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UNITED STATES
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, 2001
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
GLOBALSTAR, L.P.
3200 ZANKER ROAD
SAN JOSE, CALIFORNIA 95134
TELEPHONE: (408) 933-4000
COMMISSION FILE NUMBER: 333-25461
JURISDICTION OF REGISTRATION: DELAWARE
IRS IDENTIFICATION NUMBER: 13-3759024
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
GLOBALSTAR TELECOMMUNICATIONS LIMITED:
COMMON STOCK, $1.00 PAR VALUE
(Title of Class)
GLOBALSTAR L.P.:
NONE
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.
As of March 31, 2002, there were 113,056,619 shares of Globalstar
Telecommunications Limited common stock outstanding, and the aggregate market
value of such shares (based on the closing price on the NASDAQ OTC Bulletin
Board) held by non-affiliates of Globalstar Telecommunications Limited was
approximately $ 14.3 million.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
ITEM 1. BUSINESS
THE COMPANY
OVERVIEW
On November 23, 1994, Globalstar Telecommunications Limited ("GTL") was
incorporated to permit public equity ownership in Globalstar, L.P.
("Globalstar"). GTL was incorporated as an exempted company under the Companies
Act 1981 of Bermuda. On February 14, 1995, GTL completed an initial public
offering of 40,000,000 shares of common stock. Effective February 22, 1995, GTL
purchased 10,000,000 ordinary partnership interests from Globalstar, L.P.
("Globalstar"), a limited partnership. At December 31, 2001, GTL owned
approximately 41.8% of Globalstar's outstanding ordinary partnership interests
and 100% of the outstanding 8% convertible redeemable preferred partnership
interests ("8% RPPIs") and 100% of the outstanding 9% convertible redeemable
preferred partnership interests ("9% RPPIs") of Globalstar.
GTL does not have any operations, any personnel or facilities, and does not
manage the day-to-day operations of Globalstar. GTL has no other business or
investments. GTL'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. Accordingly, GTL's results of operations only reflect
its proportionate share of Globalstar's results of operations, as presented on
Globalstar's financial statements, and the appropriate amortization and interest
associated with this investment.
In 2000, Globalstar's losses reduced GTL's investment in Globalstar
ordinary and preferred partnership interests to a book value of zero.
Accordingly, GTL has discontinued providing for its allocated share of
Globalstar's net losses and recognized the remaining unallocated losses as a
result of its general partner status in Globalstar in proportion to its
interests in the general partner interests outstanding. Because GTL is a general
partner of Globalstar, GTL 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. Future funding,
if any, or assets of GTL, may be utilized to fund these general partner
liabilities.
On February 15, 2002, Globalstar and certain of its subsidiaries filed
voluntary petitions under Chapter 11 of Title 11, United States Code, in the
United States Bankruptcy Court for the District of Delaware (Case Nos. 02-10499,
02-10501, 02-10503 and 02-10504). Globalstar and its subsidiaries remain in
possession of their assets and properties and continue to operate their
businesses as debtors-in-possession. As a result of Globalstar's bankruptcy
petition, several of Globalstar's debt obligations have been accelerated and are
immediately due and payable. GTL does not intend to file an immediate petition
for bankruptcy relief, but will continue to monitor events and govern its
actions accordingly. Globalstar's bankruptcy filing and subsequent financial
restructuring will likely leave shares in GTL with very little or no value. (See
discussion of Globalstar's proposed restructuring plan below). These factors
among others raise substantial doubt about GTL's ability to continue as a going
concern. However, the accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
Negotiations prior to the filing of Globalstar's bankruptcy petition
resulted in an agreement among Loral Space & Communications Ltd. ("Loral"), a
Bermuda company, Globalstar's informal committee of bondholders, representing
approximately 17% of Globalstar's outstanding senior notes, and Globalstar,
regarding the substantive terms of a proposed financial and legal restructuring
of Globalstar's business. Under the proposed restructuring plan, all of
Globalstar's assets would be contributed into a new Globalstar company, which
would be initially owned by Globalstar's existing noteholders and other
unsecured creditors. The proposed plan also calls for the cancellation of all
existing partnership interests in Globalstar, but contemplates, subject to the
satisfaction of certain conditions, a rights offering to GTL's common and
preferred shareholders and Globalstar's creditors, which could give them the
option to
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purchase shares in the new company. The proposed restructuring plan will be
required to be submitted for and be subject to bankruptcy court approval. The
terms of the proposed plan were described in Globalstar Form 8-K filing dated
February 19, 2002.
It is foreseeable that in any financial restructuring under this agreement
or any other plan ultimately approved by the court, GTL's equity interest, along
with the interests of Globalstar's other partners, will be eliminated entirely,
or at best, severely diluted.
In May 2001, Nasdaq determined that GTL no longer met the requirements for
listing on the Nasdaq National Market and was therefore subject to delisting
from that market. GTL applied to have the listing transferred to the Nasdaq
SmallCap Market. This request was granted and the stock began trading on this
market June 14, 2001. Nasdaq SmallCap Market suspended trading on November 14,
2001, as it sought additional information from GTL. On December 12, 2001, GTL
shares resumed trading on the Nasdaq OTC Bulletin board under the symbol of
GSTRF.OB.
Globalstar was founded by Loral and QUALCOMM Incorporated ("QUALCOMM").
QUALCOMM is the leading developer and supplier of code division multiple access
("CDMA") digital wireless telecommunications technology. 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 of December 31, 2001,
Loral owned, directly or indirectly, approximately 38.6% of Globalstar. LQSS,
LQP, Loral General Partner, Inc. and another Loral subsidiary that is a general
partner of LQP, also filed voluntary petitions under Chapter 11 of Title 11,
United States Code, in the United (Case Nos. 02-10506, 02-10507, and 02-10508)
States Bankruptcy Court for the District of Delaware on February 15, 2002.
Globalstar currently provides satellite-based telephony and narrow band
data services though 25 gateways. These gateways provide coverage to 133
countries, including all of North and South America (excluding northwestern
Alaska and portions of Canada above 70 degrees North latitude), Europe,
Australia, Russia, the Middle East, China, and South Korea. For the year ended
December 31, 2001, Globalstar's recorded net revenues of $6.4 million and
provided 23.9 million minutes of billable telecommunication services. As of
December 2001, Globalstar had approximately 66,000 commercial subscribers using
the system. Globalstar's revenues during 2001 were not sufficient to fund
Globalstar's operations.
Globalstar has developed a new business plan for the purpose of
restructuring the partnership's finances; the plan will be submitted to and
subject to bankruptcy court approval. The business plan assumes the conversion
of all outstanding Globalstar debt obligations into equity in a new Globalstar
company ("Newco") and the consolidation of certain Globalstar service provider
operations into Newco. The service provider consolidation is intended to bring
additional efficiencies to the operation of the Globalstar network and allow for
increased coordination in the Globalstar service offerings and pricing.
Globalstar believes that these steps are needed to achieve and maintain
financial viability. In addition to the service provider operations to be
consolidated into Newco, Globalstar intends to continue to offer its services
through existing independent gateway operators in other regions.
Pursuant to its consolidation strategy, on December 18, 2001, Globalstar
signed two agreements to acquire certain subsidiaries of Vodafone. In the first
transaction, which has closed, Globalstar obtained a majority interest in the
Globalstar service provider company in Canada and a minority interest in the
Canadian gateway company. In the second transaction, Globalstar will acquire the
United States and Caribbean service provider and gateway operations from
Vodafone upon the receipt of required regulatory approvals. On January 15 and
17, 2002, Globalstar filed five related applications with the United States
Federal Communication Commission (the "FCC") for consent to the transfer of
Globalstar USA and Globalstar Caribbean Limited's operating authorizations to a
subsidiary of Globalstar. On February 27, 2002, the FCC issued a public notice
setting a deadline for oppositions to the transfer applications. No oppositions
were filed by the deadline. Under the terms of the MOU executed between Loral,
the informal
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committee of bondholders and Globalstar, Loral would contribute its minority
interest in the Canadian operations to Newco in exchange for Newco equity
interests. Globalstar is still gathering information and pursuing discussions
regarding additional service provider properties. Vodafone retains its service
provider rights in Australia, the United Kingdom and Greece, and retains a
minority interest in the Mexican Globalstar service provider business.
In organizing Globalstar in 1994, Globalstar selected strategic partners
whose marketing, operating and technical expertise would enhance Globalstar's
capabilities. Many of Globalstar's strategic partners are or were also
Globalstar service providers. Under Globalstar's agreements with these firms,
they have received exclusive rights to offer Globalstar service within their
assigned territories, with the right to retain their exclusivity as long as they
meet minimum performance goals. Globalstar acts as a wholesaler of capacity on
its space segment to its service providers.
Globalstar service providers are generally not earning revenues sufficient
to fund their operating costs. We cannot be sure that they will continue
operations until Globalstar's financial restructuring is completed. Globalstar's
proposed restructuring plan assumes that Globalstar will take ownership of some
of these gateways, consistent with its consolidation strategy, and that
Globalstar will revise its business relationships with the remaining service
providers. In addition to Globalstar's acquisition of certain service provider
operations from Vodafone, Globalstar is in discussions with several other
service providers with the objective of restructuring their business
relationships with Globalstar.
TE.SA.M is in the process of liquidation and is exiting the Globalstar
business. TE.SA.M provides Globalstar service through its gateways in France,
Turkey, Venezuela, Argentina, and Peru. Globalstar and other investors are in
various discussions with TE.SA.M regarding these businesses. Local purchasers in
Turkey, Venezuela, Argentina, and Peru have reached agreements to purchase the
local service provider operations from TE.SA.M and have entered into
negotiations with Globalstar regarding the terms under which they would provide
Globalstar services. Globalstar and TE.SA.M are currently in discussions related
to Globalstar acquiring TE.SA.M's gateway in France and have executed a
memorandum or understanding, which outlines the principal terms of such a
transaction.
Globalstar is also in discussions with its other service providers, to help
them restructure their Globalstar businesses. Typically, service providers are
in arrears on accounts due to Globalstar and are seeking to restructure these
debts.
In order to preserve cash during 2001, Globalstar ceased its payments for
services performed by Space Systems/Loral, Inc. ("SS/L") and QUALCOMM and is
currently overdue on its contractual payment obligations to these vendors.
Globalstar and QUALCOMM previously contracted for the design and development of
the Globalstar ground segment pursuant to the Development Contract dated March
18, 1994 (the "Development Contract") and contracted for the manufacture,
deployment and maintenance of Globalstar Gateways via the Production Gateway
Purchase Agreement dated April 30, 1997 (the "Production Agreement"). QUALCOMM
terminated the Development Contract and the Production Agreement for non-payment
of invoices on November 29, 2001 and on December 20, 2001 respectively.
Globalstar is currently negotiating a support agreement with QUALCOMM that will
allow it to utilize the QUALCOMM expertise necessary to maintain the system.
There can be no assurances that Globalstar and QUALCOMM will renegotiate the
mutually satisfactory terms required to continue QUALCOMM's support to
Globalstar's system operations. SS/L has not terminated its satellite contract
with Globalstar and has continued the production of eight spare satellites.
Globalstar is in discussions with SS/L regarding the settlement of unpaid
amounts due under the satellite contract and the transfer of title to the spare
satellites, which is currently held by SS/L, to Globalstar.
Also in order to conserve cash in 2001, Globalstar reduced its work force
from approximately 439 full-time employees on December 31, 2000 to 124 full-time
employees on December 31, 2001.
As of December 31, 2001, Globalstar had approximately $55.6 million in cash
and cash equivalents on hand. During 2002, Globalstar plans to use available
funds to cover its cash out flow, which it expects to
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include its traditional wholesale operations, operating costs related to four
gateways and retail operations in North America, support to gateway operations
from QUALCOMM and its continuing restructuring efforts.
Globalstar has insufficient cash resources to fund its operations until
breakeven operations can be achieved. Globalstar is in the process of finalizing
its business plan and disclosure statement to be filed with the U.S. Bankruptcy
Court. This plan will include provisions for the amount of new investment that
will be necessary to bridge Globalstar to profitable operations.
BUSINESS SEGMENT
Globalstar operates in one industry segment, satellite telecommunications,
providing global mobile and fixed wireless voice and data services.
BUSINESS
OVERVIEW
Globalstar owns and operates a satellite constellation that forms the
backbone of a global telecommunications network designed to serve virtually
every populated area of the world. Globalstar's worldwide, low-earth orbit
("LEO") satellite-based digital telecommunications system (the "Globalstar(TM)
System") which uses QUALCOMM's patented CDMA technology to provide high-quality
mobile and fixed telephone service to customers who live, work or travel beyond
the reach of adequately developed communications networks.
The Globalstar System is designed to offer a cost-effective communications
solution for areas underserved or unserved by existing telecommunications
infrastructures. Globalstar mobile phones are simple to use -- just like
ordinary cellular telephones -- and are among the smallest, lightest and least
expensive satellite phones currently available. These phones are multimode,
functioning as cellular phones where terrestrial cellular service is available
and as satellite phones where cellular service is not available. Globalstar
phones provide this multimode capability without separate modules or plug-ins.
Globalstar pay phones and fixed wireless phones for business and residential use
provide basic telephone service in rural villages and at remote industrial and
residential sites.
Globalstar phones have familiar features such as phone book, voice-mail,
short messaging service, asynchronous data service, and, in some service areas,
call forwarding and internet services through packet data switching.
Globalstar's utilization of QUALCOMM's CDMA technology will enable it to swiftly
adopt future improvements as this industry's leading wireless technology
evolves. In addition, because the intelligence of the Globalstar System is
located on the ground, future enhancements are easily implemented.
Globalstar's technology design kept the satellites simple and inexpensive,
with the intelligence of the system accessible on the ground in the Globalstar
gateways and control centers. Overall, the satellites have performed well, and
Globalstar has extended their estimated life to 10 years from initial service.
Recent anomalous behavior is described in "The Globalstar System." While two of
the fifty-two launched satellites have been declared failed and replaced, other
previously anomalous satellites have recovered and have been returned to
service. Two satellites are continuing to experience anomalous behavior, but
appear to be capable of recovering although this cannot be guaranteed and may
take considerable time to achieve. Globalstar continues to believe in the
robustness of the Globalstar constellation and the estimated satellite life;
however, there can be no assurances that the anomalies will not appear again or
that the actual satellite lives will approximate the estimated lives.
SALES AND MARKETING ACTIVITIES
Globalstar's current marketing program focuses on vertical markets. New
applications, such as packet and asynchronous data, have enhanced conventional
marketing efforts and opened new business opportunities.
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Globalstar's sales efforts are designed to complement and support the sales
and marketing activities of its service providers. Globalstar has created
incentives for service providers to pre-purchase minutes of use. For their part,
the service providers have introduced new promotional plans in the consumer
retail markets. Various plans price phones from as low as $499 with a contract
of high volume usage, and/or offer phone leasing arrangements which often
includes free minutes of use for limited time periods. Other promotional
offerings include packages of prepaid minutes and data compression services.
Globalstar service providers are adapting their marketing efforts to the
needs, characteristics and opportunities within each of the markets. They have
identified a number of key segments of the addressable marketplace characterized
by early expressions of interest in obtaining the service and by the potential
for heavy usage of satellite airtime estimated to range between several hundred
and 1,000 minutes per phone per month. These include:
Government. Globalstar has been used by U.S. Government agencies in
peacekeeping operations (Balkans), Federal accident investigations, public
safety and resource management, as well as emergency search and rescue.
Globalstar service has been used on Coast Guard helicopters, for sending
rocket telemetry testing during launch for NASA, and for Remote Piloted
Vehicle control research for the US Navy. Globalstar fixed services
provided for welfare communications for US troops on exercise in the Middle
East, and continue to be deployed in other countries including the Balkans
and Middle East. Globalstar terminals have been widely deployed on ships of
the Italian Navy and have been extensively used in support of their
activities in the Middle East. In late 2001, Globalstar service was
extended to include coverage in Central Asia and Afghanistan, in support of
government agencies, aid agencies and news gathering organizations. During
2001, Globalstar demonstrated to the military market that, by using the
Fortezza PCMCIA card, data files on laptops or handheld computers can be
encrypted and sent over the Globalstar system. For the non-military secure
communications market, Globalstar introduced two products: 1) the CopyTele
DCS-1200 Desktop/Handset for speech and data; and 2) the CopyTele DCS-1400
miniaturized version for voice only.
Public Safety. Globalstar has concentrated its marketing efforts on
agencies responsible for emergencies such as fire, police, hospitals and
emergency response teams. These markets will continue to expand in 2002 and
additional markets such as national border patrols will also be targeted.
As an example, the 2002 Winter Olympic Games required increased levels of
security and over 500 Globalstar phones were provided in support of
Federal, state and local officials operating in and around Salt Lake City.
Maritime. During 2001, Globalstar extended the gateway coverage areas
to provide service where possible into deep ocean waters. This coverage has
provided service to maritime customers crossing the North Atlantic, as well
as the coastal waters surrounding North and South America, Europe and the
Middle East. During the year Globalstar was mainly targeted at coastal
shipping and fishing markets. Fishermen value the attractive price,
coverage, security and privacy offered by a Globalstar call versus
conventional VHF radio or satellite communications systems. Several major
oil tanker fleets have successfully been using Globalstar services as they
sail between Alaska and ports in the USA. Based on recently collected call
usage data, approximately 20% of Globalstar's current traffic volume is
generated from ocean waters.
During 2001, Globalstar, working with a major maritime
telecommunications vendor developed the MCM8, a multi channel packet data
modem capable of 64 kilobits per second ("kbps"). In early 2002, another
product, the MCM3, a 28.8 kbps terminal capable of both voice and data was
launched. These products address maritime shippers, cruise lines, ferries,
and other high-speed data users that desire data rates, in excess of 9.6
kbps. Globalstar believes that the addition of data communications has
increased Globalstar's attractiveness to maritime customers and made
Globalstar more competitive with established maritime communications
systems.
Transportation. Long distance drivers have a continuous need to
contact dispatchers and destinations, to obtain information and react to
changing business demands and weather conditions,
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and simply to stay in touch with their families and friends. In the
developing world in particular, neither cellular service nor pay phones are
available for vast portions of frequently traveled routes. In countries
such as Brazil, trains and buses are being equipped with Globalstar phones
to provide communications to their passengers in remote areas.
Natural Resources. Globalstar has been targeting resource industries
such as oil and gas, mining, and forestry as well as the remote communities
serving these industries. Oil and gas customers operating in the Gulf of
Mexico, off the coast of Brazil and the Middle East have been early target
markets, initially for voice services. In 2002, Globalstar will be
introducing new data products targeted at these markets. Recently, data
usage over Globalstar has increased significantly as Globalstar has
provided data services to oil field operators during the winter drilling
season in Canada.
Outdoor Enthusiasts. Globalstar service providers have negotiated
agreements with specialist resellers in an effort to make Globalstar phones
part of the basic equipment of wilderness guides and outfitters, addressing
the growing market for adventure and eco-tourism, as well as the hunting,
fishing and mountaineering markets. The Globalstar phone has proven to be
an ideal communications solution for lodge owners, hikers, hunters and
fishers and anyone else in the leisure and outdoor industry. During 2001,
Globalstar phones were used on numerous occasions to summon emergency
assistance for adventurers.
Agribusiness. Large plantations, ranches and other agricultural
businesses in countries such as Australia, Brazil and Argentina typically
lie beyond the range of current or planned cellular service, and are
finding Globalstar service valuable to coordinate their operations.
Utilities. Utility companies worldwide need to maintain transmission
lines across long distances in territories that are often vast and remote.
Globalstar voice and data features support both on-site as well as remote
monitoring of distribution facilities and links. Major utility companies
such as ENEL in Italy use the Globalstar service for their maintenance
staff in remote areas.
Aeronautical. Globalstar is working with QUALCOMM and ARNAV to have
fully certified 9.6 kbps voice and data products commercially available for
installation and use in general aviation aircraft by the second quarter of
2002. These products will be capable of providing cockpit and cabin voice
and data communication, as well as integrated data services such as weather
and graphical flight plan displays. A Globalstar reseller has succeeded in
having the QUALCOMM terminal FAA certified for use in different models of
helicopters. These have found use with customers such as news gathering and
police departments. During late 2001, QUALCOMM successfully demonstrated a
new medium data rate aeronautical terminal capable of transferring data at
speeds up to 128 kbps. The primary market for the medium data rate terminal
is expected to be voice and data services to corporate aircraft and
commercial airliners.
Rural Telephony. The use of fixed terminals for rural telephony is an
expanding market segment for Globalstar. Initially service is being
developed through prepaid payphone services in remote villages. By year end
2001, Globalstar rural payphone services have been deployed in five
countries, predominately in South and Central America. In Venezuela, nearly
300 payphones had been installed, generating an average of 570 minutes of
use each, in December 2001. During 2002, Globalstar expects to see these
payphone services being introduced into Eastern Europe and the Middle East.
Globalstar partners are also in negotiation with several national
regulatory authorities over the deployment of services to assist these
countries by offering universal service access in rural areas.
Data. Globalstar has continued deployment of packet and asynchronous
data service throughout the world. Asynchronous data services are available
on all Globalstar gateways globally and packet data is being deployed
progressively with commercial service available in North America, Brazil,
and Western Europe. Non commercial service is available for customer trial
in Russia, Australia and Peru and Globalstar intends that these
non-commercial services will become fully commercial during 2002.
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Globalstar has continued its development of the data market and has
positioned itself for entry into a number of major segments including fixed
asset monitoring and mobile asset tracking, and telematics. Globalstar will
utilize existing modems available from QUALCOMM and has also entered into a
development and production agreement for a low speed simplex modem with an
independent development company. This modem expected to be available in the
second half of 2002 will be priced well below $100 in volume giving it a
substantial competitive advantage for both monitoring and tracking
applications.
Globalstar works through selected value added resellers ("VARs") to
market, fabricate and install data solutions. Additional VARs will be
appointed during 2002 to achieve increased penetration into several key
industries.
THE GLOBALSTAR SYSTEM
The Globalstar System consists of a satellite constellation, owned by
Globalstar, a ground segment known as gateways, currently owned and operated
primarily by Globalstar's service providers, and telephones, owned or leased by
subscribers.
The Globalstar space segment consists of:
- 52 low-earth-orbit satellites, including 2 failed satellites now serving
as in-orbit testbeds, 1 in-plane spare at 1,414km and 1 in-orbit spare at
the 920km phasing orbit,
- Eight additional on-ground spare satellites held by SS/L, seven of which
have completed production and are in storage; and
- Two state-of-the art satellite and network operations control centers in
California.
Satellite Constellation. The Globalstar satellites use a simple,
traditional "bent pipe" design, amplifying and reflecting received signals
directly back to earth, with no intersatellite links. Gateways then connect
customer calls through the existing public telephone network. As a result, the
Globalstar System complements and extends, rather than bypasses, wireline and
cellular network infrastructures.
Globalstar's full constellation has been launched and the satellites have
been performing better than design specifications. However, in mid-March 2001
Globalstar detected anomalous behavior in two of the satellites and removed them
from service. These two satellites were subsequently declared failed and
replaced with two in-orbit spares in late 2001. SS/L and Globalstar have been
working to investigate the anomalies but have so far been unable to conclusively
determine the cause of the failures. The extreme space environment at the time
of the anomalies was suspected to be the most probable cause. Globalstar further
detected anomalous behavior in a third satellite in April 2001; however, the
satellite recovered to full performance and was returned to service in August
2001. This event occurred during the same period of extreme space weather and
was similar in behavior to the prior two events.
Globalstar has since experienced four additional anomalies, one in late
November 2001, two in February 2002 and one in early April 2002. These events
are again similar in observed behavior to the prior events. Of the four
satellites, one was out of service for less than two weeks before it was fully
recovered and returned to service. A second satellite was recovered after being
out of service for approximately 2 months and is expected to be return to
service in April 2002. The other two are still out-of-service undergoing
diagnostic testing and recovery operations. These two satellites show signs of
recovery although this cannot be guaranteed and may take a considerable time to
achieve. While neither of these satellites has been declared failed, Globalstar
elected to replace one of these two satellites with an in-orbit spare to
minimize service interruption. Based on these additional anomalies, Globalstar
and SS/L reopened the prior anomaly investigation. Globalstar has additionally
implemented further operational safeguards to protect constellation availability
and continued safe operations.
Globalstar has one remaining in-orbit spare at the phasing orbit altitude,
and is completing construction of eight on-ground spares that can be used as
replacements, if necessary. Globalstar is in
7
discussions with SS/L regarding the settlement of unpaid amounts due under the
satellite contract and the transfer of title to the spare satellites, which is
currently held by SS/L, to Globalstar.
The deployment of six satellites in each of eight orbital planes assures
that two to four satellites are visible to the subscriber at all times from any
point on the earth's surface, other than the extreme northern and southern
latitudes. SS/L's patented system design works with QUALCOMM's CDMA technology
to permit dynamic selection of the strongest signal available from all
satellites in view, a technique Globalstar refers to as path diversity,
resulting in superior call clarity and a low incidence of dropped calls. As the
satellites and the user change positions, satellites are added and dropped
seamlessly from the call.
Gateways. Globalstar satellites relay calls to earth through Globalstar
gateways, which in turn connect the calls through the public telephone network.
Thus, the Globalstar System complements and extends, rather than bypasses, the
existing telephone network infrastructure. Gateway facilities include three or
four large antennas that send and receive signals to and from the satellites,
sophisticated call processing equipment that connects calls to the local public
telephone network and the software that implements the system's features and
supports billing. These facilities, designed and manufactured by QUALCOMM, are
currently owned and operated primarily by the Globalstar service providers.
Each gateway serves a large geographic area. For example, three gateways
together cover the United States and Canada from Anchorage to Florida and San
Diego to Newfoundland. QUALCOMM has manufactured and shipped 38 gateways, 26 of
which have been installed. At the end of 2001, these gateways provided coverage
of approximately 67% of the world's land mass and approximately 18% of the
world's bodies of water.
Two manufacturers, QUALCOMM, and Telit, produce mobile phones and car kits
for Globalstar. QUALCOMM offers a tri-mode unit that works on AMPS (the analog
standard) and CDMA digital cellular networks as well as Globalstar. The QUALCOMM
phones are packet data-ready. The Telit phones support both Globalstar and the
digital cellular GSM protocol currently used throughout Europe and in many other
countries. QUALCOMM also produces fixed units for business and residential use.
These units provide basic telephone service in rural villages and at remote
industrial and residential sites. QUALCOMM's fixed unit is called a radio access
unit, or RAU. The RAUs can be configured as pay phones that accept tokens, debit
and credit cards. The contracts between Ericsson and Globalstar for the
manufacture and delivery of both mobile and fixed phones were terminated during
2001. Ericsson subsequently filed a legal claim. See the Legal Proceedings
section for the legal claim discussion.
Through December 31, 2001, the three manufacturers produced and delivered
to the Company and its service providers; 155,805 handsets, 21,716 car kits and
29,742 fixed units. Retail prices of mobile phones vary among local service
providers and are dependent on volume purchases, tariff plan rebates and retail
promotions. Globalstar has participated in service providers' programs offering
phone discounts.
QUALITY OF SERVICE
The system's overall performance, and each component of the system, meet or
exceed design specifications. From the start of commercial service through
February 2001, satellite constellation availability remained at 99.99%, and
gateway availability remained at 99.88%. Gateway availability has consistently
remained at this level. Gateway functionality and robustness were further
increased by installation of a new QUALCOMM software release in late 2001.
Satellite constellation availability was adversely affected as the six
individual satellite anomalies occurred over the twelve-month period from March
2001 through February 2002. Globalstar currently has 47 satellites in the
48-satellite constellation in service for availability of 97.92%. Although
success is not certain, Globalstar is continuing to take steps to affect
recovery of the anomalous satellites (one operational and one in-plane spare).
Removing the satellites with anomalous behavior from service has had a minor
effect on service in about half of the gateways. In these gateway service areas,
which are primarily in the non-temperate zones of the world, a small number of
users may experience a brief loss of service. The affected gateways are
experiencing one to four outages per day lasting from 47 seconds to 5 minutes.
8
Call success rates for phones used in the system by an experienced operator
with a clear view of the sky should exceed 98% based on Globalstar's extensive
testing program. The actual average for February 2002 based on call data
processed through Globalstar's billing system was 80% for all phone types.
Globalstar believes that this lower figure is due to a substantial number of
users attempting calls in adverse environments and circumstances. Fixed phones,
not unexpectedly, had much higher success rates (average of 92%). An individual
phone's actual call success rate is highly dependent upon its use, with
variables being the physical surroundings (e.g., the presence of tall buildings
or trees), location of the phone in the service area (e.g., a phone on the very
edge of a large coverage area, as opposed to closer to the Gateway), and
operator experience. The system consistently demonstrates excellent voice
quality. Single calls lasting more than two days have been made to confirm the
effectiveness of the system's soft hand-off from satellite to satellite and the
completeness of the satellite coverage.
REGULATION
United States FCC Regulation. The Globalstar satellite constellation is
licensed by the U.S. FCC as a mobile satellite service ("MSS").
Globalstar holds regulatory authorization for two pairs of frequencies on
its current system: user links (from the user to the satellites, and vice versa)
and feeder links (from the gateways to the satellites, and vice versa). The FCC
initially authorized the construction, launch and operation of the Globalstar
System on January 31, 1995, and assigned the 1610-1626.5/2483.5-2500 MHz bands
of the radio frequency spectrum for the user links. However, the FCC currently
restricts operation of the user uplink to the 1610-1621.35 MHz portion of the
band. This license is held by L/Q Licensee, a subsidiary of LQP, which has
agreed to use the FCC license exclusively for the benefit of Globalstar. On
November 19, 1996, the FCC authorized L/Q Licensee to use feeder link
frequencies in the 5091-5250/6875-7055 MHz bands.
The FCC license only authorizes the construction, launch and operation of
the Globalstar System's satellite constellation. Separate authorizations must be
obtained from the FCC for operation of gateways and Globalstar phones in the
United States. Globalstar USA, ("GUSA") formerly AirTouch, and its affiliate,
Globalstar Caribbean, the exclusive Globalstar service provider in the United
States, holds licenses for the Texas and Puerto Rico gateways and a license to
operate up to 500,000 Globalstar phones. On January 17, 2002, GUSA and
Globalstar filed applications with the FCC to transfer all of GUSA's licenses to
a subsidiary of Globalstar in connection with Globalstar's restructuring.
Globalstar's three phone manufacturers have obtained equipment authorization for
Globalstar phones from the FCC, the European Union and many other countries in
which such authorizations are required.
Under the FCC's band plan for MSS in Globalstar's frequency bands,
Globalstar must share the frequencies in the United States with other licensed
users. The FCC initially licensed Odyssey, MCHI (Ellipso) and Constellation to
share Globalstar's band. Odyssey turned in its license, MCHI's license was
cancelled in 2001 and Constellation has not constructed its system. If a another
satellite system were authorized to operate in the United States using
frequencies assigned to Globalstar, additional coordination obligations may be
imposed on Globalstar's operations. Finally, Globalstar may be required to share
its feeder link frequencies with other systems. In this regard, Globalstar in
2000 concluded an interim feeder link coordination agreement with ICO Global
Communications.
On January 9, 1997, the FCC adopted rules which make available 300 MHz of
bandwidth in the 5 GHz band, including frequencies from 5150 to 5250 MHz, for
use by unlicensed devices for wireless high speed data services. The FCC adopted
rules, which are designed to ensure that these devices do not cause harmful
interference with licensed services using these bands, such as Globalstar's
feeder links. On reconsideration, the FCC rejected petitions by terrestrial
wireless proponents to raise the power limits for these devices. Globalstar
believes that the rules, as adopted, will not have an adverse effect on the
usefulness of these bands for its feeder links.
On July 17, 2001, the FCC granted Globalstar and seven other applicants
authorizations to construct, launch and operate MSS systems in the 2 GHz band.
Systems must be constructed in compliance with
9
certain milestones, the first of which occurs on July 17, 2002. Failure to meet
milestones will result in cancellation of the construction authorization.
In August 2001, the FCC issued Notices of Proposed Rulemaking in two
proceedings, the outcome of which could affect (1) the amount of radio frequency
spectrum available in the future for MSS, including Globalstar and (2) the MSS
licensee's ability to use its spectrum for terrestrial services. In the first
case, Globalstar is vigorously opposing a reduction in future MSS spectrum. In
the second, Globalstar is strongly advocating flexible spectrum authority. These
proceedings are likely to be decided during 2002.
The rules and policies adopted by the FCC for MSS, and the orders granting
certain licenses, were challenged in judicial appeals. While these appeals
remain pending, Globalstar does not expect the courts to substantially alter the
FCC's decisions. Nevertheless, there can be no assurance that a court will not
remand the FCC's decisions or that the FCC would not decide to modify
Globalstar's authorizations.
International Coordination. The Globalstar System operates in frequencies
which were allocated on an international basis for MSS user links and MSS feeder
links. Globalstar is required to engage in international coordination procedures
with other proposed MSS systems under the aegis of the International
Telecommunications Union ("ITU"). Globalstar will also be required to coordinate
the use of its feeder links and any other foreign system which has similar
plans. Both a Russian and a Brazilian LEO MSS system have filed with the ITU
their intention to use the same feeder link spectrum as Globalstar. There can be
no assurance that such coordination will not adversely affect the use of these
bands by Globalstar.
