4-
<PAGE> 10
ARTICLE II.
DEFINITIONS
SECTION 2.1. Definitions. Any capitalized terms used herein and not
otherwise defined shall have the meaning ascribed to such term in this Article
II. For purposes of this Agreement, the following terms shall have the following
meanings:
"Accounting Period" means a period beginning on the first day after
the end of the prior Accounting Period and ending on the earlier of (i) the end
of the Partnership's fiscal year, (ii) the end of the Partnership's tax year,
(iii) the day prior to the day on which there is a material adjustment to the
Book Values of the Partnership's assets under Section 8.5(c), or (iv) such other
date as determined by the Committee.
"Additional Closing" means any closing, following the Initial
Closing, at which Additional Partnership Interests are issued.
"Additional Limited Partner" shall mean the Limited Partners
admitted to the Partnership pursuant to Section 4.4.
"Additional Partnership Interests" means any Partnership Interests
issued by the Partnership after the GTL Effective Date.
"Adjusted Capital Account" means, for any Partner, its Capital
Account balance (after deducting the amount of expected distributions of
Distributable Cash Flow and Distributable Capital Proceeds on hand on the date
as of which the computation is made) plus (a) its share of Partnership Minimum
Gain, (b) its share of Partner Minimum Gain and (c) the amount, if any, by which
a deficit Capital Account balance exceeds the sum of (a) and (b) and which, due
to an unpaid Capital Commitment, a Partner is obligated to restore (or is
treated as obligated to restore under Treasury Regulation Section
1.704-1(b)(2)(ii)(c)).
"Adjusted Income" means the excess, if any, of the sum of (a)
Operating Income plus (b) Capital Transaction Gain plus (c) the deductions for
depreciation and amortization taken into account in computing Operating Loss
over the sum of (d) Operating Loss and (e) Capital Transaction Loss. All the
elements of Adjusted Income are reduced by the amounts thereof allocated under
Sections 5.2, 5.4 and Section 8.5(c).
"Affiliate" means any Person that directly or indirectly controls,
is controlled by, or is under common control
-5-
<PAGE> 11
with the Person in question, provided that (i) in the case of Hyundai/DACOM,
such term shall refer to any of Hyundai Electronics Industries Co., Ltd.
("Hyundai"), DACOM Corporation ("Dacom") or an Affiliate of Hyundai or Dacom,
(ii) in the case of TE.SA.M. ("TESAM"), such term shall refer to any of Alcatel,
NV, Alcatel France, France Telecom or any Persons controlled, directly or
indirectly, by any of them, (iii) in the case of Finmeccanica, the term
"Affiliate" shall only include any other Person controlled by Finmeccanica, (iv)
in the case of Loral SpaceCom or LQSS, GTL shall not be deemed to be an
Affiliate of Loral SpaceCom or LQSS with respect to any matter brought before
the Partners for a vote in accordance with the terms of this Agreement when the
vote of GTL with respect to the transaction in question is determined by
directors who are not employed by, or otherwise affiliated with Loral SpaceCom
and (v) in the case of TeleSat, the term "Affiliate" shall include only
ChinaSat, CTHKG and any Persons controlled by ChinaSat or CTHKG. Upon a GTL
Change of Control or Reduction in Interest as described in Section 6.3, the
exception with respect to GTL set forth in the preceding sentence shall not
apply in determining whether GTL is an Affiliate of Loral SpaceCom or LQSS. As
used in this definition of "Affiliate," the term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities, by contract or otherwise. The terms "controlled" and "common
control" shall have correlative meanings.
"Affiliate Successor" has the meaning specified in Section 10.2
hereto.
"Agreement" means this Amended and Restated Agreement of Limited
Partnership, as it may be amended or supplemented from time to time.
"Annual Budget" has the meaning specified in Section 4.11 hereto.
"Authorized Partnership Interests" means the sum of (i) 55,448,837
Partnership Interests, (ii) 4,769,231 Partnership Interests, (iii) the number of
Ordinary Partnership Interests issuable upon exercise of the warrants issuable
to certain Partners or Affiliates thereof and to GTL in connection with the
guarantee of the Partnership's obligations under the Globalstar Credit
Agreement, (iv) the number of Preferred Partnership Interests issuable to GTL in
connection with GTL's offering of 8% convertible redeemable preferred stock of
GTL due 2011, including as a result of the exercise by the purchasers thereof of
the option to purchase additional shares thereof under the purchase
-6-
<PAGE> 12
agreement relating thereto and (v) the number of Ordinary Partnership Interests
issuable upon conversion of the PPIs or in satisfaction of any distribution,
make-whole or redemption payment thereon; provided that any greater number of
Authorized Partnership Interests may be authorized from time to time with the
Consent of the Partners.
"Average Market Value" means the arithmetic average of the Current
Market Value of the GTL Common Stock for the ten trading days ending on the
fifth business day prior to (i) in the case of a payment of a Scheduled
Distribution, the record date for the corresponding dividend payment on the
Preferred Stock and (ii) in the case of any other payment, the date of such
payment.
"Baseline Business Plan" means (i) as to the first generation
satellite constellation, the Original Business Plan, insofar as it pertains to
that generation, (ii) as to the second generation satellite constellation, the
Original Business Plan, but only if the actual total revenues and net income of
the Partnership for the 12-month period prior to the month in which a proposed
Baseline Business Plan would otherwise be required to be submitted to the
Partners pursuant to Section 4.11(b) equal or exceed the projected amounts
thereof for such period set forth in the Original Business Plan or, if such
12-month period is not set forth separately therein, the projected amount for
such 12-month period implicit in the annual projected amounts set forth therein,
(iii) as to the second generation satellite constellation if clause (ii) does
not apply, and for all subsequent generations of satellite constellations, a new
Baseline Business Plan adopted in accordance with Section 4.11(b) for such
generation and all previous generations still in operation, or (iv) as to any
generation satellite constellation, a business plan adopted in accordance with
Section 4.11(b) expressly intended as a superseding replacement for any of the
foregoing.
"Book Value" has the meaning determined under Section 8.5.
"Business Day" means Monday through Friday of each week, except that
a legal holiday recognized as such by the government of the United States shall
not be regarded as a Business Day.
"Business Plan" means a business plan prepared in accordance with
Section 4.11, with only such amendments and modifications thereto adopted from
time to time by the Committee as are not inconsistent with the provisions of
Sections 4.11, 5.5(c) and 6.2.
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"CSO" means Council of Service Operators as defined in the
Service Provider Agreements.
"CTHKG" means China Telecom (Hong Kong) Group Limited.
"Capital Account" means each capital account maintained pursuant to
Section 4.5 hereof.
"Capital Commitment" means the aggregate Capital Contribution which
a Partner has made and is committed to make pursuant to a Subscription Agreement
for the acquisition of Partnership Interests from the Partnership.
"Capital Contribution" means any cash or property which a Partner
contributes to the Partnership pursuant to Sections 4.1, 4.2, 4.4 or 4.10.
"Capital Transaction" means a sale or disposition of all, or a
substantial part, of the Partnership's property in one transaction or in a
series of transactions pursuant to the same plan. The term includes a borrowing
effected by the Partnership to obtain proceeds for distribution to Partners and
a transfer of Partnership assets to a corporation pursuant to Section 6.13, but
does not include the rights granted to a Service Provider under a Service
Provider Agreement or other dispositions in the ordinary course of a continuing
business.
"Capital Transaction Gain" means the gross income and gain realized
by the Partnership for federal income tax purposes on a Capital Transaction,
plus (a) income and gain of the Partnership exempt from tax, described in Code
Section 705(a)(1)(B) and realized by the Partnership on a Capital Transaction,
(b) on a distribution of a substantial part of the Partnership's property (other
than cash and cash equivalents) to Partners, the excess, if any, of the fair
market value of the distributed property over its Book Value and (c) the amount
of any increase in the Book Value of Partnership property pursuant to Section
8.5(c). The term does not include COD Income or Operating Income. In Computing
Capital Transaction Gain, items of income and gain relating to Partnership
assets shall be computed based upon the Book Values of the Partnership's assets
rather than upon the assets' adjusted basis for federal income tax purposes.
"Capital Transaction Loss" means the deductions and loss realized by
the Partnership for federal income tax purposes on a Capital Transaction, plus
(a) deduction and loss of the Partnership described in Code Section 705(a)(2)(B)
and realized by the Partnership on a Capital Transaction, (b) on a distribution
of
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<PAGE> 14
a substantial part of the Partnership's property (other than cash and cash
equivalents) to Partners, the excess, if any, of the Book Value of the
distributed property over its fair market value and (c) the amount of any
decrease in the Book Value of Partnership property pursuant to Section 8.5(c).
The term does not include Operating Loss. In Computing Capital Transaction Loss,
items of deduction and loss relating to Partnership assets shall be computed
based upon the Book Values of the Partnership's assets rather than upon the
assets' adjusted basis for federal income tax purposes.
"Certificate of Limited Partnership" means the Certificate of
Limited Partnership of Globalstar, L.P. filed with the Secretary of State of the
State of Delaware on November 19, 1993, as amended on December 31, 1994 pursuant
to the Delaware Act, as it may be further amended from time to time.
"ChinaSat" means China Telecommunications Broadcast Satellite
Corporation, an independent legal entity organized under the laws of the
People's Republic of China.
"ChinaSat Option" means the option granted to CTHKG by the
Partnership in consideration for ChinaSat entering into the ChinaSat Service
Provider Agreement to purchase, subject to the satisfaction of certain
conditions, an additional 937,500 Ordinary Partnership Interests at an aggregate
purchase price of $18.75 million.
"ChinaSat Service Provider Agreement" means the Founding Service
Provider Agreement, dated as of September 17, 1996, by and between ChinaSat and
the Partnership.
"COD Income" means income realized by the Partnership on the
cancellation of recourse indebtedness under federal income tax principles
whether or not the income is excluded from taxable income under Section 108 of
the Code or under common law principles of federal income taxation. For this
purpose, indebtedness is recourse if it is treated as recourse for purposes of
the Treasury Regulations under Code Section 704(b).
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" has the meaning specified in the recitals.
"Communications Act" means the Communications Act of 1934, as
amended.
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<PAGE> 15
"Confidential Information" has the meaning specified in Section
15.12.
"Consent of Disinterested Partners" means the votes at a
Representatives Meeting held in accordance with Section 6.2(g) representing a
majority of the Partnership Interests present and qualified to vote at a meeting
or represented by a qualifying proxy or written consent. Partnership Interests
held on behalf of any Delinquent Partner or any Partner or Partners having a
direct or indirect financial interest in the transaction in question shall not
be qualified to vote. For these purposes, it is to be specifically noted that
without limiting the foregoing, that (i) the Partnership Interests held by LQSS
will be deemed to be owned and voted by the Upper Tier Partner having the right
to direct the vote thereof pursuant to the LQSS Partnership Agreement, (ii) in
respect of contracts to supply goods or services to the Partnership (including
employment agreements) or other such related matters, Loral SpaceCom and its
Affiliates, SS/L and the strategic equity investors in SS/L (as hereinafter
described in Section 6.2(a)) and their respective Affiliates shall be deemed to
have a direct or indirect financial interest in any transaction to which any of
them is a party, and (iii) Loral SpaceCom and its Affiliates, SS/L and Qualcomm
Incorporated ("Qualcomm") and their respective Affiliates shall be deemed to
have a direct or indirect financial interest in any transaction or event to
which any of Loral SpaceCom, SS/L or Qualcomm is a party.
"Consent of the Partners" means, as to any action or proposed action
by the Partnership, approval of such action by a majority of votes cast at a
Representatives Meeting held in accordance with Section 6.2(g), unless 9,000,000
(adjusted to reflect any recapitalizations of the Partnership in the nature of a
subdivision or combination of Partnership Interests into a greater or lesser
number thereof but not adjusted to reflect dilution caused simply by the
issuance of additional Partnership Interests) or more qualifying votes are cast
against such action, in which event the Consent of the Partners will be deemed
denied, provided that neither any single Limited Partner, any limited partner in
any Upper Tier Partnership nor GTL shall be entitled to cast more than 6,000,000
qualifying votes against any such action, regardless of the number of
Partnership Interests it holds, and provided further that no more than 3,000,000
qualifying votes shall be cast by GTL in respect of partnership interests
acquired using the proceeds of the GTL Offerings or pursuant to the exercise of
Exchange Rights. Solely for purposes of determining the number of qualifying
votes a Partner who has exercised its Exchange Right in whole or in part, may
cast against an action as set forth above, a Partner
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<PAGE> 16
shall be deemed to continue to own the number of Partnership Interests equal to
the amount of GTL Common Stock acquired by such Partner pursuant to its Exchange
Right and which have not theretofore been disposed of.
"Consumer Price Index" has the meaning of "Index" specified in
Article 5.4 of the Service Provider Agreements.
"Conversion Ratio" has the meaning ascribed to such term in Section
3.1 of Schedule C to this Agreement.
"Current Market Value" means the average of the high and low sales
prices of the GTL Common Stock as reported on the Nasdaq National Market or any
national securities exchange upon which the GTL Common Stock is then listed for
the Trading Day in question.
"Debt Securities" means notes, bonds, debentures, loans, capitalized
lease obligations and any other debt obligation issued by the Partnership.
"Delaware Act" means the Delaware Revised Uniform Limited
Partnership Act, as it may be amended from time to time, and any successor to
such Act.
"Delinquent Partner" means a Partner who has failed to pay any
installment of its Remaining Contribution when due, and such delinquency has not
been cured.
"Descriptive Memorandum" has the meaning specified in Section 3.1.
"Distributable Capital Proceeds" means the amount received by the
Partnership on a Capital Transaction (including amounts realized on an
installment obligation received in a Capital Transaction) minus the costs of
that transaction and the amount of any proceeds applied by the Partnership, in
its reasonable discretion, towards Partnership expenditures or reserves for
Partnership purposes other than distributions to Partners.
"Distributable Cash Flow" means the amount by which the sum of (i)
the Partnership's receipts (from all sources including borrowings and Capital
Contributions, but excluding Distributable Capital Proceeds) and (ii) the
amounts released from reserves by the Partnership exceeds the sum of (iii) the
Partnership's cash expenditures (including debt service on Partnership
borrowings) and (iv) any increase in reserves that the Partnership, in
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<PAGE> 17
accordance with Section 5.5, determined to be necessary or appropriate for
accrued or anticipated Partnership liabilities or expenditures.
"Distribution Arrearages" means the amount of Scheduled
Distributions that the Partnership has elected to defer that remain unpaid.
"Distribution Make-Whole Payment" means the payment due to GTL with
respect to the PPIs called for redemption pursuant to a Provisional Redemption,
which payment shall be equal to the sum of (i) the present value of the
aggregate amount of Scheduled Distributions thereafter payable on such PPIs
during the Distribution Make-Whole Period, which shall be calculated using the
bond equivalent yield on U.S. Treasury notes or bills having a remaining term
nearest in length to that of the Distribution Make-Whole Period as of the Notice
Date plus (ii) the amount of any accrued and unpaid Scheduled Distributions
(including an amount equal to a prorated Scheduled Distribution for any period
following the immediately preceding Scheduled Distribution Payment Date) and
Preferred Stock Liquidated Damages, if any, to the Provisional Redemption Date.
"Distribution Make-Whole Period" means the period of time from the
Provisional Redemption Date through February 15, 2002.
"Effective Date" means December 31, 1994.
"Equity Rights" has the meaning specified in Section 6.13(a).
"Exchange and Registration Rights Agreement" means the Exchange and
Registration Rights Agreement among Globalstar, GTL, LQSS and the Limited
Partner signatories thereto.
"Exchange Right" means the right of LQSS and the Limited Partners
signatories thereto to exchange Partnership Interests for shares of GTL Common
Stock pursuant to the Exchange and Registration Rights Agreement.
"FCC" means the U.S. Federal Communications Commission.
"FCC Applications" means the applications relating to the Globalstar
System dated June 3, 1991, bearing the file numbers 19 DSS P91C48 and CSS 91
014.
"Fiscal Year" has the meaning specified in Section 8.2.
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<PAGE> 18
"Foreign Taxing Jurisdiction" means a jurisdiction outside the
United States that imposes a tax upon the Partnership or a subsidiary of the
Partnership.
"GAAP" has the meaning specified in Section 5.5(c).
"GTL" has the meaning specified in the recitals.
"GTL Change of Control" has the meaning specified in Section 6.3.
"GTL Common Stock" means the common stock, par value $1.00 per
share, of GTL.
"GTL Conversion Price" shall mean the conversion price of the
Preferred Stock, adjusted upon the occurrence of certain dilutive events as set
forth in the Preferred Stock Schedule.
"GTL Dividend Payment Notice" means a public announcement by GTL as
to whether or not a dividend will be paid and, if a dividend is to be paid,
whether GTL is paying the dividend in (A) cash, (B) GTL Common Stock or (C)
through any combination of the foregoing. Such Notice shall be delivered on the
tenth Business Day prior to the record date relating to such dividend.
"GTL Effective Date" means the date on which GTL Offerings were
consummated and GTL purchased Partnership Interests in connection therewith.
"GTL Independent Directors" means the directors of GTL who are not
employed by, or otherwise affiliated with Loral SpaceCom, a Strategic Partner,
or any of their respective Affiliates, and who are GTL's representatives on the
Committee.
"GTL Offerings" has the meaning specified in the recitals.
"GTL Registration Default" means the occurrence of any of the
following: (i) GTL fails to file the Shelf Registration Statement on or prior to
the 90th day after the consummation of the Preferred Stock Offering, (ii) the
Shelf Registration Statement is not declared effective by the Securities and
Exchange Commission on or prior to the 210th day after the consummation of the
Preferred Stock Offering or (iii) the Shelf Registration Statement is declared
effective but thereafter ceases to be effective or usable during the period in
which GTL is required to maintain the effectiveness of the Shelf
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<PAGE> 19
Registration Statement, for any period of ten consecutive days or for any 20
days in any 180-day period in connection with resales of Transfer Restricted
Securities (provided, that GTL will have the option of suspending the
effectiveness of the Shelf Registration Statement, without becoming obligated to
pay Preferred Stock Liquidated Damages for periods of up to a total of 60 days
in any calendar year if the Board of Directors of GTL determines that compliance
with the disclosure obligations necessary to maintain the effectiveness of the
Shelf Registration Statement at such time could reasonably be expected to have
an adverse effect on GTL or a pending corporate transaction).
"GTL Response Redemption Notice" means written notice delivered to
the holders of the Preferred Stock notifying them of, among other things, the
redemption and whether GTL is paying the redemption price of and Scheduled
Distributions (including any applicable Distribution Make-Whole Payment) on such
Preferred Stock (i) in cash, (ii) in GTL Common Stock or (iii) through any
combination of the foregoing. Such Notice shall be delivered not fewer than 30
days nor more than 60 days before the applicable redemption date.
"General Partner" means LQSS or GTL or both, as the context may
require, or any successor general partners admitted as such.
"Global Service Date" has the meaning specified in the Service
Provider Agreements.
"Globalstar Credit Agreement" means that certain Credit Agreement
dated as of December 15, 1995, among the Partnership, Chemical Bank and the
banks signatories thereto.
"Globalstar Distribution Payment Notice" means written notice
delivered to GTL by the Partnership notifying GTL of (i) whether the Partnership
has elected to defer the applicable Scheduled Distribution pursuant to the
provisions of this Agreement and (ii) if it has not elected to defer such
Scheduled Distribution, whether it will pay such Scheduled Distribution (A) in
cash, (B) by delivery of Ordinary Partnership Interests or (C) through any
combination of the foregoing. Such Notice shall be delivered at least 15
Business Days prior to the record date corresponding to the applicable Scheduled
Distribution Payment Date.
"Globalstar Redemption Notice" means written notice delivered to GTL
by the Partnership notifying GTL of (i) the Partnership's election to redeem any
Preferred Partnership
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<PAGE> 20
Interests pursuant to the provisions of this Agreement and (ii) whether it will
make such redemption (A) in cash, (B) by delivery of Ordinary Partnership
Interests or (C) through any combination of the foregoing. Such Notice shall be
delivered at least 20 Business Days prior to the applicable Redemption Date and
shall contain the information required by Section 2.3 of Schedule C to this
Agreement.
"Globalstar System" has the meaning specified in Section 3.1.
"Governing Documents" has the meaning specified in
Section 6.13(b).
"Indebtedness" means the principal amount of all secured or
unsecured indebtedness for borrowed money of the Partnership, the amount of all
guarantees of such indebtedness, the amount of the purchase price in any sale
and leaseback transaction accounted for as a capital lease under GAAP, and any
interest-bearing vendor financing treated as debt under GAAP.
"Initial Closing" means the closing at which GTL was first admitted
to the Partnership pursuant to Section 4.1(c) hereof.
"Initial Purchasers" means the initial purchasers of the CPEOs
set forth in the Purchase Agreement.
"In-Service Year" means a period of twelve consecutive calendar
months, beginning on the Global Service Date, or beginning on any anniversary of
such date.
"Joint Venture Company" has the meaning specified in the Service
Provider Agreements.
"Limited Partners" means all of the limited partners listed on the
signature page hereto and any Additional Limited Partners admitted as such
pursuant to Section 4.4 hereof, or any successor limited partners admitted as
such pursuant to the terms of this Agreement.
"Liquidation Preference" means the $50 liquidation preference of
each share of Preferred Stock.
"Liquidator" has the meaning specified in Section 13.3.
"Loral SpaceCom" means, if prior to April 22, 1996, Loral
Corporation, a New York corporation, and if thereafter, Loral Space &
Communications Ltd, a Bermuda company.
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<PAGE> 21
"Losses" has the meaning specified in Section 6.10.
"LQP" means Loral/QUALCOMM Partnership, L.P., the general partner
of LQSS.
"LQSS" means Loral/QUALCOMM Satellite Services, L.P. or an
Affiliate thereof.
"LQSS Partnership Agreement" means the Amended and Restated
Agreement of Limited Partnership of LQSS, dated March 23, 1994, as modified,
supplemented or amended in accordance with the terms thereof.
"Majority in Interest of the Partners" means, as to any action or
proposed action by the Partnership, approval of such action by a majority of
votes cast at a Representatives Meeting held in accordance with Section 6.2(g).
"Managing General Partner" means LQSS or any successor to LQSS
continuing the business of the Partnership as a managing general partner.
"Mandatory Redemption Date" means February 15, 2011; provided,
however, that, if such date shall not be a Business Day, then the Mandatory
Redemption Date shall be the next Business Day.
"Minimum Gain" has the meaning specified in Treasury Regulation
Section 1.704-2(b)(2) for "partnership minimum gain".
"Mutual Non-Disclosure Agreement" has the meaning specified in
Section 15.6.
"Nonperformance" means the substantial and continuing failure by a
General Partner to perform its material obligations under the Agreement and/or
such continued negligence or misconduct by the General Partner resulting in a
material adverse effect upon the assets or business of the Partnership that is
not otherwise cured by the General Partner and/or knowing breach of specific
provisions of this Agreement and/or fraud or willful misconduct on the part of
the General Partner.
"Notice Date" means the date of mailing of a notice of provisional
redemption of Preferred Stock by GTL to the holders of Preferred Stock.
"Offerees" has the meaning specified in Section 10.3.
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<PAGE> 22
"Offering Memorandum" means the final offering memorandum, dated
January 21, 1999, relating to the Preferred Stock.
"Operating Expenses" means operating expenses of the Partnership,
excluding only Project related items as detailed in the Sources and Uses of
Funds Statement of the Original Business Plan and the compensation referred to
in Section 6.6.
"Operating Income" means the gross income and gains of the
Partnership for federal income tax purposes plus, (a) income of the Partnership
exempt from taxation and described in Code Section 705(a)(1)(B) and (b) the
excess, if any, of the fair market value of distributed property (other than
distributed property taken into account in computing Capital Transaction Gain or
Capital Transaction Loss) over its Book Value. The term does not include COD
Income or Capital Transaction Gain. In computing Operating Income, items of
income and gain relating to Partnership assets shall be computed based upon the
Book Values of the Partnership's assets rather than upon the assets' adjusted
basis for federal income tax purposes.
"Operating Loss" means the deductions and losses of the Partnership
for federal income tax purposes, plus (a) items of expenditure described in Code
Section 705(a)(2)(B), (b) the amount referred to in Section 4.1(b)(iii) and (c)
the excess, if any, of the Book Value of distributed property (other than
distributed property taken into account in computing Capital Transaction Gain or
Capital Transaction Loss) over its fair market value. The term does not include
Capital Transaction Loss. In computing Operating Loss, items of deduction and
loss relating to the Partnership's assets shall be computed based upon the Book
Values of the Partnership's assets rather than upon the assets' adjusted basis
for federal income tax purposes.
"Optional Redemption" has the meaning specified in Section 2.7 of
Schedule C to this Agreement.
"Optional Redemption Date" means the Redemption Date for an Optional
Redemption as specified in Section 2.7 of Schedule C to this Agreement.
"Ordinary Partnership Interests" or "OPIs" means partnership
interests, general or limited, as the case may be, in the Partnership, which
interests are not entitled to the preferential allocation of profits and losses
set forth in Section 5.1(a).
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<PAGE> 23
"Original Business Plan" means the business plan of the Partnership
for the construction, launch and operation of the first and second generations
of satellite constellations (including forecasts of operating expenses, capital
expenditures, revenues, cash balances (including cash balances set aside in
reserve for capital expenditures) and financial structure (i.e. debt and equity
capital requirements)), dated March 15, 1994, as restated to the same or a
greater level of detail (with a full reconciliation, but not otherwise modified
or amended) consistent with GAAP, and including a capital expenditure budget
consistent therewith prepared on a cash basis.
"Outstanding" when used with respect to PPIs means, as of the date
of determination, all PPIs issued pursuant to this Agreement except PPIs
theretofore canceled by the Partnership or delivered to the Partnership for
cancellation, pursuant to redemption or conversion.
"Partner" means the General Partners or the Limited Partners, or
both, as the context may require.
"Partner Minimum Gain" means "partner nonrecourse debt minimum gain"
as defined in Treasury Regulation Section 1.704-2(i)(2).
"Partnership" means the limited partnership established by this
Agreement.
"Partnership Agreement" or this "Agreement" means this Amended and
Restated Agreement of Limited Partnership of Globalstar, L.P., as the same may
be modified, supplemented, or amended in accordance with the terms hereof.
"Partnership Interest" means an interest (whether ordinary or
preferred as the context may require) in the Partnership of a General Partner, a
Limited Partner, or both, as the context may require, provided, however, that
with respect to matters relating to the voting of Partnership Interests, except
as provided in Section 13.2, the term shall refer only to Ordinary Partnership
Interests. The Partners' respective equity interests in the Partnership are
represented by the Partnership Interests they hold, as set forth on Schedule A
of this Agreement.
"Percentage Interest" means the ratio, expressed as a percentage,
that the number of Ordinary Partnership Interests held by a Partner bears to the
total number of Ordinary Partnership Interests outstanding.
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"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.
"Preemptive Securities" has the meaning specified in Section 4.9.
"Preferred Partnership Interests" or "PPIs" means general
partnership interests in the Partnership, the capital contributions for which
are set forth in Section 4.1(d) and for which separate Capital Accounts will be
maintained and that have the right to convert into Ordinary Partnership
Interests as set forth in Article III of Schedule C hereto, the right to
distributions set forth in Section 5.5(a) and the right to allocations set forth
in Section 5.1(a) and that are subject to redemption under Article II of
Schedule C hereto.
"Preferred Stock" means the 8% Convertible Redeemable Preferred
Stock of GTL due 2011.
"Preferred Stock Effective Date" means the date on which the
Preferred Stock is issued and GTL contributes to the Partnership the net
proceeds from the sale of such Preferred Stock.
"Preferred Stock Liquidated Damages" means an amount accruing at a
rate of 0.50% per annum of the Liquidation Preference of each share of the
Preferred Stock constituting Transfer Restricted Securities, which shall accrue
from the date of the GTL Registration Default to and including the 30th day
following such GTL Registration Default and increase by 0.50% per annum for each
subsequent 30 day period; provided, however, that such Preferred Stock
Liquidated Damages may not accrue at any time at a rate greater than 2.00% per
annum of the Liquidation Preference of the Preferred Stock constituting Transfer
Restricted Securities.
"Preferred Stock Representative" has the meaning set forth in
Section 4.3 of Schedule C to this Agreement.
"Preferred Stock Schedule" means the schedule to the Bye-Laws of GTL
setting forth the terms of the Preferred Stock.
"Preliminary Service Date" has the meaning specified in the
Service Provider Agreement.
"Project" means each of the following: for each generation of
satellites, each line item detailed in the Sources
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<PAGE> 25
and Uses of Funds Statement of the Original Business Plan under the Use of Funds
Heading, except those under S/T Operations).
"Provisional Redemption" has the meaning specified in Section 2.6 of
Schedule C to this Agreement.
"Provisional Redemption Date" means the Redemption Date for a
Provisional Redemption as specified in Section 2.6 of Schedule C to this
Agreement.
"Purchase Agreement" means that certain Purchase Agreement, dated
February 29, 1996, among GTL, the Partnership and Lehman Brothers Inc., Bear,
Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation and
Unterberg Harris as the Initial Purchasers.
"Qualcomm" means QUALCOMM Incorporated.
"Redemption Date", when used with respect to any PPI to be redeemed,
means the date fixed for such redemption by or pursuant to this Agreement and
includes the Provisional Redemption Date, the Optional Redemption Date and
Mandatory Redemption Date, as the case may be.
"Redemption Price", when used with respect to any PPI to be
redeemed, means the price at which it is to be redeemed pursuant to this
Agreement.
"Regular Record Date" for the distribution payable on any Scheduled
Distribution Payment Date means February 1, May 1, August 1 and November 1
(whether or not a Business Day), as the case may be, next
preceding such Scheduled Distribution Payment Date.
"Remaining Contribution" has the meaning specified in Section
4.5(c) hereof.
"Representatives Meeting" has the meaning specified in Section
6.2(g).
"SS/L" means Space Systems/Loral, Inc., a Delaware corporation.
"Sale Notice" has the meaning specified in Section 4.9.
"Scheduled Distribution" means the distribution payable on a
Scheduled Distribution Date by the Partnership in respect of the PPIs, which
payment, subject to Section 5.5(d), may be deferred by the Committee in its sole
discretion.
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"Scheduled Distribution Payment Date" means February 15, May 15,
August 15, and November 15, commencing May 15, 1999; provided, however, that if
such date shall not be a Business Day, then the applicable payment date shall be
the next Business Day.
"Section 704(c) Asset" has the meaning specified in Section 5.3.
"Securities Act" means the Securities Act of 1933, as from time to
time amended, and any successor to such statute.
"Service Provider" has the meaning specified in the Service
Provider Agreement.
"Service Provider Agreement" means each of the agreements between
the Partnership and a Partner or its Affiliate or Joint Venture Company,
pursuant to which such Person provides to its subscribers the services of the
Globalstar System.
"Shelf Registration Statement" means a shelf registration statement
filed by GTL with the Securities and Exchange Commission to cover resales of
Transfer Restricted Securities by holders thereof (other than Loral) who satisfy
certain conditions relating to the provision of information in connection with
the Shelf Registration Statement.
"Significant Variance" means, as applicable:
(i) a cumulative adverse variance (net of any favorable variances)
in capital expenditures for any Project:
(x) in the case of any Business Plan, as measured over
such Project's planned remaining life from the beginning of
such Business Plan plus the actual capital expenditures from
the beginning of such Project until the beginning of the
period to which such Business Plan relates;
(y) in the case of any Annual Budget, as measured by the
actual capital expenditure from the beginning of such Project
until the beginning of the year to which such Annual Budget
relates plus the amount of such expenditure as projected in
such Annual Budget;
compared in each case with the then current Baseline Business Plan, which
exceeds 10% of the total cumulative capital
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<PAGE> 27
expenditure for such Project over such Project's planned life as shown in
such Baseline Business Plan; or
(ii) an adverse variance in total Operating Expenses in any fiscal
year that exceeds 10% of the amount set forth in the then current Baseline
Business Plan for such year.
provided that the amount of each Significant Variance will be subject to
adjustment to account for increases in the Consumer Price Index which are in
excess of the inflation assumptions, if any, used in the preparation of the
applicable Baseline Business Plan, it being understood and agreed that the
Original Business Plan used a 4% per annum inflation assumption, compounded
annually and such increases for inflation will apply to expenses or expenditures
for Projects set forth in the then current Baseline Business Plan which are
fixed by contractual terms from and after the date of the applicable contracts
only to the extent provided for in such contracts.
