-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Im4HyEB2zeO1ThbgyrhBkm+J1ihJNFsiTR7+wtS8zk8vjxyZ1pQEXRKpCRUoDdrf AWs8uMKo+v/2vA5vUuIJ1A== 0000950123-99-002886.txt : 19990402 0000950123-99-002886.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950123-99-002886 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBALSTAR TELECOMMUNICATIONS LTD CENTRAL INDEX KEY: 0000933401 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 133795510 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25456 FILM NUMBER: 99583184 BUSINESS ADDRESS: STREET 1: CEDAR HOUSE 41 CEDAR AVENUE STREET 2: HAMILTON CITY: BERMUDA STATE: D0 BUSINESS PHONE: 4412952244 MAIL ADDRESS: STREET 1: 600 THIRD AVENUE CITY: NEW YORK STATE: NY ZIP: 10016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBALSTAR LP CENTRAL INDEX KEY: 0001037927 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 133759824 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-25461 FILM NUMBER: 99583185 BUSINESS ADDRESS: STREET 1: 3200 ZARKEN R STREET 2: PO BOX 640670 CITY: SAN JOSE STATE: CA ZIP: 95164 BUSINESS PHONE: 4089334000 10-K 1 ANNUAL REPORT 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 ------------------------ 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 INCORPORATION: DELAWARE IRS IDENTIFICATION NUMBER: 13-3759824 ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- GLOBALSTAR TELECOMMUNICATIONS LIMITED COMMON STOCK, $1.00 PAR VALUE NASDAQ NATIONAL MARKET
The registrants have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and have been subject to such filing requirements for the past 90 days. Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is contained in Globalstar Telecommunications Limited's 1999 definitive proxy statement. As of March 5, 1999, there were 82,020,021 shares of Globalstar Telecommunications Limited common stock outstanding, and the aggregate market value of such shares (based on the closing price on the Nasdaq National Market) held by non-affiliates of Globalstar Telecommunications Limited was approximately $1.2 billion. DOCUMENTS INCORPORATED BY REFERENCE Portions of Globalstar Telecommunications Limited's 1999 definitive proxy statement are incorporated by reference into Part III. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I ITEM 1. BUSINESS GENERAL DESCRIPTION OF BUSINESS On November 23, 1994, Globalstar Telecommunications Limited ("GTL" or "the Company") was incorporated as an exempted company under the Companies Act 1981 of Bermuda. On February 14, 1995, GTL completed an initial public offering of 40,000,000 shares of common stock (as adjusted to give effect to GTL's two-for-one stock splits effected in the form of 100% stock dividends paid in 1997 and 1998). Effective February 22, 1995, GTL purchased 10,000,000 ordinary partnership interests from Globalstar, L.P. ("Globalstar"), a development stage limited partnership. At December 31, 1998, GTL had a 34.8% ownership interest in the ordinary partnership interests of Globalstar, and its sole business is acting as a general partner in Globalstar. Globalstar was founded by Loral Corporation ("Old Loral") and QUALCOMM Incorporated ("Qualcomm"). Effective April 23, 1996, a merger between Old Loral and Lockheed Martin Corporation ("Lockheed Martin") was completed. In conjunction with the merger, Old Loral's space and communications businesses, including its direct and indirect interests in Globalstar, GTL, Space Systems/Loral, Inc. ("SS/L") and other affiliated businesses, as well as certain other assets and liabilities, were transferred to Loral Space & Communications Ltd. ("Loral"), a Bermuda company. Globalstar is a Delaware limited partnership whose managing general partner is Loral/QUALCOMM Satellite Services, L.P. ("LQSS"); the general partner of LQSS is Loral/QUALCOMM Partnership, L.P. ("LQP"), a Delaware limited partnership, the partners of which are subsidiaries of Loral and Qualcomm. The managing general partner of LQP is Loral General Partner, Inc., a subsidiary of Loral. As a result, Loral is the managing general partner of Globalstar and owned approximately 43% of Globalstar as of December 31, 1998. Recent Developments On March 15, 1999, Globalstar successfully launched four satellites aboard a Soyuz launch vehicle from the Baikonur Cosmodrome in Kazakhstan, bringing the total satellites in orbit to 16. This launch followed Globalstar's successful launch on February 8, 1999 of four satellites from the Baikonur Cosmodrome following the execution of a Technology Safeguard Agreement among the governments of Russia, Kazakhstan and the United States. As of March 15, 1999, in addition to the 16 satellites in orbit, Globalstar had eight completed satellites on hand and 28 more in final integration and test. On January 21, 1999, GTL sold $350 million of 8% Convertible Redeemable Preferred Stock due 2011 (the "Preferred Stock"). The Preferred Stock will be convertible into shares of GTL common stock at a conversion price of $23.2563 per share. Loral purchased $150 million face amount of the $350 million of Preferred Stock offered to maintain its ownership percentage. GTL used the proceeds to purchase 8% convertible redeemable preferred partnership interests ("8% RPPIs") in Globalstar, and Globalstar will use the funds to continue the construction and deployment of its system. In the event of conversion of the 8% RPPIs, GTL's ownership of ordinary partnership interests would increase to 38.8%. BUSINESS SEGMENT Globalstar will operate in one industry segment, global mobile telephony. BUSINESS BUSINESS OVERVIEW Globalstar has begun to launch and is preparing to operate a worldwide, low-earth orbit ("LEO") satellite-based digital telecommunications system (the "Globalstar(TM) System"). As of March 15, 1999, 2 3 Globalstar has launched 16 of the 52 satellites (including four in-orbit spares) that will complete its full constellation and is scheduled to commence service in September 1999 with at least 32 satellites. The Globalstar System has been designed to address the substantial and growing demand for telecommunications services worldwide, particularly in developing countries. More than three billion people today live without residential telephone service, many of them in rural areas where the cost of installing wireline service is prohibitively high. Moreover, even where telephone infrastructure is available in developing countries, outdated equipment often leads to unreliable local service and limited international access. The Globalstar System's worldwide coverage is designed to enable its service providers to extend modern telecommunications services to millions of people who currently lack basic telephone service and to enhance wireless telecommunications in areas underserved or not served by existing or future cellular systems, providing a telecommunications solution in parts of the world where the build-out of terrestrial systems cannot be economically justified. Globalstar users will make and receive calls through a variety of Globalstar user terminals ("Globalstar Phones"), including hand-held and vehicle-mounted units similar to today's cellular telephones, fixed telephones similar either to phone booths or ordinary wireline telephones, and data terminals and facsimile machines. Dual-mode and tri-mode Globalstar Phones will provide access to both the Globalstar System and the subscriber's land-based cellular service. Each Globalstar Phone will communicate through one or more satellites to a local Globalstar service provider's interconnection point (known as a gateway) which will, in turn, connect into existing telecommunications networks. Globalstar achieved a significant milestone on April 30, 1998, when Qualcomm chairman Irwin Jacobs successfully placed a call from San Diego through the Globalstar System to Globalstar chairman Bernard Schwartz in New York City. In the call, an in-orbit Globalstar satellite received and relayed Mr. Jacobs's signal to the system's test-bed gateway in San Diego, which switched the call into the Public Switched Telephone Network ("PSTN"). The call was carried for the entire duration of the satellite pass, through multiple satellite beam switching, validating the adaptation of code division multiple access ("CDMA") technology to Globalstar service, including variable rate vocoders, gateway software and switching, and the PSTN interconnect. Voice quality was consistent with the standards set by terrestrial CDMA implementations and no voice delay or interruption occurred as the call passed through multiple satellite beams during the call. As of December 31, 1998, each of the elements of the Globalstar System -- space and ground segments, user terminal supply, service provider arrangements, licensing and system integration -- was on schedule to permit Globalstar to commence commercial operations in September 1999 with at least 32 satellites in orbit, and to complete its 52-satellite constellation, including four in-orbit spares, by the end of 1999. Space Segment. On March 15, 1999, Globalstar successfully launched four satellites aboard a Soyuz launch vehicle from the Baikonur Cosmodrome in Kazakhstan, bringing the total satellites in orbit to 16. This launch followed Globalstar's successful launch on February 8, 1999 of four satellites from the Baikonur Cosmodrome following the execution of a Technology Safeguard Agreement among the governments of Russia, Kazakhstan and the United States. Globalstar had previously launched its first group of four satellites on February 14, 1998 and its second group of four satellites on April 24, 1998. The first 12 Globalstar satellites have reached their final orbital positions and are currently being used to test basic system functionality, including the system's inter-satellite hand-off capabilities, and the latest four satellites are expected to reach their final orbital positions and begin operations testing in April 1999. As of March 15, 1999, in addition to the 16 satellites in orbit, Globalstar had eight completed satellites on hand and 28 more in final integration and test. In September 1998, a malfunction of a Zenit 2 rocket resulted in the loss of 12 Globalstar satellites shortly after lift-off from the Baikonur Cosmodrome and resulted in a delay in the program schedule. The cost of the launch vehicle and the lost satellites was substantially insured. As a result of the launch failure, Globalstar implemented its contingency plan, which provides for a flexible launch strategy that enables it to select among a number of launch service suppliers in order to improve its ability to commence service as planned. Globalstar has reserved six Soyuz launches of four satellites each (two of which have already 3 4 occurred as of March 15, 1999), six Delta 2 launches of four satellites each, an Ariane launch of up to six satellites and two Zenit launches, all in 1999, with options for additional launches in 2000. Production is proceeding for the remaining satellites to meet scheduled launch dates. Ground Segment. Globalstar's primary Satellite Operations Control Center ("SOCC") and back-up facility, which performed well in support of the Globalstar launches, are fully-operational and are currently performing command and control functions for the in-orbit satellites. Qualcomm has completed 38 gateways, of which eight are already installed in Texas, France, Italy, Canada, Argentina, China, South Africa and South Korea. The initial gateways helped monitor the launch and orbital placement of Globalstar's first 16 satellites. Qualcomm has released an upgraded, commercial version of its gateway operating software, which is now undergoing testing and evaluation. Globalstar expects these eight gateways to be fully operational by the commencement of commercial service, and expects an additional eight gateways to be installed and operational by the end of 1999. These 16 gateways will cover 61 countries that account for approximately 58% of Globalstar's business plan. User Terminals. Ericsson, Qualcomm and Telital are manufacturing approximately 300,000 handheld and fixed user terminals under contracts totalling $353 million from Globalstar and its service providers. The first generation handheld Globalstar Phones are expected to weigh about twelve ounces and be available in attractive designs with dimensions (excluding antenna) of approximately 6.25" x 2" x 1.75". Globalstar users will be able to access terrestrial wireless systems, where available, through dual and tri-mode portable and mobile user terminals. Qualcomm will offer a tri-mode handset that can access Globalstar, Advanced Mobile Phone System ("AMPS"), the U.S. analog cellular standard, and digital cellular systems using CDMA technology. Ericsson's and Telital's Globalstar/Global System for Mobile Communications ("GSM") dual mode phones will feature the GSM interface familiar to wireless customers in Europe and many other areas of the world. Service Providers. Globalstar and its partners have been seeking alliances with service providers throughout the world and have entered into a number of agreements in specific territories. Globalstar believes that these relationships with in-country service providers will facilitate the granting of local regulatory approvals -- particularly where its service provider and the licensing authority are one and the same -- as well as provide local marketing and technical expertise. Globalstar's local service providers have already obtained some or all of the regulatory approvals they will need to provide service in 32 nations, including China, the United States, Canada, Russia, Brazil, Indonesia, Saudi Arabia and Ukraine. Due to general economic conditions in Asia, Hyundai has withdrawn as a Globalstar service provider. Globalstar has found a replacement in Finland and has identified a replacement in India, but has been prevented from signing a new service provider agreement for India by litigation brought by Hyundai's former in-country partner. The injunction prohibiting such an agreement is currently on appeal. If Globalstar cannot proceed in a timely manner to engage an adequate replacement service provider for India, Globalstar will not be able to offer service in that country, and its results of operations could be adversely affected. In July 1998, as a result of a transaction in which Loral purchased Globalstar partnership interests from certain other Globalstar partners, $210 million was placed in escrow by such Globalstar partners for the purchase of Globalstar gateways and handsets. Licensing. In January 1995, the Federal Communications Commission (the "FCC") granted authority for the construction, launch and operation of the Globalstar System and assigned spectrum for its user links. Later that year, the 1995 World Radiocommunication Conference allocated feeder link spectrum on an international basis for mobile satellite services ("MSS") systems such as Globalstar, and in November 1996, the FCC authorized Globalstar's feeder links. In September 1997, Globalstar applied to the FCC for authorization to launch and operate satellite systems at 2 GHz and 40 GHz. If these applications are granted (as to which there can be no assurance), Globalstar would be in a position to expand its capacity substantially. Systems Integration. Globalstar is using its in-orbit satellites and installed gateways to perform extensive tests of system functionality to ensure reliable, high quality service, including simulations of high-traffic conditions. In tests, the Globalstar System has delivered voice quality comparable to terrestrial CDMA and landline phones. Multiple satellite coverage and soft hand-offs of calls have occurred without 4 5 dropped calls, and the second generation gateway software is providing both immediate handset connectivity and a seamless interface with the public telephone networks. To date, none of the Globalstar satellites has experienced a failure or significant anomaly. Expenditures and Commitments. Through December 31, 1998, Globalstar incurred costs of approximately $2.7 billion for the design and construction of the space and ground segments. Costs incurred during 1998 were approximately $871 million. Qualcomm is in the process of completing its revision to cost estimates for its portion of the ground segment. Due to additional scope and cost growth and based on preliminary information, Globalstar expects the increase from Qualcomm to be less than 3% of the total project cost. The Qualcomm estimate is still subject to further review by Globalstar. As of December 31, 1998, and including the effect of the preliminary Qualcomm estimate, Globalstar's budgeted expenditures were $3.17 billion for the design, construction and deployment of the Globalstar System to commence commercial service and $340 million for budgeted financing costs. In addition to expenditures for operating costs and debt service, Globalstar anticipates further expenditures on system software for the improvement of system functionality and the addition of new features beyond those planned for the commencement of commercial service. Globalstar expects to achieve positive cash flow in the third quarter of 2000. Substantial additional financing will be required if there are delays in the commencement of commercial service and, in any event, after the commencement of commercial service and before positive cash flow is achieved. Although Globalstar believes it will be able to obtain these additional funds, there can be no assurance that such funds will be available on favorable terms or on a timely basis, if at all. Globalstar has agreed, subject to its partners' approval, to purchase from SS/L 12 additional spare satellites for which the cost and payment terms have not as yet been negotiated. It is anticipated that approximately $100 million will be expended for these spare satellites by commencement of commercial service. In addition, in order to accelerate the deployment of gateways around the world, Globalstar has agreed to help finance approximately $80 million of the cost of up to 32 of the initial 38 gateways. The contracts for the 38 gateways aggregate approximately $345 million. Ericsson, Qualcomm and Telital are in the process of manufacturing approximately 300,000 handheld and fixed user terminals under contracts totaling $353 million from Globalstar and its service providers. Globalstar has agreed to finance approximately $151 million of the cost of handheld and fixed user terminals. Globalstar expects to recoup such costs upon acceptance by the service providers of the gateways and user terminals. In January 1999, GTL completed a private offering of $350 million of the Preferred Stock (of which Loral purchased $150 million face amount to maintain its ownership percentage). GTL in turn used the net proceeds from its offering to purchase 8% RPPIs of Globalstar. Globalstar in turn will use the proceeds for the construction and deployment of its system. As of January 31, 1999, Globalstar has raised or received commitments for approximately $3.3 billion. Globalstar intends to raise the remaining funds required, of approximately $600 million, prior to the initiation of commercial service from a combination of sources including: high yield debt issuance (which may include an equity component), bank financing, equity issuance, financial support from the Globalstar partners, projected service provider payments and anticipated payments from the sale of gateways and Globalstar subscriber terminals. Globalstar, a development stage company, has incurred costs (excluding depreciation) of $145 million, $87 million and $60 million for the years ended December 31, 1998, 1997 and 1996, respectively. Globalstar had total assets of $2.7 billion, $2.1 billion and $943 million as of December 31, 1998, 1997 and 1996, respectively. 5 6 GLOBALSTAR STRATEGIC PARTNERS Globalstar has selected strategic partners whose marketing, operating and technical expertise will enhance Globalstar's capabilities. These partners are playing key roles in the construction, operation and marketing of the Globalstar System. Globalstar's founding partners are Loral and Qualcomm, the leading supplier of CDMA digital telecommunications technology. Globalstar's other strategic partners are:
TELECOMMUNICATIONS TELECOMMUNICATIONS EQUIPMENT AND SERVICE PROVIDERS AEROSPACE SYSTEMS MANUFACTURERS ------------------ -------------------------------- - AirTouch Communications, Inc. - Alcatel - China Telecom (Hong Kong) Group Ltd. - Alenia Spazio S.p.A - Dacom Corporation - DaimlerChrysler Aerospace A.G. - Elsacom - Hyundai Electronics Industries Co. Ltd. - TE.SA.M. - Space Systems/Loral, Inc. - Vodafone Group Plc
BUSINESS STRATEGY Globalstar's strategy for successful operation is based upon: (i) providing potential users worldwide with high quality telecommunications services, (ii) employing a system architecture designed to minimize cost and technological risks and (iii) leveraging the marketing, operating and technical capabilities of its strategic partners. WORLDWIDE HIGH QUALITY SERVICE To achieve rapid and sustained customer acceptance, the Globalstar System has been designed to provide a high quality, worldwide service that combines the best of existing cellular service with the technological advantages of the Globalstar System to meet the needs of individual end users. Worldwide Coverage and Access. The Globalstar System's worldwide coverage has been designed to enable its service providers to extend modern telecommunications services rapidly and economically to significant numbers of people who currently lack basic telephone services and to enhance wireless telecommunications in areas underserved or not served by existing or contemplated cellular systems. Globalstar expects to provide a communications solution in parts of the world where the build-out of terrestrial systems cannot be economically justified. The Globalstar System has also been designed to enable international travelers to make and receive calls at a unique telephone number through their mobile Globalstar Phones anywhere in the world where Globalstar service is authorized by local regulatory authorities. Multiple Satellite Coverage; Soft Handoff. CDMA digital communications technology combined with continuous multiple satellite coverage and signal path diversity (a patented SS/L method of signal reception not available to competing systems) will enable the Globalstar System to provide service to a wide variety of locations, with less potential for signal blockage from buildings, terrain or other natural features. Globalstar Phones have been designed to operate with a single satellite in view, although typically signals from two to four satellites overhead will be combined to provide service. Therefore, the loss of an individual satellite is not expected to result in any gap in global coverage. Each mobile Globalstar Phone has been designed to communicate with as many as three satellites simultaneously, combining the signals received to ensure maximum service quality. Globalstar's in-orbit tests have shown that, as satellites constantly move in and out of view, they are seamlessly added to and removed from the calls in progress, thereby reducing the risk of call interruption. Superior Call Quality; Increased Privacy. Based on extensive space based tests of the Globalstar System, Globalstar expects that Qualcomm's CDMA digital technology will enable Globalstar to provide digital voice services which will have clarity, quality and privacy similar to those of existing land line and land-based CDMA wireless systems. 6 7 Efficient Use of Satellite Resources. The Globalstar System's use of multiple satellites to communicate with each Globalstar Phone has been designed to allow its communications signals to bypass obstructions. Path diversity is expected to permit Globalstar to maintain its desired level of service quality while using less power and satellite resources than would be required in a system using single path satellites, which attempt to penetrate obstructions by using higher single satellite power and overall higher link margins. No Voice Delay. Globalstar satellites' low-earth orbits of 750 nautical miles are expected to result in no perceptible voice delay, as compared with the noticeable time delay of calls utilizing geosynchronous satellites, which orbit at an altitude of approximately 22,000 miles. Globalstar believes that its system will also entail noticeably less voice delay than medium-earth orbit systems and, in many cases, than LEO systems requiring on-board satellite decoding, recoding, echo cancellation and other on-board call processing to support satellite-to-satellite switching systems. EMPLOYING A SYSTEM ARCHITECTURE DESIGNED TO MINIMIZE COST AND RISK Simple, Cost-Effective System Architecture. To achieve low cost, reduce technological risk and accelerate its deployment, Globalstar has devised a system architecture using small satellites incorporating well-established design features, and located the system's call processing and switching operations on the ground, where they are accessible for maintenance and can benefit from continuing technological advances. Hand-held and vehicle-mounted Globalstar Phones are anticipated to be priced comparably and will be similar in function to current digital cellular telephones. Dual-mode and tri-mode Globalstar Phones will be able to access both Globalstar and a variety of local land-based analog and digital cellular services, where available. Multiple manufacturers will be licensed to manufacture Globalstar Phones in order to promote competition and reduce prices. Low-Cost Service. Globalstar intends to offer its service providers effective average prices substantially lower than those announced by its anticipated principal competitors. Globalstar's service providers will set their own retail pricing and will pay to Globalstar wholesale prices generally expected to range between $0.35 and $0.55 per minute. As a result of its pricing commitments to its service providers or as a result of competitive pressures, Globalstar may not be in a position to pass on to its service providers unexpected increases in the cost of constructing the Globalstar System. However, Globalstar believes that its low system and operating costs and high gross margins at target pricing and usage levels provide it with substantial additional pricing flexibility if necessary to meet competition. Simple Space Segment of Proven Design. To achieve lower cost, reduce technological risk and accelerate deployment of the Globalstar System, Globalstar's system architecture uses small satellites incorporating a well-established repeater design that acts essentially as a simple "bent pipe," relaying signals received directly to the ground. The Globalstar space segment is being manufactured under fixed-price contracts with SS/L. Flexible, Low-Cost Ground Segment. Globalstar has been designed to offer local governments and service providers affordable telephone infrastructure where the cost of build-out of land-based wireline or wireless telephone systems is either too great or not economically justifiable. By purchasing a single gateway for approximately $6 million to $10 million (depending on the capacity desired), a service provider can extend basic telephone service to fixed terminals on a national basis in countries as large as Saudi Arabia and mobile service to cover an area almost as large as Western Europe. Each country with a Globalstar gateway will have access to domestic service without the imposition of international tail charges on in-country calls, thereby offering subscribers the lowest possible cost for domestic calls, which account for the vast majority of all cellular calls today. Competitively Priced Globalstar Phones. Ericsson, Qualcomm, and Telital are in the process of manufacturing approximately 300,000 handheld and fixed user terminals under contracts totaling $353 million from Globalstar and its service providers. After these initial production runs, Globalstar anticipates that competitive pressures and manufacturing efficiencies will reduce the cost of mobile and private fixed Globalstar Phones to less than $750 each. Private fixed Globalstar Phones will provide wireless local loop to government offices, businesses and homes beyond the current coverage area of the PSTN. Fully-installed, 7 8 turn-key public telephone booths equipped with security features and credit, debit and phone-card reading capabilities are expected to cost between $4,000 and $6,000, depending on the number of units sharing a fixed antenna. In addition, dual mode and tri-mode Globalstar Phones will permit a Globalstar handset to access GSM, and CDMA-based digital cellular systems, and future phones are planned that will access additional modulations. LEVERAGING THE CAPABILITIES OF GLOBALSTAR'S STRATEGIC PARTNERS Loral has overall management responsibility for the design, construction, deployment and operation of the Globalstar System. Globalstar's strategic partners will play key roles in the design, construction, operation and marketing of the Globalstar System. Telecommunications service providers AirTouch, China Telecom, Dacom, Elsacom, TE.SA.M. and Vodafone are providing in-country marketing and telephony expertise to Globalstar. Globalstar's strategic partner service providers have been granted exclusive rights to provide Globalstar service in 73 countries around the world in which they have particular marketing strength and experience and access to an established customer base. To maintain their service provider rights on an exclusive basis, these service providers and additional service providers are required to make minimum payments to Globalstar equal to 50% of target revenues. Based upon current targets (which are currently subject to adjustment based upon an updated market analysis), such minimum payments total approximately $5 billion through 2006. There can be no assurance that the service providers will elect to retain their exclusivity and make such payments. Globalstar expects to add additional service providers in order to provide coverage throughout the world. Each service provider will, subject to obtaining required local regulatory approvals, market and distribute Globalstar service in its designated territories and own and operate the gateways necessary to serve its markets. Telecommunications equipment and aerospace systems manufacturers SS/L, Alcatel, Alenia, Daimler Chrysler Aerospace and Hyundai have designed Globalstar's satellites, which are now being built and deployed under a fixed price contract with SS/L. Qualcomm, using its CDMA technology, is designing and will manufacture Globalstar Phones and gateways and has licensed its user terminal technology to Ericsson and Telital. THE GLOBALSTAR SYSTEM Globalstar intends to offer low-cost, high quality telecommunications services throughout the world. The Globalstar System will be comprised of a 52-satellite LEO constellation (including four in-orbit spare satellites) and a ground segment consisting of two SOCCs and two ground operations control centers ("GOCCs"), Globalstar gateways in each region served, and mobile and fixed Globalstar Phones. Globalstar will own and operate the satellite constellation, the SOCCs and the GOCCs. The remaining elements of the system will be owned by Globalstar's service providers and their subscribers. The descriptions of the Globalstar System are based upon current design and are subject to modification in light of future technical and regulatory developments. Globalstar Services and Globalstar Phones. Globalstar's most important service will be voice telephony service, which Globalstar is expected to offer through telephone booth-like installations and other fixed telephones located in areas without any landline or cellular telephone coverage, and through hand-held and vehicle-mounted Globalstar Phones, similar to existing cellular telephones. Globalstar is also expected to offer paging, facsimile and messaging services and position location capabilities, which may be integrated with its voice services or marketed separately, as well as environmental and asset monitoring from remote locations and other forms of data transmission. Voice Services Based on terrestrial simulations and space-based tests of the Globalstar System, Globalstar expects that its digital voice services will have clarity, quality and privacy similar to those of existing digital land-based cellular systems. Moreover, the system has been designed to minimize call interruptions ("dropped calls") resulting from movements on the part of the user or the satellites. Globalstar is expected to offer the full range of voice services provided by modern land-based telephone networks, including options such as call forwarding, conferencing, call waiting, call transfer and reverse charging ("collect calls"). Globalstar's voice 8 9 services will be digital in nature and therefore difficult for unauthorized listeners to intercept and decode and, as a result, will be more secure than those offered by analog systems such as existing cellular telephones. The Globalstar System will function best when there is an unobstructed line-of-sight between the user and one or more of the Globalstar satellites overhead. Competing systems without Globalstar's path diversity depend on each user maintaining contact with a single satellite. Obstacles such as buildings, trees or mountainous terrain may degrade service quality, more so than would be the case with terrestrial cellular systems, and service may not be available in the core of high-rise buildings. By planning for volume production and utilizing commercially available off-the-shelf components where possible, Globalstar expects that its Globalstar Phones, unlike those of certain other proposed MSS systems, will be priced comparably to current state-of-the-art digital cellular telephones. Qualcomm has agreed to design and manufacture a number of versions of Globalstar Phones. It has granted a license to manufacture Globalstar Phones to each of Ericsson and Telital and has agreed to license at commercially reasonable royalty rates at least one additional qualified Globalstar Phone manufacturer. Fixed Globalstar Phones for No-Telephone Areas. The majority of the world's population does not have access to any of the basic telephone services that are available to most residents of developed nations. Public installations of one or more Globalstar Phones, configured as telephone booths and powered by local generators or solar panels connected to a directional antenna aimed at the satellites overhead, would be important resources for remote villages currently lacking basic telephone service. Government officials, among other individuals, as well as commercial enterprises in remote areas such as mining and logging operations, are expected to utilize private, fixed Globalstar Phones which will operate like landline telephones, but will be connected to directional Globalstar antennae. Directional antennae also provide for more efficient use of the system's capacity. Mobile Globalstar Phones for No-Cellular Areas. In certain regions, land-based cellular systems cannot be economically justified because of their population density or geographic characteristics. As a satellite-based system with worldwide coverage, Globalstar can efficiently offer both hand-held and vehicle-mounted mobile service in these areas through its single-mode mobile Globalstar Phones. These units are expected to be similar in function and cost to today's full-featured cellular telephones. Unlike cellular telephones, however, these units will have the ability to operate (both for making and receiving calls) in virtually every inhabited area of the world where Globalstar service is authorized. Globalstar mobile terminals will all be equipped with omnidirectional antennae, similar to cellular telephone antennae, that connect equally well regardless of the direction in which they are pointed. Each mobile terminal will communicate with all satellites in view and will have the built-in signal processing intelligence to constantly seek out and select the strongest signal transmitted from overhead, combining the signals received to ensure maximum service quality. Further, Globalstar Phones will automatically vary their power output as necessary to maintain call quality and connectivity. As a result of this efficiently-managed power system, mobile Globalstar Phones are expected to draw less power, on average, than conventional cellular telephones and are therefore expected to enjoy longer battery life. Dual-Mode and Tri-Mode Globalstar Phones for Local and Global Roaming. Current cellular system subscribers who need a mobile telephone that also works when they travel to areas without compatible cellular coverage (or that have no cellular coverage at all) will be offered Globalstar service through dual-mode and tri-mode handsets and vehicle-mounted units. Dual-mode and tri-mode telephones will also permit the user to access Globalstar service when cellular access is temporarily blocked by interference, terrain or over-capacity. Like Globalstar's single-mode mobile telephones, dual-mode and tri-mode telephones will enable the user to make and receive calls through a unique access number anywhere in the world where service is authorized. Dual-mode and tri-mode Globalstar Phones can be programmed by the service provider to automatically utilize the chosen land-based cellular service whenever it is available and to otherwise process the call through Globalstar; they can also be programmed for manual selection between Globalstar and the land-based cellular system. Dual-mode and tri-mode Globalstar Phones are being developed for the most widely-based conventional cellular modulations. The dual-mode pairs are expected to include: Globalstar/CDMA, Globalstar/AMPS and Globalstar/GSM. 9 10 Other Services Messaging and Paging Services. In addition to supporting voice services, the Globalstar System is also expected to function as a worldwide paging and alphanumeric messaging service. Hand-held or vehicle-mounted Globalstar Phones are currently being designed with a built-in paging and messaging feature that allows the user to receive a page or a short alphanumeric message while the unit is in a very-low-power "quiet listening only" mode. Separate Globalstar messaging and paging units may also be developed by Globalstar or by third party vendors. The Globalstar System can readily support these functions without taxing system resources since, as compared with voice services, messages and pages have a relatively low data content and do not require instantaneous, two-way transmission. Remote Monitoring. Globalstar data terminals integrated with automatic sensing equipment of various kinds can provide a continuous stream of valuable information concerning natural events such as weather conditions, seismic shifts and forest fires, as well as the condition of remote assets, such as oil and gas pipelines and electric utility transmission lines. Facsimile and Other Data Services. The Globalstar System is expected to support fax traffic, as well as transmissions of digital computer data. Position Location. Frequent, accurate readings of position location for large numbers of vehicles is critical information for the efficient management of fleets of trucks and railcars. Qualcomm's OmniTRACS system, which relays position location information to a central location and offers messaging capabilities, is expected to be deployed on the Globalstar System and offered to Globalstar service providers to address this need. Satellite Constellation Globalstar service will be delivered through a constellation of 48 small, low-cost LEO satellites orbiting the earth in eight circular inclined planes with six satellites per plane which will provide a clear communications link with the Globalstar Phones and gateways below. Each satellite will transmit 16 spot beams, which will generate coverage cells on the surface of the Earth for links between users and gateways via the satellites. Each satellite's coverage area will have a typical diameter of 3,600 miles on the Earth's surface, resulting in an average area covered per satellite of approximately ten million square miles, an area larger than the area of China or the United States. Each spot beam will cover an average area of approximately 600,000 square miles, an area larger than that of any state in the United States or any country in Western Europe. Path Diversity from Multiple Satellites. The satellite constellation will orbit the Earth in a coordinated pattern 750 nautical miles above the surface of the Earth designed to provide users with continuous overlapping coverage from multiple satellites with diverse angles of view or "path diversity." The satellites will provide multiple-satellite global coverage in all areas of the world except for a small portion of the polar regions. This constellation and orbital plane design is expected to improve service quality significantly relative to current analog systems. LEO satellites are in constant motion overhead, relative to a user on the Earth's surface, and, as a result, the beam from the satellite transmitting a call could be blocked at any time by a building or natural obstruction, placing the user in the beam's shadow and interfering with or interrupting the call. Similar effects may occur when a mobile user changes position. Globalstar Phones can operate with a single satellite in view, although typically two to four satellites will be overhead. This supports the benefits of path diversity for mobile terminals and also means that, in contrast to medium-earth orbit systems with fewer satellites and competing LEO systems lacking this feature, the loss of individual satellites will usually not result in gaps in global coverage. Globalstar's mobile terminals are designed to communicate with as many as three satellites simultaneously, combining the signals received to provide improved call quality and, when another satellite moves into an optimal position, reliably "handing off" the call to such satellite without interruption. This combination of path diversity and CDMA is a patented SS/L technology designed to minimize call fading, resulting in fewer dropped calls and higher overall call quality. 