Pursuant to the Intelsat and Inmarsat treaties, international satellite
operators are required to demonstrate that they will not cause economic or
technical harm to Inmarsat or Intelsat and to coordinate with Intelsat and
Inmarsat under obligations imposed on United States satellite systems by
international treaties. Globalstar has successfully completed the required
coordination with both Intelsat and Inmarsat.
Regulation of Service Providers. In order to operate gateway earth
stations, including the user uplink frequency, the Globalstar service provider
in each country is required to obtain a license from that country's
telecommunications authority. In addition, the Globalstar service provider must
enter into appropriate interconnection and financial settlement agreements with
local and interexchange telecommunications providers.
United States International Traffic in Arms Regulations. The United States
International Traffic in Arms Regulations under the United States Arms Export
Control Act authorize the President of the United States to control the export
and import of articles and services that can be used in the production of arms.
Among other things, these regulations limit the ability to export certain
articles and related technical data to certain nations. The scope of these
regulations is very broad and extends to certain spacecraft, associated ground
equipment, and technical data. Certain information involved in the performance
of Globalstar's operations falls within the scope of these regulations. As a
result, Globalstar may have to obtain an export authorization or restrict access
to that information by international companies who are Globalstar service
providers. Globalstar has received and expects to continue to receive export
licenses for its telemetry and control equipment located outside the United
States.
Other Export Regulation. Globalstar's operations are subject to certain
regulations of the U.S. Treasury Department's Office of Foreign Assets Control
(i.e., financial transactions) and the U.S. Commerce Department's Bureau of
Export Administration (i.e., export of gateways and Globalstar phones).
RESEARCH AND DEVELOPMENT
Globalstar's Development Contract with QUALCOMM, which was terminated by
QUALCOMM in November 2001, provided for QUALCOMM to perform certain development
tasks related to the Globalstar System. Globalstar is also performing certain
in-house engineering tasks that are classified as development costs. Total
development costs incurred for 2001, 2000, and 1999 were $4.4 million, $5.3
10
million, and $94.3 million, respectively. The lower figures for 2001 and 2000
are attributable to Globalstar's having substantially completed initial
development and deployment.
PATENTS AND PROPRIETARY RIGHTS
Globalstar's design and development efforts have yielded 49 patents issued
and 28 patents pending in the United States, as well as 36 patents issued and
more than 163 patents pending internationally for various aspects of
communication satellite system design, implementation and operation. QUALCOMM
has obtained more than 300 issued patents and more than 800 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.
INTERNATIONAL OPERATIONS
Globalstar earns the vast majority of its revenue from international
operations. For 2001, Globalstar earned $0.6 million in U.S. service revenue
before discounts and $6.5 million in international service revenue before
discounts. At December 31, 2001, 2000, and 1999, Globalstar had substantially
all of its long-lived assets located in the United States with the exception of
its in-orbit satellites and support equipment for telemetry and command
equipment located in various other countries. See "Certain Factors that May
Affect Future Results -- 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, 2001, Globalstar had 124 full-time employees, none of
whom is subject to any collective bargaining agreement. Globalstar considers its
employee relations to be satisfactory.
COMPETITION
Iridium L.L.C. has emerged from bankruptcy with no debt under new ownership
and resumed commercial service in competition with Globalstar in April 2001. It
has secured a two-year contract valued at $72 million from the U.S. Department
of Defense. ICO has also emerged from bankruptcy, and is expected to complete
its system and compete with Globalstar in the future.
Existing fixed satellite systems, including those of Mobile Satellite
Ventures (formerly Motient and American Mobile Satellite Corporation), Comsat
Corporation's Planet-1, and Inmarsat, and recently developed systems, including
those of ACeS and Thuraya Satellite Communications Company, also provide
competing service on a regional basis at potentially lower costs.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This annual report on Form 10-K contains forward-looking statements 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. 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. 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.
Globalstar warns you that forward-looking statements are only predictions.
Actual events or results may differ materially as a result of risks that
Globalstar faces, including those presented below. The following are
representative of factors that could affect the outcome of the forward-looking
statements.
11
GLOBALSTAR FILED FOR BANKRUPTCY PROTECTION ON FEBRUARY 15, 2002; GTL'S EQUITY
INTEREST IN GLOBALSTAR WILL LIKELY BE ELIMINATED, OR AT BEST, SEVERELY DILUTED,
IN WHICH EVENT IT WILL HAVE LITTLE OR NO VALUE.
Globalstar and five of its principal creditors have agreed in principle
with respect to the terms of a financial restructuring plan. Globalstar filed
the resulting "Memorandum of Understanding -- Proposed Restructuring" ("MOU")
and associated Plan Support Agreement with the Securities and Exchange
Commission on February 19, 2002. The MOU is intended to form the basis for
Globalstar's chapter 11 restructuring plan. The plan, subject to creditor and
bankruptcy court review and approval, cancels all partnership interest in
Globalstar, including those of GTL. The MOU provides for a rights offering for
GTL public shareholders providing the option to purchase shares in a reorganized
Globalstar subject to certain conditions. There can be no assurance that the
final plan of confirmation shall contain such rights offering or any rights
offering to GTL shareholders.
GLOBALSTAR HAS LIMITED CASH TO FUND ITS OPERATIONS.
The $55.6 million cash on hand at the beginning of 2002 and the anticipated
revenue from operations will not be sufficient to sustain Globalstar as a going
concern through 2002. Globalstar, which filed for protection under chapter 11 of
the United States Bankruptcy Code, will require additional financing to sustain
operations until breakeven cash flow is achieved. There can be no assurance that
a successful restructuring will be completed and that such financing will be
available on terms acceptable to Globalstar, if at all. If Globalstar is unable
to obtain such financing, it will likely cease to operate as a going concern.
GLOBALSTAR HAS DEFAULTED ON CERTAIN DEBT PAYMENTS.
On January 16, 2001, Globalstar suspended indefinitely principal and
interest payments on its funded debt and dividend payments on its 8% and 9%
convertible redeemable preferred partnership interests in order to conserve cash
for operations. Non-payment of interest on Globalstar's debt instruments, credit
facility and vendor financing agreements when they become due, and continuance
of non-payment for the applicable grace period, are "events of default" under
the terms of each of the debt instruments. An event of default has occurred in
connection with Globalstar's $500 million credit facility, its vendor financing
facility with QUALCOMM, its 11 3/8% senior notes due February 15, 2004, its
11 1/4% senior notes due June 15, 2004, its 10 3/4% senior notes due November 1,
2004, and its 11 1/2% senior notes due June 1, 2005 ("senior notes due 2004 and
2005"). Accordingly, for reporting and accounting purposes, Globalstar
classified the $500 million credit facility, the QUALCOMM vendor financing and
the senior notes as current obligations.
On February 15, 2002, Globalstar and certain of its subsidiaries filed
voluntary petitions under Chapter 11 of Title 11, United States Code, in the
United States Bankruptcy Court for the District of Delaware (Case Nos. 02-10499,
02-10501, 02-10503 and 02-10504). Globalstar and its subsidiaries remain in
possession of their assets and properties and continue to operate their
businesses as debtors-in-possession. As a result of Globalstar's bankruptcy
petition, several of Globalstar's debt obligations have been accelerated and are
immediately due and payable.
THE RATE OF GROWTH FOR THE SERVICE HAS NOT BEEN SUFFICIENT TO SUSTAIN
GLOBALSTAR'S COST OF OPERATIONS.
Low earth orbit satellite telecommunications systems are a new business
sector that has not yet succeeded in the marketplace. Globalstar commenced
commercial service in early 2000 but had acquired only approximately 66,000
commercial subscribers by the end of 2001, too few to generate sufficient
revenue to cover Globalstar's operating costs and service its debt. On January
16, 2001, Globalstar announced that it was not generating sufficient cash flow
from operations and that it would suspend indefinitely payments on its funded
debt. On February 15, 2002, Globalstar filed its voluntary petition for relief
under chapter 11 of the United States Bankruptcy Code. By announcing a financial
restructuring and filing for bankruptcy protection, Globalstar became vulnerable
to additional risks, namely, that potential subscribers may defer subscribing
for fear that Globalstar will cease operating in the near future, and that
potential investors, partners and service providers would withhold investment
because of Globalstar's
12
uncertain future. If Globalstar is unable to restructure its debt obligations in
bankruptcy, or ultimately generate positive additional cash flows from
operations, Globalstar is unlikely to survive as a going concern.
GLOBALSTAR MAY BE REQUIRED TO WITHHOLD TAX ON INCOME RESULTING FROM THE
CANCELLATION OF DEBT.
The plan of reorganization now being contemplated by Globalstar will
involve the cancellation of debt in exchange for equity. The cancellation of
debt will give rise to considerable taxable income that will be allocable to the
partners of Globalstar. Under a certain interpretation of Section 1446 of the
Internal Revenue Code of 1986, as amended, Globalstar may be obligated to pay a
35% withholding tax on all income allocated to the foreign partners regardless
of the fact they will not receive a cash distribution. Globalstar believes the
imposition of the withholding tax may have the effect of diverting its assets
from its creditors to its foreign partners in contravention of bankruptcy law.
The U.S. Department of Treasury is currently working on a regulation project
that may clarify this issue. Globalstar is also evaluating other avenues of
relief and is optimistic that it will be able to resolve the issue. However,
until a solution is found, it is unlikely that Globalstar will be able to secure
new investment.
GLOBALSTAR DEPENDS ON SERVICE PROVIDERS TO MARKET ITS SERVICE AND IMPLEMENT
IMPORTANT PARTS OF ITS SYSTEM.
Globalstar depends on unaffiliated service providers to purchase, install
and operate gateway equipment, to sell phones and to market Globalstar service
in each country where the service provider holds exclusive rights. Not all of
these service providers have been successful, and in some countries they have
not initiated service according to their schedules, or sold as much usage as
they originally anticipated. Globalstar service providers are generally not
earning revenues sufficient to fund their operating costs. Globalstar cannot be
sure that they will continue operations until Globalstar's financial
restructuring is completed. Globalstar's restructuring plan assumes that
Globalstar will take ownership of some of these gateways, consistent with its
consolidation strategy, and that Globalstar will revise its business
relationship with the remaining service providers. In addition to Globalstar's
acquisition of certain service provider operations from Vodafone, Globalstar is
in discussions with several other service providers with the objective of
restructuring their business relationships with Globalstar. Globalstar has been
informed by one service provider that the service provider has decided to
terminate services from one of its gateways. The schedule for the termination of
services from this gateway, the coverage area of which can largely be served by
remaining gateways, has not been finalized, but it is likely that services from
the subject gateway will be discontinued during May of 2002. A second service
provider, which had not initiated service in its territories in the Middle East,
terminated its relationship with Globalstar on June 30, 2001. Globalstar expects
other service providers to acquire some or all of these rights. A third service
provider, which has not initiated services in Southern Africa territories due to
licensing difficulties, has informed us that it is discontinuing its service
provider operations and is in discussions to transfer its gateway assets to
another service provider.
Globalstar has been unable to find suitable new or replacement service
providers for several important regions and countries, including India, Malaysia
and Indonesia, the Philippines and other parts of Southeast Asia. Neither has
Globalstar been able to find purchasers for gateways which were ordered and
later cancelled. Globalstar's inability to offer service in these areas
ultimately reduces overall demand for its service and undermines its value for
potential users who require global service or service in Southeast Asia and the
Indian subcontinent. In addition to the lack of global service availability,
roaming is not yet available in certain countries because the affected service
providers have been unable to date to reach business arrangements with one
another and conclude roaming testing.
GTL MAY BE UNABLE TO FUND MANDATORY REDEMPTION REQUIREMENTS OF 8% AND 9%
CONVERTIBLE REDEEMABLE PREFERRED STOCK.
The 8% and 9% convertible redeemable preferred stock of GTL has mandatory
redemption dates in 2011. Under the terms of the mandatory redemption, GTL may
make payments to the holders in either cash or common stock or a combination
thereof. Based upon the price of GTL's common stock at
13
December 31, 2001, GTL has not authorized a sufficient number of shares of
common stock to effect payment in common stock. Accordingly, as of December 31,
2001, GTL classified $220,296,000 of the 8% and 9% convertible redeemable
preferred stock outside the shareholders' deficit section of the balance sheet
based on GTL's average common stock price in the 10-day period preceding
December 31, 2001 (approximately $0.16). The number of shares of GTL common
stock that may be issued on the mandatory redemption date will depend on factors
at the redemption date including the price of GTL's common stock and the number
of shares of 8% and 9% convertible redeemable preferred stock outstanding at the
time of the redemption. The amount of the 8% and 9% convertible redeemable
referred stock classified outside the shareholders' deficit section will vary in
future periods depending on these variables.
GTL HAS BEEN DE-LISTED BY THE NASDAQ NATIONAL MARKET.
On June 14, 2001, GTL's listing was transferred to the Nasdaq SmallCap
Market. This change, while still permitting public trading of GTL's shares,
reduced their liquidity and may also have had an adverse effect on their trading
value. On November 14, 2001, Nasdaq notified GTL that it halted trading in GTL
shares. GTL is now traded on the Nasdaq OTC Bulletin Board under the symbol
GSTRF.OB. There can be no assurance that there will be any future trading market
for the GTL common stock.
LOCKHEED MARTIN IS DISPUTING GLOBALSTAR'S RIGHT TO ISSUE IT A $150 MILLION NOTE
IN SATISFACTION OF PAYMENTS MADE UNDER A GUARANTY.
On June 30, 2000, Globalstar's $250 million credit facility with The Chase
Manhattan Bank, became due and was repaid in full by its guarantors, including
Lockheed Martin Corporation. Pursuant to the relevant agreements, Globalstar
issued to all the guarantors three-year notes in proportion to the principal
amount of the credit facility guaranteed. Lockheed Martin, however, has rejected
the notes it received and is instead asking Globalstar to issue new securities
with additional rights and enhanced value without waiving its claim that it is
entitled to receive an immediate cash reimbursement by Globalstar of its $150
million payment to the bank lenders. Globalstar disputes Lockheed Martin's
interpretation of the relevant agreements. If the dispute is not resolved,
Globalstar cannot be sure that a court would agree with Globalstar's
interpretation of the agreements. Management believes, however, that a court
would agree with Globalstar's interpretation of the relevant agreements.
GLOBALSTAR'S SATELLITES HAVE A LIMITED USEFUL LIFE AND MAY FAIL PREMATURELY.
Globalstar's system has performed well. The satellites in orbit 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.
Repair of satellites in space is not feasible. 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. Globalstar has not insured its satellites
against in-orbit failures.
In mid-March 2001 Globalstar detected anomalous behavior in two of the
satellites and removed them from service. These two satellites were subsequently
declared failed and replaced with two in-orbit spares in late 2001. SS/L and
Globalstar have been working to investigate the anomalies but have so far been
unable to conclusively determine the cause of the failures. The extreme space
environment at the time of the anomalies was suspected to be the most probable
cause. Globalstar further detected anomalous behavior in a third satellite in
April 2001; however, the satellite recovered to full health and was returned
14
to service in August 2001. This event occurred during the same period of extreme
space weather and was similar in behavior to the prior two events.
Globalstar has since experienced four additional anomalies, one in late
November 2001, two in February 2002, and one in early April 2002. These events
are again similar in observed behavior to the prior events. Of the four
satellites, one was out of service for less than two weeks before it was fully
recovered and returned to service. A second satellite was recovered after being
out of service for approximately 2 months and is expected to be return to
service in April 2002. The other two are still out-of-service undergoing
diagnostic testing and recovery operations. These two satellites show signs of
recovery although this cannot be guaranteed and may take a considerable time to
achieve. While neither of these satellites has been declared failed, Globalstar
elected to replace one of these two satellites with an in-orbit spare to
minimize service interruption. Based on these additional anomalies, Globalstar
and SS/L reopened the prior anomaly investigation. Globalstar has additionally
implemented further operational safeguards to protect constellation availability
and continued safe operations.
GLOBALSTAR FACES SPECIAL RISKS BY DOING BUSINESS IN DEVELOPING MARKETS AND FACES
CURRENCY RISKS.
Based on business operations in 2001, in which Globalstar earned about 91%
of its revenue internationally, it expects that most of its business in the
future will be conducted outside 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.
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, 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.
GLOBALSTAR'S BUSINESS IS REGULATED, CAUSING UNCERTAINTY AND ADDITIONAL COSTS.
Globalstar's operations are and will continue to be subject to United
States and international regulation. Globalstar's service providers must be
authorized in each of the markets in which they intend to provide service.
Globalstar and its service providers may not be able to obtain or retain all
regulatory approvals needed for operations. For example, Vodafone's affiliate,
Globalstar Southern Africa, has not yet received a license from the government
although its gateway has been operational for more than two years. 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.
GLOBALSTAR FACES INTENSE COMPETITION FROM BOTH DIRECT AND INDIRECT COMPETITORS,
AND ADDITIONAL DIRECT COMPETITORS PLAN TO ENTER THE MARKET SOON.
Iridium L.L.C. has emerged from bankruptcy with no debt under new ownership
and resumed commercial service in competition with Globalstar in April 2001. It
has secured a two-year contract valued at $72 million from the U.S. Department
of Defense. ICO has also emerged from bankruptcy, and is expected to complete
its system and compete with Globalstar in the future.
15
Existing fixed satellite systems, including those of Mobile Satellite
Ventures (formerly Motient and American Mobile Satellite Corporation), Comsat
Corporation's Planet-1, and Inmarsat, and recently developed systems, including
those of ACeS and Thuraya Satellite Communications Company, also provide
competing service on a regional basis at potentially lower costs.
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 operating costs. 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 intense. Further, the
reorganizations of Iridium L.L.C. and ICO have allowed them to dramatically
reduce or eliminate their debt and the need to service that debt. Globalstar
anticipates that upon a successful reorganization it will also reduce or
eliminate its debt and the need to service that debt.
NEW TECHNOLOGIES AND THE EXPANSION OF LAND-BASED SYSTEMS MAY REDUCE DEMAND FOR
GLOBALSTAR'S SERVICE.
Globalstar believes that the extension of land-based telecommunications
services to regions previously underserved or not served by wireline or cellular
services has reduced demand for Globalstar service in those regions. These
land-based telecommunications services have been built more quickly than
Globalstar anticipated; therefore, demand for Globalstar's service is expected
to be reduced sooner than Globalstar assumed in formulating earlier business
plans. This development has been responsible, in part, for Globalstar's effort
in 2001 to identify and sell into vertical markets and to deploy data products,
rather than focusing more resources on areas formerly underserved by terrestrial
systems.
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 Globalstar cannot be certain that these technologies will continue
to be available to Globalstar on a timely basis or on commercially reasonable
terms.
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.
Recent medical studies, however, have again failed to confirm such health risks.
In any event because hand-held Globalstar telephones will use on average lower
power to transmit signals than traditional cellular telephones, Globalstar does
not believe that any new guidelines from the Federal Communications Commission,
or any other regulatory agency, will require any significant modifications of
its system or of its hand-held telephones. Even so, Globalstar 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 must hire and retain highly qualified personnel to operate its
system and manage its business successfully. None of GTL's or Globalstar's
officers has an employment contract with GTL or Globalstar except that Mr. Olof
Lundberg has a written agreement to serve as chairman of Globalstar's Committee
of General Partners and chief executive officer of Globalstar and that Mr. Ira
E. Goldberg has agreed to serve as the restructuring officer of GTL under terms
set out by the Board of Directors of GTL. In addition, neither GTL nor
Globalstar maintains "key man" life insurance. The departure of any of its
executives or other key employees could have an adverse effect on Globalstar's
business, especially during its restructuring period. Globalstar implemented a
retention bonus program in 2001 in an effort to retain its
16
executives and key employees and, subject to bankruptcy court approval intends
to implement a similar program in 2002. There can be no assurance that such
efforts will be successful or that Globalstar will be able to attract qualified
persons to replace departing personnel.
DEPENDENCE ON KEY VENDORS.
Globalstar is dependent on QUALCOMM for gateway hardware and software, on
QUALCOMM as the exclusive manufacturer of phones using the IS-41 CDMA North
American standard, and on Telit for the manufacture of GSM dual-mode phones.
Ericsson has discontinued manufacturing Globalstar products, and there is no
assurance that QUALCOMM or Telit will not choose to terminate its business
relationship with us. If either does, Globalstar may not be able to find a
replacement; if Globalstar does find a replacement, there may be a substantial
period of time in which its products are not available.
In order to preserve cash during 2001, Globalstar ceased its payments for
services performed by SS/L and QUALCOMM; and is currently overdue on its
contractual payment obligations to these vendors. Globalstar and QUALCOMM
previously contracted for the design and development of the Globalstar ground
segment pursuant to the Development Contract dated March 18, 1994 (the
"Development Contract") and contracted for the manufacture, deployment and
maintenance of Globalstar Gateways via the Production Gateway Purchase Agreement
dated April 30, 1997 (the "Production Agreement"). QUALCOMM terminated the
Development Contract and the Production Agreement for non-payment of invoices on
November 29, 2001, and on December 20, 2001, respectively. Globalstar is
currently in negotiating a support agreement with QUALCOMM that will allow it to
utilize the QUALCOMM expertise necessary to maintain the system. There can be no
assurances that Globalstar and QUALCOMM will renegotiate the mutually
satisfactory terms required to continue QUALCOMM's support to Globalstar's
system operations.
SS/L has not terminated its satellite contract with Globalstar and has
continued the production of eight spare satellites. Globalstar is in discussions
with SS/L regarding the settlement of unpaid amounts due under the satellite
contract and the transfer of title to the spare satellites, which is currently
held by SS/L, to Globalstar. There can be no assurances that Globalstar and SS/L
will reach agreement on contract terms and conditions that will result in the
delivery of the satellites from SS/L to Globalstar.
CERTAIN POTENTIAL CONFLICTS OF INTEREST 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 the Globalstar System. They also manufacture the system elements
which are sold to service providers and subscribers.
- Globalstar is dependent upon the management skills of Loral and
technologies developed by Loral, QUALCOMM and others.
- Partners and affiliates of Globalstar, including companies affiliated
with or controlled by Loral, are among Globalstar's main customers.
Accordingly, they may have conflicts of interest with respect to the
terms of Globalstar's service provider agreements.
- 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 SS/L, a contractor of Globalstar. Loral is also a
significant creditor of Globalstar.
- Several Globalstar service providers and their retail distributors are
cellular operators and may have an incentive to favor terrestrial
wireless services over satellite services in certain markets.
AS A GENERAL PARTNER, GTL IS LIABLE FOR THE RECOURSE DEBT AND OTHER OBLIGATIONS
OF GLOBALSTAR.
Because GTL is a general partner of Globalstar, GTL 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. GTL believes that such recourse obligations totaled approximately
$1.4 billion
17
as of December 31, 2001. Certain of Globalstar's debt, including the public
debt, are non-recourse to the general partners. Future funding, if any, or
assets of GTL, may be utilized to fund this general partner liability.
During the year ended December 31, 2001, an issue was raised as to whether
the three-year notes issued to the guarantors of The Chase Manhattan Bank $250
million credit facility were prepared in accordance with the recourse provisions
of the guarantee arrangement. Management does not believe the existing notes
containing non-recourse language will need to be replaced with notes not
containing the non-recourse language. If the existing non-recourse notes were
replaced with notes not containing the non-recourse language, the replacement
would not impact Globalstar's results of operations. However, allocations of
Globalstar's losses to general partners, including GTL, would increase by the
amount of the increase in recourse obligations. Replacement of the notes would
not alter the subordinate position of GTL's shareholders relative to holders of
these notes.
A CHANGE OF CONTROL OF GTL OR REDUCTION IN GTL'S 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
happens, 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 of 1940.
HOLDERS OF GTL PREFERRED STOCK WILL HAVE THE RIGHT UNDER CERTAIN CIRCUMSTANCES
TO APPOINT DIRECTORS TO GTL'S BOARD OF DIRECTORS AND TO APPOINT A MEMBER TO
GLOBALSTAR'S GENERAL PARTNERS' COMMITTEE.
In January 2001, GTL announced that it was suspending indefinitely dividend
payments on its 8% preferred stock and its 9% preferred stock. Under the terms
of each such series of preferred stock, if GTL should fail to pay dividend
payments on such series for an aggregate of six quarters, holders of the
majority of the outstanding shares of that series will have the right to elect
up to two additional members to GTL's Board of Directors. Globalstar's
partnership agreement further provides that in the event accrued and unpaid
dividends accumulate to an amount equal to six quarterly dividends on the 8%
preferred stock and/or the 9% preferred stock, holders of the majority of such
outstanding preferred stock, voting together as a class, will have the right to
appoint one additional member to Globalstar's General Partners' Committee.
PATENTS HELD BY OTHER FIRMS OR INDIVIDUALS MAY BLOCK GLOBALSTAR'S PATENTS.
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 or issued that could result in infringement by Globalstar.
In such an event, Globalstar could be required to redesign some part of its
system or pay royalties for use of the third parties' patents, which could
increase cost or delay implementation of certain features or functions. In
January 2000, TRW asserted in a letter to Globalstar
18
that certain TRW patents may be infringed. Globalstar denied the assertion, and
has not had any communication with TRW on this matter since February 2001.
VOLATILITY OF MARKET VALUES.
Globalstar's stock price and the fair value of its senior notes experienced
substantial price volatility in the period before Globalstar announced that it
would restructure its debt. This volatility may continue as Globalstar
restructures its debt obligations and increases cash flows from operations.
These factors, as well as general economic conditions, actions of its
competitors, and political conditions may materially adversely affect its market
values in the future.
GTL IS DEPENDENT UPON PAYMENTS FROM GLOBALSTAR TO MEET ITS OBLIGATIONS.
Because GTL is a holding company whose only assets are its interests in
Globalstar, GTL is dependent upon payments from Globalstar to meet its
obligations, including those under its preferred stock. Further, GTL's rights
and the rights of holders of its securities, including the holders of preferred
stock, to participate in the distribution of assets upon Globalstar's
liquidation or recapitalization will be subject to the prior claims of
Globalstar's creditors.
GTL HAS NO SOURCE OF FUNDS OTHER THAN THOSE PROVIDED BY GLOBALSTAR.
GTL has no source of funds other than as may be provided to it from time to
time by Globalstar. These funds are utilized to cover administrative and legal
expenses incurred by GTL related to its ongoing litigation and Globalstar's
bankruptcy proceedings.
GLOBALSTAR IS SUBJECT TO EXPORT REGULATION.
Globalstar's operations are subject to certain regulations of the U.S.
Treasury Department's Office of Foreign Assets Control (i.e., financial
transactions) and the U.S. Commerce Department's Bureau of Export Administration
(i.e., export of gateways and Globalstar phones). There can be no assurance that
such regulations will not adversely affect or delay Globalstar's operations in a
particular country
ITEM 2. PROPERTIES
Globalstar currently has one lease covering approximately 106,200 square
feet of office space in San Jose, California. This lease expires on December 31,
2008. Globalstar has two options to extend the initial term of this lease for
five years each. In addition, Globalstar leases 12,000 square feet for its
back-up Ground Operations Control Center ("GOCC") in El Dorado Hills,
California. The lease expires in November 2006 with options to renew for up to
an additional six years.
ITEM 3. LEGAL PROCEEDINGS
On February 20, 2001, a purported class action lawsuit was filed against
Globalstar and Globalstar Capital Corporation on behalf of the owners of the
10 3/4% bonds, due November 2004 (the "Bonds") in Superior Court, New Castle
County, Delaware. Globalstar Capital Corporation and Globalstar, L.P. issued the
Bonds as joint obligors. The complaint alleges that the defendants repudiated
the Bonds' registration statement, prospectus and indenture, without consent of
the bondholders, when Globalstar announced that it was suspending its future
interest payments on the Bonds. On April 23, 2001, the defendants moved to
dismiss the complaint for failure to state a cause of action. A second similar
class action was filed in Delaware on June 5, 2001. The defendants have also
moved to dismiss this complaint. Plaintiffs subsequently amended the complaint
and defendants again moved to dismiss the amended complaint for failure to state
a cause of action. On December 31, 2001, the court granted defendants' motion to
dismiss in part, dismissing plaintiffs' claims for principal and interest not
yet due, but allowing plaintiffs to proceed with their breach of contract claim
based on the interest payments already missed at the time the amended complaints
were filed. Defendants answered the complaints on January 17, 2002. These
proceedings are now automatically stayed in accordance with Section 362(a) of
the U.S. Bankruptcy
19
Code. On August 7, 2001, Globalstar received a petition filed on July 13, 2001
in Texas state court by L.E. Creel III, a holder of an 11 3/8% note seeking
principal payment of the note plus interest. Globalstar filed an answer
contesting the petition. On December 6, 2001, the parties participated in court
ordered mediation, which failed to lead to a settlement of plaintiff's claim.
This proceeding is also stayed pursuant the U.S. Bankruptcy Code.
In Re Globalstar Securities Litigation. On February 28, 2001, plaintiff
Eric Eismann filed a purported class action complaint against GTL in the United
States District Court for the Southern District of New York. The other
defendants named in the complaint were Loral Space & Communications Ltd. and
Bernard Schwartz, the former Chief Executive Officer of Globalstar. Globalstar
was not a named defendant in these actions. The complaint alleges that (a) GTL
and Mr. Schwartz violated Section 10(b) of the Securities Exchange Act of 1934
(the "Exchange Act") and Rule 10b-5 promulgated thereunder, by making material
misstatements or failing to state material facts about GTL's business and
prospects; and (b) that Loral and Mr. Schwartz are secondarily liable for these
alleged misstatements and omissions under Section 20(a) of the Exchange Act as
alleged "controlling persons" of GTL. The class of plaintiffs on whose behalf
this lawsuit has been asserted consists of all buyers of GTL common stock from
December 6, 1999, through October 27, 2000, excluding the defendants, officers
and directors of GTL, and certain persons affiliated therewith (the "Excluded
Persons"). Eighteen additional purported class action complaints were
subsequently filed in the United States District Court for the Southern District
of New York. These complaints were granted class action status and consolidated
into a case known as In Re Globalstar Securities Litigation, 01 Civ. 1748 (SHS).
On September 26, 2001, the Court appointed The Phillips Family as Lead Plaintiff
for the Class. On November 13, 2001, Lead Plaintiff filed a Consolidated Amended
Class Action Complaint and a demand for jury trial. The Amended Complaint drops
the cause of action against certain individuals and adds causes of action
against Globalstar and its wholly-owned subsidiary, Globalstar Capital. GTL and
Globalstar believe that they have meritorious defenses to these actions and on
or about February 25, 2002, filed a motion to dismiss the complaint. The case
against Globalstar and Globalstar Capital is stayed pursuant to the U.S.
Bankruptcy Code. There are, however, no assurances that the defenses to these
actions will be successful.
Ericsson OMC Limited ("Ericsson") filed two separate demands for
arbitration with the American Arbitration Association that seek monetary damages
in the combined amount of $64.0 million with respect to two contracts. Ericsson
takes the position that Globalstar failed to satisfy minimum purchase
requirements for phones under two contracts, one for the purchase of Fixed
Access Units (FAU) and one for the purchase of mobile R290 units (R290). The
parties are attempting to negotiate a settlement and liquidation of the amount
in dispute, which amount will become a creditor's claim by Ericsson against
Globalstar in its bankruptcy case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
20
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
(a) MARKET PRICE AND DIVIDEND INFORMATION
GTL's common stock is currently traded on the NASDAQ OTC Bulletin Board
("NASDAQ OTC") under the symbol "GSTRF.OB" The following table presents the
reported high and low sale prices of GTL's common stock as reported on NASDAQ
National Market, NASDAQ SmallCap Market, and the NASDAQ OTC Bulletin Board
markets during 2000 and 2001.
MARKET PRICE
----------------------------------
2001 2000
-------------- ----------------
HIGH LOW HIGH LOW
----- ----- ------ ------
Quarter ended:
March 31................................ $2.28 $0.36 $53.75 $12.81
June 30................................. 0.77 0.25 15.75 5.81
September 30............................ 0.47 0.20 14.19 7.13
December 31............................. 1.14 0.10 9.00 0.72
GTL 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).
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. Globalstar's credit agreements and the indentures
related to its senior notes restrict the ability of Globalstar to pay cash
distributions on its ordinary partnership interests. On January 16, 2001,
Globalstar and GTL suspended indefinitely dividend payments on their preferred
equity interests.
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
As of March 31, 2002, there were 1,603 holders of record of GTL's common
stock.
21
ITEM 6. SELECTED FINANCIAL DATA
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
2001 2000(3) 1999(2) 1998(1) 1997
----------- ---------- ---------- -------- --------
STATEMENT OF OPERATIONS DATA:
Equity in net loss applicable
to ordinary partnership
interests of Globalstar,
L.P.......................... $ 142,298 $1,667,761 $ 81,861 $ 50,561 $ 24,152
Equity in net loss applicable
to preferred partnership
interests of Globalstar,
L.P.......................... -- 356,944 -- -- --
Net loss....................... 142,298 2,029,123 32,151 50,561 24,152
Net loss applicable to common
shareholders................. 168,860 2,059,853 81,861 50,561 24,152
Net loss per share -- basic and
diluted(4)................... 1.54 20.85 0.99 0.67 0.43
CASH FLOW DATA:
Provided by operating
activities................... -- 30,745 22,470 -- --
Used in investing activities... -- 354,326 488,309 1,112 153,140
Provided by equity
transactions................. -- 323,581 465,839 1,112 153,140
Provided by borrowings......... -- -- -- -- --
Dividends paid per common
share........................ -- -- -- -- --
RATIO OF EARNINGS TO FIXED
CHARGES...................... N/A 1x 1x 1x 1x
Deficiency of earnings to cover
fixed charges................ 25,562 NA NA NA NA
DECEMBER 31,
---------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ---------- ---------- -------- --------
BALANCE SHEET DATA:
Investment in Globalstar,
L.P.......................... $ -- $ -- $1,034,902 $580,428 $612,716
Total assets................... -- -- 1,034,902 580,428 612,716
Convertible preferred
equivalent obligations(5).... -- -- -- -- 301,410
Convertible redeemable
preferred stock(6)........... 220,296 -- -- -- --
Shareholders' equity
(deficit).................... (1,075,803) (686,647) 1,031,579 580,428 309,627
Shareholders' equity (deficit)
per common share(4).......... (10.49) (9.76) 7.46 7.08 5.05
- ---------------
(1) Includes GTL's proportionate share of Globalstar's $17.3 million loss from
launch failure.