"Similar Satellite Service" has the meaning specified in the
Service Provider Agreement.
"Stated Value" means the $50 face amount of each PPI.
"Strategic Partners" means the limited partners in any of
Globalstar, LQSS or LQP.
"Subscription Agreement" means the agreement entered into by each
General Partner and each Limited Partner (or the assignor that assigned its
Partnership Interests to such Limited Partner) prior to becoming a Partner.
"System Specification" means the specifications for the Globalstar
System dated February 1, 1994, No. LQSS/SS/94-0001, heretofore delivered to the
Partners.
"TeleSat" means TeleSat Limited, a company organized under the
International Business Companies Ordinance of the British Virgin Islands.
"Trading Day" means (a) if the GTL Common Stock is listed or
admitted for trading on the New York Stock Exchange or another national
securities exchange, a day on which such GTL Common Stock actually trades on the
New York Stock Exchange or another national securities exchange, (b) if the GTL
Common Stock is quoted on the Nasdaq National Market, a day on which the GTL
Common Stock actually trades or (c) if the GTL Common Stock is
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not so listed, admitted for trading or quoted, any Business Day on which the GTL
Common Stock actually trades.
"Transfer Restricted Securities" means each share of Preferred Stock
and each share of Common Stock issuable upon conversion of the Preferred Stock
or in satisfaction of any dividend or other payment on the Preferred Stock and
any securities into which such shares of Preferred Stock or Common Stock shall
be converted or into which they shall be changed by operation of law or
otherwise until (a) the date on which such security has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (b) the date on which such security is distributed to
the public pursuant to Rule 144 under the Securities Act or may be distributed
to the public pursuant to Rule 144(k) under the Securities Act.
"Transferor" has the meaning specified in Section 10.3.
"Trigger Percentages" means the percentages set forth in Section 2.6
of Schedule C to this Agreement that triggers the Partnership's option to redeem
the PPIs pursuant to a Provisional Redemption.
"Upper Tier Partner" means any Partner in either LQSS or LQP.
"Upper Tier Partnership" means LQP or LQSS.
"Usage Fees" has the meaning specified in the Service Provider
Agreements.
"Voting Rights Triggering Event" means the accumulation of accrued
and unpaid dividends on the outstanding Preferred Stock in an amount equal to
six quarterly dividends (whether or not consecutive).
ARTICLE III.
PURPOSE
SECTION 3.1. Purpose. The purpose and business of the Partnership
shall be:
(a) to develop, design, deploy, own and operate a worldwide
low-earth orbit satellite-based digital telecommunication system (the
"Globalstar System") which is more fully described in the Globalstar Descriptive
Memorandum, dated March 1993, as supplemented by the Supplement thereto, dated
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March 1994 (the "Descriptive Memorandum") and to engage in the business of
providing satellite communications and communications related services,
including but not limited to voice, data, paging and geolocation services, and
search and rescue, disaster relief and environmental and industrial monitoring
and control services through the Globalstar System to Service Providers;
(b) to acquire, hold, own, operate, lease, manage, maintain,
improve, repair, replace, reconstruct, sell or otherwise dispose of and use the
assets of the Partnership; and
(c) to enter into any lawful transaction and engage in any lawful
activity incidental to or in furtherance of the foregoing purposes.
ARTICLE IV.
CAPITAL CONTRIBUTIONS
SECTION 4.1. General Partners. (a) LQSS has made, or will make, at
the times and in the amounts set forth in its Subscription Agreement, cash
Capital Contributions to the Partnership in the amount set forth in Schedule A
hereto in return for 18,000,000 Ordinary Partnership Interests.
(b) The amount of cash LQSS is required to contribute pursuant to
Section 4.1(a) shall be reduced by the amount of expenditures designated by LQSS
and paid or incurred strictly on the Partnership's behalf after December 31,
1992 and prior to March 23, 1994, provided that any property or rights produced
by such expenditures shall be contributed to the Partnership. Credit will only
be given for expenditures for preexisting goodwill and intangibles of LQSS and
its Affiliates if such goodwill or intangibles are purchased from parties other
than LQSS, Upper Tier Partners or their Affiliates or created in connection with
the business to be conducted by the Partnership. The amount of this reduction
shall be allocated by the Partnership on its books and records to (i) the right
(which LQSS shall cause to be transferred to the Partnership) to cause LQP to
utilize the FCC Applications and, when granted, the FCC licenses, to operate the
Globalstar System, exclusively through, and for the exclusive benefit of, the
Partnership, (ii) any other property or rights contributed to the Partnership
under this Section 4.1(b) and (iii) other expenditures described in this Section
4.1(b) that did not produce property to be contributed to the Partnership under
this Section. Nothing in this provision shall alter the ownership of
intellectual property as provided in the Contract for Development of Globalstar
Ground
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Communication Segment Equipment between Globalstar and Qualcomm dated March 18,
1994.
(c) GTL has made cash Capital Contributions to the Partnership in
the amount of $186 million in return for 10,000,000 Ordinary Partnership
Interests.
(d) On the Preferred Stock Effective Date, GTL will contribute the
net proceeds of the Preferred Stock Offering to the Partnership as described in
the Offering Memorandum in return for PPIs with an aggregate Stated Value equal
to the aggregate Liquidation Preference of the Preferred Stock issued by GTL in
the Preferred Stock Offering. The Stated Value of each PPI shall be $50. The
aggregate contribution and Stated Value of the PPIs shall be set forth in
Schedule A. If, on or after the Preferred Stock Effective Date, the option
granted to the purchasers thereof to purchase additional shares of Preferred
Stock is exercised (as described in the Offering Memorandum), in full or in
part, then GTL shall contribute the additional net proceeds from the exercise of
such option to the Partnership in return for additional PPIs which shall be
reflected in a similar manner in Schedule A.
SECTION 4.2. Limited Partners. Each Limited Partner has made, or
will make at the times and in the amounts set forth in its Subscription
Agreement, cash Capital Contributions to the Partnership in the amount set forth
on Schedule A hereto in return for the number of Ordinary Partnership Interests
set forth on such Schedule A. The total number of such Partnership Interests is
19,937,500.
SECTION 4.3. Additional Contribution. No Partner is required to make
any additional Capital Contribution to the Partnership beyond its capital
commitment set forth in Sections 4.1 and 4.2 above.
SECTION 4.4. Additional Limited Partners. Subject to Sections 4.9
and 4.10, the Partnership is hereby authorized to offer Additional Partnership
Interests, and to admit as Limited Partners those Persons who subscribe to
purchase Additional Partnership Interests and who are acceptable to the
Committee. At each Additional Closing, the Capital Contributions of those
Persons then being admitted as Additional Limited Partners shall be transferred
to the Partnership, which amounts shall be credited to their respective Capital
Accounts pursuant to Section 4.5 hereof. Upon acceptance by the Committee of the
subscription agreement of a Person subscribing to Additional Partnership
Interests, the schedule of Partners as set forth on Schedule A
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hereto shall be amended to reflect such Person's name and Capital Contribution
and such Person will be admitted as an Additional Limited Partner.
SECTION 4.5. Capital Accounts. (a) The amount of cash contributed to
the Partnership by the Partner, and, in addition in the case of LQSS, the Book
Value of any property contributed and the amount referred to in Section
4.1(b)(iii) and, in the case of TeleSat, (i) the amount of the bonus in the
Capital Account balance that it received for ChinaSat entering into the ChinaSat
Service Provider Agreement and (ii) the excess, if any, of the amount credited
to the capital accounts for Ordinary Partnership Interests acquired by TeleSat
upon its exercise of the ChinaSat Option over the exercise price. The amounts
described in this clause (i) and (ii) for purposes of Schedule A and this
Agreement shall be considered part of TeleSat's Capital Contribution.
(b) A transferee of a Partnership Interest (i) will succeed to the
portion of the Capital Account of the Partners transferring such Partnership
Interest which relates to the Partnership Interest transferred and (ii) will
receive distributions whose Regular Record Date is after the effective date of
such transfer.
(c) If the Partnership distributes OPIs with respect to PPIs under
Section 5.5(a)(iii), a portion of the Adjusted Capital Account for such PPIs
will be transferred to such OPIs. The transferred amount shall be equal to the
lesser of: (i) the amount of the cash distribution obligation on the PPIs
discharged by the distribution of such OPIs, (ii) the excess, if any, of the
prior allocations of Adjusted Income to such PPIs under Sections 5.1(a)(i) and
(iii) over the sum of the prior allocations of Loss to such PPIs under Section
5.1(c)(iii), prior and current distributions on such PPIs under Section
5.5(a)(ii) not paid in OPIs and the initial Adjusted Capital Accounts of OPIs
previously issued in payment of distributions under Section 5.5(a)(ii) or (iii)
an amount per distributed OPI equal to the Adjusted Capital Account for
outstanding OPI with the highest Adjusted Capital Account. Any excess of (ii)
over the lesser of (i) or (iii), shall be transferred among the Partnership
Interests as provided in Subsection (e).
(d) If the Partnership distributes OPIs in connection with a
redemption or conversion of PPIs under Article II or III of Schedule C hereto,
the Adjusted Capital Account of the redeemed or converted PPIs (after reduction
for any cash or the fair market value of other property paid by the Partnership
as
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part of the redemption or conversion) shall be transferred to such distributed
OPIs; provided, however, that the amount transferred shall not exceed an amount
per distributed OPI equal to the Adjusted Capital Account for the outstanding
OPI with the highest Adjusted Capital Account. Any portion of the Adjusted
Capital Account of the redeemed or converted PPI that cannot be transferred to
the distributed OPIs, shall be transferred among the Partnership Interests as
provided in Subsection (e).
(e) The excess amounts described in Subsections (c) and (d) shall be
transferred first to the PPIs as if it were Adjusted Income to the extent
provided for in the allocation of Adjusted Income under Section 5.1(a), then
under Section 5.1(b) and then to all OPIs (including the OPIs being distributed)
in accordance with their Percentage Interests.
SECTION 4.6. Interest. No interest shall be paid by the Partnership
on Capital Contributions, on balances in Partners' Capital Accounts or on any
other funds distributed or distributable under this Agreement.
SECTION 4.7. No Withdrawal. No Partner shall have the right to the
withdrawal or reduction of any part of its Capital Contribution. It is the
intent of the Partners that no distribution to the Limited Partners of cash
pursuant to Section 5.5 shall be deemed a return or withdrawal of capital, even
if such return or distribution represents, for federal income tax purposes or
otherwise (in whole or in part), a distribution of depreciation or any other
non-cash item accounted for as a loss or deduction from or offset to the
Partnership's income, and that the Limited Partners shall not be obligated to
pay any such amount to, or for the account of, the Partnership or any creditor
of the Partnership; provided, however, that if any court of competent
jurisdiction holds that, notwithstanding the provisions of this Agreement, any
Limited Partner is obligated to make any such payment, such obligation shall be
the obligation of such Limited Partner and not of the General Partners.
SECTION 4.8. Loans. Loans by a Partner to the Partnership shall not
be considered Capital Contributions.
SECTION 4.9. Preemptive Rights. The Partnership hereby grants to the
Partners a preemptive right, in accordance with the procedures set forth in this
Section 4.9, with respect to the issuance and sale by the Partnership of
Additional Partnership Interests or Debt Securities (each referred to
hereinafter as "Preemptive Securities"); provided, however, the Partners shall
have no preemptive rights with respect to
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Preemptive Securities issued pursuant to Section 4.10(a)(i) in connection with
the execution of a Service Provider Agreement or pursuant to or in connection
with an underwritten public offering.
(a) At least 30 days prior to the sale of Preemptive Securities to
which this preemptive right applies, the Partnership shall deliver a written
notice (a "Sale Notice") to each Partner setting forth (i) the number of
Preemptive Securities to be sold, (ii) the price for which and other terms and
conditions upon which such Preemptive Securities are to be sold, and (iii) all
written information distributed to offerees of such Preemptive Securities,
together with the following irrevocable offer from the Partnership:
to issue and sell to each Partner, at the same price per Preemptive
Security and on the same other terms and conditions set forth in the Sale
Notice: (i) in the case of Additional Partnership Interests, the number of
Additional Partnership Interests which shall equal the sum of (A) the
product of the total number of Additional Partnership Interests set forth
in the Sale Notice multiplied by the Partner's Percentage Interest,
calculated at the time of the Sale Notice and (B) such Partner's pro rata
share (calculated as set forth above) of any such Additional Partnership
Interests offered to, but not purchased by, other Partners and (ii) in the
case of Debt Securities, the sum of (I) the total principal amount of Debt
Securities being issued multiplied by such Partner's Percentage Interest
and (II) such Partner's pro rata share (calculated as set forth above) of
any such Debt Securities offered to, but not purchased by, other Partners.
(b) The Partners shall have absolute discretion to accept or decline
such offers. If a Partner wishes to accept any of the offers made pursuant to
this Section 4.9, it shall give the Partnership irrevocable written notice of
its election to accept such offer within 15 days of its receipt of the
applicable Sale Notice (which notice may specify acceptance of all securities
offered in the Sale Notice, or acceptance of up to a number or principal amount
thereof as specified therein) and the closing thereunder shall occur five days
thereafter (or, if not a Business Day, on the next Business Day thereafter) at
the offices of the Partnership or at such other time and place as the parties
shall agree. Promptly after expiration of the acceptance period, the Partnership
will give accepting Partners notice of the actual
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number of Preemptive Securities to be purchased by them pursuant to the Sale
Notice.
(c) In connection with any proposed or contemplated sale of
Preemptive Securities, upon the request of the Partnership, each Partner shall
indicate to the Partnership its good faith intentions (which indications shall
not be binding) with respect to whether or not it will exercise the preemptive
rights described herein.
SECTION 4.10. Sale of Partnership Interests and Partnership
Securities. (a) Subject to the provisions of Section 4.9 and this Section 4.10,
the Partnership may, upon the determination of the Committee, issue or sell, on
such terms as the Committee deems appropriate and in the best interests of the
Partnership:
(i) Additional Partnership Interests to Additional Limited Partners
or Partners from time to time or to other Persons and to admit them to the
Partnership as Additional Limited Partners pursuant to Section 4.4 hereof,
without being required to obtain the approval of the Limited Partners or
any other persons who may acquire an interest in the Partnership
Interests, provided, that such Additional Partnership Interests may not be
issued at a price that is less than $12.50 per Partnership Interest
without the Consent of the Partners, provided further that no additional
Partner shall be admitted to the Partnership without the Consent of the
Partners, which consent shall not be unreasonably withheld. In addition,
if any Partner shall have specified to the Partnership on or prior to
March 31, 1994 the names of any third parties, no such third party, nor
any of its Affiliates, will be admitted as an Additional Limited Partner
without the prior, written consent of the specifying Partner.
(ii) Subject to Sections 4.9 and 4.10(b) hereof, any other type of
security of the Partnership from time to time to Partners or other persons
on terms and conditions established in the sole and complete discretion of
the Committee, all without the approval of the Partners or any other
person who may acquire any other type of security of the Partnership,
including, without limitation, unsecured and secured debt obligations of
the Partnership, debt obligations of the Partnership convertible into any
class or series of Partnership Interests that may be issued by the
Partnership, options, rights or warrants to purchase any such class or
series of Partnership Interests or any
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combination of any of the foregoing. The Partnership is also authorized to
enter into sale and leaseback transactions with respect to all or any part
of the assets of the Partnership. Subject to subsection (b) below, there
shall be no limit on the number of Partnership Interests or other
securities that may be so issued, and except as set forth in Section
4.10(a)(i) hereto, the Committee shall have the sole and complete
discretion in determining the consideration and terms and conditions with
respect to any future issuance of Partnership Interests or other
securities.
(b) The Partnership shall not at any time issue or reserve for
issuance Additional Partnership Interests or other equity interests if,
immediately after such issuance, the number of Partnership Interests outstanding
or reserved for issuance would exceed the Authorized Partnership Interests.
(c) The Partnership shall not incur any Indebtedness if, immediately
after the incurrence thereof, the Partnership's outstanding Indebtedness would
exceed 110% of the maximum amount of debt obligations contemplated over the life
of the then current Baseline Business Plan.
SECTION 4.11. Business Plans. (a) The Committee shall annually
prepare a Business Plan which contains the following elements: (i) a budget for
the forthcoming financial year on a quarterly basis (the "Annual Budget")
substantially in the same level of detail as the then current Baseline Business
Plan and (ii) for the design and operational lifetime of each generation of
satellites at the time under active development or design, or currently in
orbit:
(A) Schedules of estimated capital expenditures for each year,
segregated by Project and showing the estimated cost for each year until
completion of the Project;
(B) Schedules of sources and uses of funds for each such year;
(C) a projected income and expense statement for each such
year; and
(D) projected year-end balance sheet for each such year.
Unless it shall have first obtained the Consent of the Partners, the
Committee shall not adopt or otherwise approve any
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Business Plan or Annual Budget containing any Significant Variance from the
then-current Baseline Business Plan, provided that where Consent of the Partners
is obtained with respect to any Significant Variance, further Consent of the
Partners will be required for any subsequent unfavorable variance from the
amounts so approved. Where any Business Plan and/or any Annual Budget contains
more than one Significant Variance, then a separate Consent of the Partners
shall be sought for each such Significant Variance. The Business Plan and the
Annual Budget will not otherwise require the approval of the Partners. Except as
otherwise provided in this Agreement, the General Partners will not be liable to
the Partnership or any Limited Partner solely for any failure to achieve any
Business Plan or Annual Budget, or any element thereof which does not amount to
Nonperformance.
(b) At least 90 days prior to the beginning of the year in which
expenditures (excluding cumulative expenditures of $1,500,000 or less pertaining
to the preparation of the new Baseline Business Plan) relating to a new
generation of satellites are anticipated (except, insofar as the second
generation is concerned, in the case that the Original Business Plan is in
effect as the Baseline Business Plan therefor), the Committee will submit to the
Partners for their approval a proposed new Baseline Business Plan for the
Partnership covering the period through the expected useful life of such next
generation which, if approved with the consent of a Majority in Interest of the
Partners, will constitute a new Baseline Business Plan, provided that, for
purposes of such approval, the votes of the Managing General Partner will be
cast in favor of such approval if the proposed Baseline Business Plan in
question meets the return on investment criteria set forth in Section 6.2(f),
and, unless GTL is the Managing General Partner, the vote of GTL will be
determined by the GTL Independent Directors. In the event a proposed Baseline
Business Plan is submitted for such a vote and is not so approved, no Limited
Partner voting against such approval or any of its Affiliates or Joint Venture
Companies will have rights under Article 6.1 of the applicable Founding Service
Provider Agreement (as such term is defined in the Service Provider Agreements)
to purchase the assets of the Partnership.
SECTION 4.12. Limitation on a Limited Partner's Ownership. No
individual Limited Partner (other than a corporation formed solely for the
purpose of holding Partnership Interests, all of whose shares are offered to the
public in an underwritten public offering) may acquire more than 20% of the
Partnership Interests in the Partnership without the consent of the Committee
and the Consent of the Disinterested Partners.
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ARTICLE V.
ALLOCATIONS, DISTRIBUTIONS AND SERVICE
PROVIDER AGREEMENTS
SECTION 5.1. Allocations Generally. After the allocations in
Sections 5.2 and 5.4 at the end of each Accounting Period, Adjusted Income,
Operating Income, Operating Loss, Capital Transaction Gain and Capital
Transaction Loss will be allocated as follows:
(a) Allocation of Adjusted Income to PPIs. Adjusted Income will be
allocated to the Capital Account maintained for the outstanding PPIs:
(i) in the amount equal to the excess of prior allocations of
Operating Loss and Capital Transaction Loss to currently outstanding PPIs
under subsections (c)(iii) over prior allocations to them under this
subsection (a)(i);
(ii) then in the amount necessary to bring the Capital Account of
each outstanding PPI to $50;
(iii) then in an amount equal to a cumulative 8% per annum return on
the Stated Value of each outstanding PPI; this return shall be computed on
the basis of a 360-day year with twelve 30-day months;
(iv) then in an amount equal to the excess of (x) the cumulative
United States federal, state and local income taxes imposed on the
cumulative excess of the amounts of income allocated to PPIs under this
Agreement (including allocations under this Subsection (a)(iv) and
Subsection (a)(v) that are subject to tax by those jurisdictions over the
amounts of tax losses allocated to the PPIs pursuant to this Agreement
that, under the laws of the particular jurisdiction, could be carried back
or carried over to offset such taxable income by a Bermuda company holding
the PPIs that was not engaged in business in the United States otherwise
than by being a Partner in the Partnership over (y) prior allocations
under this Section 5.1(a)(iv); and
(v) then in an amount equal to the excess of the sum of (x) the
cumulative amounts of branch profits taxes that were imposed on the holder
of each outstanding PPI under Section 884 of the Code for prior and
current actual or deemed distributions with respect to such interest and
(y) the branch profits tax that will be imposed on the holder of such
interest under Code section 884 upon the future actual
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or deemed distribution of taxable amounts allocated to such interests
under this Agreement (including allocations under Subsection (a)(iv)
(excluding allocations for federal income taxes) and this Subsection
(a)(v)) over (z) prior allocations under this Section 5.1(a)(v).
(b) Allocation of Adjusted Income to OPIs. Adjusted Income will then
be allocated to OPIs that were issued under Section 5.5(a)(iii), Section 1.2(b)
of Schedule C or Article III of Schedule C, in proportion to, and to the extent
that, the Adjusted Capital Account for each such OPI is less than the Adjusted
Capital Account for the outstanding OPI with the highest Adjusted Capital
Account.
(c) Operating Loss and Capital Transaction Loss. Operating Loss in
excess of any remaining Operating Income after the allocations set forth above
and then Capital Transaction Loss in excess of any remaining Capital Transaction
Gain after the allocations set forth above shall be allocated:
(i) among the Partners holding OPIs in accordance with their
Percentage Interests until the Adjusted Capital Account for the OPIs of
such a Partner is reduced to zero;
(ii) then, among such Partners in proportion to, and to the extent
of, their Adjusted Capital Accounts for their OPIs;
(iii) then, to the holders of outstanding PPIs in proportion to, and
to the extent of, the Adjusted Capital Accounts for their PPIs; and
(iv) then, among the General Partners in proportion to their
Percentage Interests.
(d) Operating Income. Any Operating Income remaining after the
allocations set forth above in excess of Operating Loss will be allocated among
the Partners holding Ordinary Partnership Interests in proportion to, and to the
extent of, distributions to be made with respect to such OPIs under Section
5.5(b), then in proportion to, and to the extent of, negative Adjusted Capital
Account balances for one or more OPIs, and then in accordance with Percentage
Interests.
(e) Capital Transaction Gain. Any Capital Transaction Gain remaining
after the allocations set forth above in excess of Capital Transaction Loss will
be allocated among the Partners holding OPIs (other than a Delinquent Partner);
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(i) In proportion to, and to the extent of, negative Adjusted
Capital Account balances for one or more OPIs; and
(ii) Then, in accordance with Percentage Interests.
SECTION 5.2. Regulatory Allocations.
(a) Partnership Nonrecourse Deductions. Operating Loss and Capital
Transaction Loss attributable (under Treasury Regulation Section 1.704-2(c)) to
"partnership nonrecourse liabilities" (within the meaning of Treasury Regulation
Section 1.704-2(b)(3)) shall be allocated among the Partners in accordance with
Percentage Interests. As the allocation of partnership nonrecourse deductions
will increase the potential minimum gain chargeback under Section 5.2(d), an
allocation of partnership nonrecourse deductions under this provision will not
reduce a Partner's Adjusted Capital Account.
(b) Partner Nonrecourse Deductions. Operating Loss and Capital
Transaction Loss attributable (under Treasury Regulation Section 1.704-2(i)(2))
to "partner nonrecourse debt" (within the meaning of Treasury Regulation Section
1.704-2(b)(4)) shall be allocated, in accordance with Treasury Regulation
Section 1.704-2(i)(1), to the Partner who bears the economic risk of loss with
respect to the debt to which the Loss is attributable. As the allocation of
partner nonrecourse deductions will increase the potential minimum gain
chargeback under Section 5.2(e), an allocation of partner nonrecourse deductions
under this provision will not reduce a Partner's Adjusted Capital Account.
(c) COD Income. COD Income shall be allocated among the Partners in
proportion to the deemed distribution each is deemed to receive pursuant to Code
Section 752(b) with respect to the canceled debt.
(d) Minimum Gain Chargeback. If, in any year there is a net decrease
in Minimum Gain (other than a decrease attributable to a "book up" in the Book
Value of the Partnership's assets, a decrease offset by an increase in Partner
Minimum Gain or any other decrease for which a minimum gain chargeback is not
required under Treasury Regulation Section 1.704-2(f)), then each Partner will
be allocated Capital Transaction Gain and Operating Income equal to that
Partner's share of the net decrease in minimum gain for the year, as determined
by Treasury Regulation Section 1.704-2(g)(2). The items of Capital Transaction
Gain and Operating Income to be allocated under this section are determined
under Treasury
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Regulation Section 1.704-2(j)(2). In the event there is insufficient Capital
Transaction Gain and Operating Income for the year to fully chargeback each
Partner's share of the decrease in Minimum Gain, then the chargeback for the
year shall be in proportion to each Partner's share of the decrease and any
decrease that has not been charged back shall be carried over and be treated as
a decrease in Minimum Gain in the following year. This subsection is intended to
comply with the minimum gain chargeback requirement of Treasury Regulation
Section 1.704-2(f) and shall be interpreted consistently therewith.
(e) Partner Minimum Gain Chargeback. If, in any year there is a net
decrease in Partner Minimum Gain (other than a decrease attributable to a "book
up" in the Book Value of the Partnership's assets, a decrease offset by an
increase in Minimum Gain or any other decrease for which a Partner Minimum Gain
chargeback is not required under Treasury Regulation Section 1.704-2(i)(4)),
then, after the allocation set forth above in Section 5.2(d), each Partner will
be allocated Capital Transaction Gain and Operating Income equal to that
Partner's share of the net decrease in Partner Minimum Gain for the year, as
determined by Treasury Regulation Section 1.704-2(i)(5). The items of Capital
Transaction Gain and Operating Income to be allocated under this section are
determined under Treasury Regulation Section 1.704-2(j)(2). In the event there
is insufficient Capital Transaction Gain and Operating Income for the year to
fully chargeback each Partner's share of the decrease in Partner Minimum Gain,
then the chargeback for the year shall be in proportion to each Partner's share
of the decrease and any decrease that has not been charged back shall be carried
over and be treated as a decrease in Partner Minimum Gain in the following year.
This subsection is intended to comply with the requirement of Treasury
Regulation Section 1.704-2(i)(4) that there be a chargeback of partner
nonrecourse debt minimum gain and shall be interpreted consistently therewith.
(f) Qualified Income Offset. In the event any Partner received any
adjustment, allocation or distribution described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) that was not reasonably expected at the end
of the preceding year and that causes, or increases, a deficit in the Partner's
Capital Account, Capital Transaction Gain and Operating Income (composed of a
pro rata portion of each element remaining after the allocations in earlier
subsections of this section) shall be allocated to that Partner in an amount and
manner sufficient to eliminate any portion of the deficit balance in the
Partner's Capital Account that is attributable to the adjustment, allocation, or
distribution referred to above. If there is
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insufficient Capital Transaction Gain and Operating Income in any year to make
the allocation called for under this subsection, then the shortfall shall be
carried over to subsequent years and will be treated as items to be offset in
those years. Allocations under this subsection will only be made to the extent
that a Partner has a deficit in his Capital Account after all other allocations
provided in Article V have been tentatively made as if this subsection were not
in the Agreement. For purposes of this subsection, a Partner's Capital Account
balance shall be (a) increased by (i) its share of Minimum Gain plus (ii) its
share of Partner Minimum Gain plus (iii) the amount, if any, by which its
deficit Capital Account balance exceeds the sum of (i) and (ii) and which the
Partner is obligated to restore (or is treated as obligated to restore under
Treasury Regulation Section 1.704-1(b)(2)(ii)(c)) and (b) decreased by (i) the
amount of expected distributions in the next year from the current year's
earnings plus (ii) to the extent not previously taken into account, the items
described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
SECTION 5.3. Other Allocations When Book Value Differs from Tax
Basis. When the Book Value of a Partnership asset is different from its adjusted
tax basis for income tax purposes, then, solely for federal, state and local
income tax purposes and not for purposes of computing Capital Accounts, income,
gain, loss, deduction and credit with respect to such assets ("Section 704(c)
Assets") shall be allocated among the Partners to take this difference into
account in accordance with the principles of Code Section 704(c), as set forth
in the Treasury Regulation thereunder. In addition, under the principles of
Treasury Regulation Section 1.704-3(b)(2) Example 2(ii)(C), in order to prevent
the shifting of tax consequences with respect to built-in gain or built-in loss
prior to the contribution or revaluation of an item of Section 704(c) Property,
tax gain on the sale of that Section 704(c) Property shall be allocated among
the Partners to offset the ceiling rule limitation of Treasury Regulation
Section 1.704-3(b)(1).
SECTION 5.4. Special Allocation of Foreign Taxes. If a Foreign
Taxing Jurisdiction imposes a tax upon the Partnership, upon a subsidiary of the
Partnership or upon payments to one of the foregoing and such tax is not borne
by a third party as a result of a "gross up" provision, tax indemnity or
otherwise, then, to the extent that such tax would not have been imposed on
income allocated with respect to an Ordinary Partnership Interest if any Partner
holding such Partnership Interests or a direct or indirect partner in such
Partner were subject only to United
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States income taxes on the income or payments subject to tax by the Foreign
Taxing Jurisdiction:
(a) the amount of such tax shall be charged against the Capital
Account of such Partner for such Ordinary Partnership Interest and shall reduce
the amounts distributable to it under Section 5.5;
(b) the amounts distributable to each Partner under Section 5.5
shall be increased by an amount equal to the Partner's Percentage Interest times
the aggregate amounts specially allocated to all Partners under subsection (a)
above; and
(c) the Partnership shall use its best efforts to provide
documentation to assist a Partner in recovering from a Foreign Taxing
Jurisdiction any applicable tax credit for taxes incurred by that Partner with
respect to Globalstar income or allocated to that Partner under this Agreement.
SECTION 5.5. Distributions.
(a) Distributions to Holders of PPIs.
(i) The Partnership shall distribute pro rata on the PPIs an amount
such that the cumulative distributions under this Subsection (a)(i) equal
the sum of (x) the cumulative United States federal, state and local
income taxes imposed on the cumulative excess of the amounts of income
allocated to the PPIs under this Agreement that are subject to tax by
those jurisdictions over the amounts of tax losses allocated to the PPIs
pursuant to this Agreement that, under the laws of the particular
jurisdiction, could be carried back or carried over to offset such taxable
income by a Bermuda company holding the PPIs that was not engaged in
business in the United States otherwise than by being a Partner in the
Partnership and (y) the cumulative branch profits taxes imposed with
respect to PPIs under Section 884 of the Code. Distributions under this
Subsection (a)(i) shall be made prior to the time that the holder of the
PPI is required to make payments to the relevant taxing authority.
(ii) Then, on each Scheduled Distribution Payment Date (or, if not a
Business Day, the next succeeding Business Day), Distributable Cash Flow
and Distributable Capital Proceeds shall be distributed to the holder of
each outstanding PPI, until cumulative distributions under this Subsection
(a)(ii) give each such holder a cumulative return
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in an amount equal to a cumulative 8% per annum return on the Stated Value
of each outstanding PPI; this return shall be computed on the basis of a
360-day year with twelve 30-day months.
(iii) The Committee may determine to pay all or any portion of the
amount of the distributions described above in OPIs, under the procedures
set forth in Section 1.2 of Schedule C hereto. Cash distributions under
this Section (a) shall first be made from Distributable Cash Flow and then
from Distributable Capital Proceeds.
(iv) Each holder of a PPI must receive the amount described in
Subsection (a)(i) prior to, or contemporaneously with, any distributions
with respect to the OPIs and, except for distributions to permit the
payment of taxes imposed on the Partners by the jurisdictions in which the
Partnership does business, each holder of a PPI must receive the amount
described in Subsection (a)(ii) prior to, or contemporaneously with, any
other distributions with respect to the OPIs.
(b) Distributions of Remaining Distributable Capital Cash Flow.
Distributions of any remaining Distributable Cash Flow shall be made among the
Partners holding OPIs in accordance with their Percentage Interests.
(c) Distributions of Remaining Distributable Capital Proceeds.