10 11 Low-Cost Satellites. Globalstar has chosen a satellite architecture designed to offer reliable, high quality service and minimize technological risks. Globalstar's satellites will incorporate a repeater design which will act essentially as a "bent pipe," relaying received signals directly to the ground. This design follows the proven philosophy used in all commercial communications satellites currently in operation. Globalstar's call processing and switching operations are on the ground, where they are accessible for maintenance and can benefit from continuing technological advances. By contrast, competing systems whose satellites switch calls in space from satellite to satellite require on-board digital signal processing. Globalstar believes that this design results in higher system costs and precludes the accessible maintenance and easy upgrade to reflect technological advances which Globalstar can accomplish on the ground without a need to launch replacement satellites. Globalstar also believes that such systems' inherent ability to switch international calls in space, bypassing local service providers, many of which are state-owned, may limit their desirability in the eyes of some local regulatory authorities. No Perceptible Voice Delay. Globalstar expects that its combination of a low-earth orbit and simple repeaters will reduce voice delays over its system to between 150 and 200 milliseconds, a delay which is not perceptible to the subscriber in a normal phone conversation. Voice delays are comprised of a propagation delay, as signals move from the Earth to the satellite and back, and processing delays on-board the satellite. By contrast, geosynchronous satellite communications entail a noticeable voice delay of approximately 600 milliseconds. Globalstar expects, based on its own analysis, that medium-earth orbit systems such as that proposed by ICO Global ("ICO") may entail voice delays of between 250 and 300 milliseconds. Although a competing time division multiple access ("TDMA") system has an orbit lower than Globalstar's, thus reducing propagation delay somewhat, Globalstar believes that in most cases this advantage is more than offset by the additional processing delay entailed by the TDMA system's need to decode, recode, perform echo cancellation and otherwise process signals in space and the need, in many cases, for satellite-to-satellite linkages, with additional on-board processing at each step. However, quality differentials may not be of significant competitive importance in communications markets in developing countries that currently lack even basic telephone coverage. Constellation Life. The satellites in the first-generation constellation are designed to operate at full performance for a minimum of seven and a half years, after which time the cumulative effects of the space environment are expected to gradually reduce operating performance. The constellation has been designed so that the loss of a few satellites will, in most cases, not result in gaps in global coverage. In order to provide additional assurance of system integrity in the event of premature satellite failure, however, Globalstar plans to launch four spare satellites to be relocated in space as required. Depending on the level of demand for services and the remaining effective capacity of the first-generation constellation, a second generation of satellites will be designed, built and launched. Globalstar currently expects to place a second-generation constellation in service in 2005 and 2006. While the precise technical capabilities and costs of the second generation of Globalstar satellites cannot be currently foreseen, the second-generation constellation may be designed with significantly greater call capacity than the first. In connection with such an increase in call capacity, Globalstar may be required to seek additional spectrum allocations from the applicable regulatory authorities. There is no assurance that such spectrum, if requested, would be obtained. Implementation and operation of a second-generation system will also require obtaining U.S. and other regulatory authorizations, and there is no assurance that these authorizations, if requested, would be obtained. The Ground Segment Globalstar's SOCCs will track and control the satellite constellation using telemetry and command units located in various gateways around the world and telemetry stations in two locations, at least one of which will be in the United States. The SOCCs will control satellite orbit positioning, maneuvers and station keeping, and will monitor satellite health and status in all subsystems. The SOCCs will also plan and implement satellite lifecycle maintenance procedures, including orbit adjustment maneuvers. 11 12 The GOCCs, which will be in continuous operation 24 hours a day, will be responsible for planning and controlling satellite utilization by gateway terminals and coordinating information received from the SOCCs. In addition to these planning functions, the GOCCs will be responsible for monitoring system performance, collecting information for billings to service providers and ensuring that the gateways do not exceed allocated system capacity. The GOCCs will be responsible for dynamically allocating system capacity among nearby regions to optimally service changing patterns of demand. The primary SOCC and primary GOCC will be located at Globalstar's headquarters, with backup facilities at another location. The gateways are the interconnection points between the Globalstar satellite constellation and existing land-based telecommunications networks. Each gateway will contain up to four tracking antennae and radio frequency front ends that track the satellites orbiting in their view. A typical gateway is expected to cost between $6 million and $10 million, depending upon the number of subscribers being serviced by the gateway and assuming that the gateway will be located at the site of an existing cellular or other appropriate telecommunications switch. The Globalstar System is designed to prevent unauthorized use in those countries that have not licensed a Globalstar service provider. A single gateway is expected to be able to provide fixed coverage over an area larger than Saudi Arabia and mobile coverage over an area almost as large as Western Europe. As a result of the low cost of its gateways, Globalstar expects that its service providers will install gateways in most of the major traffic-generating countries in which they offer service. Each country with a Globalstar gateway will have access to domestic service without the imposition of international tail charges, thereby offering subscribers the lowest possible cost for domestic calls, which account for the vast majority of all cellular calls today. Although Globalstar has commissioned the design of the gateways to be used with the Globalstar System, ownership and operation of the gateways will be the responsibility of service providers in each country or region in which Globalstar operations are authorized. Qualcomm executed the initial Globalstar gateway design work under its original development contract with Globalstar. In 1997 and 1998, in order to accelerate the deployment of gateways around the world, Globalstar placed $345 million in orders with Qualcomm for 38 production gateways. Globalstar has now resold substantially all of these gateways to its strategic partners and other service providers, subject to performance acceptance. Globalstar is providing a total of $80 million in vendor financing for the first 32 of these gateway sales, which it expects to recover upon resale. GLOBALSTAR SYSTEM CAPACITY The estimated capacity of the Globalstar System is anticipated to be in the range of approximately 800 million to 1 billion call minutes per month assuming equal fixed and mobile usage. However, Globalstar's total effective system capacity will depend on a number of variables. The number of call minutes per month the system can support will depend primarily on (i) the total bandwidth available to CDMA MSS systems, (ii) the number of systems sharing that bandwidth, (iii) the total number of subscribers, (iv) the type of Globalstar Phones (fixed or mobile) used and (v) the level of average system availability required. Capacity will also depend upon a number of other variables, including (a) the peak hour system utilization pattern, (b) average call length and (c) the distribution of Globalstar Phones in use over the surface of the Earth. COMPETITION Competition in the telecommunications industry is intense, fueled by rapid and continuous technological advances and alliances between industry participants on an international scale. Iridium L.L.C. ("Iridium") is currently providing the same global personal telecommunications service proposed by Globalstar, and several other competing systems are in various stages of development. Iridium's current availability could adversely affect Globalstar's competitive position. A number of satellite-based telecommunications systems not involved in the FCC's proceeding for MSS systems have also been proposed using geostationary satellites and, in one case, the 2 GHz band for a medium-earth orbit system. Globalstar's most direct competitors are Iridium and ICO. ICO was not an applicant or a licensee in the MSS proceeding, but has filed a request with the FCC to operate in a different frequency band not available for use by MSS systems under current international guidelines in place until 2000. Comsat 12 13 Corporation ("Comsat"), the U.S. signatory to International Maritime Satellite Organization ("Inmarsat"), has been granted authority by the FCC to participate in the procurement of facilities of the system proposed by ICO, subject to certain conditions. It has also sought FCC approval of a proposal to extend the scope of services provided by Inmarsat, currently limited to maritime services, to include telecommunications services to land-based mobile units. This application is currently pending before the FCC, and the procurement order remains subject to reconsideration at the FCC and judicial review. Comsat has been instructed in the past by the U.S. government to seek to ensure that ICO does not receive preferred access to any market and that non-discriminatory access to such areas for all mobile satellite communications networks be established, subject to spectrum coordination and availability. Nonetheless, because ICO is affiliated with Inmarsat and because its investors include state-owned telecommunications monopolies in a number of countries, there can be no assurance that ICO will not be given preferential treatment in the local licensing process in those countries. Constellation Communications, Inc. ("Constellation") and Mobile Communications Holdings, Inc. ("MCHI") were granted FCC licenses in July 1997, after the FCC waived its financial qualification requirements with respect to such applicants. In granting such licenses, the FCC found that such applicants had failed to demonstrate that they were financially qualified. It is not certain that they will be able to raise sufficient funds to construct, launch and operate their proposed systems. Even if ultimately built, such systems are not planned to enter the market until significantly after Globalstar's targeted in-service date. In addition to competing for investment capital, subscribers and service providers in markets all over the world, the MSS systems, including Globalstar, also compete with each other for the limited spectrum available for MSS operations. Unlike CDMA systems such as Globalstar, MCHI and Constellation, which permit multiple systems to operate within the same band, the design of Iridium's TDMA system requires a separate frequency segment dedicated specifically for its use. If more than two CDMA systems become operational, CDMA systems like Globalstar will effectively have a smaller spectrum segment within which to operate their user uplinks in the U.S. While CDMA permits spectrum sharing among competing systems, the capacity available to each system sharing such spectrum decreases as the number of systems operating in the band increases. The degree of decrease depends on a number of complex technological factors associated with each system's particular design including transmitter polarization and efficiency of spectrum usage. If the total number of operating MSS systems in the CDMA portion of the L-band (i.e., 1610-1621.35 MHz) and S-band (i.e., 2483.5-2500 MHz) increases from two to three and the other two operating CDMA systems have technical characteristics similar to Globalstar's and all such systems experience full capacity usage, then Globalstar estimates that its capacity over a given area would decrease by approximately 25%. The FCC has no authority to extend the U.S. band plan for CDMA and TDMA Big LEO systems to other countries. However, it has stated that it plans to express the view in discussions with other administrations that global satellite systems are more likely to succeed if individual administrations adopt complementary systems for licensing them. The European Union has adopted a band plan virtually identical to the U.S. band plan. Geostationary-based satellite systems, including American Mobile Satellite Corporation and Comsat's Planet-1 are providing, and other proposed geostationary-based satellite systems, including Asia Pacific Mobile Telecommunications (APMT), Afro-Asian Satellite (ACS), PT Asia Cellular Satellites (ACeS), Thuraya Satellite Communications Company and Satphone, plan to provide, satellite-based telecommunications services in areas proposed to be serviced by Globalstar. Certain of these systems are being proposed by governmental entities. Because some of these systems involve relatively simple ground control requirements and are expected to deploy no more than two satellites, they may succeed in deploying and marketing their systems before Globalstar. In addition, coordination of standards among regional geostationary systems could enable these systems to provide worldwide service to their subscriber base, thereby increasing the competition to Globalstar. For example, Comsat offers a global mobile satellite service (Planet-l) with existing Inmarsat satellites, a six-pound, laptop-size phone, costing $3,000 with an expected per-minute usage rate of $3.00. It is expected that as land-based telecommunications service expands to regions currently not served by wireline or cellular services, demand for Globalstar service in those regions may be reduced. If such systems 13 14 are constructed at a more rapid rate than that anticipated by Globalstar, the demand for Globalstar service may be reduced at rates higher than those assumed by Globalstar. Globalstar may also face competition in the future from companies using new technologies and new satellite systems. New technology could render Globalstar obsolete or less competitive by satisfying consumer demand in alternative ways, or through the introduction of incompatible telecommunications standards. A number of these new technologies, even if they are not ultimately successful, could have an adverse effect on Globalstar as a result of their initial marketing efforts. Globalstar's business would be adversely affected if competitors began operations or expanded existing operations in Globalstar's target markets before completion of its system. RESEARCH AND DEVELOPMENT Globalstar has entered into a contract with Qualcomm whereby Qualcomm is performing certain development tasks related to the Globalstar System. In addition, Globalstar is performing certain in-house engineering tasks that are classified as development costs. Total development costs incurred for the years ended December 31, 1998, 1997 and 1996 were $86 million, $62 million, and $42 million, respectively. PATENTS AND PROPRIETARY RIGHTS In connection with the Globalstar System, Globalstar's design and development efforts have yielded 16 patents issued and 30 patents pending in the United States, as well as 17 patents issued and 100 patents pending internationally for various aspects of communication satellite system design and implementation of CDMA technology relating to the Globalstar System. Qualcomm has obtained 189 issued patents and 463 patents pending in the United States applicable to Qualcomm's implementation of CDMA. The issued patents cover, among other things, Globalstar's process of combining signals received from multiple satellites to improve the signal received and minimize call fading. There can be no assurance that any of the pending patent applications by Globalstar will be issued. Moreover, because the U.S. patent application process is confidential, there can be no assurance that third parties, including competitors of Globalstar, do not have patents pending that could result in issued patents which Globalstar would infringe. In such an event, Globalstar could be required to redesign its system or satellite, as the case may be, or pay royalties to obtain a license, which could increase cost or delay implementation of the system or construction of the satellite, as the case may be. FOREIGN OPERATIONS At December 31, 1998, 1997 and 1996, Globalstar had substantially all of its long-lived assets located in the United States with the exception of its in-orbit satellites. See "Certain Factors that May Affect Future Results -- Globalstar faces risks inherent in foreign operations" and "-- Globalstar faces special risks by doing business in developing markets and faces currency risks" for a discussion of the risks related to operating internationally. EMPLOYEES As of December 31, 1998, Globalstar had approximately 260 full-time employees, none of whom is subject to any collective bargaining agreement. 14 15 CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS This annual report on Form 10-K contains forward-looking statement within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition, from time to time, Globalstar or GTL or their representatives have made or may make forward-looking statements, orally or in writing. Such forward-looking statements may be included in, but are not limited to, various filings made by Globalstar or GTL with the Securities and Exchange Commission, press releases or oral statements made by or with the approval of an authorized executive officer of Globalstar or GTL. Actual results could differ materially from those projected or suggested in any forward-looking statements as a result of a wide variety of factors and conditions, including, but not limited to, the factors summarized below. THE GLOBALSTAR SYSTEM IS NOT YET OPERATIONAL, AND UNTIL IT IS, WE CAN'T PREDICT CUSTOMER DEMAND FOR THE SERVICE. The Globalstar system is still being deployed, and cannot begin commercial operations until at least 32 satellites are working in orbit, the necessary ground equipment and user terminals are in place and service providers are licensed in the countries to be served. The cost of installing the Globalstar system has been revised upward from our original estimates, and further increases are possible. Until the system is fully deployed and tested, we cannot be certain that it will perform as designed. Even if the system operates as it should, we cannot be certain that the market we anticipate will develop. LAUNCH FAILURES MAY DELAY GLOBALSTAR'S PROGRAM SCHEDULE. Satellite launches are risky, with about 15% of attempts ending in failure. Globalstar has already had one launch failure, and more failures may occur within the course of its launch campaign. If another launch fails, the resulting increased costs, including those associated with delay, could have a material adverse effect on the financial condition and results of operations of Globalstar. Space Systems/Loral has agreed to arrange for the launch of all of Globalstar's remaining 36 satellites. Globalstar's contracts with Space Systems/Loral are subject to pricing adjustments in light of future market conditions, which may, in turn, be influenced by international political developments. If there is an adverse change in launch vehicle market conditions that prohibits Globalstar from using the launch vehicles provided by Space Systems/Loral, Globalstar's launch costs could increase significantly. If this should happen, Globalstar may not be able to find replacement launch vehicles at a cost or on terms acceptable to it. Some of Globalstar's remaining launches will be on foreign launch vehicles that are subject to U.S. export control regulations. Changes in governmental policies or political leadership in the United States, Russia, Kazakhstan, France or Ukraine could affect the cost, availability, timing or overall advisability of using these launch providers. In addition, a deterioration in the relationships between the United States and these countries, a change in government policy or legislation or other factors could adversely affect licenses already granted. GLOBALSTAR'S SATELLITES HAVE A LIMITED LIFE AND ARE VULNERABLE TO THE HARSH ENVIRONMENT OF SPACE. Globalstar's satellites are carefully built and tested and have certain redundant systems in case of failure. However, in-orbit failure may result from various causes, including: - component failure; - loss of power or fuel; - inability to control positioning of the satellite - solar and other astronomical events; and - space debris. 15 16 Repair of satellites in space is not feasible. The factors that affect the useful lives of Globalstar's satellites include the quality of construction, gradual degradation of solar panels and the durability of components. Random failure of satellite components may result in damage to or loss of a satellite before the end of its expected life. Because it will have a large constellation and a number of spare satellites, Globalstar currently does not intend to insure against failures that may occur after its satellites have been successfully launched into space. The first-generation Globalstar satellites are designed to operate for a minimum of seven and a half years, after which time performance is expected to decline gradually. We do not know how long the first generation constellation will actually last. Globalstar plans to use funds from operations and, possibly, proceeds from additional financings, to deploy a second generation of satellites. However, enough money might not be available when needed, leaving Globalstar without a second-generation constellation. GLOBALSTAR HAS SUBSTANTIAL DEBT THAT CONTAINS COVENANTS RESTRICTING ITS ACTIVITIES. Globalstar has outstanding $1.45 billion principal amount of senior notes as of December 31, 1998. Globalstar also has a $250 million credit facility expiring December 15, 2000 and, in addition, expects to use $430 million of committed vendor financing and payment deferrals. Globalstar will depend on its cash flow from future operations to service this debt. Any delay in commercial service and any failure to develop a revenue stream quickly will adversely affect its ability to service these debt obligations. Covenants contained in the credit agreement, the indentures governing the senior notes and future debt instruments will limit Globalstar management's options for dealing with business issues. The credit agreement, indentures and future debt instruments will also limit Globalstar's ability to pay dividends on its partnership interests. If the credit agreement's guarantees expire, its financial covenants will impose additional limitations on Globalstar's ability to incur new debt. We can't be sure that these restrictions and Globalstar's debt will not materially and adversely affect Globalstar's ability to finance its future operations or capital needs or to engage in other business activities. They may also require Globalstar to issue equity on terms which dilute existing shareholders. A failure to comply with the terms of the credit agreement, the indentures or other agreements could result in an event of default under those agreements. This in turn could permit acceleration of the related debt and result in a default under other debt instruments. Because GTL is a general partner of Globalstar, it is jointly and severally liable with the other general partner for the recourse debt and other recourse obligations of Globalstar to the extent Globalstar is unable to pay such debts. GLOBALSTAR WILL REQUIRE ADDITIONAL FINANCING. Barring unexpected adverse developments, Globalstar will need approximately $600 million more capital before it can begin commercial service in September 1999 as planned. As of December 31, 1998, and including the effect of a preliminary revision to Qualcomm's cost estimate, Globalstar's budgeted expenditures were $3.17 billion for the design, construction and deployment of the Globalstar system to commence commercial service and $340 million for budgeted financing costs. More money will be needed if there are delays in beginning service and, in any event, after the beginning of service and before positive cash flow. Although Globalstar believes it will be able to obtain the money it needs, it might not be able to do so on favorable terms or on a timely basis if at all. Any delay in raising the necessary funds will delay the start of commercial service. If the start of service is significantly delayed, a larger proportion of Globalstar's debt service requirements will become due before Globalstar has positive cash flow, which will increase the amount of money Globalstar needs. GLOBALSTAR MAY ENCOUNTER DELAY AND INCREASED COST. A number of factors may cause delay in the construction, deployment and commercial operation of the Globalstar system and Globalstar's achievement of positive cash flow. These factors, many of which are beyond Globalstar's control, include: - regulatory delays; 16 17 - delay in the integration of Globalstar's system into the land-based network; - changes in technical specifications; - construction delays; - delays in the integration or testing of the system by Globalstar vendors; - launch delays or failures; - financing delays; - inadequate marketing efforts by service providers; and - slower-than-anticipated consumer acceptance. GLOBALSTAR'S SYSTEM IS EXPOSED TO RISKS INHERENT IN LARGE-SCALE COMPLEX TELECOMMUNICATIONS SYSTEMS USING ADVANCED TECHNOLOGIES. The integration of a worldwide satellite-based system like Globalstar's presents significant technological challenges. The Globalstar system will require the integration of advanced digital communications in many devices, including personal handsets, public telephone networks, gateways in remote regions of the earth and satellites operating in space. In addition, Globalstar's system involves testing, production and deployment of significantly more satellites than have been deployed in most other systems. Globalstar's failure to install its system, or any of its diverse and dispersed parts, could delay the start of operations or prevent Globalstar from being a commercial success. GLOBALSTAR DEPENDS ON SERVICE PROVIDERS TO MARKET ITS SERVICE AND IMPLEMENT IMPORTANT PARTS OF ITS SYSTEM AND ON OTHER THIRD PARTIES TO COMPLETE ITS SYSTEM. Globalstar depends on independent service providers to supply the ground equipment and user terminals and market Globalstar service in each country where they plan to operate, and we cannot be sure that these service providers will be successful. We expect that these service providers will operate in more than 100 countries, many of which have developing economies. Globalstar's strategy of focusing on areas which lack basic telephone service exposes it to the risk that customers in these economies will not be able to afford the service. Globalstar currently has no service provider for India, due to the withdrawal of a service provider. Although it has identified a replacement, a legal dispute could prevent Globalstar from signing a new service provider agreement for that country. If Globalstar cannot replace its service provider for India on time, Globalstar will not be able to offer service in that country. Globalstar service providers could fail to obtain local partners and acquire and install the necessary gateways or obtain the regulatory licenses needed for complete global service in their countries. If Globalstar is unable to offer service in any particular region or country, it will not benefit from the potential demand in that region or country. Some Globalstar partners and other third parties are designing and building parts of Globalstar's telecommunications system. The failure of these partners or other parties to perform as expected could delay the start of Globalstar's commercial service and increase costs. GLOBALSTAR FACES RISKS INHERENT IN FOREIGN OPERATIONS. Globalstar expects that most of its business will be conducted outside of the United States. International operations are subject to changes in domestic and foreign government regulations and telecommunications standards, tariffs or taxes and other trade barriers. Political, economic or social instability or other developments, including currency fluctuations, could also adversely affect Globalstar's operations. In addition, Globalstar's contracts may be governed by foreign law or enforceable only in foreign jurisdictions. As a result Globalstar may find it hard to enforce its rights under these agreements if there is a dispute. 17 18 GLOBALSTAR FACES SPECIAL RISKS BY DOING BUSINESS IN DEVELOPING MARKETS AND FACES CURRENCY RISKS. Globalstar's largest potential markets are in developing countries or regions that are substantially underserved and are not expected to be served by existing telecommunications systems. Developing countries are more likely than industrialized countries to experience market, currency and interest fluctuations, and may have higher inflation. In addition, these countries present risks relating to government policy, price and wage, exchange control, tax related and social instability, and expropriation and other economic, political and diplomatic conditions. Although Globalstar anticipates that it will receive payments from its service providers in U.S. dollars, limited availability of U.S. currency in some local markets may prevent a service provider from making payments in U.S. dollars. In addition, exchange rate fluctuations may affect Globalstar's ability to control the prices charged for its services. SPACE SYSTEMS/LORAL, GLOBALSTAR'S PRIME CONTRACTOR, IS THE TARGET OF A GRAND JURY INVESTIGATION; CONGRESS HAS HELD RELATED HEARINGS. Space Systems/Loral could be accused of criminal violations of the export control laws arising out of the participation of its employees in a committee formed to review the findings of the Chinese regarding the 1996 crash of a Long March rocket in China. Whether or not Space Systems/Loral is indicted or convicted, Space Systems/Loral will remain subject to the State Department's general statutory authority to prohibit exports of satellites and related services if it finds a violation of the Arms Export Control Act that puts the exporter's reliability in question. Further, the State Department can suspend export privileges whenever it determines that grounds for debarment exist and that such suspension "is reasonably necessary to protect world peace or the security or foreign policy of the United States." If Space Systems/Loral were to be indicted and convicted of a criminal violation of the Arms Export Control Act, it - would be subject to a fine of $1 million per violation; - could be debarred from certain export privileges; and - could be debarred from participation in government contracts. If Space Systems/Loral loses its export privileges, Globalstar will be unable to launch its satellites outside the United States, which would delay the start of its commercial service and result in increased launch costs. A committee of the U.S. House of Representatives, chaired by Representative Cox, is investigating U.S. satellite export policy toward China. The committee recently issued a report which has been declassified in part. The other portions of the report, which could be issued shortly, could contain negative comments about SS/L's compliance with the export control laws. Further, we cannot assure you that future export licenses for satellites will be granted in the same manner and time as in the past after the State Department takes over the licensing from the Commerce Department in March 1999. GLOBALSTAR'S BUSINESS IS REGULATED, CAUSING UNCERTAINTY AND ADDITIONAL COSTS. Globalstar's operations are and will continue to be subject to United States and foreign regulation. Globalstar's system must be authorized in each of the markets in which its service providers intend to provide service. Globalstar and its service providers may not be able to obtain or retain all regulatory approvals needed for operations. Regulatory changes, such as those resulting from judicial decisions and/or adoption of treaties, legislation or regulation in countries where Globalstar intends to operate, may also significantly affect Globalstar's business. Glonass, the Russian global navigation satellite system, operates worldwide in frequency bands adjacent to and including spectrum authorized for use by Globalstar and other systems for user uplinks. Glonass has proposed to migrate to lower frequencies. This migration could have an adverse effect on Globalstar's use of its authorized frequencies. While we do not expect this to have a material adverse effect upon Globalstar's capacity, Glonass's actions may reduce Globalstar capacity in some markets. 18 19 GLOBALSTAR FACES INTENSE COMPETITION FROM BOTH DIRECT AND INDIRECT COMPETITORS, AND ADDITIONAL DIRECT COMPETITORS PLAN TO ENTER THE MARKET SOON. Iridium L.L.C. was the first low earth orbit constellation to begin global personal telecommunications service although, unlike Globalstar, its announced marketing focus is the international business community. ICO Global is a similar worldwide system affiliated with International Maritime Satellite Organization, also known as "Inmarsat," which is an international organization. ICO Global has filed a request with the Federal Communications Commission to operate in a different frequency band not available for use by systems like Globalstar's under current international guidelines until 2000. Because ICO Global's investors include many state-owned telecommunications monopolies, ICO Global could receive preferential treatment in the local licensing process in those countries. If Constellation Communications, Inc. and Mobile Communications Holdings, Inc., which have held licenses from the Federal Communications Commission since July 1997, attract financing, build their system and begin operations, they will become direct competitors as well. In addition to competing for investment capital, subscribers and service providers in markets all over the world, the mobile satellite services systems, including Globalstar, also compete with each other for the limited spectrum available for mobile satellite services operations. Unlike code division multiple access systems such as Globalstar, Constellation and Mobile Communications Holdings, which permit multiple systems to operate within the same frequency band, the design of Iridium's system requires a separate frequency segment dedicated specifically for its use. If more than two code division multiple access systems become operational, a system like Globalstar will have a smaller spectrum segment within which to operate its user uplinks in the U.S. Existing fixed satellite systems, including that of American Mobile Satellite Corporation and Comsat Corporation's Planet-1, and proposed systems from Asia Pacific Mobile Telecommunications, Afro-Asian Satellite, PT Asia Cellular Satellites, Thuraya Satellite Communications Company and Satphone, also provide, or are planning to provide, competing service on a regional basis at potentially lower costs but at lower levels of service quality. Technological advances and a continuing trend toward strategic alliances in the telecommunications industry could give rise to significant new competitors. Satellite-based telecommunications systems are characterized by high up-front costs and relatively low marginal costs of providing service. Several systems are being proposed and, while the proponents of these systems believe that there will be significant demand for their services, actual demand will not become known until such systems are operational. If the capacity of Globalstar and competing systems exceeds demand, price competition could be particularly intense. NEW TECHNOLOGIES AND THE EXPANSION OF LAND-BASED SYSTEMS MAY REDUCE DEMAND FOR GLOBALSTAR'S SERVICE. The extension of land-based telecommunications services to regions currently underserved or not served by wireline or cellular services may reduce demand for Globalstar service in those regions. If these land-based telecommunications services are built more quickly than Globalstar anticipates, demand for Globalstar's service may be reduced sooner than Globalstar now assumes. Globalstar may also face competition in the future from companies using new technologies and new satellite systems. The space and communications industries are subject to rapid advances and innovations in technology. New technology could render Globalstar obsolete or less competitive by satisfying consumer demand in more attractive ways or through the introduction of incompatible standards. In addition, Globalstar depends on technologies developed by third parties, and we cannot be certain that such technologies will continue to be available to Globalstar on a timely basis or on reasonable terms. 19 20 GLOBALSTAR COULD FACE LIABILITY BASED ON ALLEGED HEALTH RISKS. There has been adverse publicity concerning alleged health risks associated with the use of portable hand-held telephones which have transmitting antennae. Because hand-held Globalstar telephones will use on average lower power to transmit signals than traditional cellular telephones, Globalstar does not believe that proposed new guidelines from the Federal Communications Commission will require any significant modifications of its system or of its hand-held telephones. Even so, we cannot be certain that these guidelines, or any associated health issues, will not have an adverse effect on Globalstar's business. GLOBALSTAR RELIES ON KEY PERSONNEL. Globalstar needs highly qualified personnel. Except for Mr. Bernard L. Schwartz, Chairman and Chief Executive Officer of GTL and the Chief Executive Officer and Chairman of the General Partners' Committee of Globalstar, none of GTL's or Globalstar's officers has an employment contract with GTL, Globalstar or its managing general partner nor does GTL or Globalstar maintain "key man" life insurance. The departure of any of the key executives could have an adverse effect on Globalstar's business. THE YEAR 2000 PROBLEM COULD CAUSE COMPLICATIONS. Some computer systems and software programs may not function properly in the year 2000 and beyond because of a once common programming standard which used two digits instead of four digits to signify a year. These computer systems and software programs read the year 1999 as "99" and not "1999". Because of this, the year 2000 may appear as the year 1900, which could result in system failures or disruptions. This problem is often referred to as the "Year 2000" problem. If Globalstar is unable to fix a serious Year 2000 problem, there could be an interruption or failure of Globalstar's operations. Likewise, if Globalstar's suppliers or service providers are unable to fix a material Year 2000 problem, a resulting interruption or failure of their business could hurt Globalstar. GLOBALSTAR AND OTHER COMPANIES INVOLVED IN GLOBALSTAR'S SYSTEM HAVE POTENTIAL CONFLICTS OF INTEREST WHICH COULD RESULT IN DECISIONS ADVERSE TO GLOBALSTAR'S INTERESTS. Potential conflicts of interest include the following: - Globalstar partners, or their affiliates, are suppliers of the major parts of Globalstar's telecommunications system. They also manufacture the system elements which will be sold to service providers and subscribers. - During the construction and deployment of its system, Globalstar is dependent upon the management skills of Loral and technologies developed by Loral and others. - Globalstar has entered into contracts for the design of parts of its system with affiliates of its managing general partner. - Partners and affiliates of Globalstar, including companies affiliated with or controlled by Loral, will be among Globalstar's main customers. Accordingly, they may have conflicts of interest with respect to the terms of Globalstar's service provider agreements. - If Globalstar is unable to offer its service to a service provider on competitive terms in a particular country or region, the service provider, which may be a partner of Globalstar's, may act as a service provider to a competing system in that region or country while at the same time serving as a Globalstar service provider in other markets. - Globalstar is currently managed by a committee of its general partners, a majority of the representatives on which may be designated by Loral, which in turn owns Space Systems/Loral, Globalstar's prime contractor. 20 21 A CHANGE OF CONTROL OF GTL OR REDUCTION IN OUR OWNERSHIP OF GLOBALSTAR COULD RESULT IN GTL HAVING TO PAY ADDITIONAL TAXES AND BECOMING SUBJECT TO ONEROUS REQUIREMENTS UNDER THE INVESTMENT COMPANY ACT. If either of the following occurs, GTL will become a limited partner in Globalstar and will no longer appoint representatives to serve on its committee of general partners: - a change of control of GTL at a time when GTL owns less than 50% of the Globalstar partnership interests outstanding, including changes in GTL's board of directors; or - a sale or other disposition of partnership interests following which GTL's equity interest is reduced to less than 5%, without prior approval by the managing general partner of Globalstar or by the limited partners of Globalstar. If GTL were to become a limited partner in Globalstar, GTL could be deemed to be an investment company under the Investment Company Act of 1940. If this happened, GTL would become subject to the registration and other requirements of that law. In order to register, GTL might be required to reincorporate as a domestic U.S. corporation and would thereafter be subject to U.S. tax on its worldwide income. GTL currently intends to conduct its operations so as to avoid being deemed an investment company under the Investment Company Act. THERE ARE RISKS REGARDING FORWARD-LOOKING STATEMENTS. Some statements or information contained in this document are not historical facts but are "forward-looking statements" (as such terms is defined in the Private Securities Litigation Reform Act of 1995). They can be identified by the use of forward-looking words such as "believes", "expects", "plans", "may", "will", "should", or "anticipates" or their negatives or other variations of these words or other comparable words, or by discussions of strategy that involve risks and uncertainties. Some of the factors which may cause future results and performance to differ from what we may imply here are: - Globalstar is a development-stage company that may continue to lose money, have negative cash flow, require additional money and suffer delays in meeting its targets; - Globalstar satellites are subject to launch risks; - governments may change regulations or institute new rules, which could have an impact on our operations; - the Globalstar system is large-scale and complex; - Globalstar depends on its service providers; - Globalstar faces intense competition; - Globalstar owes significant amounts of money. We warn you that forward-looking statements are only predictions. Actual events or results may differ materially as a result of risks that we face, including those set forth elsewhere in this section. These are representative of factors that could affect the outcome of the forward-looking statements. ITEM 2. PROPERTIES Globalstar currently leases approximately 104,000 square feet of office space in San Jose, California. The lease expires in August 2000 and Globalstar has options to renew for up to an additional ten years. In addition, Globalstar leases 12,000 square feet for its back-up GOCC in El Dorado Hills, California. The lease expires in November 2006 with options to renew for up to an additional six years. Management is pursuing additional facilities space to accommodate growth. 21 22 ITEM 3. LEGAL PROCEEDINGS Neither Globalstar nor GTL is a party to any pending legal proceedings material to its financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 22 23 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS (A) MARKET PRICE AND DIVIDEND INFORMATION The Company's common stock is traded on the Nasdaq National Market ("Nasdaq") under the symbol "GSTRF." The following table presents the reported high and low sale prices of the Company's common stock as reported on Nasdaq. The sale prices for the common stock have been adjusted to reflect the two-for-one stock splits effected in the form of 100% stock dividends paid to the shareholders on May 28, 1997 and June 8, 1998.