(2) Includes GTL's proportionate share of Globalstar's $29.9 million loss from
the write-off of excess launch vehicle deposits.
(3) Includes GTL's share of Globalstar's $2.9 billion charge from the impairment
of the Globalstar System.
(4) Restated to reflect two-for-one stock splits in May 1997 and June 1998. The
2001, 2000 and 1999 balances exclude the redemption value of the 8% Series A
and 9% Series B preferred stock.
(5) All convertible preferred equivalent obligations were converted into common
stock in 1998.
(6) Certain convertible redeemable preferred stock was classified outside of
shareholders' deficit in 2001.
22
GLOBALSTAR, L.P.
(IN THOUSANDS, EXCEPT PER PARTNERSHIP INTEREST AMOUNTS)
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
2001 2000(2) 1999(3) 1998(4) 1997
-------- ---------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Net revenue........................ $ 6,404 $ 3,650 $ -- $ -- $ --
Operating expenses................. 205,258 3,476,648 186,505 146,684 88,071
Interest income.................... 4,513 16,490 6,141 17,141 20,485
Interest expense................... 381,170 329,163 -- -- --
Net loss applicable to ordinary
partnership interests............ 602,073 3,816,401 232,584 151,740 88,788
Net loss per weighted average
ordinary partnership interest
outstanding -- basic and
diluted.......................... 9.26 61.23 3.99 2.69 1.74
OTHER DATA:
Deficiency of earnings to cover
fixed charges(1)................. 602,073 3,824,533 466,369 330,475 184,683
CASH FLOW DATA:
Used in operating activities....... 120,448 455,741 56,576 24,958 68,615
Used in (provided by) investing
activities....................... (3,909) 95,156 721,733 682,884 622,004
Provided by partners' capital
transactions..................... -- 331,275 463,329 14,825 132,990
Provided by (used in) other
financing activities............. (2,237) 266,348 386,432 287,552 998,137
DECEMBER 31,
--------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ---------- ---------- ----------
BALANCE SHEET DATA:
Cash and cash
equivalents(5)........... $ 55,625 $ 196,849 $ 173,921 $ 56,739 $ 464,154
Globalstar System, net..... 229,774 264,856 -- -- --
Globalstar System under
construction............. -- 1,634 3,181,189 2,302,333 1,626,913
Total assets............... 456,391 702,276 3,781,459 2,670,025 2,149,053
Vendor financing liability,
including current
portion.................. 869,385 788,423 393,795 371,170 197,723
Long-term debt(6).......... 277,330 262,366 1,799,111 1,396,175 1,099,531
Redeemable preferred
partnership
interests(7)............. -- -- -- -- 303,089
Partners' capital
(deficit)................ (2,997,753) (2,395,214) 1,028,329 602,401 380,828
- ---------------
(1) The ratio of earnings to fixed charges is not meaningful, as Globalstar has
incurred operating losses.
(2) The results of operations for 2000 include a $2.9 billion charge from the
impairment of the Globalstar System.
(3) The results of operations for 1999 include a $29.9 million loss from the
write-off of excess launch vehicle deposits.
(4) The results of operations for 1998 include a $17.3 million loss from launch
failure.
(5) Includes restricted cash of $22.4 million and $46.2 million for 2000 and
1999, respectively, received from service providers for the purchase of
gateways.
(6) Reflects the classification of $1.9 billion of senior notes and term loans
as current obligations in 2000.
(7) All outstanding redeemable preferred partnership interests as of December
31, 1997 were converted to ordinary partnership interests in April 1998.
23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Except for the historical information contained herein, the matters
discussed in the following Management's Discussion and Analysis of Financial
Condition and Results of Operations are not historical facts, but are
"forward-looking statements," as that term is defined in the Private Securities
Litigation Reform Act of 1995. In addition, Globalstar and GTL or its
representatives have made and may continue to make forward-looking statements,
orally or in writing, in other contexts, such as in reports filed with the SEC,
press releases or statements made with the approval of an authorized executive
officer of either Globalstar or GTL. These forward-looking statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "plans," "may," "will," "would," "could," "should," "anticipates,"
"estimates," "project," "intend," or "outlook" or the negative of these words or
other variations of these words or other comparable words, or by discussion of
strategy that involve risks and uncertainties. These forward-looking statements
are only predictions, and actual events or results may differ materially as a
result of a wide variety of factors and conditions, many of which are beyond
Globalstar's or GTL's control. Some of these factors and conditions include: (i)
Globalstar filed Chapter 11 petition under the United States Bankruptcy Code on
February 15, 2002; (ii) Globalstar has limited cash to fund its operations and
will require additional financing; (iii) Globalstar has defaulted on certain
debt payments; (iv) The rate of growth for the service has not been sufficient
to sustain Globalstar's cost of operations; (v) Globalstar may be required to
withhold tax on income resulting from the cancellation of debt; (vi) Globalstar
depends on service providers to market its service and implement important parts
of its system; (vii) GTL may be unable to fund mandatory redemption requirements
of 8% and 9% convertible redeemable preferred stock.; (viii)GTL has been
de-listed by the NASDAQ national market; (ix) Lockheed Martin is disputing
Globalstar's right to issue it a $150 million note in satisfaction of payments
made under a guaranty; (x) Globalstar's satellites have a limited useful life
and may fail prematurely; (xi) Globalstar faces special risks by doing business
in developing markets and faces currency risks; (xii) Globalstar's business is
regulated, causing uncertainty and additional costs; (xiii) technological
advances and a continuing trend toward strategic alliances in the
telecommunications industry could give rise to significant new competitors;
(xiv) new technologies and the expansion of land-based systems may reduce demand
for Globalstar's service; (xv) Globalstar could face liability based on alleged
health risks; (xvi) Globalstar relies on key personnel; (xvii) Globalstar is
dependent on key vendors; (xviii) Certain potential conflicts of interest could
result in decisions adverse to Globalstar's interests; (xix) as a general
partner, GTL is liable for the recourse debt and other obligations of
Globalstar; (xx) a change of control of GTL or reduction in GTL's ownership of
Globalstar could result in GTL having to pay additional taxes and becoming
subject to onerous requirements under the Investment Company Act; (xxi) holders
of GTL preferred stock will have the right under certain circumstances to
appoint directors to GTL's Board of Directors and to appoint a member to
Globalstar's General Partners' Committee (xxii) patents held by other firms or
individuals may block Globalstar's patents; (xxiii) Globalstar operates in an
industry sector where securities values may be volatile and may be influenced by
economic and other factors beyond Globalstar's control; (xxiv) GTL is dependent
upon payments from Globalstar to meet its obligations; (xxv) GTL has no source
of funds other than those provided by Globalstar; and (xxvi) Globalstar is
subject to export regulation.
GTL, a general partner of Globalstar, was created to permit public equity
ownership in Globalstar. GTL does not have any operations, any personnel or
facilities, and does not manage the day-to-day operations of Globalstar. GTL has
no other business or investments. GTL'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. Accordingly, GTL's
results of operations only reflect its proportionate share of Globalstar's
results of operations, as presented on Globalstar's financial statements, and
the appropriate amortization and interest associated with this investment.
Therefore, matters discussed in this section address the financial condition and
results of operations of Globalstar.
24
On February 15, 2002, Globalstar and certain of its subsidiaries filed
voluntary petitions under Chapter 11 of Title 11, United States Code, in the
United States Bankruptcy Court for the District of Delaware (Case Nos. 02-10499,
02-10501, 02-10503 and 02-10504). Globalstar and its subsidiaries remain in
possession of their assets and properties and continue to operate their
businesses as debtors-in-possession. As a result of Globalstar's bankruptcy
petition, several of Globalstar debt facilities have been accelerated and are
immediately due and payable. GTL does not intend to file an immediate petition
for bankruptcy relief, but will continue to monitor events and govern its
actions accordingly. Globalstar's bankruptcy filing and subsequent financial
restructuring will likely leave shares in GTL with very little or no value. (See
discussion of Globalstar's proposed restructuring plan below). These factors
among others raise substantial doubt about GTL's ability to continue as a going
concern. However, the accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
Negotiations prior to the filing of Globalstar's bankruptcy petition
resulted in an agreement among Loral, Globalstar's informal committee of
bondholders, representing approximately 17% of Globalstar's outstanding senior
notes, and Globalstar, regarding the substantive terms of a proposed financial
and legal restructuring of Globalstar's business. Under the proposed
restructuring plan, all of Globalstar's assets would be contributed into a new
Globalstar company, which would be initially owned by Globalstar's existing
noteholders and other unsecured creditors. The proposed plan also calls for the
cancellation of all existing partnership interests in Globalstar, but
contemplates, subject to the satisfaction of certain conditions, a rights
offering to GTL's common and preferred shareholders and Globalstar's creditors
which could give them the option to purchase shares in the new company. The
proposed restructuring plan will be required to be submitted for and be subject
to bankruptcy court approval. The terms of the proposed plan were described in
Globalstar's Form 8-K filing dated February 19, 2002.
RESULTS OF OPERATIONS
Globalstar currently provides satellite-based telephony and narrow band
data services though 25 gateways. These gateways provide coverage to 133
countries, including all of North and South America (excluding northwestern
Alaska and portions of Canada above 70 degrees North latitude), Europe,
Australia, Russia, the Middle East, China and South Korea. For year ended
December 31, 2001, Globalstar's recorded total revenues of $6.4 million and
provided 23.9 million minutes of billable telecommunication services. As of
December 2001, Globalstar had approximately 66,000 commercial subscribers using
the system. Globalstar's revenues during year 2001 were not sufficient to fund
Globalstar's operations.
Globalstar service providers are generally not earning revenues sufficient
to fund their operating costs. Globalstar cannot be sure that they will continue
operations until Globalstar's financial restructuring is completed. Globalstar's
restructuring plan assumes that Globalstar will take ownership of some of these
gateways, consistent with its consolidation strategy, and that Globalstar will
revise its business relationships with the remaining service providers. In
addition to Globalstar's acquisition of certain service provider operations from
Vodafone, Globalstar is in discussions with several other service providers with
the objective of restructuring their business relationships with Globalstar.
TE.SA.M is in the process of liquidation and is exiting the Globalstar
business. TE.SA.M provides Globalstar service through its gateways in France,
Turkey, Venezuela, Argentina, and Peru. Globalstar and other investors are in
various discussions with TE.SA.M regarding these businesses. Local purchasers in
Turkey, Venezuela, Argentina, and Peru have reached agreements to purchase local
service provider operations from TE.SA.M and have entered into negotiations with
Globalstar regarding the terms under which they would provide Globalstar
services. Globalstar and TE.SA.M are currently in discussions related to
Globalstar acquiring TE.SA.M's gateway in France and have executed a memorandum
of understanding, which outlines the principal terms of such a transaction.
25
2001 Compared with 2000
For 2001, Globalstar recognized service revenue of $6.2 million compared to
$2.2 million in 2000. The increase in service revenue over the previous year is
due to the increased usage of the system as Globalstar's market penetration
increased from approximately 31,000 subscribers globally on December 31, 2000 to
66,000 subscribers on December 31, 2001. Subscriber equipment revenue of
$152,000 was recorded during the portion of December 2001 that Globalstar owned
a majority interest in the Canadian service provider; no such revenue was
generated in 2000. Royalty income decreased from $1.4 million in 2000 to $57,000
in 2001 as equipment sales channels have filled to capacity. During 2001,
Globalstar recognized total revenue of $6.4 million, an increase of $2.7 million
over the 2000 total revenue of $ 3.7 million.
Operating Expenses. For 2001, operations expenses were $56 million as
compared to $128 million for 2000. The decrease is primarily due to the cost
saving measures implemented during 2001. In addition, many of the costs
associated with Globalstar's support to gateway installation and testing and the
commencement of commercial operations of the Globalstar constellation and ground
control centers incurred in 2000 to complete the system, were not necessary in
2001.
Marketing, general and administrative expenses were $101 million and $81
million for 2001 and 2000, respectively. The increase is primarily the result of
accrued liabilities related to the Ericsson arbitration and increases in bad
debt expense. Globalstar provided a bad debt allowance on gateway and user
terminal receivables of $20.2 million in 2001. However, these increases were
offset partially by significant decreases in advertising and marketing costs and
a 71% decrease in payroll and fringe benefit expenses. Exclusive of the
arbitration and bad debt expense, marketing, general and administrative expenses
declined $35.2 million from 2000 to 2001.
Depreciation and amortization was $36 million and $328 million for 2001 and
2000, respectively. In 2000, Globalstar took an impairment charge of $2.9
billion dollars against its assets; the reduced depreciation and amortization in
2001 resulted from the reduced cost basis of the assets.
Interest income decreased to $5 million in 2001 from $16 million in 2000.
The decrease is the result of lower average cash balances available for
investment during 2001, and to a lesser extent, lower interest rates.
Interest expense increased to $381 million in 2001, as compared to $329
million in 2000. This increase resulted from higher debt accumulation during
2001 as compared to 2000.
Preferred distributions decreased to $27 million in 2001 from $31 million
in 2000, primarily the result of conversions of preferred interests into common
interests. None of the distributions accrued during 2001 were paid.
During 2001, Globalstar incurred $12 million in restructuring costs.
Globalstar's restructuring costs included employee separation costs, the cost of
financial advisors and legal counsel to both Globalstar and its informal
committee of bondholders and other costs associated with Globalstar's financial
restructuring. Employee separation costs relate to a reduction in workforce from
approximately 439 full-time employees at the beginning of 2001 to 124 full-time
employees on December 31, 2001.
As a result of the above, the net loss applicable to ordinary partnership
interests decreased to $602 million for 2001, compared to $3.8 billion in 2000.
Income Taxes. Globalstar is organized as a limited partnership. As such,
no income tax provision or benefit is included in the accompanying financial
statements because U.S. income taxes are the responsibility of its partners.
Generally, taxable income or loss, deductions and credits of Globalstar are
passed through to its partners.
26
2000 Compared with 1999
For 2000, Globalstar recognized service revenue of $2.2 million and royalty
income of $1.4 million resulting in total revenue of $3.7 million. Globalstar
had offered promotional programs to its service providers, including a 25%
discount on mobile usage fees and free minutes for the advance purchase of
airtime. Globalstar service providers purchased approximately $11.7 million of
gross advance minutes ($8.8 million net of 25% discount). Of the prepaid
committed revenue, $1.0 million was recognized as service revenue during the
year ended December 31, 2000. As a development stage company, launching its
satellite network and preparing for operational services, Globalstar recorded no
revenue in 1999.
Operating Expenses. For 2000, operations expenses were $128 million as
compared to $94 million for 1999. The increase is primarily the result of
increased costs associated with Globalstar's support to gateway installation and
testing and the commencement of commercial operation of the Globalstar
constellation and ground control centers.
Marketing, general and administrative expenses were $81 million and $60
million for 2000 and 1999, respectively. The increase is primarily the result of
increased advertising and marketing costs associated with Globalstar commencing
service. During 2000, Globalstar incurred advertising expenses of approximately
$29 million -- $22 million associated with its global branding campaign and $7
million of cooperative advertising support to its service provider partners'
advertising programs.
Depreciation and amortization was $328 million and $2 million for 2000 and
1999, respectively. The increase is the result of Globalstar commencing service
and starting to depreciate the Globalstar System in 2000.
Interest income increased to $16 million in 2000 compared to $6 million in
1999. The increase is the result of higher average cash balances available for
investment during 2000, and to a lesser extent, higher interest rates.
Interest expense increased to $329 million in 2000, as compared to no
interest expense in 1999. This increase results from Globalstar commencing
service and starting to expense interest, which was previously capitalized to
the Globalstar System under construction.
Preferred distributions decreased to $31 million in 2000 from $52 million
in 1999. The decrease is primarily the result of a conversion of the 8% RPPIs
that occurred in 1999, offset in part by a dividend make-whole payment made in
connection with such conversion.
In 2000, Globalstar recorded a $2.9 billion impairment charge related to
the $3.2 billion carrying value of the Globalstar System, including spare
satellites, launch deposits, unsold production gateways, user terminals and
related assets. This charge resulted from the revision of estimates of gross
cash flows through 2009, the estimated end of useful life of the Globalstar
System, and the determination that these assets were impaired. The fair value,
for purposes of measuring the impairment at December 31, 2000, was determined by
discounting these cash flows. Gross cash flows were based on revenue projections
offset by estimated expenditures for operations and capital expenditures.
Revenue projections were based on Globalstar's then current market outlook,
which was significantly influenced by service provider projections.
As a result of the above, and Globalstar's $2.9 billion impairment charge,
the net loss applicable to ordinary partnership interests increased to $3.8
billion for 2000, compared to $233 million in 1999.
Income Taxes. Globalstar is organized as a limited partnership. As such,
no income tax provision or benefit is included in the accompanying financial
statements since U.S. income taxes are the responsibility of its partners.
Generally, taxable income or loss, deductions and credits of Globalstar are
passed through to its partners.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2001, Globalstar had approximately $55.6 million in cash
and cash equivalents on hand. During 2002, Globalstar plans to use available
funds to cover its net cash out flow which it expects
27
to include operating costs associated with operating gateways and retail
operations in North America and portions of Europe in addition to its
traditional wholesale operations.
The $55.6 million cash on hand at the beginning of 2002 and the anticipated
revenue from operations will not be sufficient to sustain Globalstar as a going
concern through 2002. Globalstar, which filed for protection under chapter 11 of
the United States Bankruptcy Code, will require additional financing to sustain
operations until breakeven cash flow is achieved. There can be no assurance that
a successful restructuring will be completed and that such financing will be
available on terms acceptable to Globalstar, if at all. If Globalstar is unable
to obtain such financing, it will likely cease to operate as a going concern.
Cash and cash equivalents, decreased from $197 million on December 31, 2000
to $56 million on December 31, 2001, the net decrease is primarily the result of
net cash used to fund net operating losses in 2001, net of non-cash items
including accrued interest on debt, depreciation and amortization and bed debt
reserves. Net cash outflows in 2001, included $4.4 million of expenditures on
the Globalstar system.
As a result of Globalstar's bankruptcy petition, several of Globalstar's
debt obligations have been accelerated and are immediately due and payable.
CAPITAL EXPENDITURE REQUIREMENTS
Following a launch failure in September 1998, Globalstar decided to
purchase eight additional satellites for $148 million (including performance
incentives of up to $16 million) to serve as on-ground spares. As of December
31, 2001, costs of $147 million (including a portion of the performance
incentives) have been recognized for these spare satellites. Globalstar has
secured from SS/L twelve-month call-up orders for two additional Delta launch
vehicles. The total future commitment for these launch vehicles is $89.5 million
plus escalation of 3% per year. Globalstar has the option to cancel these launch
vehicle commitments in 2002 subject to termination charges of $18.6 million.
COMMITMENTS AND CONTINGENCIES
On June 30, 2000, Globalstar's $250 million credit facility with The Chase
Manhattan Bank, became due and was repaid in full by its guarantors, including
Lockheed Martin Corporation ("Lockheed Martin"), QUALCOMM, DASA and SS/L, who
had previously received warrants for GTL common stock in consideration of their
guarantee. Pursuant to the relevant agreements, Globalstar issued three-year
notes in the amounts of $206.3 million, $21.9 million, $11.7 million and $10.1
million to Lockheed Martin, QUALCOMM, SS/L and DASA, respectively, in proportion
to the principal amount of the credit facility guaranteed. The notes are due on
June 30, 2003 and bear interest, on a deferred basis, at a rate of LIBOR plus 3%
and are presented as notes payable and notes payable to affiliates on the
consolidated balance sheet of Globalstar.
On June 30, 2000, Loral paid $56.3 million on a net basis to Lockheed
Martin in satisfaction of its obligation to indemnify Lockheed Martin for
liability in excess of $150 million under Lockheed Martin's guarantee of
Globalstar's $250 million credit facility. Accordingly, Loral is entitled to
receive notes in respect thereof.
Lockheed Martin, however, has rejected the notes it received and is instead
asking Globalstar to issue new securities with additional rights and enhanced
value, without waiving its claim that it is entitled to receive an immediate
cash reimbursement by Globalstar of its $150 million payment to the bank
lenders. Globalstar disputes Lockheed Martin's interpretation of the relevant
agreements.
If the dispute is not resolved, Globalstar cannot be sure that if the
matter were litigated the court would agree with Globalstar's interpretation of
the agreements. Management believes, however, that a court would agree with
Globalstar's interpretation of the relevant agreements.
During the year ended December 31, 2001, an issue was raised as to whether
the three-year notes issued to the guarantors of The Chase Manhattan Bank $250
million credit facility were prepared in accordance with the recourse provisions
of the guarantee arrangement. Management does not believe the
28
existing notes containing non-recourse language will need to be replaced with
notes not containing the non-recourse language. If the existing non-recourse
notes were replaced with notes not containing the non-recourse language, the
replacement would not impact Globalstar's results of operations. However,
allocations of Globalstar's losses to general partners, including GTL, would
increase by the amount of the increase in recourse obligations. Replacement of
the notes would not alter the subordinate position of GTL's shareholders
relative to holders of these notes.
On February 20, 2001, a purported class action lawsuit was filed against
Globalstar and Globalstar Capital Corporation on behalf of the owners of the
10 3/4% bonds, due November 2004 (the "Bonds") in Superior Court, New Castle
County, Delaware. Globalstar Capital Corporation and Globalstar, L.P. issued the
Bonds as joint obligors. The complaint alleges that the defendants repudiated
the Bonds' registration statement, prospectus and indenture, without consent of
the bondholders, when Globalstar announced that it was suspending its future
interest payments on the Bonds. On April 23, 2001, the defendants moved to
dismiss the complaint for failure to state a cause of action. A second similar
class action was filed in Delaware on June 5, 2001. The defendants have also
moved to dismiss this complaint. Plaintiffs subsequently amended the complaint
and defendants again moved to dismiss the amended complaint for failure to state
a cause of action. On December 31, 2001, the court granted defendants' motion to
dismiss in part, dismissing plaintiffs' claims for principal and interest not
yet due, but allowing plaintiffs to proceed with their breach of contract claim
based on the interest payments already missed at the time the amended complaints
were filed. Defendants answered the complaints on January 17, 2002. These
proceedings are now automatically stayed in accordance with Section 362(a) of
the U.S. Bankruptcy Code. On August 7, 2001, Globalstar received a petition
filed on July 13, 2001 in Texas state court by L.E. Creel III, a holder of an
11 3/8% note seeking principal payment of the note plus interest. Globalstar
filed an answer contesting the petition. On December 6, 2001, the parties
participated in court ordered mediation, which failed to lead to a settlement of
plaintiff's claim. This proceeding is also stayed pursuant to the U.S.
Bankruptcy Code.
In Re Globalstar Securities Litigation. On February 28, 2001, plaintiff
Eric Eismann filed a purported class action complaint against GTL in the United
States District Court for the Southern District of New York. The other
defendants named in the complaint were Loral Space & Communications Ltd. and
Bernard Schwartz, the former Chief Executive Officer of Globalstar. Globalstar
was not a named defendant in these actions. The complaint alleges that (a) GTL
and Mr. Schwartz violated Section 10(b) of the Securities Exchange Act of 1934
(the "Exchange Act") and Rule 10b-5 promulgated thereunder, by making material
misstatements or failing to state material facts about GTL's business and
prospects; and (b) that Loral and Mr. Schwartz are secondarily liable for these
alleged misstatements and omissions under Section 20(a) of the Exchange Act as
alleged "controlling persons" of GTL. The class of plaintiffs on whose behalf
this lawsuit has been asserted consists of all buyers of GTL common stock from
December 6, 1999, through October 27, 2000, excluding the defendants, officers
and directors of GTL, and certain persons affiliated therewith (the "Excluded
Persons"). Eighteen additional purported class action complaints were
subsequently filed in the United States District Court for the Southern District
of New York. These complaints were granted class action status and consolidated
into a case known as In Re Globalstar Securities Litigation, 01 Civ. 1748 (SHS).
On September 26, 2001, the Court appointed The Phillips Family as Lead Plaintiff
for the Class. On November 13, 2001, Lead Plaintiff filed a Consolidated Amended
Class Action Complaint and a demand for jury trial. The Amended Complaint drops
the cause of action against certain individuals and adds causes of action
against Globalstar and its wholly-owned subsidiary, Globalstar Capital. GTL and
Globalstar believe that they have meritorious defenses to these actions and on
or about February 25, 2002, filed a motion to dismiss the complaint. The case
against Globalstar and Globalstar Capital is stayed pursuant to the U.S.
Bankruptcy Code. There are, however, no assurances that the defenses to these
actions will be successful.
Ericsson OMC Limited ("Ericsson") filed two separate demands for
arbitration with the American Arbitration Association that seek monetary damages
in the combined amount of $64.0 million with respect to two contracts. Ericsson
takes the position that Globalstar failed to satisfy minimum purchase
requirements for phones under two contracts, one for the purchase of Fixed
Access Units (FAU) and one
29
for the purchase of mobile R290 units (R290). The parties are attempting to
negotiate a settlement and liquidation of the amount in dispute, which amount
will become a creditor's claim by Ericsson against Globalstar in its bankruptcy.
The plan of reorganization now being contemplated by Globalstar will
involve the cancellation of debt in exchange for equity. The cancellation of
debt will give rise to considerable taxable income that will be allocable to the
partners of Globalstar. Under a certain interpretation of Section 1446 of the
Internal Revenue Code of 1986, as amended, Globalstar may be obligated to pay a
35% withholding tax on all income allocated to the foreign partners regardless
of the fact they will not receive a cash distribution. Globalstar believes the
imposition of the withholding tax may have the effect of diverting its assets
from its creditors to its foreign partners in contravention of bankruptcy law.
The U.S. Department of Treasury is currently working on a regulation project
that may clarify this issue. Globalstar is also evaluating other avenues of
relief and is optimistic that it will be able to resolve the issue. However,
until a solution is found, it is unlikely that Globalstar will be able to secure
new investment.
Globalstar has experienced seven satellite anomalies in the last thirteen
months. Two of the satellites have been declared failed. Three have recovered,
with two of the three returned to service. The third recovered satellite is
expected to be returned to service during April 2002. Two of the satellites
remain under investigation with the expectation, but not certainty, that they
will be eventually returned to service. Globalstar has one remaining in-orbit
spare at the phasing orbit altitude of 920km and, assuming full recovery, one
in-plane spare at the 1414km operational altitude. Additionally, Globalstar is
completing construction of eight on-ground spares, that can be used as
replacements. Transfer of title of the on-ground spares is currently pending
resolution between Globalstar and SS/L over outstanding amounts due by
Globalstar. Seven of the ground spares are already completed and in secure
storage. Removing the satellites from service has had a minor effect on service
in about half of the gateways. In these gateway service areas, which are
primarily in the non-temperate zones of the world, a small number of users may
experience a brief loss of service. The affected gateways are experiencing one
to four outages per day lasting from 47 seconds to 5 minutes.
If the cause of the anomaly is found to be widespread, and the satellites
cannot be repaired in-orbit or replaced with in-orbit spares, Globalstar may
have to launch additional satellites in order to maintain an acceptable quality
of service. If Globalstar decides at some point to launch some or all of its
eight on-ground spare satellites, such launches will be subject to the risk of
launch failure.
TAXATION
GTL 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. GTL expects, based on Globalstar's description of its proposed
activities, that most of GTL'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, GTL
believes that there generally will be no U.S. taxes on its share of Globalstar's
Foreign Income
In addition, any portion of GTL's income from sources outside the United
States, realized through Globalstar or otherwise, may be subject to taxation by
certain foreign countries. The extent to which these countries may require GTL
or Globalstar to pay tax or to make payments in lieu of tax cannot be determined
in advance. However, based upon its review of current tax laws, including
applicable international tax treaties of certain countries that Globalstar
believes to be among its key potential markets, it expects that a significant
portion of its worldwide income will not be subject to tax by the foreign
countries from which Globalstar derives its income. To the extent that
Globalstar bears a higher foreign tax because any holder of its ordinary
partnership interests (including GTL) 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.
30
ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 141, Business Combinations and SFAS No.
142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that all
business combinations initiated after June 30, 2001 be accounted for under the
purchase method and addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business combination. SFAS
No. 142 addresses the initial recognition and measurement of intangible assets
acquired outside of a business combination and the accounting for goodwill and
other intangible assets subsequent to their acquisition. SFAS No. 142 provides
that intangible assets with finite useful lives be amortized and that goodwill
and intangible assets with indefinite lives not be amortized, but will rather be
tested at least annually for impairment. Globalstar has adopted SFAS No. 142
effective January 1, 2002. Management does not believe that adopting this
pronouncement will have significant impact on its financial position or its
results of operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," and addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This statement is effective for fiscal years
beginning after December 15, 2001. Globalstar has adopted SFAS No. 144 effective
January 1, 2002. Management does not believe that adopting this pronouncement
will have significant impact on its financial position or its results of
operations.
SUMMARY OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the amount of revenues
and expenses reported for the period. Actual results could differ from
estimates.
GTL accounts for its investment in Globalstar's ordinary partnership
interests on an equity basis, recognizing its allocated share of net loss for
each period since its initial investment on February 22, 1995. In 2000,
Globalstar's losses reduced GTL's investment in Globalstar ordinary and
preferred partnership interests to zero. Accordingly, GTL has discontinued
providing for its allocated share of Globalstar's net losses and recognized the
remaining unallocated losses as a result of its general partner status in
Globalstar in proportion to its interests in the general partner interests
outstanding.
Because GTL is a general partner of Globalstar, GTL 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. GTL believes that such recourse obligations totaled approximately
$1.4 billion as of December 31, 2001. As a result of its general partner status,
GTL has recorded a cumulative liability of $825.6 million. Certain of
Globalstar's debt, including the public debt, are non-recourse to the general
partners. Future funding, if any, or assets of GTL, may be utilized to fund this
general partner liability.
During the year ended December 31, 2001, an issue was raised as to whether
the three-year notes issued to the guarantors of The Chase Manhattan Bank $250
million credit facility were prepared in accordance with the recourse provisions
of the guarantee arrangement. Management does not believe the existing notes
containing non-recourse language will need to be replaced with notes not
containing the non-recourse language. If the existing non-recourse notes were
replaced with notes not containing the non-recourse language, the replacement
would not impact Globalstar's results of operations. However, allocations of
Globalstar's losses to general partners, including GTL, would increase by the
amount of the increase in recourse obligations. Replacement of the notes would
not alter the subordinate position of GTL's shareholders relative to holders of
these notes.
The carrying value of the Globalstar System is reviewed for impairment
whenever events or changes in circumstances indicate that the recorded value of
the Space Segment and Ground Segment, taken as a whole, may not be recoverable.
Globalstar looks to current and future undiscounted cash flows, excluding
31
financing costs, as primary indicators of recoverability. If an impairment is
determined to exist, any related impairment loss is calculated based on fair
value. If Globalstar's estimates of future performance and long term revenue
projections change, management may be required to record additional impairment
charges.
Long term assets include receivables from service providers associated with
the reimbursement of gateway acquisition and deployment costs previously paid by
Globalstar to QUALCOMM. As of December 31, 2001, Globalstar resumed collection
of airtime usage and gateway operational costs from service providers.
Collections of production gateway receivables have been deferred indefinitely
and were reclassified to long-term assets. In addition Globalstar provided an
allowance for doubtful collection of $20.2 million on gateway receivables. If
actual collections are less favorable than those projected by management,
additional allowances may be required.
Inventory consists of fixed and mobile user terminals, and accessories.
Inventory is stated at lower of cost or market. Cost is computed using a
standard cost, which approximates actual cost on a first-in, first-out basis.
Inventory write-downs are based on management's best estimates as they relate to
excess and obsolescence. If actual market conditions are less favorable than
those projected by management, inventory write-downs may be required.
Globalstar and its subsidiaries remain in possession of their assets and
properties and continue to operate their businesses as debtors-in-possession. As
a result of Globalstar's bankruptcy petition, several of Globalstar's debt
obligations have been accelerated and are immediately due and payable. GTL does
not intend to file an immediate petition for bankruptcy relief, but will
continue to monitor events and govern its actions accordingly. Globalstar's
bankruptcy filing and subsequent financial restructuring will likely leave
shares in GTL with very little or no value. The accompanying financial
statements have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business.
RELATED PARTY DISCLOSURES
Globalstar has a number of other transactions with its affiliates. Such
transactions have been negotiated on an arms-length basis and Globalstar
believes that the arrangements are no less favorable to Globalstar than could be
obtained from unaffiliated parties. The following describes these related-party
transactions.
The governing body of Globalstar is the General Partners' Committee. The
Committee may have up to seven members, five of whom may be appointed by the
managing general partner of Globalstar, LQSS. The general partner of LQSS is
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. As of December 31, 2001, Loral owned, directly
or indirectly, 25,163,142 (approximately 38.6%) of the ordinary partnership
interests of Globalstar, including interests attributable to 9,902,995 shares of
GTL outstanding common stock.