Distributions of any Distributable Capital Proceeds remaining after the
distributions set forth above shall be made after making the allocations under
Article V through the date of distribution among the Partners holding OPIs in
accordance with their Percentage Interests until the Adjusted Capital Account of
a Partner with respect to its OPIs is reduced to zero and then in proportion to,
and to the extent of, any positive Adjusted Capital Account balances for OPIs
held by the other Partners and then, in accordance with Percentage Interests.
(d) Reserves. For any year, the Partnership shall distribute all
Distributable Cash Flow, provided that, except as contemplated in the following
sentence, without the Consent of the Partners, the Partnership will not
establish any reserves more than 10% in excess of the amount of reserves for
expenditures contemplated by the Business Plan currently in effect for such
period unless the establishment of reserves in a greater amount is required in
accordance with generally accepted accounting principles in the United States
("GAAP"), as confirmed in writing by the Partnership's independent accountants,
the
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Partnership specifies in writing to the Partners the contingency for which such
reserve is required and undertakes to release the reserve at such time as it is
no longer required in respect of such contingency. If the Partnership shall seek
to establish reserves at a level that exceeds either the 10% or the GAAP level
described above and such reserves shall not have been approved by the Consent of
the Partners ("Excess Reserve"), the Partnership may require, as a condition to
the distribution of such Excess Reserve, the indemnification of the Partnership
by each of the Partners for their share of such Excess Reserve by an 18-month
surety bond or other instrument or security reasonably acceptable to the
Partnership. In order to trigger such indemnification, the Partnership must (1)
have itemized the liabilities which prompted its call for the Excess Reserve and
(2) existing reserves must be exhausted. Only then and only to the extent
necessary may such indemnification be called upon. In any event, the period of
such indemnification or the term of any surety bond purchased pursuant to this
Section shall not exceed eighteen months.
(e) Prohibited Distributions. No distribution shall be made to a
Partner with respect to either a PPI or an OPI under this Section or a payment
or redemption under Article I and II of Schedule C hereto, if such distribution
or payment would reduce the Adjusted Capital Account for such Partnership
Interest to less than zero or such distribution is otherwise prohibited by the
Globalstar Credit Agreement or any other applicable indenture or credit
agreement that the Partnership may enter into from time to time.
(g) Withholding Taxes. Each Partner authorizes the Partnership to
withhold and pay over any withholding or other tax payable by the Partnership as
a result of such Partner holding an interest in the Partnership. Such amounts,
if withheld from distributions to a Partner, shall be treated as a distribution
to the Partner and a payment of the withheld tax by such Partner to the
appropriate taxing authorities. In the event that current distributions to GTL
or any Limited Partner are not sufficient to cover the withheld tax, the amount
withheld in excess of the amount covered by distributions to such Partner shall
be a loan to such Partner with respect to whom such withholding has been
undertaken and such Partner hereby grants the Partnership a security interest in
its entire interest in the Partnership at the time any such loan is made to it
to secure the repayment of such loan. Such loans shall bear interest at the rate
publicly announced by Chemical Bank from time to time in New York City as its
prime rate, shall be compounded monthly, and shall be payable on demand. The
Partnership may apply future distributions to
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such Partner against amounts due under the loan. In the event that such excess
amounts are withheld on behalf of the Managing General Partner and current
distributions to the Managing General Partner are not sufficient to cover the
withheld tax, the Managing General Partner shall promptly reimburse the
Partnership for the amount of such excess.
In the event that the Internal Revenue Service shall determine that
the amount of taxes that should have been withheld with respect to a Partner is
in excess of the amount withheld by the Partnership, that Partner shall
indemnify the Partnership for the amount of any such shortfall.
SECTION 5.6. Service Provider Agreements. For federal income tax
purposes, each Partner will report as its initial tax basis in the rights it
acquires under its Service Provider Agreement the Partnership's basis in such
rights. The transfer of rights to the Partner shall not be treated as a
distribution under Article V and future transactions between the Partnership and
that Partner under the Service Provider Agreement shall be treated for purposes
of Articles IV and V as if occurring between the Partnership and the Partner
acting other than in its capacity as a partner.
SECTION 5.7. Terms of PPIs. The PPIs shall have the additional terms
set forth in Schedule C hereto.
SECTION 5.8. Guaranteed Payments. If, as of any Scheduled
Distribution Payment Date, there shall have been a GTL Registration Default that
remains uncured or a GTL Registration Default that has been cured but with
respect to which there remains accrued but unpaid Preferred Stock Liquidated
Damages, then, not later than such Scheduled Distribution Payment Date, the
Partnership shall pay to GTL an amount that, after United States withholding
taxes and branch profits taxes, if any, imposed with respect to such payment,
shall equal to the accrued but unpaid Preferred Stock Liquidated Damages.
Amounts paid pursuant to this Section 5.8 are intended to constitute guaranteed
payments within the meaning of Section 707(c) of the Code and shall not be
treated as distributions for purposes of computing GTL's Capital Account.
SECTION 5.9. Allocations Relating to Issue of Partnership Interests.
Upon the issue of PPIs, Adjusted Income, Capital Transaction Gain, Capital
Transaction Loss, Operating Income, Operating Loss and COD Income will be
allocated on a closing of the books method as of the last day of the month in
which the PPIs were issued. In all other cases, the allocations
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shall be made using reasonable methods and/or conventions that are permitted
under Section 706(d) of the Code as determined by the Managing General Partner.
ARTICLE VI.
MANAGEMENT AND OPERATION OF BUSINESS
SECTION 6.1. Management. (a) The Partnership will be managed by the
General Partners through the Committee, which will consist of five to seven
members, as determined by LQSS. GTL will appoint two members to the Committee
and the remaining members will be appointed by LQSS. The members serve on the
Committee at the discretion of the General Partner appointing them to the
Committee and may be removed and replaced at any time by such General Partner,
provided that in the case of GTL's representatives to the Committee, GTL must at
all times appoint as representatives GTL Independent Directors. The Committee
will be responsible for managing the affairs of Globalstar. The Committee shall
have complete and exclusive discretion in the management and control of the
affairs and business of the Partnership and shall possess all powers necessary,
convenient or appropriate to carrying out the purposes and business of the
Partnership; provided however, that the day to day activities of the Partnership
will be managed by its officers, subject to the supervision of the Committee.
Regular meetings of the Committee shall be held each quarter. Action by the
Committee may be taken only with a concurrence of a majority of the members,
whether present in person at a meeting or by written consent; provided however,
that written notice of any proposed action by the Committee shall be given to
all members prior to the taking of any such action, unless waived by any such
member. Notwithstanding the foregoing, and any other provision contained in this
Agreement, all matters relating to the FCC Applications, compliance with the
Communications Act, and all compliance and regulatory matters related thereto
will be under the exclusive control of LQP, acting in its capacity as the sole
general partner of LQSS. As provided in Section 4.1(b), LQP will use the FCC
Applications and any license granted thereunder for the exclusive benefit of the
Partnership.
(b) The General Partners shall, through their appointed
representatives on the Committee, use their best efforts to carry out the
purposes of the Partnership through implementation of the Business Plan and
shall devote to the management of the business and affairs of the Partnership
such time as shall be required for the operation thereof. Without limiting the
generality of the foregoing, the General Partners,
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through their appointed representatives on the Committee, shall be responsible
for arranging for the development, design, launch and placement in service of
the Globalstar satellite constellation and operations control centers and for
ensuring that the Globalstar System will function substantially as anticipated.
The General Partners shall be under a fiduciary duty and obligation to conduct
the affairs of the Partnership in the best interests of the Partnership and of
the Limited Partners, including the safekeeping of all Partnership fund and
assets (whether or not in the immediate possession or control of the General
Partners) and the use thereof for the exclusive benefit of the Partnership and
shall not permit the Partnership to enter into any transactions with any
interested Partner on terms less favorable to the Partnership than those which
would have been achievable in a transaction negotiated on an arm's length basis.
Without delegating the substance of their responsibilities and obligations
hereunder, the General Partners may, subject to the provisions of Section
6.2(a), contract or otherwise deal with any Person, including employees of
Affiliates of the General Partners, to perform any acts or services for the
Partnership as such General Partners shall approve. Notwithstanding any such
delegation, the General Partners shall remain liable to the extent provided
herein for any action or omission of any such delegee. Any such delegee having
access to confidential information shall be deemed to be bound by a
confidentiality agreement containing substantially the same terms as Section
15.12 hereof. Without limitation on any power that may be conferred upon it
hereunder or by law, and except as hereinafter stated and subject to the
limitations in Sections 6.1(a) and 6.2, the Committee shall have the power to
authorize the Partnership to:
(i) make and enter into such contracts and incur expenses on behalf
of the Partnership, as the Committee deems necessary or appropriate for
the efficient conduct and operation of the Partnership's business;
(ii) compromise, submit to arbitration, sue on or defend all claims
in favor of or against the Partnership; commence or defend litigation that
pertains to the Partnership or any Partnership assets, and arrange for the
settlement of any pending or threatened litigation, by or against the
Partnership, through compromise, arbitration or otherwise;
(iii) make and revoke any election permitted the Partnership by any
taxing authority (having due regard for
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the interests of any Partners that may be adversely affected thereby);
(iv) do all acts the Committee deems necessary or appropriate for
the protection and preservation of the Partnership's assets;
(v) make distributions and allocations to the Partners in accordance
with Article V hereof;
(vi) designate such officers of the Partnership as authorized
signatories with the authority to execute on behalf of the Partnership,
any documents or instruments of any kind that the Committee may deem
appropriate or advisable to carry out the purposes of the Partnership
taking into consideration the terms and conditions of such document or
instrument;
(vii) prepare, execute and file federal, state and local income tax
returns and pay any taxes on behalf of the Partnership and the Partners;
(viii) make all payments required of the Partnership under the terms
of this Agreement, including such payments, fees and reimbursements as the
General Partners, or any of their respective Affiliates, may be entitled
to receive under the terms of this Agreement;
(ix) contest any determination by the Internal Revenue Service which
the Committee deems to be adverse to the best interests of the
Partnership;
(x) invest Partnership funds on a temporary basis pending
distribution in such investments (other than investments in Affiliates of
a General Partner) as the Committee determines appropriate, provided that
the Committee shall not invest Partnership funds in such a manner that the
Partnership will be considered to be holding itself out as being engaged
primarily in the business of investing, reinvesting, or trading in
securities or will otherwise be deemed to be an investment company under
the Investment Company Act of 1940, as amended;
(xi) employ Persons (including any Affiliate of a General Partner)
for the operation and management of the Partnership and engage such other
experts and advisers as the Committee may deem necessary or advisable, in
each case, on such terms and for such compensation as the Committee may
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determine, (subject, as applicable, to the requirements of Sections
6.1(d), 6.1(e) and 6.2(a));
(xii) borrow money on behalf of the Partnership as the Committee
deems necessary or appropriate and in the best interests of the
Partnership and make, accept, endorse and execute promissory notes,
drafts, bills of exchange and other instruments and evidences of
indebtedness in connection therewith and secure the payment of any such
Partnership indebtedness by mortgage, pledge or assignment of or security
interest in all or any part of the property then owned or thereafter
acquired by the Partnership, (subject, as applicable, to the requirements
of Sections 4.9 and 4.10); and
(xiii) call a meeting of Partners from time to time as the Committee
deems necessary or advisable.
(c) The Committee may delegate any of such foregoing powers and any
additional powers conferred upon it under this Agreement or by law to officers
of the Partnership; provided however, that transactions involving amounts in
excess of $100,000, other than transactions in the ordinary course of business
or actions taken to implement any Business Plan previously approved by the
Committee, shall require the prior approval of the Committee. Subject to the
foregoing provision, the Partners hereby agree that each such authorized officer
of the Partnership is authorized to execute, deliver and perform any agreements,
acts, transactions and matters in connection with the exercise of power
hereunder on behalf of the Partnership without any further act, approval or vote
of the Partners or the Partnership, except in connection with acts otherwise
prohibited by this Agreement, the Delaware Act or any applicable law, rule or
regulation.
(d) The Committee will ensure that the business of the Partnership
is conducted under the supervision of a qualified senior executive who shall
serve on a full-time basis as the President of Globalstar (with or without the
title of Chief Executive Officer) (the "President"). In the event that the
President is to be replaced, the Committee will as promptly as practicable seek
a qualified replacement, and, prior to offering the position formally to any
candidate, will present such candidate, his or her qualifications and proposed
compensation and employee benefits arrangements to the Partners, and shall not
make any such offer without the Consent of the Partners, provided, that, pending
receipt of such consent, and following any failure to obtain the Consent of the
Partners to the appointment of any
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candidate for the office of President, the Committee may appoint as interim
President an officer or employee of the Partnership (other than any such officer
or employee previously rejected by the Partners as President). The Committee
shall diligently and in good faith seek out a suitable candidate for such office
and shall present such a candidate to the Partners at a Representatives Meeting
within two months of such appointment. Prior to terminating the employment of
the President, the Committee will call a Representatives Meeting to explain the
reasons for such action and to consult with the representatives of the Limited
Partners, unless the Committee certifies to the Limited Partners in writing that
immediate action is necessary, specifying the exigent circumstances in question.
(e) In addition to the limitations set forth in Section 6.1(d)
above, the Committee will not dismiss any officer of the Partnership with a rank
of senior vice president or above or appoint any person to serve as an officer
of the Partnership with a rank of senior vice president or above, without the
consent of at least one GTL Independent Director. If the GTL Independent
Directors shall have vetoed the appointment of the Committee's candidate for a
position as set forth above, and upon submission by the Committee of a second
candidate for such position, shall have also vetoed such candidate, then,
notwithstanding the lack of approval by a GTL Independent Director, the
Committee shall be authorized to appoint its second candidate to serve in the
designated office if it shall have submitted such candidate to the Limited
Partners and such selection shall have received the Consent of the Partners.
Pending the receipt of the consent required under this Section 6.1(e), the
Committee may appoint a person to serve as interim officer of the Partnership
(other than any such person previously rejected by the GTL Independent
Directors).
SECTION 6.2. Limitations on Authority of Committee and the General
Partners. (a) Notwithstanding anything herein to the contrary, the Partnership
shall not, after the date hereof, sign or enter into any agreement or agreements
between the Partnership and any Partner, any Upper Tier Partner, any direct or
indirect corporate parent thereof, any strategic equity investor in SS/L
(consisting as of December 31, 1994 of Aerospatiale Societe Nationale
Industrielle, Alcatel Espace, Finmeccanica and Daimler-Benz Aerospace AG) or any
of their respective Affiliates which, in the aggregate, involve payments or
receipts in excess of $1,000,000 unless the terms and conditions thereof have
been approved with the Consent of the Disinterested Partners. The Partnership
hereby warrants that it has not entered into any such contracts during the
period from
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March 23, 1994 to December 31, 1994, except for the agreements itemized in the
Subscription Agreements and those contracts set forth on Schedule B hereto,
which are hereby authorized and approved and, if required, are consented to. The
Partnership shall report to the Partners no less frequently than annually on the
terms and conditions of any such contracts that would, but for the $1,000,000
limitation referred to above, require such approval.
(b) Notwithstanding anything herein to the contrary, the Partnership
shall not undertake any of the actions specified in this Section 6.2(b) without
the Consent of the Partners and in the case of clauses (i) through (vi), will
not bring such actions before a vote of the Partners without the consent of at
least one GTL Independent Director:
(i) Make any material amendments or modifications to this Agreement,
except as otherwise provided in Section 14.1;
(ii) Approve any business plan of the Partnership that would result
in any material change in the purpose of the Partnership as set forth in
this Agreement or otherwise change the Partnership's business so that it
varies materially from the business set forth in this Agreement;
(iii) Acquire (x) a controlling interest in, or a majority of the
voting stock or equity of, any corporation or other entity or (y) any
other assets not in the ordinary course of business of the Partnership, in
either case if the aggregate fair market value thereof is greater than $10
million;
(iv) Sell, lease (as lessor), exchange or otherwise dispose of
material assets of the Partnership (other than to a Person controlled by
the Partnership); provided, however that in the event of a sale of all or
substantially all of the assets of the Partnership (other than to a Person
controlled by the Partnership), the Partnership shall distribute the
proceeds of such sale to the Partners as soon as practicable thereafter;
(v) Except as provided in Section 6.13 hereof, cause or permit the
dissolution and/or liquidation of the Partnership;
(vi) Take any action for the (A) commencement of a voluntary case
under any applicable bankruptcy, insolvency
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or similar law now or hereafter in effect, (B) consent to the entry of any
order for relief in an involuntary case under any such law to the extent
that the giving or withholding of such consent is within the Partnership's
discretion, (C) consent to the appointment or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of it or of any substantial part of its property or (D)
making by it of a general assignment for the benefit of creditors;
(vii) Initiate or settle any litigation, arbitration or other
proceeding if such litigation, arbitration or other proceeding is against,
or names as an adverse party, a Partner;
(viii) Enter into any material business outside the scope
contemplated in this Agreement;
(ix) Commence any litigation or arbitration that pertains to the
Partnership or any Partnership assets, or arrange for the settlement of
any pending or threatened litigation, by or against the Partnership,
through compromise, arbitration or otherwise if the damages claimed for
such lawsuit or arbitration shall exceed $100,000; or
(x) Adopt any modification to the System Specification that would
change any major parameter by more than 10% of the amount set forth in the
System Specification or otherwise result in a material adverse effect on
any Service Provider and the Partnership shall give the Limited Partners
reasonable notice of any such proposed modification.
(c) Notwithstanding the foregoing, in the event that any of the
decisions set forth in paragraph (b) above would result in the Partnership being
engaged in a business entirely unrelated to that disclosed in the Descriptive
Memorandum, such actions shall require the prior, written consent of all the
Partners.
(d) Unless it shall have received the prior consent of the affected
Partner or Partners, the Partnership shall not enter into contracts or
agreements with any Person or Persons which conflict with or prejudice in any
material respect the rights of any Partner under (i) the provisions of this
Agreement or (ii) any contract or agreement between the Partnership and a
Partner or its Affiliates except as otherwise disclosed in the Subscription
Agreement. LQSS warrants that neither it nor the Partnership has entered into
any such contract or agreement as of December 31, 1994 without such consent.
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(e) The Partnership shall submit to the Partners for their review
and comment the material elements of its proposed launch strategy for the
Globalstar System, including the selection of launch vehicles, cost, and risk
allocation (including issues of space risk management and related insurance
coverage and self-insurance), and shall consider in good faith any alternative
launch strategies proposed by any Partner. If the Partnership's proposed
strategy does not obtain the Consent of the Partners, the Partnership shall
promptly undertake a detailed review of such strategy, especially addressing any
particular issues identified by the dissenting Partner representatives, and
analyze any alternative launch strategies proposed by any of them, and shall not
undertake any material commitments with respect to its launch strategy until it
has made a written report to the Partners of the results of such review, and
called a Representatives Meeting to discuss such report.
(f) Any decision on the part of the Committee not to undertake
either action set forth below shall require the consent of a Majority in
Interest of the Partners: (i) construction and launch of additional
first-generation satellites, or in the event a second or subsequent generation
constellation has been launched, additional second generation or subsequent
generation satellites, as the case may be, that can be financed by the
Partnership without additional Capital Contributions from its Partners, if such
satellites are anticipated to produce a compound return on investment of 25% per
annum or more or (ii) the design, development, construction and launch of a
second or subsequent generation satellite constellation that can be financed by
the Partnership without additional Capital Contributions from its Partners if
such system is anticipated to produce a rate of return on investment greater
than the rates applicable to 30-year U.S. Treasury obligations.
The Partnership shall give each Partner prompt written notice of any
decision not to launch a second or subsequent generation of satellites at least
48 months in advance of the termination or significant degradation of service
from the satellite constellation then in operation, and will discuss any such
decision with the CSO within a period of two months after such notification.
(g) The Partnership shall give notice of a proposed action calling
for the Consent of the Partners, the Consent of the Disinterested Partners, or
the consent of a Majority in Interest of the Partners or such other matters
requiring the action of Partners as set forth herein or pursuant to the
Subscription Agreements. The Partnership shall give such notice to each of the
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Partners in the manner set forth in Section 15.1 hereto as soon as practicable
but in no event less than 15 days prior to the date called for a meeting of
senior management representatives (the "Representatives") of the Partners (a
"Representatives Meeting") regarding such proposal.
The quorum for a Representatives Meeting shall be as follows: (x)
with respect to a matter requiring the Consent of the Partners or a Majority in
Interest of the Partners, Representatives present in person, by proxy or written
consent, representing a majority of the Partnership Interests outstanding and
(y) with respect to a matter requiring Consent of the Disinterested Partners,
Representatives present in person, by proxy or written consent, representing a
majority of the Partnership Interests outstanding held by the disinterested
Partners. Each Partner (in the case of a matter requiring the Consent of the
Partners or the consent of a Majority in Interest of the Partners) or each
disinterested Partner (in the case of a matter requiring the Consent of the
Disinterested Partners) (and in all cases other than a Delinquent Partner),
shall have the right to designate one Representative to attend each
Representatives Meeting, who will have the right to cast at the meeting a number
of votes equal to the number of Partnership Interests such Partner holds,
provided that LQSS shall in all instances vote in accordance with Section 6.4 of
the LQSS Partnership Agreement, or, in lieu of voting in such a manner, may
assign any Upper Tier Partner the right to designate a Representative to cast at
the Representatives Meeting a number of votes equal to the number of Partnership
Interests LQSS's Representative is required to cast on its behalf in accordance
with such Section 6.4, provided, however, that in no event shall such votes
exceed the total number of Partnership Interests held by LQSS. In the event of
such an assignment, the Upper Tier Partners' Representatives shall have the same
right to attend and vote at Partners' meetings as Representatives of Partners in
the Partnership.
SECTION 6.3. Change of Control and Reduction in Interest. (i) For
purposes of this Section 6.3, "GTL Change of Control" shall mean an event or
series of events not approved either by the Managing General Partner or by the
Consent of the Partners, at a time when GTL owns less than 50% of the
Partnership Interests outstanding, by which (i) any "person" or "group" (as such
terms are defined in Section 13(d) and 14(d) of the Securities Exchange Act of
1934 (the "Exchange Act")) becomes the beneficial owner (as defined in Rules
13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than
30% of the GTL Common Stock then outstanding, (ii) GTL consolidates with
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or merges into another corporation or conveys, transfers or leases all or
substantially all of its assets to any Person, or any corporation consolidates
with or merges into GTL, in either event pursuant to a transaction in which the
outstanding GTL Common Stock is changed into or exchanged for cash, securities
or other property, other than any transaction (A) between GTL and either Loral
SpaceCom, an Affiliate of Loral SpaceCom or a wholly-owned subsidiary of Loral
SpaceCom or (B) after which the shareholders who beneficially owned GTL Common
Stock immediately before such transaction beneficially own at least 50% of the
outstanding voting stock of the surviving entity and no Person beneficially owns
more than 30% of the outstanding voting stock of the surviving entity, (iii)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors of GTL (together with any new
directors whose election by the Board of Directors or whose nomination for
election was approved by a vote of 66 2/3% of the directors then still in office
who were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the directors then in office, or (iv) GTL makes on any
day any distribution or distributions of cash, property or securities (other
than regular dividends, common stock or rights to acquire common stock) to its
shareholders, or purchases or otherwise acquires GTL Common Stock, and the sum
of the fair market value of such distribution or purchase, plus the fair market
value of all other such distributions and purchases which have occurred during
the preceding twelve months, exceeds 30% of the fair market value of GTL Common
Stock outstanding.
(b) A "Reduction in Interest" shall have occurred upon the sale or
other disposition of Partnership Interests by GTL after which GTL's Percentage
Interest is reduced to less than 5% and such reduction was not previously
approved either by the Managing General Partner or by the Consent of the
Partners.
(c) Upon a GTL Change of Control or a Reduction in Interest, GTL
will become a Limited Partner and will lose all of its rights as a General
Partner under this Agreement, including the right to appoint representatives to
serve on the Committee and, through the GTL Independent Directors, to veto
certain actions of the Partnership. The Committee will thereby dissolve and all
actions previously authorized to be taken by the Committee will thereupon be
taken by the Managing General Partner as the sole General Partner. In addition,
upon a GTL Change of Control or a Reduction in Interest, any PPIs then held by
GTL would automatically
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convert into preferred limited partnership interests and any OPIs then held by
GTL would automatically convert into limited OPIs. GTL's preferred limited
partnership interests will have the same terms as the PPIs except that they will
convert into, and payments of any OPIs with respect thereto, would be made in
limited OPIs rather than general OPIs.
SECTION 6.4. Certificate of Limited Partnership. The Partnership has
filed the Certificate of Limited Partnership with the Secretary of State of the
State of Delaware as required by the Delaware Act and shall file such other
certificates or documents as may be deemed by the Partnership to be reasonable
and necessary or appropriate for the formation or qualification and operation of
a limited partnership (or a partnership in which the limited partners have
limited liability) in the State of Delaware or any other state in which the
Partnership may elect to do business. To the extent that the Committee in its
discretion determines such action to be reasonable and necessary or appropriate
and to the extent consistent with this Agreement, the Committee shall file
amendments to the Certificate of Limited Partnership and do all the things to
maintain the Partnership as a limited partnership (or a partnership in which the
limited partners have limited liability) under the laws of the State of Delaware
or any other state in which the Partnership may elect to do business.
SECTION 6.5. Reliance by Third Parties. Notwithstanding any other
provision of this Agreement to the contrary, no lender or purchaser, including
any purchaser of property from the Partnership or any other Person dealing with
the Partnership, shall be required to look to the application of proceeds
hereunder or to verify any representation by the Managing General Partner as to
the extent of the interest in the assets of the Partnership that the Managing
General Partner is entitled to encumber, sell or otherwise use, and any such
lender or purchaser shall be entitled to rely exclusively on the representations
of the Managing General Partner as to its authority to enter into such financing
or sale arrangements and shall be entitled to deal with the Managing General
Partner as if it were the sole party in interest therein, both legally and
beneficially. In no event shall any Person dealing with the Managing General
Partner or the Managing General Partner's representative with respect to any
business or property of the Partnership be obligated to ascertain that the terms
of this Agreement have been complied with, or be obligated to inquire into the
necessity or expedience of any act or action of the Managing General Partner or
the Managing General Partner's representative; and every contract, agreement,
deed, mortgage, security agreement, promissory note or other instrument or
document executed by the Managing General Partner or the Managing
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General Partner's representative with respect to any business or property of the
Partnership shall be conclusive evidence in favor of any and every Person
relying thereon or claiming thereunder that (a) at the time of the execution
and/or delivery thereof this Agreement was in full force and effect, (b) such
instrument or document was duly executed in accordance with the terms and
provisions of this Agreement and is binding upon the Partnership, and (c) the
Managing General Partner or the Managing General Partner's representative was
duly authorized and empowered to execute and deliver any and every such
instrument or document for and on behalf of the Partnership.
SECTION 6.6. Compensation, Expenses and Reimbursement of General
Partners. (a) Commencing from and after the time in which Globalstar receives
revenue from Usage Fees, the Partnership shall pay to the Managing General
Partner in cash for each quarter during the period the Partnership is in
existence, as payment in connection with services rendered by the Managing
General Partner, compensation equal to 2.5% of the Partnership's gross operating
revenue up to $500 million per annum, based upon revenues through the end of the
quarter in question plus 3.5% of the Partnership's gross operating revenue in
excess of $500 million per annum (the "Management Fee"). All quarterly payments
are subject to adjustment based on year-end audit. The Management Fee shall be
paid quarterly during each In-Service Year, provided that for any In-Service
Year in which there is a net loss to the Partnership computed under GAAP, the
Management Fee shall be reduced by 50% and the Managing General Partner will
reimburse the Partnership for Management Fee payments, if any, received in any
prior quarter of such In-Service Year, sufficient to reduce its Management Fee
by 50%. To the extent the year-to-date result through the first, second or third
quarter of an In-Service Year is a net loss, no Management Fee will be paid with
respect to such quarter to the extent it would (together with any Management Fee
payments with respect to any earlier quarter in such In-Service Year) exceed 50%
of the Management Fee otherwise payable (but for such net loss). No further
Management Fee payments shall be required to be paid after the date that
distribution of all of the Partnership's assets to the Partners has been
completed. In any quarter in which the Partnership would report negative cash
flow from operations if the Management Fee for such quarter is paid in full in
cash, payment of the Management Fee (or such lesser portion thereof as shall
equal the amount of such negative cash flow) shall be deferred with interest at
a rate equal to 4% per annum and shall be payable at such time as the
Partnership shall have sufficient cash flow. No
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Management Fee or other compensation shall be owing to GTL in connection with
its services as a General Partner.
(b) All expenses incurred in connection with the organization of the
Partnership (other than expenses borne by LQSS or any Upper Tier Partner for
which capital contribution credit is received pursuant to Section 4.1) will be
borne by the Partnership and, to the extent not otherwise allocated by Article
V, charged to the Partners' Capital Accounts according to their Percentage
Interests. Such expenses, including legal and investment banking fees, are
approximately $3,728,000.
(c) The General Partners shall be reimbursed on a monthly basis for
all fair and reasonable expenses they incur or make on behalf of the Partnership
(including amounts paid to any Person to perform services for the Partnership or
the General Partners or who is an employee of the Partnership or the General
Partners). Such reimbursement shall be in addition to any reimbursement to a
General Partner as a result of indemnification pursuant to Section 6.10 hereof,
but shall only be in respect of reasonable out-of-pocket expenses incurred
solely on behalf of Globalstar, and shall not include any amounts in respect of
compensation of persons who are officers, directors or employees of GTL, the
Upper Tier Partners or their Affiliates or any other corporate overhead of such
persons.
SECTION 6.7. Outside Activities. (a) Subject to Section 6.7(b), each
Partner agrees, subject to the requirements of applicable law, that the Partners
and their respective subsidiaries, partners, associates, employees, Affiliates
and agents may engage in other business activities or possess interests in other
business activities of every kind and description, independently or with others,
except that no Partner or any of its subsidiaries or Affiliates shall possess an
interest, directly or indirectly, in any business activity operating Similar
Satellite Service until the earlier of (i) the third anniversary of the date
such Partner (including its Affiliates) ceases to be a Partner of the
Partnership, (ii) the beginning of the third In-Service Year and (iii) the date
183 days following the date that such Partner (including its Affiliates) ceases
to be or have equity interest in a Service Provider; provided, however, that (i)
a passive investment representing not more than 5% of the equity securities of a
company in direct competition with the Partnership whose equity securities are
listed on a nationally recognized securities exchange or (ii) the sale or
provision of goods or services (except as may otherwise be specifically agreed
to between the Partnership and the Partner) in the ordinary course of business
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of a Partner or its Affiliates shall not violate this provision. For purposes of
this Section 6.7, governmental and military systems and satellite systems such
as OmniTRACS or Euteltracs, and, insofar as France Telecom is concerned,
intergovernmental systems, such as INMARSAT and EUTELSAT, and their respective
logical extensions, shall not be considered Similar Satellite Service. This
paragraph may not be amended without the consent of TESAM. ChinaSat and its
Affiliates, as Chinese government entities, shall not be subject to this Section
6.7(a).
(b) The General Partners shall not engage in any business other than
management of the business and affairs of the Partnership, and shall not own any
assets other than Partnership Interests, Partnership capital contributions and
distributions, and related assets, without the Consent of the Disinterested
Partners.
(c) The General Partners shall not, and shall not permit any of
their respective Affiliates, including SS/L, to, act as prime contractor or
systems integrator for any Similar Satellite Service.
SECTION 6.8. Partnership Funds. The funds of the Partnership shall
be deposited in such account or accounts as are designated by the Partnership
and shall not be commingled with any other funds. All withdrawals from or
charges against such accounts shall be made by duly authorized officers or
agents of the Partnership. Funds of the Partnership may be invested as
determined by the Committee, except in connection with acts otherwise prohibited
by this Agreement.
SECTION 6.9. Loans from the General Partners. A General Partner or
any Affiliate of the General Partner may lend to the Partnership funds needed by
the Partnership for such periods of time as the General Partner may determine;
provided, however, that such loan is approved in advance with the Consent of the
Disinterested Partners. The Partnership shall reimburse the General Partner or
its Affiliate, as the case may be, for any additional costs incurred by the
General Partner or such Affiliate in connection with the borrowing of funds
obtained by the General Partner or such Affiliate and loaned to the Partnership.