MARKET PRICE ----------------------------- 1998 1997 ----------- -------------- HIGH LOW HIGH LOW ---- --- ---- ------ Quarter ended: March 31,.................................. $37 1/8 $19 $17 13/16 $12 1/2 June 30,................................... 36 1/8 25 3/4 16 3/4 11 7/8 September 30,.............................. 28 1/8 9 5/8 26 3/4 13 1/2 December 31,............................... 22 1/8 8 5/16 29 3/4 19 1/2
Except for dividend payments by the Company on its Convertible Redeemable Preferred Stock issued in January 1999 and distributions by Globalstar on its 8% RPPIs also issued in January 1999, the Company and Globalstar do not currently anticipate paying any dividends or distributions (other than to the extent that Globalstar's payment of GTL's operating expenses related to Globalstar would be treated as a distribution) prior to commencement of operations and achievement of positive cash flow. GTL has not declared or paid any cash dividends on its common stock, and Globalstar has not made any distributions on its ordinary partnership interests. GTL is a holding company, the sole asset of which is its partnership interests in Globalstar; GTL has no independent means of generating revenues. Globalstar will pay GTL's operating expenses related to Globalstar; such expenses are not expected to be material. To the extent permitted by applicable law and the agreements relating to its indebtedness, Globalstar intends to distribute to its partners, including GTL, its net cash received from operations, less amounts required to repay outstanding indebtedness, satisfy other liabilities and fund capital expenditures and contingencies (including funds required for design, construction and deployment of the second-generation satellite constellation). Globalstar's credit agreement and the indentures related to the 11 3/8% Senior Notes, the 11 1/4% Senior Notes, the 10 3/4% Senior Notes and the 11 1/2% Senior Notes restrict the ability of Globalstar to pay cash distributions on its ordinary partnership interests. Cash distributions by Globalstar may also be restricted by future debt covenants. GTL intends to promptly distribute as dividends to the holders of its common stock the distributions made to it by Globalstar, less any amounts required to be retained for the payment of taxes, for repayment of any liabilities, and to fund contingencies. (B) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK As of December 31, 1998, there were 737 holders of record of GTL's Common Stock. 23 24 ITEM 6. SELECTED FINANCIAL DATA GLOBALSTAR TELECOMMUNICATIONS LIMITED (In thousands, except per share data)
YEARS ENDED DECEMBER 31, ------------------------------------------- 1998(1) 1997 1996 1995 ------- -------- -------- -------- STATEMENT OF OPERATIONS DATA: Equity in net loss applicable to ordinary partnership interests of Globalstar, L.P..... $50,561 $ 24,152 $ 15,080 $ 12,632 Net loss....................................... 50,561 24,152 15,080 12,632 Net loss per share -- basic and diluted(2)..... 0.67 0.43 0.38 0.32 CASH FLOW DATA: Used in investing activities................... (1,112) (153,140) (299,500) (185,750) Provided by equity transactions................ 1,112 153,140 185,750 Provided by borrowings......................... 299,500 Dividends paid per common share RATIO OF EARNINGS TO FIXED CHARGES............. 1x 1x 1x N/A
DECEMBER 31, ----------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- ----- BALANCE SHEET DATA: Investment in Globalstar, L.P........ $580,428 $612,716 $482,676 $173,118 $ -- Total assets......................... 580,428 612,716 482,676 173,118 190 Convertible preferred equivalent obligations(3)..................... 301,410 300,358 Shareholders' equity................. 580,428 309,627 180,639 173,118 124 Shareholders' equity per share(2).... 7.08 5.06 4.52 4.33 2.59
- --------------- (1) Includes GTL's proportionate share of Globalstar's $17.3 million loss from launch failure. (2) Restated to reflect two-for-one stock splits in May 1997 and June 1998. (3) All convertible preferred equivalent obligations were converted into common stock in 1998. 24 25 GLOBALSTAR, L.P. (In thousands, except per partnership interest amounts)
YEAR ENDED DECEMBER 31, 1994 -------------------------------- PRE-CAPITAL CUMULATIVE SUBSCRIPTION MARCH 23, 1994 MARCH 23 PERIOD(1) (COMMENCEMENT (COMMENCEMENT ------------ OF OPERATIONS) TO YEARS ENDED DECEMBER 31, OF OPERATIONS) TO JANUARY 1 TO DECEMBER 31, ----------------------------------------- DECEMBER 31, MARCH 22, 1998 1998(3) 1997 1996 1995 1994 1994 ---- ------- ---- ---- ---- ----------------- ------------ STATEMENT OF OPERATIONS DATA: Revenues....................... $ -- $ -- $ -- $ -- $ -- $ -- $ -- Operating expenses............. 404,033 146,684 88,071 61,025 80,226 28,027 6,872 Interest income................ 57,777 17,141 20,485 6,379 11,989 1,783 Net loss applicable to ordinary partnership interests........ 406,978 151,740 88,788 71,969 68,237 26,244 6,872 Net loss per weighted average ordinary partnership interest outstanding -- basic and diluted...................... 2.69 1.74 1.53 1.50 0.73 Cash distributions per ordinary partnership interest......... OTHER DATA: Deficiency of earnings to cover fixed charges(2)............. 330,475 184,683 81,869 N/A N/A CASH FLOW DATA: Used in operating activities... 206,749 24,958 68,615 51,756 38,368 23,052 Used in investing activities... 2,014,396 684,834 619,538 379,130 280,345 50,549 Provided by partners' capital transactions................. 898,320 14,825 132,990 284,714 318,630 147,161 Provided by (used in) other financing activities......... 1,379,564 287,552 998,137 95,750 (1,875)
DECEMBER 31, -------------------------------------------------------- 1998 1997 1996 1995 1994 ---------- ---------- -------- -------- -------- BALANCE SHEET DATA: Cash and cash equivalents................................. $ 56,739 $ 464,154 $ 21,180 $ 71,602 $ 73,560 Globalstar System under construction...................... 2,365,362 1,626,913 891,033 400,257 71,996 Total assets.............................................. 2,670,025 2,149,053 942,913 505,391 151,271 Vendor financing liability................................ 371,170 197,723 130,694 42,219 Debt...................................................... 1,396,175 1,099,531 96,000 Redeemable preferred partnership interests................ 303,089 302,037 Ordinary partners' capital................................ 602,401 380,828 315,186 386,838 112,944
- --------------- (1) Reflects certain costs incurred by Loral and Qualcomm prior to March 23, 1994, which were reimbursed by Globalstar through a capital subscription credit or agreement for repayment in connection with the $275.0 million capital subscription and commencement of Globalstar's operations on March 23, 1994. (2) The ratio of earnings to fixed charges is not meaningful as Globalstar is in the development stage and, accordingly, has incurred operating losses. (3) The results of operations for 1998 include a $17.3 million loss from launch failure. 25 26 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Globalstar Telecommunications Limited ("GTL" or the "Company") is a holding company that acts as a general partner of Globalstar, L.P. ("Globalstar") and has no other business. The Company's sole asset is its investment in Globalstar and GTL's results of operations reflect its share of the results of operations of Globalstar on an equity accounting basis. Therefore, matters discussed in this section address the financial condition and results of operations of Globalstar. Except for the historical information contained herein, the matters discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations, are forward-looking statements that involve risks and uncertainties, many of which may be beyond Globalstar's or GTL's control. Actual results may differ materially from any forward-looking projections due to such risks and uncertainties. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased from $464.2 million as of December 31, 1997 to $56.7 million as of December 31, 1998. The net decrease resulted from the expenditures for the Globalstar System under construction of $562.8 million, net cash used in operating activities of $25 million, financing of production gateways and user terminals totaling $117.0, and preferred distributions on the 6 1/2% convertible redeemable preferred partnership interests issued in 1996 ("6 1/2% RPPIs") of $5.0 million, offset by the net proceeds of $287.6 million received from issuance of Globalstar's 11 1/2% senior notes, the proceeds from the sale of partnership interests to China Telecom (Hong Kong) Group Ltd. ("China Telecom") of $18.8 million and $1.1 million received from the exercise of certain warrants and stock options. Current liabilities increased by $257.4 million as compared to the prior year, to $401.2 million at December 31, 1998, primarily as a result of the classification of a portion of vendor financing due within one year and the timing of payments to Globalstar contractors and accrued interest on the senior notes. Globalstar plans to begin a regional roll-out of commercial service in September 1999 with a minimum of eight gateways in operation. By the end of 1999, Globalstar expects to have a total of at least 16 gateways in operation. All of the 38 gateways on order have been manufactured and are ready for installation. On March 15, 1999, Globalstar successfully launched four satellites aboard a Soyuz launch vehicle from the Baikonur Cosmodrome in Kazakhstan, bringing the total satellites in orbit to 16. This launch followed Globalstar's successful launch on February 8, 1999 of four satellites from the Baikonur Cosmodrome following the execution of a Technology Safeguard Agreement among the governments of Russia, Kazakhstan and the United States. Globalstar had previously launched its first group of four satellites on February 14, 1998 and its second group of four satellites on April 24, 1998. The first 12 Globalstar satellites have reached their final orbital positions and are currently being used to test basic system functionality, including the system's inter-satellite hand-off capabilities, and the latest four satellites are expected to reach their final orbital positions and begin operations testing in April 1999. As of March 15, 1999, in addition to the 16 satellites in orbit, Globalstar had eight completed satellites on hand and 28 more in final integration and test. In September 1998, a malfunction of a Zenit 2 rocket resulted in the loss of 12 Globalstar satellites shortly after lift-off from the Baikonur Cosmodrome and resulted in a delay in the program schedule. The cost of the launch vehicle and the lost satellites was substantially insured. For the remainder of 1999, Globalstar's current launch plan includes nine additional launches of four satellites each, using a mix of Delta and Soyuz rockets. According to the plan, Globalstar will deploy an operational constellation of a minimum of 32 satellites by September 1999 and a total of 52 satellites (including four in-orbit spares) by the end of 1999. Through December 31, 1998, Globalstar incurred costs of approximately $2.7 billion for the design and construction of the space and ground segments. Costs incurred during 1998 were approximately $871 million. Qualcomm is in the process of completing its revision to cost estimates for its portion of the ground segment. Due to additional scope and cost growth and based on preliminary information, Globalstar expects the increase from Qualcomm to be less than 3% of the total project cost. The Qualcomm estimate is still subject to further review by Globalstar. As of December 31, 1998, and including the effect of the preliminary Qualcomm estimate, Globalstar's budgeted expenditures were $3.17 billion for the design, construction and deployment of 26 27 the Globalstar System to commence commercial service and $340 million for budgeted financing costs. In addition to expenditures for operating costs and debt service, Globalstar anticipates further expenditures on system software for the improvement of system functionality and the addition of new features beyond those planned for the commencement of commercial service. Globalstar expects to achieve positive cash flow in the third quarter of 2000. Substantial additional financing will be required if there are delays in the commencement of commercial service and, in any event, after the commencement of commercial service and before positive cash flow is achieved. Although Globalstar believes it will be able to obtain these additional funds, there can be no assurance that such funds will be available on favorable terms or on a timely basis, if at all. Globalstar has agreed, subject to its partners' approval, to purchase from SS/L 12 additional spare satellites for which the cost and payment terms have not as yet been negotiated. It is anticipated that approximately $100 million will be expended for these spare satellites by commencement of commercial service. In addition, in order to accelerate the deployment of gateways around the world, Globalstar has agreed to help finance approximately $80 million of the cost of up to 32 of the initial 38 gateways. The contracts for the 38 gateways aggregate approximately $345 million. Ericsson, Qualcomm and Telital are in the process of manufacturing approximately 300,000 handheld and fixed user terminals under contracts totaling $353 million from Globalstar and its service providers. Globalstar has agreed to finance approximately $151 million of the cost of handheld and fixed user terminals. Globalstar expects to recoup such costs upon acceptance by the service providers of the gateways and user terminals. SS/L provides Globalstar with approximately $330 million of billings deferred as follows -- $224 million of vendor financing and $106 million of orbital incentives. SS/L subcontractors have assumed a portion of the vendor financing commitments totaling approximately $116 million. The $224 million of vendor financing consists of three tranches -- $110 million, $90 million and $24 million. Only the $90 million is interest bearing and bears interest at the 30-day LIBOR rate plus 3% per annum. Globalstar will repay the $110 million and the $24 million tranches as follows: 50% will be paid over five years in equal monthly installments following the launch and acceptance of 24 or more satellites (the "Preliminary Constellation") and the remaining 50% will be paid over five years in equal monthly installments following the launch and acceptance of 48 or more satellites (the "Full Constellation"). Payment of the $90 million interest bearing vendor financing will be due beginning March 31, 1999. Interest and principal will be repaid in 20 equal quarterly installments over the next five years. Approximately $47 million of the orbital incentives will be paid at both the Preliminary Constellation Date and Full Constellation Date with the remainder being paid with the delivery of the remaining satellites. On March 4, 1998, Qualcomm entered into a deferred payment agreement with Globalstar providing for $100 million of vendor financing. The deferred payments accrue interest at a rate of 5.75% per annum, which is added to the outstanding principal balance quarterly. Beginning January 1, 2000, Globalstar will make eight equal quarterly principal payments. The final payment including all unpaid interest is due October 1, 2001. In April 1998, China Telecom, through a subsidiary, exercised a warrant to purchase 937,500 Globalstar ordinary partnership interests for $18,750,000. In addition, China Telecom has a warrant to acquire an additional 937,500 Globalstar ordinary partnership interests for $18,750,000 after commencement of service. Globalstar had previously granted these warrants to China Telecom in connection with service provider arrangements in China under which China Telecommunications Broadcast Satellite Corporation ("ChinaSat") will act as the sole distributor of Globalstar service in China. On April 30, 1998, GTL redeemed all of its outstanding Convertible Preferred Equivalent Obligations ("CPEOs"). As of April 30, 1998, all the holders of the CPEOs had converted their holdings into 20,123,230 shares of GTL common stock. As a result of such conversion, the 6 1/2% RPPIs were converted into 4,769,230 Globalstar ordinary partnership interests. In connection with the redemption, GTL issued 539,322 additional shares of GTL common stock in satisfaction of a required interest make-whole payment. A corresponding dividend make-whole payment was also made by Globalstar for which an additional 134,830 Globalstar ordinary partnership interests were issued. Dividend payments and related increase in the 6 1/2% RPPIs were $22.2 million and $21.2 million for the years ended December 31, 1998 and 1997, 27 28 respectively. The interest make-whole payment and related dividend make-whole payment were recorded as interest expense and dividends, by GTL and Globalstar, respectively. The conversion of the CPEOs and the 6 1/2% RPPIs will result in annual cash savings of approximately $20.1 million. On July 6, 1998, Loral, the managing general partner of Globalstar, purchased 4.2 million Globalstar ordinary partnership interests (corresponding to approximately 16.8 million equivalent shares of GTL common stock) from certain founding service providers for $420 million in cash. The founding service providers participating in this transaction have deposited half of their proceeds ($210 million) into escrow accounts to be used for the purchase of Globalstar gateways and user terminals. Concurrently, entities advised by or associated with Soros Fund Management L.L.C. ("Soros") purchased 8.4 million shares of GTL common stock owned by Loral for $245 million in cash. The shares of GTL common stock acquired by Soros are restricted for U.S. securities law purposes. With respect to such shares, GTL has agreed to file a shelf registration statement and have such registration statement declared effective within one year from the closing date. On January 21, 1999, GTL sold $350 million of 8% Convertible Redeemable Preferred Stock due 2011 (the "Preferred Stock"). The Preferred Stock will be convertible into shares of GTL common stock at a conversion price of $23.2563 per share. Loral purchased $150 million face amount of the $350 million of Preferred Stock offered, to maintain its ownership percentage. GTL used the proceeds to purchase 8% convertible redeemable preferred partnership interests ("8% RPPIs") in Globalstar, and Globalstar will use the funds for the construction and deployment of the Globalstar System. As of January 31, 1999, Globalstar has raised or received commitments for approximately $3.3 billion. Globalstar intends to raise the remaining funds required, of approximately $600 million, by the initiation of commercial service from a combination of sources including: high yield debt issuance (which may include an equity component), bank financing, equity issuance, financial support from the Globalstar partners, projected service provider payments and anticipated payments from the sale of gateways and Globalstar subscriber terminals. RESULTS OF OPERATIONS Comparison of Results for the Years Ended December 31, 1998 and 1997 Globalstar is a development stage partnership and has not commenced commercial operations. For the period March 23, 1994 (commencement of operations) to December 31, 1998, Globalstar has recorded cumulative net losses applicable to ordinary partnership interests of $407.0 million. The net loss applicable to ordinary partnership interests for 1998 increased to $151.7 million as compared to $88.8 million for 1997. The net loss for 1998 increased primarily as a result of the launch failure, increased activity in the development of Globalstar user terminals and increased in-house engineering and marketing expenses. Globalstar is expending significant funds for the construction, launch, testing and deployment of the Globalstar System and expects such losses to continue until commencement of commercial operations. Globalstar earned interest income of $57.8 million on cash and cash equivalent balances since commencement of operations. Interest income for 1998 was $17.1 million as compared to $20.5 million for 1997, as a result of lower average cash balances available for investment during the current period. Operating Expenses. Development costs represent the development of Globalstar user terminals and Globalstar's continuing in-house engineering. For 1998, these costs were $86.3 million as compared to $62.5 million for 1997. Development costs increased as a result of increased activity in the development of Globalstar user terminals and in-house engineering. Marketing, general and administrative expenses were $43.1 million and $25.6 million for 1998 and 1997, respectively. The increases in marketing, general and administrative expenses are primarily the result of an increase in the number of employees and an increase in marketing costs as Globalstar gears up for operations. 28 29 On September 9, 1998, a malfunction of a Zenit 2 rocket resulted in the loss of 12 Globalstar satellites. A $17.3 million loss on the launch failure was recorded in the third quarter of 1998, which reflects the cost of the launch vehicle, satellites and related capitalized costs, net of insurance proceeds of $190.5 million. Depreciation. Globalstar intends to capitalize all costs, including interest as applicable, associated with the design, construction and deployment of the Globalstar System, except costs associated with the development of the Globalstar user terminals and certain technologies under a cost sharing arrangement with Qualcomm. Globalstar will not record depreciation expense on the Globalstar System under construction until the commencement of commercial operations, as assets are placed into service. Income Taxes. Globalstar is organized as a limited partnership. As such, no income tax provision or benefit is included in the consolidated financial statements of Globalstar which are incorporated herein by reference since U.S. income taxes are the responsibility of its partners. Generally, taxable income or loss, deductions and credits of Globalstar will be passed through to its partners. Comparison of Results for the Years Ended December 31, 1997 and 1996 The net loss applicable to ordinary partnership interests for 1997 increased to $88.8 million as compared to $72.0 million for 1996 due to an increase in total operating costs and preferred distributions, partially offset by an increase in interest income. Interest income during 1997 was $20.5 million as compared to $6.4 million for 1996, as a result of higher average cash balances available for investment during 1997. Operating Expenses. Development costs of $62.5 million for 1997 represent the development of Globalstar user terminals and Globalstar's continuing in-house engineering. This compares with $42.2 million of development costs incurred during 1996. The increase during 1997 is primarily the result of the increased activity in the development of the Globalstar user terminals. Marketing, general and administrative expenses were $25.6 million for 1997 as compared to $18.9 million incurred during 1996. The increase in marketing, general and administrative expenses is primarily the result of an increase in the number of employees, as Globalstar gears up for operations and increased advertising costs. TAXATION The Company will be subject to U.S. federal, state and local corporate tax on its share of Globalstar's income that is effectively connected with the conduct of a trade or business in the United States ("U.S. Income") and will be required to file federal, state and local income tax returns with respect to such U.S. Income. The Company expects, based on Globalstar's description of its proposed activities, that most of the Company's income will be from sources outside the United States and that such income will not be effectively connected with the conduct of a trade or business within the United States ("Foreign Income"). Thus, the Company believes that there generally will be no U.S. taxes on its share of Globalstar's Foreign Income. The IRS may disagree, however, and/or may promulgate regulations that would recharacterize a substantial portion of the Company's income as derived from U.S. sources and as effectively connected with a U.S. trade or business so as to subject that income to regular U.S. federal income tax and a 30% branch profits tax. In addition, any portion of the Company's income from sources outside the United States, realized through Globalstar or otherwise, may be subject to taxation by certain foreign countries. However, the extent to which these countries may require the Company or Globalstar to pay tax or to make payments in lieu of tax cannot be determined in advance. To the extent that Globalstar bears a higher foreign tax because any holder of its Ordinary Partnership Interests (including the Company) is not subject to United States tax on its share of Globalstar's foreign income, the additional foreign tax will be specially allocated to such partner and will reduce amounts distributed by Globalstar to such partner with respect to the Ordinary Partnership Interests held by such partner. 29 30 YEAR 2000 ISSUE Globalstar's Year 2000 Program is proceeding on schedule. The Year 2000 Issue is the result of computer programs which were written using two digits rather than four to signify a year (i.e., the year 1999 is denoted as "99" and not "1999"). Computer programs written using only two digits may recognize the year 2000 as the year 1900. This could result in a system failure or miscalculations causing disruption of operations. Globalstar has implemented a Year 2000 program (the "Year 2000 Program") for its internal products, system and equipment, as well as for key vendor supplied products, system and equipment. As part of the Year 2000 Program, Globalstar is assessing the Year 2000 capabilities of, among other things, its satellites, ground equipment, research and development activities, and facility management systems. The Year 2000 Program consists of the following phases: Inventory of Year 2000 items, Assessment (including prioritization), Remediation (including modification, upgrading and replacement), Testing and Auditing. This five-step program is divided into five major sections covering both information and non-information technology systems: 1) business systems, 2) technical systems, 3) imbedded hardware/firmware, 4) products and services and 5) vendor-supplied services. As of February 28, 1999, Globalstar has completed approximately 95% of the inventory phase and approximately 28% of its assessment phase. Globalstar expects to complete the first three phases, through the remediation phase, of the Year 2000 Program during the second quarter of 1999. The testing phase will be completed during the third quarter of 1999, prior to the anticipated in-service date of Globalstar. The fifth phase, the audit phase, commenced in January 1999, and is expected to continue through the third quarter of 1999 to accommodate re-audits if deemed necessary. Both internal and external resources are being utilized to execute Globalstar's plan. The program to address Year 2000 has been underway since July 1997. The incremental costs incurred through December 31, 1998 for this effort by Globalstar were approximately $600,000. Based on its efforts to date Globalstar anticipates additional incremental expenses of approximately $800,000 will be incurred to substantially complete the effort. Based upon the accomplishments to date, no contingency plans are expected to be needed. As risks are identified, contingency plans will be developed and implemented as necessary. However, because of the progress achieved to date and Globalstar's expectations that its Year 2000 program will be substantially complete in the third quarter of calendar 1999, Globalstar believes adequate time will be available to insure alternatives can be developed, assessed and implemented prior to a Year 2000 issue having a material negative impact on its operations. However, there can be no assurance that such modifications and conversions, if required, will be completed on a timely basis. The cost of the program and the dates on which Globalstar believes it will substantially complete Year 2000 modifications are based on management's best estimates. Such estimates were derived using software surveys and programs to evaluate calendar date exposures and numerous assumptions of future events, including the continued availability of certain resources, third-party Year 2000 readiness and other factors. Because none of these estimates can be guaranteed, actual results could differ materially and adversely from those anticipated. Specific factors that might cause an adjustment of costs are: number of personnel trained in this area, the ability to locate and correct all relevant computer codes, the ability to validate supplier certification and similar uncertainties. Globalstar's failure to remediate a material Year 2000 problem could result in an interruption or failure of certain basic business operations. These failures could materially and adversely effect Globalstar's results of operations, liquidity and financial condition. Globalstar is also assessing the Year 2000 readiness of its key third-party suppliers. Information requests have been distributed to such suppliers and replies are being evaluated. If the risk is deemed material, on-site visits to suppliers will be conducted to verify the adequacy of the information received. In addition, Globalstar has commenced discussions with its service providers to determine the status of their Year 2000 capabilities. However, due to the general uncertainty of the Year 2000 problem, including uncertainty with regard to third-party suppliers and service providers, especially those in developing countries, Globalstar is unable to determine at this time whether the consequences of Year 2000 failures will have an adverse material impact on Globalstar's results of operations, liquidity or financial condition. There can be no assurance that the Company's Year 2000 Program will be successful in avoiding 30 31 any interruption or failure of certain basic business operations, which may have a material adverse effect on the Company's results of operations or financial position. ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement No. 133 Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), which requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Globalstar has not yet determined the impact that the adoption of SFAS 133 will have on its earnings or financial position. Globalstar is required to adopt SFAS 133 on January 1, 2000. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK At December 31, 1998, the fair value of Globalstar's long-term debt and interest bearing vendor financing (collectively, "long-term obligations") is estimated to be $1.3 billion using quoted market prices or, in the case of vendor financing, recorded value. The long-term obligations carrying value exceeded fair value by $334 million. Market risk on long-term obligations is estimated as the potential increase in annual interest expense resulting from a hypothetical one percent increase in interest rates and amounts to $15 million. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Financial Statements on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 31 32 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS Information required for this item is presented in GTL's 1999 definitive proxy statement which is incorporated herein by reference. EXECUTIVE OFFICERS OF GTL
NAME AGE POSITION ---- --- -------- Bernard L. Schwartz.......... 73 Chairman and Chief Executive Officer Gregory J. Clark............. 56 Vice Chairman and President Michael P. DeBlasio.......... 62 Senior Vice President and Director Douglas G. Dwyre*............ 66 Senior Vice President and Director William Adler................ 52 Vice President and Assistant Secretary Jeanette Clonan.............. 50 Vice President -- Communications and Investor Relations Nicholas C. Moren............ 52 Vice President and Treasurer Anthony J. Navarra........... 51 Vice President Harvey B. Rein............... 45 Vice President and Controller Thomas B. Ross............... 69 Vice President -- Government Relations Richard J. Townsend.......... 48 Vice President and Chief Financial Officer Stephen C. Wright............ 42 Vice President Eric J. Zahler............... 48 Vice President and Secretary
EXECUTIVE OFFICERS OF GLOBALSTAR
NAME AGE POSITION ---- --- -------- Bernard L. Schwartz.......... 73 Chief Executive Officer and Chairman of the General Partners' Committee Gregory J. Clark............. 56 Vice Chairman of the General Partners' Committee Douglas G. Dwyre*............ 66 President Anthony J. Navarra*.......... 51 Executive Vice President, Strategic Development William Adler................ 53 Vice President, Legal and Regulatory Affairs Gerard Canavan............... 50 Senior Vice President, Marketing Gloria Everett............... 55 Senior Vice President, Operations John Klineberg............... 60 Executive Vice President, Satellite Constellation Establishment Joel Schindall............... 58 Senior Vice President, Systems Development Robert A. Wiedeman........... 60 Vice President, Systems and Regulatory Engineering Stephen C. Wright............ 42 Vice President and Chief Financial Officer - --------------- * Effective March 31, 1999, Mr. Dwyre retired from his positions as President of Globalstar and Senior Vice President of GTL. In connection therewith, Mr. Navarra was appointed as acting chief operating officer of Globalstar effective March 8, 1999.