During 2001, Bernard L. Schwartz resigned as Chief Executive Officer of
Globalstar, Chairman of the Board of GTL and Chief Executive Officer GTL. Mr.
Schwartz remains as a member of the General Partners' Committee of Globalstar
and is the Chairman of the Board of Directors and Chief Executive Officer of
Loral. All of the previous GTL officers resigned during 2001 and Ira E. Goldberg
was named GTL Restructuring Officer in 2001. He is currently the only officer of
GTL. During 2001, Olof Lundberg was named as the new Chief Executive Officer of
Globalstar and Chairman of the General Partner's Committee.
In order to accelerate the deployment of gateways around the world,
Globalstar agreed to help service providers finance approximately $80 million of
the cost of the initial gateways. Globalstar entered into an agreement with
QUALCOMM for the manufacturing, deployment and maintenance of Globalstar
gateways. Globalstar, in turn, invoiced the service providers for the contract
costs plus a markup. As of December 31, 2001, the collection of $51.3 million of
service provider gateway purchase receivables, which are secured by gateway
assets, are deferred indefinitely, as well as $3.7 million of interest.
Currently due
32
under the production gateway purchase agreement are $9.6 million of gateway
operational costs. The collection of these receivables is delinquent and
Globalstar has sent notices of default where appropriate. If the collection of
these payments is unsuccessful, Globalstar will retain title to these gateways,
subject to local restrictions. As of December 31, 2001, Globalstar has
classified the production gateway purchase receivables as long-term assets and
provided an allowance for doubtful collection of $20.2 million.
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. As of December 31, 2001, 26 gateways have been sold resulting in a
$7.7 million reduction in costs associated with the Globalstar System. In
addition, Globalstar will receive a payment of up to $10 on each Globalstar user
terminal shipped by the terminal manufacturer, until Globalstar funding of that
design has been recovered.
Globalstar has also agreed to purchase from SS/L eight spare satellites for
$148 million (including performance incentives of up to $16 million). As of
December 31, 2001, costs of $147 million (including a portion of the performance
incentives) have been recognized for these spare satellites. Globalstar has
secured from SS/L twelve and eighteen month call-up orders for two additional
Delta launch vehicles. The total future commitment for these launch vehicles is
$89.5 million plus escalation of 3% per year. Globalstar has the option to
cancel these launch vehicle commitments in 2002, subject to termination charges
of approximately $18.6 million.
In May 2000, Globalstar finalized $531.1 million of vendor financing
arrangements (including $31.1 million of accrued interest as of May 2000) with
QUALCOMM that replaced the previous $100 million vendor financing agreement. The
original terms provided for interest at 6%, a maturity date of August 15, 2003
and required repayment pro rata with the term loans under Globalstar's $500
million credit facility. As of December 31, 2001, $614.7 million was outstanding
under this facility (including $114.7 million of accrued interest which includes
an additional 5% penalty). In connection with this agreement, QUALCOMM received
warrants to purchase 3,450,000 Globalstar partnership interests at an exercise
price of $42.25 per interest. The exercise price was determined by reference to
the fair market value of GTL's common stock on the closing date of the vendor
financing, based on an approximate ratio of one partnership interest for every
four shares of GTL common stock. Fifty percent of the warrants vested on the
closing date, twenty-five percent vested on September 1, 2000, and the remaining
twenty-five percent vested on September 1, 2001. The warrants will expire in
2007. The fair value of the vested warrants totaled approximately $34.0 million
and is being amortized over the term of the vendor financing arrangements.
In January 2001, Globalstar suspended indefinitely principal and interest
payments on all of its vendor financing, in order to conserve cash for
operations (see Note 2). Under the terms of the QUALCOMM vendor financing
facility, non-payment of interest payments when they become due, and continuance
of non-payment for five days, is an "event of default". An event of default
occurred on January 16, 2001, when Globalstar failed to pay interest with
respect to separate credit extensions made under the QUALCOMM vendor financing
facility. As a result of Globalstar's bankruptcy petition filed on February 15,
2002, this vendor financing has been accelerated and is immediately due and
payable.
SS/L has provided $344 million of billings deferred under its construction
contracts with Globalstar, which are comprised of: $120 million of orbital
incentives, of which $44 million was repaid by Globalstar in 1999, $60 million
was repaid in 2000 and no payments were made in 2001; $134 million of
non-interest bearing vendor financing, due over five years in equal monthly
installments, commencing in 2000; and $90 million of vendor financing, which
bears interest and is repayable over five years commencing in 2001. The orbital
payments on the replacement satellites are due on a per satellite basis with 50%
due when the satellite is placed in storage. The remaining 50% is due when
Globalstar directs SS/L to ship the satellite to the launch base. Until such
time, interest on the remaining 50% accrues at an interest rate of 10% per
annum. As of December 31, 2001, 6 of the 8 replacement satellites were placed in
storage and payments became due. No payments were made in 2001 and interest
accrued on the remaining 50%. Total accrued interest on the orbitals as of
December 31, 2001 was $163,000. Payments were made on the $134 million of
non-interest bearing vendor financing through January 2001. Penalty fees are
being accrued at LIBOR
33
plus 3%, and total accrued penalties as of December 31, 2001 was $922,000.
Payments on the $90 million of vendor financing were due beginning December 31,
2001 of which no payments were made. Interest is being accrued at LIBOR plus 3%
and total accrued interest as of December 31, 2001 was $52.8 million.
Payables and vendor financing due to affiliates is comprised of the
following (in thousands):
DECEMBER 31,
--------------------
2001 2000
-------- --------
SS/L................................................... $259,098 $242,690
Loral.................................................. 961 722
QUALCOMM............................................... 629,139 565,642
Other affiliates....................................... 15,298 10,824
-------- --------
904,496 819,878
Less, current portion.................................. 849,357 621,827
-------- --------
Long-term portion...................................... $ 55,139 $198,051
======== ========
On June 30, 2000, Globalstar's $250 million credit facility with The Chase
Manhattan Bank became due, and was repaid in full by its guarantors, including
Lockheed Martin, QUALCOMM, DASA and SS/L, who had previously received warrants
for GTL common stock in consideration of their guarantee. Pursuant to the
relevant agreements entered into in 1996, Globalstar issued three-year notes in
the amounts of $206.3 million, $21.9 million, $11.7 million and $10.1 million to
Lockheed Martin, QUALCOMM, SS/L and DASA, respectively. The notes are due on
June 30, 2003 and bear interest, on a deferred basis, at a rate of LIBOR plus
3%, and are presented as notes payable and notes payable to affiliates on the
consolidated balance sheet of Globalstar.
On June 30, 2000, Loral paid $56.3 million on a net basis to Lockheed
Martin in satisfaction of its obligation to indemnify Lockheed Martin for
liability in excess of $150 million under Lockheed Martin's guarantee of
Globalstar's $250 million credit facility. Accordingly, Loral is entitled to
receive notes in respect thereof.
Lockheed Martin, however, has rejected the notes it received and is instead
asking Globalstar to issue new securities with additional rights and enhanced
value, without waiving its claim that it is entitled to receive an immediate
cash reimbursement by Globalstar of its $150 million payment to the bank
lenders. Globalstar disputes Lockheed Martin's interpretation of the relevant
agreements.
If the dispute is not resolved, Globalstar cannot be sure that if the
matter were litigated the court would agree with Globalstar's interpretation of
the agreements. Management believes, however, that a court would agree with
Globalstar's interpretation of the relevant agreements.
During the year ended December 31, 2001, an issue was raised as to whether
the three-year notes issued to the guarantors of The Chase Manhattan Bank $250
million credit facility were prepared in accordance with the recourse provisions
of the guarantee arrangement. Management does not believe the existing notes
containing non-recourse language will need to be replaced with notes not
containing the non-recourse language. If the existing non-recourse notes were
replaced with notes not containing the non-recourse language, the replacement
would not impact Globalstar's results of operations. However, allocations of
Globalstar's losses to general partners, including GTL, would increase by the
amount of the increase in recourse obligations. Replacement of the notes would
not alter the subordinate position of GTL's shareholders relative to holders of
these notes.
During 2001, $5 million of the notes payable to affiliates (Loral) were
offset with various receivables from Globalstar.
On August 5, 1999, Globalstar entered into a $500 million credit agreement
with a group of banks. The credit agreement provides for a $100 million
three-year revolving credit facility ("Revolver"), a $100 million three-year
term loan ("Term Loan A") and a $300 million four-year term loan ("Term Loan
B").
34
The creditors' interests under the credit facility were purchased by a wholly
owned subsidiary of Loral on November 17, 2000, which had previously guaranteed
the facility. As of December 31, 2001, all amounts under the $500 million credit
agreement were drawn.
Borrowings under the facilities bear interest, at Globalstar's option, at
various rates based on margins over the lead bank's base rate or the London
Interbank Offer Rate ("LIBOR") for periods of one to six months. Globalstar pays
a commitment fee on the unused portion of the facilities.
In consideration for the guarantee by Loral in 1999, Loral and certain
Loral subsidiaries received warrants to purchase an aggregate of 3,450,000
Globalstar partnership interests, valued at $141.1 million, (equivalent to
approximately 13.8 million shares of common stock of GTL) at an exercise price
of $91.00 per partnership interest (equivalent to $22.75 per share of GTL common
stock). Fifty percent of the warrants vested in February 2000 and an additional
25% vested in August 2000. The outstanding warrants expire in 2006. However, in
light of Globalstar's chapter 11 petition, the warrants are likely to be of
little or no value.
Non-payment of interest payments when they become due, and continuance of
non-payment for five days, is an "event of default" under the terms of the $500
million credit facility. An event of default occurred on January 16, 2001 under
the $500 million credit facility when Globalstar failed to pay interest with
respect to two separate credit extensions made under the $500 million credit
agreement. As a result of Globalstar's bankruptcy petition filing on February
15, 2002, this credit facility has been accelerated and is immediately due and
payable.
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 60,000 options were exercised in 2000 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 $6.34
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; 40,000 options were
exercised in 1999 and no options were cancelled during 2001, 2000 and 1999.
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 and 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, 2,000 shares at $24.44 per share,
October 1998, 600 shares at $13.50 per share and December 16, 1999, 30,000
shares at $16.00 per share.
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 (as defined in such grant), 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
35
above is generally royalty free. Under certain specified circumstances, however,
QUALCOMM will be required to pay a 3% royalty fee on such intellectual property.
Globalstar entered into agreements with certain limited partners, for
services to be provided to Globalstar at the gateways, for example, site support
of Globalstar's telemetry and command equipment located at the partner's
gateways.
QUALCOMM initially 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 approximately $400,000 per gateway
in recoupment expenses payable to Globalstar). Thus far, no other vendor has
committed to manufacture gateways, and Globalstar does not expect any other
vendor to manufacture gateways. QUALCOMM has granted a license to manufacture
Globalstar user terminals to Ericsson and Telit 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 user terminals 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, Mexico, and
Russia as long as specified minimum levels of subscribers are met. In December
2001, Globalstar acquired a majority interest in the Canadian service provider
business. Founding 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.
In December 2001, Globalstar purchased all of the outstanding common shares
of Vodafone Satellite Services, Inc. ("VSSI"), a Delaware corporation for $100,
plus acquisition costs of $258,000. VSSI indirectly owns the majority interest
in Globalstar Canada Satellite Co. ("GCSC"), a corporation based in Ontario,
Canada. GCSC is the Globalstar service provider in Canada and generates its
revenue from the provision of Globalstar services in Canada, billing customers
for usage over two Canadian gateways. Loral Holdings Ltd., a subsidiary of
Loral, owns the remaining minority interest in GCSC. Therefore, the result of
this transaction is that Globalstar is now joint venture partners with Loral in
GCSC, the Canadian service provider. The acquisition is intended to bring
additional efficiencies to the operation of the Globalstar network and allow for
increased coordination in the Globalstar service offerings and pricing. Under
the terms of the MOU executed between Loral, the informal committee of
bondholders and Globalstar, Loral would contribute its minority interest in GCSC
to Newco in exchange for Newco equity interests.
The limited partnership agreement provides that, LQP, the general partner
of LQSS, would 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 would receive 80% and 20% of such
distribution, respectively. Given Globalstar's reorganization under chapter 11
of the U.S. Bankruptcy Code, it is unlikely that these distributions will be
paid.
36
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS DISCLOSURE
As of December 31, 2001, Globalstar had various contractual obligations and
commercial commitments, which are more fully disclosed in the notes to
Globalstar's consolidated financial statements. Commercial commitments are items
that Globalstar could be obligated to pay in the future and are not included in
Globalstar's consolidated balance sheet. The following table discloses aggregate
information about Globalstar's contractual obligations and commercial
commitments and the periods in which payment are due (in thousands):
PAYMENTS DUE BY PERIOD
-----------------------------------------------------------------
CONTRACTUAL OBLIGATIONS AND TOTAL INCLUDING AFTER FOOTNOTE
COMMERCIAL COMMITMENTS ACCRUED INTEREST LESS THAN 1 YEAR 1-3 YEARS 4-5 YEARS 5 YEARS REFERENCE(1)
- --------------------------- ---------------- ---------------- --------- --------- ------- ------------
CONTRACTUAL OBLIGATIONS
Vendor Financing SS/L............. $ 254,708 $ 199,569 $ 55,139 $ -- $ -- 7
Vendor Financing QUALCOMM......... 614,677 614,677 -- -- -- 7
Notes Payable..................... 169,787 -- 169,787 -- -- 8
Notes Payable to Affiliate........ 107,543 -- 107,543 -- -- 8
Revolving credit facility......... 110,013 110,013 -- -- -- 8
Term Loan A....................... 110,548 110,548 -- -- -- 8
Term Loan B....................... 331,886 331,886 -- -- -- 8
11 3/8% Senior Notes.............. 566,845 566,845 -- -- -- 9
11 1/4% Senior Notes.............. 352,387 352,387 -- -- -- 9
10 3/4% Senior Notes.............. 363,305 363,305 -- -- -- 9
11 1/2% Senior Notes.............. 329,829 329,829 -- -- -- 9
Dividends payable................. 29,870 29,870 -- -- -- 10
Pension and Retiree Medical
Obligation...................... 2,840 2,840 -- -- -- 12
Deferred Revenues................. 31,359 31,359 -- -- -- 3
---------- ---------- -------- ------ ------
Total Contractual Obligations..... $3,375,597 $3,043,128 $332,469 $ -- $ --
========== ========== ======== ====== ======
COMMERCIAL COMMITMENTS
Operating Leases.................. $ 22,632 $ 3,250 $ 6,269 $6,548 $6,565 17
Launch Termination Costs.......... 18,635 18,635 -- -- -- 6
Space Satellites Purchase
Commitment(2)................... 743 743 -- -- -- 6
---------- ---------- -------- ------ ------
Total Commercial Commitments...... $ 42,010 $ 22,628 $ 6,269 $6,548 $6,565
========== ========== ======== ====== ======
- ---------------
(1) Refers to the notes to Globalstar's consolidated financial statements
included herein.
(2) Under the contract, this is the amount that is not due and recognizable
currently, costs recognized to date have either been paid or are part of
Vendor Financing SS/L.
37
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 2001 and 2000, the fair value of Globalstar's long-term
debt and interest bearing vendor financing (collectively, "long-term
obligations") was estimated to be $201 million and $330 million, respectively,
using quoted market prices or, in the case of vendor financing and term-loans
with variable interest rates, the ratio of the carrying amount to fair value of
the senior notes for 2001 and the recorded value for 2000. The long-term
obligations carrying value exceeded fair value by $2.9 billion and $2.6 billion
as of December 31, 2001 and 2000, respectively. Market rate risk on long-term
obligations is estimated as the potential increase in annual interest expense
resulting from a hypothetical one percentage point increase in interest rates
and amounted to approximately $30 million and $29 million for 2001 and 2000,
respectively.
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.
38
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS
The following sets forth information concerning GTL's directors as of March
31, 2002.
Douglas G. Dwyre
Age: 69
Director Since: March 1999
Business Experience: Mr. Dwyre was President of Globalstar, L.P. from March 1994
until his retirement in March 1999. He also served as Senior
Vice President of Globalstar Telecommunications Limited from
May 1996 to March 1999.
Sir Ronald Grierson
Age: 80
Director Since: May 1996
Business Experience: Sir Ronald is a member of the General Partners' Committee of
Globalstar. In addition, Sir Ronald is the Chairman of the
European Advisory Board of The Blackstone Group, which was
previously retained by Globalstar, L.P. as a financial
advisor. He is the retired Vice-Chairman of General Electric
Company plc.
Other Directorships: Chime Communications plc, Etam Development S.A. and
Safic-Alcan S.A. Retired director of Daily Mail and General
Trust plc.
E. John Peett
Age: 66
Director Since: December 1994
Business Experience: Business Experience: Mr. Peett was a founder and Executive
Director of Vodafone Group Plc. until his retirement in
October 1997.
Other Directorships: Chairman of Cambridge Positioning Systems Limited and
Vice-Chairman of PNC Telecom Plc.
Michael B. Targoff
Age: 57
Director Since: November 1994
Business Experience: Mr. Targoff is Founder and Chief Executive Officer of
Michael B. Targoff & Co. Prior to that, he was President of
Globalstar Telecommunications Limited and Chief Operating
Officer of Globalstar, L.P. from May 1996 to January 1998.
From April 1996 to January 1998, Mr. Targoff was President
and Chief Operating Officer of Loral Space & Communications
Ltd. Prior to that time, he served as Senior Vice President
and Secretary of Loral Corporation.
Other Directorships: Leap Wireless International and Infocrossing, Inc.
39
A. Robert Towbin
Age: 66
Director Since: January 1995
Business Experience: Mr. Towbin is a member of the General Partners' Committee of
Globalstar. Mr. Towbin is a Managing Director of Stephens
Inc. From January 1, 2000 to November 2001 he was
Co-Chairman of C.E. Unterberg, Towbin and from September
1995 to 1999 was Senior Managing Director of C.E. Unterberg,
Towbin. January 1994 to September 1995, Mr. Towbin was
President and CEO of the Russian-American Enterprise Fund (a
U.S. government-owned investment fund) and later Vice
Chairman of its successor fund, The U.S. Russia Investment
Fund. He was a Managing Director of Lehman Brothers and Co-
Head, High Technology Investment Banking from January 1987
until January 1994. Prior to joining Lehman Brothers, Mr.
Towbin was Vice Chairman and a Director of L.F. Rothschild,
Unterberg, Towbin Holdings Inc. and its predecessor
companies from 1959 to 1987. Mr. Towbin received his B.A.
from Dartmouth College in 1957
Other Directorships: Gerber Scientific Inc., Globecomm Systems Inc. and K&F
Industries Inc.
The following sets forth information concerning members of Globalstar's
General Partners' Committee who are not also Directors of GTL as of March 31,
2002.
Olof Lundberg
Age: 58
Member Since: April 2001
Business Experience: Mr. Lundberg is chairman of the General Partners' Committee
of Globalstar and Chief Executive Officer of Globalstar
since April 2001. Mr. Lundberg was the founding Director
General of Inmarsat from 1979 to 1995 and he then served as
founding CEO and then Chairman and CEO of ICO Global
Communications until 1999. Prior to Inmarsat Mr. Lundberg
held management positions at Swedish Telecom, now Telia,
mainly in their mobile communications businesses.
Other Directorships: Actinus Ltd.
Russell R. Mack
Age: 47
Member Since: July 2001
Business Experience: Mr. Mack is a member of the General Partners' Committee of
Globalstar. He has been Vice President, Business Ventures of
Loral Space & Communications Ltd. since February 1998.
Previously, he was Director, Business Planning Development
of Loral Space & Communications Ltd. since February 1997 and
Manager, Corporate Financing of Loral Space & Communications
Ltd. since April 1996.
40
Bernard L. Schwartz
Age: 76
Member Since: 1994
Business Experience: Mr. Schwartz is a member of the General Partners' Committee
of Globalstar. He had previously served as Chief Executive
Officer of Globalstar until May 15, 2001 and as Chairman of
the Board and Chief Executive Officer of Globalstar
Telecommunications Limited until March 8, 2001. Mr. Schwartz
is Chairman of the Board of Directors and Chief Executive
Officer of Loral Space & Communications Ltd.
Other Directorships: Loral Space & Communications Ltd., First Data Corp., K&F
Industries, Inc., Loral Orion, Inc. and Satelites Mexicanos,
S.A. de C.V. Trustee of Mount Sinai -- NYU Medical Center
and Health System and Thirteen/WNET Educational Broadcasting
Corporation.
Eric J. Zahler
Age: 51
Member Since: 2000
Business Experience: Mr. Zahler is a member of the General Partners' Committee of
Globalstar. He had previously served as Vice Chairman of
Globalstar Telecommunications Limited until March 8, 2001.
Mr. Zahler has been President and Chief Operating Officer of
Loral Space & Communications Ltd. since February 2000.
Previously, he was Executive Vice President of Loral Space &
Communications since October 1999, Senior Vice President,
General Counsel and Secretary of Loral Space &
Communications Ltd. since February 1998 and Vice President,
General Counsel and Secretary of Loral Space &
Communications Ltd. since 1996.
Other Directorships: Loral Space & Communications Ltd., Loral Orion, Inc. and
Satelites Mexicanos, S.A. de C.V.
DIRECTOR COMPENSATION
GTL Directors are paid a fixed fee of $12,000 per year. Directors are also
paid $1,500 for personal attendance at each meeting. Audit Committee members are
paid $2,000 per year and $1,000 per meeting.
Members of the Globalstar's General Partners' Committee are each appointed
by a General Partner and serve until his successor is appointed by the
appropriate General Partner. Members of the General Partners' receive no
compensation for serving on the General Partners' Committee.
Globalstar has purchased insurance from The Hartford and several other
companies insuring Globalstar and GTL against obligations they might incur as a
result of its indemnification of its officers and directors for certain
liabilities they might incur, and insuring such officers and directors for
additional liabilities against which they might not be indemnified by
Globalstar. Discussions are ongoing between Globalstar and The Hartford to
extend such insurance upon its scheduled expiration date.
EXECUTIVE OFFICERS OF GTL
NAME AGE POSITION
- ---- --- --------
Ira E. Goldberg......................................... 55 Restructuring Officer
Mr. Goldberg has been Restructuring Officer of GTL since July 2001. Mr.
Goldberg is an investment banking professional and attorney with extensive
capital markets experience in structuring and negotiating transactions, and in
project financing. Over the past 19 years, he has held senior positions with a
number of leading financial institutions and law firms.
41
EXECUTIVE OFFICERS OF GLOBALSTAR
NAME AGE POSITION
- ---- --- --------
Olof Lundberg........................................... 58 Chief Executive Officer
Anthony J. Navarra...................................... 54 President
Gloria Everett.......................................... 58 Executive Vice President, Corporate
Sales
Megan Fitzgerald........................................ 42 Senior Vice President, Operations
Terry R. Evans.......................................... 54 Senior Vice President, Business
Development
William F. Adler........................................ 56 Vice President, Legal and Regulatory
Affairs
Daniel P. McEntee....................................... 39 Vice President and Chief Financial
Officer
Mr. Lundberg is chairman of the General Partners' Committee of Globalstar
and Chief Executive Officer of Globalstar since April 2001. Mr. Lundberg was the
founding Director General of Inmarsat from 1979 to 1995 and he then served as
founding CEO and then Chairman and CEO of ICO Global Communications until 1999.
Prior to Inmarsat Mr. Lundberg held management positions at Swedish Telecom, now
Telia, mainly in their mobile communications businesses.
Mr. Navarra has been President of Globalstar since September 1999. Mr.
Navarra was President of GTL between February 2000 and July 2001. Prior to that,
Mr. Navarra was acting Chief Operating Officer of Globalstar since March 1999
and Executive Vice President of GTL since 1999. Mr. Navarra had been Vice
President of GTL since 1995 and Executive Vice President, Strategic Development
of Globalstar since March 1994.
Mr. Adler has been Vice President of Legal and Regulatory Affairs of
Globalstar since January 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. Everett has been Executive Vice President, Corporate Sales, of
Globalstar since November 2000. Prior to that time, Ms. Everett was Executive
Vice President, Operations, since June 2000, and Senior Vice President,
Operations, since February 1998. Prior to that time, she was Vice President,
Network Engineering and Operations, with AirTouch Communications.
Ms. Fitzgerald has been Senior Vice President, Operations, of Globalstar
since November 2000 and Vice President for Satellite Constellation Establishment
since September 1997. Ms. Fitzgerald has been with Globalstar since June 1994.
Mr. Evans has been Senior Vice President, Business Development since June
2000. Prior to that time, Mr. Evans was Vice President, business Development
since January 1996, and Vice President, Finance since July 1993.
Mr. McEntee has been Vice President and Chief Financial Officer since July
2000. Prior to that time, Mr. McEntee was Vice President Market Development, New
Territories, since March 2000, and Director, Business Operations, since October
1996. Mr. McEntee was also Finance Manger for Globalstar since June 1992.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
GTL believes that during 2001 all reports for GTL's executive officers,
directors and beneficial owners of more than 10% of the Company's common stock
that were required to be filed under Section 16(a) of the Securities Exchange
Act of 1934 were timely filed.
42
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Sir Ronald Grierson and A. Robert Towbin make up the Compensation
Committee. None of the members of the Compensation Committee are present or
former officers or employees of Globalstar, GTL or their respective
subsidiaries. Sir Grierson and Mr. Towbin serve as members of Globalstar's
General Partners' Committee. Sir Grierson is the Chairman of the European
Advisory Board of The Blackstone Group, which previously served as a financial
advisor. Mr. Towbin is a Managing Director of Stephens Inc. and was formerly
Co-Chairman of C.E. Unterberg, Towbin, which has provided advisory, investment
banking and underwriting services to Globalstar and GTL. Mr. Towbin resigned
that position during 2001.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to the executive
officer of GTL and the Chief Executive officer and four most highly compensated
executive officers of Globalstar (Named Executive Officers or "NEO").
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- ------------
SECURITIES
OTHER UNDERLYING
NAME AND ANNUAL STOCK ALL OTHER
PRINCIPAL POSITION(A) YEAR SALARY BONUS(B) COMPENSATION(C) OPTIONS(D) COMPENSATION(E)
- --------------------- ---- --------- -------- --------------- ------------ ---------------
Olof Lundberg.............. 2001 $688,169 $ -- $300,000 -- $ --
Chief Executive Officer
of 2000 N/A N/A N/A N/A N/A
Globalstar and Chairman
of 1999 N/A N/A N/A N/A N/A
Committee of Partners of
Globalstar
Anthony J. Navarra......... 2001 301,518 306,666 -- -- 113,932
President of Globalstar 2000 293,269 -- -- 143,700 10,548
And GTL 1999 256,792 160,000 -- 175,000 5,760
Gloria Everett............. 2001 273,126 322,400 -- -- 49,427
Executive Vice President 2000 260,499 -- 50,000 175,000 5,722
Corporate Sales 1999 235,920 90,000 50,000 137,500 --
of Globalstar
Megan Fitzgerald........... 2001 184,184 239,000 36,263
Senior Vice President 2000 175,865 -- -- 155,000 5,998
Operations of Globalstar 1999 153,235 80,000 -- 135,000 5,517
Terry Evans................ 2001 170,800 199,000 -- -- 73,630
Senior Vice President 2000 156,880 -- 50,000 4,685
Sales and Business 1999 134,225 45,000 -- 37,500 4,009
Development of Globalstar
Ira E. Goldgerg............ 2001 50,000 -- -- -- --
Restructuring Officer of 2000 N/A N/A N/A N/A N/A
GTL 1999 N/A N/A N/A N/A N/A
- ---------------
(a) Bernard L. Schwartz was Chief Executive Officer of Globalstar until he
resigned on May 2001. For 2001 and prior periods, Mr. Schwartz received no
cash compensation from Globalstar.
(b) For years prior to 2001, reflects bonuses earned for each of the respective
fiscal years; these bonuses, however, were paid in the subsequent year.
Exclusive of patent and retention bonuses, there were no management bonuses
earned in the fiscal year 2001. The 2001 bonuses were retention bonuses that
were paid during 2001. Does not include a retention bonus of $153,333 paid
to Mr. Navarra in January 2002.
43
(c) Consists of a signing bonus paid to Mr. Lundberg in the amount of $300,000
for 2001. Consists of signing bonuses paid to Ms. Everett in the amount of
$50,000 for 2000 and 1999.
(d) Does not include a grant made on December 1999 by Loral Space &
Communications Ltd. to Mr. Navarra of stock options to acquire 30,000 shares
of Loral common stock at an exercise price of $16.00 per share.
(e) Includes company matching contributions to the savings plan, vacation
payouts, and insurance premiums.
OTHER COMPENSATION ARRANGEMENTS
In the first quarter of 2001, Globalstar implemented a retention bonus
program to retain its executives and key employees. Under this program, bonuses
totaling $5.7 million were awarded to key employees, including $1.2 million to
the NEO's. These retention bonuses generally vested in three installments: 20%
on March 30, 2001, 30% on June 30, 2001 and 50% on December 31, 2001 (in the
case of Mr. Navarra, 33% vested on July 31, 2001, October 31, 2001, and January
31, 2002) or at the completion of the restructuring process, whichever occurred
first. If the employee chose to voluntarily terminate their employment with
Globalstar prior to a payment date, the employee was not eligible for any
portion of the incentive retention bonus not yet paid. However, if Globalstar
terminated the employee for reasons other than for cause before a payment date,
Globalstar paid the employee the balance of the retention bonus then due to such
employee.
In October 2001, a second retention bonus program was extended to all
employees that did not participate in the first retention bonus program. Under
this program, bonuses totaling $1.0 million were awarded to employees. These
retention bonuses generally vested in two installments: 50% on December 31,
2001, and 50% on March 31, 2002. If the employee chose to voluntarily terminate
their employment with Globalstar prior to a payment date, the employee was not
eligible for any portion of the incentive retention bonus not yet paid. However,
if Globalstar terminated the employee for reasons other than for cause before a
payment date, Globalstar paid the employee the balance of the retention bonus
then due to such employee.
During 2001, Olof Lundberg was named the Chief Executive Officer of
Globalstar. The terms of his three year renewable agreement commencing on April
23, 2001, provided that he receive a $300,000 signing bonus, an annual salary of
$1.0 million, and an annual target bonus of $500,000, subject to achievement of
performance criteria to be agreed by Globalstar's General Partners' Committee.
If Mr. Lundberg is terminated without cause or resigns for good reason, Mr.
Lundberg will be entitled to salary and target bonus for the remainder of the
three-year term.
Ira E. Goldberg, GTL Restructuring Officer, is currently being compensated
$25,000 per quarter, payable, in advance, on the first day of each quarter.
OPTION EXERCISES AND YEAR-END VALUE TABLE
Aggregated Option Exercises in 2001 and Year-End Option Values
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR END(A)
ACQUIRED ON REALIZED ---------------------------- ----------------------------
NAME EXERCISE VALUE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------------- ----------- ------------- ----------- -------------
Olof Lundberg......... -- $-- -- -- $-- $--
Anthony J. Navarra.... -- $-- 163,545 236,455 $-- $--
Gloria Everett........ -- $-- 111,452 238,548 $-- $--
Megan Fitzgerald...... -- $-- 105,411 212,589 $-- $--
Terry Evans........... -- $-- 54,790 65,210 $-- $--
Ira E. Goldgerg....... -- $-- -- -- $-- $--
- ---------------
(a) Market value of underlying securities at year-end, minus the exercise price.
44
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, based upon filings made with GTL, certain
information concerning persons who may be deemed beneficial owners of 5% or more
of the outstanding shares of its common stock because they possessed or shared
voting or investing power with respect to the shares of GTL's common stock:
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP CLASS(1)
- ---------------- -------------------- ----------
Loral Space & Communications Ltd............................ 16,302,860(2)(3) 13.68%
c/o Loral SpaceCom Corporation
600 Third Avenue
New York, New York 10016
Private Capital Management, Inc............................. 9,697,091(4) 8.58%
3003 Tamiami Trail North
Naples, Florida 33940
- ---------------
(1) Percent of class refers to percentage of class beneficially owned as the
term beneficial ownership is defined in Rule 13d-3 under the Securities
Exchange Act of 1934 and is based upon the number of shares of GTL common
stock outstanding as of March 31, 2002.
(2) This information is as of March 31, 2002 and includes 6,449,865 shares of
common stock issuable upon the conversion of GTL's 8% Convertible Redeemable
Preferred Stock due 2011 held by Loral.
(3) Of such amount, 1,568,000 shares represent shares of common stock subject to
options granted by Loral to certain of its executive officers and directors.
(4) A Schedule 13G filed by Private Capital Management, Inc. ("Private Capital")
and certain of its affiliated persons with the Securities and Exchange
Commission on February 15, 2001 reported that as of December 31, 2000,
Private Capital beneficially owned 9,697,091 shares of GTL's common stock.
Of such shares, Private Capital reported sole voting power over 50,000
shares, shared voting power over 9,647,091 shares, sole investment power
over 50,000 shares and shared investment power over 9,647,091 shares.
The following table presents the number of shares of GTL common stock
beneficially owned by the GTL directors and nominees, Globalstar's General
Partners' Committee members, the NEOs of GTL and Globalstar and all directors,
nominees, NEOs and other executive officers as a group on March 31, 2002.
Individuals have sole voting and investment power over the stock unless
otherwise indicated in the footnotes.