SECTION 6.10. Indemnification of Partners. (a) The Partnership shall
indemnify and hold harmless the Partners, the Upper Tier Partners, their
respective Affiliates, and all of their respective officers, directors,
partners, controlling shareholders, employees, and agents (individually, an
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"Indemnitee"), from and against any and all losses, claims, demands, costs,
damages, liabilities, joint and several, expenses of any nature (including
attorneys' fees and disbursements), judgments, fines, settlements, and other
amounts arising from any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative, in which an Indemnitee may be
involved, or threatened to be involved, as a party or otherwise ("Losses"),
arising out of or incidental to the business of the Partnership, regardless of
whether an Indemnitee continues to be a Partner, an Affiliate, or an officer,
director, partner, controlling shareholder, employee, or agent of a Partner or
of an Affiliate at the time any such Loss is paid or incurred, if the
Indemnitee's conduct did not constitute actual fraud, gross negligence, knowing
breach of specific provisions of this Agreement or willful or wanton misconduct.
The termination of any action, suit, or proceeding by settlement or upon a plea
of nolo contendere, or its equivalent, shall not, in and of itself, create a
presumption or otherwise constitute evidence that the Indemnitee's actions
constituted actual fraud, gross negligence or willful or wanton misconduct.
(b) Expenses (including legal fees and expenses) incurred in
defending any proceeding subject to subsection (a) of this Section 6.10 shall be
paid by the Partnership in advance of the final disposition of such proceeding
upon receipt of an undertaking (which need not be secured) by or on behalf of
the Indemnitee to repay such amount if it shall ultimately be determined, by a
court of competent jurisdiction or otherwise, that the Indemnitee is not
entitled to be indemnified by the Partnership as authorized hereunder.
(c) The indemnification provided by this Section 6.10 shall be in
addition to any other rights to which each Indemnitee may be entitled under any
agreement or vote of the Partners, as a matter of law or otherwise, both as to
action in the Indemnitee's capacity as a Partner or as a partner, controlling
shareholder, officer, director, employee or agent of a Partner, or as to action
in the Indemnitee's capacity as a Person serving at the request of the
Partnership as set forth above, and shall continue as to an Indemnitee who has
ceased to serve in such capacity and shall inure to the benefit of the heirs,
successors, assigns, administrators and personal representatives of the
Indemnitee. Such indemnification, however, shall only apply to Losses incurred
by virtue of the Indemnitee's status as a Partner, the Upper Tier Partner,
Affiliate or officer, director, partner, controlling shareholder, employee or
agent thereof, and not as to Losses incurred in other capacities (for example,
by virtue of being a Service Provider or otherwise contracting with the
Partnership).
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(d) The Partnership may purchase and maintain insurance on behalf of
any one or more Indemnitees and other such Persons as the Partnership shall
determine against any liability which may be asserted against or expense which
may be incurred by such Person in connection with the Partnership's activities,
whether or not the Partnership would have the power to indemnify such Person
against such liability under the provisions of this Agreement.
(e) Any indemnification hereunder shall be satisfied only out of the
assets of the Partnership and no Partner shall be subject to personal liability
by reason of these indemnification provisions.
(f) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 6.10 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(g) The provisions of this Section 6.10 are for the benefit of the
Indemnitees and the heirs, successors, assigns, administrators and personal
representatives of the Indemnitees and shall not be deemed to create any rights
for the benefit of any other Persons.
(h) Any Person that proposes to assert the right to be indemnified
under this Article VI shall, promptly after receipt of notice of any action
which is subject to indemnification hereunder, notify the Partnership of the
commencement of such action, enclosing a copy of all papers served. The failure
so to notify the Partnership of any such action shall not relieve it from any
liability that it may have to any indemnified party hereunder, unless such party
is prejudiced thereby. In case any such action shall be brought and notice given
to the Partnership of the commencement thereof, the Partnership shall be
entitled to participate in, and to assume the defense thereof, with counsel
reasonably satisfactory to the indemnified party, and after notice from the
Partnership to such indemnified party of its election so to assume the defense
thereof, the Partnership shall not be liable to such indemnified party for any
legal or other expenses, except as provided below and except for the reasonable
costs of investigation subsequently incurred by such indemnified party at the
request of the Partnership in connection with the defense thereof. The
indemnified party shall have the right to employ separate counsel and to
participate in (but not control) any such action, but the fees and expenses of
such counsel shall be the expense of such indemnified party unless (i) the
employment of
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counsel by such indemnified party has been authorized by the Partnership, (ii)
the employment of separate counsel is necessitated by a conflicting interest
among indemnified parties, or (iii) the Partnership shall not in fact have
employed counsel to assume the defense of such action. In each such case, the
fees and expenses of counsel shall be at the expense of the Partnership. The
Partnership shall not be liable for any settlement of any action or claims
effected without its written consent unless the Partnership has failed to assume
the defense of any such action or claims.
SECTION 6.11. Liability of General Partners. (a) The General
Partners, the Upper Tier Partners and their respective Affiliates and all
officers, directors, partners, controlling shareholders, employees and agents of
the General Partners, the Upper Tier Partner and their respective Affiliates
shall not be liable to the Partnership or to the Limited Partners for any losses
sustained or liabilities incurred as a result of any act or omission of the
General Partners, their Affiliates or any such officers, directors, partners,
controlling shareholders, employees or agents if (i) the General Partner, such
Affiliate, or such officer, director, partner, controlling shareholder, employee
or agent acted in good faith and in a manner it or he reasonably believed to be
in, or not opposed to, the best interests of the Partnership, and (ii) the
conduct of the General Partner, such Affiliate or such officer, director,
partner, shareholder, employee or agent did not constitute gross negligence or
Nonperformance. For purposes of this Agreement, any act or omission, if done or
omitted to be done in reliance upon the advice of legal counsel or public
accountants (the "Professionals") selected with reasonable care, will be
conclusively presumed to have been done or omitted to be done in good faith and
not to constitute willful or wanton misconduct, gross negligence or
Nonperformance; provided, however, that the reliance was reasonable and the
General Partner had disclosed all relevant facts to the Professionals.
(b) Each General Partner shall fully indemnify and hold harmless the
Limited Partners and their Affiliates and their respective partners, officers,
directors, employees and agents to the fullest extent permitted by law from and
against any and all losses, claims, demands, costs, damages, liabilities (joint
or several), expenses of any nature (including attorney's fees and
disbursements), judgments, fines, settlements and other amounts including, but
not limited to, those arising directly or indirectly from or relating to any
civil, criminal, administrative or investigative proceeding, arising out of or
incidental to conduct by such General Partner or one of its Affiliates with
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respect to the business or activities of or relating to the Partnership which
constituted bad faith, gross negligence or Nonperformance. The obligations of a
General Partner under this Section 6.11 shall extend only to its own acts or
omissions or acts or omissions by one of its Affiliates and not with respect to
acts or omissions of the other General Partner or its Affiliates. For purposes
of the preceding sentence, actions by the Committee shall be deemed to be
actions of LQSS only. GTL shall not be deemed to be an Affiliate of LQSS and
LQSS shall not be deemed to be an Affiliate of GTL, for purposes of this Section
6.11(b) with respect to any action determined solely by directors who are not
employed by, or otherwise affiliated with Loral SpaceCom.
SECTION 6.12. Other Matters Concerning the General Partners. (a)
Each General Partner may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, bond, debenture, or other paper or
document believed by it to be genuine and to have been signed or presented by
the proper party or parties.
(b) A General Partner may consult with legal counsel, Service
Providers, and other consultants and advisers selected by it, and any advice of
such Person as to matters which the General Partner believes to be within such
Person's professional experience shall be full and complete authorization and
protection in respect of any action taken or suffered or omitted by the General
Partner hereunder in good faith and in accordance with such advice. Any such
Person receiving confidential information shall be deemed to be bound by a
confidentiality agreement containing substantially the same terms as Section
15.12 hereof.
SECTION 6.13. Conversion to Corporate Form. (a) In the event that
the Committee shall determine that it is desirable or helpful for the business
of the Partnership to be conducted in a corporate rather than in a partnership
form, the Committee may incorporate the Partnership or take such other action as
it may deem advisable in light of such changed conditions, including, without
limitation, dissolving the Partnership, provided that, the Committee may not
incorporate the Partnership without the Consent of the Partners. In connection
with any such incorporation of the Partnership, the Partners shall receive, in
exchange for their Partnership Interests, shares of capital stock of such
corporation having the same relative rights and preferences as to dividends and
distributions and the same voting and transfer rights, subject in each case to
any modifications required solely as a result of the conversion to corporate
form (all such rights and preferences being referred to, collectively,
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as "Equity Rights"), as are set forth in this Agreement as among the holders of
interests in the Partnership.
(b) Prior to taking any such action to incorporate the Partnership,
the Committee shall submit to the Partners the proposed forms of a certificate
or articles of incorporation, by-laws, shareholders' agreement and any other
governing documents proposed to be established for such corporation (the
"Governing Documents"). If Limited Partners holding Partnership Interests
representing at least 20% (or 15% in the event GTL becomes a Limited Partner
pursuant to Section 6.3 hereof) of the total number of outstanding Partnership
Interests held by all Limited Partners (not including any Partnership Interest
held by LQSS or its Affiliates) notify the Committee within 15 days of the date
the proposed forms of Governing Documents are submitted to the Limited Partners
that they have concluded in good faith that, based upon such Governing
Documents, the shares of capital stock of such corporation proposed to be issued
to them in exchange for such Partnership Interests do not have the same Equity
Rights as are set forth in this Agreement, the Committee and such Limited
Partners shall negotiate in good faith to resolve any differences with respect
thereto. If the Committee and such Limited Partners do not resolve such
differences, the Committee may appoint an investment banking firm of
internationally recognized standing reasonably acceptable to such Limited
Partners to advise the Partnership as to such dispute, and the conclusion of
such firm shall be binding on the parties, and any modification recommended by
such investment banking firm in the Equity Rights shall be incorporated into the
Governing Documents. Nothing contained herein shall be construed to give the
Limited Partners any right to cause the business of the Partnership to be
conducted in corporate form or to limit the right of the Committee to elect, at
any time, to continue such business as a partnership.
SECTION 6.14. FCC Compliance. The Partners hereby understand, agree
and acknowledge that the rights described in Section 4.1(b)(i) of this Agreement
are subject to the Communications Act, and the rules and regulations promulgated
thereunder.
ARTICLE VII.
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
SECTION 7.1. Limitation of Liability. No Limited Partner shall be
personally liable for any debts, liabilities or obligations of the Partnership,
whether to the Partnership, to the General Partners, or to creditors of the
Partnership, beyond
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the amount contributed by such Limited Partner to the capital of the Partnership
and such Limited Partner's share of the accumulated but undistributed profits of
the Partnership and the amount of any distribution (including the return of any
Capital Contribution) made to such Limited Partner that must be returned to the
Partnership pursuant to applicable state law. The General Partners shall use
reasonable efforts, in the conduct of the Partnership's business, to put all
Persons with whom the Partnership does business on notice that the Limited
Partners and their Affiliates are not liable for Partnership obligations, and
all material agreements to which the Partnership is a party shall include a
statement to the effect that the Partnership is a limited partnership organized
under the laws of Delaware.
SECTION 7.2. Management of Business. The Limited Partners shall not
take part in the operation, management or control (within the meaning of the
Delaware Act) of the Partnership's business, transact any business in the
Partnership's name or have the power to sign documents for or otherwise bind the
Partnership. No Limited Partner has the right to require the partition of
Partnership property or compel any sale or appraisal of Partnership assets or
sale of a deceased Partner's interest therein.
ARTICLE VIII.
BOOKS, RECORDS, ACCOUNTING AND REPORTS
SECTION 8.1. Records and Accounting. The Partnership shall keep or
cause to be kept appropriate books and records with respect to the Partnership's
business, which books shall at all times be kept at the principal office of the
Partnership. Any records maintained by the Partnership in the regular course of
its business, books of account and records of Partnership proceedings, may be
kept on, or be in the form of, punch cards, magnetic tape, photographs,
micrographics or any other information storage device, provided that the records
so kept are convertible into clearly legible written form within a reasonable
period of time. The records and books of account of the Partnership will be
audited as of the end of each Fiscal Year by Deloitte & Touche LLP ("Deloitte &
Touche"). In the event the Partnership shall seek to replace Deloitte & Touche,
the Partnership shall select as Deloitte & Touche's successor independent
certified public accountants of recognized international standing (other than
the principal auditors of Loral SpaceCom or Qualcomm), provided that such choice
may be disapproved once, but only once, by a vote requiring the Consent of the
Partners, and thereafter such accountants may be selected
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by the Partnership in its sole discretion (other than the principal auditors of
Loral SpaceCom or of Qualcomm).
SECTION 8.2. Fiscal Year. The fiscal year (the "Fiscal Year") of the
Partnership shall be the calendar year, unless otherwise determined by the
Partnership in its sole discretion.
SECTION 8.3. Reports and Annual Meeting. (a) As soon as practicable,
but in no event later than 90 days after the close of each fiscal year, the
Partnership shall deliver to the Partners reports containing financial
statements of the Partnership for the fiscal year, presented in accordance with
GAAP, including a balance sheet, a statement of income, a statement of Partners'
equity and a statement of changes in cash flow, such statements to be audited by
the firm of independent certified public accountants selected in accordance with
Section 8.1.
(b) As soon as practicable, but in no event later than 45 days after
the close of each calendar quarter, including the last calendar quarter of each
fiscal year, the Partnership shall deliver to the Partners a quarterly report
containing a balance sheet and statements of income and changes in financial
position for such calendar quarter.
(c) In addition to any meetings of the Partners called pursuant to
Section 6.1(b)(xiii) or any Representatives Meeting called pursuant to Section
6.2(g), the Partnership shall hold an annual meeting of the Partners ("Annual
Meeting") on fifteen (15) days prior written notice to the Partners, such Annual
Meeting to be held no sooner than thirty (30) days and no later than sixty (60)
days after delivery to the Partners of the annual financial statements for the
preceding fiscal year pursuant to Section 8.3(a). At the Annual Meeting,
officers of the Partnership will review the operations of the Partnership during
the preceding year, discuss the plans and operating budget for the current year
and any amendments to the Business Plan and answer whatever questions may be
raised by representatives of the Partners at the Annual Meeting.
SECTION 8.4. Disclosure to Limited Partners. (a) The Limited
Partners shall have full access to all financial and other information directly
related to the business and affairs of the Partnership. In particular, the
following will be open for examination, by any Limited Partner or his duly
authorized representatives:
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(i) books and records pertaining to the Partnership's business
showing all of its assets and liabilities, receipts and disbursements,
realized profits and losses, and all transactions (including all contracts
and commitments) entered into by the Partnership;
(ii) a current list of the full name and last known mailing address
of each Partner set out in alphabetical order, together with a list
showing the Capital Contributions and Capital Account of each Partner;
(iii) a copy of the Certificate of Limited Partnership and all
amendments to it, together with executed copies of any powers of attorney
pursuant to which the Certificate and any amendments to it have been
executed;
(iv) copies of all the Partnership's U.S. Federal, state, local and
foreign income tax returns and reports, if any; and
(v) copies of this Agreement as may be amended from time to time.
(b) The Partnership shall make available, on a reasonable basis, its
financial officers and auditors to the Limited Partners for consultation and to
respond to questions of the Limited Partners relating to the financial condition
of the Partnership. The Partnership will prepare and mail to each Limited
Partner promptly upon the request of any Limited Partner such further
information concerning the business, affairs and financial conditions of the
Partnership, as any Limited Partner may reasonably request.
(c) Notwithstanding the provisions set forth in this Section 8.4,
the Partnership may keep confidential from the Limited Partners for a period of
time deemed reasonable by it information (excluding any matters required to be
disclosed pursuant to Section 8.3 or clause (ii)-(v) of Section 8.4) to the
extent the Partnership, in good faith, determines (i) that disclosure is not in
the best interests of the Partnership, (ii) that disclosure could damage the
Partnership or its business or (iii) that the Partnership is required by law or
by a third party to keep the information confidential.
SECTION 8.5. Determination of Book Value of Partnership Assets. (a)
Except as set forth below, Book Value of any Partnership asset is its adjusted
basis for federal income tax purposes.
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(a) The initial Book Value of any assets contributed by a Partner to
the Partnership shall be the gross fair market value of such assets. The Book
Value of property and property rights contributed by LQSS and described in
Section 4.1(b)(i) and (ii) shall be the amount allocated to them pursuant to
Section 4.1(b).
(b) The Book Values of all of the Partnership's assets shall be
adjusted by the Partnership to equal their respective gross fair market values
as of the following times: (a) the admission of a new Partner to the Partnership
or acquisition by an existing Partner of an additional interest in the
Partnership from the Partnership (including the acquisition of PPIs as set forth
in Section 4.1(d)); (b) the distribution by the Partnership of money or property
to a withdrawing, retiring or continuing Partner in consideration for the
retirement of all or a portion of such Partner's interest in the Partnership;
and (c) the termination of the Partnership for Federal income tax purposes
pursuant to section 708(b)(1)(B) of the Code; provided, however, that no
adjustment shall be made upon the issue of an OPI pursuant to Section
5.5(a)(iii) or Section 1.2(b) of Schedule C. The Partnership will not be
required to make an adjustment upon the exercise of a warrant to acquire an OPI
or upon a conversion of a PPI pursuant to Article III of Schedule C until the
sum of the cumulative face amount of PPIs converted and the exercise price of
warrants exercised since the last adjustment exceeds $15,000,000. In such case,
the Partnership shall make at least one adjustment during the year and, if no
other adjustment event occurs during the year and after the $15,000,000
threshold was reached, a required adjustment shall be made as of the date of the
last PPI conversion or warrant exercise during the year. Upon a conversion of a
PPI and an adjustment to the Book Values of Partnership assets under this
Section, any resulting Capital Transaction Loss shall be first allocated to
holders of OPIs whose Adjusted Capital Accounts are higher than the Adjusted
Capital Accounts of the OPIs acquired on exercise of a warrant or on conversion
in amounts and proportions to reduce the differences between such Adjusted
Capital Accounts and any resulting Capital Transaction Gain shall first be
allocated to the Capital Account of the OPIs acquired on exercise of a warrant
and on conversion in an amount to reduce or eliminate the amount by which the
Adjusted Capital Accounts for such OPIs are less than the Capital Account for
the outstanding OPI with the highest Adjusted Capital Account. Any remaining
Capital Transaction Gain or Loss shall be allocated under Section 5.1. The
Partnership will promptly report any such adjustment to the Partners.
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ARTICLE IX.
TAX MATTERS
SECTION 9.1. Preparation of Tax Returns. (a) The Partnership shall
arrange for the preparation and timely filing of all returns of Partnership
income, gains, deductions, losses and other items necessary for federal and
state income tax purposes. The Partnership shall use all reasonable efforts to
furnish to the Partners within 90 days of the close of the taxable year the tax
information reasonably required for federal, state and foreign income tax
reporting purposes. Subject to the provisions of Section 9.2, the
classification, realization and recognition of income, gain, losses and
deductions and other items shall be on the accrual method of accounting for
federal income tax purposes, to the extent permitted by applicable law. The
taxable year of the Partnership shall be the calendar year, unless otherwise
required by the federal income tax laws and the Treasury Regulations thereunder
or unless otherwise determined by the Partnership.
(b) The Partnership will prepare the state and local tax returns for
those non-U.S. Limited Partners who are not otherwise engaged in business in the
United States.
SECTION 9.2. Tax Elections. Except as otherwise provided herein, the
Partnership shall, in its sole discretion, determine whether to make any
available election, including but not limited to an election under Code Section
709 to amortize organization and start-up expenditures over a sixty month
period, and an election under Code Section 754 to adjust the bases of
Partnership property with respect to the Partnership or with respect to a
transferee Partner. In the event a Section 754 election is made, the Partnership
may in its sole discretion charge transferees for the additional costs incurred
in preparing their tax information under such election.
SECTION 9.3. Tax Controversies. Subject to the provisions hereof,
the Managing General Partner is designated the Tax Matters Partner (as defined
in Section 6231 of the Code), and is authorized and required to represent the
Partnership (at the Partnership's expense) in connection with all examinations
of the Partnership's affairs by tax authorities, including resulting
administrative and judicial proceedings, and to expend Partnership funds for
professional services and costs associated therewith. The Partners agree to
cooperate with the Managing General Partner and to do or refrain from doing any
or all things reasonably required by the Managing General Partner to conduct
such proceedings, provided that the foregoing shall not be
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construed to prevent a Partner from taking steps reasonably necessary to protect
and defend its own interests.
SECTION 9.4. Taxation as a Partnership. No election shall be made by
the Partnership or any Partner for the Partnership to be excluded from the
application of any of the provisions of Subchapter K, Chapter 1 of Subtitle A of
the Code or from any similar provisions of any state tax laws.
ARTICLE X.
TRANSFER OF INTERESTS
SECTION 10.1. Transfer. (a) The term "transfer," when used in this
Article X with respect to a Partnership Interest, includes a sale, assignment,
gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other
disposition; provided however, that an exchange of Partnership Interests by LQSS
or the Limited Partners pursuant to the terms of the Exchange and Registration
Rights Agreement shall not, other than with respect to Section 10.4(c) hereof,
be deemed to be a "transfer" for purposes of this Article X.
(b) Any Partnership Interest may be transferred, in whole or in
part, provided that such transfer shall be made, where applicable, in accordance
with the terms and conditions set forth in this Article X. Any transfer or
purported transfer of any Partnership Interest not made in accordance with this
Article X shall be null and void.
(c) Notwithstanding anything contained herein to the contrary, no
transfer of a Partnership Interest may be made if such transfer (i) would
violate the then applicable federal or state securities laws or rules and
regulations of the Securities and Exchange Commission, state securities
commissions, the Communications Act, or rules and regulations of the FCC and any
other government agencies with jurisdiction over such transfer or (ii) would
affect the Partnership's existence or qualification under the Delaware Act. In
the event a transfer of a Partnership Interest is otherwise permitted hereunder,
notwithstanding any provision hereof, no Partner shall transfer all or any
portion of such Partner's Partnership Interest unless and until such Partner,
upon the request of the Partnership, delivers to the Partnership an opinion of
counsel, addressed to the Partnership, reasonably satisfactory to the
Partnership, to the effect that (1) such Partnership Interest has been
registered under the Securities Act and any applicable state securities laws, or
that the proposed transfer of such Partnership Interest is exempt from any
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registration requirements imposed by such laws and that the proposed transfer
does not violate any other applicable requirements of federal or state
securities laws and (2) that such transfer will not adversely affect the tax
status of the Partnership. Such opinion shall not be deemed delivered until the
Partnership confirms to such Partner that such opinion is acceptable, which
confirmation will not be unreasonably withheld.
(d) For so long as the Exchange Right is in effect, each of the
Partners hereby agrees that it will not (i) make a public offering of its
Partnership Interests, or (ii) transfer any of their Partnership Interests to a
Person, other than to GTL, if (x) such Partnership Interests would constitute
all or substantially all of the assets of such transferee and (y) the purpose of
the transfer is to enable the transferee Person make a public offering of its
equity interests.
SECTION 10.2. Transfer of Interests of General Partners. (a) Subject
to Section 12.1 hereof, a General Partner shall not transfer all or any part of
its Partnership Interests without the Consent of the Disinterested Partners;
provided, that a transfer by GTL is further subject to the provisions of Section
6.3 hereof. A General Partner may transfer any or all of its Partnership
Interests to an Affiliate of the General Partner ("Affiliate Successor") without
such approval; provided however, that in the case of GTL, GTL may transfer only
to an Affiliate that is 100% owned by GTL and any such transfer shall be subject
to the consent of the Managing General Partner, which consent may be granted or
withheld in the Managing General Partner's sole discretion. Such transfer to an
Affiliate Successor shall not relieve the General Partner of any of its
obligations hereunder unless the Affiliate Successor has been adjudged by the
Consent of the Disinterested Partners (which consent shall not be unreasonably
withheld) to be a Person that has at least such comparable financial strength
and technical and managerial capabilities and know-how sufficient for it to
perform its duties and obligations hereunder. The Partners hereby consent to any
such approved transfer or any transfer to an Affiliate Successor, subject to the
provisos set forth above. The Affiliate Successor of a General Partner pursuant
to this Section 10.2 shall be admitted to the Partnership as General Partner
immediately prior to the effective date of transfer of the General Partner's
Partnership Interests and the Affiliate Successor shall continue the business
and operations of the Partnership without dissolution provided that prior to
such effective date the Affiliate Successor shall have furnished to (a) the
Partnership (i) acceptance in form satisfactory to counsel to the Partnership of
all the terms and conditions of this Agreement and (ii) such
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other documents or instruments as may be required by such counsel in order to
effect such transfer and (b) to the other Partners an opinion of counsel to the
effect that such transfer will not adversely affect the tax status of the
Partnership. Such opinion will not be deemed furnished until approved by the
Consent of the Partners, which consent will not be unreasonably withheld. The
transferring General Partner hereby further agrees to hold the Partnership and
each other Partner wholly and completely harmless from any cost, liability or
damage (including, without limitation, liabilities for income taxes and costs of
enforcing this indemnity) incurred by any of such indemnified Persons as a
result of a transfer or attempted transfer by it in violation of this Agreement.
(a) Notwithstanding anything to the contrary contained herein, a General Partner
will not take any action which would constitute or result in the transfer of
control of the Partnership if such transfer would require, under existing law
(including, without limitation, the written rules and regulations promulgated by
the FCC), the prior approval of the FCC, without first obtaining such approval
of the FCC.
(b) A General Partner shall diligently prosecute its application for
approval of the transfer identified in Section 10.2(b) hereof and shall
immediately provide to the FCC all information requested by the FCC in
connection with the application.
(c) Prior to the FCC's grant of the approval of the transfer
application identified in Section 10.2(b) hereof, a General Partner seeking to
transfer its Partnership Interests shall continue to act in a manner consistent
with the provisions of Article VI of this Agreement.
(d) Any transfer by GTL, other than to an Affiliate, shall be
further subject to a right of first offer as set forth in Section 10.3(b) hereof
fully as though it were a Limited Partner.
SECTION 10.3. Transfer of Interests of Limited Partners.
(a) Restrictions on Transfers. Except as expressly permitted or
required by this Agreement or by the Limited Partner's Subscription Agreement,
absent a Change of Control, as defined below, no Limited Partner shall transfer
all or any portion of its Partnership Interests or any rights therein within the
three year period following March 23, 1994 without the consent of the General
Partners acting through the Committee
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(which consent shall not be unreasonably withheld or delayed), and provided that
if such consent is given, any such transfer shall be subject to Section 10.3(b)
and (c) hereof; provided, however, that a Limited Partner may transfer any or
all of its Partnership Interests to an Affiliate of such Limited Partner without
such approval. Any transfer or attempted transfer by any Limited Partner in
violation of the preceding sentence shall be null and void and of no effect
whatsoever. Each Limited Partner hereby acknowledges the reasonableness of the
restrictions on transfer imposed by this Agreement in view of the Partnership
purposes and the relationship of the Partners. Accordingly, the restrictions on
transfer contained herein shall be specifically enforceable. Each Limited
Partner hereby further agrees to hold the Partnership and each Partner (and each
Partner's successors and assigns) wholly and completely harmless from any cost,
liability, or damage (including, without limitation, liabilities for income
taxes and costs of enforcing this indemnity) incurred by any of such indemnified
Persons as a result of a transfer or an attempted transfer in violation of this
Agreement. As used in this Section 10.3, a "Change of Control" shall be deemed
to have occurred if (i) any person or group (as defined in Section 13(d)(3) of
the Exchange Act) shall have acquired ownership of a majority of the voting
stock of Loral SpaceCom, or (ii) Loral SpaceCom shall no longer be in control,
directly or indirectly, of LQSS.
(b) Rights of First Offer. Except as expressly permitted or required
by this Agreement or by the Limited Partner's Subscription Agreement, absent a
Change of Control, no Limited Partner shall transfer any or all of its
Partnership Interests unless the Limited Partner desiring to make the transfer
(the "Transferor") shall have first made the offers to sell to the other
Partners and, as hereinafter provided, to the Partnership (the "Offerees") and
such offers shall not have been accepted.
(i) Copies of the Transferor's offer (the "Offer Notice") shall be
given to the Offerees and shall consist of an offer to sell to the
Offerees such number of Partnership Interests (the "Offered Interests")
then proposed to be transferred by the Transferor, at a cash price
designated by the Transferor ("Stated Price"), upon only customary terms
and conditions, representations, warranties, covenants and conditions.
(ii) Within 15 days after the receipt of the offer described in
Section 10.3(b)(i) above, each Partner Offeree may, at its option, by
written notice elect to purchase some
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or all the Offered Interests, as specified in such notice, provided that
in the event of an oversubscription, purchases will be pro rated according
to the relative Percentage Interest of all Partners Offerees electing to
exercise their rights of first offer, subject to the 20% ownership
limitation set forth in Section 4.12 hereof. The Partner Offerees shall
exercise such option by giving notice thereof to the Transferor within
such 15-day period. The Partnership will promptly inform each Partner
Offeree in the event that fewer than all of the Offered Interests are
subscribed for, and each Partner Offeree may, within 48 hours thereafter,
increase the amount of its requested maximum subscription.
(iii) Within 10 days after the expiration of the Partners' exercise
period set forth in Section 10.3(b)(ii), if the Partners choose not to
exercise all their rights of first offer under Section 10.3(b)(ii), the
Partnership may, at its option, with the Consent of the Partners, elect to
purchase some or all of the remaining Offered Interests, unless it shall
have refused a request to waive the provisions of Section 4.12 with
respect to a proposed purchase by one or more Limited Partners pursuant to
Section 10.3(b)(ii) above. The Partnership shall exercise such option by
giving notice thereof to the Transferor within such 10-day period.
(iv) If the Transferor's offer shall not be fully subscribed by the
Partners and/or the Partnership at the end of the twenty-five day period
described above, the Transferor shall terminate its offer to the Offerees
on the twenty-sixth day after receipt by the Offerees of the Transferor's
Offer Notice (the "Termination Date") and the Transferor shall be free to
solicit offers for its Offered Interests from third parties for a period
of three months following the Termination Date; provided, however, that
the Transferor shall not offer the Offered Interests at a price that is
less than 95% of the Stated Price, and provided further that if the sale
to the third party is other than entirely for cash on terms described in
clause (a) above, the Transferor shall certify to each of the other
Partners as to the cash value of any noncash consideration. In the event
that the Transferor shall have offered the Offered Interests to third
parties at a price that is less than 95% of the Stated Price or the three
month period shall have lapsed and no bona fide sale of the Offered
Interests shall have been made by the Transferor to a third party, the
restrictions provided for herein shall again become
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effective, and no transfer of Offered Interests may be made thereafter
without again offering the same in accordance with this Section 10.3.
(v) The above-described right of first offer will apply following
any public offering of Partnership Interests, provided that once the
Partners shall have declined to accept an offer at the then-prevailing
market price of the Partnership Interests, the Transferor shall have the
right to sell at any price equal to or in excess of 95% of the prevailing
market price at the time it is permitted to sell hereunder.
(c) Permitted Transfers of Limited Partner Interests. Sections
10.3(a) and (b) hereof shall not apply to any transfer by a Limited Partner of
all or any portion of its Partnership Interests to any Affiliate of such Limited
Partner and will not apply to any of the transactions contemplated by such
Memorandum of Agreement, dated as of January 1, 1995, by and between AirTouch
and Loral Corporation, a New York corporation. Prior to such transfer, such
Affiliate shall affirm in writing that it shall be subject to the terms and
conditions of this Agreement and, if such Affiliate is not controlled by the
Limited Partner transferring its Partnership Interest, the Person who controls
such Affiliate shall agree in writing not to transfer control of such Affiliate
for so long as such Affiliate remains a Limited Partner. If the Limited Partner
transferring its interest controls such Affiliate, the Limited Partner hereby
agrees that it shall not transfer control of such Affiliate for so long as such
Affiliate remains a Limited Partner.
SECTION 10.4. Certain Transfers.
(a) Change of Control. A Partner, substantially all of whose assets
shall consist of Partnership Interests of the Partnership, shall not offer to
sell its securities, or permit its securities or the securities of any
controlling Affiliate to be sold, to another party if such sale would result in
a "Change in Control" of that Partner until and unless such Partner shall have
first made a right of first offer with respect to such securities to the other
Partners and the Partnership in the same manner as that set forth in Section
10.3(a)-(b) above. For purposes of this paragraph, a "Change of Control" shall
be defined as the acquisition of a majority of the voting stock or analogous
equity interest of a Partner by a party other than an Affiliate of the Partner.
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(b) Pre-Approved Transfers. The provisions of Section 10.3(a) and
(b) shall not apply to any transfer of Partnership Interests contemplated by
Schedule X to the Subscription Agreements.