32 33 Mr. Schwartz has been Chief Executive Officer and Chairman of the General Partners' Committee of Globalstar since 1994. Mr. Schwartz has also been the Chairman and Chief Executive Officer of GTL since 1995, and has served as director of GTL since 1994. Mr. Schwartz has been the Chairman and Chief Executive Officer of Loral since March 1996 and had been Chairman and Chief Executive of Old Loral since 1972. He has been Chairman of the Board of Directors of SS/L since February 1991. He is also Chairman and Chief Executive Officer of K&F Industries, Inc., as well as a director of Reliance Group Holdings, Inc. and certain of its subsidiaries, Sorema International Holding N.V. and First Data Corporation. Mr. Schwartz is also a Trustee of New York University Medical Center. Dr. Clark has been the Vice Chairman of the General Partners' Committee of Globalstar and Vice Chairman and President of GTL since March 1998, and has served as director of GTL since March 1998. Since January 1998, he has been the President and Chief Operating Officer of Loral. Prior to that time, Dr. Clark was President of News Technology Group, a division of News Corporation since September 1994. Prior to that, Dr. Clark was Director of Science and Technology of IBM in Australia since 1988. Mr. DeBlasio has been Senior Vice President and Director of GTL since May 1996. Mr. DeBlasio has been First Senior Vice President of Loral since February 1998 and Senior Vice President and Chief Financial Officer of Loral since March 1996 and had been Senior Vice President, Finance and Chief Financial Officer of Old Loral since 1979. Mr. DeBlasio is also a director of SS/L. Mr. Dwyre became a director of GTL in March 1999, and until his retirement was President of Globalstar from March 1994. Mr. Dwyre also served as Senior Vice President of GTL from May 1996 to March 1999. Prior to that, Mr. Dwyre was President of Northern Telecom's STC Submarine Systems from 1988 to 1992. Mr. Adler has been Vice President of Legal and Regulatory Affairs of Globalstar since January 1996 and Assistant Secretary of GTL since May 1996. He was a partner with Fleischman and Walsh, L.L.P. from May 1994 to November 1995, specializing in domestic and international telecommunications law, regulation legislation and policy. Prior to that, he was the Executive Director of Federal Regulatory Relations with Pacific Telesis Group. Ms. Clonan has been Vice President, Communications and Investor Relations of GTL since March 1998. Ms. Clonan has also been Vice President, Communications and Investor Relations of Loral since November 1996. Prior to that, Ms. Clonan was Director--Corporate Communications from June 1996. Prior to that, Ms. Clonan was Vice President--Corporate Relations of Jamaica Water Securities since September 1992. Mr. Moren has been Vice President and Treasurer of GTL since 1995. Mr. Moren has been Senior Vice President of Loral since February 1998 and Vice President and Treasurer of Loral since March 1996 and had been Vice President and Treasurer of Old Loral since April 1991. Mr. Navarra has been appointed acting Chief Operating Office of Globalstar effective March 1999. Prior to that, Mr. Navarra was Executive Vice President, Strategic Development of Globalstar since March 1994 and Vice President of GTL since 1995. He was Executive Vice President, Business Development at Loral Aerospace Corp. from 1992 to 1994. Mr. Rein has been Vice President and Controller of GTL since May 1996. Mr. Rein has been Vice President and Controller of Loral since April 1996 and had been Assistant Controller of Old Loral since 1985. Mr. Ross has been Vice President, Government Relations of GTL since November 1996. From June 1995 to November 1996, Mr. Ross was Vice President, Communications of GTL. Mr. Ross has also been Vice President, Government Relations of Loral since November 1996. From April 1996 to November 1996, Mr. Ross was Vice President, Communications of Loral. From April 1994 to May 1995, he served at the White House as Special Assistant to the President and Senior Director of Public Affairs for the National Security Council. Mr. Townsend has been Vice President and Chief Financial Officer of GTL since March 1999. Since October 1998, he has been Senior Vice President and Chief Financial Officer of Loral. Prior to that, Mr. Townsend was Corporate Controller and Director of Strategy for ITT Industries since 1997. Prior to that, he was Vice President of Finance Worldwide Industries for IBM and various other financial management positions with IBM since April 1979. 33 34 Mr. Wright has been Vice President and Chief Financial Officer of Globalstar since January 1996 and Vice President of GTL since May 1996. He was a Production Director from April 1995 to December 1995 at SS/L. Prior to that time, he was a Business Manager at SS/L. Mr. Zahler has been Vice President and Secretary of GTL since May 1996. Mr. Zahler has been Senior Vice President of Loral since February 1998 and Vice President, Secretary and General Counsel of Loral since March 1996 and had been Vice President and General Counsel of Old Loral since 1992. Prior to that time, he was a partner in the law firm of Fried, Frank, Harris, Shriver & Jacobson. Mr. Canavan has been a Senior Vice President of Globalstar since February 1998. Prior to that time, he was Vice President of Global Network Operations at IBM Global Network since May 1995, and Vice President of Network Applications Services at IBM Global Network since July 1994. Prior to that, he held various positions at Sprint, in business development and planning, product management and marketing since May 1989. Ms. Everett has been Senior Vice President of Globalstar since February 1998. Prior to that time, she was Vice President, Network Engineering and Operations, with AirTouch Communications. Dr. Klineberg has been Executive Vice President of Satellite Constellation Establishment of Globalstar since January 1998. Dr. Klineberg was Executive Vice President, Globalstar Program at SS/L from 1995 to January 1998. Prior to that time, Dr. Klineberg held a variety of technical and management positions with NASA, including Director of the Goddard Space Flight Center and NASA's Lewis Research Center. Dr. Schindall has been Senior Vice President of Systems Development for Globalstar since May 1997. Prior to that time, Dr. Schindall was Vice President of Systems Applications for Globalstar since May 1994. Prior to that time, he was President of Conic, a division of Old Loral. Mr. Wiedeman has been Vice President of Systems and Regulatory Engineering for Globalstar since March 1994. Prior to that time, he was Vice President of Loral Aerospace Corp. ITEM 11: EXECUTIVE COMPENSATION ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required under Items 11, 12 and 13 is presented in GTL's 1999 definitive proxy statement which is incorporated herein by reference. 34 35 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. (A development stage limited partnership) Independent Auditors' Report.............................. F-14 Consolidated Balance Sheets............................... F-15 Consolidated Statements of Operations..................... F-16 Consolidated Statements of Ordinary Partners' Capital and Subscriptions Receivable............................... F-17 Consolidated Statements of Cash Flows..................... F-18 Notes to Consolidated Financial Statements................ F-19
35 36 (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 thereto regarding the 8% Series A Convertible Redeemable Preferred Shares due 2011* 4.1 Indenture dated as of February 15, 1997 relating to Globalstar's and Globalstar Capital Corporation's 11 3/8% Senior Notes due 2004(2) 4.2 Indenture dated as of June 1, 1997 relating to Globalstar's and Globalstar Capital Corporation's 11 1/4% Senior Notes due 2004(3) 4.3 Indenture dated as of October 15, 1997 relating to Globalstar's and Globalstar Capital Corporation's 10 3/4% Senior Notes due 2004(4) 4.4 Indenture dated as of May 20, 1998 relating to Globalstar's and Globalstar Capital Corporation's 11 1/2% Senior Notes due 2005(5) 10.1 Amended and Restated Agreement of Limited Partnership of Globalstar L.P., dated as of January 26, 1999, among Loral/Qualcomm Satellite Services, L.P., Globalstar Telecommunications Limited, AirTouch Satellite Services, Inc., Dacom Corporation, Dacom International, Inc., Hyundai Corporation, Hyundai Electronics Industries Co., Ltd., Loral/DASA Globalstar, L.P., Loral Space & Communications Ltd., San Giorgio S.p.A., Telesat Limited, TE. SA. M., and Vodafone Satellite Services Limited* 10.2 Subscription Agreements by and between Globalstar, L.P., and each of AirTouch Communications, Alcatel Spacecom, Loral General Partner, Inc., Hyundai/Dacom and Vodastar Limited(1) 10.3 Subscription Agreement by and between Globalstar, L.P. and Loral/Qualcomm Satellite Services, L.P.(1) 10.4 Subscription Agreement by and between Globalstar, L.P. and Finmeccanica S.p.A.(1) 10.5 Subscription Agreement by and between Globalstar, L.P. and China Telecommunications Broadcast Satellite Corporation* 10.6 Form of Service Provider Agreements by and between Globalstar, L.P. and each of AirTouch Satellite Services, Inc., Finmeccanica S.p.A., Loral Globalstar, L.P., Loral/DASA Globalstar, L.P., Hyundai/Dacom, TE. SA. M., and Vodastar Limited(1) 10.7 Development Agreement by and between Qualcomm Incorporated and Globalstar, L.P.(1) 10.8 Contract between Globalstar, L.P. and Space Systems/Loral, Inc.(1) 10.9 Contract for the Development of Certain Portions of the Ground Operations Control Center between Globalstar and Loral Western Development Laboratories(1) 10.10 Contract for the Development of Satellite Orbital Operations Centers between Globalstar and Loral Aerosys, a division of Loral Aerospace Corporation(1) 10.11 1994 Stock Option Plan(6)+ 10.12 Amendment to 1994 Stock Option Plan(7)+ 10.13 Revolving Credit Agreement dated as of December 15, 1995, as amended on March 25, 1996, among Globalstar, certain banks parties thereto and Chemical Bank, as Administrative Agent(2) 10.14 Second Amendment to Revolving Credit Agreement dated July 31, 1997 among Globalstar, certain banks parties thereto and The Chase Manhattan Bank, as Administrative Agent(4) 10.15 Third Amendment to Revolving Credit Agreement dated as of October 15, 1997 among Globalstar, certain banks parties thereto and The Chase Manhattan Bank, as Administrative Agent(4) 10.16 Fourth Amendment to Revolving Credit Agreement dated as of November 13, 1998 among Globalstar, certain banks parties thereto and The Chase Manhattan Bank, as Administrative Agent*
37
EXHIBIT NUMBER DESCRIPTIONS OF EXHIBIT - ------- ----------------------- 10.17 Exchange and Registration Rights Agreement, dated as of December 31, 1994, among Globalstar, L.P. and AirTouch Satellite Services, Inc., Finmeccanica S.p.A., Loral Globalstar, L.P., Loral/DASA Globalstar, L.P., Hyundai/Dacom, TE. SA. M., and Vodastar Limited (1) 10.18 Amendment to the Exchange and Registration Rights Agreement, dated as of April 8, 1998, among Globalstar, L.P., Globalstar Telecommunications Limited and Telesat Limited* 10.19 Warrant Agreement dated as of February 19, 1997 relating to Warrants to purchase 4,129,000 shares of Common Stock of Globalstar Telecommunications Limited(2) 10.20 Registration Rights Agreement dated February 19, 1997 relating to Globalstar's 11 3/8% Senior Notes due 2004 and the Company's Warrants to purchase 4,129,000 shares of Common Stock issued in connection therewith(2) 10.21 Registration Rights Agreement dated June 13, 1997 relating to Globalstar's and Globalstar Capital Corporation's 11 1/4% Senior Notes due 2004(3) 10.22 Registration Rights Agreement dated October 29, 1997 relating to Globalstar's and Globalstar Capital Corporation's 10 3/4% Senior Notes due 2004(4) 10.23 Registration Rights Agreement dated May 20, 1998 relating to Globalstar's and Globalstar Capital Corporation's 11 1/2% Senior Notes due 2005(5) 10.24 Registration Rights Agreement dated as of July 6, 1998 relating to 8,400,000 shares of Common Stock by and among Globalstar Telecommunications Limited, Loral Space & Communications Ltd., Quantum Partners LDC, Quasar Strategic Partners LDC and Quantum Industrial Partners LDC.(8) 10.25 Exchange Agreement dated as of September 28, 1998 relating to 717,600 shares of Common Stock by and between Loral Space & Communications Ltd., DACOM Corporation and DACOM International, Inc.(9) 10.26 Registration Rights Agreement dated as of January 26, 1999 relating to the Company's 8% Convertible Redeemable Preferred Stock* 12 Statement Regarding Computation of Ratios* 21 List of Subsidiaries of the Registrant* 23 Consent of Deloitte & Touche LLP* 27 Financial Data Schedule (EDGAR only)*
- --------------- (1) Incorporated by reference to GTL's Registration Statement on Form S-1 (No. 33-86808). (2) Incorporated by reference to the Company's Annual Report on Form 10-K for the Year Ended December 31, 1996. (3) Incorporated by reference to Globalstar's Registration Statement on Form S-4 (No. 333-25461). (4) Incorporated by reference to Globalstar's Registration Statement on Form S-4 (No. 333-41229). (5) Incorporated by reference to Globalstar's Registration Statement on Form S-4 (No. 333-57749). (6) Incorporated by reference to the Company's Registration Statement on Form S-3 (No. 333-6477). (7) Incorporated by reference to the Company's Annual Report on Form 10-K for the Year Ended December 31, 1997 (8) Incorporated by reference to Schedule 13D filed by Loral Space & Communications Ltd. on August 3, 1998. (9) Incorporated by reference to Schedule 13D filed by Loral Space & Communications Ltd. on February 10, 1999. * Filed herewith. + Management compensation plan. (b) Reports on Form 8-K None. 38 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GLOBALSTAR TELECOMMUNICATIONS LIMITED By: /s/ BERNARD L. SCHWARTZ ------------------------------------ Bernard L. Schwartz (Chairman of the Board and Chief Executive Officer) Date: March 30, 1999 Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE ---------- ----- ---- /s/ BERNARD L. SCHWARTZ Chairman of the Board and Chief March 30, 1999 - --------------------------------------------------- Executive Officer Bernard L. Schwartz /s/ GREGORY J. CLARK Director and President March 30, 1999 - --------------------------------------------------- Gregory J. Clark /s/ DOUGLAS DWYRE Director March 30, 1999 - --------------------------------------------------- Douglas Dwyre /s/ SIR RONALD GRIERSON Director March 30, 1999 - --------------------------------------------------- Sir Ronald Grierson /s/ ROBERT B. HODES Director March 30, 1999 - --------------------------------------------------- Robert B. Hodes /s/ E. JOHN PEETT Director March 30, 1999 - --------------------------------------------------- E. John Peett /s/ MICHAEL B. TARGOFF Director March 30, 1999 - --------------------------------------------------- Michael B. Targoff /s/ A. ROBERT TOWBIN Director March 30, 1999 - --------------------------------------------------- A. Robert Towbin /s/ MICHAEL P. DEBLASIO Director March 30, 1999 - --------------------------------------------------- Michael P. DeBlasio /s/ RICHARD J. TOWNSEND Principal Financial Officer March 30, 1999 - --------------------------------------------------- Richard J. Townsend /s/ HARVEY B. REIN Principal Accounting Officer March 30, 1999 - --------------------------------------------------- Harvey B. Rein
39 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York, State of New York, on March 30, 1999. GLOBALSTAR, L.P. By: Loral/QUALCOMM Satellite Services, L.P., its General Partner By: Loral/QUALCOMM Partnership, L.P., its General Partner By: Loral General Partner, Inc., its General Partner By: /s/ BERNARD L. SCHWARTZ ------------------------------------ Bernard L. Schwartz Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the general partner of the Registrant and in the capacities and on the date indicated.
SIGNATURES TITLE DATE ---------- ----- ---- /s/ BERNARD L. SCHWARTZ Chairman of the Board and Chief March 30, 1999 - --------------------------------------------------- Executive Officer Bernard L. Schwartz /s/ GREGORY J. CLARK Director March 30, 1999 - --------------------------------------------------- Gregory J. Clark /s/ ERIC J. ZAHLER Director March 30, 1999 - --------------------------------------------------- Eric J. Zahler
40 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........................ F-5 Statements of Cash Flows.................................. F-6 Notes to Financial Statements............................. F-7 GLOBALSTAR, L.P. (A development stage limited partnership) Independent Auditors' Report.............................. F-14 Consolidated Balance Sheets............................... F-15 Consolidated Statements of Operations..................... F-16 Consolidated Statements of Ordinary Partners' Capital and Subscriptions Receivable................... F-17 Consolidated Statements of Cash Flows..................... F-18 Notes to Consolidated Financial Statements................ F-19
F-1 41 INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF GLOBALSTAR TELECOMMUNICATIONS LIMITED: We have audited the accompanying balance sheets of Globalstar Telecommunications Limited (a Bermuda company and a General Partner of Globalstar, L.P.) as of December 31, 1998 and 1997 and the related statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Globalstar Telecommunications Limited as of December 31, 1998 and 1997 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP San Jose, California February 16, 1999 F-2 42 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) BALANCE SHEETS (In thousands, except share data)
DECEMBER 31, --------------------- 1998 1997 ---- ---- ASSETS Investment in Globalstar, L.P.: Redeemable preferred partnership interests................ $ -- $303,089 Ordinary partnership interests............................ 568,394 297,417 Ordinary partnership warrants............................. 12,034 12,210 --------- -------- Total assets...................................... $ 580,428 $612,716 ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Interest payable.......................................... $ -- $ 1,679 Convertible preferred equivalent obligations ($310,000 principal amount)............................... -- 301,410 Commitments and contingencies (Note 4) Shareholders' equity: Common stock, $1.00 par value, 600,000,000 shares authorized (82,016,679 and 30,638,152 issued and outstanding at December 31, 1998 and 1997, respectively)........... 82,017 30,638 Paid-in capital........................................... 588,802 318,643 Warrants.................................................. 12,034 12,210 Accumulated deficit....................................... (102,425) (51,864) --------- -------- Total shareholders' equity.................................. 580,428 309,627 --------- -------- Total liabilities and shareholders' equity........ $ 580,428 $612,716 ========= ========
See notes to financial statements. F-3 43 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) STATEMENTS OF OPERATIONS (In thousands, except per share data)
YEARS ENDED DECEMBER 31, -------------------------------- 1998 1997 1996 -------- -------- -------- Equity in net loss applicable to ordinary partnership interests of Globalstar, L.P............................. $ 50,561 $ 24,152 $ 15,080 Dividend income on Globalstar, L.P. redeemable preferred partnership interests.................................... (22,197) (21,202) (17,370) Interest expense on convertible preferred equivalent obligations.............................................. 22,197 21,202 17,370 -------- -------- -------- Net loss................................................... $ 50,561 $ 24,152 $ 15,080 ======== ======== ======== Net loss per share -- basic and diluted.................... $ 0.67 $ 0.43 $ 0.38 ======== ======== ======== Weighted average shares outstanding -- basic and diluted... 75,252 55,924 40,000 ======== ======== ========
See notes to financial statements. F-4 44 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands)
COMMON STOCK ---------------- PAID-IN ACCUMULATED SHARES AMOUNT CAPITAL WARRANTS DEFICIT TOTAL ------ ------- -------- -------- ----------- -------- Balance, January 1, 1996.................................... 10,000 $10,000 $175,750 $ (12,632) $173,118 Warrants issued in connection with the Globalstar credit agreement................................................. $ 22,601 22,601 Net loss.................................................... (15,080) (15,080) ------ ------- -------- -------- --------- -------- Balance, December 31, 1996.................................. 10,000 10,000 175,750 22,601 (27,712) 180,639 Exercise of warrants........................................ 4,185 4,185 129,327 (22,601) 110,911 Exercise of rights.......................................... 1,131 1,131 28,845 29,976 Stock split................................................. 15,317 15,317 (15,317) Exercise of stock options................................... 5 5 38 43 Warrants issued in connection with Globalstar, L.P.'s 11 3/8% Senior Notes...................................... 12,210 12,210 Net loss.................................................... (24,152) (24,152) ------ ------- -------- -------- --------- -------- Balance, December 31, 1997.................................. 30,638 30,638 318,643 12,210 (51,864) 309,627 Exercise of warrants........................................ 33 33 1,180 (176) 1,037 Conversion of convertible preferred equivalent obligations and stock issued on related make-whole interest payment... 10,331 10,331 309,919 320,250 Stock split................................................. 40,997 40,997 (40,997) Exercise of stock options................................... 18 18 57 75 Net loss.................................................... (50,561) (50,561) ------ ------- -------- -------- --------- -------- Balance, December 31, 1998.................................. 82,017 $82,017 $588,802 $ 12,034 $(102,425) $580,428 ====== ======= ======== ======== ========= ========
See notes to financial statements. F-5 45 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) STATEMENTS OF CASH FLOWS (In thousands)
YEARS ENDED DECEMBER 31, ----------------------------------- 1998 1997 1996 --------- ----------- --------- Operating activities: Net loss.................................................. $ (50,561) $ (24,152) $ (15,080) Equity in net loss applicable to ordinary partnership interests of Globalstar, L.P............................ 50,561 24,152 15,080 Increase in redemption value of redeemable preferred partnership interests................................... (351) (1,052) (858) Dividends accrued on redeemable preferred partnership interests in excess of cash received.................... 1,679 (1,679) Amortization of convertible preferred equivalent obligations issue costs................................. 351 1,052 858 Change in operating liability: Interest payable........................................ (1,679) 1,679 --------- ----------- --------- Net cash provided by (used in) operating activities......... -- -- -- --------- ----------- --------- Investing activities: Purchase of ordinary partnership interests in Globalstar, L.P..................................................... (1,112) (140,930) Purchase of redeemable preferred partnership interests in Globalstar, L.P......................................... (299,500) Purchase of warrants in Globalstar, L.P................... (12,210) --------- ----------- --------- Net cash used in investing activities....................... (1,112) (153,140) (299,500) --------- ----------- --------- Financing activities: Net proceeds from issuance of common stock upon exercise of options and warrants................................. 1,112 43 Payment of debt offering costs............................ (10,500) Sale of convertible preferred equivalent obligations...... 310,000 Proceeds from issuance of warrants in connection with sale of Globalstar, L.P.'s 11 3/8% Senior Notes............................................ 12,210 Proceeds from exercise of guarantee warrants.............. 110,911 Proceeds from exercise of GTL rights...................... 29,976 --------- ----------- --------- Net cash provided by financing activities................... 1,112 153,140 299,500 --------- ----------- --------- Net increase (decrease) in cash and cash equivalents........ -- -- -- Cash and cash equivalents, beginning of period.............. -- -- -- --------- ----------- --------- Cash and cash equivalents, end of period.................... $ -- $ -- $ -- ========= =========== ========= Noncash transactions: Warrants issued in connection with the Globalstar credit agreement............................................... $ 22,601 ========= Conversion of redeemable preferred partnership interests into ordinary partnership interests and receipt of related dividend make-whole payment..................... $ 320,250 ========= Common stock issued upon conversion of convertible preferred equivalent obligations and related interest make-whole payment...................................... $ 320,250 ========= Supplemental information: Interest paid during the year............................. $ 5,037 $ 20,150 $ 14,833 ========= =========== =========
See notes to financial statements. F-6 46 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND BUSINESS On November 23, 1994, Globalstar Telecommunications Limited ("GTL") was incorporated as an exempted company under the Companies Act 1981 of Bermuda. GTL's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. GTL's sole business is acting as a general partner of Globalstar, L.P. ("Globalstar"), a development stage limited partnership, which is building and will operate a worldwide, low-earth orbit satellite-based wireless digital telecommunications system (the "Globalstar System"). The Globalstar System's world-wide coverage is designed to enable its service providers to extend modern telecommunications services to millions of people who currently lack basic telephone service and to enhance wireless communications in areas underserved or not served by existing or future cellular systems, providing a telecommunications solution in parts of the world where the build-out of terrestrial systems cannot be economically justified. Loral Space & Communications Ltd. ("Loral"), through a subsidiary and intermediate limited partnerships, is the managing general partner of Globalstar. As of December 31, 1998, Loral owned 24,760,430 (approximately 43%) ordinary partnership interests of Globalstar, including 8,273,782 shares of GTL's outstanding common stock. On July 6, 1998, Loral purchased 4.2 million Globalstar ordinary partnership interests (corresponding to approximately 16.8 million equivalent shares of GTL common stock) from certain founding service providers for $420 million in cash. The founding service providers participating in this transaction have deposited half of their proceeds ($210 million) into escrow accounts to be used for the purchase of Globalstar gateways and user terminals. Concurrently, entities advised by or associated with Soros Fund Management L.L.C. ("Soros") purchased 8.4 million shares of GTL common stock owned by Loral for $245 million in cash. The shares of GTL common stock acquired by Soros are restricted for U.S. securities law purposes. With respect to such shares, GTL has agreed to file a shelf registration statement and have such registration statement declared effective within one year from the closing date. On April 23, 1996, a merger between Loral Corporation ("Old Loral") and Lockheed Martin Corporation ("Lockheed Martin") was completed. In conjunction with the merger, Old Loral's direct and indirect interests in GTL and Globalstar were transferred to Loral. As of December 31, 1998, GTL owned 20,242,593 (34.8%) of Globalstar's 58,180,093 outstanding ordinary partnership interests. As GTL's investment in Globalstar is GTL's only asset, GTL is dependent upon Globalstar's success and achievement of profitable operations for the recovery of its investment. Globalstar is a development stage limited partnership which may encounter problems, delays and expenses, many of which may be beyond Globalstar's control. These may include, but are not limited to, problems related to technical development of the system, testing, regulatory compliance, manufacturing and assembly, potential launch failures which could delay the program schedule, the competitive and regulatory environment in which Globalstar will operate, marketing problems and costs and expenses that may exceed current estimates. There can be no assurance that substantial delays in any of the foregoing matters would not delay Globalstar's achievement of profitable operations and affect the recoverability of GTL's investment. All expenses necessary to maintain GTL's operations are borne by Globalstar. Globalstar will operate in one industry segment, Global Mobile Telephony. In each of 1998 and 1997, GTL issued two-for-one stock splits to shareholders in the form of 100% stock dividends. Accordingly, all GTL share and per share amounts, excluding the balance sheet and statement of stockholders' equity have been restated to reflect the stock splits (see Note 5). F-7 47 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Investment in Globalstar, L.P. GTL accounts for its investment in Globalstar's ordinary partnership interests on the equity basis, recognizing its allocated share of net loss for each period since its initial investment on February 22, 1995. This investment includes the fair value of warrants received or acquired from Globalstar in 1996 and 1997 (see Notes 4 and 5). The excess carrying value of this investment over GTL's interest in Globalstar's ordinary partners' capital is attributable to the Globalstar System Under Construction. Amortization of this excess will begin upon Globalstar's commencement of commercial service. Dividend income on GTL's investment in Globalstar's Redeemable Preferred Partnership Interests includes accretion of the carrying amount of the investment to their ultimate redemption value prior to conversion (see Note 3). Stock Based Compensation As permitted by Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation," ("SFAS 123") GTL accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Income Taxes GTL was incorporated in Bermuda. Bermuda does not have an income, profits or capital gains tax. As a partner in Globalstar, however, GTL will be subject to U.S. tax on its share of Globalstar's income that is effectively connected with the conduct of a trade or business in the U.S. and may be subject to tax in some foreign jurisdictions on portions of its share of the partnership's foreign source income. Commencing with its investment in Globalstar, GTL has been allocated its proportionate share of partnership tax losses. The ultimate realizability of these tax loss carryforwards is dependent upon the ability of Globalstar to generate U.S. income, subject to certain other restrictions imposed by the U.S. Internal Revenue Code. Accordingly, no provision for Bermuda or U.S. income tax expense or benefit is included in GTL's Statements of Operations. Earnings Per Share GTL follows Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128") in presenting basic and diluted earnings per share. Due to GTL's net losses for the years ended December 31, 1998, 1997 and 1996, diluted weighted average shares outstanding excludes the assumed conversion of GTL's Convertible Preferred Equivalent Obligations prior to their conversion into 6.7 million, 20.1 million, and 16.8 million common shares for 1998, 1997 and 1996, respectively, (see Note 3) and the assumed exercise of outstanding options and warrants into 5.8 million, 8.5 million and 17.4 million common shares, for 1998, 1997 and 1996, respectively, as their effect would have been anti-dilutive. Accordingly, basic and diluted weighted average common shares outstanding are based on the weighted average common shares outstanding for 1998, 1997 and 1996. Comprehensive Income Effective January 1, 1998, GTL adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130"). During the periods presented, GTL had no changes in equity from transactions or other events and circumstances from non-owner sources. Accordingly, a statement of comprehensive loss has not been provided as comprehensive loss equals net loss for all periods presented. F-8 48 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 3. REDEMPTION OF CONVERTIBLE PREFERRED EQUIVALENT OBLIGATIONS AND CONVERSION OF REDEEMABLE PREFERRED PARTNERSHIP INTERESTS During 1996, GTL issued 6.2 million shares of its 6 1/2% Convertible Preferred Equivalent Obligations due 2006, par value $50 per share (the "CPEOs"). The net proceeds of $299.5 million were used by GTL to purchase 4,769,230 of 6 1/2% convertible redeemable preferred partnership interests ("6 1/2% RPPIs") in Globalstar. Costs incurred in connection with the issuance of the CPEOs were netted against the proceeds of the offering. Interest expense included accretion of the carrying value of the CPEOs to redemption value prior to their conversion. On April 30, 1998, GTL redeemed all of its outstanding CPEOs. As of April 30, 1998, all the holders of the CPEOs had converted their holdings into 20,123,230 shares of GTL common stock. As a result of such conversion, the 6 1/2% RPPIs were converted into 4,769,230 Globalstar ordinary partnership interests. In connection with the redemption, GTL issued 539,322 additional shares of GTL common stock in satisfaction of a required interest make-whole payment. A corresponding dividend make-whole payment was also made by Globalstar for which an additional 134,830 Globalstar ordinary partnership interests were issued. Such make-whole payments are reflected as dividend income and interest expense in the accompanying statements of operations. 4. SENIOR NOTE WARRANTS On February 13, 1997, GTL and Globalstar sold units consisting of $500 million aggregate principal amount of Globalstar's 11 3/8% Senior Notes due 2004 and warrants to purchase 4,129,000 shares of GTL common stock in a private offering. GTL was allocated $12,210,000 of the offering proceeds for these warrants which were used to purchase warrants for Globalstar's ordinary partnership interests. There were 4,069,325 warrants outstanding as of December 31, 1998, that were exercisable at a price of $17.394 per share and expire on February 15, 2004. Any proceeds from the exercise of the warrants will be used to purchase Globalstar ordinary partnership interests. 5. SHAREHOLDERS' EQUITY Common Stock In May 1997 and June 1998, GTL issued two-for-one stock splits in the form of a 100% stock dividend. Accordingly, all GTL share and per share amounts, excluding the balance sheets and statements of shareholders' equity, have been restated to reflect the two-for-one stock splits. Prior to the stock splits, GTL's equity securities and convertible securities were represented by equivalent Globalstar partnership interests on an approximate one-for-one basis. Globalstar's partnership interests were not affected by the GTL stock splits and, accordingly, GTL's equity securities and convertible securities are now represented by equivalent Globalstar partnership interests on an approximate four-for-one basis. Partners in Globalstar have the right to exchange their ordinary partnership interests into common stock of GTL on an approximate one-for-four basis following the Full Constellation Date, as defined, of the Globalstar System and after at least two consecutive quarters of positive net income, subject to certain annual limitations. GTL has reserved approximately 152 million shares for this purpose. 8% Convertible Preferred Stock On January 21, 1999, GTL sold $350 million of 8% Convertible Preferred Stock due 2011 (the "Preferred Stock"). The Preferred Stock has an aggregate liquidation preference equal to its $350 million aggregate redemption value and a mandatory redemption date of February 15, 2011. Dividends accrue at 8% per annum and are payable quarterly. The Preferred Stock is convertible into shares of GTL common stock at F-9 49 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 5. SHAREHOLDERS' EQUITY -- (CONTINUED) a conversion price of $23.2563 per share, subject to adjustment for certain antidilution events. As of January 21, 1999, the Preferred Stock was convertible into 15,049,685 shares of GTL common stock. Loral purchased $150 million face amount of the Preferred Stock issued, in order to maintain its ownership interest in Globalstar. The Preferred Stock has limited voting rights. With respect to dividend rights and rights upon liquidation, winding up and dissolution, the Preferred Stock ranks senior to common stock and to all other future series of preferred stock or other class of capital stock of GTL, the terms of which do not expressly provide that such series or class ranks senior to or on parity with the Preferred Stock. Prior to its mandatory redemption date, the Preferred Stock is redeemable (at a premium which declines over time) by GTL beginning in February 2002 (or beginning in February 2000 if GTL's stock price exceeds certain defined price ranges). Payments due on the Preferred Stock may be made in cash, GTL common stock or a combination of both at the option of GTL. In the event accrued and unpaid dividends accumulate to an amount equal to six quarterly dividends, holders of the majority of the outstanding shares of Preferred Stock will be entitled to elect additional members to GTL's Board of Directors. GTL used the net proceeds of approximately $340 million to purchase $350 million face amount of 8% convertible redeemable preferred partnership interests of Globalstar having terms substantially similar to those of the Preferred Stock. Guarantee Warrants On December 15, 1995, Globalstar entered into a $250 million credit agreement (the "Globalstar Credit Agreement") with a group of banks. Lockheed Martin, Space Systems/Loral ("SS/L"), a subsidiary of Loral, and certain Globalstar partners guaranteed $206.3 million, $11.7 million and $32.0 million of the Globalstar Credit Agreement, respectively. In addition, Loral agreed to indemnify Lockheed Martin for any liability in excess of $150 million. In exchange for the guarantee and indemnity, GTL issued warrants to purchase 16,741,272 shares of GTL common stock at $6.625 per share as follows: Loral and SS/L 4,550,088 warrants, Lockheed Martin 10,044,760 warrants and certain Globalstar partners 2,146,424 warrants. As part of this transaction, Globalstar issued GTL warrants to purchase an additional 1,131,168 ordinary partnership interests of Globalstar. In addition, GTL distributed to the holders of its common stock rights to subscribe for and purchase 4,524,672 GTL shares for a price of $6.625 per share of which Loral received rights to purchase 636,688 shares and Loral agreed to purchase all shares not purchased upon exercise of the rights. In March 1997, the warrants to purchase 16,741,272 shares of GTL common stock were exercised for proceeds of approximately $110.9 million. In May 1997, GTL shareholders exercised the rights to purchase 4,524,672 shares of GTL common stock (including 700,696 shares purchased by Loral) for $6.625 per share for proceeds of $30.0 million. GTL used the total proceeds of $140.9 million to purchase 5,316,486 Globalstar ordinary partnership interests for $26.50 per interest. Stock Option Arrangements Officers, directors and employees of Globalstar are eligible to participate in GTL's 1994 Stock Option Plan (the "Plan"), which provides for nonqualified and incentive stock options. The Plan is administered by a stock option committee (the "Committee"), appointed by the GTL Board of Directors. The Committee determines the option price, exercise date and the expiration date of each option (provided no option shall be exercisable after ten years from the date of grant). Proceeds received by GTL for options exercised will in turn be used to purchase Globalstar ordinary partnership interests under a four-for-one exchange arrangement. As described in Note 2, GTL accounts for its stock-based compensation using the intrinsic value method F-10 50 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 5. SHAREHOLDERS' EQUITY -- (CONTINUED) in accordance with APB 25, and its related interpretations. Accordingly, no compensation expense based on the fair value method has been recognized in GTL's financial statements for stock-based compensation. SFAS No. 123 requires the disclosure of pro forma net income and earnings per share as though GTL had adopted the fair value method. Under SFAS 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from GTL's stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. GTL's calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions: expected life, six months following vesting; stock volatility, 30%; risk free interest rates, 4.44% to 6.55% based on date of grant in 1998 and 1997, and 6.25% in 1996; and no dividends during the expected term. GTL's calculations are based on a multiple option valuation approach and forfeitures are recognized as they occur. If the computed fair values of the 1998, 1997 and 1996 awards had been amortized to Globalstar's expense over the vesting period of the awards, GTL's pro forma net loss would have increased by $854,000 ($0.01 per diluted share) to $51,415,000 ($0.68 per diluted share) in 1998, by $685,000 ($0.01 per diluted share) to $24,837,000 ($0.44 per diluted share) in 1997, and $223,000 to $15,303,000 ($0.38 per diluted share) in 1996. F-11 51 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 5. SHAREHOLDERS' EQUITY -- (CONTINUED) A summary of the status of the GTL stock option plan for the years ended December 31, 1998, 1997 and 1996 is presented below:
WEIGHTED- AVERAGE EXERCISE SHARES PRICE --------- --------- Outstanding at January 1, 1996.............................. 441,600 4.1563 Granted (weighted average fair value of $4.51 per share).... 488,000 13.7250 Forfeited................................................... (4,800) 4.1563 --------- -------- Outstanding at December 31, 1996............................ 924,800 9.2060 Granted (weighted average fair value of $7.10 per share).... 527,800 21.9650 Forfeited................................................... (58,800) 11.1610 Exercised................................................... (10,360) 4.1563 --------- -------- Outstanding at December 31, 1997............................ 1,383,440 $14.0286 Granted (weighted average fair value of $5.73 per share).... 810,400 19.4155 Forfeited................................................... (54,000) 18.5642 Exercised................................................... (18,150) 4.1563 --------- -------- Outstanding at December 31, 1998............................ 2,121,690 $16.0552 --------- -------- Options exercisable at December 31, 1998.................... 291,890 $ 7.8347 ========= ======== Options exercisable at December 31, 1997.................... 95,240 $ 4.1563 ========= ======== At December 31, 1996 no options were exercisable.