AMOUNT AND NATURE OF PERCENT OF
NAME OF INDIVIDUAL BENEFICIAL OWNERSHIP(1) CLASS
- ------------------ ----------------------- ----------
Olof Lundberg............................................... 0 --
Ira E. Goldgerg............................................. 0 --
Douglas G. Dwyre............................................ 77,242(2) *
Terry Evans................................................. 54,790(3) *
Gloria Everett.............................................. 112,452(4) *
Megan Fitzgerald............................................ 105,851(5) *
Sir Ronald Grierson......................................... 144,996(6) *
Russell R. Mack............................................. 5,000(7) *
Anthony J. Navarra.......................................... 167,997(8) *
E. John Peett............................................... 119,996(9) *
Bernard L. Schwartz......................................... 1,709,604(10) 1.51%
Michael B. Targoff.......................................... 1,000 *
45
AMOUNT AND NATURE OF PERCENT OF
NAME OF INDIVIDUAL BENEFICIAL OWNERSHIP(1) CLASS
- ------------------ ----------------------- ----------
A. Robert Towbin............................................ 129,996(11) *
Eric J. Zahler.............................................. 154,676(12) *
ALL DIRECTORS, NEOS AND OTHER EXECUTIVE OFFICERS AS A GROUP
(21 PERSONS).............................................. 2,891,061(13) 2.5%
- ---------------
* Represents holdings of less than one percent.
(1) Includes shares which, as of March 31, 2002, may be acquired within sixty
days upon the exercise of options granted by Loral: 560,000 to Mr.
Schwartz, 100,000 to Mr. Zahler and 908,000 to all directors and executive
officers as a group.
(2) Includes 76,798 shares exercisable under GTL's stock option plan.
(3) Includes 54,790 shares exercisable under GTL's stock option plan.
(4) Includes 111,452 shares exercisable under GTL's stock option plan.
(5) Includes 105,411 shares exercisable under GTL's stock option plan.
(6) Includes 129,996 shares exercisable under GTL's stock option plan.
(7) Includes 5,000 shares exercisable under GTL's stock option plan.
(8) Includes 150,000 shares exercisable under GTL's option plan.
(9) Includes 119,996 shares exercisable under GTL's stock option plan.
(10) Includes 150,000 shares exercisable under GTL's option plan. Includes
54,790 shares exercisable under GTL's stock option plan.
(11) Includes 4,452 shares held in a Keogh Account and 3,560 shares held by
minor children and 26,664 shares exercisable under GTL's stock option plan.
(12) Includes 26,664 shares exercisable under GTL's stock option plan.
(13) Includes 1,180,809 shares exercisable under GTL's stock option plan
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS SECTION
GOVERNANCE
The governing body of Globalstar is the General Partners' Committee. The
Committee may have up to seven members, five of whom may be appointed by the
managing general partner of Globalstar, LQSS. The general partner of LQSS is
LQP, a Delaware limited partnership comprised of subsidiaries of Loral and
QUALCOMM. The managing general partner of LQP is LGP, a subsidiary of Loral. As
of December 31, 2001, Loral owned, directly or indirectly, 25,163,142
(approximately 38.6%) of the ordinary partnership interests of Globalstar,
including interests attributable to 9,902,995 shares of GTL outstanding common
stock.
During 2001, Bernard L. Schwartz resigned as Chief Executive Officer of
Globalstar, Chairman of the Board of GTL and Chief Executive Officer GTL. Mr.
Schwartz remains as a member of Globalstar's General Partners' Committee and is
the Chairman of the Board of Directors and Chief Executive Officer of Loral.
During 2001, all of the previous GTL officers resigned and Ira E. Goldberg was
named GTL Restructuring Officer. He is currently the only officer of GTL. During
2001, Olof Lundberg was named as the new Chief Executive Officer of Globalstar
and Chairman of the General Partner's Committee.
SS/L AGREEMENT AND SUBCONTRACTS
SS/L, which is an affiliate of Globalstar and a wholly-owned subsidiary of
Loral, entered into a contract with Globalstar to design, manufacture, test and
launch 56 satellites. The contract consisted 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.
46
Subsequently, Globalstar exercised an option to purchase eight additional
satellites at a cost of $180 million.
Following a launch failure in September 1998, Globalstar decided to
purchase eight additional satellites for $148 million (including performance
incentives of up to $16 million) to serve as on-ground spares. As of December
31, 2001, costs of $147 million (including a portion of the performance
incentives) have been recognized for these spare satellites. Globalstar has
secured from SS/L twelve and eighteen month call-up orders for two additional
Delta launch vehicles. The total future commitment for these launch vehicles is
$89.5 million plus escalation of 3% per year. Globalstar has the option to
cancel these launch vehicle commitments in 2002 subject to termination charges
of $18.6 million.
Globalstar has granted SS/L an irrevocable, royalty-free, non-exclusive
license to use certain intellectual property expressly developed in connection
with the SS/L agreement provided that SS/L will not use, or permit others to
use, such license for the purpose of engaging in any business activity that
would be in material competition with Globalstar. Globalstar has similarly
agreed that it will not license such intellectual property if it will be used
for the purpose of designing or building satellites that would be in competition
with SS/L.
SS/L has provided $344 million of billings deferred under its construction
contracts with Globalstar, which are comprised of: $120 million of orbital
incentives, of which $44 million was repaid by Globalstar in 1999, $60 million
was repaid in 2000 and no payments were made in 2001; $134 million of
non-interest bearing vendor financing, due over five years in equal monthly
installments, commencing in 2000; and $90 million of vendor financing, which
bears interest and is repayable over five years commencing in 2001. The orbital
payments on the replacement satellites are due on a per satellite basis with 50%
due when the satellite is placed in storage. The remaining 50% is due when
Globalstar directs SS/L to ship the satellite to the launch base. Until such
time, interest on the remaining 50% accrues at an interest rate of 10% per
annum. As of December 31, 2001, 6 of the 8 replacement satellites were placed in
storage and payments became due. No payments were made in 2001 and interest
accrued on the remaining 50%. Total accrued interest on the orbitals as of
December 31, 2001 was $163,000. Payments were made on the $134 million of
non-interest bearing vendor financing through January 2001. Penalty fees are
being accrued at LIBOR plus 3%, and total accrued penalties as of December 31,
2001 was $922,000. Payments on the $90 million of vendor financing were due
beginning December 31, 2001 of which no payments were made. Interest is being
accrued at LIBOR plus 3% and total accrued interest as of December 31, 2001 was
$52.8 million.
QUALCOMM AGREEMENTS
Globalstar and QUALCOMM Incorporated contracted for the design and
development of the Globalstar ground segment pursuant to the Development
Contract. This contract provided for the delivery of four pre-production
gateways, two ground operations control centers ("GOCC") and 300 pre-production
subscriber terminals. The contract provided for reimbursement to QUALCOMM,
subject to a cap for certain joint development efforts, for contract costs
incurred, plus a 12% fee thereon. On November 29, 2001, QUALCOMM terminated the
Development Contract for non-payment of invoices allegedly in the amount of $9.8
million. Deliverables contracted under the Development Contract are
substantially complete with certain remaining software warranty and other
obligations.
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. As of December 31, 2001, 26 gateways have been sold resulting in a
$7.7 million reduction in costs associated with the Globalstar System. In
addition, Globalstar will receive a payment of up to $10 on each Globalstar user
terminal shipped by the terminal manufacturer, until Globalstar funding of that
design has been recovered.
Globalstar and QUALCOMM contracted for the manufacture, deployment and
maintenance of Globalstar gateways pursuant to the Production Agreement. This
agreement provides for delivery of thirty-eight Gateways of which twenty-six
have been installed by QUALCOMM at various locations worldwide. Two gateways
have been used for spare parts and gateway expansions, and ten remain in
Globalstar's inventory for eventual sale and deployment. On December 20, 2001,
QUALCOMM terminated the
47
Production Agreement for non-payment of invoices allegedly in the amount of $7.1
million. Remaining activities under this contract are mainly comprised of
warranty obligations.
On April 2, 1998, Globalstar and QUALCOMM entered into a User Terminal
Agreement. Under this Agreement and other agreements with Globalstar service
providers, QUALCOMM has shipped 95,127 Globalstar handsets, 13,638 car kits and
5,682 Radio Access Units. QUALCOMM maintains the capability of designing and
manufacturing user terminals if and when service providers place orders for
them.
In the fall of 2001 Globalstar and QUALCOMM began to negotiate a new Master
Ordering Agreement to enable Globalstar to acquire goods and technical services
following termination of the Development Contract and Production Agreement. This
agreement has not been finalized.
In May 2000, Globalstar finalized $531.1 million of vendor financing
arrangements (including $31.1 million of accrued interest as of May 2000) with
QUALCOMM that replaced the previous arrangement. As of December 31, 2001, $614.7
million was outstanding under this facility (including $114.7 million of accrued
interest which includes an additional 5% penalty). In connection with this
agreement, QUALCOMM received warrants to purchase 3,450,000 Globalstar
partnership interests at an exercise price of $42.25 per interest. The exercise
price was determined by reference to the fair market value of GTL's common stock
on the closing date of the vendor financing, based on an approximate ratio of
one partnership interest for every four shares of GTL common stock. Fifty
percent of the warrants vested on the closing date, twenty-five percent vested
on September 1, 2000, and the remaining twenty-five percent vested on September
1, 2001. The warrants will expire in 2007. The fair value of the vested warrants
totaled approximately $34.0 million and is being amortized over the term of the
vendor financing arrangements.
In January 2001, Globalstar suspended indefinitely principal and interest
payments on all of its vendor financing, in order to conserve cash for
operations (see Note 2). Under the terms of the QUALCOMM vendor financing
facility, non-payment of interest payments when they become due, and continuance
of non-payment for five days, is an "event of default". An event of default
occurred on January 16, 2001, when Globalstar failed to pay interest with
respect to separate credit extensions made under the QUALCOMM vendor financing
facility. As a result of Globalstar's bankruptcy petition filed on February 15,
2002, this vendor financing has been accelerated and is immediately due and
payable.
PURCHASE OF CANADIAN SERVICE PROVIDER
In December 2001, Globalstar purchased all of the outstanding common shares
of VSSI for $100, plus acquisition costs of $258,000. VSSI indirectly owns the
majority interest in GCSC. GCSC is the Globalstar service provider in Canada and
generates its revenue from the provision of Globalstar services in Canada,
billing customers for usage over two Canadian gateways. Loral Holdings Ltd., a
subsidiary of Loral, owns the remaining minority interest in GCSC. Therefore,
the result of this transaction is that Globalstar is now joint venture partners
with Loral in GCSC, the Canadian service provider. The acquisition is intended
to bring additional efficiencies to the operation of the Globalstar network and
allow for increased coordination in the Globalstar service offerings and
pricing. Under the terms of the MOU executed between Loral, the informal
committee of bondholders and Globalstar, Loral would contribute its minority
interest in GCSC to the Newco in exchange for Newco equity interests.
SUPPORT AND CONSULTING AGREEMENTS
Globalstar entered into agreements with certain limited partners who are
also Globalstar gateway operators for approximately $6.9 million, under which
Globalstar provided for the integration and testing of the Globalstar System at
certain of the partners' gateways. Globalstar has funded this effort.
48
SERVICE PROVIDER AGREEMENTS
Partners of Globalstar or affiliates thereof entered into service provider
agreements with Globalstar granting them the right to provide Globalstar service
to users in designated countries as long as specified minimum levels of
subscribers are met. These service providers received certain discounts from
Globalstar's standard airtime pricing. A number of Globalstar service providers
pre-purchased discounted minutes of use, amounting to approximately $11.7
million in pre-committed gross revenue ($8.8 million net of 25% discount), all
of which had been received as of December 31, 2001. Of the prepaid committed
revenue, $4.4 million has been recognized as of December 31, 2001.
OMNITRACS SERVICES AGREEMENT
Globalstar has granted QUALCOMM the worldwide exclusive right to utilize
the Globalstar System to provide OmniTRACS-like services, including certain
data-messaging and position-determination services offered by QUALCOMM,
primarily to fleets of motor vehicles and rail cars and/or vessels and
supervisory control and data acquisition services. QUALCOMM indicated that it
would utilize the Globalstar System in particular territories to provide its
OmniTRACS-like services if the Globalstar service provider in such region or
country offered pricing that is the most favorable rate charged by it for a
comparable service and that is at least as favorable as the pricing then charged
to QUALCOMM for geostationary satellite capacity in the United States. In the
event QUALCOMM and the service provider failed to reach an agreement with
respect to such access, Globalstar would agree to provide QUALCOMM with access
to the Globalstar System at an agreed rate. To the extent consistent with
QUALCOMM's prior commitments, QUALCOMM has also agreed to offer each Globalstar
service provider certain rights of first refusal to participate with QUALCOMM in
the provision of OmniTRACS-like services using the Globalstar system in the
service provider's territory. QUALCOMM has not yet provided its OmniTRACS-like
services over Globalstar.
CREDIT FACILITIES
In January 2001, Globalstar suspended indefinitely principal and interest
payments on its funded debt in order to conserve cash for operations (see Note
2).
$250 Million Credit Agreement
On June 30, 2000, Globalstar's $250 million credit facility with The Chase
Manhattan Bank became due, and was repaid in full by its guarantors, including
Lockheed Martin, QUALCOMM, DASA and SS/L, who had previously received warrants
for GTL common stock in consideration of their guarantee. Pursuant to the
relevant agreements, Globalstar issued three-year notes in the amounts of $206.3
million, $21.9 million, $11.7 million and $10.1 million to Lockheed Martin,
QUALCOMM, SS/L and DASA, respectively. The notes are due on June 30, 2003 and
bear interest, on a deferred basis, at a rate of LIBOR plus 3%, and are
presented as notes payable and notes payable to affiliates on the consolidated
balance sheet of Globalstar.
On June 30, 2000, Loral paid $56.3 million on a net basis to Lockheed
Martin in satisfaction of its obligation to indemnify Lockheed Martin for
liability in excess of $150 million under Lockheed Martin's guarantee of
Globalstar's $250 million credit facility. Accordingly, Loral is entitled to
receive notes in respect thereof.
Lockheed Martin, however, has rejected the notes it received and is instead
asking Globalstar to issue new securities with additional rights and enhanced
value, without waiving its claim that it is entitled to receive an immediate
cash reimbursement by Globalstar of its $150 million payment to the bank
lenders. Globalstar disputes Lockheed Martin's interpretation of the relevant
agreements.
If the dispute is not resolved, Globalstar cannot be sure that if the
matter were litigated the court would agree with Globalstar's interpretation of
the agreements. Management believes, however, that a court would agree with
Globalstar's interpretation of the relevant agreements.
49
During the year ended December 31, 2001, an issue was raised as to whether
the three-year notes issued to the guarantors of The Chase Manhattan Bank $250
million credit facility were prepared in accordance with the recourse provisions
of the guarantee arrangement. Management does not believe the existing notes
containing non-recourse language will need to be replaced with notes not
containing the non-recourse language. If the existing non-recourse notes were
replaced with notes not containing the non-recourse language, the replacement
would not impact Globalstar's results of operations. However, allocations of
Globalstar's losses to general partners, including GTL, would increase by the
amount of the increase in recourse obligations. Replacement of the notes would
not alter the subordinate position of GTL's shareholders relative to holders of
these notes.
$500 Million Credit Agreement with Affiliates
On August 5, 1999, Globalstar entered into a $500 million credit agreement
with a group of banks. The credit agreement provides for a $100 million
three-year revolving credit facility ("Revolver"), a $100 million three-year
term loan ("Term Loan A") and a $300 million four-year term loan ("Term Loan
B"). The creditors' interests under the credit facility were purchased by a
wholly owned subsidiary of Loral on November 17, 2000, which had previously
guaranteed the facility. As of December 31, 2000, all amounts under the $500
million credit agreement were drawn.
In consideration for the guarantee by Loral in 1999, Loral and certain
Loral subsidiaries received warrants to purchase an aggregate of 3,450,000
Globalstar partnership interests, valued at $141.1 million, (equivalent to
approximately 13.8 million shares of common stock of GTL) at an exercise price
of $91.00 per partnership interest (equivalent to $22.75 per share of GTL common
stock). Fifty percent of the warrants vested in February 2000, 25% vested in
August 2000 and the remaining 25% vested in August 2001. The outstanding
warrants expire in 2006. However, in light of Globalstar's chapter 11 petition,
the warrants are likely to be of little or no value.
Non-payment of interest payments when they become due, and continuance of
non-payment for five days, is an "event of default" under the terms of the $500
million credit facility. An event of default occurred on January 16, 2001 under
the $500 million credit facility when Globalstar failed to pay interest with
respect to two separate credit extensions made under the $500 million credit
agreement. As a result of Globalstar's bankruptcy petition filing in February
15, 2002, this credit facility has been accelerated and is immediately due and
payable.
GLOBALSTAR MANAGING PARTNER'S ALLOCATION AND DISTRIBUTION
The limited partnership agreement provides that, LQP, the general partner
of LQSS, would 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 would receive 80% and 20% of such
distribution, respectively. Given Globalstar's reorganization under chapter 11
of the U.S. Bankruptcy Code, it is unlikely that these distributions will be
paid.
JOINT VENTURES
Subsidiaries of Loral have formed joint ventures with partners which have
executed service provider agreements granting the joint ventures the exclusive
rights to provide Globalstar System services to users in Brazil, Canada, Mexico
and Russia, as long as specified minimum levels of subscribers are met. In
December 2001, Globalstar acquired a majority interest in the Canadian service
provider business. As a result of this transaction, Globalstar and Loral are now
partners in the Canadian joint venture. Founding service providers, including
Loral, receive specified discounts from Globalstar's expected pricing schedule
generally over a five-year period.
SERVICES
Mr. Towbin is a Managing Director of Stephens Inc. and was formerly
Co-Chairman of C.E. Unterberg, Towbin, which has provided advisory, investment
banking and underwriting services to Globalstar and GTL. Mr. Towbin resigned
that position during 2001.
50
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
PAGE
----
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.
Independent Auditors' Report.............................. F-16
Consolidated Balance Sheets............................... F-17
Consolidated Statements of Operations..................... F-18
Consolidated Statements of Ordinary Partners' Capital and
Subscriptions Receivable............................... F-19
Consolidated Statements of Cash Flows..................... F-20
Notes to Consolidated Financial Statements................ F-21
Globalstar Capital Corporation (a Wholly-Owned Subsidiary of
Globalstar, L.P.)......................................... *
Independent Auditors' Report Balance Sheets............... E-4
Notes to Balance Sheets................................... E-6
Loral/QUALCOMM Satellite Services, L.P. (a General Partner
of Globalstar, L.P.)...................................... **
Independent Auditors' Report Balance Sheets............... E-9
Notes to Balance Sheets................................... E-11
- ---------------
* Filed as Exhibit 99.1
** Filed as Exhibit 99.2
51
(A) 3. EXHIBITS
EXHIBIT
NUMBER DESCRIPTIONS OF EXHIBIT
- ------- -----------------------
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 there to
regarding the 8% Series A Convertible Redeemable Preferred
Shares due 2011(10)
3.3 Schedule IV to the Bye-laws of Globalstar Telecommunications
Limited regarding the 9% Series B Convertible Redeemable
Preferred Shares due 2001(11)
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)
4.5 Form of note issued to guarantors of Globalstar's $250
million credit facility(14)
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)
10.1.2 Amendment dated as of December 8, 1999 to the Amended and
Restated Agreement of Limited Partnership of Globalstar,
L.P.(11)
10.1.3 Amendment dated as of February 1, 2000 to the Amended and
Restated Agreement of Limited Partnership of Globalstar,
L.P.(13)
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)
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)+
52
EXHIBIT
NUMBER DESCRIPTIONS OF EXHIBIT
- ------- -----------------------
10.12.2 Amendment No. 2 to 1994 Stock Option Plan.(13)+
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(10)
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)
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(10)
10.27 Credit Agreement dated August 5, 1999 among Globalstar,
L.P., Bank of America, National Association, as
Administration Agent, Banc of America Securities LLC, as
Sole Lead Arranger and Sole Book Manager, Credit Lyonnais,
New York Branch, as Syndication Agent and Lehman Commercial
Paper Inc., as Documentation Agent(12)
10.28 Registration Rights Agreement dated December 8, 1999
relating to GTL's 9% Series B Preferred Stock due 2011(11)
10.29 Fee Agreement dated as of April 19, 1996 by and among
Globalstar, Globalstar Telecommunications Limited, Loral
Corporation, Loral Space & Communications Ltd., QUALCOMM
Limited Partner, Inc., Space Systems/Loral, Inc. and DASA
Globalstar Limited Partner, Inc.(14)
53
EXHIBIT
NUMBER DESCRIPTIONS OF EXHIBIT
- ------- -----------------------
10.30 Intercreditor Agreement dated as of April 19, 1996 by and
among Globalstar, Globalstar Telecommunications Limited,
Loral Corporation, Loral Space & Communications Ltd.,
QUALCOMM Limited Partner, Inc., Space Systems/Loral, Inc,
Inc. and DASA Globalstar Limited Partner, Inc.(14)
10.31 Waiver and Amendment dated as of June 30, 2000 to the Credit
Agreement, dated as of August 5, 2000 by and among
Globalstar, Bank of America, National Association, as
administrative agent, and the several banks and other
financial institutions from time to time thereto.(14)
10.32 Forbearance and Waiver Agreement dated as of June 30, 2000
between Globalstar and QUALCOMM Incorporated.(14)
10.33 Purchase Agreement dated as of September 18, 2000 among
Globalstar Telecommunications Limited, Globalstar, L.P. and
Bear Sterns International Limited.(15)
10.34 Subscription Agreement dated September 22, 2000 between
Globalstar Telecommunications Limited and Loral Space &
Communications Ltd.(16)
10.35 Assignment, Amendment and Release Agreement dated as of
November 17, 2000 by and among the lenders parties to the
Globalstar Credit Agreement, Loral Satellite, Inc., Loral
Satcom Ltd., Loral Space & Communications Ltd., Loral Space
& Communications Corporation, Globalstar, L.P. and Bank of
America, National Association.(17)
10.36 Form of Incentive Retention Agreement dated February 23,
2001+(18)
10.37 Plan Support Agreement Between Loral and Columbia Ventures
Corp., Loeb Partners Corp., Stonehill Capital Management,
LLC and Blue River LLC.(19)
10.38 Memorandum Of Understanding -- Proposed Restructuring
Between Loral and Columbia Ventures Corp., Loeb Partners
Corp., Stonehill Capital Management, LLC and Blue River
LLC.(19)
12 Statement Regarding Computation of Ratios*
21 List of Subsidiaries of the Registrant*
23 Consent of Deloitte & Touche LLP*
99.1 Financial Statements for Globalstar Capital Corporation*
99.2 Financial Statements for Loral/QUALCOMM Satellite Services,
L.P.*
- ---------------
(1) Incorporated by reference to GTL's Registration Statement on Form S-1 (No.
33-86808).
(2) Incorporated by reference to GTL's and Globalstar'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 GTL's Registration Statement on Form S-3 (No.
333-6477).
(7) Incorporated by reference to GTL's and Globalstar'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.
(10) Incorporated by reference to GTL's and Globalstar's Annual Report on Form
10-K for the Year Ended December 31, 1998.
54
(11) Incorporated by reference to GTL's and Globalstar's Current Report on Form
8-K filed on December 21, 1999.
(12) Incorporated by reference to GTL's and Globalstar's Current Report on Form
8-K filed on August 6, 1999.
(13) Incorporated by reference to GTL's and Globalstar's Annual Report on Form
10-K for the Year Ended December 31, 1999.
(14) Incorporated by reference to GTL's and Globalstar's Current Report on Form
8-K filed on July 7, 2000.
(15) Incorporated by reference to GTL's and Globalstar's Current Report on Form
8-K filed on September 19, 2000.
(16) Incorporated by reference to GTL's and Globalstar's Current Report on Form
8-K filed on September 25, 2000.
(17) Incorporated by reference to GTL's and Globalstar's Current Report on Form
8-K filed on November 20, 2000.
(18) Incorporated by reference to GTL's and Globalstar's Annual Report on Form
10-K for the Year Ended December 31, 2000. .
(19) Incorporated by reference to GTL's and Globalstar's Current Report on Form
8-K filed on February 19, 2002.
* Filed herewith.
+ Management compensation plan.
(B) REPORTS ON FORM 8-K
DATE OF REPORT DESCRIPTION
- -------------- -----------
February 19, 2002................. Bankruptcy or Receivership -- Globalstar filed for Chapter
11 Protection on February 15, 2002. Other Events -- Loral
Space & Communications Ltd. And the Informal Committee of
Bondholders reach an agreement on the restructuring of
Globalstar.
55
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
Registrant
/s/ IRA E. GOLDBERG
--------------------------------------
Ira E. Goldberg
Restructuring Officer
and Registrant's Authorized Officer
Date: April 11, 2002
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.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ DOUGLAS DWYRE Director April 11, 2002
- ---------------------------------------------------
Douglas Dwyre
/s/ SIR RONALD GRIERSON Director April 11, 2002
- ---------------------------------------------------
Sir Ronald Grierson
/s/ E. JOHN PEETT Director April 11, 2002
- ---------------------------------------------------
E. John Peett
/s/ MICHAEL B. TARGOFF Director April 11, 2002
- ---------------------------------------------------
Michael B. Targoff
/s/ A. ROBERT TOWBIN Director April 11, 2002
- ---------------------------------------------------
A. Robert Towbin
56
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 San
Jose, State of California, on April 11, 2002.
GLOBALSTAR, L.P.
/s/ ANTHONY J. NAVARRA
--------------------------------------
Anthony J. Navarra
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the date indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ OLOF LUNDBERG Chairman of the April 11, 2002
- --------------------------------------------------- General Partners' Committee
Olof Lundberg
/s/ BERNARD L. SCHWARTZ Member of the April 11, 2002
- --------------------------------------------------- General Partners' Committee
Bernard L. Schwartz
/s/ ERIC J. ZAHLER Member of the April 11, 2002
- --------------------------------------------------- General Partners' Committee
Eric J. Zahler
/s/ SIR RONALD GRIERSON Member of the General Partners' April 11, 2002
- --------------------------------------------------- Committee
Sir Ronald Grierson
/s/ A. ROBERT TOWBIN Member of the April 11, 2002
- --------------------------------------------------- General Partners' Committee
A. Robert Towbin
/s/ RUSSEL MACK Member of the April 11, 2002
- --------------------------------------------------- General Partners' Committee
Russell Mack
/s/ DANIEL P. MCENTEE Chief Financial and April 11, 2002
- --------------------------------------------------- Accounting Officer
Daniel P. McEntee
57
INDEX TO FINANCIAL STATEMENTS
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 (Deficit).............. F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................. F-7
Globalstar, L.P. (A Debtor-in-Possession)
Independent Auditors' Report.............................. F-16
Consolidated Balance Sheets............................... F-17
Consolidated Statements of Operations..................... F-18
Consolidated Statements of Partners' Capital (Deficit).... F-19
Consolidated Statements of Cash Flows..................... F-20
Notes to Consolidated Financial Statements................ F-21
F-1
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Globalstar Telecommunications Limited:
We have audited the accompanying balance sheets of Globalstar
Telecommunications Limited ("GTL") (a Bermuda company and a General Partner of
Globalstar, L.P.) as of December 31, 2001 and 2000 and the related statements of
operations, shareholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 2001. These financial statements are the
responsibility of GTL'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, 2001 and 2000 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2001 in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that GTL
will continue as a going concern. As discussed in Note 2 to the financial
statements, GTL is dependent upon Globalstar, L.P.'s ("Globalstar") successful
financial results and achievement of profitable operations for the recovery of
its investment. On February 15, 2002, Globalstar and certain of its subsidiaries
sought protection from its creditors by filing a voluntary petition under
provisions of Chapter 11 of the U.S. Bankruptcy Code. These factors raise
substantial doubt about GTL's ability to continue as a going concern.
Management's plans for restructuring are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
DELOITTE & TOUCHE LLP
San Jose, California
April 5, 2002
F-2
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
--------------------------
2001 2000
----------- -----------
ASSETS...................................................... $ -- $ --
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' (DEFICIT)
Current liabilities:
Dividends payable......................................... 29,870 3,308
Equity losses in excess of partnership interests in
Globalstar............................................. 825,637 683,339
----------- -----------
855,507 686,647
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 9)
CONVERTIBLE REDEEMABLE PREFERRED STOCK:
8% Series A (3,268,796 shares outstanding at December 31,
2001; $163 million redemption value)................... $ 158,666 $ --
9% Series B (1,270,075 shares outstanding at December 31,
2001; $64 million redemption value).................... 61,630 --
----------- -----------
220,296 --
----------- -----------
SHAREHOLDERS' (DEFICIT):
Preference shares, $.01 par value, 20,000,000 shares
authorized:
8% Series A convertible redeemable preferred stock,
(1,089,599 and 4,396,095 shares outstanding at
December 31, 2001 and 2000, respectively, $55 million
and $220 million redemption value at December 31, 2001
and 2000, respectively................................ 52,888 213,383
9% Series B convertible redeemable preferred stock
(423,358 and 2,958,490 shares outstanding at December
31, 2001 and 2000, respectively, $21 million and $148
million redemption value at December 31, 2001 and
2000, respectively.................................... 20,544 143,561
Common stock, $1.00 par value, 600,000,000 shares
authorized (110,542,921 and 108,025,016 shares
outstanding at December 31, 2001 and 2000,
respectively).......................................... 110,543 108,025
Additional paid-in capital................................ 1,141,953 1,081,255
Warrants.................................................. 11,268 11,268
Accumulated deficit....................................... (2,412,999) (2,244,139)
----------- -----------
Total shareholders' (deficit)..................... (1,075,803) (686,647)
----------- -----------
Total liabilities, convertible redeemable
preferred stock and shareholders' (deficit).... $ -- $ --
=========== ===========
See notes to financial statements.
F-3
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
-------- ---------- --------
Equity in net loss applicable to ordinary partnership
interests of Globalstar, L.P. .......................... $142,298 $1,667,761 $ 81,861
Equity in net loss applicable to preferred partnership
interests of Globalstar, L.P. .......................... 356,944
Amortization of excess carrying value in Globalstar,
L.P. ................................................... 31,840
Dividend income on Globalstar, L.P. redeemable preferred
partnership interests................................... (27,422) (52,220)
Interest expense on convertible preferred equivalent
obligations............................................. 2,510
-------- ---------- --------
Net loss.................................................. 142,298 2,029,123 32,151
Preferred dividends on convertible redeemable preferred
stock................................................... 26,562 30,730 49,710
-------- ---------- --------
Net loss applicable to common shareholders................ $168,860 $2,059,853 $ 81,861
======== ========== ========
Net loss per share -- basic and diluted................... $ 1.54 $ 20.85 $ 0.99
======== ========== ========
Weighted average shares outstanding -- basic and
diluted................................................. 109,778 98,807 82,668
======== ========== ========
See notes to financial statements.
F-4
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
CONVERTIBLE
REDEEMABLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------ ------------------ PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL WARRANTS DEFICIT TOTAL
------ --------- ------- -------- ---------- -------- ----------- -----------
Balance, January 1, 1999......... 82,017 $ 82,017 $ 588,802 $12,034 $ (102,425) $ 580,428
Exercise of warrants............. 163 163 3,097 (495) 2,765
Issuance of 8% Series A
convertible redeemable
preferred stock................ 7,000 $ 339,775 339,775
Conversion of 8% Series A
convertible redeemable
preferred stock and related
make-whole dividend payment.... (2,604) (126,382) 6,522 6,522 143,777 (23,917)
Issuance of 9% Series B
convertible redeemable
preferred stock................ 3,000 145,575 145,575
Exercise of stock options........ 41 41 153 194
Dividends on convertible
redeemable preferred stock..... (25,793) (25,793)
Stock compensation transactions
for the benefit of
Globalstar..................... 20,786 20,786
Net loss......................... (32,151) (32,151)
------ --------- ------- -------- ---------- ------- ----------- -----------
Balance, December 31, 1999....... 7,396 358,968 88,743 88,743 756,615 11,539 (184,286) 1,031,579
Exercise of warrants............. 92 92 1,772 (271) 1,593
Conversion of 8% Series A
convertible redeemable
preferred stock................ (10) 1 1 9
Conversion of 9% Series B
convertible redeemable
preferred stock................ (41) (2,014) 80 80 1,934
Issuance of common stock......... 17,346 17,346 335,095 352,441
Exercise of stock options........ 26 26 266 292
Dividends on convertible
redeemable preferred stock..... 1,737 1,737 5,957 (30,730) (23,036)
Change in fair value of stock
compensation for the benefit of
Globalstar..................... (20,393) (20,393)
Net loss......................... (2,029,123) (2,029,123)
------ --------- ------- -------- ---------- ------- ----------- -----------
Balance, December 31, 2000....... 7,355 356,944 108,025 108,025 1,081,255 11,268 (2,244,139) (686,647)
Conversion of 8% Series A
convertible redeemable
preferred stock................ (38) (1,829) 81 81 1,748
Conversion of 9% Series B
convertible redeemable
preferred stock................ (1,265) (61,387) 2,437 2,437 58,950
Classification of convertible
redeemable preferred stock
outside shareholders'
deficit........................ (4,539) (220,296) (220,296)
Dividends on convertible
redeemable preferred stock..... (26,562) (26,562)
Net loss......................... (142,298) (142,298)
------ --------- ------- -------- ---------- ------- ----------- -----------
Balance, December 31, 2001....... 1,513 $ 73,432 110,543 $110,543 $1,141,953 $11,268 $(2,412,999) $(1,075,803)
====== ========= ======= ======== ========== ======= =========== ===========
See notes to financial statements.