(c) Prior to the third anniversary of the Global Service Date, LQSS
(i) will not withdraw, (ii) will not permit LQSS to be controlled by any Person
other than Loral SpaceCom and (iii) will not, and will not permit any of its
Affiliates to sell, assign or otherwise transfer securities or Partnership
Interests such that, immediately following such transfer, Loral SpaceCom's
direct and indirect interest in the Partnership is reduced to less than 23% of
the total number of Partnership Interests outstanding. Thereafter, unless it
shall have received the Consent of the Disinterested Partners, Loral SpaceCom's
interest in the Partnership held through a General Partner (including GTL for so
long as there has been no GTL Change of Control), whether direct or indirect,
shall not be reduced to less than 15% of the total number of Partnership
Interests outstanding.
ARTICLE XI.
ADMISSION OF SUBSTITUTE PARTNERS
SECTION 11.1. Admission of Successor Limited Partner. (a) A
transferee of a Limited Partner's Partnership Interest shall not be admitted to
the Partnership as a substituted Limited Partner, until the transferee shall
have furnished the Partnership with an agreement, in form reasonably
satisfactory to the Partnership, to be bound by all the terms and conditions of
this Agreement and such other documents or instruments as may be required by the
Partnership in order to effect such transferee's admission as a Limited Partner.
Prior to the time that any transferee of Partnership Interests is admitted to
the Partnership as a Partner, it will have only the rights of a transferee under
Delaware law, shall have no right to require any information or account of the
Partnership transactions constituting Confidential Information or to inspect the
Partnership's books.
(b) Any transferee of a Limited Partner's Partnership Interest who
meets the requirements of subsection (a) may be admitted as a substituted
Limited Partner in the Committee's sole discretion.
(c) For a transferee of a Limited Partner's Partnership Interest to
be admitted as a substituted Limited
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Partner under subsection (d) or (e) below, the transferee must deliver to the
Partnership an opinion of counsel, addressed to the Partnership and in form and
substance satisfactory to the Partnership, to the effect that, assuming the
Partnership has the corporate characteristic of free transferability of
interests and that the transferee is admitted as a substituted Limited Partner,
the Partnership would be classified as a partnership for federal income tax
purposes and would not be classified as an association taxable as a corporation.
(d) Any transferee of a Limited Partner's Partnership Interest who
meets the requirements of subsections (a) and (c) and who is an Affiliate of the
transferor will be admitted as a substituted Limited Partner.
(e) Any transferee of a Limited Partner's Partnership Interest who
meets the requirements of subsections (a) and (c) will be admitted as a
substituted Limited Partner with the consent of the Committee, which consent
will not be unreasonably withheld.
SECTION 11.2. Admission of Successor General Partner. A successor
General Partner selected pursuant to Section 12.1 or the transferee of or
successor to the entire Partnership Interest of a General Partner pursuant to
Section 10.2 shall be admitted to the Partnership as a General Partner,
effective immediately prior to the withdrawal of the withdrawing General Partner
and upon the receipt of proper FCC approval pursuant to Section 10.2(b), and
shall continue the business of the Partnership without dissolution.
Notwithstanding the foregoing, the provisions of Section 11.1 shall govern the
admission of a transferee in a transfer resulting in a GTL Change of Control or
a Reduction in Interest as though GTL were a Limited Partner. The successor
General Partner shall furnish to the Partnership (a) acceptance in form
satisfactory to counsel to the Partnership of all the terms and conditions of
this Agreement and (b) such other documents or instruments as may be required by
such counsel in order to effect its admission as a General Partner. No such
admission shall be effected until the General Partner delivers to the
Partnership an opinion of counsel, addressed to the Partnership and its Partners
to the effect that such admission will not adversely affect the tax status of
the Partnership. Such opinion will not be deemed delivered until approved by the
Consent of the Disinterested Partners, which consent will not be unreasonably
withheld. Any transferee of less than all of the Partnership Interests of a
General Partner pursuant to Section 10.2 shall have only the rights of an
assignee under Delaware law, shall have no right to require any information or
account of the Partnership transactions constituting Confidential Informa-
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tion or to inspect the Partnership's books and shall not be admitted to the
Partnership as a successor General Partner.
SECTION 11.3. Amendment of Agreement and of Certificate of Limited
Partnership. For the admission to the Partnership of any successor Partner, the
Partnership shall take all steps necessary and appropriate to prepare and record
or file as soon as practicable an amendment of this Agreement and the
Certificate of Limited Partnership and may for this purpose exercise the power
of attorney granted pursuant to Section 1.4.
ARTICLE XII.
WITHDRAWAL OR REMOVAL
SECTION 12.1. Withdrawal or Removal of the General Partners. (a) Any
transfer by a General Partner of all of its Partnership Interests as a General
Partner pursuant to Section 10.2 or the conversion of all of its Partnership
Interests pursuant to the Exchange and Registration Rights Agreement shall
constitute the withdrawal of the General Partner for purposes of, and may be
effected only in accordance with, this Section 12.1 and in the case of GTL,
shall be further subject to the provisions of Section 6.3 and in the case of
LQSS, 10.4(c) hereof. A General Partner may not withdraw from the Partnership as
General Partner unless it gives at least 90 days prior written notice of such
withdrawal to the other Partners, such withdrawal shall have been approved by
Consent of the Disinterested Partners and a successor General Partner shall have
been elected by Consent of the Disinterested Partners; provided, however, that
such transfer shall not relieve the General Partner of any of its obligations
hereunder unless the transferee has been adjudged by the Consent of the
Disinterested Partners (which consent shall not be unreasonably withheld) to be
a Person that has at least such comparable financial strength and technical and
managerial capabilities and know-how sufficient for it to perform its duties and
obligations hereunder and it has assumed all preexisting liabilities and
obligations of the General Partner. The notice and election described above
shall not be required in connection with a withdrawal resulting from a transfer
of all of the General Partner's Partnership Interest to an Affiliate Successor,
but the General Partner shall not be relieved of any of its obligations
hereunder without the Consent of the Disinterested Partners required under the
third sentence of Section 10.2(a).
(b) A General Partner may be removed if such removal is for
Nonperformance and if such removal is approved with the Consent of the
Disinterested Partners. Such removal shall be
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effective immediately subsequent to the admission of the successor general
partner who shall be subject to the qualifications of Section 12.1(a) hereto.
The right to remove a General Partner shall not exist or be exercised unless the
Partnership has received an opinion of counsel (which may be counsel selected by
Consent of the Disinterested Partners) that the removal of the General Partner
and the selection of a successor general partner (a) would not cause the loss of
limited liability pursuant to Delaware law of the Limited Partners under this
Agreement, and (b) would not cause the Partnership to be treated as an
association taxable as a corporation for federal income tax purposes.
(c) A General Partner will be discharged from, and the Partnership
or any Person or Persons continuing the business of the Partnership in the event
it has dissolved, shall assume and pay, as they mature, all Partnership
obligations and liabilities that exist on the date of a General Partner's
removal or Approved Withdrawal from the Partnership and, except as otherwise
expressly provided herein, will hold the General Partner harmless from any
action or claim arising or alleged to arise from such assumed obligations and
liabilities accruing after such date. The Partnership or any such Person or
Persons continuing the business of the Partnership will promptly pay all
creditors as of such date or notify such creditors (i) of the withdrawal or
removal of such General Partner, as the case may be, (ii) of the discharge of
such General Partner from all of the Partnership's obligations and liabilities,
and (iii) of the assumption thereof by the Partnership or such Person or Persons
continuing the business of the Partnership. The Partnership or such Person or
Persons continuing the business of the Partnership if the Partnership has
dissolved will use reasonable efforts to procure and execute an agreement from
creditors of the Partnership discharging such General Partner from liability to
such creditors as of the date of such removal or Approved Withdrawal of such
General Partner. Nothing contained in this Section 12.1 shall relieve a General
Partner of any liability it may have as of the date of its withdrawal under
Section 6.11(b). As used in this Section 12.1(c), the term "Approved Withdrawal"
shall mean a withdrawal of a General Partner following the election of a
successor General Partner by Consent of the Disinterested Partners pursuant to
the second sentence of Section 12.1(a) and approval by Consent of the
Disinterested Partners of such successor General Partner's financial strength
and technical and managerial
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capabilities and know-how pursuant to the proviso to the second sentence of
Section 12.1(a) or, in the case of an Affiliate Successor, approval by Consent
of the Disinterested Partners of such Affiliate Successor's financial strength
and technical and managerial capabilities and know-how pursuant to the third
sentence of Section 10.2(a).
(d) Upon such removal, and the election of a successor General
Partner, the interest of a General Partner in the Partnership shall be converted
into limited Partnership Interests, provided that, no representative of such
Limited Partner will be entitled to a vote with respect to such Partnership
Interests to the extent the voting thereof is controlled by Loral SpaceCom
pursuant to Section 6.4 of the LQSS Partnership Agreement.
SECTION 12.2. Right of the Managing General Partner to Become a
Limited Partner. The Managing General Partner may become a Limited Partner by
either (i) converting some but not all of its Partnership Interests to limited
Partnership Interests or (ii) acquiring limited Partnership Interests and
thereby become entitled to all of the rights of a Limited Partner to the extent
of the limited Partnership Interest so converted or acquired, and the Consent of
the Partners need not be obtained. Such event shall not be deemed to reduce any
of the Managing General Partner's liability hereunder and will not prevent the
Managing General Partner from continuing to act as a General Partner. Any
transfer by the Managing General Partner of such limited Partnership Interests
shall be subject to the provisions of Section 10.2(b)-(d). The Managing General
Partner's Capital Contribution referred to in Section 4.1 hereof will be made in
its capacity as General Partner and such Capital Contribution will not entitle
the Managing General Partner to any rights of a Limited Partner, including those
set forth in Article VII hereof.
SECTION 12.3. Withdrawal of Limited Partner. A Limited Partner who
shall have withdrawn from the Partnership shall have no further rights
hereunder.
ARTICLE XIII.
DISSOLUTION AND LIQUIDATION
SECTION 13.1. Dissolution. The Partnership shall dissolve upon:
(a) December 31, 2044;
(b) the withdrawal of a General Partner, or any other event that
results in its ceasing to be a General Partner such as the removal, bankruptcy
or dissolution of the General Partner (other than by reason of a transfer
pursuant to Section 10.2 or withdrawal effective following selection of a
successor pursuant
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to Section 12.1) unless at the time LQSS or a successor to LQSS remains a
general partner of the Partnership;
(c) a sale of all or substantially all of the assets of the
Partnership;
(d) the bankruptcy or the dissolution (and commencement of winding
up) of the Managing General Partner;
(e) any other event that under the Delaware Act would cause its
dissolution, except as otherwise provided herein; or
(f) with the Consent of the Partners, as set forth in Section
6.2(b)(v).
For purposes of this Section 13.1, bankruptcy of the Managing
General Partner shall be deemed to have occurred when (i) it commences in good
faith and under appropriate circumstances a voluntary proceeding or files in
good faith and under appropriate circumstances an answer or other pleading
admitting or failing to contest the material allegations of a petition filed
against it in any involuntary proceeding, which voluntary or involuntary
proceeding seeks a liquidation, reorganization or other relief under any
bankruptcy, insolvency or other similar law now or hereafter in effect, (ii) it
is adjudged bankrupt or insolvent, or has entered against it a final and
non-appealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect, (iii) it executes and delivers a general assignment
for the benefit of its creditors, (iv) it seeks, consents to or acquiesces in
the appointment of a trustee, receiver or liquidator for it or for all or any
substantial part of its properties, or (v) (1) any proceeding of the nature
described in clause (i) above has not been dismissed 120 days after the
commencement thereof or (2) the appointment without its consent or acquiescence
of a trustee, receiver or liquidator appointed pursuant to clause (ii) above has
not been vacated or stayed within 90 days of such appointment, or (3) such
appointment is not vacated within 90 days after the expiration of any such stay.
SECTION 13.2. Continuation of the Business of the Partnership after
Dissolution. To the extent permitted by the Delaware Act, upon dissolution of
the Partnership in accordance with Section 13.1(b), (d) or (e), the remaining
Partners may elect to reconstitute the Partnership and continue its business on
the same terms and conditions set forth in this Agreement if holders of a
majority of the outstanding PPIs and a Majority in Interest of the Partners
agree in writing (1) to continue the business of the Partnership and (2) to the
appointment, if
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necessary, effective as of the date of withdrawal, of a successor Managing
General Partner. Unless such an election is made within 90 days after
dissolution, the Partnership shall conduct only activities necessary to wind up
its affairs. If such an election is made within 90 days after dissolution, then:
(a) the reconstituted Partnership shall continue unless earlier dissolved in
accordance with this Article XIII; and
(b) all necessary steps shall be taken to cancel this Agreement and
the Certificate of Limited Partnership and to enter into a new partnership
agreement and certificate of limited partnership, and the successor Managing
General Partner or GTL, as the case may be, may for this purpose exercise the
powers of attorney granted pursuant to Section 1.4 or such similar provision in
the new partnership agreement.
SECTION 13.3. Winding Up and Liquidation. (a) Upon dissolution of
the Partnership other than pursuant to Section 6.13, unless the Partnership is
continued under an election to reconstitute and continue the Partnership
pursuant to Section 13.2, the Managing General Partner or, in the event the
Managing General Partner has been dissolved or removed, has become bankrupt as
defined in Section 13.1 or has withdrawn from the Partnership, a liquidator or
liquidating committee selected by Consent of the Partners, shall be responsible
for the winding up of the affairs of the Partnership and the distribution of its
assets. The Person or Persons who assume such responsibility (whether they be
the Managing General Partner or not) are referred to herein as the "Liquidator."
In connection with a winding up of the affairs of the Partnership, the
Liquidator shall cause an accounting to be made of the assets and liabilities of
the Partnership. If any liability is contingent or uncertain in amount, a
reserve will be established in such amount as the Liquidator deems reasonably
necessary. Upon satisfaction or other discharge of such contingency, the amount
of the reserve not required, if any, will be distributed as provided in this
Section 13.3.
(b) The Liquidator (if other than the Managing General Partner)
shall be entitled to receive such compensation for its services as may be
approved by Consent of the Partners. The Liquidator shall agree not to resign at
any time without fifteen (15) days' prior written notice and (if other than the
Managing General Partner) may be removed at any time, with or without cause, by
notice of removal signed by Consent of the Partners. Upon dissolution, removal
or resignation of the Liquidator, a
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successor and substitute Liquidator (who shall have and succeed to all rights,
powers and duties of the original Liquidator) shall within thirty (30) days
thereafter be selected by Consent of the Partners. The right to appoint a
successor or substitute Liquidator in the manner provided herein shall be
recurring and continuing for so long as the functions and services of the
Liquidator are authorized to continue under the provisions hereof, and every
reference herein to the Liquidator will be deemed to refer also to any such
successor or substitute Liquidator appointed in the manner herein provided.
Except as expressly provided in this Article XIII, the Liquidator appointed in
the manner provided herein shall have and may exercise, without further
authorization or consent of any of the parties hereto, all of the powers
conferred upon the Committee under the terms of this Agreement (but subject to
all of the applicable limitations, contractual and otherwise, upon the exercise
of such powers) to the extent necessary or desirable in the good faith judgment
of the Liquidator to carry out the duties and functions of the Liquidator
hereunder for and during such period of time as shall be reasonably required in
the good faith judgment of the Liquidator to complete the winding up and
liquidation of the Partnership as provided for herein.
(c) The Liquidator shall liquidate the assets of the Partnership,
and apply and distribute the proceeds of such liquidation in the following order
of priority, unless otherwise required by mandatory provisions of applicable
law:
(i) to the payment of Partnership creditors, including Partners in
respect of loans or guaranteed payments, in order of priority provided by
law;
(ii) to the establishment of reasonable reserves for contingencies;
and
(iii) to the Partners in proportion and to the extent of the
positive balances in their respective Capital Accounts (determined after
applying the provisions of Article V).
(d) The Liquidator shall be authorized to sell any, all or
substantially all of the assets of the Partnership for deferred payment
obligations, and to hold, collect and otherwise administer any such obligations
or any other deferred payment obligations held or acquired as assets of the
Partnership, regardless of the terms of such obligations.
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(e) A reasonable time, including, without limitation, any time
required to collect deferred payment obligations, shall be allowed for the
orderly liquidation of the assets of the Partnership and the discharge of
liabilities to creditors so as to enable the Liquidator to minimize the normal
losses attendant upon the liquidation. Upon the Liquidator's compliance with the
foregoing distribution plan, the Partners shall execute, acknowledge, swear to
and cause to be filed a Certificate of Cancellation of the Partnership. Except
as otherwise expressly provided herein, the General Partners shall not be
personally liable for the return of the original investment or contributions of
the Limited Partners, or any portion thereof. Any such return shall be made
solely from Partnership assets and in accordance with the express provisions
hereof.
(f) If, in the process of collecting any deferred payment obligation
generated by a sale of assets of the Partnership, the Partnership reacquires any
such assets, and if, at such time, there is a Managing General Partner and the
same so determines, the Partnership shall be reconstituted with the Consent of
the Partners upon the terms and conditions hereof.
SECTION 13.4. Cancellation of Certificate of Limited Partnership.
Upon the completion of the distribution provided for in Section 13.3, the
Partnership shall be terminated, and the Liquidator (or the General Partners and
the Limited Partners if necessary) shall cause the cancellation of the
Certificate of Limited Partnership and all qualifications of the Partnership as
a foreign limited partnership in jurisdictions other than the State of Delaware
and shall take such other actions as may be necessary to terminate the
Partnership.
SECTION 13.5. Return of Capital. Except as otherwise expressly
provided herein, the General Partners shall not be personally liable for the
return of the Capital Contribution of the Limited Partners, or any portion
thereof, it being expressly understood that any such return shall be made solely
from Partnership assets.
SECTION 13.6. Waiver of Partition. Each Partner hereby waives any
rights to partition of Partnership property.
SECTION 13.7. Deficit Upon Liquidation. Upon liquidation, the
Partners shall not be obligated to the Partnership for any deficit in their
Capital Accounts.
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ARTICLE XIV.
AMENDMENT OF PARTNERSHIP AGREEMENT;
MEETINGS; RECORD DATE
SECTION 14.1. Amendments to be Adopted Without Consent of the
Partners. The Partnership (pursuant to powers of attorney granted under Section
1.4 hereof), without the Consent of the Partners, may amend any provision of
this Agreement, and execute, swear to, acknowledge, deliver, file and record
whatever documents may be required in connection therewith, to reflect:
(a) a change in the name of the Partnership approved with the
Consent of the Partners or a change in the location of the principal place of
business of the Partnership;
(b) a change that the Partnership, based upon the opinion of outside
counsel, furnished to all the Partners, has determined to be reasonable and
necessary or advisable (i) to qualify or continue the qualification of the
Partnership as a limited partnership or a partnership in which the limited
partners have limited liability under the laws of any state or (ii) to ensure
that the Partnership will not be treated other than as a partnership for federal
income tax purposes;
(c) a change (i) that the Partnership, based upon the opinion of
outside counsel, furnished to all the Partners, has determined is necessary or
desirable to satisfy any requirements, conditions or guidelines contained in any
opinion, directive, order, ruling or regulation of any federal or state agency
or judicial authority or contained in any federal or state statute, compliance
with any of which the Partnership deems to be in the best interests of the
Partners, or (ii) that is expressly required or expressly contemplated by this
Agreement or is otherwise herein expressly permitted to be made by the
Partnership;
(d) immaterial amendments to correct any mistake or clear omission
or to reflect the surrender of any rights or the assumption of any additional
responsibilities by the General Partners; or
(e) any amendment necessary to give effect to the issuance and sale
of Additional Partnership Interests permitted by Sections 4.4 and 4.10 hereof or
to give effect to the admission of any Additional Limited Partners pursuant
thereto, including such amendments to Article V hereof as are necessary to give
effect to any allocations of Income or Loss to the holder of such Additional
Partnership Interests and any distributions to be
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made to such holders and do not adversely affect the other Partners.
SECTION 14.2. Amendment Procedures. Except as provided in Section
14.1, all amendments to this Agreement shall be made in accordance with the
following requirements. Subject to Sections 6.2(b)(i) and 14.1, any proposed
amendment shall be effective only upon the consent of the Committee and the
Consent of the Partners, provided, that no amendment adversely affecting the
capital account or other economic rights of any Partner shall be made without
such Partner's consent. Promptly after the adoption of an amendment to this
Agreement as provided hereunder, the Partnership shall forward a copy of such
amendment to each Partner.
ARTICLE XV.
GENERAL PROVISIONS
SECTION 15.1. Addresses and Notices. The address of each Partner for
all purposes shall be the address as set forth on the signature page of this
Agreement or such other address of which each other Partner has received written
notice. All notices, requests, demands and other communications required or
permitted to be given under this Agreement shall be sent to the party to whom
the notice is to be given, by telex, fax (confirmed by first class mail, postage
prepaid), telegram or first class mail, postage prepaid and properly addressed
as provided in this Agreement (in each case such notice shall be deemed to have
been duly given on the day the notice is first received by that party) or to
such other address or Person as may be designated by a party, by notice given in
accordance with this Section.
SECTION 15.2. Titles and Captions. All article or section titles or
captions in this Agreement are for convenience only. They shall not be deemed
part of this Agreement and in no way define, limit, extend or describe the scope
or intent of any provisions hereof. Except as specifically provided otherwise,
references to "Articles" and "Sections" are to Articles and Sections of this
Agreement.
SECTION 15.3. Pronouns and Plurals. Whenever the context may
require, any pronoun used in this Agreement shall include the corresponding
masculine, feminine or neuter forms, and the singular form of nouns, pronouns
and verbs shall include the plural and vice versa.
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SECTION 15.4. Further Action. (a) The parties shall execute
and deliver all documents, provide all information and take or refrain from
taking action as may be necessary or appropriate to achieve the purposes of
this Agreement.
(b) At any time or times, upon the request of the Partnership, the
Partners hereby agree to sign and swear to any certificate required by Delaware
or other applicable law, to sign and swear to any amendment to or cancellation
of any such certificate whenever such amendment or cancellation is required by
or appropriate under law, to sign and swear to or acknowledge similar
certificates or affidavits or certificates of fictitious firm name, trade name
or the like (and any amendments or cancellations thereof) required by or
appropriate under the laws of Delaware or any other jurisdiction in which the
Partnership does or proposes to do business, and cause the filing of any of the
same for record wherever such filing shall be required by law.
SECTION 15.5. Binding Effect. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their heirs,
executors, administrators, successors, legal representatives and permitted
assigns.
SECTION 15.6. Integration. This Agreement together with the
Subscription Agreement entered into by each Partner or the assignor of its
Partnership Interests and the Mutual Non-Disclosure Agreement dated January 11,
1994, entered into by and among the Partnership and certain of its Partners (the
"Mutual Non-Disclosure Agreement"), constitutes the entire agreement among the
parties hereto pertaining to the subject matter hereof and supersedes all prior
agreements and understandings pertaining thereto.
SECTION 15.7. Creditors. None of the provisions of this
Agreement shall be for the benefit of or enforceable by any creditors of the
Partnership.
SECTION 15.8. Waiver. No failure by any party to insist upon the
strict performance of any covenant, duty, agreement or condition of this
Agreement or to exercise any right or remedy consequent upon a breach thereof
shall constitute waiver of any such breach or any other covenant, duty,
agreement or condition.
SECTION 15.9. Counterparts. This Agreement may be executed in
counterparts, all of which together shall constitute one agreement binding on
all the parties hereto, notwithstanding that all such parties are not
signatories to the original or
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the same counterpart. Each party shall become bound by this Agreement
immediately upon affixing its signature hereto independently of the signature of
any other party.
SECTION 15.10. Dispute Resolution. (a) The Parties shall attempt to
resolve by good faith and diligent negotiation any dispute, controversy or claim
between them arising out of or relating to this Agreement, or the breach,
termination or invalidity thereof. If such negotiations are not concluded within
30 days of a Party's request for negotiations, a Party may (other than with
respect to a controversy arising pursuant to Section 12.1 hereof) initiate
arbitration as provided for below.
(b) International Arbitration. Any dispute, controversy or claim
arising out of or relating to this Agreement, or the breach, termination or
invalidity thereof, that involves a non-U.S. Party and that has not been
amicably resolved pursuant to the procedures of Section 15.10(a), shall be
settled by arbitration in accordance with the UNCITRAL Arbitration Rules as at
present in force. The language of the arbitration proceedings shall be English.
The number of arbitrators shall be one. If such an international arbitration is
initiated by the Partnership, the place of arbitration shall be Geneva,
Switzerland, the appointing authority shall be the Chamber of Commerce and
Industry of Geneva; and any arbitrator appointed by the appointing authority
shall be a retired Swiss federal or cantonal judge of a federal or cantonal
court of general jurisdiction or any court having appellate jurisdiction over
such a court. If the arbitration is initiated by GTL or the Limited Partners,
the place of arbitration shall be New York, New York; the appointing authority
shall be the American Arbitration Association; and any arbitrator appointed by
the appointing authority shall be a retired United States federal judge or a
retired state court judge of a federal or state court of general jurisdiction or
any court having appellate jurisdiction over such a court.
(c) U.S. Arbitration. Any dispute, controversy or claim arising out
of or related to this Agreement, or the breach, termination or invalidity
thereof, that involves only U.S. Parties and that has not been amicably resolved
pursuant to the procedures of Section 15.10(a), shall be settled by arbitration
in accordance with the UNCITRAL Arbitration Rules as at present in force. The
language of the arbitration proceedings shall be English. The number of
arbitrators shall be one. If the arbitration is initiated by the Partnership,
the place of arbitration shall be San Francisco, California. If the arbitration
is initiated by the Limited Partners, the place of arbitration shall be New
York, New York. The appointing authority shall be the American Arbitration
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Association. Any arbitrator appointed by the appointing authority shall be a
retired United States federal judge or a retired state court judge of a federal
or state court of general jurisdiction or any court having appellate
jurisdiction over such a court.
(d) Resolution of Common Issues. If at any time there is pending an
arbitration under this Section 15.10 and such arbitration involves one or more
significant issues of law or fact the resolution of which a Partner desires
binding on some or all its Partners, the Partnership may give written notice to
such Partners identifying the issue of law or fact the resolution of which the
Partnership desires to be so binding and inviting each Partner to join in such
arbitration as provided in this Section 15.10(d). Each Partner which shall have
received such a notice shall have the right (but shall not be obligated) to
become a party to such arbitration for the limited purpose of the resolution of
such issue of law or fact. The arbitrator in such arbitration may supplement and
alter the UNCITRAL Rules in their application to such arbitration as may be
necessary or appropriate to accommodate the multi-party nature of the
arbitration and to ensure the just, expeditious, economical and final
determination of the dispute. The award in any such arbitration shall be final
and binding, as to resolution of the issues of fact and law decided therein and
identified in the notice from the Partnership given pursuant to this Section
15.10(d), on all of the Partners who were given notice of such arbitration and
an opportunity to participate as parties therein, whether or not they
participated in such arbitration.
(e) Enforcement. Arbitral awards under this Section 15.10 shall be
final and binding, and shall be enforceable in any court having jurisdiction.
SECTION 15.11. Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW. REFERENCES HEREIN TO TEMPORARY OR
FINAL TREASURY REGULATIONS ALSO REFER TO CORRESPONDING PROVISIONS OF SUCCESSOR
AND SUPERSEDING REGULATIONS.
SECTION 15.12. Confidentiality. (a) For purposes of this Agreement,
"Confidential Information" shall mean all oral, written and/or tangible
technical, financial, business and/or any other information of whatever kind
created by the Partnership or disclosed by a Partner or its Affiliate or the
Partnership (in any case "Owner") to a receiving party ("Recipient") which is
confidential, proprietary and/or not generally available to the public,
including, but not limited to, information relating, in
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whole or in part, to present and future services related to the Partnership's
business, business plans and strategies, marketing ideas and concepts, pricing,
volume estimates, financial data, market testing information, development plans,
specifications, configurations, designs, plans, drawings, apparatus, sketches,
software, hardware, data, connecting requirements or other technical and
business information. Confidential Information provided by Owner shall remain
the sole and exclusive property of Owner.
(b) During the term of this Agreement, and until the fifth
anniversary of the termination thereof, or in the event of the transfer by a
Partner of all of its Partnership Interests prior to the termination of this
Agreement, until the fifth anniversary of such transfer, Confidential
Information:
(i) shall be treated in confidence by Recipient and shall be used
only for purposes of Recipient's performance of its obligations under this
Agreement, or any other written agreement between Owner and Recipient
entered into subsequent to the Effective Date or the GTL Effective Date,
as the case may be, in connection with the Partnership's business;
(ii) shall not be reproduced or copied in whole or in part, except
as necessary for use as authorized herein; and
(iii) shall be disseminated only to those of its and its Affiliates'
employees, agents and subcontractors who have a need to know it (and such
employees, agents and subcontractors shall be advised of the obligations
assumed herein). Recipient shall ensure by appropriate procedures that
those employees, agents and subcontractors to whom Confidential
Information is disseminated or disclosed treat such Confidential
Information in confidence pursuant to this paragraph.
(c) Notwithstanding the foregoing, information shall not be deemed
Confidential Information and Recipient shall have no obligation with respect to
any such information which:
(i) is or was in the possession of the Recipient at the time
of disclosure by Owner, and was not previously acquired by the Recipient
directly or indirectly from Owner under an obligation to keep such
information confidential; or
(ii) is or becomes publicly known, through no negligence or
other wrongful act of Recipient; or
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(iii) is received by Recipient from a third party having, to
the best knowledge of the Recipient, a lawful right to disclose, subject
to, as to disclosed information, any restriction as to use, imposed by
such third party; or
(iv) is independently developed by Recipient, as evidenced by
its records.
(d) Upon the termination of this Agreement, or upon a transfer by a
Partner of its Partnership Interest, written Confidential Information will be
returned to Owner or destroyed immediately upon the request of Owner, and no
copies, extracts or other reproductions shall be retained by Recipient. All
documents, memoranda, notes and other writings whatsoever prepared by Recipient
which contain the Confidential Information shall be returned to Owner or
destroyed at Owner's request. The redelivery or destruction of such materials
shall not relieve Recipient of its obligation of confidentiality or other
obligations hereunder.
(e) If Recipient (or its Affiliate) is required by order of any
competent authority (by oral questions, interrogatories, directions, requests
for information or documents, subpoena, civil investigative demand or similar
process) to disclose any Confidential Information, Recipient will promptly
notify Owner of such order or requirement and shall cooperate with Owner in
seeking appropriate protective arrangements requested by Owner. If, in the
absence of a protective order or the receipt of a waiver hereunder, Recipient
(or any of its Affiliates) is in the written opinion of Recipient's counsel
compelled to disclose the Confidential Information or else stand liable for
contempt or suffer other censure or significant penalty, Recipient (or its
Affiliate) may disclose only so much of the Confidential Information to the
authority compelling disclosure as is required by law. Recipient will exercise
(and will cause its Affiliate to exercise) reasonable efforts to obtain
appropriate protective arrangements or other reliable assurance that
confidential treatment will be accorded to Confidential Information.
(f) The terms and conditions of this Agreement and all exhibits,
attachments and amendments hereto and thereto shall be considered Confidential
Information protected under this Section 15.12.
(g) Notwithstanding anything in this Section 15.12 to the contrary,
in the event that any Confidential Information is also subject to a limitation
on disclosure or use contained in another written agreement between Owner and
Recipient which is
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more restrictive than the limitations contained in this Section 15.12, then the
limitation in such agreement shall supersede this Section 15.12.
(h) The Partners hereby agree that within six months of the date of
this Agreement, they shall conform the provisions set forth in this Section
15.12 with those contained in the Mutual Non-Disclosure Agreement and any other
agreement relating to confidentiality that may be in effect among the parties
hereto.
SECTION 15.13. Invalidity of Provisions. If any provision of this
Agreement is or becomes invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not be affected thereby, unless the effect would be to materially
and adversely affect the economic rights of any Partner.
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IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
duly executed and delivered by this respective duly authorized officer as of the
day and year first above written.
LORAL/QUALCOMM SATELLITE SERVICES, L.P.
by LORAL/QUALCOMM PARTNERSHIP, L.P.
its General Partner
by LORAL GENERAL PARTNER, INC.
its General Partner
By:/s/Eric J. Zahler
--------------------------------------
Name: Eric J. Zahler
Title: Vice President
GLOBALSTAR TELECOMMUNICATIONS LIMITED
By:/s/Eric J. Zahler
--------------------------------------
Name: Eric J. Zahler
Title: Vice President
Limited Partners:
AIRTOUCH SATELLITE SERVICES, INC.