The options generally expire ten years from the date of grant and become exercisable over the period stated in each option, generally ratably over a five-year period. All options granted were non-qualified stock options with an exercise price equal to fair market value at the date of grant. As of December 31, 1998, 349,800 shares of common stock were available for future grant under the Plan. The following table summarizes information about GTL's outstanding stock options at December 31, 1998:
OUTSTANDING EXERCISABLE ---------------------------------- ------------------ WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE CONTRACTUAL EXERCISE EXERCISE EXERCISE PRICE RANGE NUMBER LIFE-YEARS PRICE NUMBER PRICE - -------------------- --------- ----------- -------- ------- -------- $4.16................................... 379,490 6.70 $ 4.1563 177,890 $4.1563 $12.59 to $16.38........................ 1,080,800 8.71 13.7417 114,000 13.5747 $21.47 to $29.78........................ 661,400 8.90 26.6629 --------- ---- -------- ------- ------- 2,121,690 8.41 $16.0552 291,890 $7.8347 ========= ==== ======== ======= =======
Stock Option Transactions GTL and Globalstar have agreed that upon the exercise of options under the GTL 1994 Stock Option Plan by optionees who are employees of Globalstar or any of its controlling entities, Globalstar will issue to GTL one Globalstar ordinary partnership interest for every four shares of common stock issued to the F-12 52 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 5. SHAREHOLDERS' EQUITY -- (CONTINUED) optionee. During 1998 and 1997, GTL purchased 4,538 and 2,590 Globalstar ordinary partnership interests, respectively, with the proceeds from the issuance of the common stock pursuant to GTL option exercises. 6. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
QUARTER ENDED ---------------------------------------------- MARCH 31, JUNE 30, SEPT. 30,(*) DEC. 31, --------- -------- ------------ -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1998: Equity in net loss applicable to ordinary partnership interests of Globalstar.............. $7,290 $13,279 $14,555 $15,437 Net loss........................................... 7,290 13,279 14,555 15,437 Net loss per share--basic and diluted.............. 0.12 0.18 0.18 0.19 1997: Equity in net loss applicable to ordinary partnership interests of Globalstar.............. $4,380 $ 6,323 $ 7,278 $ 6,171 Net loss........................................... 4,380 6,323 7,278 6,171 Net loss per share--basic and diluted.............. 0.11 0.11 0.12 0.10
- --------------- (*) Results of operations for the quarter ended September 30, 1998, include GTL's proportionate share of Globalstar's $17.3 million loss from launch failure. F-13 53 INDEPENDENT AUDITORS' REPORT To the Partners of Globalstar, L.P.: We have audited the accompanying consolidated balance sheets of Globalstar, L.P. (a development stage limited partnership) and its subsidiaries (collectively, the "Partnership") as of December 31, 1998 and 1997, and the related consolidated statements of operations, partners' capital and subscriptions receivable and cash flows for each of the three years in the period ended December 31, 1998 and cumulative. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Partnership at December 31, 1998 and 1997, and the results of its operations and its cash flows for the periods stated above in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP San Jose, California February 16, 1999 F-14 54 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) CONSOLIDATED BALANCE SHEETS (In thousands, except partnership interests)
DECEMBER 31, ------------------------ 1998 1997 ---------- ---------- ASSETS Current assets: Cash and cash equivalents................................. $ 56,739 $ 464,154 Insurance proceeds receivable............................. 28,500 Production gateways and user terminals.................... 145,509 28,513 Other current assets...................................... 5,540 1,113 ---------- ---------- Total current assets.............................. 236,288 493,780 Property and equipment, net................................. 4,958 2,574 Globalstar System under construction: Space segment............................................. 1,678,514 1,252,569 Ground segment............................................ 686,848 374,344 ---------- ---------- 2,365,362 1,626,913 Deferred financing costs.................................... 15,845 14,631 Other assets................................................ 47,572 11,155 ---------- ---------- Total assets...................................... $2,670,025 $2,149,053 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable.......................................... $ 14,240 $ 1,272 Payable to affiliates..................................... 216,542 105,357 Vendor financing liability................................ 127,180 Accrued expenses.......................................... 11,679 8,312 Accrued interest.......................................... 31,549 28,869 ---------- ---------- Total current liabilities......................... 401,190 143,810 Deferred revenues........................................... 25,811 23,652 Vendor financing liability, net of current portion.......... 243,990 197,723 Deferred interest payable................................... 458 420 11 3/8% Senior notes payable ($500,000 principal amount).... 479,566 475,579 11 1/4% Senior notes payable ($325,000 principal amount).... 306,949 303,641 10 3/4% Senior notes payable ($325,000 principal amount).... 320,997 320,311 11 1/2% Senior notes payable ($300,000 principal amount).... 288,663 Commitments and contingencies (Notes 3,5,6,7,8,12 and 14) Redeemable preferred partnership interests (4,769,230 outstanding at December 31, 1997)......................... 303,089 Ordinary partners' capital: Ordinary partnership interests (58,180,093 and 52,319,076 outstanding at December 31, 1998 and 1997, respectively).......................................... 573,421 368,618 Warrants.................................................. 28,980 12,210 ---------- ---------- Total ordinary partners' capital.................. 602,401 380,828 ---------- ---------- Total liabilities and partners' capital........... $2,670,025 $2,149,053 ========== ==========
See notes to consolidated financial statements. F-15 55 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per ordinary partnership interest)
CUMULATIVE MARCH 23, 1994 YEARS ENDED DECEMBER 31, (COMMENCEMENT OF ------------------------------------------ OPERATIONS) TO 1996 1997 1998 DECEMBER 31, 1998 ------------ ------------ ------------ ----------------- Operating expenses: Development costs...................... $ 42,152 $ 62,478 $ 86,253 $275,016 Marketing, general and administrative...................... 18,873 25,593 43,116 111,702 Loss from launch failure............... 17,315 17,315 --------- --------- -------- -------- Total operating expenses................. 61,025 88,071 146,684 404,033 Interest income.......................... 6,379 20,485 17,141 57,777 --------- --------- -------- -------- Net loss................................. 54,646 67,586 129,543 346,256 Preferred distributions and related increase in redeemable preferred partnership interests.................. 17,323 21,202 22,197 60,722 --------- --------- -------- -------- Net loss applicable to ordinary partnership interests.................. $ 71,969 $ 88,788 $151,740 $406,978 ========= ========= ======== ======== Net loss per ordinary partnership interest--basic and diluted............ $ 1.53 $ 1.74 $ 2.69 ========= ========= ======== Weighted average ordinary partnership interests outstanding--basic and diluted................................ 47,000 50,981 56,323 ========= ========= ========
See notes to consolidated financial statements. F-16 56 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF ORDINARY PARTNERS' CAPITAL AND SUBSCRIPTIONS RECEIVABLE (IN THOUSANDS) ORDINARY PARTNERS' CAPITAL
ORDINARY PARTNERSHIP INTERESTS WARRANTS TOTAL ------------ ------------ ------------ Capital subscription, March 23, 1994........................ General partner (18,000 interests)........................ $ 50,000 50$,000.... Limited partner (18,000 interests)........................ 225,000 225,000... Cost of raising capital..................................... (2,400) (2,400) Net losses -- pre-capital subscription period: Year ended December 31, 1993.............................. (11,510) (11,510) January 1, 1994 to March 22, 1994......................... (6,872) (6,872) Net loss applicable to ordinary partnership interests -- March 23, 1994 (commencement of operations) to December 31, 1994...................................... (26,244) (26,244) Capital subscription, December 31, 1994 (1,000 limited partnership interests)..................... 18,750 18,750 ---------- ---------- -------- Capital balances, December 31, 1994......................... 246,724 246,724 Sale of 10,000 general partnership interests to GTL, February 22, 1995......................................... 185,750 185,750 Warrant agreement in connection with debt guarantee......... $ 22,601 22,601 Net loss applicable to ordinary partnership interests -- Year ended December 31, 1995................. (68,237) (68,237) ---------- ---------- -------- Capital balances -- December 31, 1995....................... 364,237 22,601 386,838 Stock compensation transactions by managing general partner for the benefit of Globalstar............................. 317 317 Net loss applicable to ordinary partnership interests -- Year ended December 31, 1996................. (71,969) (71,969) ---------- ---------- -------- Capital balances -- December 31, 1996....................... 292,585 22,601 315,186 Exercise of warrants in March 1997.......................... 163,488 (22,601) 140,887 Warrant agreement in connection with issuance of senior notes........................................... 12,210 12,210 Stock compensation transactions by managing general partner for the benefit of Globalstar............................. 1,290 1,290 Sale of ordinary partnership interests in connection with GTL stock option exercises................................ 43 43 Net loss applicable to ordinary partnership interests -- Year ended December 31, 1997................. (88,788) (88,788) ---------- ---------- -------- Capital balances -- December 31, 1997....................... 368,618 12,210 380,828 Exercise of warrants........................................ 1,213 (176) 1,037 Stock compensation transactions by managing general partner for the benefit of Globalstar............................. 1,284 1,284 Sale of ordinary partnership interests in connection with GTL stock option exercises................................ 75 75 Conversion of redeemable preferred partnership interests into ordinary partnership interests and related dividend make-whole payment -- April 1998.......................... 320,250 320,250 Warrants issued to China Telecom to acquire ordinary partnership interests..................................... 31,917 31,917 Exercise of warrants by China Telecom -- April 1998......... 33,721 (14,971) 18,750 Net loss applicable to ordinary partnership interests -- Year ended December 31, 1998................. (151,740) (151,740) ---------- ---------- -------- Capital balances -- December 31, 1998....................... $ 573,421 $ 28,980 $602,401 ========== ========== ======== SUBSCRIPTIONS RECEIVABLE Capital subscriptions: March 23, 1994............................................ $ 275,000 $275,000 December 31, 1994......................................... 18,750 18,750 ---------- -------- Total subscriptions....................................... 293,750 293,750 ---------- -------- Cash received............................................. (148,661) (148,661) Credit for pre-capital subscription costs................. (11,309) (11,309) ---------- -------- (159,970) (159,970) ---------- -------- Subscriptions receivable, December 31, 1994............... 133,780 133,780 Cash received........................................... (133,780) (133,780) ---------- -------- Subscriptions receivable, December 31, 1995, 1996, 1997 and 1998................................................ $ -- $ -- ========== ========
See notes to consolidated financial statements. F-17 57 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
CUMULATIVE MARCH 23, 1994 (COMMENCEMENT OF YEARS ENDED DECEMBER 31, OPERATIONS) TO ----------------------------------- DECEMBER 31, 1996 1997 1998 1998 --------- ---------- ---------- -------------- Operating activities: Net loss.................................................. $ (54,646) $ (67,586) $ (129,543) $ (346,256) Loss from launch failure.................................. 17,315 17,315 Deferred revenues......................................... 1,739 2,159 25,811 Stock compensation transactions........................... 317 1,290 1,284 2,891 Depreciation and amortization............................. 724 1,016 1,730 3,983 Changes in operating assets and liabilities: Other current assets.................................... (100) (507) (4,427) (5,540) Other assets............................................ (107) (706) (9,768) (10,581) Accounts payable........................................ 1,723 (2,017) 13,654 14,855 Payable to affiliates................................... (3,553) (1,488) 79,271 79,094 Accrued expenses........................................ 2,147 1,383 3,367 11,679 --------- ---------- ---------- ----------- Net cash used in operating activities....................... (51,756) (68,615) (24,958) (206,749) --------- ---------- ---------- ----------- Investing activities: Globalstar System under construction...................... (490,776) (735,880) (946,264) (2,573,177) Insurance proceeds from launch failure.................... 162,000 162,000 Payable to affiliates for Globalstar System under construction............................................ 19,921 42,908 31,914 128,648 Capitalized interest accrued.............................. 5,211 39,552 16,757 61,520 Accounts payable.......................................... 608 (1,112) (686) (1,123) Vendor financing liability................................ 88,475 67,029 173,447 371,170 --------- ---------- ---------- ----------- Cash used for Globalstar System........................... (376,561) (587,503) (562,832) (1,850,962) Production gateways and user terminals.................... (28,513) (116,996) (145,509) Purchases of property and equipment....................... (935) (1,870) (4,114) (8,926) Deferred FCC license costs................................ (1,634) (1,652) (892) (8,999) Purchases of investments.................................. (126,923) Maturity of investments................................... 126,923 --------- ---------- ---------- ----------- Net cash used in investing activities....................... (379,130) (619,538) (684,834) (2,014,396) --------- ---------- ---------- ----------- Financing activities: Net proceeds from issuance of $500,000, 11 3/8% Senior Notes................................................... 472,090 472,090 Proceeds from warrants issued in connection with $500,000, 11 3/8% Senior Notes............................................ 12,210 12,210 Net proceeds from issuance of $325,000 11 1/4% Senior Notes................................................... 301,850 301,850 Net proceeds from issuance of $325,000 10 3/4% Senior Notes................................................... 320,197 320,197 Net proceeds from issuance of $300,000 11 1/2% Senior Notes................................................... 287,552 287,552 Deferred financing costs.................................. (250) (2,125) Proceeds from capital subscriptions receivable............ 282,441 Payment of accrued capital raising costs.................. (2,400) Sale of ordinary partnership interests.................... 140,930 19,862 346,542 Sale of redeemable preferred partnership interests to GTL..................................................... 299,500 299,500 Distributions on redeemable preferred partnership interests............................................... (14,833) (20,150) (5,037) (40,020) Prepaid interest on redeemable preferred partnership interests............................................... 47 47 Borrowings under long-term revolving credit facility...... 106,000 65,000 171,000 Repayment of borrowings under long-term revolving credit facility................................................ (10,000) (161,000) (171,000) --------- ---------- ---------- ----------- Net cash provided by financing activities................... 380,464 1,131,127 302,377 2,277,884 --------- ---------- ---------- ----------- Net increase (decrease) in cash and cash equivalents........ (50,422) 442,974 (407,415) 56,739 Cash and cash equivalents, beginning of period.............. 71,602 21,180 464,154 --------- ---------- ---------- ----------- Cash and cash equivalents, end of period.................... $ 21,180 $ 464,154 $ 56,739 $ 56,739 ========= ========== ========== =========== Noncash transactions: Payable to affiliates..................................... $ 9,308 =========== Accrual of capital raising costs.......................... $ 2,400 =========== Deferred FCC license costs................................ $ 2,235 =========== Warrants issued in exchange for debt guarantee............ $ 22,601 =========== Increase in redemption value of preferred partnership interests............................................... $ 2,537 $ 1,052 $ 351 $ 3,940 ========= ========== ========== =========== Ordinary partnership interests distributed upon conversion of redeemable preferred partnership interests and related dividend make-whole payment..................... $ 320,250 $ 320,250 ========== =========== Warrants issued to China Telecom to acquire ordinary partnership interests................................... $ 31,917 $ 31,917 ========== =========== Supplemental information: Interest paid............................................. $ 674 $ 48,528 $ 147,580 $ 196,920 ========= ========== ========== ===========
See notes to consolidated financial statements. F-18 58 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BUSINESS Globalstar, L.P. ("Globalstar"), a Delaware limited partnership with a December 31 fiscal year end, was formed in November 1993. It had no activities until March 23, 1994, when it received capital subscriptions for $275 million and commenced operations. The accompanying financial statements reflect the operations of the Partnership from that date. On April 23, 1996, a merger between Loral Corporation ("Old Loral") and Lockheed Martin Corporation ("Lockheed Martin") was completed. In conjunction with the merger, Old Loral's direct and indirect interests in Globalstar, Globalstar Telecommunications Limited ("GTL"), Space Systems/Loral, Inc. ("SS/L") and other affiliated businesses, as well as certain other assets and liabilities, were transferred to Loral Space & Communications Ltd., a Bermuda company (and with its subsidiaries "Loral"). The managing general partner of Globalstar is Loral/QUALCOMM Satellite Services, L.P. ("LQSS"). The general partner of LQSS is Loral/QUALCOMM Partnership, L.P. ("LQP"), a Delaware limited partnership comprised of subsidiaries of Loral and Qualcomm. The managing general partner of LQP is Loral General Partner, Inc. ("LGP"), a subsidiary of Loral. Globalstar was founded to design, construct and operate a worldwide, low-earth orbit ("LEO") satellite-based wireless digital telecommunications system (the "Globalstar System"). The Globalstar System's worldwide coverage is designed to enable its service providers to extend modern telecommunications services to millions of people who currently lack basic telephone service and to enhance wireless communications in areas underserved or not served by existing or future cellular systems, providing a telecommunications solution in parts of the world where the build-out of terrestrial systems cannot be economically justified. On January 31, 1995, the U.S. Federal Communications Commission ("FCC") granted the necessary license to a wholly-owned subsidiary of LQP to construct, launch and operate the Globalstar System. LQP has agreed to use such license for the exclusive benefit of Globalstar. On November 23, 1994, GTL was incorporated as an exempted company under the Companies Act 1981 of Bermuda. GTL's sole business is acting as a general partner of Globalstar. On February 14, 1995, GTL completed an initial public offering of 40,000,000 shares of common stock resulting in net proceeds of $185,750,000. Effective February 22, 1995, GTL purchased 10,000,000 partnership interests from Globalstar with the net proceeds of the initial public offering. The partners in Globalstar have the right to convert their partnership interests into shares of GTL common stock on an approximate one-for-four basis following the Full Constellation Date, as defined, of the Globalstar System and after at least two consecutive reported fiscal quarters of positive net income, subject to certain annual limitations. As of December 31, 1998, GTL owned 20,242,593 (34.8%) of Globalstar's outstanding ordinary partnership interests. As of December 31, 1998, Loral owned 24,760,430 (approximately 43%) ordinary partnership interests of Globalstar, including 8,273,782 shares of GTL's outstanding common stock. On July 6, 1998, Loral purchased 4.2 million Globalstar ordinary partnership interests (corresponding to approximately 16.8 million equivalent shares of GTL common stock) from certain founding service providers for $420 million in cash. The founding service providers participating in this transaction have deposited half of their proceeds ($210 million) into escrow accounts to be used for the purchase of Globalstar gateways and user terminals. Concurrently, entities advised by or associated with Soros Fund Management L.L.C. ("Soros") purchased 8.4 million shares of GTL common stock owned by Loral for $245 million in cash. Soros acquired from Loral shares of GTL common stock, which are restricted for U.S. securities law purposes. With respect to such shares, GTL has agreed to file a shelf registration statement and have such registration statement declared effective within one year from the closing date. Globalstar will operate in one industry segment, Global Mobile Telephony. F-19 59 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1. ORGANIZATION AND BUSINESS -- (CONTINUED) In each of 1998 and 1997, GTL issued two-for-one stock splits to shareholders in the form of 100% stock dividends. Accordingly, all GTL share and per share amounts, have been restated to reflect the stock splits (see Note 11). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Development Stage Company Globalstar is devoting substantially all of its present efforts to the launch, licensing, construction and testing of the Globalstar System, and establishing its business. Globalstar's planned principal operations have not commenced and accordingly, Globalstar is a development stage company as defined in Statement of Financial Accounting Standards No. 7, Accounting and Reporting by Development Stage Enterprises ("SFAS 7"). Globalstar may encounter problems, delays and expenses, many of which may be beyond Globalstar's control. These may include, but are not limited to, launch delays and launch failures (see Note 5), in-orbit failures, problems related to technical development of the system, testing, regulatory compliance, manufacturing and assembly, the competitive and regulatory environment in which Globalstar will operate, marketing problems and costs and expenses that may exceed current estimates. There can be no assurance that substantial delays in any of the foregoing matters would not delay Globalstar's achievement of profitable operations. Use of Estimates in Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of expenses reported for the period. Actual results could differ from estimates. Principles of Consolidation The consolidated financial statements include the accounts of Globalstar and its wholly-owned subsidiaries, including Globalstar Capital Corporation. All intercompany accounts and transactions are eliminated. Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less. Concentration of Credit Risk Financial instruments which potentially subject Globalstar to concentrations of credit risk are cash and cash equivalents. Globalstar's cash and cash equivalents are maintained with high-credit-quality financial institutions. The creditworthiness of such institutions is generally substantial and management believes that its credit evaluation, approval and monitoring processes mitigate potential credit risks. Property and Equipment Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets, generally three to eight years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the improvements. F-20 60 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Globalstar System Under Construction Globalstar System under construction expenditures include and will include progress payments and costs for the design, manufacture, test, launch and launch insurance for 52 low-earth orbit satellites, including four in-orbit spare satellites (the "Space Segment"), and ground and satellite operations control centers, gateways and user terminals (the "Ground Segment"). Globalstar intends to depreciate the Space Segment over 7 1/2 years and to depreciate the Ground Segment over eight years as assets are placed in service. Commercial service is currently anticipated to commence in September 1999. Losses from unsuccessful launches and in-orbit failures of Globalstar's satellites, net of insurance proceeds, are recorded in the period incurred (see Note 5). Costs incurred related to the development of certain technologies, pursuant to a cost sharing arrangement included in Globalstar's contract with Qualcomm, and for the engineering and development of user terminals, are being charged to operations as incurred. Deferred Financing Costs and Interest Deferred financing costs represent costs incurred in obtaining a long-term credit facility and the estimated fair value of a warrant agreement in connection with a guarantee of this facility (see Note 7). Such costs are being amortized over the term of the credit facility as interest. Total amortization of deferred financing costs for the years ended December 31, 1998, 1997 and 1996 was approximately $4.9 million, $4.9 million and $5.1 million, respectively. Accumulated amortization totaled $15.0 million and $10.1 million at December 31, 1998 and 1997, respectively. Interest costs incurred during the construction of the Globalstar System are capitalized. Total interest costs capitalized for the years ended December 31, 1998, 1997 and 1996 was approximately $178.7 million, $95.9 million and $9.9 million, respectively. Other Assets Other assets includes the fair value of warrants issued to China Telecom (see Note 11) and expenditures, including license fees, legal fees and direct engineering and other technical support, for obtaining the required FCC licenses. Such amounts will be amortized over 7 1/2 years, the expected life of the first generation satellites. Deferred Revenues Advance payments from Globalstar strategic partners to secure exclusive rights to Globalstar service territories are deferred. These advance payments are recoverable by the service providers, through credits against a portion of the service fees payable to Globalstar, after the commencement of services. Vendor Financing Globalstar's contracts with SS/L and Qualcomm call for a portion of the contract price to be deferred as vendor financing and to be repaid, over as long as a five-year period, commencing upon various dates (see Note 6). Amounts deferred as vendor financing are capitalized as costs of the assets to which they relate as incurred. F-21 61 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Notes Payable Interest accrues on the $500 million, $325 million, $325 million and $300 million principal amount senior notes at 11 3/8%, 11 1/4%, 10 3/4% and 11 1/2% per annum, respectively. Globalstar is increasing the carrying value of the senior notes payable to their ultimate redemption value. Preferred Partnership Distributions Distributions are accrued on redeemable preferred partnership interests at the stated rate per annum. Globalstar increases the carrying value of redeemable preferred partnership interests to their ultimate redemption value. Distributions are recorded as reductions against the ordinary partnership capital accounts (see Note 10). Stock-Based Compensation As permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") Globalstar accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Net (Loss) Income Allocation Net losses are allocated among the partners in proportion to their percentage interests until the adjusted capital account of a partner is reduced to zero, then in proportion to, and to the extent of, positive adjusted capital account balances and then to the general partners. Net income is allocated among the partners in proportion to, and to the extent of, the distributions made to the partners from distributable cash flow for the period, as defined, then in proportion to and to the extent of negative adjusted capital account balances and then in accordance with percentage interests. Under the terms of the Partnership Agreement, adjusted partners' capital accounts are calculated in accordance with the principles of U.S. Treasury Regulations governing the allocation of taxable income and loss including adjustments to reflect the fair market value (including intangibles) of partnership assets upon certain capital transactions including a sale of partnership interests. Such adjustments are not permitted under generally accepted accounting principles and, accordingly, are not reflected in the accompanying consolidated financial statements. Income Taxes Globalstar was organized as a Delaware limited partnership. As such, no income tax provision (benefit) is included in the accompanying consolidated financial statements since U.S. income taxes are the responsibility of its partners. Generally, taxable income (loss), deductions and credits of Globalstar will be passed proportionately through to its partners. Earnings Per Ordinary Partnership Interest Globalstar follows Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128") in presenting basic and diluted earnings per interest. Due to Globalstar's net losses for the years ended December 31, 1998, 1997 and 1996, diluted weighted average ordinary partnership interests outstanding excludes the assumed conversion of the 6 1/2% redeemable preferred partnership interests ("6 1/2% RPPIs") prior to their conversion into 1.6 million, 4.8 million and 4.0 million ordinary partnership interests for F-22 62 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) 1998, 1997 and 1996, respectively (see Note 10) and excludes the assumed issuance of ordinary partnership interests upon exercise of GTL's outstanding options and warrants of 2.6 million, 2.8 million and 5.5 million ordinary partnership interests for 1998, 1997, and 1996, respectively, as their effect would have been anti-dilutive. Accordingly, basic and diluted weighted average ordinary partnership interests outstanding is based on net loss applicable to ordinary partnership interests and the weighted average ordinary partnership interests outstanding for 1998, 1997 and 1996. Comprehensive Income Effective January 1, 1998, Globalstar adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130"). During the periods presented, Globalstar had no changes in ordinary partner's capital from transactions or other events and circumstances from non-owners sources. Accordingly, a statement of comprehensive loss has not been provided as comprehensive loss equals net loss for all periods presented. New Accounting Pronouncements For the year ended 1998, Globalstar adopted Statement of Financial Accounting Standards No. 132, Employers' Disclosures About Pensions and Other Postretirement Benefits ("SFAS 132"). See Note 12. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), which requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Globalstar has not yet determined the impact that the adoption of SFAS 133 will have on its earnings or financial position. Globalstar is required to adopt SFAS 133 on January 1, 2000. Reclassifications Certain reclassifications have been made to conform prior year amounts to the current year presentation. 3. PRODUCTION GATEWAYS AND USER TERMINALS In order to accelerate the deployment of gateways around the world, Globalstar has agreed to help finance approximately $80 million of the cost of up to 32 of the initial 38 gateways. The contracts for the 38 gateways aggregate approximately $345 million. Ericsson, Qualcomm and Telital are in the process of manufacturing approximately 300,000 handheld and fixed user terminals under contracts totaling $353 million from Globalstar and its service providers. Globalstar has agreed to finance approximately $151 million of the cost of these handheld and fixed user terminals. Globalstar expects to recoup such costs upon the acceptance by the service providers of the gateways and user terminals. Amounts reflected in the consolidated balance sheets represent the amounts financed under the above contracts as of December 31, 1998 and 1997. F-23 63 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. PROPERTY AND EQUIPMENT
DECEMBER 31, ----------------- 1998 1997 ------ ------- (IN THOUSANDS) Leasehold improvements...................................... $1,546 $ 612 Furniture and office equipment.............................. 7,380 4,200 ------ ------- 8,926 4,812 Accumulated depreciation and amortization................... (3,968) (2,238) ------ ------- $4,958 $ 2,574 ====== =======
Globalstar's property and equipment is located in the U.S. Depreciation and amortization expense for the years ended December 31, 1998, 1997 and 1996, was $1.7 million, $1.0 million, and $0.7 million, respectively. 5. GLOBALSTAR SYSTEM UNDER CONSTRUCTION The Space Segment Globalstar has a contract with SS/L, an affiliate of Loral and a limited partner of LQSS, to design, manufacture, test and launch 56 satellites. The price of the contract consists of three parts, the first for non-recurring work at a price not to exceed $117.1 million, the second for recurring work at a fixed price of $15.6 million per satellite (including certain performance incentives of up to approximately $1.9 million per satellite) and the third for launch services and insurance. In addition, Globalstar agreed to purchase from SS/L eight additional satellites at a cost of $180 million. Globalstar has agreed, subject to receipt of its partners' approval, to purchase from SS/L 12 additional spare satellites for which the cost and payment terms have not as yet been negotiated. It is anticipated that approximately $100 million will be expended for these spare satellites by commencement of commercial service. On September 9, 1998, a malfunction of a Zenit 2 rocket, launched from the Baikonur Cosmodrome in Kazakhstan, resulted in the loss of 12 Globalstar satellites. A $17.3 million loss from the launch failure was recorded in the third quarter of 1998, which reflects the value of the satellites and related capitalized costs, net of insurance proceeds. Globalstar activated its contingency launch plan and expects to initiate commercial service in September 1999. As a result, Globalstar expects to have a satellite constellation consisting of 52 satellites, including four in-orbit spares, by the end of 1999. SS/L has agreed to obtain launch vehicles and arrange for the launch of all 52 Globalstar satellites, on Globalstar's behalf, and obtain insurance to cover the replacement cost of satellites or launch vehicles lost in the event of a launch failure. The total estimated cost for launch services and launch insurance for all 52 satellites, including four in-orbit spares, is $684 million, net of insurance recoveries and subject to equitable adjustment in light of future conditions, which may, in turn, be influenced by international political developments. Any change in such assumptions may result in an increase in the costs paid by Globalstar, which may be substantial. Termination by Globalstar of this contract would result in termination fees, which may be substantial. SS/L has entered into fixed-price subcontracts aggregating approximately $775 million, with certain of Globalstar's direct or indirect limited partners. Some of these contracts are subject to adjustment. Globalstar's space segment contract with SS/L calls for a portion of the contract price to be deferred as vendor financing (see Note 6). F-24 64 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. GLOBALSTAR SYSTEM UNDER CONSTRUCTION -- (CONTINUED) The Ground Segment Globalstar has entered into a contract with Qualcomm providing for the design, development, manufacture, installation, testing and maintenance of four gateways, two ground operations control centers and 300 pre-production subscriber terminals. The contract provides for reimbursement to Qualcomm, subject to a cap for certain joint development efforts, for contract costs incurred, plus a 12% fee thereon. Termination by Globalstar of its contract with Qualcomm would result in delays and termination fees, which may be substantial. A portion of the ground operations control center software is being developed by Globalstar. As of December 31, 1998, and prior to the potential effect of Qualcomm's current preliminary revision to cost estimates and as a result of arrangements with Qualcomm for $100 million of contract payment deferrals (see Note 6), Globalstar expects the total ground segment expenditure to be approximately $950 million, net of such deferrals, through the in-service date. Globalstar will receive from Qualcomm or its licensee(s) a payment of approximately $400,000 for each installed gateway sold to a Globalstar service provider. In addition, Globalstar will receive a payment of up to $10 on each Globalstar user terminal sold, until Globalstar funding of that design has been recovered. Globalstar has entered into an agreement with Lockheed Martin for the development and delivery of two satellite operations control centers and 33 telemetry and command units for the Globalstar System. The fixed contract price is approximately $34.2 million and provides for reimbursement to Lockheed Martin for contract costs incurred such as labor, materials, travel, license fees, royalties and general and administrative expenses. Lockheed Martin will receive a 12% fee under the contract, 6% of which is payable at the time the costs are incurred with the remainder payable upon achievement of certain milestones. Globalstar will own any intellectual property produced under this contract. Total System Cost Through December 31, 1998, Globalstar incurred costs of approximately $2.7 billion for the development, design and construction of the space and ground segments. Costs incurred during 1998 were approximately $871 million. Qualcomm is in the process of completing its revision to cost estimates for its portion of the ground segment. Due to additional scope and cost growth and based on preliminary information, Globalstar expects the increase from Qualcomm to be less than 3% of the total project cost. The Qualcomm estimate is still subject to further review by Globalstar. As of December 31, 1998, and including the effect of the preliminary Qualcomm estimate, Globalstar's budgeted expenditures were $3.17 billion for the design, construction and deployment of the Globalstar System to commence commercial service and $340 million for budgeted financing costs. In addition to expenditures for operating costs, and debt service, Globalstar anticipates further expenditures on system software for the improvement of system functionality and the addition of new features beyond those planned for the commencement of commercial service. Substantial additional financing will be required if there are delays in the commencement of commercial service and, in any event, after the commencement of commercial service and before positive cash flow is achieved. Although Globalstar believes it will be able to obtain these additional funds, there can be no assurance that such funds will be available on favorable terms or on a timely basis, if at all. As of January 31, 1999, and after giving effect to the net proceeds from the issuance of the 8% convertible redeemable preferred partnership interests ("8% RPPIs") issued in January 1999 (see Note 11), Globalstar will have raised or received commitments for approximately $3.3 billion. Globalstar intends to raise the remaining funds required, of approximately $600 million, by the initiation of commercial service in September 1999, from a combination of sources including: high yield debt issuance (which may include an equity F-25 65 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. GLOBALSTAR SYSTEM UNDER CONSTRUCTION -- (CONTINUED) component), bank financing, equity issuance, financial support from the Globalstar partners, projected service provider payments, and anticipated payments from the sale of gateways and Globalstar user terminals. 6. VENDOR FINANCING LIABILITY SS/L provides Globalstar with approximately $330 million of billings deferred as follows -- $224 million of vendor financing and $106 million of orbital incentives. SS/L subcontractors have assumed a portion of the vendor financing commitments totaling approximately $116 million. The $224 million of vendor financing consists of three tranches -- $110 million, $90 million and $24 million. Only the $90 million is interest bearing and bears interest at the 30-day LIBOR rate plus 3% per annum. Globalstar will repay the $110 million and the $24 million tranches as follows: 50% will be paid over 5 years in equal monthly installments following the launch and acceptance of 24 or more satellites (the "Preliminary Constellation") and the remaining 50% will be paid over 5 years in equal monthly installments following the launch and acceptance of 48 or more satellites (the "Full Constellation"). Payment of the $90 million interest bearing vendor financing will be due beginning March 31, 1999. Interest and principal will be repaid in 20 equal quarterly installments over the next five years. Approximately $47 million of the orbital incentives will be paid at both the Preliminary Constellation Date and Full Constellation Date with the remainder being paid with the delivery of the remaining satellites. On March 4, 1998, Qualcomm entered into a deferred payment agreement with Globalstar providing for $100 million of vendor financing. The deferred payments accrue interest at a rate of 5.75% per annum, which is added to the outstanding principal balance quarterly. Globalstar will make eight equal principal payments on a quarterly basis commencing on January 1, 2000 with final payment due October 1, 2001 including all then unpaid accrued interest. 7. CREDIT FACILITY On December 15, 1995, Globalstar entered into a $250 million credit agreement (the "Globalstar Credit Agreement") with a group of banks. Lockheed Martin, Qualcomm, SS/L and another Globalstar partner have guaranteed $206.3 million, $21.9 million, $11.7 million and $10.1 million of the Globalstar Credit Agreement, respectively. In addition, Loral agreed to indemnify Lockheed Martin for any liability in excess of $150 million. The Globalstar Credit Agreement provides that Globalstar may select loans at varying interest rates, including the Eurodollar rate plus 5/8%. Globalstar pays a commitment fee on the unused portion. The Globalstar Credit Agreement contains covenants requiring Globalstar to meet certain financial ratios including minimum net worth of $200 million and limits additional indebtedness and the payment of cash distributions. The Globalstar Credit Agreement expires on December 15, 2000. In exchange for the guarantee and indemnity, GTL issued warrants to purchase 16,741,272 shares of GTL common stock at $6.625 per share as follows: Loral and SS/L 4,550,088 warrants, Lockheed Martin 10,044,760 warrants, Qualcomm 1,468,524 warrants and another Globalstar partner 677,900 warrants. As part of this transaction, Globalstar issued GTL warrants to purchase an additional 1,131,168 ordinary partnership interests of Globalstar. In addition, GTL distributed to the holders of its common stock rights to subscribe for and purchase 4,524,672 GTL shares for a price of $6.625 per share of which Loral received rights to purchase 636,688 shares and Loral agreed to purchase all shares not purchased upon exercise of the rights. In March 1997, the warrants to purchase 16,741,272 shares of GTL common stock were exercised for proceeds of approximately $110.9 million. In May 1997, GTL shareholders exercised the rights to purchase 4,524,672 shares of GTL common stock (including 700,696 shares purchased by Loral) for $6.625 per share for proceeds of $30.0 million. GTL used the total proceeds of $140.9 million to purchase 5,316,486 Globalstar ordinary partnership interests for $26.50 per interest. F-26 66 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. CREDIT FACILITY -- (CONTINUED) In addition, Globalstar also agreed to pay to Loral and the other guaranteeing partners a fee equal to 1.5% per annum of the average quarterly amount outstanding under the Globalstar Credit Agreement (the "Guarantee Fee"). Payment of the Guarantee Fee, classified as deferred interest payable in Globalstar's balance sheet, is being deferred and subordinated, with interest at LIBOR plus 3%, until after the termination date of the Globalstar Credit Agreement. Globalstar's managing general partner may also defer payment of such fee if it determines that such deferral is necessary to comply with the terms of any applicable credit agreement or indenture. 8. COMMITMENTS Globalstar leases its primary facility from Lockheed Martin under a non-cancelable operating lease expiring in 2000. The lease contains renewal options for up to an additional ten years. The following table presents the future minimum lease payments required under operating leases that have an initial lease term in excess of one year (in thousands): 1999.............................................. $3,246 2000.............................................. 2,218 2001.............................................. 160 2002.............................................. 160 2003.............................................. 160 Thereafter........................................ 455 ------ Total minimum lease payments...................... $6,399 ======