F-5
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-----------------------------------
2001 2000 1999
--------- ----------- ---------
Operating activities:
Net loss.................................................. $(142,298) $(2,029,123) $ (32,151)
Equity in net loss applicable to ordinary partnership
interests of Globalstar, L.P. .......................... 142,298 1,667,761 81,861
Equity in net loss applicable to preferred partnership
interests of Globalstar, L.P............................ 356,944
Amortization of excess carrying value in Globalstar,
L.P. ................................................... 31,840
Dividends accrued on redeemable preferred partnership
interests............................................... 3,323 (3,323)
Dividend income on Globalstar, L.P. make-whole payment on
conversion of 8% redeemable preferred partnership
Interests............................................... (23,917)
Change in operating liability:
Interest payable
--------- ----------- ---------
Net cash provided by operating activities................. -- 30,745 22,470
--------- ----------- ---------
Investing activities:
Purchase of ordinary partnership interests in Globalstar,
L.P..................................................... (354,326) (2,959)
Purchase of 8% redeemable preferred partnership interests
in Globalstar, L.P...................................... (339,775)
Purchase of 9% redeemable preferred partnership interests
in Globalstar, L.P...................................... (145,575)
--------- ----------- ---------
Net cash used in investing activities..................... -- (354,326) (488,309)
--------- ----------- ---------
Financing activities:
Net proceeds from issuance of common stock upon exercise
of options and warrants................................. 1,885 2,959
Net proceeds from sale of common stock.................... 352,441
Proceeds from issuance of 8% Series A convertible
redeemable preferred stock.............................. 339,775
Proceeds from issuance of 9% Series B convertible
redeemable preferred stock.............................. 145,575
Payment of preferred stock dividends...................... (30,745) (22,470)
--------- ----------- ---------
Net cash provided by financing activities................. -- 323,581 465,839
--------- ----------- ---------
Net increase (decrease) in cash and cash equivalents........ -- -- --
Cash and cash equivalents, beginning of period.............. -- -- --
--------- ----------- ---------
Cash and cash equivalents, end of period.................... $ -- $ -- $ --
========= =========== =========
Noncash transactions:
Common stock issued upon conversion of convertible
preferred securities and related interest and dividend
make-whole payments..................................... $ 63,216 $ 2,024 $ 150,299
========= =========== =========
Change in fair value of stock compensation for the benefit
of Globalstar........................................... $ (20,393) $ 20,786
=========== =========
Common stock issued in lieu of cash payment to preferred
stockholders............................................ $ 7,694
===========
Supplemental information:
Interest paid during the year............................. $ -- $ -- $ 2,510
========= =========== =========
See notes to financial statements.
F-6
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
Delaware limited partnership which was founded to design, construct and operate
a worldwide, low-earth orbit ("LEO") satellite-based wireless digital
telecommunications 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 exiting or
future cellular systems, providing a telecommunications solution in parts of the
world where the build-out of terrestrial systems cannot be economically
justified.
As of December 31, 2001, GTL owned 27,289,938 (41.8%) of Globalstar's
65,227,438 outstanding ordinary partnership interests, 100% of the outstanding
8% convertible redeemable preferred partnership interests (the "8% RPPIs") and
100% of the outstanding 9% convertible redeemable preferred partnership
interests (the "9% RPPIs") (see Note 5).
Globalstar operates in one industry segment, satellite telecommunications,
providing global mobile and fixed wireless voice and data services.
Loral Space & Communications Ltd. ("Loral"), through a subsidiary and
intermediate limited partnerships, is the managing general partner of
Globalstar. As of December 31, 2001, Loral owned, directly or indirectly,
25,163,142 (approximately 38.6%) of the ordinary partnership interests of
Globalstar, including interests attributable to 9,902,995 shares of GTL's
outstanding common stock.
2. BASIS OF PRESENTATION
On February 15, 2002, Globalstar and certain of its subsidiaries filed
voluntary petitions under Chapter 11 of Title 11, United States Code, in the
United States Bankruptcy Court for the District of Delaware (Case Nos. 02-10499,
02-10501, 02-10503 and 02-10504). Globalstar and its subsidiaries remain in
possession of their assets and properties and continue to operate their
businesses as debtors-in-possession. As a result of Globalstar's bankruptcy
petition, several of Globalstar's debt obligations (see Notes 7, 8 and 9) have
been accelerated and are immediately due and payable. GTL does not intend to
file an immediate petition for bankruptcy relief, but will continue to monitor
events and govern its actions accordingly. Globalstar's bankruptcy filing and
subsequent financial restructuring will likely leave shares in GTL with very
little or no value. These factors, among others, raise substantial doubt about
GTL's ability to continue as a going concern. However, the accompanying
financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business.
Negotiations prior to filing of Globalstar's bankruptcy petition resulted
in an agreement reached among Loral, Globalstar's informal committee of
bondholders, representing approximately 17% of Globalstar's outstanding senior
notes, and Globalstar, regarding the substantive terms of a proposed financial
and legal restructuring of Globalstar's business. Under the proposed
restructuring plan, all of Globalstar's assets would be contributed into a new
Globalstar company, which would be initially owned by Globalstar's existing
noteholders and other unsecured creditors. The proposed plan also calls for the
cancellation of all existing partnership interests in Globalstar, but
contemplates, subject to the satisfaction of certain conditions, a rights
offering to GTL's common and preferred shareholders and Globalstar's creditors,
which could give them the option to purchase shares in the new company. The
proposed
F-7
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
restructuring plan will be required to be submitted for and be subject to
bankruptcy court approval. The terms of the proposed plan were described in
Globalstar's Form 8-K filing dated February 19, 2002.
It is foreseeable that in any financial restructuring under this agreement
or any other plan ultimately approved by the court, GTL's equity interest, along
with the interests of Globalstar's other partners, will be eliminated entirely,
or at best, severely diluted.
GTL, a general partner of Globalstar, was created to permit public equity
ownership in Globalstar. GTL does not have any operations, any personnel or
facilities, and does not manage the day-to-day operations of Globalstar. GTL has
no other business or investments. GTL'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. Accordingly, GTL's
results of operations only reflect its proportionate share of Globalstar's
results of operations, as presented on Globalstar's financial statements, and
the appropriate amortization and interest associated with this investment.
GTL accounts for its investment in Globalstar's ordinary partnership
interests on an 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 and the 8% convertible redeemable preferred partnership interests (the
"8% RPPIs") and 9% convertible redeemable preferred partnership interests (the
"9% RPPIs"). In 2000, Globalstar's losses reduced GTL's investment in Globalstar
ordinary and preferred partnership interests to zero. Accordingly, GTL has
discontinued providing for its allocated share of Globalstar's net losses and
recognized the remaining unallocated losses as a result of its general partner
status in Globalstar in proportion to its interests in the general partner
interests outstanding.
Because GTL is a general partner of Globalstar, GTL 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. GTL believes that such recourse obligations totaled approximately
$1.4 billion as of December 31, 2001. As a result of its general partner status,
GTL has recorded a cumulative liability of $825.6 million. Certain of
Globalstar's debt, including the public debt, are non-recourse to the general
partners. Future funding, if any, or assets of GTL, may be utilized to fund this
general partner liability.
During the year ended December 31, 2001, an issue was raised as to whether
the three-year notes issued to the guarantors of The Chase Manhattan Bank $250
million credit facility were prepared in accordance with the recourse provisions
of the guarantee arrangement. Management does not believe the existing notes
containing non-recourse language will need to be replaced with notes not
containing the non-recourse language. If the existing non-recourse notes were
replaced with notes not containing the non-recourse language, the replacement
would not impact Globalstar's results of operations. However, allocations of
Globalstar's losses to general partners, including GTL, would increase by the
amount of the increase in recourse obligations. Replacement of the notes would
not alter the subordinate position of GTL's shareholders relative to holders of
these notes.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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"). The Company accounts for stock-based awards to
nonemployees in accordance with SFAS 123 and its interpretations.
F-8
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
GTL is incorporated in Bermuda. Bermuda does not levy an income, profits or
capital gains tax. As a partner in Globalstar, however, GTL will be subject to
U.S. federal, state and local income taxation at regular corporate rates plus an
additional 30% "branch profits" 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.
Earnings Per Share
Due to GTL's net losses in 2001, 2000 and 1999, diluted weighted average
common shares outstanding excludes the weighted average effect of: (i) the
assumed conversion of GTL's 8% Series A convertible redeemable preferred stock,
due 2011, (the "8% Preferred Stock") into 9.4 million and 9.5 million common
shares for 2001 and 2000, respectively, (see Note 5); (ii) the assumed
conversion of GTL's 9% Series B convertible redeemable preferred stock, due
2011, (the "9% Preferred Stock") into 4.0 million and 5.7 million common shares
for 2001 and 2000, respectively, (see Note 5); and (iii) the assumed exercise of
outstanding options and warrants, into 12.0 million, 10.5 million and 7.3
million common shares for 2001, 2000 and 1999, respectively, as their effect
would have been anti-dilutive. Accordingly, basic and diluted net loss per share
is based on the net loss applicable to common shareholders' and the weighted
average common shares outstanding for 2001, 2000 and 1999.
Comprehensive Loss
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.
4. SENIOR NOTE WARRANTS
As of December 31, 2001, there were outstanding warrants to purchase
3,814,897 shares of GTL common stock relating to Globalstar's senior notes,
which 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. CONVERTIBLE REDEEMABLE PREFERRED STOCK
The 8% and 9% convertible redeemable preferred stock of GTL has mandatory
redemption dates in 2011. Under the terms of the mandatory redemption, GTL may
make payments to the holders in either cash or common stock, or a combination of
thereof. Based upon the price of GTL's common stock at December 31, 2001, GTL
has not authorized a sufficient number of shares of common stock to effect
payment in common stock. Accordingly, as of December 31, 2001, GTL classified
$220,296,000 of the 8% and 9% convertible redeemable preferred stock outside the
shareholders' deficit section of the balance sheet based on GTL's average common
stock price in the 10-day period preceding December 31, 2001 (approximately
$0.16). The number of shares of GTL common stock that may be issued on the
mandatory redemption date will depend on factors at the redemption date
including the price of GTL's common stock and the number of shares of 8% and 9%
convertible redeemable preferred stock outstanding at the time of the
redemption. The amount of the 8% and 9% convertible redeemable preferred stock
classified outside the shareholders' deficit section will vary in future periods
depending on these variables.
F-9
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8% Preferred Stock
In 1999, GTL sold seven million shares (face amount of $50 per share) of 8%
convertible redeemable preferred stock. Dividends accrue at 8% per annum and are
payable quarterly. The 8% 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. Loral purchased 3 million shares ($150 million
face amount) of the 8% Preferred Stock issued, in order to maintain its prior
percentage ownership interest in Globalstar. GTL used the net proceeds of
approximately $340 million to purchase seven million units ( $50 per unit face
amount) of Globalstar's 8% RPPIs having terms substantially similar to those of
the 8% Preferred Stock.
The 8% Preferred Stock has limited voting rights. With respect to dividend
rights and rights upon liquidation, winding up and dissolution, the 8% Preferred
Stock ranks pari passu with the 9% convertible redeemable preferred stock and
senior to common stock and to all other future series of preferred stock or
other classes 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 8%
Preferred Stock. Prior to its mandatory redemption date, the 8% Preferred Stock
is redeemable (at a premium which declines over time) by GTL beginning in
February 2002. Payments due on the 8% Preferred Stock may be made in cash, GTL
common stock or a combination of both at the option of GTL. In January 2001, GTL
suspended dividend payments on the 8% Preferred Stock. 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 8% Preferred Stock will be
entitled to elect up to two additional members to GTL's Board of Directors.
In 2001, 37,700 shares of the 8% Preferred Stock were converted into 81,033
shares of GTL common stock. As a result of such conversions, the 8% RPPIs were
converted into 20,008 Globalstar ordinary partnership interests. As of December
31, 2001, the 8% Preferred Stock had an aggregate liquidation preference equal
to its $218 million aggregate redemption value and a mandatory redemption date
of February 15, 2011. The remaining shares of 8% Preferred Stock outstanding at
December 31, 2001 were convertible into 9,370,315 shares of GTL common stock.
9% Preferred Stock
In 1999, GTL sold three million shares (face amount of $50 per share) of 9%
Preferred Stock. Dividends accrue at 9% per annum and are payable quarterly. The
9% Preferred Stock is convertible into shares of GTL common stock at a
conversion price of $25.9569 per share, subject to adjustment for certain
antidilution events. GTL used the net proceeds of approximately $145 million to
purchase three million units (face amount of $50 per unit) of Globalstar's 9%
RPPIs having terms substantially similar to those of the 9% Preferred Stock.
The 9% Preferred Stock has limited voting rights. With respect to dividend
rights and rights upon liquidation, winding up and dissolution, the 9% Preferred
Stock ranks pari passu with the 8% Preferred Stock and senior to common stock
and to all other future series of preferred stock, or other classes 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 9% Preferred Stock. Prior to its
mandatory redemption date, the 9% Preferred Stock is redeemable (at a premium
which declines over time) by GTL beginning in December 2002. Payments due on the
9% Preferred Stock may be made in cash, GTL common stock or a combination of
both at the option of GTL. In January 2001, GTL suspended dividend payments on
the 9% Preferred Stock. 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 9% Preferred Stock will be entitled to elect up to two
additional members to GTL's Board of Directors.
F-10
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In 2001, 1,265,057 shares of 9% Preferred Stock were converted into
2,436,872 shares of GTL common stock. As a result of such conversions, the 9%
RPPIs were converted into 601,697 Globalstar ordinary partnership interests. As
of December 31, 2001, the 9% Preferred Stock had an aggregate liquidation
preference equal to its $85 million aggregate redemption value and a mandatory
redemption date of December 1, 2011. The remaining shares of 9% Preferred Stock
outstanding at December 31, 2001 were convertible into 3,261,979 shares of GTL
common stock.
6. SHAREHOLDERS' EQUITY
Common Stock
GTL's equity securities and convertible securities are 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 Globalstar's commencement of service date and after at least two
consecutive quarters of positive net income, subject to certain annual
limitations. GTL has reserved approximately 153.7 million shares for this
purpose.
Stock Option Arrangements
Officers, directors and employees of Globalstar are eligible to participate
in GTL's 1994 Stock Option Plan (the "Plan"), which provides for nonqualified
and incentive stock options. The Plan is administered by a stock option
committee (the "Committee"), appointed by GTL's 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 an approximate
four-for-one exchange arrangement.
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 to
twelve months following vesting; stock volatility, 70% for 2001 and 2000, and
50% for 1999; risk free interest rates, 4.4% to 6.6% based on date of grant; 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 awards had been amortized to Globalstar's
expense over the vesting period of the awards, GTL's pro forma net loss
applicable to common shareholders and the related loss per share would have been
$177,665,997 or $1.62 per diluted share in 2001, $2,072,348,000 or $20.97 per
diluted share in 2000 and $83,567,000 or $1.01 per diluted share in 1999.
F-11
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the GTL stock option plan for 2001, 2000, and
1999 is presented below:
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
---------- --------
Outstanding at January 1, 1999........................ 2,121,690 $16.06
Granted (weighted average fair value of $10.98 per
share).............................................. 2,821,500 22.79
Forfeited............................................. (258,300) 19.87
Exercised............................................. (41,090) 4.71
---------- ------
Outstanding at December 31, 1999...................... 4,643,800 20.03
Granted (weighted average fair value of $4.04 per
share).............................................. 4,566,250 9.76
Forfeited............................................. (984,750) 16.29
Exercised............................................. (26,300) 10.72
---------- ------
Outstanding at December 31, 2000...................... 8,199,000 14.79
Granted............................................... -- --
Forfeited............................................. (1,745,638) 15.50
Exercised............................................. -- --
---------- ------
Outstanding at December 31, 2001...................... 6,453,362 $14.46
========== ======
Options exercisable at December 31, 2001.............. 2,425,071 $11.87
========== ======
Options exercisable at December 31, 2000.............. 1,123,816 $14.20
========== ======
Options exercisable at December 31, 1999.............. 584,433 $11.72
========== ======
F-12
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 except for 4,336,250 options granted in 2000 which become
exercisable ratably over a three-year period. All options granted were
non-qualified stock options with an exercise price equal to fair market value at
the date of grant. During 2000 and 1999, the Company granted stock options to
certain non-employees to purchase 167,000 and 577,000, respectively, shares of
GTL common stock. The fair value of such options totaled approximately $290,000
which has been recorded as additional investment in Globalstar and is being
amortized by Globalstar over the vesting period. The fair value attributable to
the unvested portion of such options is subject to adjustment based upon the
future value of GTL's common stock. As of December 31, 2001, 3,445,938 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, 2001:
OUTSTANDING EXERCISABLE
------------------------------------ ---------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICE RANGE NUMBER LIFE-YEARS PRICE NUMBER PRICE
- -------------------- --------- ----------- -------- --------- --------
$ 3.01 to $ 4.64............. 286,800 3.89 $ 4.13 278,800 $ 4.14
$ 4.65 to $17.15............. 3,848,012 8.11 9.50 1,748,271 10.01
$17.16 to $29.03............. 1,996,650 7.45 22.89 265,300 23.27
$29.04 to $31.41............. 321,900 7.45 30.72 132,700 29.78
--------- ---------
6,453,362 7.69 $14.46 2,425,071 $11.87
========= =========
GTL and Globalstar have agreed that upon the exercise of options under the
Plan, Globalstar will issue to GTL one Globalstar ordinary partnership interest
for approximately every four shares of common stock issued to the optionee.
During 2000 and 1999, GTL purchased 6,825 and 10,273 Globalstar ordinary
partnership interests, respectively, with the proceeds from the issuance of the
common stock pursuant to GTL option exercises.
7. INCOME TAXES
As a partner in Globalstar, GTL has been allocated its proportionate share
of partnership tax losses. To the extent that these losses are effectively
connected with the conduct of a trade or business in the U.S., they will be
available as a carryforward to offset GTL's share of Globalstar's income that
may be subject to U.S. tax in the future. As of December 31, 2001, GTL had
approximately $662 million of such effectively connected losses available for
carryforward which expire at varying dates from 2010 through 2021.
Since the ultimate realization of these tax loss carryforwards depends upon
the ability of Globalstar to generate sufficient U.S. income in the future, GTL
has established a 100% valuation allowance against the deferred tax asset
related to these loss carryforwards. Accordingly, no income tax expense or
benefit is included in GTL's statements of operations and net deferred taxes are
zero at December 31, 2001 and 2000.
F-13
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
QUARTER ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,(1)
--------- -------- --------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2001:
Equity in net loss applicable to ordinary
partnership interests of Globalstar........... $25,983 $37,709 $29,925 $ 48,681
Net loss........................................ 25,983 37,709 29,925 48,681
Net loss applicable to common shareholders...... 33,362 44,302 36,235 54,961
Net loss per share -- basic and diluted(2)...... .31 .40 .33 .50
2000:
Equity in net loss applicable to ordinary
partnership interests of Globalstar........... $82,202 $83,811 $86,021 $1,415,727
Equity in net loss applicable to preferred
partnership interests of Globalstar........... 356,944
Net loss........................................ 84,377 86,741 89,705 1,768,300
Net loss applicable to common shareholders...... 91,886 94,512 97,476 1,775,979
Net loss per share -- basic and diluted(2)...... .98 .98 1.00 16.97
- ---------------
(1) Results of operations for the quarter ended December 31, 2000, include GTL's
share of Globalstar's $2.9 billion impairment charge.
(2) The quarterly earnings per share information are computed separately for
each period. Therefore, the sum of such quarterly per share amounts do not
sum to the total for the year.
9. COMMITMENTS AND CONTINGENCIES
In Re Globalstar Securities Litigation. On February 28, 2001, plaintiff
Eric Eismann filed a purported class action complaint against GTL in the United
States District Court for the Southern District of New York. The other
defendants named in the complaint were Loral Space & Communications Ltd. and
Bernard Schwartz, the former Chief Executive Officer of Globalstar. Globalstar
was not a named defendant in these actions. The complaint alleges that (a) GTL
and Mr. Schwartz violated Section 10(b) of the Securities Exchange Act of 1934
(the "Exchange Act") and Rule 10b-5 promulgated thereunder, by making material
misstatements or failing to state material facts about GTL's business and
prospects; and (b) that Loral and Mr. Schwartz are secondarily liable for these
alleged misstatements and omissions under Section 20(a) of the Exchange Act as
alleged "controlling persons" of GTL. The class of plaintiffs on whose behalf
this lawsuit has been asserted consists of all buyers of GTL common stock from
December 6, 1999, through October 27, 2000, excluding the defendants, officers
and directors of GTL, and certain persons affiliated therewith (the "Excluded
Persons"). Eighteen additional purported class action complaints were
subsequently filed in the United States District Court for the Southern District
of New York. These complaints were granted class action status and consolidated
into a case known as In Re Globalstar Securities Litigation, 01 Civ. 1748 (SHS).
On September 26, 2001, the Court appointed The Phillips Family as Lead Plaintiff
for the Class. On November 13, 2001, Lead Plaintiff filed a Consolidated Amended
Class Action Complaint and a demand for jury trial. The Amended Complaint drops
the cause of action against certain individuals and adds causes of action
against Globalstar and its wholly-owned subsidiary, Globalstar Capital. GTL and
Globalstar believe that they have meritorious defenses to these actions and on
or about February 25, 2002, filed a motion to dismiss the complaint. The case
against Globalstar and Globalstar Capital is stayed pursuant to the U.S.
Bankruptcy Code. There are, however, no assurances that the defences to these
actions will be successful.
F-14
GLOBALSTAR TELECOMMUNICATIONS LIMITED
(A GENERAL PARTNER OF GLOBALSTAR, L.P.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On January 16, 2001, Globalstar suspended indefinitely principal and
interest payments on its funded debt and dividend payments on its 8% and 9%
convertible redeemable preferred partnership interests in order to conserve cash
for operations. Non-payment of interest on Globalstar's debt instruments, credit
facility and vendor financing agreements when they become due, and continuance
of non-payment for the applicable grace period, are "events of default" under
the terms of each of the debt instruments. An event of default has occurred in
connection with Globalstar's $500 million credit facility, its vendor financing
facility with QUALCOMM, its 11 3/8% senior notes due February 15, 2004, its
11 1/4% senior notes due June 15, 2004, its 10 3/4% senior notes due November 1,
2004, and its 11 1/2% senior notes due June 1, 2005 ("senior notes due 2004 and
2005"). Accordingly, for reporting and accounting purposes, Globalstar
classified the $500 million credit facility, the QUALCOMM vendor financing and
the senior notes as current obligations. See Globalstar's "Notes to Consolidated
Financial Statements," Notes 7-9.
F-15
INDEPENDENT AUDITORS' REPORT
To the Partners of Globalstar, L.P.:
We have audited the accompanying consolidated balance sheets of Globalstar,
L.P. (a limited partnership) and its subsidiaries (collectively, the
"Partnership") (a Debtor-in-Possession) as of December 31, 2001 and 2000 and the
related consolidated statements of operations, partners' capital (deficit) and
cash flows for each of the three years in the period ended December 31, 2001.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with 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 consolidated financial statements present fairly, in
all material respects, the financial position of the Partnership at December 31,
2001 and 2000 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming that the Partnership will continue as a going concern. As discussed in
Note 2 to the consolidated financial statements, on February 15, 2002, the
Partnership sought protection from its creditors by filing a voluntary petition
under provisions of Chapter 11 of the U.S. Bankruptcy Code. These factors raise
substantial doubt about the Partnership's ability to continue as a going
concern. Management's plans for restructuring are also described in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
San Jose, California
April 5, 2002
F-16
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PARTNERSHIP INTERESTS)
DECEMBER 31,
--------------------------
2001 2000
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 55,625 $ 174,401
Restricted cash........................................... -- 22,448
Accounts receivable, net of allowance of $2,158 at
December 31, 2001 and $41 at December 31, 2000.......... 2,162 422
Receivables from affiliates............................... 2,134 --
Inventory................................................. 1,090 --
Production gateways and user terminals.................... -- 58,832
Prepaid expenses and other current assets................. 9,358 6,721
----------- -----------
Total current assets............................... 70,369 262,824
----------- -----------
Property and equipment:
Globalstar System, net.................................... 229,774 264,856
Other property and equipment, net......................... 2,216 516
----------- -----------
231,990 265,372
----------- -----------
Globalstar System under construction........................ -- 1,634
Additional spare satellites................................. 23,823 14,758
Production gateways, net of allowance of $20,212 at December
31, 2001.................................................. 29,750 --
Deferred financing costs.................................... 68,330 125,176
Other assets, net........................................... 32,129 32,512
----------- -----------
Total assets....................................... $ 456,391 $ 702,276
=========== ===========
LIABILITIES AND PARTNERS' (DEFICIT)
Current liabilities:
Term loans payable to affiliates.......................... $ 400,000 $ 400,000
Revolving credit facility to affiliates................... 100,000 100,000
Senior notes payable ($1,450,000 aggregate principal
amount)................................................. 1,417,942 1,407,941
Accounts payable.......................................... 3,752 13,546
Payable to affiliates..................................... 35,111 30,733
Vendor financing liability................................ 814,246 590,372
Dividends payable......................................... 29,870 3,308
Accrued expenses.......................................... 42,524 18,997
Accrued interest.......................................... 246,871 34,224
----------- -----------
Total current liabilities.......................... 3,090,316 2,599,121
----------- -----------
Deferred revenues........................................... 31,359 37,952
Vendor financing liability, net of current portion.......... 55,139 198,051
Accrued interest on notes payable........................... 32,320 12,366
Notes payable............................................... 150,000 150,000
Notes payable to affiliates................................. 95,010 100,000
Commitments and contingencies (Note 17)
Partners' (deficit):
8% Series A convertible redeemable preferred partnership
interests (4,358,395 and 4,396,095 interests outstanding
at December 31, 2001 and 2000 respectively, $218 million
and $220 million redemption value at December 31, 2001
and 2000, respectively)................................. -- --
9% Series B convertible redeemable preferred partnership
interests (1,693,433 and 2,958,490 interests outstanding
at December 31, 2001 and 2000, respectively, $85 million
and $148 million redemption value at December 31, 2001
and 2000, respectively)................................. -- --
Ordinary general partnership interests (45,289,938 and
44,668,233
Interests outstanding at December 31, 2001 and 2000,
respectively).......................................... (2,961,347) (2,359,170)
Ordinary limited partnership interests (19,937,500 and
19,937,500
Interests outstanding at December 31, 2001 and 2000,
respectively).......................................... (239,740) (239,740)
Unearned compensation..................................... (1) (60)
Warrants.................................................. 203,335 203,756
----------- -----------
Total partners' (deficit).......................... (2,997,753) (2,395,214)
----------- -----------
Total liabilities and partners' (deficit).......... $ 456,391 $ 702,276
=========== ===========
See notes to consolidated financial statements.
F-17
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER ORDINARY PARTNERSHIP INTEREST AMOUNTS)
YEARS ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
-------- ---------- --------
Revenues:
Service................................................. $ 6,195 $ 2,223
Subscriber equipment.................................... 152 --
Royalty income.......................................... 57 1,427
-------- ----------
Total revenue................................... 6,404 3,650
-------- ----------
Operating expenses:
Cost of subscriber equipment............................ 130 --
Operations.............................................. 56,074 127,969 $ 94,313
Marketing, general and administrative................... 101,465 80,951 59,967
Restructuring........................................... 12,035 -- --
Launch related costs.................................... -- -- 29,913
Impairment of assets.................................... -- 2,939,790 --
Depreciation and amortization........................... 35,554 327,938 2,312
-------- ---------- --------
Total operating expenses........................ 205,258 3,476,648 186,505
-------- ---------- --------
Operating loss............................................ 198,854 3,472,998 186,505
Interest income........................................... 4,513 16,490 6,141
Interest expense.......................................... 381,170 329,163 --
-------- ---------- --------
Net loss.................................................. 575,511 3,785,671 180,364
Preferred distributions on redeemable preferred
partnership interests................................... 26,562 30,730 52,220
-------- ---------- --------
Net loss applicable to ordinary partnership interests..... $602,073 $3,816,401 $232,584
======== ========== ========
Net loss per ordinary partnership interest -- basic and
diluted................................................. $ 9.26 $ 61.23 $ 3.99
======== ========== ========
Weighted average ordinary partnership interests
outstanding -- basic and diluted........................ 65,040 62,325 58,341
======== ========== ========
See notes to consolidated financial statements.
F-18
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
(IN THOUSANDS)
CONVERTIBLE
REDEEMABLE GENERAL LIMITED
PREFERRED ORDINARY ORDINARY
PARTNERSHIP PARTNERSHIP PARTNERSHIP UNEARNED
INTERESTS INTERESTS INTERESTS COMPENSATION WARRANTS TOTAL
----------- ----------- ----------- ------------ -------- -----------
Capital balances -- January 1, 1999............ $ 519,553 $ 53,868 $ 28,980 $ 602,401
Sale of 8% Series A convertible redeemable
preferred partnership interests -- January
1999......................................... $ 339,775 339,775
Exercise of warrants (41 interests)............ 2,174 1,086 (495) 2,765
Stock compensation transactions by managing
general partner for the benefit of
Globalstar................................... 770 384 1,154
Sale of ordinary partnership interests in
connection with GTL stock option exercises
(10 interests)............................... 129 65 194
Conversion of 8% Series A convertible
redeemable preferred partnership interests
into ordinary partnership interests and
related dividend make-whole payment -- June &
November 1999 (1,613 interests).............. (126,382) 100,225 50,074 23,917
Warrants issued for ordinary partnership
interests in exchange for debt guarantee..... 141,100 141,100
Sale of 9% Series B convertible redeemable
preferred partnership interests -- December
1999......................................... 145,575 145,575
Unearned compensation.......................... 13,861 6,925 $(20,786)
Amortization of unearned compensation.......... 4,032 4,032
Net loss applicable to ordinary partnership
interests.................................... (155,096) (77,488) (232,584)
--------- ----------- --------- -------- -------- -----------
Capital balances -- December 31, 1999.......... 358,968 481,616 34,914 (16,754) 169,585 1,028,329
Exercise of warrants (23 interests)............ 1,864 (271) 1,593
Stock compensation transactions by managing
general partner for the benefit of
Globalstar................................... 95 95
Sale of ordinary partnership interests in
connection with GTL stock option exercises (7
interests)................................... 293 293
Sale of ordinary partnership interests in
connection with GTL common stock
issuance -- February 2000 (1,988
interests)................................... 268,471 268,471
Sale of ordinary partnership interests in
connection with GTL stock
issuance -- September & October 2000 (1,000
interests)................................... 27,769 27,769
Sale of ordinary partnership interests from
partner's equity financing -- September 2000
(1,295 interests)............................ 56,200 56,200
Conversion of 9% Series B convertible
redeemable preferred partnership interests
into ordinary partnership interests and
related payment of dividend in stock (269
interests)................................... (2,014) 5,344 3,330
Warrants issued for ordinary partnership
interests in exchange for debt guarantee..... 34,442 34,442
Conversion of 8% Series A convertible
redeemable preferred partnership interests
into ordinary partnership interests and
related payment of dividend in stock (180
interests)................................... (10) 4,374 4,364
Change in fair value of stock compensation for
the benefit of Globalstar.................... (20,393) 20,393
Amortization of unearned compensation.......... (3,699) (3,699)
Net loss applicable to ordinary partnership
interests.................................... (356,944) (3,184,708) (274,749) (3,816,401)
--------- ----------- --------- -------- -------- -----------
Capital balances -- December 31, 2000.......... -- (2,359,170) (239,740) (60) 203,756 (2,395,214)
Warrants issued for ordinary partnership
interests in exchange for debt guarantee..... (421) (421)
Change in fair value of stock compensation for
the benefit of Globalstar.................... (104) 104
Amortization of unearned compensation.......... (45) (45)
Net loss applicable to ordinary partnership
interests.................................... (602,073) (602,073)
--------- ----------- --------- -------- -------- -----------
Capital balances -- December 31, 2001.......... $ -- $(2,961,347) $(239,740) $ (1) $203,335 $(2,997,753)
========= =========== ========= ======== ======== ===========
See notes to consolidated financial statements.