DACOM CORPORATION
DACOM INTERNATIONAL, INC.
HYUNDAI CORPORATION
HYUNDAI ELECTRONICS INDUSTRIES CO., INC.
LORAL/DASA GLOBALSTAR, L.P.
LORAL SPACE & COMMUNICATIONS LTD.
SAN GIORGIO S.p.A.
TELESAT LIMITED
TE.SA.M
VODAFONE SATELLITE SERVICES LIMITED
By: LORAL/QUALCOMM SATELLITE SERVICES, L.P.
by LORAL/QUALCOMM PARTNERSHIP, L.P.
its General Partner
by LORAL GENERAL PARTNER, INC.
its General Partner
By:/s/Eric J. Zahler
--------------------------------------
Name: Eric J. Zahler
as Attorney-in-Fact
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Addresses for Notices
of Limited Partners:
AIRTOUCH SATELLITE SERVICES, INC.
One California Street
San Francisco, CA 94105
DACOM CORPORATION
DACOM Building
65-228
3 Ka. Hangang-Ro
Yongson-ku
Seoul, Korea
DACOM INTERNATIONAL, INC.
DACOM Building
Kukje Elec. Center
Seochu Ku,
Seoul 137 070
Korea
HYUNDAI CORPORATION
Hyundai-Jeonja
Building #1003
66 Chuckseon-Dong,
Chongro-Ku
Seoul, Korea 110-052
HYUNDAI ELECTRONICS
INDUSTRIES CO., LTD.
Hyundai-Jeonja
Building #1003
66 Chuckseon-Dong,
Chongro-Ku
Seoul, Korea 110-052
LORAL/DASA GLOBALSTAR, L.P.
3825 Fabian Way
Palo Alto, CA 94303
LORAL SPACE & COMMUNICATIONS LTD.
600 Third Avenue
38th Floor
New York, N.Y. 10016
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<PAGE> 95
SAN GIORGIO S.p.A.
Viale Maresciallo Pilsudski 92
00197 Roma, Italy
TELESAT LIMITED
c/o ChinaSat
42 Xue Yuan Road
Beijing, China 10083
T.E.SA.M.
66, Avenue du Maine
75014 Paris, France
VODAFONE SATELLITE SERVICES LIMITED
The Courtyard
2-4 London Road
Newbury, Berkshire RG13 1JL
United Kingdom
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SCHEDULE A
SCHEDULE OF PARTNERS
Initial Capital Interests Currently
Partner Contribution* Held
- ------- ------------- ----
LQSS $50,000,000 18,000,000 OPIs
$326,956,000** 15,338,533 OPIs
see Footnote No. 1A 4,904,060 OPIs
GTL see Footnote No. 1B 7,000,000 PPIs
AirTouch Satellite
Services $37,500,000 3,000,000 OPIs
DACOM International see Footnote No. 2 90,000 OPIs
Hyundai Corporation see Footnote No. 2 183,000 OPIs
Hyundai Electronics see Footnote No. 2 1,281,000 OPIs
Loral/DASA Globalstar,
L.P. $37,500,000 3,000,000 OPIs
Loral Space &
Communications Ltd. $37,500,000 7,176,000 OPIs
San Giorgio S.A. $18,750,000 610,000 OPIs
TE.SA.M $37,500,000 1,830,000 OPIS
TeleSat $18,750,000 937,500 OPIs
Vodafone Satellite
Services Limited $37,500,000 1,830,000 OPIs
- -------------------
* Represents initial capital contributions funded by the partners to
acquire partnership interests at the outset.
** Includes the net proceeds from GTL's initial public offerings and issuance
by GTL of common stock upon the exercise of outstanding warrants and
employee stock options as of December 31, 1998.
1A. 4,769,231 PPIs were issued in consideration of the net proceeds from the
CPEO Offering; these were subsequently converted into 4,769,231 OPIs. In
addition, an interest make-whole payment of 134,829 OPIs were issued in
April, 1998 in connection with a provisional redemption of the PPIs.
1B. Issued in consideration of the net proceeds from the Preferred Stock
Offering.
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2. The initial contribution of $37,500,000 was made by the Hyundai/DACOM
consortium.
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SCHEDULE B
RELATED PARTY TRANSACTIONS
1. Contract for the Development of Certain Portions of the Ground Operations
Control Center between Globalstar and Loral Western Development
Laboratories, a division of Loral Aerospace Corp. as outlined in the
request for Consent of Disinterested Partners, dated May 2, 1994.
2. Contract for the Development of Satellite Orbital Operations Centers
between Globalstar and Loral Aerosys, a division of Loral Aerospace Corp.
3. Office Lease between Globalstar and Loral Western Development
Laboratories.
4. Subcontract Providing Work for Hyundai, dated April 29, 1994, between
Globalstar, SS/L and Hyundai.
5. Support Agreement (completed), dated August 26, 1994, between Globalstar
and AirTouch.
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SCHEDULE C
ARTICLE I
Covenants
SECTION 1.1. Distributions on PPIs. Cumulative accrued distributions
shall be payable on the PPIs as set forth in Section 5.5(a)(ii) and subject to
Section 5.5(e) of this Agreement on each Scheduled Distribution Payment Date
commencing on May 15, 1999 (or, if such date is not a Business Day, on the next
succeeding Business Day). Subject to Section 5.5 of this Agreement,
distributions on the PPIs shall occur, as and if designated by the Committee in
its sole discretion. Distributions on the PPIs will accrue on a daily basis (360
day year and twelve 30-day months) (without interest or compounding) whether or
not the Partnership has earnings or profits, whether or not there are funds
legally available for the payment of such distributions and whether or not such
distributions are declared.
Distribution Arrearages shall not accrue interest.
SECTION 1.2. Deferral of Distributions. The Partnership may defer
paying Scheduled Distributions on any Scheduled Distribution Payment Date if the
Committee so determines in its sole discretion, but so long as any Distribution
Arrearage remains outstanding, except as set forth in Section 5.5(a)(iv) of the
Partnership Agreement and Section 4.1 of this Schedule C, the Partnership will
be prohibited from paying distributions on (i) its OPIs or (ii) preferred
partnership interests that may be issued in the future other than pro rata based
on the redemption amount of such preferred partnership interests, except for
distributions (A) on OPIs consisting solely of OPIs, (B) on securities that rank
pari passu or junior to the PPIs, in securities that rank pari passu or junior
to the PPIs, respectively, or (C) on securities that rank senior to the PPIs.
SECTION 1.3. Payment of Redemption Price and Distributions.
(a) The Partnership will duly and punctually pay or cause to be paid
by no later than one Business Day prior to the date such payment is due the
redemption price of the PPIs, and any applicable additional amounts in
accordance with the terms of Sections 2.6, 2.7 and 2.8 of this Schedule C;
(b) The Partnership may elect, at its option, to pay the Redemption
Price (including any Distribution Make Whole
<PAGE> 100
Payment) of, and Scheduled Distributions, on, the PPIs, (i) in cash, (ii) by
delivery of OPIs (in the manner described in paragraph (c) of this Section 1.3)
or (iii) through any combination of the foregoing as selected by the Committee
in its sole discretion.
(c) If the Partnership elects to deliver any OPIs in lieu of a cash
payment on the applicable date of payment, the Partnership shall deliver, in the
aggregate, the number of OPIs equal to (i) the amount of payment that is not
being paid in cash, (ii) divided by: (A) in the case of any Scheduled
Distributions, Provisional Redemption payment, Distribution Make-Whole Payment,
Optional Redemption payment, or portion thereof, 95% of the Average Market Value
of the GTL Common Stock; (B) in the case of any Mandatory Redemption payment, or
portion thereof, (1) if on the date of such payment the Shelf Registration
Statement covers the resale of such shares and is effective or no longer
required to be effective, 100% of the Average Market Value of the GTL Common
Stock and (2) otherwise, 90% of the Average Market Value of the GTL Common
Stock; provided, however, if GTL shall have made a GTL Dividend Payment Notice
or a GTL Response Redemption Notice which indicates that GTL shall have elected
to make its corresponding payment from the proceeds from the sale of any
issuance of GTL Common Stock, then the valuation of the OPIs to be issued by the
Partnership pursuant to Section 1.3(c) of this Schedule C shall be based upon
the actual price at which such GTL Common Stock is sold.
(d) The Partnership shall deliver a Globalstar Distribution Payment
Notice to GTL 15 Business Days prior to the applicable record date corresponding
to the Scheduled Distribution Payment Date.
SECTION 1.4. Certain Accompanying Payments. PPIs surrendered for
conversion during the period from the close of business on any Regular Record
Date next preceding any Scheduled Distribution Payment Date to the opening of
business on such Scheduled Distribution Payment Date (except PPIs called for
redemption on a Redemption Date from the close of business on any Regular Record
Date to the close of business on the Business Day immediately following the
corresponding Scheduled Distribution Payment Date) must be accompanied by
payment in cash, OPIs or a combination thereof in an amount equal to the
distribution thereon which GTL is entitled to receive; provided, that no payment
shall be owed or payable to GTL if the Committee shall have elected to defer the
distribution to be made on such Scheduled Distribution Payment Date. No other
adjustment for
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distributions, including any Distribution Arrearages, is to be made upon
conversion.
ARTICLE II
Redemption of PPIs
SECTION 2.1. Right of Redemption; Mechanics of Redemption. (a) The
PPIs may be redeemed pursuant to (i) a Provisional Redemption (as described in
Section 2.6 of this Schedule C, any such Provisional Redemption shall include
the Distribution Make-Whole Payment, as well as accrued and unpaid Scheduled
Distributions (including an amount equal to a prorated Scheduled Distribution
for any period following the immediately preceding Scheduled Distribution
Payment Date) and Preferred Stock Liquidated Damages, if any, to the date of
such Provisional Redemption)) or (ii) an Optional Redemption (as described in
Section 2.7 of this Schedule C, any such Optional Redemption shall include
accrued and unpaid Scheduled Distributions (including an amount equal to a
prorated Scheduled Distribution for any period following the immediately
preceding Scheduled Distribution Payment Date) and Preferred Stock Liquidated
Damages, if any, to the date of such Optional Redemption), at the election of
the Partnership, in whole or from time to time in part; the PPIs shall be
redeemed at the Mandatory Redemption Date, at the Redemption Price specified in
Section 2.8, together with accrued and unpaid Scheduled Distributions and
Preferred Stock Liquidated Damages, if any, to the Mandatory Redemption Date.
(b) The Partnership shall deliver a Globalstar Redemption Notice to
GTL not fewer than 40 days nor more than 60 days before any such Redemption
Date.
SECTION 2.2. Selection by the Managing General Partner of PPIs to be
Redeemed. If any PPI selected for partial redemption is converted in part before
termination of the conversion right with respect to the portion of the PPI so
selected, the converted portion of such PPI shall be deemed (so far as may be)
to be the portion selected for redemption. PPIs which have been converted during
a selection of PPIs to be redeemed shall be treated by the Managing General
Partner as Outstanding for the purpose of such selection, but not for the
purpose of paying the Redemption Price thereof.
For all purposes of this Schedule C, unless the context otherwise
requires, all provisions relating to the redemption of PPIs shall relate, in the
case of any PPIs redeemed or to be
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redeemed only in part, to the portion of the redemption amount of such PPI which
has been or is to be redeemed.
SECTION 2.3. Notice of Redemption. Whenever a Globalstar Redemption
Notice is required to be delivered to GTL, such Notice shall state:
(1) the Redemption Date;
(2) the Redemption Price and the form of consideration the
Partnership will use to satisfy the Redemption Price;
(3) if less than all the Outstanding PPIs are to be redeemed, the
identification (and, in the case of partial redemption, the redemption
amounts) of the particular PPIs to be redeemed;
(4) that on the Redemption Date the Redemption Price, together with
(i) in the case of a Provisional Redemption, the Distribution Make-Whole
Payment and accrued and unpaid Scheduled Distributions (including an
amount equal to a prorated Scheduled Distribution for any period following
the immediately preceding Scheduled Distribution Payment Date) and
Preferred Stock Liquidated Damages, if any, to the Provisional Redemption
Date (ii) in the case of an Optional Redemption, accrued and unpaid
Scheduled Distributions (including an amount equal to a prorated Scheduled
Distribution for any period following the immediately preceding Scheduled
Distribution Payment Date) and Preferred Stock Liquidated Damages, if any,
to the Optional Redemption Date, and (iii) in the case of a Mandatory
Redemption, accrued and unpaid Scheduled Distributions and Preferred Stock
Liquidated Damages, if any, to the Mandatory Redemption Date, will become
due and payable upon each such PPI to be redeemed and that distributions
thereon will cease to accrue on and after said date;
(5) the Conversion Ratio, the date on which the right to convert the
PPIs to be redeemed will terminate and the place or places where such PPIs
may be surrendered for conversion; and
(6) the place or places where such PPIs are to be surrendered for
payment of the Redemption Price.
SECTION 2.4. Deposit of Redemption Price. Prior to any Redemption
Date, the Partnership shall deposit with the
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Partnership's paying agent (or, with the Partnership if the Partnership is
acting as its own paying agent with respect to the PPIs) an amount of
consideration sufficient to pay, in the case of a cash payment, or deliver, in
the case of delivery of OPIs, the Redemption Price, together with (i) in the
case of a Provisional Redemption, the Distribution Make-Whole Payment and
accrued and unpaid Scheduled Distributions (including an amount equal to a
prorated Scheduled Distribution for any period following the immediately
preceding Scheduled Distribution Payment Date) and Preferred Stock Liquidated
Damages, if any, to the Provisional Redemption Date (ii) in the case of an
Optional Redemption, accrued and unpaid Scheduled Distributions (including an
amount equal to a prorated Scheduled Distribution for any period following the
immediately preceding Scheduled Distribution Payment Date) and Preferred Stock
Liquidated Damages, if any, to the Optional Redemption Date, and (iii) in the
case of a Mandatory Redemption, accrued and unpaid Scheduled Distributions and
Preferred Stock Liquidated Damages, if any, to the Mandatory Redemption Date, on
all the PPIs which are to be redeemed on that date (other than any PPIs called
for redemption on that date which have been converted prior to the date of such
deposit, except with respect to any applicable Distribution Make-Whole Payment
and Preferred Stock Liquidated Damages, which shall be payable regardless of
such conversion).
If any PPI called for redemption is converted, any cash or OPIs
deposited with the Partnership's paying agent or with the Partnership shall
(subject to any right of GTL to receive accrued and unpaid distributions as
provided in Section 1.3 of this Schedule C) be paid or delivered to the
Partnership upon its request. Any Distribution Make-Whole Payment will be paid
to GTL on the date of conversion or the Provisional Redemption Date, as the case
may be.
SECTION 2.5. PPIs Payable on Redemption Date. Notice of redemption
having been given as aforesaid, the PPIs so to be redeemed shall, on the
Redemption Date, become due and payable at the Redemption Price therein
specified plus such other amounts as may be due and payable pursuant to the
terms hereof, and from and after such date (unless the Partnership shall default
in the payment of the Redemption Price and accrued Scheduled Distributions
(including an amount equal to a prorated Scheduled Distribution for any period
following the immediately preceding Scheduled Distribution Payment Date) and
Preferred Stock Liquidation Damages, if any, to the Redemption Date or, if
applicable, any Distribution Make-Whole Payment) no further distributions shall
be payable or accrue with respect to such
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PPIs and such PPIs shall cease to be convertible into OPIs. Upon surrender of
any such PPI for redemption in accordance with said notice, such PPI shall be
paid, subject to Section 1.3, by the Partnership at the Redemption Price,
together with accrued Scheduled Distributions to the Redemption Date.
If any PPI called for redemption shall not be so paid upon surrender
thereof for redemption, the Redemption Price (but not any accrued and unpaid
Scheduled Distributions) shall, until paid, bear interest from the Redemption
Date at 8% per annum.
SECTION 2.6. Provisional Redemption. The Partnership may redeem, in
whole or in part (a "Provisional Redemption"), at any time on or prior to
February 15, 2002, at the Redemption Price of 104.6% of the aggregate Stated
Value of the PPIs to be redeemed (the "Provisional Redemption Date"), in the
event that the Current Market Value of the GTL Common Stock equals or exceeds
the following Trigger Percentages of the prevailing GTL Conversion Price then in
effect for at least 20 Trading Days in any consecutive 30 Trading Day period
ending on the Trading Day prior to the date of mailing of the Globalstar
Redemption Notice if called for Provisional Redemption in the 12-month period
ending February 15 of the following years:
Year Trigger Percentage
---- ------------------
2000 170%
2001 160%
2002 150%
Upon any Provisional Redemption, the Partnership shall make the
Distribution Make-Whole Payment with respect to the PPIs called for redemption.
The Partnership shall make the Distribution Make-Whole Payment on all PPIs
called for Redemption, regardless of whether such PPIs are converted prior to
the Provisional Redemption Date.
SECTION 2.7. Subsequent Optional Redemption. The PPIs may be
redeemed, in whole or from time to time in part, at the option of the
Partnership (the "Optional Redemption") on or after February 20, 2002 at a
redemption price equal to the percentage of the Stated Value set forth below, in
each case, together with accrued and unpaid Scheduled Distributions (including
an amount equal to a prorated Scheduled Distribution for any period following
the immediately preceding Scheduled Distribution
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Payment Date) and Preferred Stock Liquidated Damages, if any, to the date of
redemption, upon not less than 30 nor more than 60 days' prior written notice,
if redeemed during the 12-month period commencing on the dates set forth below:
Year Redemption Price
---- ----------------
February 20, 2002 104.6%
February 19, 2003 103.4%
February 19, 2004 102.3%
February 19, 2005 101.1%
February 19, 2006 and
thereafter 100.0%
SECTION 2.8. Mandatory Redemption. Each PPI (if not earlier redeemed
or converted) will be mandatorily redeemed by the Partnership on the Mandatory
Redemption Date at a Redemption Price of 100% of the Stated Value thereof,
together with accrued and unpaid Scheduled Distributions and Preferred Stock
Liquidated Damages, if any, to the Mandatory Redemption Date.
SECTION 2.9. Other Redemption Procedures. No Provisional Redemption
or Optional Redemption may be authorized or made unless, prior to giving the
applicable redemption notice, all accumulated and unpaid distributions for
periods ended prior to the date of such redemption notice shall have been paid
in cash or OPIs. In the event of partial redemptions of PPIs, the PPIs to be
redeemed will be determined pro rata or by lot, as determined by the
Partnership, provided that the Partnership may redeem all PPIs held by holders
of fewer than 100 PPIs (or by holders that would hold fewer than 100 PPIs
following such redemption) prior to its redemption of other PPIs.
ARTICLE III
Conversion of PPIs
SECTION 3.1. Conversion Privilege and Conversion Price. Subject to
and upon compliance with the provisions of this Article, one PPI initially shall
be convertible into the number of OPIs (the "Conversion Ratio") determined by
dividing $50 by the product of the initial conversion price applicable to the
Preferred Stock, which is $23.2563, and 4.05. One PPI shall initially be
convertible into .53085 OPIs (i.e., $50 Stated
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<PAGE> 106
Value/($23.5623 initial conversion price times 4.05)). This Conversion Ratio
shall be adjusted in certain circumstances as provided in Section 3.4. Upon any
conversion of Preferred Stock by a holder thereof, GTL shall convert a
proportionate amount of PPIs into OPIs. Such conversion right shall expire at
the close of business on the Business Day next preceding the Mandatory
Redemption Date. In case a PPI or portion thereof is called for redemption, such
conversion right in respect of the PPI so called shall expire at the close of
business on the Business Day next preceding the Redemption Date, unless the
Partnership defaults in making the payment due upon redemption.
SECTION 3.2. Exercise of Conversion Privilege. PPIs surrendered for
conversion during the period from the close of business on any Regular Record
Date next preceding any Scheduled Distribution Payment Date to the opening of
business on such Scheduled Distribution Payment Date shall (except PPIs called
for redemption on a Redemption Date from the close of business on any Regular
Record Date to the close of business on the Business Day immediately following
the corresponding Scheduled Distribution Payment Date) be accompanied by payment
in cash, OPIs or a combination thereof in an amount equal to the distribution
thereon which GTL is entitled to receive; provided, that no payment shall be
owed or payable to GTL if the Committee shall have elected to defer the
distribution to be made on such Scheduled Distribution Payment Date. No other
adjustment for distributions, including any Distribution Arrearages, is to be
made upon conversion.
PPIs shall be deemed to have been converted immediately prior to the
close of business on the day of surrender of such PPIs for conversion in
accordance with the foregoing provisions, and at such time the rights of GTL
with respect to such PPIs shall cease, and OPIs issuable upon conversion shall
be treated for all purposes as having been issued at such time.
SECTION 3.3. Fractions of Interests. In the event that GTL shall be
required to pay a cash adjustment in lieu of any issuance of fractional
interests in GTL Common Stock as provided in its Bye-Laws and GTL shall not have
cash available to make such payment, then the Partnership shall make a cash
distribution to GTL, in lieu of a payment of such amount in OPIs under this
Agreement and to the extent that funds shall be legally available thereof, to
allow GTL to make such cash adjustments.
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SECTION 3.4. Adjustment of Conversion Ratio. Upon a subdivision,
combination or reclassification of OPIs, the Conversion Ratio shall be adjusted
to take into account such subdivision, combination or reclassification.
SECTION 3.5. Provisions in Case of Consolidation, Merger or
Conveyance or Transfer of Properties and Assets. In case of any consolidation of
the Partnership with, or merger of the Partnership into, any other partnership
or other business entity, or in case of any merger of another partnership or
other business entity into the Partnership (other than a merger which does not
result in any reclassification, conversion, exchange or cancellation of
outstanding Partnership Interests or a transaction governed by Section 6.13 of
this Agreement), or in case of any conveyance or transfer of the properties and
assets of the Partnership substantially as an entirety, the partnership,
corporation, or other business entity formed by such consolidation or resulting
from such merger or which acquires by conveyance or transfer such properties and
assets, as the case may be, shall execute and deliver to GTL an agreement
providing that GTL shall have the right thereafter, during the period PPIs shall
be convertible as specified in this Article III, to convert such PPIs only into
the kind and amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance or transfer by a Partner holding OPIs
immediately prior to such consolidation, merger, conveyance or transfer,
assuming such Partner failed to exercise its rights of election, if any, as to
the kind or amount of partnership interests, securities, cash and other property
receivable upon such consolidation, merger, conveyance or transfer (provided
that, if the kind or amount of securities, cash and other property receivable
upon such consolidation, merger, conveyance or transfer is not the same for each
unit of Ordinary Partnership Interests in respect of which such rights of
election shall not have been exercised ("nonelecting share"), then for the
purpose of this Section the kind and amount of partnership interests, cash and
other property receivable upon such consolidation, merger, conveyance or
transfer by each nonelecting OPI shall be deemed to be the kind and amount so
receivable per share by a plurality of the nonelecting OPIs). Such agreement
shall provide for adjustments which, for events subsequent to the effective date
of such agreement, shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article. The above provisions of this Section
shall similarly apply to successive consolidations, mergers, conveyances or
transfers. The Partnership will not become a party to any consolidation or
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merger unless the terms of such consolidation or merger are consistent with this
Section.
SECTION 3.6. Taxes on Conversions. The Partnership will pay any
and all taxes that may be payable in respect of the issue or delivery of OPIs
on conversion of PPIs pursuant hereto.
ARTICLE IV
Subordination of PPIs
SECTION 4.1. PPIs Subordinate to All Liabilities. The PPIs shall be
subordinated and subject, to the extent and in the manner herein set forth, in
right of payment to the prior payment in full of all existing and future
liabilities of the Partnership, including without limitation: (i) certain
distributions made to partners in respect of taxes levied upon the operations of
Globalstar; (ii) distributions of the Management Fee; and (iii) guarantee fees
to be made to partners and other persons in connection with their guarantee of
the Partnership's obligations under the Globalstar Credit Agreement.
SECTION 4.2. No Payments When Liabilities in Default; Payment Over
of Proceeds upon Dissolution, etc. In the event the Partnership shall default in
the payment of any liabilities of the Partnership when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by declaration
or otherwise, then, unless and until such default shall have been cured or
waived or shall have ceased to exist, no direct or indirect payment (in cash or
property, by setoff or otherwise) need be made or agreed to be made on account
of the PPIs (excepting cash payment for fractional interests as set forth in
Section 3.3 above).
Upon the happening of an event of default with respect to any
liability, as defined therein or in the instrument under which the same is
outstanding, permitting the holders thereof to accelerate the maturity thereof
(under circumstances when the terms of the preceding paragraph are not
applicable), unless and until such event of default shall have been cured or
waived or shall have ceased to exist, no direct or indirect payment (in cash or
property, by setoff or otherwise) need be made or may agreed to be made on
account of the PPIs (excepting cash payment for fractional interests as set
forth in Section 3.3 above).
In the event of:
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<PAGE> 109
(a) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to the Partnership or its property;
(b) any proceeding for the liquidation, dissolution or other winding
up of the Partnership or its property;
(c) any assignment by the Partnership for the benefit of
creditors; or
(d) any other marshaling of the assets of the Partnership;
all liabilities (including any interest thereon accruing after the commencement
of any such proceedings) shall first be paid in full before any payment or
distribution (direct or indirect), whether in cash or property, by setoff or
otherwise, need be made on account of any PPIs.
SECTION 4.3. Voting Rights. Excepting as required by law, the PPIs
will not have any voting rights. Upon a Voting Rights Deferral Triggering Event,
(i) the number of members of the Committee will be increased by one and (ii) the
holders of the Preferred Stock, voting separately as a class with the holders of
any other securities upon which similar voting rights have been conferred and
are exercisable, will be entitled to elect one representative to the Committee
(the "Preferred Stock Representative"). The Preferred Stock Representative will
promptly resign upon receipt of notice from GTL that all Distribution Arrearages
with respect to the PPIs have been paid.
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<PAGE> 1
10/07/97
GLOBALSTAR, L.P.
SUBSCRIPTION AGREEMENT
1. (a) Globalstar, L.P., a limited partnership with offices at 3200, Zanker
Road, San Jose, California, U.S.A. organized under the laws of the State of
Delaware (the "Partnership") for the purpose of developing, designing,
deploying, owning and operating a worldwide low-earth orbit satellite-based
digital telecommunication system ("the Globalstar System") which will, among
other things, extend terrestrial telecommunications networks by radio frequency
access to handhold and various other terminals. China Telecommunications
Broadcast Satellite Corporation ("Chinasat" or "Subscriber") with offices at
No.2 Xi Tu Cheng Road, Beijing, Peoples Republic of China, is an independent
legal entity organized under the laws of China and is under the direct
supervision of the Ministry of Posts and Telecommunications (MPT of CHINA) with
responsibility for the development and operation of satellite telecommunication
including mobile satellite telecommunication services. The Parties reached this
agreement through negotiation based on the existing cooperation and the same
propose to promote the development of Globalstar mobile telecommunication
service. Meanwhile, (i) Whereas, in connection with this Subscription Agreement,
Chinasat has signed the Founding Service Provider Agreement with Globalstar
L.P., set forth attached as Exhibit 3. (ii) Whereas, Globalstar L.P. fully
recognizes that Chinasat will play an important role on promoting Globalstar
mobile telecommunication service in China. Chinasat will have the same right and
obligation as other Limited Partners, based on Percentage Interest. (iii)
Whereas, in connection with the execution of the Service Provider Agreement,
Globalstar L.P. is willing to sell the Partnership Interests to Chinasat. (iv)
Whereas, in connection with the execution of the Service Provider Agreement,
Chinasat is willing to purchase the Partnership Interests from Globalstar L.P.
(v) Whereas, the China Telcom (Hong Kong) Group Limited is a Telecommunications
company under the direct supervision of the Ministry of Posts and
Telecommunications of China with offices at Hong Kong, and with responsibility
for the development and operation of international telecommunication services.
Subject to the Founding Service Provider Agreement dated November 11, 1996 and
item 5(a) of Schedule X hereof, CHINASAT and Globalstar L.P. have agreed that
the Subscription Agreement will be signed by the China Telcom (Hong Kong) Group
Limited and Globalstar L.P. The parties hereby agree: Globalstar L.P. has agreed
to sell Chinasat $37.5 million Partnership Interests set forth on Schedule I and
Schedule II, for an amount in cash in U.S. dollars equal to the Agreed
Contribution set forth on such Schedule I and the Agreed additional Contribution
set forth on Schedule II (the "Agreed Contribution"). Attached hereto as Exhibit
A is the Amended and Restated Agreement of Limited Partnership of Globalstar,
L.P., dated as of December 31, 1994, as amended on March 6, 1996 (the
"Partnership Agreement") and Exchange and Registration Rights Agreement pursuant
to which Subscriber or its Affiliate shall become an Additional Limited Partner
on the Closing Date (as hereinafter defined). Attached hereto as Exhibit 4 is
Exchange and Registration Rights Agreement to be entered into by Chinasat, the
Partnership and Globalstar Telecommunications Limited, a company organized under
the laws of Bermuda ("the Exchange and Registration Rights
1
<PAGE> 2
Agreement") pursuit to which Subscriber or its Affiliate shall receive certain
exchange and registration rights described therein. Capitalized terms not
defined herein shall have the meanings set forth in the Partnership Agreement.
(b) In addition to the sale to Subscriber of the Partnership
Interests set forth on Schedule I to this Subscription Agreement, the
Partnership hereby grants to Subscriber, on the terms and subject to the
conditions set forth herein, an option (the "Option") to purchase the additional
Partnership Interests set forth on Schedule II to this Subscription Agreement
(the "Additional Partnership Interests") for an amount in cash in U.S. dollars
equal to the Agreed Additional Contribution set forth on, such Schedule II (the
"Agreed Additional Contribution")
(i) The Option is not currently exercisable and shall not
become exercisable prior to the date on which all of the conditions
to exercise shall have been satisfied (the "Satisfaction Date"). The
following are the conditions to exercise the Option:
(a) Subscriber or an MPT Affiliate shall have purchased
the Partnership Interests set forth on Schedule I to this
Subscription Agreement.
(b) The Service Provider Agreement is in full force and
effect.
(c) Subscriber shall have commenced Globalstar mobile
telecommunications services in China on the Full Service Date (as
defined in the Service Provider Agreement) and revenues from such
service shall have exceeded certain target revenue levels in
accordance with the MOA signed in April of 1996.
(ii) The Option shall be exercisable in whole, but not in
part, on or after the Satisfaction Date through the date that is 30
calendar days after the Satisfaction Date the "Exercise Period.
Subscriber may exercise the Option during the Exercise Period by
delivering a written notice to the Partnership of Subscriber's
election to exercise (the "Exercise Notice"). Upon receipt of the
Exercise Notice, the Partnership shall, within 30 calendar days,
cause to be prepared a subscription agreement, substantially in the
form of this Subscription Agreement (the "Additional Partnership
Interest Subscription Agreement"), relating to the purchase of the
Additional Partnership Interests underlying the Option, which shall
be promptly executed and delivered by the Partnership and
Subscriber. The Partnership shall sell and Subscriber shall purchase
the Additional Partnership Interests for an amount in cash in U.S.
dollars equal to the Agreed Additional Contribution in accordance
with the Additional Partnership Interest Subscription Agreement,
where as closing shall be held no later than 30 days following the
day for additional Partnership Interest Subscription Agreement is
delivered by the Partnership to Chinasat for execution.
2. Subscriber acknowledges that the subscription for the Partnership Interests
set forth on Schedule I to this Subscription Agreement is irrevocable and
subject only to the conditions set forth in Section 10 hereof (the "Closing
Conditions").
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<PAGE> 3
3. Subject to Section 10 hereof, Subscriber shall pay to the Partnership on
November 24, 1997 or on such later date as the Partnership may specify in
writing to Subscriber (the "Closing Date") an amount in cash in U.S. dollars
equal to the Agreed Contribution set forth on Schedule I to this Subscription
Agreement. Subscriber shall pay the Agreed Contribution by wire transfer of same
day funds to [Bank of America, Chicago, Illinois ABA #071000039, for the account
of Globalstar L.P. #79-10061]
4. (Reserved)
5. Subscriber represents and warrants to the Partnership as follows:
(a) The Partnership Interests are being acquired by Subscriber
for investment purposes only and not as a nominee or agent for the
benefit of any other person, and Subscriber has no current intention
of distributing, reselling or assigning the Partnership Interests or
any part thereof other than as set forth in item 5(a)to Schedule X
hereto.