Rent expense for the years ended December 31, 1998, 1997 and 1996, was approximately $3.1 million, $1.8 million, and $1.1 million, respectively. Included in rent expense are payments to Lockheed Martin of $2.7 million, $1.5 million, and $0.9 million for the years ended December 31, 1998, 1997 and 1996, respectively. 9. SENIOR NOTES AND WARRANTS In February 1997, GTL and Globalstar sold units consisting of $500 million aggregate principal amount of Globalstar's 11 3/8% Senior Notes due 2004 and warrants to purchase 4,129,000 shares of GTL common stock in a private offering. GTL was allocated $12,210,000 of the offering proceeds for these warrants which were used to purchase warrants for Globalstar's ordinary partnership interests. The notes may not be redeemed prior to February 2002 and are subject to a prepayment premium prior to 2004. The effective interest rate on this note is 13.33%. Interest is paid semi-annually. There were 4,069,325 warrants outstanding as of December 31, 1998, that were exercisable at a price of $17.394 per share and expire on February 15, 2004. Any proceeds from the exercise of the warrants will be used to purchase Globalstar ordinary partnership interests. In June 1997, Globalstar sold $325 million principal amount of 11 1/4% Senior Notes due 2004 in a private offering. The notes may not be redeemed prior to June 2002 and are subject to a prepayment premium prior to 2004. The effective interest rate on this note is 13.57%. Interest is paid semi-annually. In October 1997, Globalstar sold $325 million principal amount of 10 3/4% Senior Notes due 2004 in a private offering. The notes may not be redeemed prior to November 2002 and are subject to a prepayment premium prior to 2004. The effective interest rate on this note is 11.63%. Interest is paid semi-annually. F-27 67 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. SENIOR NOTES AND WARRANTS -- (CONTINUED) In May 1998, Globalstar sold $300 million principal amount of 11 1/2% Senior Notes due 2005 in a private offering. The notes may not be redeemed prior to June 2003 and are subject to a prepayment premium prior to 2005. The effective interest rate on this note is 13.12%. Interest is paid semi-annually. The Senior Notes rank pari passu with all of Globalstar's existing senior notes. The indentures for the notes contain certain covenants that among other things limit the ability of Globalstar to incur additional debt, issue preferred stock, or pay dividends and certain distributions. In certain limited circumstances involving a change of control of Globalstar, as defined, each note is redeemable at the option of the holder for 101% of the principal amount plus accrued interest. 10. CONVERSION OF REDEEMABLE PREFERRED PARTNERSHIP INTERESTS During 1996, GTL purchased 4,769,230 6 1/2% convertible redeemable preferred partnership interests ("6 1/2% RPPIs") in Globalstar using the net proceeds of $299.5 million from GTL's sale of its Convertible Preferred Equivalent Obligations (the "CPEOs"). On April 30, 1998, GTL redeemed all of its CPEOs, $310 million aggregate principal amount. As of April 30, 1998, all the holders of the CPEOs converted their holdings into 20,123,230 shares of GTL common stock. As a result of such conversion, Globalstar's 6 1/2% RPPIs were converted into 4,769,230 ordinary partnership interests. In connection with the redemption, GTL issued 539,322 additional shares of GTL common stock in satisfaction of a required interest make whole payment. A corresponding dividend make-whole payment was also made by Globalstar for which an additional 134,830 ordinary partnership interests were issued. 11. ORDINARY PARTNERS' CAPITAL Initial Capital Subscriptions Prior to the commencement of Globalstar's operations on March 23, 1994, Loral and Qualcomm undertook independent efforts at their own risk to explore the feasibility of a Globalstar-type system. Efforts to develop the Globalstar System were formalized with the initial funding of Globalstar on March 23, 1994 through capital subscriptions of $50,000,000 for 18,000,000 general partner interests and $225,000,000 for an aggregate of 18,000,000 limited partner interests. In connection with the initial capital subscriptions, the partners of Globalstar agreed to reimburse Loral and Qualcomm for certain expenditures totaling $18,382,000 incurred related to such efforts from January 1, 1993 through March 22, 1994. These expenditures included development costs and marketing, general and administrative expenses related to the Globalstar System. In addition, costs of $2,235,000 were incurred in connection with the FCC license application. The aggregate expenditures by Loral and Qualcomm of $20,617,000 were reimbursed through a credit of $11,309,000 issued to the general partner as a reduction of its required capital subscription payment and a payment to Qualcomm of $9,308,000. The reimbursed expenses of $18,382,000 have been charged to partners' capital as of the date of the capital subscription agreement and allocated to the partners' capital accounts in accordance with the partnership agreement. The $2,235,000 of costs relating to the FCC license application are included in other assets in the accompanying balance sheet. Capital Contribution In April 1998, China Telecom (Hong Kong) Group Ltd. ("China Telecom"), through a subsidiary, exercised a warrant to acquire 937,500 Globalstar ordinary partnership interests for $18,750,000. In addition, China Telecom has a warrant to acquire an additional 937,500 Globalstar ordinary partnership interests for F-28 68 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. ORDINARY PARTNERS' CAPITAL -- (CONTINUED) $18,750,000 after commencement of service. Globalstar had previously granted these warrants to China Telecom in connection with service provider arrangements in China under which China Telecommunications Broadcast Satellite Corporation ("ChinaSat") will act as the sole distributor of Globalstar service in China. The fair value of the warrants issued to China Telecom was approximately $31.9 million and has been recorded in the accompanying balance sheet in other assets and will be amortized over 7 1/2 years, the expected life of the first generation of satellites. GTL Stock Splits In May 1997 and June 1998, GTL issued two-for-one stock splits of its common stock in the form of a 100% stock dividend. Accordingly, all GTL share and per share amounts have been restated to reflect the stock splits. Prior to the stock splits, GTL's equity securities and convertible securities were represented by equivalent Globalstar partnership interests on an approximate one-for-one basis. Globalstar's partnership interests were not affected by the GTL stock splits and, accordingly, GTL's equity securities and convertible securities are now represented by equivalent Globalstar partnership interests on an approximate four-for-one basis. 8% Convertible Redeemable Preferred Partnership Interests On January 21, 1999, Globalstar sold to GTL $350 million face amount of 8% RPPIs in Globalstar in connection with GTL's offering of $350 million of 8% Convertible Preferred Stock due 2011 (the "Preferred Stock"). Dividends on the 8% RPPIs and the Preferred Stock accrue at 8% per annum and are payable quarterly. Globalstar will use the funds for the construction and deployment of the Globalstar System. The Preferred Stock is convertible into shares of GTL common stock at a conversion price of $23.2563 per share, subject to adjustment for certain antidilution events. As of January 21, 1999, the Preferred Stock was convertible into 15,049,685 shares of GTL common stock. Loral purchased $150 million face amount of the Preferred Stock issued, in order to maintain its ownership interest in Globalstar. The Preferred Stock has limited voting rights. With respect to dividend rights and rights upon liquidation, winding up and dissolution, the Preferred Stock ranks senior to common stock and to all other future series of preferred stock or other class of capital stock of GTL the terms of which do not expressly provide that such series or class ranks senior to or on parity with the Preferred Stock. Prior to its mandatory redemption date, the Preferred Stock is redeemable (at a premium which declines over time) by GTL beginning in February 2002 (or beginning in February 2000 if GTL's stock price exceeds certain defined price ranges). Payments due on the Preferred Stock may be made in cash, GTL common stock or a combination of both at the option of GTL. In the event accrued and unpaid dividends accumulate to an amount equal to six quarterly dividends, holders of the majority of the outstanding shares of Preferred Stock will be entitled to elect additional members to GTL's Board of Directors. The 8% RPPIs rank senior to ordinary partnership interests and have terms substantially similar to the Preferred Stock. However, they are subordinate to all existing and future liabilities of Globalstar, and cash distributions thereon are limited to the amount of the partnership capital accounts that are maintained for such interests. The 8% RPPIs will convert to ordinary partnership interests upon any conversion of the Preferred Stock into GTL common stock. Payments due on the 8% RPPIs may be made in cash, Globalstar ordinary partnership interests or a combination of both at the option of Globalstar. F-29 69 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. ORDINARY PARTNERS' CAPITAL -- (CONTINUED) Stock Option Arrangements Officers and employees of Globalstar are eligible to participate in GTL's 1994 Stock Option Plan (the "Plan"), which provides for nonqualified and incentive stock options. The Plan is administered by a stock option committee (the "Committee"), appointed by the GTL Board of Directors. The Committee determines the option price, exercise date and the expiration date of each option (provided no option shall be exercisable after ten years from the date of grant). Proceeds received by GTL for options exercised will be used to purchase Globalstar ordinary partnership interests under a four-for-one exchange arrangement. Globalstar issued 4,538 and 2,590 ordinary partnership interests during 1998 and 1997, respectively, in exchange for proceeds from GTL option exercises. On September 14, 1995, Loral, in its capacity as managing general partner, granted certain of its officers options to purchase 560,000 shares of the GTL common stock owned by Loral at an exercise price of $5.00 per share. The exercise price was greater than the market price at grant date. These options are immediately exercisable, of which 240,000 options were exercised in 1998, and expire 12 years from date of grant. In October 1996 and in January 1998, Loral, in its capacity as managing general partner, granted certain of its officers options to purchase 608,000 and 20,000 shares, respectively, of GTL common stock owned by Loral at a price $6.3438 and $12.50 below market price on the grant date. These options vest over a three year period and expire 10 years from date of grant; no options were exercised or cancelled during 1998. Loral granted options of Loral common stock to certain officers and employees of Globalstar as follows: April 1996, 94,000 shares at $10.50 per share, of which 13,200 shares were exercised in 1998; December 1996, 5,000 shares at $18.9397 per share, which were cancelled in 1997; April 1997, 5,000 shares at $13.75 per share, of which 1,000 shares were exercised and 4,000 shares were cancelled in 1998; February 1998, 1,000 shares at $24.4375 per share and October 1998, 300 shares at $13.50 per share. As described in Note 2, Globalstar accounts for its stock-based compensation using the intrinsic value method in accordance with APB 25, Accounting for Stock Issued to Employees and its related interpretations. Except for $1,284,000, $1,290,000 and $317,000 of compensation expense in 1998, 1997 and 1996, respectively, related to the below market option grants issued by Loral, no compensation expense has been recognized in Globalstar's consolidated financial statements for stock-based compensation. SFAS 123 requires the disclosure of pro forma net income and earnings per share as if Globalstar adopted the fair value method. Under SFAS 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from Globalstar's stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. Globalstar's calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions: expected life, six months following vesting; stock volatility, 30%; risk free interest rates, 4.44% to 6.55% based on date of grant in 1998 and 1997, and 6.25% in 1996; and no dividends during the expected term. Globalstar's calculations are based on a multiple option valuation approach and forfeitures are recognized as they occur. If the computed fair values of the 1998, 1997 and 1996 awards (including the stock-based awards made by Loral to its officers and directors on Globalstar's behalf) had been amortized to expense over the vesting period of the awards, the pro forma net loss applicable to ordinary partnership interests would have increased by $2,563,000 to $154,303,000 ($2.74 per ordinary partnership interest) in 1998, $2,536,000 F-30 70 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. ORDINARY PARTNERS' CAPITAL -- (CONTINUED) to $91,324,000 ($1.79 per ordinary partnership interest) in 1997, and $1,054,000 to $73,023,000 ($1.55 per ordinary partnership interest) in 1996. A summary of the status of the GTL stock option plan for the years ended December 31, 1998, 1997 and 1996 is presented below:
WEIGHTED- AVERAGE EXERCISE SHARES PRICE --------- ---------- Outstanding at January 1, 1996.............................. 441,600 $ 4.1563 Granted (weighted average fair value of $4.51 per share).... 488,000 13.7250 Forfeited................................................... (4,800) 4.1563 --------- ---------- Outstanding at December 31, 1996............................ 924,800 9.2060 Granted (weighted average fair value of $7.10 per share).... 527,800 21.9650 Forfeited................................................... (58,800) 11.1610 Exercised................................................... (10,360) 4.1563 --------- ---------- Outstanding at December 31, 1997............................ 1,383,440 14.0286 Granted (weighted average fair value of $5.73 per share).... 810,400 19.4155 Forfeited................................................... (54,000) 18.5642 Exercised................................................... (18,150) 4.1563 --------- ---------- Outstanding at December 31, 1998............................ 2,121,690 $ 16.0552 ========= ========== Options exercisable at December 31, 1998.................... 291,890 $ 7.8347 ========= ========== Options exercisable at December 31, 1997.................... 95,240 $ 4.1563 ========= ==========
At December 31, 1996, no options were exercisable. The options generally expire ten years from the date of grant and become exercisable over the period stated in each option, generally ratably over a five-year period. All options granted were non-qualified stock options with an exercise price equal to fair market value at the date of grant. As of December 31, 1998, 349,800 shares of common stock were available for future grant under the Plan. The following table summarizes information about GTL's outstanding stock options at December 31, 1998:
OUTSTANDING EXERCISABLE ------------------------------------ ------------------ WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE CONTRACTUAL EXERCISE EXERCISE EXERCISE PRICE RANGE NUMBER LIFE-YEARS PRICE NUMBER PRICE - -------------------- --------- ------------ -------- ------- -------- $4.16..................................... 379,490 6.70 $ 4.1563 177,890 $4.1563 $12.59 to $16.38.......................... 1,080,800 8.71 13.7417 114,000 13.5747 $21.47 to $29.78.......................... 661,400 8.90 26.6629 --------- ---- -------- ------- ------- 2,121,690 8.41 $16.0552 291,890 $7.8347 ========= ==== ======== ======= =======
F-31 71 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. PENSIONS AND OTHER EMPLOYEE BENEFITS Pensions Prior to April 23, 1996, Globalstar employees were eligible to participate in the employee benefit plans of Old Loral. Globalstar was charged for the actual costs of these benefits which for the period March 23, 1994, through December 31, 1995, amounted to $1.0 million, including $0.2 million relating to pensions and retiree health care and life insurance benefits. In April 1996, separate pension, post-retirement health care and life insurance and employee savings plans were established by Globalstar. The Company maintains a pension plan and a supplemental retirement plan. These plans are defined benefit pension plans and members in certain locations may contribute to the pension plan in order to receive enhanced benefits. Eligibility for participation in these plans varies and benefits are based on members' compensation and years of service. The Company's funding policy is to fund the pension plan in accordance with the Internal Revenue Code and regulations thereon and to fund the supplemental retirement plan on an actuarial basis, including service cost and amortization amounts. Plan assets are generally invested in U.S. government and agency obligations and listed stocks and bonds. Other Benefits In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for retired employees and dependents. Participants are eligible for these benefits when they retire from active service and meet the eligibility requirements for the Company's pension plan. These benefits are funded primarily on a pay-as-you-go basis with the retiree generally paying a portion of the cost through contributions, deductibles and coinsurance provisions. F-32 72 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. PENSIONS AND OTHER EMPLOYEE BENEFITS -- (CONTINUED) Effective December 31, 1998 the Company adopted SFAS 132. Prior years' disclosures have been restated. The following tables provide a reconciliation of the changes in the plans' benefit obligations and fair value of assets for the years ended December 31, 1998 and 1997, and a statement of the funded status as of December 31, 1998 and 1997, respectively.
PENSION BENEFITS OTHER BENEFITS ---------------- -------------- 1998 1997 1998 1997 ------ ------ ----- ----- (IN THOUSANDS) Reconciliation of benefit obligation Obligation at January 1...................... $5,172 $3,893 $ 838 $ 641 Service cost................................. 415 334 66 39 Interest cost................................ 419 347 61 49 Participant contributions.................... 84 38 12 Actuarial (gain) loss........................ 258 560 (67) 111 Benefit payments............................. (21) (2) ------ ------ ----- ----- Obligation at December 31.................... 6,348 5,172 889 838 ------ ------ ----- ----- Reconciliation of fair value of plan assets Fair value of plan assets at January 1....... 4,808 4,156 32 30 Actual return on plan assets................. 923 614 2 2 Employer contributions....................... 9 3 Participant contributions.................... 84 38 12 Benefit payments............................. (21) (3) ------ ------ ----- ----- Fair value of plan assets at December 31..... 5,815 4,808 34 32 ------ ------ ----- ----- Funded status Funded status at December 31................. (533) (364) (855) (806) Unrecognized (gain) loss..................... (171) (7) 497 602 ------ ------ ----- ----- Net amount recognized in accrued liabilities................................ $ (704) $ (371) $(358) $(204) ====== ====== ===== =====
The following table provides the components of net periodic benefit cost for the plans for the years ended December 31, 1998, 1997 and 1996, respectively (in thousands):
PENSION BENEFITS OTHER BENEFITS -------------------- -------------------- 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- Service cost....................... $415 $334 $213 $ 66 $ 39 $29 Interest cost...................... 419 347 195 61 49 32 Expected return on plan assets..... (461) (393) (258) (3) (3) (2) Amortization of net (gain) loss.... (40) (40) (27) 39 36 26 ---- ---- ---- ---- ---- --- Net periodic benefit cost.......... $333 $248 $123 $163 $121 $85 ==== ==== ==== ==== ==== ===
F-33 73 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 12. PENSIONS AND OTHER EMPLOYEE BENEFITS -- (CONTINUED) The principal actuarial assumptions were:
1998 1997 1996 ---- ---- ---- Discount rate............................................... 7.00% 7.25% 7.75% Expected return on plan assets.............................. 9.50% 9.50% 9.50% Rate of compensation increase............................... 4.25% 4.50% 4.50%
Actuarial assumptions used a health care cost trend rate of 8.75% decreasing gradually to 5.25% by 2003. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1% change in assumed health care cost trend rates for 1998 would have the following effects:
1% INCREASE 1% DECREASE ----------- ----------- Effect on total service and interest cost components of net periodic postretirement health care benefit cost... $ 27,000 $ (21,000) Effect on the health care component of the accumulated postretirement benefit obligation...................... 136,000 (126,000)
Employee Savings Plan In April 1996, Globalstar adopted an employee savings plan which provides that Globalstar match the contributions of participating employees up to a designated level. Under this plan, the matching contributions in Loral common stock, GTL common stock or cash were approximately $460,000, $350,000 and $180,000 for the years ended December 31, 1998, 1997 and 1996, respectively. 13. FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate fair value. The carrying amounts of cash and cash equivalents approximates fair value because of the short maturity of those instruments. The fair value of vendor financing approximates its carrying amount due to the lack of market quotations and the nature of such financing. The fair value of the Senior Notes is based on market quotations. F-34 74 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 13. FINANCIAL INSTRUMENTS -- (CONTINUED) The estimated fair values of Globalstar's financial instruments are as follows (in thousands):
DECEMBER 31, 1998 DECEMBER 31, 1997 -------------------- -------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- Cash and cash equivalents...... $ 56,739 $ 56,739 $464,154 $464,154 Vendor financing............... 371,170 371,170 197,723 197,723 10 3/4% Senior notes........... 320,997 230,800 320,311 316,100 11 1/4% Senior notes........... 306,949 240,500 303,641 325,000 11 3/8% Senior notes........... 479,566 370,000 475,579 502,500 11 1/2% Senior notes........... 288,663 220,900
14. RELATED PARTY TRANSACTIONS In addition to the transactions described in Notes 3, 5, 6, 7, 8, 9, 10, 11 and 12, Globalstar has a number of other transactions with its affiliates. Globalstar believes that the arrangements are as favorable to Globalstar as could be obtained from unaffiliated parties. The following describes these related-party transactions. Globalstar has granted to SS/L an irrevocable, royalty-free, non-exclusive license to use certain intellectual property expressly developed in connection with the SS/L agreement provided that SS/L will not use, or permit others to use, such license for the purpose of engaging in any business activity that would be in material competition with Globalstar. Globalstar has similarly agreed that it will not license such intellectual property if it will be used for the purpose of designing or building satellites that would be in competition with SS/L. Globalstar has granted to Qualcomm an irrevocable, non-exclusive, worldwide perpetual license to intellectual property owned by Globalstar in the Ground Segment and developed pursuant to the Qualcomm agreement. Qualcomm may, pursuant to such grant, use the intellectual property for applications other than the Globalstar System provided that Qualcomm may not for a period of three years after its withdrawal as a strategic partner or prior to the third anniversary of the Full Constellation Date, whichever is earlier, engage in any business activity that would be in competition with the Globalstar System. The grant of intellectual property to Qualcomm described above is generally royalty free. Under certain specified circumstances, however, Qualcomm will be required to pay a 3% royalty fee on such intellectual property. A support agreement was entered into among Qualcomm, Loral and Globalstar pursuant to which Qualcomm agreed to assist Globalstar and SS/L with Globalstar's system design, support Globalstar and Loral with respect to various regulatory matters, and assist Globalstar and Loral in their marketing efforts with respect to Globalstar. For the years ended December 31, 1998, 1997 and 1996, Qualcomm has received approximately $187,000, $894,000, and $1,823,000, respectively, for costs incurred in rendering such support and assistance. In October 1998, Globalstar entered into agreements with AirTouch Satellite Services and TE.SA.M., two of its limited partners, for approximately $7 million under which these partners would provide support for integration and testing of the Globalstar System at certain of the partners' gateways. Qualcomm has agreed to grant at least one vendor a nonexclusive worldwide license to use Qualcomm's intellectual property to manufacture and sell gateways to Globalstar's service providers. The foregoing license would be granted by Qualcomm to one or more such vendors on reasonable terms and conditions, which will in any event not provide for royalty fees in excess of 7% of a gateway's sales price (not including the F-35 75 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 14. RELATED PARTY TRANSACTIONS -- (CONTINUED) approximately $400,000 per gateway in recoupment expenses payable to Globalstar). Thus far, no other vendor has committed to manufacture gateways. Qualcomm has granted a license to manufacture Globalstar Phones to Ericsson and Telital and has also agreed to grant a similar license to at least one additional qualified manufacturer to enable it to manufacture and sell the Globalstar Phones to service providers. Subsidiaries of Loral have formed joint ventures with partners which have executed service provider agreements granting the joint ventures exclusive rights to provide Globalstar service to users in Brazil, Canada and Mexico as long as specified minimum levels of subscribers are met. Similar exclusive service provider agreements have been entered into with certain of Globalstar's limited partners for specific countries. These service providers will receive certain discounts from Globalstar's expected pricing schedule generally over a five-year period. Globalstar has also agreed to provide Qualcomm, under certain circumstances, with capacity on the Globalstar System for its OmniTRACS services at its most favorable rates and to grant to Qualcomm the exclusive right to utilize the Globalstar System to provide OmniTRACS-like services. Globalstar has entered into consulting agreements with certain limited partners. Costs incurred under these arrangements for the years ended December 31, 1998, 1997 and 1996, were approximately $309,000, $143,000, and $496,000, respectively. Globalstar anticipates that similar agreements may be entered into with other strategic partners in the future. Globalstar has granted to Hyundai Electronics Industries Co., Ltd. ("Hyundai") certain rights, including certain sub-contract rights with respect to its satellite constellation and the right, at Hyundai's election, to act as Globalstar's exclusive licensee authorized to manufacture and sell Globalstar Phones in South and North Korea. Current payable and vendor financing due to affiliates is (in thousands):
YEARS ENDED DECEMBER 31, ------------------------ 1998 1997 ---------- ---------- SS/L.................................................. $358,207 $211,843 Qualcomm.............................................. 225,811 90,817 Other affiliates...................................... 3,694 420 -------- -------- Total due to affiliates............................... $587,712 $303,080 ======== ========
Commencing on the Full Constellation Date, LQP, the general partner of LQSS, will receive a managing partner's allocation equal to 2.5% of Globalstar's revenues up to $500 million plus 3.5% of revenues in excess of $500 million. Loral and Qualcomm ultimately will receive 80% and 20%, respectively, of such distribution. Should Globalstar incur a net loss in any year following commencement of operations, the allocation for that year will be reduced by 50% and LQP will reimburse Globalstar for allocation payments, if any, received in any prior quarter of such year, sufficient to reduce its management allocation for the year to 50%. No allocations have been made to date. The Managing Partners allocation may be deferred (with interest at 4% per annum) in any quarter in which Globalstar would report negative cash flow from operations if the Managing Partners allocation were made. 15. REGULATORY MATTERS Globalstar and its operations are, and will be, subject to substantial U.S. and international regulation, including required regulatory approvals in each country in which Globalstar intends to provide service. Globalstar's business may be significantly affected by regulatory activities. F-36 76 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 thereto regarding the 8% Series A Convertible Redeemable Preferred Shares due 2011* 4.1 Indenture dated as of February 15, 1997 relating to Globalstar's and Globalstar Capital Corporation's 11 3/8% Senior Notes due 2004(2) 4.2 Indenture dated as of June 1, 1997 relating to Globalstar's and Globalstar Capital Corporation's 11 1/4% Senior Notes due 2004(3) 4.3 Indenture dated as of October 15, 1997 relating to Globalstar's and Globalstar Capital Corporation's 10 3/4% Senior Notes due 2004(4) 4.4 Indenture dated as of May 20, 1998 relating to Globalstar's and Globalstar Capital Corporation's 11 1/2% Senior Notes due 2005(5) 10.1 Amended and Restated Agreement of Limited Partnership of Globalstar L.P., dated as of January 26, 1999, among Loral/Qualcomm Satellite Services, L.P., Globalstar Telecommunications Limited, AirTouch Satellite Services, Inc., Dacom Corporation, Dacom International, Inc., Hyundai Corporation, Hyundai Electronics Industries Co., Ltd., Loral/DASA Globalstar, L.P., Loral Space & Communications Ltd., San Giorgio S.p.A., Telesat Limited, TE. SA. M., and Vodafone Satellite Services Limited* 10.2 Subscription Agreements by and between Globalstar, L.P., and each of AirTouch Communications, Alcatel Spacecom, Loral General Partner, Inc., Hyundai/Dacom and Vodastar Limited(1) 10.3 Subscription Agreement by and between Globalstar, L.P. and Loral/Qualcomm Satellite Services, L.P.(1) 10.4 Subscription Agreement by and between Globalstar, L.P. and Finmeccanica S.p.A.(1) 10.5 Subscription Agreement by and between Globalstar, L.P. and China Telecommunications Broadcast Satellite Corporation* 10.6 Form of Service Provider Agreements by and between Globalstar, L.P. and each of AirTouch Satellite Services, Inc., Finmeccanica S.p.A., Loral Globalstar, L.P., Loral/DASA Globalstar, L.P., Hyundai/Dacom, TE. SA. M., and Vodastar Limited(1) 10.7 Development Agreement by and between Qualcomm Incorporated and Globalstar, L.P.(1) 10.8 Contract between Globalstar, L.P. and Space Systems/Loral, Inc.(1) 10.9 Contract for the Development of Certain Portions of the Ground Operations Control Center between Globalstar and Loral Western Development Laboratories(1) 10.10 Contract for the Development of Satellite Orbital Operations Centers between Globalstar and Loral Aerosys, a division of Loral Aerospace Corporation(1) 10.11 1994 Stock Option Plan(6)+ 10.12 Amendment to 1994 Stock Option Plan(7)+ 10.13 Revolving Credit Agreement dated as of December 15, 1995, as amended on March 25, 1996, among Globalstar, certain banks parties thereto and Chemical Bank, as Administrative Agent(2) 10.14 Second Amendment to Revolving Credit Agreement dated July 31, 1997 among Globalstar, certain banks parties thereto and The Chase Manhattan Bank, as Administrative Agent(4) 10.15 Third Amendment to Revolving Credit Agreement dated as of October 15, 1997 among Globalstar, certain banks parties thereto and The Chase Manhattan Bank, as Administrative Agent(4) 10.16 Fourth Amendment to Revolving Credit Agreement dated as of November 13, 1998 among Globalstar, certain banks parties thereto and The Chase Manhattan Bank, as Administrative Agent*
77
EXHIBIT NUMBER DESCRIPTIONS OF EXHIBIT - ------- ----------------------- 10.17 Exchange and Registration Rights Agreement, dated as of December 31, 1994, among Globalstar, L.P. and AirTouch Satellite Services, Inc., Finmeccanica S.p.A., Loral Globalstar, L.P., Loral/DASA Globalstar, L.P., Hyundai/Dacom, TE. SA. M., and Vodastar Limited (1) 10.18 Amendment to the Exchange and Registration Rights Agreement, dated as of April 8, 1998, among Globalstar, L.P., Globalstar Telecommunications Limited and Telesat Limited* 10.19 Warrant Agreement dated as of February 19, 1997 relating to Warrants to purchase 4,129,000 shares of Common Stock of Globalstar Telecommunications Limited(2) 10.20 Registration Rights Agreement dated February 19, 1997 relating to Globalstar's 11 3/8% Senior Notes due 2004 and the Company's Warrants to purchase 4,129,000 shares of Common Stock issued in connection therewith(2) 10.21 Registration Rights Agreement dated June 13, 1997 relating to Globalstar's and Globalstar Capital Corporation's 11 1/4% Senior Notes due 2004(3) 10.22 Registration Rights Agreement dated October 29, 1997 relating to Globalstar's and Globalstar Capital Corporation's 10 3/4% Senior Notes due 2004(4) 10.23 Registration Rights Agreement dated May 20, 1998 relating to Globalstar's and Globalstar Capital Corporation's 11 1/2% Senior Notes due 2005(5) 10.24 Registration Rights Agreement dated as of July 6, 1998 relating to 8,400,000 shares of Common Stock by and among Globalstar Telecommunications Limited, Loral Space & Communications Ltd., Quantum Partners LDC, Quasar Strategic Partners LDC and Quantum Industrial Partners LDC.(8) 10.25 Exchange Agreement dated as of September 28, 1998 relating to 717,600 shares of Common Stock by and between Loral Space & Communications Ltd., DACOM Corporation and DACOM International, Inc.(9) 10.26 Registration Rights Agreement dated as of January 26, 1999 relating to the Company's 8% Convertible Redeemable Preferred Stock* 12 Statement Regarding Computation of Ratios* 21 List of Subsidiaries of the Registrant* 23 Consent of Deloitte & Touche LLP* 27 Financial Data Schedule (EDGAR only)*