F-19
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-------------------------------------
2001 2000 1999
--------- ----------- ---------
Operating activities:
Net loss................................................... $(575,511) $(3,785,671) $(180,364)
Launch related costs....................................... 29,913
Impairment of assets....................................... 2,939,790
Failure of satellites...................................... 1,392
Deferred revenues.......................................... (6,593) 12,141
Provision for gateway and user terminals................... 20,212
Provision for doubtful accounts receivable................. 9,419
Provision for inventory.................................... 5,471
Amortization of unearned compensation...................... (45) (3,604) 5,186
Depreciation and amortization.............................. 35,554 327,938 2,312
Non-cash interest.......................................... 66,426 63,809
Changes in operating assets and liabilities:
Accounts receivable...................................... (3,504) (422)
Inventory................................................ 130
Prepaid expenses and other current assets................ (13,039) (2,720) 1,539
Other assets............................................. (401) (2,090) (2,951)
Accounts payable......................................... (10,146) 6,174 (7,120)
Payable to affiliates.................................... 11,278 (25,027) 89,070
Accrued expenses......................................... 23,204 1,479 5,839
Accrued interest and other............................... 315,705 12,462
--------- ----------- ---------
Net cash used in operating activities.................. (120,448) (455,741) (56,576)
--------- ----------- ---------
Investing activities:
Globalstar System.......................................... (4,364) (23,305) (880,980)
Insurance proceeds from launch failure..................... 28,500
Payable to affiliates for Globalstar System................ (7,673) (31,399) 145,441
Capitalized interest accrued............................... 23,697
Accounts payable........................................... (253) (3,536) 3,788
Vendor financing liability................................. 94,543 22,625
--------- ----------- ---------
Cash provided by (used for) Globalstar System.............. (12,290) 36,303 (656,929)
Advances for production gateways and user terminals........ (2,120) (163,547) (23,179)
Cash receipts for production gateways and user terminals... 3,609 111,875 53,708
Receipt and use of restricted cash, net.................... 22,448 23,798 (45,730)
Additional spare satellites, net of vendor financing....... (8,505) (100,688) (35,984)
Purchases of property and equipment........................ (604) (2,897) (2,482)
Acquisition, net of cash acquired.......................... 1,371
Other assets............................................... (9,939)
Deferred FCC license costs................................. (1,198)
--------- ----------- ---------
Net cash provided by (used in) investing activities.... 3,909 (95,156) (721,733)
--------- ----------- ---------
Financing activities:
Proceeds from issuance of $100,000 Term Loan A............. 100,000
Proceeds from issuance of $300,000 Term Loan B............. 300,000
Deferred financing costs................................... (13,568)
Sale of ordinary partnership interests upon exercise of
options and warrants..................................... 354,326 2,959
Sale of 8% Series A convertible redeemable preferred
partnership interests to GTL............................. 339,775
Sale of 9% Series B convertible redeemable preferred
partnership interests to GTL............................. 145,575
Repayment of vendor financing.............................. (2,237) (83,652)
Distributions on redeemable preferred partnership
interests................................................ (23,051) (24,980)
Borrowings under credit facilities......................... 350,000 75,000
Repayment of borrowings under long-term revolving credit
facility................................................. (75,000)
--------- ----------- ---------
Net cash provided by financing activities.............. (2,237) 597,623 849,761
--------- ----------- ---------
Net increase (decrease) in cash and cash equivalents........ (118,776) 46,726 71,452
Cash and cash equivalents, beginning of period.............. 174,401 127,675 56,223
--------- ----------- ---------
Cash and cash equivalents, end of period.................... $ 55,625 $ 174,401 $ 127,675
========= =========== =========
Noncash transactions:
Receivables offset by payables and notes payable........... $ (11,314)
=========
Issuance of notes to guarantors for repayment of revolving
credit line.............................................. $ 250,000
===========
Warrants issued in exchange for debt guarantee............. $ 141,000
=========
Payables to affiliates converted into vendor financing..... $ (368,259)
===========
Distributions on redeemable preferred partnership interests
on GTL common stock...................................... $ (7,694)
===========
Ordinary partnership interests distributed upon conversion
of redeemable preferred partnership interests and related
dividend make-whole payments............................. $ 63,216 $ 2,024 $ 150,299
========= =========== =========
Warrants issued in connection with QUALCOMM vendor
financing................................................ $ (421) $ 34,442
========= ===========
Dividends accrued.......................................... $ 26,562 $ (15) $ 3,323
========= =========== =========
Change in fair value of stock compensation for the benefit
of Globalstar............................................ $ 104 $ (20,393) $ 20,786
========= =========== =========
See notes to consolidated financial statements.
F-20
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Globalstar, L.P. ("Globalstar"), a Delaware limited partnership, was formed
in November 1993, remaining inactive until March 23, 1994, when it received
capital subscriptions for $275 million and commenced operations.
The governing body of Globalstar is the General Partners' Committee. The
Committee may have up to seven members, five of whom may be appointed by the
managing general partner of Globalstar, 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 Space
& Communications Ltd., a Bermuda company (and with its subsidiaries "Loral") and
QUALCOMM Incorporated ("QUALCOMM"). The managing general partner of LQP is Loral
General Partner, Inc. ("LGP"), a subsidiary of Loral. As of December 31, 2001,
Loral owned, directly or indirectly, 25,163,142 (approximately 38.6%) of the
ordinary partnership interests of Globalstar, including interests attributable
to 9,902,995 shares of Globalstar Telecommunications Limited ("GTL") outstanding
common stock.
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 July 17, 2001, the FCC
granted a second, conditional satellite constellation license to Globalstar to
operate in the 2GHz spectrum band.
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 and its sole assets consist of its equity interests in
Globalstar. As of December 31, 2001, GTL owned 27,289,938 (41.8%) of
Globalstar's outstanding ordinary partnership interests and 100% of the
outstanding 8% and 9% convertible redeemable preferred partnership interests
(the "RPPIs").
Globalstar operates in one industry segment, satellite telecommunications,
providing global mobile and fixed wireless voice and data services.
2. BASIS OF PRESENTATION
On January 16, 2001, Globalstar suspended indefinitely principal and
interest payments on its funded debt and dividend payments on its 8% and 9%
convertible redeemable preferred partnership interests in order to conserve cash
for operations. Non-payment of interest on Globalstar's debt instruments, credit
facility and vendor financing agreements when they become due, and continuance
of non-payment for the applicable grace period, are "events of default" under
the terms of each of the debt instruments. An event of default has occurred in
connection with Globalstar's $500 million credit facility, its vendor financing
facility with QUALCOMM, its 11 3/8% senior notes due February 15, 2004, its
11 1/4% senior notes due June 15, 2004, its 10 3/4% senior notes due November 1,
2004, and its 11 1/2% senior notes due June 1, 2005 ("senior notes due 2004 and
2005"). Accordingly, for reporting and accounting purposes, Globalstar
classified the $500 million credit facility, the QUALCOMM vendor financing and
the senior notes as current obligations.
On February 15, 2002, Globalstar and certain of its subsidiaries filed
voluntary petitions under Chapter 11 of Title 11, United States Code, in the
United States Bankruptcy Court for the District of
F-21
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Delaware (Case Nos. 02-10499, 02-10501, 02-10503 and 02-10504). Globalstar and
its subsidiaries remain in possession of their assets and properties and
continue to operate their businesses as debtors-in-possession. As a result of
Globalstar's bankruptcy petition, several of Globalstar's debt obligations (see
Notes 7, 8 and 9) have been accelerated and are immediately due and payable.
These factors, among others, raise substantial doubt about Globalstar's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Negotiations prior to filing of Globalstar's bankruptcy petition resulted
in an agreement reached among Loral, Globalstar's informal committee of
bondholders, representing approximately 17% of Globalstar's outstanding senior
notes, and Globalstar, regarding the substantive terms of a proposed financial
and legal restructuring of Globalstar's business. Under the proposed
restructuring plan, all of Globalstar's assets would be contributed into a new
Globalstar company, which would be initially owned by Globalstar's existing
noteholders and other unsecured creditors. The proposed plan also calls for the
cancellation of all existing partnership interests in Globalstar, but
contemplates, subject to the satisfaction of certain conditions, a rights
offering to GTL's common and preferred shareholders and Globalstar's creditors,
which could give them the option to purchase shares in the new company. The
proposed restructuring plan will be required to be submitted for and be subject
to bankruptcy court approval. The terms of the proposed plan were described in
Globalstar's Form 8-K filing dated February 19, 2002.
Globalstar has developed a new business plan for the purpose of
restructuring the partnership's finances; the plan will be submitted to and
subject to bankruptcy court approval. The business plan assumes the conversion
of all outstanding Globalstar debt obligations into equity in a new Globalstar
company ("Newco") and the consolidation of certain Globalstar service provider
operations into Newco. The service provider consolidation is intended to bring
additional efficiencies to the operation of the Globalstar network and allow for
increased coordination in the Globalstar service offerings and pricing.
Globalstar believes that these steps are needed to achieve and maintain
financial viability. In addition to the service provider operations to be
consolidated into Newco, Globalstar intends to continue to offer its services
through existing independent gateway operators in other regions.
Pursuant to its consolidation strategy, on December 18, 2001, Globalstar
signed two agreements to acquire certain subsidiaries of Vodafone. In the first
transaction, which has closed, Globalstar obtained a majority interest in the
Globalstar service provider company in Canada and a minority interest in the
Canadian gateway company. In the second transaction, Globalstar will acquire the
United States and Caribbean service provider and gateway operations from
Vodafone upon the receipt of required regulatory approvals. On January 15 and
17, 2002, Globalstar filed five related applications with the United States
Federal Communication Commission (the "FCC") for consent to the transfer of
Globalstar USA and Globalstar Caribbean Limited's operating authorizations to a
subsidiary of Globalstar. On February 27, 2002, the FCC issued a public notice
setting a deadline for oppositions to the transfer applications. No oppositions
were filed by the deadline. Under the terms of the MOU executed between Loral,
the informal committee of bondholders and Globalstar, Loral would contribute its
minority interest in the Canadian operations to Newco in exchange for Newco
equity interests. Globalstar is still gathering information and pursuing
discussions regarding additional service provider properties. Vodafone retains
its service provider rights in Australia, the United Kingdom and Greece, and
retains a minority interest in the Mexican Globalstar service provider business.
Globalstar's service providers are generally not earning revenues
sufficient to cover their operating costs. In order to reduce service provider
cash requirements and help sustain service provider operations, Globalstar and
its partners agreed on June 25, 2001 to defer outstanding gateway purchase and
airtime usage payments due to Globalstar for four months as part of a short term
operating plan. As of December 31, 2001, Globalstar resumed collection of
airtime usage and gateway operational costs from
F-22
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
service providers. Collections of production gateway receivables have been
deferred indefinitely and were reclassified to long-term assets. In addition
Globalstar provided an allowance for doubtful collection of $20.2 million on
gateway receivables.
Globalstar has incurred cumulative ordinary partnership losses of $5.06
billion through December 31, 2001, which have been funded primarily through the
issuance of partnership interests and debt by Globalstar.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 majority-owned subsidiaries, including Globalstar Capital Corporation.
The ownership of the other interest holders of consolidated subsidiaries is
reflected as minority interest which is zero as of December 31, 2001. All
significant intercompany accounts and transactions are eliminated.
Reclassifications
Certain amounts from the prior year have been reclassified to conform to
current year presentation. These reclassifications do not change previously
reported total assets, liabilities, partners' capital (deficit) or net loss.
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.
Restricted Cash
Restricted cash consisted of payments received from service providers for
the purchase of gateways. These funds were restricted in accordance with the
gateway purchase agreement between Globalstar and QUALCOMM. During 2001,
QUALCOMM granted a release on these cash restrictions.
Concentration of Credit Risk
Financial instruments which potentially subject Globalstar to
concentrations of credit risk are cash and cash equivalents and accounts
receivable. 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.
Substantially all of Globalstar's excess cash is currently invested in accounts
fully collateralized by securities issued by the U.S. Treasury.
F-23
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventory
Inventory consists of fixed and mobile user terminals, and accessories.
Inventory is stated at lower of cost or market. Cost is computed using a
standard cost, which approximates actual cost on a first-in, first-out basis.
Globalstar provides inventory allowances based on excess and obsolete inventory.
Property and Equipment
Property and equipment are stated at historical cost, less accumulated
depreciation. Depreciation is provided using the straight-line method over the
estimated useful lives of the respective assets, as follows:
Globalstar System Up to periods of 10 years from
commencement of service in the first
quarter of 2000
Furniture, fixtures & equipment 3 to 10 years
Leasehold improvements Shorter of lease term or the
estimated useful lives of the
improvements
Globalstar System
The Globalstar System includes costs for the design, manufacture, test,
launch and launch insurance for 52 low-earth orbit satellites, including
in-orbit spare satellites (the "Space Segment"), and ground and satellite
operations control centers, gateways and user terminals (the "Ground System").
The carrying value of the Globalstar System is reviewed for impairment
whenever events or changes in circumstances indicate that the recorded value of
the Space Segment and Ground Segment, taken as a whole, may not be recoverable.
Globalstar looks to current and future undiscounted cash flows, excluding
financing costs, as primary indicators of recoverability. If an impairment is
determined to exist, any related impairment loss is calculated based on fair
value.
Additional Spare Satellites
In connection with Globalstar's plan to suspend indefinitely principal and
interest on its funded debt and dividend payments on its 8% and 9% RPPIs,
Globalstar has ceased the capitalization of interest for the assets under
construction, consisting of eight on-ground spare satellites.
Production Gateways
These assets include receivables from service providers associated with the
reimbursement of gateway acquisition and deployment costs previously paid by
Globalstar to QUALCOMM. As of December 31, 2001, Globalstar resumed collection
of airtime usage and gateway operational costs from service providers.
Collections of production gateway receivables have been deferred indefinitely
and were reclassified to long-term assets. In addition, Globalstar provided an
allowance for doubtful collection of $20.2 million on gateway receivables.
Deferred Financing Costs and Interest
Deferred financing costs represent costs incurred in obtaining long-term
credit facilities and the estimated fair value of warrant agreements issued in
connection with the guarantee of these facilities (see Note 8). Such costs are
being amortized over the terms of the credit facilities as interest. Total
amortization of deferred financing costs for 2001, 2000 and 1999 was
approximately $99.4 million, $54.7
F-24
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
million and $18.6 million, respectively. Accumulated amortization totaled $120.4
and $63.9 million at December 31, 2001 and 2000, respectively.
Interest costs incurred during the construction of the Globalstar System
were capitalized. There was no interest capitalized in 2001. Total interest
costs capitalized in 2000 and 1999 was approximately $9.8 million and $233.8
million, respectively.
Other Assets
Other assets primarily include the fair value of warrants issued to China
Telecom (see Note 10) and expenditures, including license fees, legal fees and
direct engineering and other technical support, for obtaining the required FCC
licenses. Such amounts are amortized over periods of up to 10 years, the
expected life of the first generation satellites. Accumulated amortization
totaled $7.6 million at December 31, 2001.
Deferred Revenues
Deferred revenues include the advance payments from Globalstar's strategic
partners to secure exclusive rights to Globalstar service territories and
pre-committed gross revenue relating to promotional programs. The advance
payments are recoverable by the service providers, through credits against
certain service fees payable to Globalstar. The promotional programs include a
25% discount on mobile usage fees and free minutes, accumulated based on usage,
to service providers for the advance purchase of airtime. Globalstar service
providers purchased approximately $11.7 million of gross advance minutes ($8.8
million net of 25% discount). Approximately $4.4 million of these gross advance
minutes were recognized as service revenue during the year ended December 31,
2001.
Vendor Financing
Globalstar's contracts with Space Systems/Loral, Inc. ("SS/L"), a
subsidiary of Loral, and QUALCOMM, called 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 7). Amounts deferred as vendor
financing are recorded as incurred.
Senior 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 over the lives of the
notes (see Note 9).
Preferred Partnership Distributions
Distributions are accrued on redeemable preferred partnership interests at
the stated rate per annum. 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"). The Company accounts for stock-based awards to
nonemployees in accordance with SFAS 123 and its interpretations.
F-25
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Globalstar provides satellite services under agreements with its service
providers and recognizes revenue as satellite services are provided. Billings
for service represents the billable usage at the contracted rate for the
respective services provided, net of promotions and discounts, and net of
amounts for which collectibility is not reasonably assured. Billings also
include service billed to customers through the consolidation of the Canadian
service provider (See Note 4).
Subscriber equipment revenue represents the sale of fixed and mobile user
terminals and accessories. Revenue is recognized as the units are shipped.
Royalty income is comprised of royalty payments for Globalstar user
terminals sold by user terminal manufacturers. Revenue is recognized as units
are shipped to the service provider.
Research and Development Expenses
Globalstar's research and development costs, which are expensed as
incurred, were $4.4 million, $5.3 million and $94.3 million in 2001, 2000 and
1999, respectively, and are included in operations expense.
User Terminal Rebates and Subsidies
In some cases Globalstar provides rebates to service providers who offer
rebates to end users and subsidies to service providers for user terminal
purchases from manufacturers. These rebates and subsidies are accounted for as
marketing expenses as incurred. These rebates and other financial assistance are
not linked to contractual service periods with either the service providers or
end users and there is no pattern of billable minutes or revenue that suggests a
linkage to these arrangements.
Net Loss 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 Globalstar's 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.
Foreign Currency
Foreign subsidiaries operating in a local currency environment use the
local currency as the functional currency. Assets and liabilities are translated
to United States dollars at year-end exchange rates; revenues and expenses are
translated at rates of exchange that approximate the rates in effect at the
transaction date.
F-26
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Globalstar is organized as a 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 loss, deductions and credits of Globalstar is passed
proportionately through to its partners.
Earnings Per Ordinary Partnership Interest
Due to Globalstar's net losses for 2001, 2000 and 1999, diluted weighted
average ordinary partnership interests outstanding excludes the weighted average
effect of: (i) the assumed conversion of the 8% convertible redeemable preferred
partnership interests (the "8% RPPIs") into 2.3 million, 2.3 million and 3.4
million ordinary partnership interests for 2001, 2000 and 1999, respectively;
(ii) the assumed conversion of the 9% convertible redeemable preferred
partnership interests (the "9% RPPIs") into 1.0 million, 1.4 million and 0.1
million ordinary partnership interests for 2001, 2000 and 1999, respectively;
and (iii) the assumed issuance of ordinary partnership interests upon exercise
of warrants and GTL's outstanding options and warrants, into 10.8 million, 9.3
million and 4.2 million ordinary partnership interests for 2001, 2000, and 1999,
respectively, as their effect would have been anti-dilutive. Accordingly, basic
and diluted net loss per ordinary partnership interest are based on the net loss
applicable to ordinary partnership interests and the weighted average ordinary
partnership interests outstanding for 2001, 2000 and 1999.
Comprehensive Loss
During the periods presented, Globalstar had no changes in ordinary
partner's capital from transactions or other events and circumstances from
non-owner sources. Accordingly, a statement of comprehensive loss has not been
provided.
New Accounting Pronouncements
Globalstar adopted the provisions of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by Statements of
Financial Accounting Standards No. 137, Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133, and No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities, and as interpreted by the FASB and the Derivatives
Implementation Group through "Statement 133 Implementation Issues," as of
January 1, 2001. Management does not believe that derivative instruments or any
embedded derivative instruments exist that require bifurcation. Globalstar does
not have any hedging activities. The impact of adopting the standard was not
significant to the financial position, results of operations or cash flows.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 141, Business Combinations and SFAS No.
142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that all
business combinations initiated after June 30, 2001 be accounted for under the
purchase method and addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business combination. SFAS
No. 142 addresses the initial recognition and measurement of intangible assets
acquired outside of a business combination and the accounting for goodwill and
other intangible assets subsequent to their acquisition. SFAS No. 142 provides
that intangible assets with finite useful lives be amortized and that goodwill
and intangible assets with indefinite lives not be amortized, but will rather be
tested at least annually for impairment. Globalstar will adopt SFAS No. 142 on
January 1, 2002. Management does not believe that adopting this pronouncement
will have significant impact on its financial position or its results of
operations.
F-27
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 2001, the FASB issued SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," and addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This statement is effective for fiscal years
beginning after December 15, 2001. Globalstar will adopt SFAS No. 144 on January
1, 2002. Management does not believe that adopting this pronouncement will have
significant impact on its financial position or its results of operations.
4. ACQUISITION
In December 2001, Globalstar purchased all of the outstanding common shares
of Vodafone Satellite Services, Inc. ("VSSI"), a Delaware corporation for $100,
plus acquisition costs of $258,000. VSSI indirectly owns the majority interest
in Globalstar Canada Satellite Co. ("GCSC"), a corporation based in Ontario,
Canada. GCSC is the Globalstar service provider in Canada and generates its
revenue from the provision of Globalstar services in Canada, billing customers
for usage over two Canadian gateways. Loral Holdings Ltd., a subsidiary of
Loral, owns the remaining minority interest in GCSC. Therefore, the result of
this transaction is that Globalstar is now joint venture partners with Loral in
GCSC, the Canadian service provider. The acquisition is intended to bring
additional efficiencies to the operation of the Globalstar network and allow for
increased coordination in the Globalstar service offerings and pricing. As part
of the purchase, Globalstar released the seller from a portion of a gateway
payment guarantee related to Canadian gateways in exchange for a credit memo to
offset expenses from an affiliated company. The following table summarizes the
estimated values of the assets acquired and liabilities assumed with the
acquisition:
DECEMBER 18, 2001
-----------------
(IN THOUSANDS)
Current assets.............................................. $4,699
Receivables from affiliates................................. 2,134
Property and equipment...................................... 1,420
------
Total assets acquired.................................. 8,253
------
Current liabilities......................................... 1,312
Payables to affiliates...................................... 6,683
------
Total liabilities assumed.............................. 7,995
------
Net assets acquired.................................... $ 258
======
The terms of the acquisition include Vodafone's funding of its previous
guarantee of bank debt due from Globalstar Canada Co. ("GCC"), the entity which
owns the Globalstar gateways in Canada. The majority of GCC is owned by a
Canadian company. VSSI, through subsidiary companies, holds a minority interest
in GCC and had been guarantor of a portion of GCC's outstanding bank debt. Prior
to the acquisition, Vodafone contributed $10.1 million into a cash collateral
account, fully funding its guarantor obligation. GCC's guaranteed bank debt is
due in September 2002, at which time the cash collateral account might be used
to repay the principal value of the loan. In the event that portions of the loan
are retired prior to September 2002, Globalstar will be the beneficiary of the
reduction in principal that is allocable to the Vodafone guarantee.
The operating results of GCSC are included in the consolidated statements
of operations since the acquisition date. The following unaudited proforma
consolidated amounts give effect to the acquisition as if it had occurred on
January 1, 2000 by consolidating the results of operations with Globalstar's
results for the years ended December 31, 2001 and December 31, 2000.
F-28
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31,
----------------------
2001 2000
-------- ----------
(IN THOUSANDS)
Revenue.............................................. $ 19,594 $ 10,966
Net loss............................................. $607,581 $3,828,368
Net loss per ordinary partnership interest:
Basic and diluted.................................. $ 9.34 $ 61.43
Shares used in per share calculation:
Basic and diluted.................................. 65,040 62,325
5. PRODUCTION GATEWAYS
In order to accelerate the deployment of gateways around the world,
Globalstar agreed to help service providers finance approximately $80 million of
the cost of the initial gateways. Globalstar entered into an agreement with
QUALCOMM for the manufacture, deployment and maintenance of Globalstar gateways.
Globalstar, in turn, invoiced the service providers for the contract costs plus
a markup. As of December 31, 2001, the collection of $51.3 million of service
provider gateway purchase receivables, which are secured by gateway assets, are
deferred indefinitely, as well as $3.7 million of interest. Currently due under
the production gateway purchase agreement are $9.6 million of gateway
operational costs. The collection of these receivables is delinquent and
Globalstar has sent notices of default where appropriate. If the collection of
these payments is unsuccessful, Globalstar will retain title to these gateways,
subject to local restrictions. As of December 31, 2001, Globalstar has
classified the production gateway purchase receivables as long-term assets and
provided an allowance for doubtful collection of $20.2. million.
6. PROPERTY AND EQUIPMENT
DECEMBER 31,
--------------------
2001 2000
-------- --------
(IN THOUSANDS)
Globalstar System...................................... $571,781 $586,153
Leasehold improvements................................. 1,590 1,354
Furniture and office equipment......................... 9,681 7,943
-------- --------
583,052 595,450
Accumulated depreciation............................... (351,062) (330,078)
-------- --------
$231,990 $265,372
======== ========
Globalstar's property and equipment consists of an in-orbit satellite
constellation, ground equipment located in the U.S. and support equipment
located in various countries around the world. Depreciation expense for 2001,
2000 and 1999 was $35.6 million, $323.9 million, and $2.3 million, respectively.
Globalstar has also agreed to purchase from SS/L eight spare satellites for
$148 million (including performance incentives of up to $16 million). As of
December 31, 2001, costs of $147 million (including a portion of the performance
incentives) have been recognized for these spare satellites. Globalstar has
secured from SS/L twelve and eighteen month call-up orders for two additional
Delta launch vehicles. The total future commitment for these launch vehicles is
$89.5 million plus escalation of 3% per year. Globalstar has the option to
cancel these launch vehicle commitments in 2002 subject to termination charges
of $18.6 million.
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. As of December 31, 2001, 26 gateways
F-29
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
have been sold resulting in a $7.7 million reduction in costs associated with
the Globalstar System. No gateways were sold in 2001. In addition, Globalstar
will receive a payment of up to $10 on each Globalstar user terminal shipped by
the terminal manufacturer, until Globalstar's funding of that design has been
recovered.
7. PAYABLES TO AFFILIATES AND VENDOR FINANCING
Payables and vendor financing due to affiliates is comprised of the
following (in thousands):
DECEMBER 31,
--------------------
2001 2000
-------- --------
SS/L................................................... $259,098 $242,690
Loral.................................................. 961 722
QUALCOMM............................................... 629,139 565,642
Other affiliates....................................... 15,298 10,824
-------- --------
904,496 819,878
Less, current portion.................................. 849,357 621,827
-------- --------
Long-term portion...................................... $ 55,139 $198,051
======== ========
In May 2000, Globalstar finalized $531.1 million of vendor financing
arrangements (including $31.1 million of accrued interest as of May 2000) with
QUALCOMM that replaced the previous arrangement. As of December 31, 2001, $614.7
million was outstanding under this facility (including $114.7 million of accrued
interest which includes an additional 5% penalty). In connection with this
agreement, QUALCOMM received warrants to purchase 3,450,000 Globalstar
partnership interests at an exercise price of $42.25 per interest. The exercise
price was determined by reference to the fair market value of GTL's common stock
on the closing date of the vendor financing, based on an approximate ratio of
one partnership interest for every four shares of GTL common stock. Fifty
percent of the warrants vested on the closing date, twenty-five percent vested
on September 1, 2000, and the remaining twenty-five percent vested on September
1, 2001. The warrants will expire in 2007. The fair value of the vested warrants
totaled approximately $34.0 million and is being amortized over the term of the
vendor financing arrangements.
In January 2001, Globalstar suspended indefinitely principal and interest
payments on all of its vendor financing, in order to conserve cash for
operations (see Note 2). Under the terms of the QUALCOMM vendor financing
facility, non-payment of interest payments when they become due, and continuance
of non-payment for five days, is an "event of default". An event of default
occurred on January 16, 2001, when Globalstar failed to pay interest with
respect to separate credit extensions made under the QUALCOMM vendor financing
facility. As a result of Globalstar's bankruptcy petition filed on February 15,
2002, this vendor financing has been accelerated and is immediately due and
payable.
SS/L has provided $344 million of billings deferred under its construction
contracts with Globalstar, which are comprised of: $120 million of orbital
incentives, of which $44 million was repaid by Globalstar in 1999, $60 million
was repaid in 2000 and no payments were made in 2001; $134 million of
non-interest bearing vendor financing, due over five years in equal monthly
installments, commencing in 2000; and $90 million of vendor financing, which
bears interest and is repayable over five years commencing in 2001. The orbital
payments on the replacement satellites are due on a per satellite basis with 50%
due when the satellite is placed in storage. The remaining 50% is due when
Globalstar directs SS/L to ship the satellite to the launch base. Until such
time, interest on the remaining 50% accrues at an interest rate of 10% per
annum. As of December 31, 2001, 6 of the 8 replacement satellites were placed in
storage and payments became due. No payments were made in 2001 and interest
accrued on the remaining 50%. Total accrued
F-30
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interest on the orbitals as of December 31, 2001 was $163,000. Payments were
made on the $134 million of non-interest bearing vendor financing through
January 2001. Penalty fees are being accrued at LIBOR plus 3%, and total accrued
penalties as of December 31, 2001 were $922,000. Payments on the $90 million of
vendor financing were due beginning December 31, 2001 of which no payments were
made. Interest is being accrued at LIBOR plus 3% and total accrued interest as
of December 31, 2001 was $52.8 million.
8. CREDIT FACILITIES
In January 2001, Globalstar suspended indefinitely principal and interest
payments on its funded debt in order to conserve cash for operations (see Note
2).
$250 Million Credit Agreement
On June 30, 2000, Globalstar's $250 million credit facility with The Chase
Manhattan Bank became due, and was repaid in full by its guarantors, including
Lockheed Martin Corporation ("Lockheed Martin"), QUALCOMM, DASA and SS/L, who
had previously received warrants for GTL common stock in consideration of their
guarantee. Pursuant to the relevant agreements, Globalstar issued three-year
notes in the amounts of $206.3 million, $21.9 million, $11.7 million and $10.1
million to Lockheed Martin, QUALCOMM, SS/L and DASA, respectively. The notes are
due on June 30, 2003 and bear interest, on a deferred basis, at a rate of LIBOR
plus 3%, and are presented as notes payable and notes payable to affiliates on
the consolidated balance sheets of Globalstar.
On June 30, 2000, Loral paid $56.3 million on a net basis to Lockheed
Martin in satisfaction of its obligation to indemnify Lockheed Martin for
liability in excess of $150 million under Lockheed Martin's guarantee of
Globalstar's $250 million credit facility. Accordingly, Loral is entitled to
receive notes in respect thereof.
Lockheed Martin, however, has rejected the notes it received and is instead
asking Globalstar to issue new securities with additional rights and enhanced
value, without waiving its claim that it is entitled to receive an immediate
cash reimbursement by Globalstar of its $150 million payment to the bank
lenders. Globalstar disputes Lockheed Martin's interpretation of the relevant
agreements.
If the dispute is not resolved, Globalstar cannot be sure that if the
matter were litigated the court would agree with Globalstar's interpretation of
the agreements. Management believes, however, that a court would agree with
Globalstar's interpretation of the relevant agreements.
During the year ended December 31, 2001, an issue was raised as to whether
the three-year notes issued to the guarantors of The Chase Manhattan Bank $250
million credit facility were prepared in accordance with the recourse provisions
of the guarantee arrangement. Management does not believe the existing notes
containing non-recourse language will need to be replaced with notes not
containing the non-recourse language. If the existing non-recourse notes were
replaced with notes not containing the non-recourse language, the replacement
would not impact Globalstar's results of operations. However, allocations of
Globalstar's losses to general partners, including GTL, would increase by the
amount of the increase in recourse obligations. Replacement of the notes would
not alter the subordinate position of GTL's shareholders relative to holders of
these notes.
During 2001, $5 million of the notes payable to affiliates (Loral) were
offset with various receivables from Globalstar.
$500 Million Credit Agreement with Affiliates
On August 5, 1999, Globalstar entered into a $500 million credit agreement
with a group of banks. The credit agreement provides for a $100 million
three-year revolving credit facility ("Revolver"), a
F-31
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$100 million three-year term loan ("Term Loan A") and a $300 million four-year
term loan ("Term Loan B"). The creditors' interests under the credit facility
were purchased by a wholly owned subsidiary of Loral on November 17, 2000, which
had previously guaranteed the facility. As of December 31, 2001, all amounts
under the $500 million credit agreement were drawn. Borrowings under the
facilities bear interest, at Globalstar's option, at various rates based on
margins over the lead bank's base rate or the London Interbank Offer Rate
("LIBOR") for periods of one to six months. Globalstar pays a commitment fee on
the unused portion of the facilities.
In consideration for the guarantee by Loral in 1999, Loral and certain
Loral subsidiaries received warrants to purchase an aggregate of 3,450,000
Globalstar partnership interests, valued at $141.1 million, (equivalent to
approximately 13.8 million shares of common stock of GTL) at an exercise price
of $91.00 per partnership interest (equivalent to $22.75 per share of GTL common
stock). Fifty percent of the warrants vested in February 2000 and an additional
25% vested in August 2000. The outstanding warrants expire in 2006. However, in
light of Globalstar's chapter 11 petition, the warrants are likely to be of
little or no value.
Non-payment of interest payments when they become due, and continuance of
non-payment for five days, is an "event of default" under the terms of the $500
million credit facility. An event of default occurred on January 16, 2001 under
the $500 million credit facility when Globalstar failed to pay interest with
respect to two separate credit extensions made under the $500 million credit
agreement. As a result of Globalstar's bankruptcy petition filed on February 15,
2002, this credit facility has been accelerated and is immediately due and
payable.
9. SENIOR NOTES AND WARRANTS
In January 2001, Globalstar suspended indefinitely principal and interest
payments on its funded debt in order to conserve cash for operations (see Note
2). Under the terms of Globalstar's 11 3/8% senior notes due February 15, 2004,
its 11 1/4% senior notes due June 15, 2004, its 10 3/4% senior notes due
November 1, 2004, and its 11 1/2% senior notes due June 1, 2005 (the "Notes"),
non-payment of interest on the Notes when it becomes due, and continuance of
non-payment for 30 days, is an "event of default". As a result of Globalstar's
bankruptcy petition filed on February 15, 2002, these Notes have been
accelerated and are immediately due and payable.
DECEMBER 31,
----------------------- ORIGINAL EFFECTIVE
2001 2000 DUE INTEREST INTEREST
---------- ---------- DATE SOLD PRINCIPAL DATE RATE PAYMENT
(IN THOUSANDS) ------------- ------------ -------- ---------- -------------
11 3/8% Senior
Notes(1)............ $ 488,642 $ 484,352 February 1997 $500,000,000 2004 13.33% Semi-annually
11 1/4% Senior
Notes(2)............ 314,301 310,889 June 1997 325,000,000 2004 13.57% Semi-annually
10 3/4% Senior
Notes(3)............ 322,545 321,869 October 1997 325,000,000 2004 11.63% Semi-annually
11 1/2% Senior
Notes(4)............ 292,454 290,831 May 1998 300,000,000 2005 13.12% Semi-annually
---------- ----------
$1,417,942 $1,407,941
========== ==========
- ---------------
(1) Note may not be redeemed prior to February 2002 and is subject to a
prepayment premium prior to 2004.