(b) Subscriber understands that the Partnership Interests have
not been registered under the Securities Act of 1933, as amended
(the "1933 Act"), or under the laws of any jurisdiction, and that
the Partnership does not contemplate and is under no obligation to
register the Partnership Interests except pursuit to the Exchange
and Registration Rights Agreement. Subscriber understands and agrees
further (i) that the Partnership Interests must be held indefinitely
unless the Partnership Interests are subsequently registered under
the 1933 Act or other applicable laws or an exemption from
registration under the 1933 Act or other applicable laws covering
the sale of Partnership Interests is available, and (ii) that, even
if an exemption from the 1933 Act or other applicable laws is
available, the assignability and transferability of the Partnership
Interests will be governed by the Partnership Agreement, which
imposes substantial restrictions on transfer. Subscriber understands
that legends stating that the Partnership Interests have not been
registered under the 1933 Act and setting out or referring to the
restrictions on transferability and sale of the Partnership
Interests will be placed on all documents evidencing the Partnership
Interests.
(c) Subscriber has been furnished and has carefully read the
Partnership Agreement, the Form 10-K for the years ended December
31, 1995 and 1996 and l0-Q for the quarters ended March 31, 1997 and
June 30, 1997 of GTL (the "GTL 10-K and l0-Q"), GTL's proxy
statement for its 1996 Annual Meeting (the "GTL Proxy Statement"),
and the Offering Memorandum of GTL dated February 29, 1996, relating
to the issuance by GTL of 6.5% Convertible Preferred Equivalent
Obligations due 2006 (the "GTL Offering Memorandum," and together
with the GTL 10-K and the GTL Proxy Statement, the "GTL Disclosure
Documents").
(d) Subscriber is aware that: (i) an investment in the
Partnership involves a degree of risk and (ii) no Federal or state
agency has approved or disapproved the Partnership Interests nor has
any such agency passed upon the accuracy or adequacy of the
Memorandum.
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<PAGE> 4
(e) Subscriber has sufficient financial resources available to
support the loss of all or a portion of Subscriber's investment in
the Partnership, and is able to bear the economic risk of the
investment.
(f) Subscriber is sophisticated and experienced in investment
matters, and, as a result, Subscriber is in a position to evaluate
an investment in the Partnership.
(g) Subscriber has been furnished any and all materials
Subscriber has requested relating to the Partnership or the offering
of Partnership Interests and Subscriber has been questions of
afforded the opportunity to ask representatives of the Partnership
concerning the terms and conditions of the offering and to obtain
any additional information necessary to verify the accuracy of any
representations or information appearing in the Partnership
Agreement or the GTL Disclosure Documents.
(h) Subscriber has relied only on the Partnership Agreement,
the Exchange and Registration Rights Agreement, the GTL Disclosure
Documents, the representations and warranties set forth in Section
hereto and any other material set forth in item 5(h) to Schedule X
hereto in determining to invest in the Partnership.
(i) Subscriber is an "accredited investor" within the meaning
of Rule 501(a) of Regulation D promulgated under the 1933 Act.
(j) Subscriber has: (i) duly taken any and all action
necessary to authorize Subscriber's execution, delivery and
performance of this Subscription Agreement in accordance with its
terms and (ii) validly executed and delivered this Subscription
Agreement. This Subscription Agreement constitutes the valid and
binding obligation of Subscriber, enforceable in accordance with its
terms. The execution and delivery of this Subscription Agreement do
not and will not, and the performance of the Subscription Agreement,
upon obtaining all required approvals by the People's Republic of
China and any other governmental authority having jurisdiction over
Subscriber, each of which is set forth on Schedule III hereto
(collectively, the "Required Governmental Approvals"), will not (i)
violate any provisions of law, statute, rule or regulation to which
Subscriber is subject or any order, decree or judgment applicable to
Subscriber or (ii) conflict with, result in a material breach of or
constitute (with due notice or lapse of time or both) a material
default under, any term or condition of any indenture, agreement or
other instrument to which Subscriber is a party or by which it or
any of its properties or assets is bound or result in the creation
or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of Subscriber.
(k) Subscriber's fiscal year ends on December 31 and
Subscriber understands and agrees that it shall not attempt to
transfer its interests hereunder unless it shall have first obtained
information relating to the transferee's fiscal year.
(l) To the representations and warranties, if any, set forth
in item 5(1) to Schedule X hereto.
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<PAGE> 5
6. The Partnership represents, warrants and covenants to Subscriber as follows:
(a) The Partnership has been duly formed, is validly existing
and in good standing under the laws of the State of Delaware, and
has all requisite partnership power and authority to conduct the
business in which it proposes to engage as described in the
Partnership Agreement and Exchange and Registration Rights Agreement
(a complete and correct copies of which have been furnished to
Subscriber) and to enter into this Subscription Agreement and
perform its obligations hereunder.
(b) The Partnership Agreement has been duly executed and
delivered by the General Partners and, assuming the valid
authorization, execution and delivery of the Partnership Agreement
by the Limited Partners, will, as to each of such Limited Partners,
constitute a legal, valid and binding agreement, enforceable in
accordance with its terms. The execution and delivery of this
Subscription Agreement and Exchange and Registration Rights
Agreement and the issuance of Partnership Interests contemplated
hereby will not conflict with or result in any violation of or
default under any of the provisions of the Partnership Agreement, or
any agreement or other instrument to which the Partnership is a
party or by which the Partnership or any of its respective
properties are bound, or any permit, franchise, judgment, decree,
statute, rule or regulation applicable to the Partnership or its
business or its respective properties. The Partnership Interest to
be issued and sold to the Subscriber pursuant to this Subscription
Agreement and the Partnership Agreement have been duly and validly
authorized, and when issued and delivered in accordance with the
terms of the Subscription Agreement, will be validly issued, fully
paid and will constitute valid and binding obligations of the
Partnership.
(c) Neither the Partnership nor anyone acting on its behalf of
the Partnership has taken or will take any action that would subject
the issuance and sale of Partnership Interests to the registration
and prospectus delivery provisions of the Securities Act of ,1933,
as amended.
(d) The Partnership is not required to register as an
"investment company" under the Investment Company Act of 1940, as
amended.
(e) This Subscription Agreement, the Partnership Agreement,
the Exchange and Registration Rights Agreement do not, to the best
knowledge of the Partnership, as of the date hereof, and the GTL
Disclosure Documents as of their respective dates do not, to the
best knowledge of the Partnership, contain any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(f) Since March 31, 1997, there has not been any occurrence,
development or change that has had, either alone or together with
all such occurrences, developments or changes, a material adverse
effect on the Partnership.
5
<PAGE> 6
(g) The Partnership has acquired or will acquire rights from
QUALCOMM subject and pursuant to terms and conditions of the
QUALCOMM Development Agreement (including but not limited to the
royalty provisions contained therein). The Partnership has acquired
or will acquire rights from SS/L pursuant to the Satellite Contract
and/or (on a royalty-free non-exclusive license basis) from Loral
("Loral") and its Affiliates, Space & Communication Ltd., to use all
of the intellectual property rights owned by such parties which the
Partnership deems necessary to license or acquire or use in regard
to the design, development, deployment and operation of the
Globalstar System, Gateways (as such term is defined in the Service
Provider Agreement) and compatible handsets for the effectuation of
the Partnership's Business Plan. The Partnership has received no
notice that the name and trademark "GLOBALSTAR" or any of the
intellectual property rights described above infringe upon any
patent or copyright, violate a patent license, copyright
registration or any pending application relating thereto or conflict
with or violate any trademark or trade secret right of any person
except for such infringement, violation or conflict which would not
have a material adverse effect on the Partnership or its business.
No licenser who has granted material technology or intellectual
property rights to the Partnership and who is an Affiliate of the
General Partner or an Upper Tier Partner may terminate or modify in
any materially adverse way any material license granted to the
Partnership, even if such licensor were no longer to be an Affiliate
of the General Partner or of an Upper Tier Partner or if the General
Partner withdrew or was removed from or transferred all or part of
its interest in the Partnership or any Upper Tier Partner withdrew
or was removed from or transferred all or part of its interest in
any Upper Tier Partnership or if the Partnership were dissolved. The
General Partner will not, and will not permit any of its Affiliates,
including SS/L to, utilize any of the intellectual property created
pursuant to the Satellite Contract in support of any competing
Mobile Satellite Service (as defined by the FCC).
(h) There are no actions, suits or proceedings pending or, to
the knowledge of the Partnership, threatened against or affecting
the Partnership or any property of the Partnership in any court or
before any arbitrator of any kind or before or by any governmental
authority which in the aggregate, if adversely determined, would
have a material adverse effect on the Partnership or the business of
the Partnership.
(i) Upon the grant by the FCC to Loral/QUALCOMM Partnership,
L.P. ("LQP") as successor to Loral Qualcomm Satellite Services,
Inc., of the license to operate the Globalstar System, as discussed
in the REGULATION" section of the GTL Offering Memorandum, LQP will
utilize such license exclusively through, and for the exclusive
benefit of, the Partnership without further consideration other than
the partnership awarded in respect of rights granted under this
covenant. To the best of the Partnership s knowledge, Affiliates of
the Partnership, including Loral, have provided to the FCC
sufficient evidence of Loral's financial resources and its
endorsement of the Globalstar project to meet the financial
qualification requirements for the grant of the FCC Applications,
and will continue to submit such future financial information
required by the FCC and will not retract the commitments heretofore
made to the FCC. Having due regard for
6
<PAGE> 7
the FCC Notice of Proposed Rulemaking, dated January 19, 1994, the
Partnership is not aware of any reason why the grant of the FCC
Applications is unlikely.
7. This agreement shall be executed on the date set forth below. Chinasat will
not become a Limited Partner until the Closing Date. Chinasat shall have the
same rights and obligations defined in the Partnership Agreement and Exchange
and Registration Rights Agreement as other existing Limited Partners after the
Closing Date, based on its Percentage Interest in Globalstar L.P.
8. Subscriber acknowledges receipt of the Partnership Agreement and the GTL
Disclosure Documents, and Subscriber and the General Partners specifically
accept, adopt and agree to each and every provision of the Partnership
Agreement. The Partnership Interests subscribed for and in this Subscription
Agreement will not be deemed issued, or owned by subscriber until the
Partnership Agreement is amended to include subscriber as a Limited Partner as
contemplated by Section 10(e) hereto on or prior to the Closing Date.
9. Subscriber (or its Affiliate) and the Partnership have entered into the
founding Service Provider Agreement, in connection with this Subscription
Agreement, in the form attached hereto as Exhibit 3.
10. The obligations of the Partnership and Subscriber to consummate the
transactions contemplated by this Subscription Agreement are subject to the
following conditions:
(a) Subscriber shall have obtained all Required Governmental
Approvals (as indicated in Schedule III attached hereto);
(b) the representations and warranties of each of the
Partnership and Subscriber contained in this Subscription Agreement
shall be true and correct in all material respects when made at and
as of the Closing Date;
(c) Subscriber shall have received favorable opinions of
counsel, dated the Closing Date, from Willkie Farr & Gallagher,
substantially in the forms of Exhibit 1 and 2 hereto;
(d) The Partnership shall have received the Consent of the
Partners (as defined in the Partnership Agreement), with respect to
the admission of Subscriber as a Limited Parter prior to or on the
Closing Date.
(e) Each of the Partnership Agreement and the Exchange and
Registration Right Agreement shall have been amended (i) to reflect
the admission of the Subscriber as a Limited Partner and (ii) The
Subscriber shall be in entitled to all of the rights of a Limited
Partner, set forth in the Partnership Agreement. Concurrently with
the closing, Chinasat, the Partnership and GTL shall have executed
the Exchange and Registration Rights Agreement prior to or on the
Closing Date; and
(f) the additional conditions, if any, set forth in item 10(d)
of Schedule X.
7
<PAGE> 8
11. Each party hereto represents that no person or firm acting on behalf of such
party or under such party's authority is or will be entitled to any broker's or
finder's fees or commissions or similar fees directly or indirectly from any of
the parties hereto in connection with any of the transactions contemplated
herein.
12. Subscriber recognizes that the sale of the Partnership Interests to
Subscriber is based upon its representations and warranties as set forth herein,
and hereby agrees to indemnify the Partnership, the General Partners and the
partners, employees, agents and representatives of the Partnership and the
General Partner and their respective partners, employees, agents and
representatives harmless from and against all liability, damage, cost or
expenses (including reasonable attorneys' fees) (i) arising as a result of the
sale or distribution of the Partnership Interests or any part thereof or
interest therein, by the Subscriber in violation of the 1933 Act or other
applicable law, including other federal and state securities laws, or (ii) which
the Partnership, the General Partner and their respective partners, directors,
employees, agents and representatives may incur by reason of any material breach
of such warranties and representations by the Subscriber or any inaccuracy or
other deficiency in the information provided by the Subscriber.
13. The Partnership recognizes that the purchase of the Partnership Interests by
Subscriber is based upon the Partnership's representations and warranties in
this Subscription Agreement, and hereby agrees to defend and indemnify
Subscriber its Affiliates and their respective directors, officers, employees,
agents and representatives against any and all liability, damage, cost or
expense (including reasonable attorneys' fees) which Subscriber or its
Affiliates or their respective directors, officers, employees, agents or
representatives may incur in excess of $100,000, in the aggregate, by reason of
any material breach of such representations and warranties of the Partnership.
14. Such representations and warranties will survive for one year following the
date hereof (provided that the representations and warranties contained in
paragraphs (e) and (I) (other than the first sentence of paragraph (i)) of
Section 6 shall survive until the first anniversary of the Globalstar In-Service
Date, the representations and Warranties contained in Section 6 (h) herein shall
Survive until the first anniversary of the date of discovery of any breach
thereof by Subscriber and the representations and warranties contained in
Section 6(g) and the first sentence of Section 6 (i) of section 5 shall survive
indefinitely), after which time they shall be of no further force or effect,
except with respect to claims asserted prior to such date.
15. This Subscription Agreement shall be construed in accordance with, and
governed in all respects by, the laws of the State of Delaware, U.S.A., without
giving effect to the conflicts of laws provisions thereof.
16. The dispute resolution provision of the Partnership Agreement contained in
Article 15.10 thereof shall apply to this Subscription Agreement.
17. This Subscription Agreement will have two versions, one in English and one
in Chinese, both will be effective upon signing by the Parties.
18. Except as set forth in. item 18 of Schedule X hereto, neither party shall
assign delegate any of the obligations or rights (including the Option) created
under this Subscription Agreement without the prior written consent of the other
party except to an Affiliate, provided
8
<PAGE> 9
that no such assignment will relieve Subscriber of any of its obligations
hereunder. This Subscription Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns
19. Except as otherwise expressly provided in this Subscription Agreement, all
legal and other fees, costs and expenses incurred in connection with this
Subscription Agreement and the transactions contemplated hereby shall be paid by
the party incurring such fees, costs or expenses.
20. This Subscription Agreement, and the documents referenced herein, represents
the entire agreement and understanding of the parties hereto with reference to
the transactions set forth herein.
21. The waiver by any party hereto of a breach of any provision of this
Subscription Agreement shall not Operate or be construed as a waiver of any
subsequent breach, whether or not similar. This Subscription Agreement may be
amended, modified or supplemented only by a written instrument executed by the
parties through friendly negotiation hereto.
22. All notices, requests, demands or other communications provided herein shall
be made in writing and shall be deemed to have been duly given if delivered
personally, telecopied or sent by registered or certified first class mail,
postage prepaid, as follows: (a) if to the Partnership, to it at the address
shown on the first page hereof; and (b) if to Subscriber to it at the address
shown on Schedule I hereto or to such other address as either party shall have
specified by notice in writing to the other party. All such notices, requests,
demands and communications shall be deemed to have been received on the date of
delivery or telecopy on the third business day after the mailing thereof.
23. The terms and conditions set forth on Schedule X hereto shall be deemed to
be incorporated herein and made part of this Subscription Agreement and shall
supersede any inconsistent provisions hereof.
9
<PAGE> 10
24. Subscriber has executed this Subscription Agreement on the date set forth
below.
Date: Oct. 24, 1997
CHINA TELECOM (HONG KONG) GROUP
LIMITED
By /s/ Chen Zhaobin
Name: Chen Zhaobin
Title: President
Accepted:
GLOBALSTAR, L.P.
By: /s/ Tony Navarra
Name: Tony Navarra
Title: Executive Vice President
10
<PAGE> 11
SCHEDULE - I
Name of Subscriber:
China Telecommunications Broadcast Satellite Corporation
Address:
No.2, Xi Tu Cheng Road
Beijing 100088, People's Republic of China
Telecopier #-.
937,500 Partnership Interests
Agreed Contribution: $18.75 million
11
<PAGE> 12
SCHEDULE II
OPTION
Name of Subscriber:
China Telecommunications Broadcast Satellite Corporation
937.500 Additional Partnership Interests*
Agreed Additional Contribution: $18.75 million
* In the event of any reclassification, recapitalization, combination or
exchange of Partnership Interests in the Partnership or other similar events
after the date of this Subscription Agreement, the number and form of additional
Partnership Interests to be purchased shall adjusted appropriately.
12
<PAGE> 1
FOURTH AMENDMENT TO THE
GLOBALSTAR, L.P. REVOLVING CREDIT AGREEMENT
FOURTH AMENDMENT (the "Amendment"), dated as of November 13, 1998
to the Revolving Credit Agreement, dated as of December 15, 1995, as amended by
the First Amendment dated March 25, 1996, the Second Amendment dated July 31,
1997, and the Third Amendment dated October 15, 1997 (as such agreement may be
further amended, supplemented or otherwise modified from time to time, the
"Credit Agreement") among GLOBALSTAR, L.P., a Delaware limited partnership ( the
"Borrower""), the several financial institutions parties from time to time
thereto (the "Banks") and THE CHASE MANHATTAN BANK, a New York banking
corporation, as administrative agent (the "Administrative Agent"). All
capitalized terms used herein and not otherwise defined herein shall have the
respective meanings provided such terms in the Credit Agreement.
WHEREAS, the Borrower, the Banks and the Administrative Agent hereby
agree to amend the Credit Agreement and set forth below, such changes to be
effective as of the date hereof:
1. Amendment to Section 6.1 (c). Section 6.1 (c) shall be amended by
deleting such section in its entirety and inserting the following in lieu
thereof:
Permit for any period of four consecutive fiscal
quarters ending prior to the Release Date (and commencing March 31,
2000) the ratio of (i) the sum of Consolidated Net Income for such
period plus income taxes deducted in determining such Consolidated
Net Income plus Consolidated Fixed Charges for such period to (ii)
Consolidated Fixed Charges for such period to be less than 2.0 to
1.0, provided that for the Borrower's fiscal quarter ending on (A)
March 31, 2000, such ratio shall be calculated for the fiscal
quarter then ended, (B) June 30, 2000, such ratio shall be
calculated for the two consecutive fiscal quarters then ended and
(iii) September 30, 2000, such ratio shall be calculated for the
three consecutive fiscal quarters then ended and provided further
that for the fiscal quarter ending on March 31, 2000, such ratio
shall not be less than 1.5 to 1.0.
<PAGE> 2
2. Representations and Warranties. The Borrower hereby confirms
that (i) all of the representations and warranties made by the Borrower and its
subsidiaries contained in the Loan Documents are true and correct in all
material respects on and as of the date hereof (other than representations and
warranties made as of a specific date) after giving effect to this Amendment;
(ii) no consent or authorization of any other Loan Party is required to render
this Amendment effective or validate or confirm any other Loan Document; (iii)
no Default or Event of Default shall have occurred and be continuing in the date
hereof after giving effect to this Amendment.
3. Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts , each
of which counterparts when executed and delivered shall be an original, but all
of which together shall constitute one and the same instrument. A complete set
of counterparts shall be lodged with the Borrower and the Administrative Agent.
4. Governing Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK.
5. Construction. From and after the date hereof, references in the
Credit Agreement and the other Loan Documents to the Credit Agreement shall be
deemed to reference the Credit Agreement as modified hereby.
2
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly
executed and delivered by their respective duly authorized officer as of the day
and year first above written.
GLOBALSTAR, L.P.
By:/s/Stephen Wright
--------------------------------
Name: Stephen Wright
Title: Chief Financial Officer
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Bank
By:/s/Richard C. Smith
--------------------------------
Name: Richard C. Smith
Title: Vice President
BANK OF AMERICA ILLINOIS
By:/s/Steve A. Aronowitz
--------------------------------
Name: Steve A. Aronowitz
Title: Managing Director
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By:________________________
Name:
Title:
THE BANK OF NEW YORK
By:/s/Ken Sneider
--------------------------------
Name: Kenneth P. Sneider, Jr.
Title: Vice President
THE BANK OF NOVA SCOTIA
By:______________________
Name:
Title:
3
<PAGE> 4
BARCLAYS BANK PLC
By:/s/L. Peter Yetman
--------------------------------
Name: L. Peter Yetman
Title: Associate Director
BAYERISCHE LANDESBANK
CIROZENTRALE
By:/s/James H. Boyle
--------------------------------
Name: James H. Boyle
Title: Second Vice President
BANQUE NATIONALE DE PARIS
By:______________________
Name:
Title:
By:______________________
Name:
Title:
CIBC INC.
By:______________________
Name:
Title:
CITICORP USA, INC.
By:/s/George E. Moyer, Jr.___
__________________________
Name: George E. Moyer, Jr.
Title: Attorney-In-Fact
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By:_____________________
Name:
Title:
4
<PAGE> 5
CREDIT SUISSE
By:/s/Credit Suisse____________
-----------------------------
Name: Credit Suisse
Title:
THE DAI-ICHI KANGYO BANK, LIMITED,
NEW YORK BRANCH
By:/s/Masaaki Ishikura
--------------------------------
Name: Masaaki Ishikura
Title: Vice President
THE FUJI BANK, LIMITED
NEW YORK BRANCH
By:_____________________
Name:
Title:
HYPOBANK, NEW YORK BRANCH
By:/s/Constance Madden
--------------------------------
Name: Constance Madden
Title: Vice President
THE INDUSTRIAL BANK OF JAPAN, LIMITED -
NEW YORK BRANCH
By:/s/Kenneth Begen
--------------------------------
Name: J. Kenneth Begen
Title: Senior Vice President
LTCB TRUST COMPANY
By:/s/Ken Yoshizakt
--------------------------------
Name: Ken Yoshizakt
Title: Senior Vice President
MELLON BANK, N.A.
By:_____________________
Name:
Title:
5
<PAGE> 6
THE MITSUBISHI TRUST AND BANKING CORPORATION
By:_____________________
Name:
Title:
NATIONAL CITY BANK
By:_____________________
Name:
Title:
NATIONSBANK, N.A.
By:/s/Pamela S. Kurtzman
--------------------------------
Name: Pamela s. Kurtzman
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By:/s/PNC Bank, National Association
--------------------------------
Name: PNC Bank, National Association
Title:
ROYAL BANK OF CANADA
By:/s/Royal Bank of Canada
--------------------------------
Name: Royal Bank of Canada
Title:
ISTITUTO BANCARIO SAN PAOLO DI TORINO S.P.A.
By:/s/W. Jones
--------------------------------
Name: W. Jones
Title: Vice President
THE SANWA BANK, LIMITED
By:/s/The Sanwa Bank, Limited
--------------------------------
Name: The Sanwa Bank, Limited
Title:
6
<PAGE> 7
SOCIETE GENERALE
By:_____________________
Name:
Title:
THE SUMITOMO BANK, LIMITED
By:/s/Kozo Masaki
______________________________
Name: Kozo Masaki
Title: General Manager
TORONTO DOMINION (TEXAS), INC.
By:_____________________
Name:
Title:
THE YASUDA TRUST & BANKING COMPANY, LIMITED
By:_____________________
Name:
Title:
7
<PAGE> 1
AMENDMENT TO THE EXCHANGE AND
REGISTRATION RIGHTS AGREEMENT
AMENDMENT, dated as of April 8, 1998 to the EXCHANGE AND
REGISTRATION RIGHTS AGREEMENT, dated as of December 31, 1994 (the "Agreement"),
among GLOBALSTAR, L.P., a Delaware limited partnership ("Globalstar"),
GLOBALSTAR TELECOMMUNICATIONS LIMITED, a Bermuda company ("GTL") and TeleSat
Limited, a company organized under the International Business Companies
Ordinance of the British Virgin Islands ("Telesat").
WHEREAS, pursuant to Section 7 of the Agreement, Globalstar and GTL
have the right to amend the Agreement to grant to any partner of Globalstar
admitted into the partnership after December 31, 1994 the exchange and
registration rights afforded in the Agreement; and
WHEREAS, TeleSat and the partners of Globalstar have on the date
hereof entered into an amendment to the Globalstar partnership agreement to
reflect the admission of TeleSat as a limited partner in Globalstar (the
"Partnership Amendment"); and
WHEREAS, Globalstar and GTL wish to amend the Agreement to include
TeleSat as a Partner within the meaning of the Agreement effective as of the
effective date of the Partnership Amendment:
1. Addition of TeleSat as a Partner. The parties hereto agree that
from and after the effective date of the Partnership Amendment, all references
to "Partner" or "Partners" in the Agreement shall be deemed also to refer to
TeleSat.
2. TeleSat. TeleSat hereby agrees that from and after the effective
date of the Partnership Amendment, it shall be bound by the terms of the
Agreement, including without limitation, the representations and warranties of
the Partners contained therein.
3. Defined Terms. Capitalized terms used herein not otherwise
defined shall have the meanings set forth in the Agreement.
4. Counterpart. This Amendment may be executed in counterparts, all
of which together shall constitute one agreement binding on all the parties
hereto.
5. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
duly executed and delivered by their respective duly authorized officer as of
the day and year first above written.
GLOBALSTAR, L.P.
By: /s/ A. Navarra
Name: A. Navarra
Title: Executive Vice President
GLOBALSTAR TELECOMMUNICATIONS
LIMITED
By: /s/ A. Navarra
Name: A. Navarra
Title: Executive Vice President
CHINA TELECOMMUNICATIONS
BROADCAST SATELLITE CORPORATION
By: /s/ Chen Zhaobin
Name: Chen Zhaobin
Title: Director
<PAGE> 1
EXECUTION COPY
GLOBALSTAR TELECOMMUNICATIONS LIMITED
Up to 5,400,000 Shares of
8% Convertible Redeemable Preferred Stock
due 2011 (Liquidation Preference of $50 Per Share)
REGISTRATION RIGHTS AGREEMENT
New York, New York
January 26, 1999
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
Lehman Brothers Inc.
C.E. Unterberg, Towbin
CIBC Oppenheimer Corp.
ING Baring Furman Selz LLC
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Dear Sirs:
Globalstar Telecommunications Limited, a Bermuda company (the
"Company"), proposes to issue and sell to you (the "Purchasers"), upon the terms
set forth in the Purchase Agreement dated January 21, 1999 (the "Purchase
Agreement"), among the Company, Globalstar, L.P., a Delaware limited partnership
("Globalstar"), Loral Space & Communications Ltd., a Bermuda company ("Loral"),
and the Purchasers, up to 5,400,000 shares (including up to 1,400,000 shares
that the Company has granted the Purchasers an option to purchase pursuant to
the Purchase Agreement) of its 8% Convertible Redeemable Preferred Stock due
2011, par value $0.01 per share, liquidation preference of $50 per share (the
"Preferred Stock") (such issuance and sale, the "Initial Placement"). The
Preferred Stock will be convertible into shares of Common Stock, par value $1.00
per share, of the Company (the "Common Stock") at the conversion price set forth
in the Final Memorandum (as defined below). For purposes of this Agreement, the
term "Securities" shall
<PAGE> 2
2
refer to the Preferred Stock (other than any shares of Preferred Stock
beneficially owned by Loral), all shares of Common Stock issued (i) as dividends
thereon, (ii) on conversion thereof or (iii) in redemption thereof, and any
securities into which such shares of Preferred Stock or Common Stock shall be
converted or into which they shall be changed by operation of law or otherwise.
The Company will use the proceeds of such sale to purchase preferred partnership
interests in Globalstar. In satisfaction of a condition to your obligations
under the Purchase Agreement, the Company agrees with you (i) for your benefit
and (ii) for the benefit of the holders of the Securities (including you) from
time to time until the later of (i) the second anniversary of the last Closing
Date (as defined below) and (ii) such time as (A) such Securities shall no
longer constitute restricted securities for purposes of Rule 144(k) of the Act
(as defined below) or (B) all such Securities have been sold pursuant to the
Shelf Registration Statement (as defined below) (each of the foregoing a
"Holder" and together the "Holders"), as follows:
1. Definitions. Capitalized terms used herein without
definition shall have their respective meanings set forth in the Purchase
Agreement. As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"Act" means the Securities Act of 1933 and the rules and
regulations of the Commission promulgated thereunder.
"Affiliate" of any specified person means any other person
that, directly or indirectly, is in control of, is controlled by, or is under
common control with, such specified person. For purposes of this definition,
control of a person means the power, direct or indirect, to direct or cause the
direction of the management and policies of such person whether by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Closing Date" has the meaning set forth in the Purchase
Agreement.
<PAGE> 3
3
"Commission" means the Securities and Exchange Commission.
"Damages Payment Date" means each of the quarterly dividend
payment dates set forth in the schedule to the Bye-Laws of the Company setting
forth the terms of the Preferred Stock.
"Exchange Act" means the Securities Exchange Act of 1934 and
the rules and regulations of the Commission promulgated thereunder.
"Final Memorandum" has the meaning set forth in the Purchase
Agreement.
"First Closing Date" has the meaning set forth in the Purchase
Agreement.
"Holder" has the meaning set forth in the preamble hereto.
"Incorporated Documents" means filings made by the Company
with the Commission pursuant to Section 13, 14 or 15 of the Exchange Act and
incorporated by reference in the Shelf Registration Statement.
"Initial Placement" has the meaning set forth in the preamble
hereto.
"Majority Holders" means the Holders of a majority of the
shares of the Preferred Stock registered (or if no shares are registered,
entitled to be registered) under a Shelf Registration Statement; provided,
however, that Holders of Common Stock issued in respect of the Preferred Stock
shall be deemed to be Holders of the number of shares of Preferred Stock which,
when converted, would have resulted in such number of shares of Common Stock.
"Managing Underwriters" means the investment banker or
investment bankers and manager or managers that shall administer an underwritten
offering of the securities covered by the Shelf Registration Statement.
"Preferred Stock" has the meaning set forth in the preamble
hereto.
<PAGE> 4
4
"Prospectus" means the prospectus included in any Shelf
Registration Statement, as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the Securities or
Common Stock issuable upon conversion thereof covered by such Shelf Registration
Statement, and all amendments and supplements to the Prospectus, including
post-effective amendments.
"Securities" has the meaning set forth in the preamble hereto.
"Shelf Registration" means a registration effected pursuant to
Section 2 hereof.
"Shelf Registration Period" has the meaning set forth in
Section 2(b) hereof.
"Shelf Registration Statement" means a "shelf" registration
statement of the Company pursuant to the provisions of Section 2 hereof which
covers some or all of the Securities, on an appropriate form under Rule 415
under the Act or any similar rule that may be adopted by the Commission, and all
amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"Transfer Agent" means The Bank of New York.
"Transfer Restricted Securities" means each Security until the
later of (i) the second anniversary of the last Closing Date and (ii) such time
as (A) such Security shall no longer constitute a restricted security for
purposes of Rule 144(k) of the Act or (B) such Security has been sold pursuant
to the Shelf Registration Statement.
"underwriter" means any underwriter of Securities in
connection with an offering thereof under a Shelf Registration Statement.
<PAGE> 5
5
2. Shelf Registration; Suspension of Use of Prospectus.
(a) The Company shall prepare and, not later than 90 days
following the First Closing Date, shall file with the Commission and thereafter
shall use its reasonable efforts to cause to be declared effective under the
Act, as promptly as practicable but no later than 210 days following the First
Closing Date (the "Effectiveness Target Date"), a Shelf Registration Statement
relating to the offer and sale of the Transfer Restricted Securities by the
Holders from time to time in accordance with the methods of distribution elected
by such Holders and set forth in such Shelf Registration Statement. The sole and
exclusive remedy available to the Holders in the event that a Shelf Registration
Statement is not filed or declared effective within the time periods specified
in this Section 2(a) is the collection of additional dividends in accordance
with Section 6 and the terms of the Preferred Stock.
