5. FAIR VALUE MEASUREMENTS

The Company follows the authoritative guidance for fair value measurements relating to financial and non-financial assets and liabilities, including presentation of required disclosures herein. This guidance establishes a fair value framework requiring the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets and liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Recurring Fair Value Measurements

The following tables provide a summary of the financial assets and liabilities measured at fair value on a recurring basis (in thousands):



	September 30, 2017
	(Level 1)		(Level 2)		(Level 3)			Total Balance
Assets:
Interest rate cap	$	—	$	1	$	—		$	1
Total assets measured at fair value	$	—	$	1	$	—		$	1

Liabilities:
Compound embedded derivative with 2013 8.00% Notes	—		—		(1,911		)	(1,911		)
Compound embedded derivative with the Thermo Loan Agreement	—		—		(242,324		)	(242,324		)
Total liabilities measured at fair value	$	—	$	—	$	(244,235	)	$	(244,235	)



	December 31, 2016
	(Level 1)		(Level 2)			(Level 3)			Total Balance
Assets:
Interest rate cap	$	—	$	4		$	—		$	4
Total assets measured at fair value	$	—	$	4		$	—		$	4

Liabilities:
Liability for potential stock issuance to Hughes	$	—	$	(2,706	)	$	—		$	(2,706	)
Liability for stock issuance due to legal settlement	—		(389		)	—			(389		)
Compound embedded derivative with 2013 8.00% Notes	—		—			(26,664		)	(26,664		)
Compound embedded derivative with the Thermo Loan Agreement	—		—			(254,507		)	(254,507		)
Total liabilities measured at fair value	$	—	$	(3,095	)	$	(281,171	)	$	(284,266	)

Assets

Interest Rate Cap

The fair value of the interest rate cap is determined using observable pricing inputs including benchmark yields, reported trades, and broker/dealer quotes at the reporting date. See Note 4: Derivatives for further discussion.

Liabilities

Liability for potential stock issuance to Hughes

As described in Note 6: Commitments and Contingencies, the Company agreed to provide downside protection after the issuance of shares of common stock to Hughes in lieu of cash for contract payments in June 2015. This feature required the Company to issue to Hughes additional shares of common stock equal to the difference, if any, between the initial consideration of $15.5 million and the total amount of gross proceeds Hughes received from the sale of any shares plus the market value of any shares still held by Hughes as of the close of trading on June 30, 2017. In April 2017, Hughes sold all remaining shares of Globalstar common stock and the Company was not required to issue additional shares. Prior to settlement, this liability was recorded on the Company's condensed consolidated balance sheet in accrued expenses and was marked-to-market at each balance sheet date. The value of this option was calculated using a Black-Scholes pricing model. The Company recorded gains and losses resulting from changes in the value of this liability in its condensed consolidated statement of operations. This liability is no longer outstanding.

Liability for future stock issuance due to legal settlement

As described in Note 6: Commitments and Contingencies, the Company settled litigation related to its Brazilian subsidiary in October 2016 through the payment of Globalstar common stock. In connection with this settlement, the Company agreed to provide downside protection for the difference between the total settlement amount and the total amount of gross proceeds the counterparty receives from the sale of these shares. An estimate of $0.4 million for this liability was recorded in accrued expenses in the Company's condensed consolidated financial statements as of December 31, 2016. In March 2017, the Company settled this liability through the final payment of approximately 0.3 million shares of Globalstar common stock.

Derivative Liabilities

The Company has two derivative liabilities classified as Level 3. The Company marks-to-market these liabilities at each reporting date, or more frequently as deemed necessary, with the changes in fair value recognized in the Company’s condensed consolidated statements of operations. See Note 4: Derivatives for further discussion.

The significant quantitative Level 3 inputs utilized in the valuation models are shown in the tables below:



	September 30, 2017
	Stock Price Volatility	Risk-Free Interest Rate		Note Conversion Price		Discount Rate		Market Price of Common Stock
Compound embedded derivative with the 2013 8.00% Notes	70%	1.2	%	$	0.73	26	%	$	1.63
Compound embedded derivative with the Thermo Loan Agreement	40% - 85%	2.0	%	$	0.73	26	%	$	1.63