(2) Note may not be redeemed prior to June 2002 and is subject to a prepayment
premium prior to 2004.
(3) Note may not be redeemed prior to November 2002 and is subject to a
prepayment premium prior to 2004.
(4) Note may not be redeemed prior to June 2003 and is subject to a prepayment
premium prior to 2005.
As of December 31, 2001 there were outstanding warrants to purchase
3,814,897 shares of GTL common stock which were issued in connection with the
Globalstar's 11 3/8 % Senior Notes, exercisable at a
F-32
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
price of $17.394 per share, which expire on February 15, 2004. Any proceeds from
the exercise of the warrants will be used to purchase Globalstar ordinary
partnership interests.
The senior notes rank pari passu with each other and with all of
Globalstar's other existing indebtedness. 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. ORDINARY PARTNERS' CAPITAL
Capital Contribution
China Telecom has a warrant to acquire an additional 937,500 Globalstar
ordinary partnership interests for $18,750,000. Globalstar had previously
granted this and other warrants to China Telecom in connection with service
provider arrangements in China under which China Telecommunications Broadcast
Satellite Corporation ("ChinaSat") acts as the sole distributor of Globalstar
service in China. The fair value of the warrants issued to China Telecom totaled
approximately $31.9 million and has been recorded in the accompanying balance
sheet in other assets and is being amortized over ten years, the expected life
of the first generation of satellites. Accumulated amortization as of December
31, 2001 is $5.3 million.
8% Series A Convertible Redeemable Preferred Partnership Interests
In 1999, Globalstar sold to GTL seven million units (face amount of $50 per
unit) of 8% RPPIs in Globalstar, in connection with GTL's offering of 7 million
shares (face amount of $50 per share) of 8% Series A convertible redeemable
preferred stock due 2011 (the "8% Preferred Stock"). Dividends on the 8% RPPIs
and the 8% Preferred Stock accrue at 8% per annum and are payable quarterly.
In 1999, 2,603,705 shares of 8% Preferred Stock were converted into
5,597,908 shares of GTL common stock. As a result of such conversions, the 8%
RPPIs were converted into 1,382,284 Globalstar ordinary partnership interests.
In connection with certain of the conversions, GTL agreed to issue 924,324
additional shares of GTL common stock representing the equivalent of the
dividend pre-payments to which the holders would have been entitled if a
redemption had been made. A corresponding dividend make-whole payment was also
made by Globalstar for which an additional 231,081 Globalstar ordinary
partnership interests were issued.
In 2001, 37,700 shares of the 8% Preferred Stock were converted into 81,033
shares of GTL common stock. As a result of the conversion, the 8% RPPIs were
converted into 20,008 Globalstar ordinary partnership interests. The remaining
shares of 8% Preferred Stock outstanding at December 31, 2001 were convertible
into 9,370,315 shares of GTL common stock.
Each 8% RPPI is convertible into .53085 ordinary partnership interests,
subject to adjustment in the event of subdivision, combination, or
reclassification of the ordinary partnership interests. As of December 31, 2001,
the outstanding 8% RPPIs were convertible into 2,313,659 of ordinary partnership
interests.
The 8% RPPIs rank pari passu with the 9% RPPIs and senior to ordinary
partnership interests and have terms substantially similar to the 8% 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
8% Preferred Stock into GTL common stock. As of December 31, 2001, the
outstanding 8% RPPIs were convertible into 2,313,659 ordinary partnership
interests. Payments due on the 8% RPPIs may be made in cash, Globalstar ordinary
partnership interests
F-33
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
or a combination of both at the option of Globalstar. In January 2001,
Globalstar suspended distributions on the 8% RPPIs. As a result, GTL suspended
dividend payments on the 8% Preferred Stock. The partnership agreement provides
that, in the event accrued and unpaid dividends accumulate to an amount equal to
six quarterly dividends on the 8% Preferred Stock, holders of the majority of
the outstanding 8% Preferred Stock and the holders of any other securities
having similar voting rights will be entitled to elect one additional member to
the general partners committee of Globalstar.
9% Series B Convertible Redeemable Preferred Partnership Interests
On December 2, 1999, Globalstar sold to GTL three million units (face
amount of $50 per unit) of 9% RPPIs in Globalstar, in connection with GTL's
offering of 3 million shares (face amount of $50 per share) of 9% Series B
convertible redeemable preferred stock due 2011 (the "9% Preferred Stock").
Dividends on the 9% RPPIs and the 9% Preferred Stock accrue at 9% per annum and
are payable quarterly.
In 2001, 1,265,057 shares of 9% Preferred Stock were converted into
2,436,872 shares of GTL common stock. As a result of such conversions, the 9%
RPPIs were converted into 601,697 Globalstar ordinary partnership interests. As
of December 31, 2001, the outstanding 9% Preferred Stock was convertible into
3,261,979 shares of GTL common stock.
Each 9% RPPI is convertible into .47562 ordinary partnership interests,
subject to adjustment in the event of subdivision, combination, or
reclassification of the ordinary partnership interests. As of December 31, 2001,
the outstanding 9% Preferred RPPIs were convertible into 805,360 ordinary
partnership interests.
The 9% RPPIs rank pari passu with the 8% RPPIs and senior to ordinary
partnership interests and have terms substantially similar to the 9% 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 9%
RPPIs will convert to ordinary partnership interests upon any conversion of the
9% Preferred Stock into GTL common stock. As of December 31, 2001, the
outstanding 9% RPPIs were convertible into 805,360 ordinary partnership
interests. Payments due on the 9% RPPIs may be made in cash, Globalstar ordinary
partnership interests or a combination of both at the option of Globalstar. In
January 2001, Globalstar suspended distributions on the 9% RPPIs. As a result,
GTL suspended dividend payments on the 9% Preferred Stock. The partnership
agreement provides that, in the event accrued and unpaid dividends accumulate to
an amount equal to six quarterly dividends on the 9% Preferred Stock, holders of
the majority of the outstanding 9% Preferred Stock and the holders of any other
securities having similar voting rights will be entitled to elect one additional
member to the general partners committee of Globalstar.
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 an approximate four-for-one
exchange arrangement.
Globalstar issued 6,825 and 10,273 ordinary partnership interests during
2000 and 1999, respectively, in exchange for proceeds from GTL option exercises.
There were no ordinary partnership interests issued in 2001.
F-34
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Globalstar accounts for its employee stock-based compensation using the
intrinsic value method in accordance with APB 25, Accounting for Stock Issued to
Employees and its related interpretations. Accordingly, no compensation expense
has been recognized in Globalstar's consolidated financial statements for
employee stock-based compensation; except for $95,000 and $1,154,000 of
compensation expense in 2000 and 1999, respectively, related to the below market
option grants issued by Loral. There was no employee stock-based compensation
expense in 2001. In addition, during 2000 and 1999, GTL granted stock options to
certain non-employees of Globalstar to purchase 167,000 and 577,000,
respectively, shares of GTL common stock. The fair value of such options totaled
approximately $290,000. The fair value attributable to the unvested portion of
such options is subject to adjustment based upon the future value of GTL's
common stock.
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 to twelve months following vesting; stock volatility, 70% for 2001 and 2000,
and 50% for 1999; risk free interest rates, 4.4% to 6.6% based on date of grant;
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 awards had been amortized to expense
over the vesting period of the awards, the pro forma net loss applicable to
ordinary partnership interests and related loss per interest would have been
$610,878,997 or $9.39 per ordinary partnership interest in 2001, $3,828,896,000
or $61.43 per ordinary partnership interest in 2000, and $237,245,000 or $4.07
per ordinary partnership interest in 1999.
F-35
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the GTL stock option plan for the years ended
December 31, 2001, 2000 and 1999 is presented below:
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
---------- ---------
Outstanding at January 1, 1999...................... 2,121,690 16.06
Granted (weighted average fair value of $10.98 per
share)............................................ 2,821,500 22.79
Forfeited........................................... (258,300) 19.87
Exercised........................................... (41,090) 4.71
---------- ------
Outstanding at December 31, 1999.................... 4,643,800 20.03
Granted (weighted average fair value of $4.04 per
share)............................................ 4,566,250 9.76
Forfeited........................................... (984,750) 16.29
Exercised........................................... (26,300) 10.72
---------- ------
Outstanding at December 31, 2000.................... 8,199,000 14.79
Granted............................................. -- --
Forfeited........................................... (1,745,638) 15.50
Exercised........................................... -- --
---------- ------
Outstanding at December 31, 2001.................... 6,453,362 $14.46
========== ======
Options exercisable at December 31, 2001............ 2,425,071 $11.87
========== ======
Options exercisable at December 31, 2000............ 1,123,816 $14.20
========== ======
Options exercisable at December 31, 1999............ 584,433 $11.72
========== ======
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 except for 4,336,250 options granted in 2000 which become
exercisable ratably over a three-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, 2001, 3,445,938 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, 2001:
OUTSTANDING EXERCISABLE
------------------------------------ ---------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICE RANGE NUMBER LIFE-YEARS PRICE NUMBER PRICE
- -------------------- --------- ----------- -------- --------- --------
$3.01 to $4.64............... 286,800 3.89 $ 4.13 278,800 $ 4.14
$4.65 to $17.15.............. 3,848,012 8.11 9.50 1,748,271 10.01
$17.16 to $29.03............. 1,996,650 7.45 22.89 265,300 23.27
$29.04 to $31.41............. 321,900 7.45 30.72 132,700 29.78
--------- ---------
6,453,362 7.69 $14.46 2,425,071 $11.87
========= =========
11. RESTRUCTURING
During 2001, Globalstar implemented a number of initiatives designed to
reduce its cost of operations and restructure the company's finances. These
initiatives included reductions in Globalstar's workforce, the
F-36
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
development of financial restructuring plans and discussions with the company's
significant creditors. As a result of the restructuring efforts, Globalstar
recorded restructuring charges totaling $12.0 million for the year ended
December 31, 2001.
A summary of the restructuring charges incurred during the year ended
December 31, 2001 is as follows (in millions):
AMOUNTS AMOUNTS UNPAID
EXPENSED PAID LIABILITY
-------- ------- ---------
Globalstar advisory and professional fees.............. $ 4.9 $ 4.6 $0.3
Bondholder advisory fees............................... 2.2 2.1 0.1
Employee separation costs.............................. 4.9 4.9 --
----- ----- ----
Total........................................ $12.0 $11.6 $0.4
===== ===== ====
Globalstar Advisory and Professional Fees -- During 2001, Globalstar
retained financial advisors, restructuring counsel and other advisors to assist
in the development of its financial restructuring plans, discussions with its
various creditor groups and preparation for its chapter 11 bankruptcy petition.
The remaining $0.3 million accrual at December 31, 2001 related to fees that
were incurred during 2001, but not billed by the advisors. These fees were
billed and disbursed in early 2002.
Bondholder Advisory Fees -- At Globalstar's expense, Globalstar's informal
committee of bondholders retained financial advisors and restructuring counsel
during 2001. The remaining $0.1 million accrual at December 31, 2001 related to
fees that were incurred during 2001, but not billed by the advisors. These fees
were billed and disbursed in early 2002.
Employee Separation Costs -- Globalstar reduced its workforce from 439
full-time employees as of January 1, 2001 to 124 full-time employees as of
December 31, 2001, primarily through three separate actions in March, July and
September of 2001. Employee separation costs of $4.9 million were recorded for
the year ended December 31, 2001 for employee severance obligations, payments in
accordance with the company's retention bonus program and fringe benefit costs
related to terminated employees. All amounts due to the terminated employees as
a result of these actions were disbursed prior to December 31, 2001.
12. PENSIONS AND OTHER EMPLOYEE BENEFITS
Pensions
Globalstar 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. Globalstar'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, Globalstar provides certain
health care and life insurance benefits for retired employees and dependents.
Participants are eligible for these benefits when they retire from active
service and meet the eligibility requirements for Globalstar's pension plan.
These benefits are funded primarily on a pay-as-you-go basis with the retiree
generally paying a portion of the cost through contributions, deductibles and
coinsurance provisions.
F-37
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for 2001 and 2000, and a statement
of the funded status as of December 31, 2001 and 2000, respectively.
PENSION BENEFITS OTHER BENEFITS
------------------ ------------------
2001 2000 2001 2000
------- ------- ------- -------
(IN THOUSANDS)
Reconciliation of benefit obligation
Obligation at January 1..................... $ 9,337 $ 6,609 $ 1,407 $ 814
Service cost................................ 695 532 154 100
Interest cost............................... 793 662 129 101
Participant contributions................... 170 106 31 9
Actuarial (gain) loss....................... 893 1,439 147 388
Benefit payments............................ (560) (11) (12) (5)
------- ------- ------- -------
Obligation at December 31................... $11,328 $ 9,337 $ 1,856 $ 1,407
------- ------- ------- -------
Reconciliation of fair value of plan assets
Fair value of plan assets at January 1...... $ 7,760 $ 8,343 $ 37 $ 35
Actual return on plan assets................ (666) (723) 2 2
Employer contributions...................... 447 45 (19) (4)
Participant contributions................... 170 106 31 9
Benefit payments............................ (560) (11) (12) (5)
------- ------- ------- -------
Fair value of plan assets at December 31.... $ 7,151 $ 7,760 $ 39 $ 37
------- ------- ------- -------
Funded status
Funded status at December 31................ $(4,177) $(1,577) $(1,818) $(1,371)
Unrecognized (gain) loss.................... 2,629 354 334 195
Unrecognized prior service cost............. -- 365 403
Unrecognized transition obligation
(asset)................................... (173) (214) -- --
------- ------- ------- -------
Net amount recognized in accrued
liabilities............................... $(1,721) $(1,437) $(1,119) $ (773)
======= ======= ======= =======
The following table provides the components of net periodic benefit cost
for the plans for the years ended December 31, 2001, 2000 and 1999, respectively
(in thousands):
PENSION BENEFITS OTHER BENEFITS
----------------------- --------------------
2001 2000 1999 2001 2000 1999
----- ----- ----- ---- ---- ----
Service cost....................... $ 695 $ 532 $ 568 $154 $100 $ 83
Interest cost...................... 793 662 504 129 101 63
Expected return on plan assets..... (720) (796) (563) (4) (3) (3)
Amortization of net (gain) loss.... (40) (40) (38) 38 38 38
Recognized actuarial (gain) loss... 4 (51) -- 10 4 --
----- ----- ----- ---- ---- ----
Net periodic benefit cost.......... $ 732 $ 307 $ 471 $327 $240 $181
===== ===== ===== ==== ==== ====
The principal actuarial assumptions were:
2001 2000 1999
---- ---- ----
Discount rate.......................................... 7.50% 7.75% 8.00%
Expected return on plan assets......................... 9.50% 9.50% 9.50%
Rate of compensation increase.......................... 4.25% 4.25% 4.25%
F-38
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Actuarial assumptions used a health care cost trend rate of 8.50%
decreasing gradually to 4.5% by 2005. 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 2001 would have the following
effects:
1% INCREASE 1% DECREASE
----------- -----------
Effect on total service and interest cost components of net
periodic postretirement health care benefit cost.......... $ 58,971 $ (46,057)
Effect on the health care component of the accumulated
postretirement benefit obligation......................... 332,266 (263,343)
Employee Savings Plan
In 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 were approximately $432,000,
$701,000 and $587,000 for 2001, 2000 and 1999, respectively.
13. REVENUE BY CUSTOMER LOCATION
The following table provides Globalstar's gross service revenue before
discounts and promotions by geographical location for the years ended December
31, 2001 and 2000, respectively (in thousands):
2001 2000
------ ------
Brazil............................................. $1,751 $ 476
Canada............................................. 1,536 650
Russia............................................. 763 30
United States...................................... 635 357
Australia.......................................... 551 392
Other.............................................. 1,907 901
------ ------
Service revenue before discounts and promotions.... 7,143 2,806
Less discounts and promotions...................... 948 583
------ ------
Service revenue.................................... $6,195 $2,223
====== ======
Subscriber equipment is currently sold only in Canada and royalty income is
recognized in the United States.
14. FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
fair value.
The carrying amounts of cash and cash equivalents approximates fair value
because of the short maturity of those instruments. The fair value of the Senior
Notes is based on market quotations. The fair value of the vendor financing,
notes payable, notes payable to affiliates, revolving credit facility, term loan
A and B is based on the ratio of the carrying amount to fair value of the senior
notes.
F-39
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair values of Globalstar's financial instruments are as
follows (in thousands):
DECEMBER 31, 2001 DECEMBER 31, 2000
------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- --------
Cash and cash equivalents................ $ 55,625 $55,625 $174,401 $174,401
Restricted cash.......................... -- -- 22,448 22,448
Vendor financing......................... 869,385 56,510 788,423 86,727
10 3/4% Senior notes..................... 322,545 21,125 321,869 35,800
11 1/4% Senior notes..................... 314,301 21,125 310,889 35,800
11 3/8% Senior notes..................... 488,642 32,500 484,352 55,000
11 1/2% Senior notes..................... 292,454 19,500 290,831 33,000
Notes payable............................ 169,787 11,036 157,420 16,904
Notes payable to affiliates.............. 107,543 6,990 104,946 11,270
Revolving credit facility................ 100,000 6,500 100,000 11,000
Term Loan A.............................. 100,000 6,500 100,000 11,000
Term Loan B.............................. 300,000 19,500 300,000 33,000
15. RELATED PARTY TRANSACTIONS
In addition to the transactions described in Notes 4, 5, 6, 7, 8, 9, 10, 11
and 12, Globalstar has a number of other transactions with its affiliates. Such
transactions have been negotiated on an arms-length basis and Globalstar
believes that the arrangements are no less favorable to Globalstar than 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 (as defined is such grant), 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.
Globalstar entered into agreements with certain limited partners, for
approximately $6.9 million under which, Globalstar provided for the integration
and testing of the Globalstar System at certain of the partners' gateways. Costs
incurred under these arrangements for the years ended December 31, 2001, 2000
and 1999 were approximately $374,000, $1,050,000 and $345,000, respectively.
QUALCOMM initially 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
F-40
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sales price (not including the approximately $400,000 per gateway in recoupment
expenses payable to Globalstar). Thus far, no other vendor has committed to
manufacture gateways, and Globalstar does not expect any other vendor to
manufacture gateways. QUALCOMM has granted a license to manufacture Globalstar
user terminals to Ericsson and Telit 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 user terminals 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, Mexico, and
Russia as long as specified minimum levels of subscribers are met. In December
2001, Globalstar acquired a majority interest in the Canadian service provider
business. As a result of this transaction, Globalstar and Loral are now partners
in the Canadian joint venture. Founding 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.
On December 18, 2001, a subsidiary of Globalstar reached agreement with
Vodafone Americas Asia Inc. ("VAAI") to acquire for a nominal sum, all of the
Globalstar assets of its subsidiary, Vodafone Satellite Services, Inc. ("VSSI"),
in North America. The assets include 3 million ordinary partnership interests
("OPI") in Globalstar, L.P. The first of two transactions involving VSSI's
assets in Canada and the OPI's closed on December 18, 2001. The second
transaction involving the assets of two other VAAI subsidiaries located in the
U.S. will close upon approval by the Federal Communications Commission and other
U.S. government agencies of the license transfers.
Total gross receivables due from affiliates and amounts financed under the
production gateway and user terminal contracts is as follows (in thousands):
DECEMBER 31,
------------------
2001 2000
------- -------
SS/L..................................................... $ 325 $ 3
Loral.................................................... 6,535 61
Other affiliates......................................... 48,109 40,059
------- -------
$54,969 $40,123
======= =======
Payables and vendor financing due to affiliates is as follows (in
thousands):
DECEMBER 31,
--------------------
2001 2000
-------- --------
SS/L................................................... $259,098 $242,690
Loral.................................................. 961 722
QUALCOMM............................................... 629,139 565,642
Other affiliates....................................... 15,298 10,824
-------- --------
904,496 819,878
Less, current portion.................................. 849,357 621,827
-------- --------
Long-term portion...................................... $ 55,139 $198,051
======== ========
F-41
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total purchases from affiliates is as follows: (in thousands):
YEARS ENDED DECEMBER 31,
-------------------------------
2001 2000 1999
------- -------- --------
SS/L........................................ $15,756 $ 74,082 $512,815
Loral....................................... 2,642 3,872 4,183
QUALCOMM.................................... 40,629 99,988 350,565
Other affiliates............................ 14,078 6,904 12,688
------- -------- --------
$73,105 $184,846 $880,251
======= ======== ========
Starting with commencement of service by Globalstar and upon receipt of
revenue, LQP, the general partner of LQSS, receives 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%. 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 partner's allocation were made. As of December 31, 2001, the
managing partner's allocation of $102,000 has been deferred.
16. 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.
17. COMMITMENTS AND CONTINGENCIES
Globalstar leases its primary facility from Lockheed Martin under a
non-cancelable operating lease expiring in 2008. 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):
2002........................................................ $ 3,250
2003........................................................ 3,103
2004........................................................ 3,166
2005........................................................ 3,242
2006........................................................ 3,306
Thereafter.................................................. 6,565
-------
Total minimum lease payments................................ $22,632
=======
Rent expense for 2001, 2000 and 1999, was approximately $3.9 million, $4.1
million, and $4.1 million, respectively. Included in rent expense are payments
to Lockheed Martin of $3.5 million, $3.7 million, and $2.9 million for 2001,
2000 and 1999, respectively.
On February 20, 2001, a purported class action lawsuit was filed against
Globalstar and Globalstar Capital Corporation on behalf of the owners of the
10 3/4% bonds, due November 2004 (the "Bonds") in Superior Court, New Castle
County, Delaware. Globalstar Capital Corporation and Globalstar, L.P. issued the
Bonds as joint obligors. The complaint alleges that the defendants repudiated
the Bonds' registration
F-42
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statement, prospectus and indenture, without consent of the bondholders, when
Globalstar announced that it was suspending its future interest payments on the
Bonds. On April 23, 2001, the defendants moved to dismiss the complaint for
failure to state a cause of action. A second similar class action was filed in
Delaware on June 5, 2001. The defendants have also moved to dismiss this
complaint. Plaintiffs subsequently amended the complaint and defendants again
moved to dismiss the amended complaint for failure to state a cause of action.
On December 31, 2001, the court granted defendants' motion to dismiss in part,
dismissing plaintiffs' claims for principal and interest not yet due, but
allowing plaintiffs to proceed with their breach of contract claim based on the
interest payments already missed at the time the amended complaints were filed.
Defendant's answered the complaints on January 17, 2002. These proceedings are
now automatically stayed in accordance with Section 362(a) of the U.S.
Bankruptcy Code. On August 7, 2001, Globalstar received a petition filed on July
13, 2001 in Texas state court by L.E. Creel III, a holder of an 11 3/8% note
seeking principal payment of the note plus interest. Globalstar filed an answer
contesting the petition. On December 6, 2001, the parties participated in court
ordered mediation, which failed to lead a settlement of plaintiff's claims. This
proceeding is also stayed pursuant to the U.S. Bankruptcy Code.
In Re Globalstar Securities Litigation. On February 28, 2001, plaintiff
Eric Eismann filed a purported class action complaint against GTL in the United
States District Court for the Southern District of New York. The other
defendants named in the complaint were Loral Space & Communications Ltd. and
Bernard Schwartz, the former Chief Executive Officer of Globalstar. Globalstar
was not a named defendant in these actions. The complaint alleges that (a) GTL
and Mr. Schwartz violated Section 10(b) of the Securities Exchange Act of 1934
(the "Exchange Act") and Rule 10b-5 promulgated thereunder, by making material
misstatements or failing to state material facts about GTL's business and
prospects; and (b) that Loral and Mr. Schwartz are secondarily liable for these
alleged misstatements and omissions under Section 20(a) of the Exchange Act as
alleged "controlling persons" of GTL. The class of plaintiffs on whose behalf
this lawsuit has been asserted consists of all buyers of GTL common stock from
December 6, 1999, through October 27, 2000, excluding the defendants, officers
and directors of GTL, and certain persons affiliated therewith (the "Excluded
Persons"). Eighteen additional purported class action complaints were
subsequently filed in the United States District Court for the Southern District
of New York. These complaints were granted class action status and consolidated
into a case known as In Re Globalstar Securities Litigation, 01 Civ. 1748 (SHS).
On September 26, 2001, the Court appointed The Phillips Family as Lead Plaintiff
for the Class. On November 13, 2001, Lead Plaintiff filed a Consolidated Amended
Class Action Complaint and a demand for jury trial. The Amended Complaint drops
the cause of action against certain individuals and adds causes of action
against Globalstar and its wholly-owned subsidiary, Globalstar Capital. GTL and
Globalstar believe that they have meritorious defenses to these actions and on
or about February 25, 2002, filed a motion to dismiss the complaint. The case
against Globalstar and Globalstar Capital is stayed pursuant to the U.S.
Bankruptcy Code. There are, however, no assurances that the defenses to these
actions will be successful.
Ericsson OMC Limited ("Ericsson") filed two separate demands for
arbitration with the American Arbitration Association that seek monetary damages
in the combined amount of $64.0 million with respect to two contracts. Ericsson
takes the position that Globalstar failed to satisfy minimum purchase
requirements for phones under two contracts, one for the purchase of Fixed
Access Units (FAU) and one for the purchase of mobile R290 units (R290). The
parties are attempting to negotiate a settlement and liquidation of the amount
in dispute, which amount will become a creditor's claim by Ericsson against
Globalstar in its bankruptcy. Globalstar has accrued an amount equal to the most
recent settlement offer made to Ericsson.
The plan of reorganization now being contemplated by Globalstar will
involve the cancellation of debt in exchange for equity. The cancellation of
debt will give rise to considerable taxable income that will be allocable to the
partners of Globalstar. Under a certain interpretation of Section 1446 of the
Internal
F-43
GLOBALSTAR, L.P., A DEBTOR-IN-POSSESSION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Code of 1986, as amended, Globalstar may be obligated to pay a 35%
withholding tax on all income allocated to the foreign partners regardless of
the fact they will not receive a cash distribution. Globalstar believes the
imposition of the withholding tax may have the effect of diverting its assets
from its creditors to its foreign partners in contravention of bankruptcy law.
The U.S. Department of Treasury is currently working on a regulation project
that may clarify this issue. Globalstar is also evaluating other avenues of
relief and is optimistic that it will be able to resolve the issue. However,
until a solution is found, it is unlikely that Globalstar will be able to secure
new investment.
Globalstar's full constellation has been launched and the satellites have
been performing well. However, in mid-March 2001 Globalstar detected anomalous
behavior in two of the satellites and removed them from service. These two
satellites were subsequently declared failed and replaced with two in-orbit
spares in late 2001. Space Systems/Loral and Globalstar have been working to
investigate the anomalies but have so far been unable to conclusively determine
the cause of the failures. The extreme space environment at the time of the
anomalies was suspected to be the most probable cause. Globalstar further
detected anomalous behavior in a third satellite in April 2001; however, the
satellite recovered to full performance and was returned to service in August
2001. This event occurred during the same period of extreme space weather and
was similar in behavior to the prior two events.
Globalstar has since experienced four additional anomalies, one in late
November 2001, two in February 2002 and one in early April 2002. These events
are again similar in observed behavior to the prior events. Of the four
satellites, one was out of service for less than two weeks before it was fully
recovered and returned to service. A second satellite was recovered after being
out of service for approximately 2 months and is expected to be return to
service in April 2002. The other two are still out-of-service undergoing
diagnostic testing and recovery operations. These two satellites show signs of
recovery although this cannot be guaranteed and may take a considerable time to
achieve. While neither of these satellites has been declared failed, Globalstar
elected to replace one of these two satellites with an in-orbit spare to
minimize service interruption. Based on these additional anomalies, Globalstar
and SS/L reopened the prior anomaly investigation. Globalstar has additionally
implemented further operational safeguards to protect constellation availability
and continued safe operations.
F-44
EXHIBIT INDEX
EXHIBIT
NUMBER
- -------
DESCRIPTIONS OF EXHIBIT
- ---------------------------------------------------------------------
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 there to
regarding the 8% Series A Convertible Redeemable Preferred
Shares due 2011(10)
3.3 Schedule IV to the Bye-laws of Globalstar Telecommunications
Limited regarding the 9% Series B Convertible Redeemable
Preferred Shares due 2001(11)
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)
4.5 Form of note issued to guarantors of Globalstar's $250
million credit facility(14)
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)
10.1.2 Amendment dated as of December 8, 1999 to the Amended and
Restated Agreement of Limited Partnership of Globalstar,
L.P.(11)
10.1.3 Amendment dated as of February 1, 2000 to the Amended and
Restated Agreement of Limited Partnership of Globalstar,
L.P.(13)
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)
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)+
EXHIBIT
NUMBER
- -------
DESCRIPTIONS OF EXHIBIT
- ---------------------------------------------------------------------
10.12 Amendment to 1994 Stock Option Plan(7)+
10.12.2 Amendment No. 2 to 1994 Stock Option Plan.(13)+
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(10)
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)
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(10)
10.27 Credit Agreement dated August 5, 1999 among Globalstar,
L.P., Bank of America, National Association, as
Administration Agent, Banc of America Securities LLC, as
Sole Lead Arranger and Sole Book Manager, Credit Lyonnais,
New York Branch, as Syndication Agent and Lehman Commercial
Paper Inc., as Documentation Agent(12)
10.28 Registration Rights Agreement dated December 8, 1999
relating to GTL's 9% Series B Preferred Stock due 2011(11)
EXHIBIT
NUMBER
- -------
DESCRIPTIONS OF EXHIBIT
- ---------------------------------------------------------------------
10.29 Fee Agreement dated as of April 19, 1996 by and among
Globalstar, Globalstar Telecommunications Limited, Loral
Corporation, Loral Space & Communications Ltd., QUALCOMM
Limited Partner, Inc., Space Systems/Loral, Inc. and DASA
Globalstar Limited Partner, Inc.(14)
10.30 Intercreditor Agreement dated as of April 19, 1996 by and
among Globalstar, Globalstar Telecommunications Limited,
Loral Corporation, Loral Space & Communications Ltd.,
QUALCOMM Limited Partner, Inc., Space Systems/Loral, Inc,
Inc. and DASA Globalstar Limited Partner, Inc.(14)
10.31 Waiver and Amendment dated as of June 30, 2000 to the Credit
Agreement, dated as of August 5, 2000 by and among
Globalstar, Bank of America, National Association, as
administrative agent, and the several banks and other
financial institutions from time to time thereto.(14)
10.32 Forbearance and Waiver Agreement dated as of June 30, 2000
between Globalstar and QUALCOMM Incorporated.(14)
10.33 Purchase Agreement dated as of September 18, 2000 among
Globalstar Telecommunications Limited, Globalstar, L.P. and
Bear Sterns International Limited.(15)
10.34 Subscription Agreement dated September 22, 2000 between
Globalstar Telecommunications Limited and Loral Space &
Communications Ltd.(16)
10.35 Assignment, Amendment and Release Agreement dated as of
November 17, 2000 by and among the lenders parties to the
Globalstar Credit Agreement, Loral Satellite, Inc., Loral
Satcom Ltd., Loral Space & Communications Ltd., Loral Space
& Communications Corporation, Globalstar, L.P. and Bank of
America, National Association.(17)
10.36 Form of Incentive Retention Agreement dated February 23,
2001+(18)
10.37 Plan Support Agreement Between Loral and Columbia Ventures
Corp., Loeb Partners Corp., Stonehill Capital Management,
LLC and Blue River LLC.(19)
10.38 Memorandum Of Understanding -- Proposed Restructuring
Between Loral and Columbia Ventures Corp., Loeb Partners
Corp., Stonehill Capital Management, LLC and Blue River
LLC.(19)
12 Statement Regarding Computation of Ratios*
21 List of Subsidiaries of the Registrant*
23 Consent of Deloitte & Touche LLP*
99.1 Financial Statements for Globalstar Capital Corporation*
99.2 Financial Statements for Loral/QUALCOMM Satellite Services,
L.P.*
- ---------------
(1) Incorporated by reference to GTL's Registration Statement on Form S-1 (No.
33-86808).
(2) Incorporated by reference to GTL's and Globalstar'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 GTL's Registration Statement on Form S-3 (No.
333-6477).
(7) Incorporated by reference to GTL's and Globalstar'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.
(10) Incorporated by reference to GTL's and Globalstar's Annual Report on Form
10-K for the Year Ended December 31, 1998.
(11) Incorporated by reference to GTL's and Globalstar's Current Report on Form
8-K filed on December 21, 1999.
(12) Incorporated by reference to GTL's and Globalstar's Current Report on Form
8-K filed on August 6, 1999.
(13) Incorporated by reference to GTL's and Globalstar's Annual Report on Form
10-K for the Year Ended December 31, 1999.
(14) Incorporated by reference to GTL's and Globalstar's Current Report on Form
8-K filed on July 7, 2000.
(15) Incorporated by reference to GTL's and Globalstar's Current Report on Form
8-K filed on September 19, 2000.
(16) Incorporated by reference to GTL's and Globalstar's Current Report on Form
8-K filed on September 25, 2000.
(17) Incorporated by reference to GTL's and Globalstar's Current Report on Form
8-K filed on November 20, 2000.
(18) Incorporated by reference to GTL's and Globalstar's Annual Report on Form
10-K for the Year Ended December 30, 2000.
(19) Incorporated by reference to GTL's and Globalstar's Current Report on Form
8-K filed on February 19, 2002.
* Filed herewith.
+ Management compensation plan.