- --------------- (1) Incorporated by reference to GTL's Registration Statement on Form S-1 (No. 33-86808). (2) Incorporated by reference to the Company's Annual Report on Form 10-K for the Year Ended December 31, 1996. (3) Incorporated by reference to Globalstar's Registration Statement on Form S-4 (No. 333-25461). (4) Incorporated by reference to Globalstar's Registration Statement on Form S-4 (No. 333-41229). (5) Incorporated by reference to Globalstar's Registration Statement on Form S-4 (No. 333-57749). (6) Incorporated by reference to the Company's Registration Statement on Form S-3 (No. 333-6477). (7) Incorporated by reference to the Company's Annual Report on Form 10-K for the Year Ended December 31, 1997 (8) Incorporated by reference to Schedule 13D filed by Loral Space & Communications Ltd. on August 3, 1998. (9) Incorporated by reference to Schedule 13D filed by Loral Space & Communications Ltd. on February 10, 1999. * Filed herewith. + Management compensation plan. EX-3.2 2 BY-LAWS 1 1 B Y E - L A W S of GLOBALSTAR TELECOMMUNICATIONS LIMITED INTERPRETATION 1. In these Bye-Laws unless the context otherwise requires "Bermuda" means the Islands of Bermuda; "Board" means the Board of Directors of the Company or the Directors present at a meeting of Directors at which there is a quorum; "Company" means the company incorporated in Bermuda under the name of Globalstar Telecommunications Limited on the 23rd day of November, 1994; "the Companies Acts" means every Bermuda statute from time to time in force concerning companies insofar as the same applies to the Company; "Globalstar" means Globalstar, L.P., a limited Partnership organised under the laws of the State of Delaware, U.S.A.; "Independent Directors" means the two Directors of the Company designated as such by the Shareholders from time to time and who are not employed by, or otherwise affiliated with, Loral, a Strategic Partner or any of their respective affiliates; 2 2 "Loral", means Loral Corporation, a company organised under the laws of the State of New York, U.S.A.; "LQP" means Loral/QUALCOMM Partnership, L.P., a limited partnership organised under the laws of the State of Delaware, U.S.A.; "LQSS" means Loral/QUALCOMM Satellite Services, L.P., a limited partnership organised under the laws of the State of Delaware, U.S.A.; "paid up" means paid up or credited as paid up; "Register" means the Register of Shareholders of the Company; "Registered offices" means the registered office for the time being of the Company; "Resolution" means a resolution of the Shareholders or, where required, of a separate class or separate classes of Shareholders, adopted either in general meeting or by written resolution, in accordance with the provisions of these Bye-Laws; "Seal" means the common seal of the Company and includes any duplicate thereof; "Secretary" includes a temporary or assistant Secretary and any person appointed by the Board to perform any of the duties of the Secretary; "Shareholder" means a shareholder or member of the Company; 3 3 "Strategic Partners" means the limited partners in any of Globalstar, LQSS and LQP; "these Bye-Laws" means these Bye-Laws in their present form or as from time to time amended; for the purposes of these Bye-Laws a corporation shall be deemed to be present in person if its representative duly authorised pursuant to the Companies Acts is present; words importing the singular number only include the plural number and vice versa; words importing the masculine gender only include the feminine and neuter genders respectively; words importing persons include companies or associations or bodies of persons, whether corporate or un-incorporate; reference to writing shall include typewriting, printing, lithography, photography and other modes of representing or reproducing words in a legible and non-transitory form; any words or expressions defined in the Companies Acts in force at the date when these Bye-Laws or any part thereof are adopted shall bear the same meaning in these Bye-Laws or such part (as the case may be). REGISTERED OFFICE 2. The Registered Office shall be at such place in Bermuda as the Board shall from time to time appoint. 4 4 SHARE RIGHTS 3. Subject to any special rights conferred on the holders of any share or class of shares, any share in the Company may be issued with or have attached thereto such preferred, deferred, qualified or other special rights or such restrictions, whether in regard to dividend, voting, return of capital or otherwise, as the Company may by Resolution determine or, if there has not been any such determination or so far as the same shall not make specific provision, as the Board may determine. 4. The Board shall be authorized to issue preference shares and such shares may be issued from time to time, in one or more series with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as may be designated by the Board prior to the issuance of such series, and the Board is hereby expressly authorized to fix by resolution or resolutions prior to such issuance such designations, preferences and relative, participating, optional or other special rights, or qualifications, limitations or restrictions, including without limiting the generality of the foregoing, the following: (i) the designation of such series or class; (ii) the dividend rate of such series or class, the conditions and dates upon which such dividends will be payable, the relation which such dividends will bear to the dividends payable on any other class or classes of shares or any other series of any class of shares of 5 5 the Company, and whether such dividends will be cumulative or non-voting; (iii) the redemption provisions and times, prices and other terms and conditions of such redemption, if any, for such series or class, which may include provisions that they are to be redeemed on the happening of a specified event or on a given date, that they are liable to be redeemed at the option of the Company or that if authorized by the Memorandum of Association of the Company, that they are liable to be redeemed at the option of the holder; (iv) the terms and amount of any sinking fund provided for the purchase or redemption of the shares of such series or class; (v) the terms and conditions, if any, on which shares of such series or class shall be convertible into, or exchangeable for, shares of the Company or any other securities, including the price or prices, or the rates of exchange thereof, (vi) the voting rights, if any; (vii) the restrictions, if any, on the issue or reissue of any additional preference shares; and (viii) the rights of the holders of such series or class upon the liquidation, dissolution, or distribution of assets of the Company. 6 6 The designations, preferences and relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, of each additional series, if any, may differ from those of any or all other series already outstanding. MODIFICATION OF RIGHTS 5. Subject to the Companies Acts, all or any of the special rights for the time being attached to any class of shares for the time being issued may from time to time (whether or not the Company is being wound up) be altered or abrogated with the consent in writing of the holders of not less than seventy five percent of the issued shares of that class or with the sanction of a resolution passed at a separate general meeting of the holders of such shares voting in person or by proxy. To any such separate general meeting, all the provisions of these Bye-Laws as to general meetings of the Company shall mutatis mutandis apply, but so that the necessary quorum shall be two or more persons holding or representing by proxy any of the shares of the relevant class, that every holder of shares of the relevant class shall be entitled on a poll to one vote for every such share held by him and that any holder of shares of the relevant class present in person or by proxy may demand a poll; provided, however, that if the Company or a class of Shareholders shall have only one Shareholder present in person or by proxy, one Shareholder shall constitute the necessary quorum. 6. The special rights conferred upon the holders of any shares or class of shares shall not, unless otherwise 7 7 expressly provided in the rights attaching to or the terms of issue of such shares, be deemed to be altered by the creation or issue of further shares ranking pari passu therewith. SHARES 7. Subject to the provisions of these Bye-Laws, the unissued shares of the Company (whether forming part of the original capital or any increased capital) shall be at the disposal of the Board, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times and for such consideration and upon such terms and conditions as the Board may determine. 8. The Board may in connection with the issue of any shares exercise all powers of paying commission and brokerage conferred or permitted by law. 9. Except as ordered by a court of competent jurisdiction or as required by law, no person shall be recognised by the Company as holding any share upon trust and the Company shall not be bound by or required in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any share or any interest in any fractional part of a share or (except only as otherwise provided in these Bye-Laws or by law) any other right in respect of any share except an absolute right to the entirety thereof in the registered holder. CERTIFICATES 8 8 10. The preparation, issue and delivery of certificates shall be governed by the Companies Acts. In the case of a share held jointly by several persons, delivery of a certificate to one of several joint holders shall be sufficient delivery to all. 11. If a share certificate is defaced, lost or destroyed it may be replaced without fee but on such terms (if any) as to evidence and indemnity and to payment of the costs and out of pocket expenses of the Company in investigating such evidence and preparing such indemnity as the Board may think fit and, in case of defacement, on delivery of the old certificate to the Company. 12. All certificates for share or loan capital or other securities of the Company (other than letters of allotment, scrip certificates and other like documents) shall, except to the extent that the terms and conditions for the time being relating thereto otherwise provide, be issued under the Seal. The Board may by resolution determine, either generally or in any particular case, that any signatures on any such certificates need not be autographic but may be affixed to such certificates by some mechanical means or may be printed thereon or that such certificates need not be signed by any persons. LIEN 13. The Company shall have a first and paramount lien on every share (not being a fully paid share) for all moneys, whether presently payable or not, called or payable, at a date fixed by or in accordance with the terms of issue of 9 9 such share in respect of such share, and the Company shall also have a first and paramount lien on every share (other than a fully paid share) standing registered in the name of a Shareholder, whether singly or jointly with any other person, for all the debts and liabilities of such Shareholder or his estate to the Company, whether the same shall have been incurred before or after notice to the Company of any interest of any person other than such Shareholder, and whether the time for the payment or discharge of the same shall have actually arrived or not, and notwithstanding that the same are joint debts or liabilities of such Shareholder or his estate and any other person, whether a Shareholder or not. The Company's lien on a share shall extend to all dividends payable thereon. The Board may at any time, either generally or in any particular case, waive any lien that has arisen or declare any share to be wholly or in part exempt from the provisions of this Bye-Law. 14. The Company may sell, in such manner as the Board may think fit, any share on which the Company has a lien but no sale shall be made unless some sum in respect of which the lien exists is presently payable nor until the expiration of fourteen days after a notice in writing, stating and demanding payment of the sum presently payable and giving notice of the intention to sell in default of such payment, has been served on the holder for the time being of the share. 15. The net proceeds of sale by the Company of any shares on which it has a lien shall be applied in or towards 10 10 payment or discharge of the debt or liability in respect of which the lien exists so far as the same is presently payable, and any residue shall (subject to a like lien for debts or liabilities not presently payable as existed upon the share prior to the sale) be paid to the holder of the share immediately before such sale. For giving effect to any such sale the Board may authorise some person to transfer the share sold to the purchaser thereof. The purchaser shall be registered as the holder of the share and he shall not be bound to see to the application of the purchase money, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings relating to the sale. CALLS ON SHARES 16. The Board may from time to time make calls upon the Shareholders in respect of any moneys unpaid on their shares (whether on account of the par value of the shares or by way of premium) and not by the terms of issue thereof made payable at a date fixed by or in accordance with such terms of issue, and each Shareholder shall (subject to the Company serving upon him at least fourteen days notice specifying the time or times and place of payment) pay to the Company at the time or times and place so specified the amount called on his shares. A call may be revoked or postponed as the Board may determine. 17. A call may be made payable by installments and shall be deemed to have been made at the time when the resolution of the Board authorizing the call was passed. 11 11 18. The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof. 19. If a sum called in respect of the share shall not be paid before or on the day appointed for payment thereof the person from whom the sum is due shall pay interest on the sum from the day appointed for the payment thereof to the time of actual payment at such rate as the Board may determine, but the Board shall be at liberty to waive payment of such interest wholly or in part. 20. Any sum which, by the terms of issue of a share, becomes payable on allotment or at any date fixed by or in accordance with such terms of issue, whether on account of the nominal amount of the share or by way of premium, shall for all the purposes of these Bye-Laws be deemed to be a call duly made, notified and payable on the date on which, by the terms of issue, the same becomes payable and, in case of non-payment, all the relevant provisions of these Bye-Laws as to payment of interest, forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified. 21. The Board may on the issue of shares differentiate between the allottees or holders as to the amount of calls to be paid and the times of payment. FORFEITURE OF SHARES 22. If a Shareholder fails to pay any call or installment of a call on the day appointed for payment thereof, the Board may at any time thereafter during such time as any part of such call or installment remains unpaid serve a 12 12 notice on him requiring payment of so much of the call or installment as is unpaid, together with any interest which may have accrued. 23. The notice shall name a further day (not being less than 14 days from the date of the notice) on or before which, and the place where, the payment required by the notice is to be made and shall state that, in the event of non-payment on or before the day and at the place appointed, the shares in respect of which such call is made or installment is payable will be liable to be forfeited. The Board may accept the surrender of any share liable to be forfeited hereunder and, in such case, references in these Bye-laws to forfeiture shall include surrender. 24. If the requirements of any such notice as aforesaid are not complied with, any share in respect of which such notice has been given may at any time thereafter, before payment of all calls or installments and interest due in respect thereof has been made, be forfeited by a resolution of the Board to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited shares and not actually paid before the forfeiture. 25. When any share has been forfeited, notice of the forfeiture shall be served upon the person who was before forfeiture the holder of the share; but no forfeiture shall be in any manner invalidated by any omission or neglect to give such notice as aforesaid. 26. A forfeited share shall be deemed to be the property of the Company and may be sold, re-offered or otherwise 13 13 disposed of either to the person who was, before forfeiture, the holder thereof or entitled thereto or to any other person upon such terms and in such manner as the Board shall think fit, and at any time before a sale, re-allotment or disposition the forfeiture may be cancelled on such terms as the Board may think fit. 27. A person whose shares have been forfeited shall thereupon cease to be a Shareholder in respect of the forfeited shares but shall, notwithstanding the forfeiture, remain liable to pay to the Company all moneys which at the date of forfeiture were presently payable by him to the Company in respect of the shares with interest thereon at such rate as the Board may determine from the date of forfeiture until payment, and the Company may enforce payment without being under any obligation to make any allowance for the value of the shares forfeited. 28. An affidavit in writing that the deponent is a Director or the Secretary and that a share has been duly forfeited on the date stated in the affidavit shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the share. The Company may receive the consideration (if any) given for the share on the sale, re-allotment or disposition thereof and the Board may authorise some person to transfer the share to the person to whom the same is sold, re-allotted or disposed of, and he shall thereupon be registered as the holder of the share and shall not be bound to see to the application of the purchase money (if any) nor shall his title to the share be affected by any irregularity or invalidity in the 14 14 proceedings relating to the forfeiture, sale, re-allotment or disposal of the share. REGISTER OF SHAREHOLDERS 29. The Secretary shall establish and maintain the Register of Shareholders at the Registered Office in the manner prescribed by the Companies Acts. Unless the Board otherwise determines, the Register of Shareholders shall be open to inspection in the manner prescribed by the Companies Acts between 10.00 a.m. and 12.00 noon on every working day. Unless the Board so determines, no Shareholder or intending Shareholder shall be entitled to have entered in the Register any indication of any trust or any equitable, contingent, future or partial interest in any share or any interest in any fractional part of a share and if any such entry exists or is permitted by the Board it shall not be deemed to abrogate any of the provisions of Bye-Law 9. REGISTER OF DIRECTORS AND OFFICERS 30. The Secretary shall establish and maintain a register of the Directors and Officers of the Company as required by the Companies Acts. The register of Directors and Officers shall be open to inspection in the manner prescribed by the Companies Acts between 10:00 a.m. and 12:00 noon on every working day. TRANSFER OF SHARES 31. Subject to the Companies Acts and to such of the restrictions contained in these Bye-Laws as may be applicable, any Shareholder may transfer all or any of his 15 15 shares by an instrument of transfer in the usual common form or in any other form which the Board may approve. 32. The instrument of transfer of a share shall be signed by or on behalf of the transferor and where any share is not fully-paid the transferee, and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the Register in respect thereof. All instruments of transfer when registered may be retained by the Company. The Board may, in its absolute discretion and without assigning any reason therefor, decline to register any transfer of any share which is not a fully-paid share. The Board may also decline to register any transfer unless:- (a) the instrument of transfer is duly stamped and lodged with the Company, accompanied by the certificate for the shares to which it relates, and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer, (b) the instrument of transfer is in respect of only one class of share, (c) where applicable, the permission of the Bermuda Monetary Authority with respect thereto has been obtained. Subject to any directions of the Board from time to time in force, the Secretary may exercise the powers and discretions of the Board under this Bye-Law and Bye-Laws 31 and 33. 16 16 33. If the Board declines to register a transfer it shall, within three months after the date on which the instrument of transfer was lodged, send to the transferee notice of such refusal. 34. No fee shall be charged by the Company for registering any transfer, probate, letters of administration, certificate of death or marriage, power of attorney, distringas or stop notice, order of court or other instrument relating to or affecting the title to any share, or otherwise making an entry in the Register relating to any share. TRANSMISSION OF SHARES 35. In the case of the death of a Shareholder, the survivor or survivors, where the deceased was a joint holder, and the estate representative, where he was sole holder, shall be the only person recognised by the Company as having any title to his shares; but nothing herein contained shall release the estate of a deceased holder (whether the sole or joint) from any liability in respect of any share held by him solely or jointly with other persons. For the purpose of this Bye-Law, estate representative means the person to whom probate or letters of administration has or have been granted in Bermuda or, failing any such person, such other person as the Board may in its absolute discretion determine to be the person recognised by the Company for the purpose of this Bye-Law. 36. Any person becoming entitled to a share in consequence of the death of a Shareholder or otherwise by operation of 17 17 applicable law may, subject as hereafter provided and upon such evidence being produced as may from time to time be required by the Board as to his entitlement, either be registered himself as the holder of the share or elect to have some person nominated by him registered as the transferee thereof. If the person so becoming entitled elects to be registered himself, he shall deliver or send to the Company a notice in writing signed by him stating that he so elects. If he shall elect to have his nominee registered, he shall signify his election by signing an instrument of transfer of such share in favour of his nominee. All the limitations, restrictions and provisions of these Bye-Laws relating to the right to transfer and the registration of transfer of shares shall be applicable to any such notice or instrument of transfer as aforesaid as if the death of the Shareholder or other event giving rise to the transmission had not occurred and the notice or instrument of transfer was an instrument of transfer signed by such Shareholder. 37. A person becoming entitled to a share in consequence of the death of a Shareholder or otherwise by operation of applicable law shall (upon such evidence being produced as may from time to time be required by the Board as to his entitlement) be entitled to receive and may give a discharge for any dividends or other moneys payable in respect of the share, but he shall not be entitled in respect of the share to receive notices of or to attend or vote at general meetings of the Company or, save as aforesaid, to exercise in respect of the share any of the rights or privileges of a Shareholder until he shall have become registered as the 18 18 holder thereof. The Board may at any time give notice requiring such person to elect either to be registered himself or to transfer the share and if the notice is not complied with within sixty days the Board may thereafter withhold payment of all dividends and other moneys payable in respect of the shares until the requirements of the notice have been complied with. 38. Subject to any directions of the Board from time to time in force, the Secretary may exercise the powers and discretions of the Board under Bye-Laws 35, 36 and 37. INCREASE OF CAPITAL 39. The Company may from time to time increase its capital by such sum to be divided into shares of such par value as the Company by Resolution shall prescribe. 40. The Company may, by the Resolution increasing the capital, direct that the new shares or any of them shall be offered in the first instance either at par or at a premium or (subject to the provisions of the Companies Acts) at a discount to all the holders for the time being of shares of any class or classes in proportion to the number of such shares held by them respectively or make any other provision as to the issue of the new shares. 41. The new shares shall be subject to all the provisions of these Bye-Laws with reference to lien, the payment of calls, forfeiture, transfer, transmission and otherwise. ALTERATION OF CAPITAL 19 19 42. The Company may from time to time by Resolution:- (a) divide its shares into several classes and attach thereto respectively any preferential, deferred, qualified or special rights, privileges or conditions; (b) consolidate and divide all or any of its share capital into shares of larger par value than its existing shares; (c) sub-divide its shares or any of them into shares of smaller par value than is fixed by its memorandum, so, however, that in the sub-division the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; (d) make provision for the issue and allotment of shares which do not carry any voting rights; (e) cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled; and (f) change the currency denomination of its share capital. Where any difficulty arises in regard to any division, consolidation, or sub-division under this Bye-Law, the Board 20 20 may settle the same as it thinks expedient and, in particular, may arrange for the sale of the shares representing fractions and the distribution of the net proceeds of sale in due proportion amongst the Shareholders who would have been entitled to the fractions, and for this purpose the Board may authorise some person to transfer the shares representing fractions to the purchaser thereof, who shall not be bound to see to the application of the purchase money nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings relating to the sale. 43. Subject to the Companies Act and to any confirmation or consent required by law or these Bye-Laws, the Company may by Resolution from time to time convert any preference shares into redeemable preference shares. REDUCTION OF CAPITAL 44. Subject to the Companies Acts, its memorandum and any confirmation or consent required by law or these Bye-Laws, the Company may from time to time by Resolution authorise the reduction of its issued share capital or any capital redemption reserve fund or any share premium or contributed surplus account in any manner. 45. In relation to any such reduction, the Company may by Resolution determine the terms upon which such reduction is to be effected including in the case of a reduction of part only of a class of shares, those shares to be affected. GENERAL MEETINGS AND WRITTEN RESOLUTIONS 21 21 46. (a) The Board shall convene and the Company shall hold general meetings as Annual General Meetings in accordance with the requirements of the Companies Acts at such times and places as the Board shall appoint. The Board may, whenever it thinks fit, and shall, when required by the Companies Acts, convene general meetings other than Annual General Meetings which shall be called Special General Meetings. (b) Except in the case of the removal of auditors and Directors, anything which may be done by resolution of the Company in general meeting or by resolution of a meeting of any class of the Shareholders of the Company may, without a meeting and without any previous notice being required, be done by resolution in writing, signed by all of the Shareholders or their proxies, or in the case of a Shareholder that is a corporation (whether or not a company within the meaning of the Companies Acts) on behalf of such Shareholder, being all of the Shareholders of the Company who at the date of the resolution in writing would be entitled to attend a meeting and vote on the resolution. Such resolution in writing may be signed by, or in the case of a Shareholder that is a corporation (whether or not a company within the meaning of the Companies Acts), on behalf of, all the Shareholders of the Company, or any class thereof, in as many counterparts as may be necessary. 22 22 (c) For the purposes of this Bye-Law, the date of the resolution in writing is the date when the resolution is signed by, or in the case of a Shareholder that is a corporation (whether or not a company within the meaning of the Companies Acts), on behalf of, the last Shareholder to sign and any reference in any enactment to the date of passing of a resolution is, in relation to a resolution in writing made in accordance with this section, a reference to such date. (d) A resolution in writing made in accordance with this Bye-Law is as valid as if it had been passed by the Company in general meeting or, if applicable, by a meeting of the relevant class of Shareholders of the Company, as the case may be. A resolution in writing made in accordance with this section shall constitute minutes for the purposes of the Companies Acts and these Bye-Laws. NOTICE OF GENERAL MEETINGS 47. An Annual General Meeting shall be called by not less than five days notice in writing and a Special General Meeting shall be called by not less than five days notice in writing. The notice shall be exclusive of the day on which it is served or deemed to be served and of the day for which it is given, and shall specify the place, day and time of the meeting, and, in the case of a Special General Meeting, the general nature of the business to be considered. Notice of every general meeting shall be given in any manner permitted by Bye-Laws 120 and 121 to all Shareholders other 23 23 than such as, under the provisions of these Bye-Laws or the terms of issue of the shares they hold, are not entitled to receive such notice from the Company. Notwithstanding that a meeting of the Company is called by shorter notice than that specified in this Bye-Law, it shall be deemed to have been duly called if it is so agreed:- (a) in the case of a meeting called as an Annual General Meeting, by all the Shareholders entitled to attend and vote thereat; (b) in the case of any other meeting, by a majority in number of the Shareholders having the right to attend and vote at the meeting, being a majority together holding not less than 95 percent in nominal value of the shares giving that right. 48. The accidental omission to give notice of a meeting or (in cases where instruments of proxy are sent out with the notice) the accidental omission to send such instrument of proxy to, or the non-receipt of notice of a meeting or such instrument of proxy by, any person entitled to receive such notice shall not invalidate the proceedings at that meeting. PROCEEDINGS AT GENERAL MEETINGS 49. No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business, but the absence of a quorum shall not preclude the appointment, choice or election of a chairman which shall not be treated as part of the business of the meeting. Save as otherwise provided by these Bye-Laws, at least two 24 24 Shareholders present in person or by proxy and entitled to vote shall be a quorum for all purposes; provided, however, that if the Company shall have only one Shareholder, one Shareholder present in person or by proxy shall constitute the necessary quorum. 50. If within five minutes (or such longer time as the chairman of the meeting may determine to wait) after the time appointed for the meeting, a quorum is not present, the meeting, if convened on the requisition of Shareholders, shall be dissolved. In any other case, it shall stand adjourned to such other day and such other time and place as the chairman of the meeting may determine and at such adjourned meeting two Shareholders present in person or by proxy (whatever the number of shares held by them) shall be a quorum provided that if the Company shall have only one Shareholder, one Shareholder present in person or by proxy shall constitute the necessary quorum. The Company shall give not less than five days notice of any meeting adjourned through want of a quorum and such notice shall state that the sole Shareholder or, if more than one, two Shareholders present in person or by proxy (whatever the number of shares held by them) shall be a quorum. 51. A meeting of the Shareholders or any class thereof may be held by means of such telephone, electronic or other communication facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously and participation in such a meeting shall constitute presence in person at such meeting. 25 25 52. Each Director shall be entitled to attend and speak at any general meeting of the Company. 53. The Chairman (if any) of the Board or, in his absence, the President shall preside as chairman at every general meeting. If there is no such Chairman or President, or if at any meeting neither the Chairman nor the President is present within five minutes after the time appointed for holding the meeting, or if neither of them is willing to act as chairman, the Directors present shall choose one of their number to act or if one Director only is present he shall preside as chairman if willing to act. If no Director is present, or if each of the Directors present declines to take the chair, the persons present and entitled to vote on a poll shall elect one of their number to be chairman. 54. The chairman of the meeting may, with the consent of any meeting at which a quorum is present (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place but no business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting from which the adjournment took place. When a meeting is adjourned for three months or more, notice of the adjourned meeting shall be given as in the case of an original meeting. 55. Save as expressly provided by these Bye-Laws, it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting. VOTING 26 26 56. Save where a greater majority is required by the Companies Acts or these Bye-Laws, any question proposed for consideration at any general meeting shall be decided on by a simple majority of votes cast. 57. At any general meeting, a resolution put to the vote of the meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded by:- (a) the chairman of the meeting; or (b) at least three Shareholders present in person or represented by proxy; or (c) any Shareholder or Shareholders present in person or represented by proxy and holding between them not less than one tenth of the total voting rights of all the Shareholders having the right to vote at such meeting; or (d) a Shareholder or Shareholders present in person or represented by proxy holding shares conferring the right to vote at such meeting, being shares on which an aggregate sum has been paid up equal to not less than one tenth of the total sum paid up on all such shares conferring such right. Unless a poll is so demanded and the demand is not withdrawn, a declaration by the chairman that a resolution has, on a show of hands, been carried or carried unanimously or by a particular 27 27 majority or not carried by a particular majority or lost shall be final and conclusive, and an entry to that effect in the minute book of the Company shall be conclusive evidence of the fact without proof of the number of votes recorded for or against such resolution. 58. If a poll is duly demanded, the result of the poll shall be deemed to be the resolution of the meeting at which the poll is demanded. 59. A poll demanded on the election of a chairman, or on a question of adjournment, shall be taken forthwith. A poll demanded on any other question shall be taken in such manner and either forthwith or at such time (being not later than three months after the date of the demand) and place as the chairman shall direct. It shall not be necessary (unless the chairman otherwise directs) for notice to be given of a poll. 60. The demand for a poll shall not prevent the continuance of a meeting for the transaction of any business other than the question on which the poll has been demanded and it may be withdrawn at any time before the close of the meeting or the taking of the poll, whichever is the earlier. 61. On a poll, votes may be cast either personally or by proxy. 62. A person entitled to more than one vote on a poll need not use all his votes or cast all the votes he uses in the same way. 63. In the case of an equality of votes at a general meeting, whether on a show of hands or on a poll, the 28 28 chairman of such meeting shall not be entitled to a second or casting vote. 64. In the case of joint holders of a share, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the Register in respect of the joint holding. 65. A Shareholder who is a patient for any purpose of any statute or applicable law relating to mental health or in respect of whom an order has been made by any Court having jurisdiction for the protection or management of the affairs of persons incapable of managing their own affairs may vote, whether on a show of hands or on a poll, by his receiver, committee, curator bonis or other person in the nature of a receiver, committee or curator bonis appointed by such Court and such receiver, committee, curator bonis or other person may vote on a poll by proxy, and may otherwise act and be treated as such Shareholder for the purpose of general meetings. 66. No Shareholder shall, unless the Board otherwise determines, be entitled to vote at any general meeting unless all calls or other sums presently payable by him in respect of shares in the Company have been paid. 67. If (i) any objection shall be raised to the qualification of any voter or (ii) any votes have been counted which ought not to have been counted or which might have been rejected or (iii) any votes are not counted which 29 29 ought to have been counted, the objection or error shall not vitiate the decision of the meeting or adjourned meeting on any resolution unless the same is raised or pointed out at the meeting or, as the case may be, the adjourned meeting at which the vote objected to is given or tendered or at which the error occurs. Any objection or error shall be referred to the chairman of the meeting and shall only vitiate the decision of the meeting on any resolution if the chairman decides that the same may have affected the decision of the meeting. The decision of the chairman on such matters shall be final and conclusive. PROXIES AND CORPORATE REPRESENTATIVES 68. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney authorised by him in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorised to sign the same. 69. Any Shareholder may appoint a standing proxy or (if a corporation) representative by depositing at the Registered Office a proxy or (if a corporation) an authorisation and such proxy or authorisation shall be valid for all general meetings and adjournments thereof or, resolutions in writing, as the case may be, until notice of revocation is received at the Registered Office. Where a standing proxy or authorisation exists, its operation shall be deemed to have been suspended at any general meeting or adjournment thereof at which the Shareholder is present or in respect to which the Shareholder has specially appointed a proxy or 30 30 representative. The Board may from time to time require such evidence as it shall deem necessary as to the due execution and continuing validity of any such standing proxy or authorisation and the operation of any such standing proxy or authorisation shall be deemed to be suspended until such time as the Board determines that it has received the requested evidence or other evidence satisfactory to it. 70. Subject to Bye-Law 69, the instrument appointing a proxy together with such other evidence as to its due execution as the Board may from time to time require, shall be delivered at the Registered Office (or at such place as may be specified in the notice convening the meeting or in any notice of any adjournment or, in either case or the case of a written resolution, in any document sent therewith) prior to the holding of the relevant meeting or adjourned meeting at which the person named in the instrument proposes to vote or, in the case of a poll taken subsequently to the date of a meeting or adjourned meeting, before the time appointed for the taking of the poll, or, in the case of a written resolution, prior to the effective date of the written resolution and in default the instrument of proxy shall not be treated as valid. 71. Instruments of proxy shall be in any common form or in such other form as the Board may approve and the Board may, if it thinks fit, send out with the notice of any meeting or any written resolution forms of instruments of proxy for use at that meeting or in connection with that written resolution. The instrument of proxy shall be deemed to confer authority to demand or join in demanding a poll and 31 31 to vote on any amendment of a written resolution or amendment of a resolution put to the meeting for which it is given as the proxy thinks fit. The instrument of proxy shall unless the contrary is stated therein be valid as well for any adjournment of the meeting as for the meeting to which it relates. 72. A vote given in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal, or revocation of the instrument of proxy or of the authority under which it was executed, provided that no intimation in writing of such death, insanity or revocation shall have been received by the Company at the Registered Office (or such other place as may be specified for the delivery of instruments of proxy in the notice convening the meeting or other documents sent therewith) one hour at least before the commencement of the meeting or adjourned meeting, or the taking of the poll, or the day before the effective date of any written resolution at which the instrument of proxy is used. 73. Subject to the Companies Acts, the Board may at its discretion waive any of the provisions of these Bye-Laws related to proxies or authorisations and, in particular, may accept such verbal or other assurances as it thinks fit as to the right of any person to attend and vote on behalf of any Shareholder at general meetings or to sign written resolutions. APPOINTMENT AND REMOVAL OF DIRECTORS 32 32 74. The number of Directors shall be such number not less than five nor more than fifteen as the Company by Resolution may from time to time determine and, subject to the Companies Act and these Bye-Laws, shall serve until re-elected or their successors are appointed at the next Annual General Meeting. The Board shall nominate for election to the Board at each Annual General Meeting two independent Directors. 75. Without prejudice to the power of the Company by Resolution in pursuance of any of the provisions of these Bye-laws to appoint any person to be a Director, any vacancy on the Board may be filled by the Directors, so long as a quorum of Directors remains in office. 76. The Company may in a Special General Meeting called for that purpose remove a Director provided notice of any such meeting shall be served upon the Director concerned not less than 14 days before the meeting and he shall be entitled to be heard at that meeting. Any vacancy created by the removal of a Director at a Special General Meeting may be filled at the Meeting by the election of another Director in his place or, in the absence of any such election, by the Board. RESIGNATION AND DISQUALIFICATION OF DIRECTORS 77. The office of a Director shall be vacated upon the happening of any of the following events: (a) if he resigns his office by notice in writing delivered to the Registered Office or tendered at a meeting of the Board; 33 33 (b) if he becomes of unsound mind or a patient for any purpose of any statute or applicable law relating to mental health and the Board resolves that his office is vacated; (c) if he becomes bankrupt or compounds with his creditors; (d) if he is prohibited by law from being a Director; (e) if he ceases to be a Director by virtue of the Companies Acts or is removed from office pursuant to these Bye-Laws. DIRECTORS' FEES AND ADDITIONAL REMUNERATION AND EXPENSES 78. The amount, if any, of Directors' fees shall from time to time be determined by the resolution of the Board (or any committee thereof so authorized by the Board). Each Director may be paid his reasonable travelling, hotel and incidental expenses in attending and returning from meetings of the Board or committees constituted pursuant to these Bye-Laws or general meetings and shall be paid all expenses properly and reasonably incurred by him in the conduct of the Company's business or in the discharge of his duties as a Director. Any Director who, by request, goes or resides abroad for any purposes of the Company or who performs services which in the opinion of the Board go beyond the ordinary duties of a Director may be paid such extra remuneration (whether by way of salary, commission, participation in profits or otherwise) as the Board may determine, and such extra remuneration shall be in addition 34 34 to any remuneration provided for by or pursuant to any other Bye-Law. DIRECTORS' INTERESTS 79. (a) A Director may hold any other office or place of profit with the Company (except that of auditor) in conjunction with his office of Director for such period and upon such terms as the Board may determine, and may be paid such extra remuneration therefor (whether by way of salary, commission, participation in profits or otherwise) as the Board may determine, and such extra remuneration shall be in addition to any remuneration provided for by or pursuant to any other Bye-Law. (b) A Director may act by himself or his firm in a professional capacity for the Company (otherwise than as auditor) and he or his firm shall be entitled to remuneration for professional services as if he were not a Director. (c) Subject to the provisions of the Companies Acts, a Director may notwithstanding his office be a party to, or otherwise interested in, any transaction or arrangement with the Company or in which the Company is otherwise interested; and be a Director or other officer of, or employed by, or a party to any transaction or arrangement with, or otherwise interested in, any body corporate promoted by the Company or in which the Company is interested. The Board may also cause the voting power conferred 35 35 by the shares in any other company held or owned by the Company to be exercised in such manner in all respects as it thinks fit, including the exercise thereof in favour of any resolution appointing the Directors or any of them to be directors or officers of such other company, or voting or providing for the payment of remuneration to the directors or officers of such other company. (d) So long as, where it is necessary, he declares the nature of his interest at the first opportunity at a meeting of the Board or by writing to the Directors as required by the Companies Acts, a Director shall not by reason of his office be accountable to the Company for any benefit which he derives from any office or employment to which these Bye-Laws allow him to be appointed or from any transaction or arrangement in which these Bye-Laws allow him to be interested, and no such transaction or arrangement shall be liable to be avoided on the ground of any interest or benefit. (e) Subject to the Companies Acts and any further disclosure required thereby, a general notice to the Directors by a Director or officer declaring that he is a director or officer or has an interest in a person and is to be regarded as interested in any transaction or arrangement made with that person, shall be a sufficient 36 36 declaration of interest in relation to any transaction or arrangement so made. POWERS AND DUTIES OF THE BOARD 80. Subject to the provisions of the Companies Acts and these Bye-Laws and to any directions given by the Company by Resolution, the Board shall manage the business of the Company and may pay all expenses incurred in promoting and incorporating the Company and may exercise all the powers of the Company. No alteration of these Bye-Laws and no such direction shall invalidate any prior act of the Board which would have been valid if that alteration had not been made or that direction had not been given. The powers given by this Bye-Law shall not be limited by any special power given to the Board by these Bye-Laws and a meeting of the Board at which a quorum is present shall be competent to exercise all the powers, authorities and discretions for the time being vested in or exercisable by the Board. 