(b) The Company shall use its reasonable efforts to keep the
Shelf Registration Statement continuously effective in order to permit the
Prospectus forming part thereof to be usable by Holders until the later of (i)
the second anniversary of the last Closing Date and (ii) such time as (A) such
Securities shall no longer constitute restricted securities for purposes of Rule
144(k) of the Act or (B) all such Securities have been sold pursuant to the
Shelf Registration Statement (in any such case, such period being called the
"Shelf Registration Period"). The Company shall be deemed not to have used its
reasonable efforts to keep the Shelf Registration Statement effective during the
requisite period if it voluntarily takes any action that would result in Holders
of securities covered thereby not to be able to offer and sell such securities
during that period, unless such action is (i) required by applicable law or (ii)
taken pursuant to Section 2(c) hereof, and, in either case, so long as the
Company promptly thereafter complies with the requirements of Section 3(i)
hereof, if applicable.
(c) The Company may suspend the use of the Prospectus for a
period not to exceed 60 days (or such longer period as is reasonably necessary
under the circumstances) in any calendar year for valid business
<PAGE> 6
6
reasons (not including avoidance of the Company's obligations hereunder),
including the acquisition or divestiture of assets, public filings with the
Commission, pending corporate developments and similar events.
3. Registration Procedures. In connection with any Shelf
Registration Statement, the following provisions shall apply:
(a) The Company shall furnish to you, prior to the filing
thereof with the Commission, a copy of any Shelf Registration
Statement, and each amendment thereof and each amendment or supplement,
if any, to the Prospectus included therein and shall use its best
efforts to reflect in each such document, when so filed with the
Commission, such comments as you reasonably may propose; provided,
however, that the Company shall be required only to furnish an
Incorporated Document to you as promptly as practicable following its
filing with the Commission.
(b) The Company shall ensure that (i) any Shelf Registration
Statement and any amendment thereto and any Prospectus forming part
thereof and any amendment or supplement thereto complies in all
material respects with the Act, (ii) any Shelf Registration Statement
and any amendment thereto does not, when it becomes effective, contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading and (iii) any Prospectus forming part of any
Shelf Registration Statement, and any amendment or supplement to such
Prospectus, does not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
(c) (1) The Company shall advise you and the Holders and, if
requested by you or any such Holder, confirm such advice in writing:
(i) when a Shelf Registration Statement and any
amendment thereto has been filed with the Commission and when
the Shelf Registration
<PAGE> 7
7
Statement or any post-effective amendment thereto has become
effective; and
(ii) of any request by the Commission for amendments
or supplements to the Shelf Registration Statement or the
Prospectus included therein or for additional information.
(2) The Company shall advise you and the Holders and, if
requested by you or any such Holder, confirm such advice in writing:
(i) of the issuance by the Commission of any stop
order suspending the effectiveness of the Shelf Registration
Statement or the initiation of any proceedings for that
purpose;
(ii) of the receipt by the Company of any
notification with respect to the suspension of the
qualification of the securities included in any Shelf
Registration Statement for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose;
and
(iii) of the suspension of the use of the Prospectus
pursuant to Section 2(c) hereof or of the happening of any
event that requires the making of any changes in the Shelf
Registration Statement or the Prospectus so that, as of such
date, the statements therein are not misleading and do not
omit to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they
were made) not misleading (which advice shall be accompanied
by an instruction to suspend the use of the Prospectus until
the requisite changes have been made); provided that such
notice shall not be required to specify the nature of the
event giving rise to the notice requirement hereunder.
(d) The Company shall use its reasonable best efforts to
obtain the withdrawal of any order suspending the effectiveness of any
Shelf Registration Statement at the earliest possible time.
<PAGE> 8
8
(e) The Company shall furnish to each Holder of securities
included within the coverage of any Shelf Registration Statement,
without charge, at least one copy of such Shelf Registration Statement
and any post-effective amendment thereto, including documents
incorporated by reference therein, financial statements and schedules,
and, if the Holder so requests in writing, all exhibits (including
those incorporated by reference).
(f) The Company shall, during the Shelf Registration Period,
deliver to each Holder of Securities included within the coverage of
any Shelf Registration Statement, without charge, as many copies of the
Prospectus (including each preliminary Prospectus) included in such
Shelf Registration Statement and any amendment or supplement thereto as
such Holder may reasonably request; and the Company consents to the use
of the Prospectus or any amendment or supplement thereto by each of the
selling Holders of Securities in connection with the offering and sale
of the Securities covered by the Prospectus or any amendment or
supplement thereto.
(g) Prior to any offering of securities pursuant to any Shelf
Registration Statement, the Company shall register or qualify or
cooperate with the Holders of Securities included therein and their
respective counsel in connection with the registration or qualification
of such Securities for offer and sale under the securities or blue sky
laws of such jurisdictions as any such Holders reasonably request in
writing and do any and all other acts or things reasonably necessary or
advisable to enable the offer and sale in such jurisdictions of the
Securities covered by such Shelf Registration Statement; provided,
however, that the Company will not be required to qualify generally to
do business in any jurisdiction where it is not then so qualified or to
take any action which would subject it to general service of process or
to taxation in any such jurisdiction where it is not then so subject.
(h) The Company shall cooperate with the Holders of Securities
to facilitate the timely preparation and
<PAGE> 9
9
delivery of certificates representing Securities to be sold pursuant to
any Shelf Registration Statement free of any restrictive legends and in
such denominations and registered in such names as Holders may request
prior to sales of Securities pursuant to such Shelf Registration
Statement.
(i) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) above, the Company shall, if required pursuant to the Act
or paragraph (c)(2)(iii) above, as promptly as practicable prepare a
post-effective amendment to any Shelf Registration Statement or an
amendment or supplement to the related Prospectus or file any other
required document so that, as thereafter delivered to purchasers of the
Securities included therein, the Prospectus will not include an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(j) Not later than the effective date of any Shelf
Registration Statement hereunder, the Company shall provide a CUSIP
number for each class of Securities registered under such Shelf
Registration Statement, and provide the Transfer Agent with printed
certificates for such Securities, in a form eligible for deposit with
The Depository Trust Company.
(k) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make
generally available to its security holders as soon as practicable
after the effective date of the applicable Shelf Registration Statement
an earnings statement satisfying the provisions of Section 11(a) of the
Act.
(l) The Company may require each Holder of Securities to be
sold pursuant to any Shelf Registration Statement to furnish to the
Company such information regarding the Holder and the distribution of
such Securities as the Company may from time to time reasonably require
for inclusion in such Shelf Registration Statement. Any Holder who
fails to
<PAGE> 10
10
provide such information shall not be entitled to use the Prospectus.
(m) The Company shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf
Registration Statement, such information as the Managing Underwriters
and Majority Holders reasonably agree should be included therein and
shall make all required filings of such Prospectus supplement or
post-effective amendment as soon as notified of the matters to be
incorporated in such Prospectus supplement or post-effective amendment.
(n) The Company and Globalstar shall enter into such
agreements (including underwriting agreements) and take all other
appropriate actions in order to expedite or facilitate the registration
or the disposition of any Securities, and in connection therewith, if
an underwriting agreement is entered into, cause the same to contain
indemnification provisions and procedures no less favorable than those
set forth in Section 5 (or such other provisions and procedures
acceptable to the Majority Holders and the Managing Underwriters, if
any), with respect to all parties to be indemnified pursuant to Section
5, it being understood that all underwriting discounts and commissions,
and all other underwriting fees, associated with such agreement in
connection with such offering of the Securities shall, except as
otherwise expressly agreed herein (including those expenses covered by
Section 4), be for the account of the Holders or the underwriters.
(o) The Company and Globalstar shall (i) make reasonably
available for inspection by Holders of Securities to be registered
thereunder and any Managing Underwriter participating in any
disposition pursuant to such Shelf Registration Statement, and any
attorney, accountant or other agent retained by the Majority Holders of
Securities to be registered thereunder or by any such Managing
Underwriter all relevant financial and other records, pertinent
corporate documents and properties of the Company or Globalstar, as the
case may be; (ii) cause the officers, directors and employees of the
Company or Globalstar, as the case may be, to supply all relevant
information reasonably
<PAGE> 11
11
requested by any such Holders or Managing Underwriter, attorney,
accountant or agent in connection with such Shelf Registration
Statement as is customary for similar due diligence examinations;
provided, however, that any information that is designated in writing
by the Company or Globalstar, as the case may be, in good faith, as
confidential at the time of delivery of such information shall be kept
confidential by any such Holders and Managing Underwriter, attorney,
accountant or agent, unless disclosure thereof is made in connection
with a court proceeding or required by law, or such information has
become available (not in violation of this Agreement) to the public
generally or through a third party without an accompanying obligation
of confidentiality; (iii) make such representations and warranties to
the Holders of securities registered thereunder and the underwriters,
if any, in form, substance and scope as are customarily made by issuers
to underwriters in primary underwritten offerings and covering matters
including those set forth in the Purchase Agreement; (iv) obtain
opinions of counsel to the Company and Globalstar and updates thereof
(which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the Holders and Managing Underwriter, if
any) addressed to each selling Holder and the underwriters, if any,
covering such matters as are customarily covered in opinions requested
in underwritten offerings and such other matters as may be reasonably
requested by the Majority Holders of the securities covered by such
Shelf Registration Statement and by such Managing Underwriter; (v)
obtain "cold comfort" letters and updates thereof from the independent
certified public accountants of the Company and Globalstar, as the case
may be (and, if necessary, use its reasonable best efforts to retain
any other independent certified public accountants of any subsidiary of
the Company or Globalstar or of any business acquired by the Company or
Globalstar for which financial statements and financial data are, or
are required to be, included in the Shelf Registration Statement),
addressed to each selling Holder of Securities registered thereunder
and the underwriters, if any, in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection
with primary
<PAGE> 12
12
underwritten offerings; and (vi) deliver such documents and
certificates as may be reasonably requested by the Majority Holders and
the Managing Underwriters, if any, including those to evidence
compliance with Section 3(i) and with any customary conditions
contained in the underwriting agreement or other agreement entered into
by the Company or Globalstar. The foregoing actions set forth in
clauses (iii), (iv), (v) and (vi) of this Section 3(o) shall be
performed at (A) the effectiveness of such Shelf Registration Statement
and each post-effective amendment thereto and (B) each closing under
any underwriting or similar agreement as and to the extent required
thereunder.
4. Registration Expenses. Globalstar shall bear all expenses
incurred in connection with the performance of the Company's obligations under
Sections 2 and 3 hereof and shall reimburse the Holders for the reasonable and
duly documented fees and disbursements of (i) counsel designated by the Majority
Holders to act as counsel for the Holders in connection therewith or (ii) in the
absence of such selection of counsel by the Majority Holders, one firm
designated by the underwriters to act as counsel for the Holders in connection
therewith. It is understood, however, that as except provided in this Section 4,
the Holders shall pay all their own costs and expenses, including stock transfer
taxes due upon resale by them of any of the securities covered by a Shelf
Registration Statement and any advertising expenses incurred in connection with
any offers and sales they make.
5. Indemnification and Contribution. (a) In connection with
any Shelf Registration Statement, the Company and Globalstar (the
"Indemnitors"), jointly and severally, agree to indemnify and hold harmless each
Holder of securities covered thereby (including the Purchasers), the directors,
officers, employees and agents of each such Holder and each person who controls
any such Holder within the meaning of either the Act or the Exchange Act against
any and all losses, claims, damages or liabilities, joint or several, to which
they or any of them may become subject under the Act, the Exchange Act or other
Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon
<PAGE> 13
13
any untrue statement or alleged untrue statement of a material fact contained in
the Shelf Registration Statement as originally filed or in any amendment
thereof, or in any preliminary Prospectus or Prospectus, or in any amendment
thereof or supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and agrees to
reimburse each such indemnified party, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that (i) the Indemnitors will not be liable in any case to the extent that any
such loss, claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Indemnitors by or on behalf of any such Holder specifically for
inclusion therein, (ii) the Indemnitors shall not be liable to any indemnified
party under this indemnity agreement with respect to any Shelf Registration
Statement or Prospectus to the extent that any such loss, claim, damage or
liability of such indemnified party results solely from an untrue statement of a
material fact contained in, or the omission of a material fact from, the Shelf
Registration Statement or Prospectus which untrue statement or omission was
corrected in an amended or supplemented Shelf Registration Statement or
Prospectus, if the person alleging such loss, claim, damage or liability was not
sent or given, at or prior to the written confirmation of such sale, a copy of
the amended or supplemented Shelf Registration Statement or Prospectus if the
Indemnitors had previously furnished copies thereof to such indemnified party
and if such delivery of a prospectus is finally judicially determined to be
required by the Act and was not so made and (iii) the Indemnitors will not be
liable to any indemnified party under this indemnity agreement with respect to
any Shelf Registration Statement or Prospectus to the extent that any such loss,
claim, damage or liability of such indemnified party results (a) from the use of
a Shelf Registration Statement during a period when a stop order has been issued
in respect thereof or any proceedings for that purpose have been initiated or
(b) from the use of the Prospectus during a period when the use of the
Prospectus has been suspended in accordance with
<PAGE> 14
14
Section 3(c)(2)(iii) hereof, provided, in each case, that Holders received prior
notice of such stop order, initiation of proceedings or suspension. This
indemnity agreement will be in addition to any liability which the Indemnitors
may otherwise have.
The Indemnitors also agree to indemnify or contribute to
Losses, as provided in Section 5(d), of any underwriters of Securities
registered under a Shelf Registration Statement, their officers and directors
and each person who controls such underwriters on substantially the same basis
as that of the indemnification of the Holders provided in this Section 5(a) and
shall, if requested by any Holder, enter into an underwriting agreement
reflecting such agreement, as provided in Section 3(n) hereof.
(b) Each Holder of securities covered by a Shelf Registration
Statement (including the Purchasers) severally agrees to indemnify and hold
harmless (i) the Indemnitors, (ii) each of their respective directors, (iii)
each of their respective officers who signs such Shelf Registration Statement
and (iv) each person who controls either of the Indemnitors within the meaning
of either the Act or the Exchange Act to the same extent as the foregoing
indemnity from the Indemnitors to each such Holder, but only with reference to
written information relating to such Holder furnished to the Indemnitors by or
on behalf of such Holder specifically for inclusion in the documents referred to
in the foregoing indemnity. This indemnity agreement will be in addition to any
liability which any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 5 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 5, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure results
in the forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification
<PAGE> 15
15
obligation provided in paragraph (a) or (b) above. The indemnifying party shall
be entitled to appoint counsel of the indemnifying party's choice at the
indemnifying party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local counsel), and
the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel (and local counsel) if (i) the use of counsel chosen by
the indemnifying party to represent the indemnified party would present such
counsel with a conflict of interest, (ii) the actual or potential defendants in,
or targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. An indemnifying party will
not, without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any pending
or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a)
or (b) of this Section 5 is unavailable to or insufficient to hold harmless an
indemnified party for any
<PAGE> 16
16
reason, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall have a joint and several obligation to contribute to
the aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating or defending same)
(collectively, "Losses") to which such indemnified party may be subject in such
proportion as is appropriate to reflect the relative benefits received by such
indemnifying party, on the one hand, and such indemnified party, on the other
hand, from the Initial Placement and the Shelf Registration Statement which
resulted in such Losses; provided, however, that in no case shall the Purchasers
be responsible, in the aggregate, for any amount in excess of the purchase
discount or commission applicable to such Security, nor shall any underwriter be
responsible for any amount in excess of the underwriting discount or commission
applicable to the securities purchased by such underwriter under the Shelf
Registration Statement which resulted in such Losses. If the allocation provided
by the immediately preceding sentence is unavailable for any reason, the
indemnifying party and the indemnified party shall contribute in such proportion
as is appropriate to reflect not only such relative benefits but also the
relative fault of such indemnifying party, on the one hand, and such indemnified
party, on the other hand, in connection with the statements or omissions which
resulted in such Losses as well as any other relevant equitable considerations.
Benefits received by the Indemnitors shall be deemed to be equal to the total
net proceeds from the Initial Placement (before deducting expenses). Benefits
received by the Purchasers shall be deemed to be equal to the total purchase
discounts and commissions, and benefits received by any other Holders shall be
deemed to be equal to the value such Holders realize by receiving Securities
registered under the Act. Benefits received by any underwriter shall be deemed
to be equal to the total underwriting discounts and commissions, as set forth on
the cover page of the Prospectus forming a part of the Shelf Registration
Statement which resulted in such Losses. Relative fault shall be determined by
reference to whether any alleged untrue statement or omission relates to
information provided by the indemnifying party, on the one hand, or by the
indemnified party, on the other hand. The parties agree that it would not be
just and equitable if contribution were determined by pro rata
<PAGE> 17
17
allocation or any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 5, each person who controls a Holder within the meaning of either
the Act or the Exchange Act and each director, officer, employee and agent of
such Holder shall have the same rights to contribution as such Holder, and each
person who controls either of the Indemnitors within the meaning of either the
Act or the Exchange Act, each officer of the Company or Globalstar who shall
have signed the Shelf Registration Statement and each director of the Company or
Globalstar shall have the same rights to contribution as the Company or
Globalstar, as the case may be, subject in each case to the applicable terms and
conditions of this paragraph (d).
(e) The provisions of this Section 5 will remain in full force
and effect, regardless of any investigation made by or on behalf of any Holder
or the Indemnitors or any of the officers, directors or controlling persons
referred to in Section 5 hereof, and will survive the sale by a Holder of
securities covered by a Shelf Registration Statement.
6. Liquidated Damages.
(a) The Company and the Purchasers agree that the Holders of
Transfer Restricted Securities shall suffer damages if the Company fails to
fulfill its obligations pursuant to Section 2 hereof and that it would not be
possible to ascertain the extent of such damages. Accordingly, the Company
hereby agrees to pay liquidated damages ("Preferred Stock Liquidated Damages")
to each Holder of Transfer Restricted Securities under the circumstances and to
the extent set forth below:
(i) if the Registration Statement has not been filed with the
Commission on or prior to the date by which such filing is required to
be made in Section 2(a); or
<PAGE> 18
18
(ii) if the Registration Statement is not declared effective
by the Commission on or prior to the Effectiveness Target Date; or
(iii) if the Shelf Registration Statement has been declared
effective by the Commission and such Shelf Registration Statement
ceases to be effective or to be usable as contemplated by Section 2(b)
at any time during the Shelf Registration Period (without being
succeeded by a post-effective amendment to such Shelf Registration
Statement that cures such failure and that is itself immediately
declared effective) for any period of ten consecutive days or for any
20 days in any 180-day period in connection with resales of Transfer
Restricted Securities (provided, that the Company will have the option
of suspending the effectiveness of the Shelf Registration Statement,
without becoming obligated to pay Preferred Stock Liquidated Damages,
for periods of up to a total of 60 days in any calendar year if the
Board of Directors of the Company determines that compliance with the
disclosure obligations necessary to maintain the effectiveness of the
Shelf Registration Statement at such time could reasonably be expected
to have an adverse effect on the Company or a pending corporate
transaction) (each of the foregoing clauses (i) through (iii), a
"Registration Default").
(b) In the event of each such Registration Default, the
Company shall pay Preferred Stock Liquidated Damages to each Holder of shares of
Preferred Stock that are Transfer Restricted Securities at a rate of 0.50% of
the liquidation preference of the shares of Preferred Stock constituting
Transfer Restricted Securities, which shall accrue from the date of the
Registration Default to and including the 30th day following such Registration
Default and increase by 0.50% for each subsequent 30 day period; provided,
however, that the rate of such Preferred Stock Liquidated Damages may not exceed
2.00% of the Liquidation Preference of the Preferred Stock at any time.
Following the cure of all Registration Defaults relating to any shares of
Preferred Stock that are Transfer Restricted Securities, the accrual of
Preferred Stock Liquidated Damages with respect to such shares of Preferred
Stock that are Transfer Restricted Securities shall cease (without in any way
<PAGE> 19
19
limiting the effect of any subsequent Registration Default). A Registration
Default under clause (i) above shall be cured on the date that the Shelf
Registration Statement is filed with the Commission. A Registration Default
under clause (ii) above shall be cured on the date that the Shelf Registration
Statement is declared effective by the Commission. A Registration Default under
clause (iii) above shall be cured on the date the Shelf Registration Statement
is declared effective or becomes usable.
(c) The Company shall notify the Transfer Agent within one
business day after each and every date on which a Registration Default occurs.
Preferred Stock Liquidated Damages shall be paid by the Company to the record
Holders of shares of Preferred Stock that are Transfer Restricted Securities on
each Damages Payment Date by mailing checks to their registered addresses as
they appear in the Preferred Stock register if no such accounts have been
specified on or before the Damages Payment Date; provided that any Preferred
Stock Liquidated Damages accrued with respect to any Preferred Stock or portion
thereof called for redemption on a redemption date or converted into Common
Stock on a conversion date prior to the Damages Payment Date, shall, in any such
event, be paid instead to the Holder that submitted such Preferred Stock for
redemption or conversion on the applicable redemption date or conversion date,
as the case may be, on such date (promptly following the conversion date, in the
case of conversion of Preferred Stock). Each obligation to pay Preferred Stock
Liquidated Damages shall be deemed to commence accruing on the date of the
applicable Registration Default and to cease accruing when all Registration
Defaults have been cured.
(d) All Preferred Stock Liquidated Damages with respect to any
shares of Preferred Stock that are Transfer Restricted Securities, that remain
unpaid when such Securities cease to be Transfer Restricted Securities or cease
to be outstanding, shall remain unpaid obligations of the Company until they
have been paid in full.
7. Rules 144 and 144A. The Company shall use its reasonable
efforts to file the reports required to be filed under the Act and the Exchange
Act in a timely manner and, if at any time the Company is not required to file
such reports, will, upon the request of any Holder of Transfer
<PAGE> 20
20
Restricted Securities, make publicly available other information so long as
necessary to permit sales of its securities pursuant to Rules 144 and 144A. The
Company covenants that it will take such further action as any Holder of
Transfer Restricted Securities may reasonably request, all to the extent
required from time to time to enable such Holder to sell Transfer Restricted
Securities without registration under the Act within the limitation of the
exemptions provided by Rules 144 and 144A (including the requirements of Rule
144A(d)(4)). The Company will provide a copy of this Agreement to prospective
purchasers of Securities identified to the Company by the Purchasers upon
request. Upon the request of any Holder of Transfer Restricted Securities, the
Company shall deliver to such Holder a written statement as to whether it has
complied with such requirements. Notwithstanding the foregoing, nothing in this
Section 7 shall be deemed to require the Company to register any of its
securities pursuant to the Exchange Act.
8. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not, as of the
date hereof, entered into, nor shall it, on or after the date hereof,
enter into, any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders herein or otherwise
conflicts with the provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended,
qualified, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, unless the
Company has obtained the written consent of the Majority Holders;
provided that, with respect to any matter that directly or indirectly
affects the rights of the Purchasers hereunder, the Company shall
obtain the written consent of the Purchasers against which such
amendment, qualification, supplement, waiver or consent is to be
effective. Notwithstanding the foregoing (except the foregoing
proviso), a waiver or consent to departure from the provisions hereof
with respect to a matter that relates exclusively to the
<PAGE> 21
21
rights of Holders whose Securities are being sold pursuant to a Shelf
Registration Statement and that does not directly or indirectly affect
the rights of other Holders may be given by the Majority Holders,
determined on the basis of securities being sold rather than registered
under such Shelf Registration Statement.
(c) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery,
first-class mail, telecopier, or air courier guaranteeing overnight
delivery:
(1) if to a Holder, at the most current address given
by such holder to the Company in accordance with the
provisions of this Section 8(c), which address initially is,
with respect to each Holder, the address of such Holder
maintained by the Registrar of the Securities, with a copy in
like manner to Bear, Stearns & Co. Inc.;
(2) if to you, initially at the address set forth in
the Purchase Agreement; and
(3) if to the Company or Globalstar, initially at its
address set forth in the Purchase Agreement.
All such notices and communications shall be deemed to have
been duly given when received.
The Purchasers or the Company by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of
the parties, including, without the need for an express assignment or
any consent by the Company or Globalstar thereto, subsequent Holders of
Securities. The Company and Globalstar hereby agree to extend the
benefits of this Agreement to any Holder of Securities and any such
<PAGE> 22
22
Holder may specifically enforce the provisions of this Agreement as if
an original party hereto.
(e) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and
all of which taken together shall constitute one and the same
agreement.
(f) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect
the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF.
(h) Jurisdiction. EACH OF THE COMPANY AND GLOBALSTAR HEREBY
IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED
STATES DISTRICT COURTS LOCATED IN THE CITY OF NEW YORK FOR ANY
LAWSUITS, CLAIMS OR OTHER PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS AGREEMENT AND AGREES NOT TO COMMENCE ANY SUCH LAWSUIT, CLAIM OR
OTHER PROCEEDING EXCEPT IN SUCH COURTS. EACH OF THE COMPANY AND
GLOBALSTAR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION
TO THE LAYING OF VENUE OF ANY LAWSUIT, CLAIM, OR OTHER PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT IN THE COURTS OF THE STATE
OF NEW YORK OR THE UNITED STATES DISTRICT COURTS LOCATED IN THE CITY OF
NEW YORK, AND HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND
AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH LAWSUIT,
CLAIM OR OTHER PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM. EACH OF THE COMPANY AND GLOBALSTAR HAS APPOINTED
ERIC J. ZAHLER AT 600 THIRD AVENUE, NEW YORK, NEW YORK 10016, U.S.A.
(HEREINAFTER REFERRED TO IN EACH SUCH CAPACITY AS THE "PROCESS AGENT"),
AS ITS AUTHORIZED AGENT UPON WHOM PROCESS MAY BE SERVED IN ANY SUCH
SUIT OR PROCEEDING. EACH OF THE COMPANY AND GLOBALSTAR REPRESENTS TO
YOU THAT IT HAS NOTIFIED THE PROCESS
<PAGE> 23
23
AGENT OF SUCH DESIGNATION AND APPOINTMENT AND THAT THE PROCESS AGENT
HAS ACCEPTED THE SAME IN WRITING. EACH OF THE COMPANY AND GLOBALSTAR
HAS AUTHORIZED AND DIRECTED THE PROCESS AGENT TO ACCEPT SUCH SERVICE.
IF THE PROCESS AGENT SHALL CEASE TO ACT AS THE COMPANY'S OR
GLOBALSTAR'S AGENT FOR SERVICE OF PROCESS, THE COMPANY OR GLOBALSTAR,
AS APPLICABLE, SHALL APPOINT WITHOUT DELAY ANOTHER SUCH AGENT AND
NOTIFY YOU OF SUCH APPOINTMENT. EACH OF THE COMPANY AND GLOBALSTAR
FURTHER AGREES THAT SERVICE OF PROCESS UPON THE PROCESS AGENT AND
WRITTEN NOTICE OF SAID SERVICE TO THE COMPANY OR GLOBALSTAR, AS
APPLICABLE, MAILED BY FIRST CLASS MAIL OR DELIVERED TO THE PROCESS
AGENT SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS
UPON IT IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT
YOUR RIGHT OR THE RIGHT OF ANY PERSON CONTROLLING ANY OF YOU TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. EACH OF THE COMPANY AND
GLOBALSTAR AGREES THAT A FINAL ACTION IN ANY SUCH SUIT OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT
ON THE JUDGMENT OR IN ANY OTHER LAWFUL MANNER.
(i) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect
for any reason, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions hereof
shall not be in any way impaired or affected thereby, it being intended
that all of the rights and privileges of the parties shall be
enforceable to the fullest extent permitted by law.
(j) Securities Held by the Company or Globalstar, etc.
Whenever the consent or approval of Holders of a specified percentage
of principal amount or liquidation preference, as the case may be, of
Securities is required hereunder, Securities held by the Company,
Globalstar or their respective Affiliates (other than subsequent
Holders of Securities if such subsequent Holders are deemed to be
Affiliates solely by reason of their holdings of such Securities) shall
not be counted in determining whether such consent or approval was
given by the Holders of such required percentage.
<PAGE> 24
24
Please confirm that the foregoing correctly sets forth the
agreement between the Company and you.
Very truly yours,
GLOBALSTAR TELECOMMUNICATIONS
LIMITED,
by /s/ Eric J. Zahler
------------------------------
Name:
Title:
GLOBALSTAR, L.P., by
LORAL/QUALCOMM SATELLITE
SERVICES, L.P., its general
partner, by
LORAL/QUALCOMM PARTNERSHIP,
L.P., its general partner, by
LORAL GENERAL PARTNER, INC.,
its general partner,
by /s/ Eric J. Zahler
------------------------------
Name:
Title:
<PAGE> 25
25
Accepted in New York, New York
January 26, 1999
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
LEHMAN BROTHERS INC.
C.E. UNTERBERG, TOWBIN
CIBC OPPENHEIMER CORP.
ING BARING FURMAN SELZ LLC
by BEAR, STEARNS & CO. INC.
by /s/ M. Andrew Decker
-------------------------------
Name: M. Andrew Decker
Title: Senior Managing Director
<PAGE> 1
EXHIBIT 12
STATEMENT REGARDING COMPUTATION OF RATIOS
(IN THOUSANDS, EXCEPT RATIOS)
GLOBALSTAR TELECOMMUNICATIONS LIMITED
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Earnings:
Net loss........................................ $ (50,561) $ (24,152) $ (15,080)
Add:
Equity in loss applicable to ordinary
partnership interests of Globalstar,
L.P................................... 50,561 24,152 15,080
Interest expense........................ 22,197 21,202 17,370
--------- --------- ---------
Earnings available to cover fixed charges(1)...... $ 22,197 $ 21,202 $ 17,370
========= ========= =========
Fixed charges -- interest expense................. $ 22,197 $ 21,202 $ 17,370
========= ========= =========
Ratio of earnings to fixed charges................ 1x 1x 1x
========= ========= =========
</TABLE>
- ---------------
(1) The earnings of GTL available to cover fixed charges, consist solely of
dividends from Globalstar, L.P. on the redeemable preferred partnership
interests held by GTL.
GLOBALSTAR, L.P.
DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net loss.......................................... $(129,543) $ (67,586) $ (54,646)
Dividends on redeemable preferred partnership
interests....................................... (22,197) (21,202) (17,323)
Capitalized interest.............................. (178,735) (95,895) (9,900)
--------- --------- ---------
Deficiency of earnings to cover fixed charges..... $(330,475) $(184,683) $ (81,869)
========= ========= =========
</TABLE>
<PAGE> 1
Exhibit 21
GLOBALSTAR, L.P.
As of February 28, 1999, active subsidiaries, all 100% owned directly or
indirectly (except as noted below) consist of the following:
GLOBALSTAR CAPITAL CORPORATION DELAWARE
GLOBALTEL (1) RUSSIAN FEDERATION
GLOBALTRAK PTY AUSTRALIA
GLOBALSTAR SERVICES COMPANY, INC. DELAWARE
GLOBALSTAR CORPORATION DELAWARE
TABLE
(1) ONLY 49% OWNED DIRECTLY OR INDIRECTLY
<PAGE> 1
EXHIBIT 23
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the incorporation by reference in Registration Statement Nos.
333-6477, 333-22063, 333-25457 and 333-67731 on Form S-3 and No. 333-29447 on
Form S-8 of Globalstar Telecommunications Limited of our reports dated February
16, 1999, on the financial statements of Globalstar Telecommunications Limited
and the consolidated financial statements of Globalstar, L.P. appearing in this
Annual Report on Form 10-K of Globalstar Telecommunications Limited and
Globalstar, L.P. for the year ended December 31, 1998.
Deloitte & Touche LLP
San Jose, California
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary consolidated financial information extracted from
the financial statements of Globalstar Telecommunications Limited for the year
ended December 31, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000933401
<NAME> GLOBALSTAR TELECOMMUNICATIONS LTD.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 580,428
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 82,017
<OTHER-SE> 498,411
<TOTAL-LIABILITY-AND-EQUITY> 580,428
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,197
<INCOME-PRETAX> (50,561)
<INCOME-TAX> 0
<INCOME-CONTINUING> (50,561)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (50,561)
<EPS-PRIMARY> (0.67)
<EPS-DILUTED> (0.67)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary consolidated financial information extracted from
the financial statements of Globalstar Telecommunications Limited for the
year ended December 31, 1998 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0001037927
<NAME> GLOBALSTAR L.P.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 56,739
<SECURITIES> 0
<RECEIVABLES> 28,500
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 236,288
<PP&E> 2,374,288
<DEPRECIATION> 3,968
<TOTAL-ASSETS> 2,670,025
<CURRENT-LIABILITIES> 401,190
<BONDS> 1,396,175
0
0
<COMMON> 602,401
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,670,025
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 146,684
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (129,543)
<INCOME-TAX> 0
<INCOME-CONTINUING> (129,543)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (151,740)
<EPS-PRIMARY> (2.69)
<EPS-DILUTED> (2.69)
</TABLE>