	December 31, 2016
	Stock Price Volatility	Risk-Free Interest Rate		Note Conversion Price		Discount Rate		Market Price of Common Stock
Compound embedded derivative with the 2013 8.00% Notes	100% - 110%	1.0	%	$	0.73	25	%	$	1.58
Compound embedded derivative with the Thermo Loan Agreement	40% - 110%	2.2	%	$	0.73	25	%	$	1.58

Fluctuation in the Company’s stock price is the primary driver for the changes in the derivative valuations during each reporting period. As the stock price increases away from the current conversion price for each of the related derivative instruments, the value to the holder of the instrument generally increases, thereby increasing the liability on the Company’s condensed consolidated balance sheets. These valuations are sensitive to the weighting applied to each of the simulated values. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments. The simulated fair value of these liabilities is sensitive to changes in the expected volatility of the Company's stock price. Decreases in expected volatility would generally result in a lower fair value measurement.

Probability of a change of control is another significant unobservable input used in the fair value measurement of the Company’s derivative instruments. Subject to certain restrictions in each indenture, the Company’s debt instruments contain certain provisions whereby holders may require the Company to purchase all or any portion of the convertible debt instrument upon a change of control. A change of control will occur upon certain changes in the ownership of the Company or certain events relating to the trading of the Company’s common stock. The simulated fair value of the derivative liabilities above is sensitive to changes in the assumed probabilities of a change of control. Decreases in the assumed probability of a change of control would generally result in a lower fair value measurement.

In addition to the inputs described above, the valuation model used to calculate the fair value measurement of the compound embedded derivatives within the Company’s 2013 8.00% Notes and Thermo Loan Agreement included the following inputs and features: payment in kind interest payments, make whole premiums, a 40-day stock issuance settlement period upon conversion, estimated maturity date, and the principal balance of each loan at the balance sheet date. There are also certain put and call features within the 2013 8.00% Notes that impact the valuation model. The trading activity in the market provides the Company with additional valuation support. The Company uses a weight factor to calculate the fair value of the embedded derivatives to align the fair value produced from the Monte Carlo simulation model with the market value of the 2013 8.00% Notes. Due to the similarities of the debt instruments, the Company applies a similar weight to the embedded derivative in the Thermo Loan Agreement. These valuations are sensitive to the weighting applied to each of the simulated values.

The following table presents a rollforward for all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):



	Three Months Ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016
Balance at beginning of period	$	(355,075	)	$	(200,482	)	$	(281,171	)	$	(239,642	)
Derivative adjustment related to conversions	32,000			—			32,000			—
Unrealized gain (loss), included in derivative gain (loss)	78,840			10,982			4,936			50,142
Balance at end of period	$	(244,235	)	$	(189,500	)	$	(244,235	)	$	(189,500	)

Nonrecurring Fair Value Measurements

The Company follows the authoritative guidance regarding non-financial assets and liabilities that are remeasured at fair value on a nonrecurring basis. On August 24, 2017, a holder of $16.0 million principal amount of its 2013 8.00% Notes converted the notes into shares of the Company's common stock. See further discussion in Note 3: Long-Term Debt and Other Financing Arrangements. As a result of this conversion, the Company wrote off a portion of the compound embedded derivative with the 2013 8.00% Notes based on the value of the derivative on the conversion date. As of the date of conversion, the fair value of the compound embedded derivative with the 2013 8.00% Notes was $34.7 million. The significant quantitative Level 3 inputs utilized in the valuation models as of the conversion date are shown in the table below:



	August 24, 2017
	Stock Price Volatility		Risk-Free Interest Rate		Note Conversion Price		Discount Rate		Market Price of Common Stock
Compound embedded derivative with the 2013 8.00% Notes	65	%	1.1	%	$	0.73	26	%	$	2.03

See further discussion above and in Note 4: Derivatives for other valuation inputs used in the valuation model of the 2013 8.00% Notes and the impact these inputs have on the fair value measurement.

Fair Value of Debt Instruments

The Company believes it is not practicable to determine the fair value of the Facility Agreement without incurring significant additional costs. Unlike typical long-term debt, interest rates and other terms for the Facility Agreement are not readily available and generally involve a variety of factors, including due diligence by the debt holders. The following table sets forth the carrying values and estimated fair values of the Company's other debt instruments, which are classified as Level 3 financial instruments (in thousands):



	September 30, 2017				December 31, 2016
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Thermo Loan Agreement	$	75,671	$	54,118	$	64,347	$	47,874
2013 8.00% Notes	1,333		1,234		14,572		14,350