81. The Board may exercise all the powers of the Company to borrow money and to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company and to issue debentures and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any other persons. 82. All cheques, promissory notes, drafts, bills of exchange and other instruments, whether negotiable or transferable or not, and all receipts for money paid to the Company shall be signed, drawn, accepted, endorsed or 37 37 otherwise executed, as the case may be, in such manner as the Board shall from time to time by resolution determine. 83. The Board on behalf of the Company may provide benefits, whether by the payment of gratuities or pensions or otherwise, for any person including any Director or former Director who has held any executive office or employment with the Company or with any body corporate which is or has been a subsidiary or affiliate of the Company or a predecessor in the business of the Company or of any such subsidiary or affiliate, and to any member of his family or any person who is or was dependent on him, and may contribute to any fund and pay premiums for the purchase or provision of any such gratuity, pension or other benefit, or for the insurance of any such person. 84. The Board may from time to time appoint one or more of its body to be a managing director, joint managing director or an assistant managing director or to hold any other employment or executive office with the Company for such period and upon such terms as the Board may determine and may revoke or terminate any such appointments. Any such revocation or termination as aforesaid shall be without prejudice to any claim for damages that such Director may have against the Company or the Company may have against such Director for any breach of any contract of service between him and the Company which may be involved in such revocation or termination. Any person so appointed shall receive such remuneration (if any) (whether by way of salary, commission, participation in profits or otherwise) 38 38 as the Board may determine, and either in addition to or in lieu of his remuneration as a Director. DELEGATION OF THE BOARD'S POWERS 85. The Board may by power of attorney appoint any company, firm or person or any fluctuating body of persons, whether nominated directly or indirectly by the Board, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Board under these Bye-Laws) and for such period and subject to such conditions as it may think fit, and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney and of such attorney as the Board may think fit, and may also authorise any such attorney to sub-delegate all or any of the powers, authorities and discretions vested in him. 86. The Board may entrust to and confer upon any Director or officer any of the powers exercisable by it upon such terms and conditions with such restrictions as it thinks fit, and either collaterally with, or to the exclusion of, its own powers, and may from time to time revoke or vary all or any of such powers but no person dealing in good faith and without notice of such revocation or variation shall be affected thereby. 87. The Board may delegate any of its powers, authorities and discretions to committees, consisting of such person or persons (whether a member or members of its body or not) as it thinks fit. Any committee so formed shall, in the 39 39 exercise of the powers, authorities and discretions so delegated, conform to any regulations which may be imposed upon it by the Board. PROCEEDINGS OF THE BOARD 88. The Board may meet for the despatch of business, adjourn and otherwise regulate its meetings as it thinks fit. Questions arising at any meeting shall be determined by a majority of votes. In the case of an equality of votes the motion shall be deemed to have been lost. A Director may, and the Secretary on the requisition of a Director shall, at any time summon a meeting of the Board. 89. Notice of a meeting of the Board shall be deemed to be duly given to a Director if it is given to him personally or by word of mouth or sent to him by post, cable, telex, telecopier or other mode of representing or reproducing words in a legible and non-transitory form at his last known address or any other address given by him to the Company for this purpose. A Director may waive notice of any meeting either prospectively or retrospectively. 90. (a) The quorum necessary for the transaction of the business of the Board may be fixed by the Board and, unless so fixed at any other number, shall be two individuals. Any Director who ceases to be a Director at a meeting of the Board may continue to be present and to act as a Director and be counted in the quorum until the termination of the meeting if no other Director objects and if otherwise a quorum of Directors would not be present. 40 40 (b) A Director who to his knowledge is in any way, whether directly or indirectly, interested in a contract or proposed contract, transaction or arrangement with the Company and has complied with the provisions of the Companies Acts and these Bye-Laws with regard to disclosure of his interest shall be entitled to vote in respect of any contract, transaction or arrangement in which he is so interested and if he shall do so his vote shall be counted, and he shall be taken into account in ascertaining whether a quorum is present. 91. So long as a quorum of Directors remains in office, the continuing Directors may act notwithstanding any vacancy in the Board but, if no such quorum remains, the continuing Directors or a sole continuing Director may act only for the purpose of calling a general meeting. 92. The Chairman (if any) of the Board or, in his absence, the President shall preside as chairman at every meeting of the Board. If there is no such Chairman or President, or if at any meeting the Chairman or the President is not present within five minutes after the time appointed for holding the meeting, or is not willing to act as chairman, the Directors present may choose one of their number to be chairman of the meeting. 93. The meetings and proceedings of any committee consisting of two or more members shall be governed by the provisions contained in these Bye-Laws for regulating the meetings and proceedings of the Board so far as the same are 41 41 applicable and are not superseded by any regulations imposed by the Board. 94. A resolution in writing signed by all the Directors for the time being entitled to receive notice of a meeting of the Board or by all the members of a committee for the time being shall be as valid and effectual as a resolution passed at a meeting of the Board or, as the case may be, of such committee duly called and constituted. Such resolution may be contained in one document or in several documents in the like form each signed by one or more of the Directors or members of the committee concerned. 95. A meeting of the Board or a committee appointed by the Board may be held by means of such telephone, electronic or other communication facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously and participation in such a meeting shall constitute presence in person at such meeting. 96. All acts done by the Board or by any committee or by any person acting as a Director or member of a committee or any person duly authorised by the Board or any committee, shall, notwithstanding that it is afterwards discovered that there was some defect in the appointment of any member of the Board or such committee or person acting as aforesaid or that they or any of them were disqualified or had vacated their office, be as valid as if every such person had been duly appointed and was qualified and had continued to be a Director, member of such committee or person so authorised. 42 42 OFFICERS 97. The officers of the Company shall include a President and a Vice-President or a Chairman and a Deputy Chairman who shall be Directors and shall be elected by the Board as soon as possible after the statutory meeting and each Annual General Meeting. In addition, the Board may appoint any person whether or not he is a Director to hold such office as the Board may from time to time determine. Any person elected or appointed pursuant to this Bye-Law shall hold office for such period and upon such terms as the Board may determine and the Board may revoke or terminate any such election or appointment. Any such revocation or termination shall be without prejudice to any claim for damages that such officer may have against the Company or the Company may have against such officer for any breach of any contract of service between him and the Company which may be involved in such revocation or termination. Save as provided in the Companies Acts or these Bye-Laws, the powers and duties of the officers of the Company shall be such (if any) as are determined from time to time by the Board. MINUTES 98. The Directors shall cause minutes to be made and books kept for the purpose of recording - (a) all appointments of officers made by the Directors; (b) the names of the Directors and other persons (if any) present at each meeting of Directors and of any committee; 43 43 (c) of all proceedings at meetings of the Company, of the holders of any class of shares in the Company, and of committees; (d) of all proceedings of managers (if any). SECRETARY 99. The Secretary shall be appointed by the Board at such remuneration (if any) and upon such terms as it may think fit and any Secretary so appointed may be removed by the Board. The duties of the Secretary shall be those prescribed by the Companies Acts together with such other duties as shall from time to time be prescribed by the Board. 100. A provision of the Companies Acts or these Bye-Laws requiring or authorising a thing to be done by or to a Director and the Secretary shall not be satisfied by its being done by or to the same person acting both as Director and as, or in the place of, the Secretary. THE SEAL 101. (a) The Seal shall consist of a circular metal device with the name of the Company around the outer margin thereof and the country and year of incorporation across the centre thereof. Should the Seal not have been received at the Registered Office in such form at the date of adoption of this Bye-Law then, pending such receipt, any document requiring to be sealed with the Seal 44 44 shall be sealed by affixing a red wafer seal to the document with the name of the Company, and the country and year of incorporation type written across the centre thereof. (b) The Board shall provide for the custody of every Seal. A Seal shall only be used by authority of the Board or of a committee constituted by the Board. Subject to these Bye-laws, any instrument to which a Seal is affixed shall be signed by two Directors or the Secretary and one Director, or by any two persons whether or not Directors or the Secretary, who have been authorised either generally or specifically to attest to the use of a Seal; provided that the Secretary or a Director may affix a Seal attested with his signature only to authenticate copies of these Bye-Laws, the minutes of any meeting or any other documents requiring authentication. DIVIDENDS AND OTHER PAYMENTS 102. The Board may from time to time declare cash dividends or distributions out of contributed surplus to be paid to the Shareholders according to their rights and interests including such interim dividends as appear to the Board to be justified by the position of the Company. The Board may also pay any fixed cash dividend which is payable on any shares of the Company half yearly or on such other dates, whenever the position of the Company, in the opinion of the Board, justifies such payment. 45 45 103. Except insofar as the rights attaching to, or the terms of issue of, any share otherwise provide:- (a) all dividends or distributions out of contributed surplus may be declared and paid according to the amounts paid up on the shares in respect of which the dividend or distribution is paid, and an amount paid up on a share in advance of calls may be treated for the purpose of this Bye-Law as paid-up on the share; (b) dividends or distributions out of contributed surplus may be apportioned and paid pro rata according to the amounts paid-up on the shares during any portion or portions of the period in respect of which the dividend or distribution is paid. 104. The Board may deduct from any dividend, distribution or other moneys payable to a Shareholder by the Company on or in respect of any shares all sums of money (if any) presently payable by him to the Company on account of calls or otherwise in respect of shares of the Company. 105. No dividend, distribution or other moneys payable by the Company on or in respect of any share shall bear interest against the Company. 106. Any dividend, distribution, interest or other sum payable in cash to the holder of shares may be paid by cheque or warrant sent through the post addressed to the holder at his address in the Register or, in the case of joint holders, addressed to the holder whose name stands 46 46 first in the Register in respect of the shares at his registered address as appearing in the Register or addressed to such person at such address as the holder or joint holders may in writing direct. Every such cheque or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first in the Register in respect of such shares, and shall be sent at his or their risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company. Any one of two or more joint holders may give effectual receipts for any dividends, distributions or other moneys payable or property distributable in respect of the shares held by such joint holders. 107. Any dividend or distribution out of contributed surplus unclaimed for a period of six years from the date of declaration of such dividend or distribution shall be forfeited and shall revert to the Company and the payment by the Board of any unclaimed dividend, distribution, interest or other sum payable on or in respect of the share into a separate account shall not constitute the Company a trustee in respect thereof. 108. With the sanction of a Resolution the Board may direct payment or satisfaction of any dividend or distribution out of contributed surplus wholly or in part by the distribution of specific assets, and in particular of paid-up shares or debentures of any other company, and where any difficulty arises in regard to such distribution or dividend the Board 47 47 may settle it as it thinks expedient, and in particular, may authorise any person to sell and transfer any fractions or may ignore fractions altogether, and may fix the value for distribution or dividend purposes of any such specific assets and may determine that cash payments shall be made to any Shareholders upon the footing of the values so fixed in order to secure equality of distribution and may vest any such specific assets in trustees as may seem expedient to the Board. RESERVES 109. The Board may, before recommending or declaring any dividend or distribution out of contributed surplus, set aside such sums as it thinks proper as reserves which shall, at the discretion of the Board, be applicable for any purpose of the Company and pending such application may, also at such discretion, either be employed in the business of the Company or be invested in such investments as the Board may from time to time think fit. The Board may also without placing the same to reserve carry forward any sums which it may think it prudent not to distribute. 48 48 CAPITALIZATION OF PROFITS 110. The Board may, at any time and from time to time pass a resolution to the effect that it is desirable to capitalize all or any part of any amount for the time being standing to the credit of any reserve or fund which is available for distribution or to the credit of any share premium account or any capital redemption reserve fund. Accordingly such amount may by resolution of the Board be set free for distribution amongst the Shareholders or any class of Shareholders who would be entitled thereto if distributed by way of dividend and in the same proportions, on the footing that the same be not paid in cash but be applied either in or towards paying up amounts for the time being unpaid on any shares in the Company held by such Shareholders respectively or in payment up in full of unissued shares, debentures or other obligations of the Company, to be allotted and distributed credited as fully paid among such Shareholders, or partly in one way and partly in the other, provided that for purpose of this Bye-law, a share premium account and a capital redemption reserve fund may be applied only in paying up of unissued shares to be issued to such Shareholders credited as fully paid and provided further that any sum standing to the credit of a share premium account may only be applied in crediting as fully paid shares of the same class as that from which the relevant share premium was derived. 111. Where any difficulty arises in regard to any distribution under the last preceding Bye-Law, the Board may settle the same as it thinks expedient and, in particular, 49 49 may authorise any person to sell and transfer any fractions or may resolve that the distribution should be as nearly as may be practicable in the correct proportion but not exactly so or may ignore fractions altogether, and may determine that cash payments should be made to any Shareholders in order to adjust the rights of all parties, as may seem expedient to the Board. The Board may appoint any person to sign on behalf of the persons entitled to participate in the distribution any contract necessary or desirable for giving effect thereto and such appointment shall be effective and binding upon the Shareholders. RECORD DATES 112. Notwithstanding any other provisions of these Bye-Laws, the Company may by Resolution or the Board may fix any date as the record date for any dividend, distribution, allotment or issue and for the purpose of identifying the persons entitled to receive notices of general meetings. Any such record date may be on or at any time before or after any date on which such dividend, distribution, allotment or issue is declared, paid or made or such notice is despatched. ACCOUNTING RECORDS 113. The Board shall cause to be kept accounting records sufficient to give a true and fair view of the state of the Company's affairs and to show and explain its transactions, in accordance with the Companies Acts. 114. The records of account shall be kept at the Registered Office or at such other place or places as the Board thinks 50 50 fit, and shall at all times be open to inspection by the Directors: PROVIDED that if the records of account are kept at some place outside Bermuda, there shall be kept at an office of the Company in Bermuda such records as will enable the Directors to ascertain with reasonable accuracy the financial position of the Company at the end of each three month period. No Shareholder (other than an officer of the Company) shall have any right to inspect any accounting record or book or document of the Company except as conferred by law or authorised by the Board or by Resolution. 115. A copy of every balance sheet and statement of income and expenditure, including every document required by law to be annexed thereto, which is to be laid before the Company in general meeting, together with a copy of the auditors' report, shall be sent to each person entitled thereto in accordance with the requirements of the Companies Acts. AUDIT 116. Save and to the extent that an audit is waived in the manner permitted by the Companies Acts, auditors shall be appointed and their duties regulated in accordance with the Companies Acts, any other applicable law and such requirements not inconsistent with the Companies Acts as the Board may from time to time determine. SERVICE OF NOTICES AND OTHER DOCUMENTS 117. Any notice or other document (including a share certificate) may be served on or delivered to any Shareholder by the Company either personally or by sending 51 51 it through the post (by airmail where applicable) in a pre-paid letter addressed to such Shareholder at his address as appearing in the Register or by delivering it to or leaving it at such registered address. In the case of joint holders of a share, service or delivery of any notice or other document on or to one of the joint holders shall for all purposes be deemed as sufficient service on or delivery to all the joint holders. Any notice or other document if sent by post shall be deemed to have been served or delivered seven days after it was put in the post, and in proving such service or delivery, it shall be sufficient to prove that the notice or document was properly addressed, stamped and put in the post. 118. Any notice of a general meeting of the Company shall be deemed to be duly given to a Shareholder if it is sent to him by cable, telex, telecopier or other mode of representing or reproducing words in a legible and non-transitory form at his address as appearing in the Register or any other address given by him to the Company for this purpose. Any such notice shall be deemed to have been served twenty-four hours after its despatch. 119. Any notice or other document delivered, sent or given to a Shareholder in any manner permitted by these Bye-Laws shall, notwithstanding that such Shareholder is then dead or bankrupt or that any other event has occurred, and whether or not the Company has notice of the death or bankruptcy or other event, be deemed to have been duly served or delivered in respect of any share registered in the name of such Shareholder as sole or joint holder unless his name shall, 52 52 at the time of the service or delivery of the notice or document, have been removed from the Register as the holder of the share, and such service or delivery shall for all purposes be deemed as sufficient service or delivery of such notice or document on all persons interested (whether jointly with or as claiming through or under him) in the share. WINDING UP 120. If the Company shall be wound up, the liquidator may, with the sanction of a Resolution of the Company and any other sanction required by the Companies Acts, divide amongst the Shareholders in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for such purposes set such values as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the Shareholders or different classes of Shareholders. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trust for the benefit of the contributories as the liquidator, with the like sanction, shall think fit, but so that no Shareholder shall be compelled to accept any shares or other assets upon which there is any liability. INDEMNITY 121. Subject to the proviso below, every Director, officer of the Company and member of a committee constituted under Bye-Law 90 shall be indemnified out of the funds of the 53 53 Company against all civil liabilities, loss, damage or expense (including but not limited to liabilities under contract, tort and statute or any applicable foreign law or regulation and all reasonable legal and other costs and expenses properly payable) incurred or suffered by him as such Director, officer or committee member and the indemnity contained in this Bye-Law shall extend to any person acting as a Director, officer or committee member in the reasonable belief that he has been so appointed or elected notwithstanding any defect in such appointment or election PROVIDED ALWAYS that the indemnity contained in this Bye-Law shall not extend to any matter which would render it void pursuant to the Companies Acts. 122. Every Director, officer and member of a committee duly constituted under Bye-Law 90 of the Company shall be indemnified out of the funds of the Company against all liabilities incurred by him as such Director, officer or committee member in defending any proceedings, whether civil or criminal, in which judgment is given in his favour, or in which he is acquitted, or in connection with any application under the Companies Acts in which relief from liability is granted to him by the court. 123. To the extent that any Director, officer or member of a committee duly constituted under Bye-Law 90 is entitled to claim an indemnity pursuant to these Bye-Laws in respect of amounts paid or discharged by him, the relative indemnity shall take effect as an obligation of the Company to reimburse the person making such payment or effecting such discharge. 54 54 ALTERATION OF BYE-LAWS 124. These Bye-Laws may be amended from time to time in the manner provided for in the Companies Acts. 55 55 ANNEX SCHEDULE III 8% Series A Convertible Redeemable Preferred Shares due 2011 Globalstar Telecommunications Limited, an exempted company organized under the laws of Bermuda (the "Company"), certifies that pursuant to the authority contained in its Memorandum of Association (the "Memorandum of Association") and its Bye-Laws (the "Bye-Laws"), and in accordance with Bermuda law, the Board of Directors (or a duly authorized committee thereof) of the Company at meetings duly called and held on January 13, 1999, and January 20, 1999, duly approved and adopted the following resolution, which resolution remains in full force and effect on the date hereof: RESOLVED, that pursuant to the authority vested in the Board of Directors by the Memorandum of Association and Bye-Laws, the Board of Directors does hereby designate, create, authorize and provide for the issue of a series of preference stock having the following designation, voting powers, preferences and relative, participating, optional and other special rights: Capitalized terms used herein are defined in Section 15. 1. Number and Designation. The Company shall have a class of preference shares, which shall be designated as its 8% Series A Convertible Redeemable Preferred Shares due 2011 (the "Series A Preferred Shares"), par value U.S.$0.01 per share, with 8,400,000 shares initially 56 56 authorized and, subject to the limitations set forth herein, such number of additional shares as are authorized from time to time by resolution of the Board of Directors of the Company and as set forth in the Bye-Laws of the Company. Unless otherwise specified, references herein to any "Section" refer to the Section number specified in this Schedule III. 2. Issuance. The Company may issue Series A Preferred Shares from time to time as may be determined by the Board of Directors (or any committee thereof) of the Company. 3. Registered Form; Liquidation Preference; Registrar. Certificates for Series A Preferred Shares shall be issuable only in registered form and only with a liquidation preference of U.S.$50 per share. The Company hereby appoints The Bank of New York as its initial Registrar and Transfer Agent (the "Registrar") for the Series A Preferred Shares. 4. Registration; Transfer. (a) The Series A Preferred Shares have not been registered under the United States Securities Act of 1933 (the "Securities Act") and may not be resold, pledged or otherwise transferred prior to the date when they no longer constitute "restricted securities" for purposes of Rule 144(k) under the Securities Act other than (i) to the Company, (ii) to "qualified institutional buyers" ("QIBs") pursuant to and in compliance with Rule 144A ("Rule 144A") under the Securities Act, (iii) pursuant to and in compliance with Rule 904 of Regulation S under the Securities Act, (iv) to "accredited 57 57 investors" as defined in Rule 501(a) under the Securities Act, (v) pursuant to an exemption from registration under the Securities Act, or (vi) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of Bermuda or any state of the United States. Until such time as determined by the Company and the Registrar, certificates evidencing the Series A Preferred Shares shall contain a legend (the "Restricted Shares Legend") evidencing the foregoing restrictions in substantially the form set forth on the form of Series A Preferred Share attached hereto as Exhibit A. (b) Series A Preferred Shares issued to QIBs in reliance on Rule 144A, as provided in the Purchase Agreement, shall be issued in the form of one or more permanent global Series A Preferred Shares in definitive, fully registered form with the global legend (the "Global Shares Legend") and the Restricted Shares Legend set forth on the form of Series A Preferred Share attached hereto as Exhibit A (each, a "Global Series A Preferred Share"), which shall be deposited on behalf of the holders of the Series A Preferred Shares represented thereby with the Registrar, at its New York office, as custodian for The Depository Trust Company, New York, New York ("DTC") or its nominee and their respective successors (the "Depositary"), and registered in the name of the Depositary or a nominee of the Depositary, duly executed by the Company and countersigned and registered by the Registrar as hereinafter provided. The aggregate liquidation preference of the Global Series A Preferred Share may from time to time be increased or 58 58 decreased by adjustments made on the records of the Registrar and the Depositary or its nominee as hereinafter provided. (c) This paragraph shall apply only to a Global Series A Preferred Share deposited with or on behalf of the Depositary. The Company shall execute and the Registrar shall, in accordance with this Section, countersign and deliver initially one or more Global Series A Preferred Shares that (i) shall be registered in the name of Cede & Co. or other nominee of the Depositary and (ii) shall be delivered by the Registrar to Cede & Co. or pursuant to instructions received from Cede & Co. or held by the Registrar as custodian for the Depositary pursuant to an agreement between the Depositary and the Registrar. Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Schedule with respect to any Global Series A Preferred Share held on their behalf by the Depositary or by the Registrar as the custodian of the Depositary or under such Global Series A Preferred Share, and the Depositary may be treated by the Company, the Registrar and any agent of the Company or the Registrar as the absolute owner of such Global Series A Preferred Share for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Registrar or any agent of the Company or the Registrar from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices of the Depositary governing the exercise of the rights of a holder of a beneficial interest in any Global 59 59 Series A Preferred Share. Except as provided in Section 5(b), owners of beneficial interests in Global Series A Preferred Shares will not be entitled to receive physical delivery of certificated Series A Preferred Shares. (d) Purchasers of Series A Preferred Shares who are not QIBs will receive certificated Series A Preferred Shares bearing the Restricted Shares Legend ("Restricted Series A Preferred Shares"). Restricted Series A Preferred Shares will bear a Restricted Shares Legend unless removed in accordance with Section 5 and may not be exchanged for a Global Series A Preferred Share, or interest therein, at any time, except as set forth in clause (iv) of paragraph (b) of Section 5. (e) No certificate evidencing Series A Preferred Shares shall be valid unless it bears the countersignature of the Registrar. 5. Paying Agent and Conversion Agent. (a) The Company shall maintain in the Borough of Manhattan, City of New York, State of New York (i) an office or agency where Series A Preferred Shares may be presented for payment (the "Paying Agent") and (ii) an office or agency where Series A Preferred Shares may be presented for conversion (the "Conversion Agent"). The Company may appoint the Registrar, the Paying Agent and the Conversion Agent and may appoint one or more additional paying agents and one or more additional conversion agents in such other locations as it shall determine. The term "Paying Agent" includes any additional paying agent and, with respect to payments hereunder by delivery of Common Shares, may include the 60 60 Common Share Transfer Agent, and the term "Conversion Agent" includes any additional conversion agent. The Company may change any Paying Agent or Conversion Agent without prior notice to any holder. The Company shall notify the Registrar of the name and address of any Paying Agent or Conversion Agent appointed by the Company. If the Company fails to appoint or maintain another entity as Paying Agent or Conversion Agent, the Registrar shall act as such. The Company or any of its Affiliates may act as Paying Agent, Registrar, coregistrar or Conversion Agent. Neither the Company nor the Registrar shall be required (A) to issue, countersign or register the transfer of or exchange any Series A Preferred Share during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Series A Preferred Shares selected for redemption under Section 10 and ending at the close of business on the day of such mailing or (B) to register the transfer of or exchange any Series A Preferred Share so selected for redemption in whole or in part, except the unredeemed portion of any Series A Preferred Share being redeemed in part. 61 61 (b) Notwithstanding any provision to the contrary herein, so long as a Global Series A Preferred Share remains outstanding and is held by or on behalf of the Depositary, transfers of a Global Series A Preferred Share, in whole or in part, or of any beneficial interest therein, shall only be made in accordance with Section 4 and this Section 5; provided, however, that beneficial interests in a Global Series A Preferred Share may be transferred to persons who take delivery thereof in the form of a beneficial interest in the same Global Series A Preferred Share in accordance with the transfer restrictions set forth in the Restricted Shares Legend: (i) Except for transfers or exchanges made in accordance with any of clauses (b)(ii) through (v) of this Section 5, transfers of a Global Series A Preferred Share shall be limited to transfers of such Global Series A Preferred Share in whole, but not in part, to nominees of the Depositary or to a successor of the Depositary or such successor's nominee. (ii) If an owner of a beneficial interest in a Global Series A Preferred Share deposited with the Depositary or with the Registrar as custodian for the Depositary wishes at any time to transfer its interest in such Global Series A Preferred Share to a person who is required to take delivery thereof in the form of Restricted Series A Preferred Shares, such owner may, subject to the rules and procedures of the Depositary, cause the exchange of such interest for one or more certificates evidencing such Restricted Series A 62 62 Preferred Shares. Upon receipt by the Registrar, at its office in The City of New York of (A) instructions from the Depositary directing the Registrar to countersign and deliver one or more Restricted Series A Preferred Shares equal in number of shares to the beneficial interest in the Global Series A Preferred Share to be exchanged, such instructions to contain the name or names of the designated transferee or transferees, the number of Restricted Series A Preferred Shares to be so issued and appropriate delivery instructions, (B) a certificate in the form of Exhibit B attached hereto given by the transferor, to the effect set forth therein, (C) if such transfer is made pursuant to Section 4(a)(iv), a certificate in the form of Exhibit C attached hereto given by the person acquiring the Restricted Series A Preferred Shares for which such interest is being exchanged, to the effect set forth therein, and (D) such other certifications, legal opinions or other information as the Company, the Depositary or the Registrar may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, then the Registrar will instruct the Depositary to reduce or cause to be reduced such Global Series A Preferred Share by the number of shares of the beneficial interest therein to be exchanged and to debit or cause to be debited from the account of the person making such transfer the beneficial interest in the Global Series A Preferred Share that is being transferred, and 63 63 concurrently with such reduction and debit, the Company shall execute, and the Registrar shall countersign and deliver, one or more Restricted Series A Preferred Shares representing the same number of shares in accordance with the instructions referred to above. (iii) If a holder of Restricted Series A Preferred Shares wishes at any time to transfer all or part of such Restricted Series A Preferred Shares to a person who is required to take delivery thereof in the form of Restricted Series A Preferred Shares, such holder may, subject to the restrictions on transfer set forth herein and in the certificate representing such Restricted Series A Preferred Shares, cause the exchange of such Restricted Series A Preferred Shares for one or more certificates evidencing such Restricted Series A Preferred Shares. Upon receipt by the Registrar, at its office in The City of New York of (A) such Restricted Series A Preferred Shares, duly endorsed as provided herein, (B) instructions from such holder directing the Registrar to authenticate and deliver one or more certificates evidencing Restricted Series A Preferred Shares, such instructions to contain the name of the transferee and the number of the Restricted Series A Preferred Shares to be so issued and appropriate delivery instructions, (C) a certificate from the holder of the Restricted Series A Preferred Shares to be exchanged in the form of Exhibit B attached hereto given by the transferor, to the effect set forth therein, (D) if such transfer is made pursuant to clause 64 64 4(a)(iv), a certificate in the form of Exhibit C attached hereto given by the person acquiring the Restricted Series A Preferred Shares for which such shares are being exchanged, to the effect set forth therein, and (E) such other certifications, legal opinions or other information as the Company or the Registrar may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, then the Registrar shall cancel or cause to be canceled such Restricted Series A Preferred Share and concurrently therewith, the Company shall execute, and the Registrar shall countersign and deliver, one or more Restricted Series A Preferred Shares representing the number of shares transferred in accordance with the instructions referred to above. (iv) If a holder of Restricted Series A Preferred Shares wishes at any time to transfer all or part of such Restricted Series A Preferred Shares to a person who is eligible to take delivery thereof in the form of a beneficial interest in a Global Series A Preferred Share, such holder may, subject to the restrictions on transfer set forth herein and in the certificate representing such Restricted Series A Preferred Shares, cause the exchange of such Restricted Series A Preferred Shares for beneficial interests in a Global Series A Preferred Share. Upon receipt by the Registrar, at its office in The City of New York of (A) such Restricted 65 65 Series A Preferred Shares, duly endorsed as provided herein, (B) instructions from such holder directing the Registrar to increase the Global Series A Preferred Share, such instructions to contain the name of the transferee and appropriate account information, (C) a certificate from the holder of the Restricted Series A Preferred Shares to be exchanged in the form of Exhibit B attached hereto given by the transferor, to the effect set forth therein, and (D) such other certifications, legal opinions or other information as the Company, the Depositary or the Registrar may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, then the Registrar shall cancel or cause to be canceled such Restricted Series A Preferred Shares and concurrently therewith, the Registrar will instruct the Depositary to increase or cause to be increased the Global Series A Preferred Share by the aggregate number of shares of the Restricted Series A Preferred Shares to be exchanged and to credit or cause to be credited to the account of the transferee the beneficial interest in the Global Series A Preferred Share that is being transferred. (v) In the event that a Global Series A Preferred Share is exchanged for Series A Preferred Shares in definitive registered form pursuant to this Section, prior to the effectiveness of a Shelf Registration Statement with respect to such Series A Preferred Shares, such Series A Preferred Shares may be exchanged 66 66 only in accordance with such procedures as are substantially consistent with the provisions of clauses (ii), (iii) and (iv) above (including the certification requirements intended to ensure that such transfers comply with Rule 144A or are otherwise exempt under the Securities Act, as the case may be) and such other procedures as may from time to time be adopted by the Company, the Depositary or the Registrar. (c) Except in connection with a Shelf Registration Statement contemplated by and in accordance with the terms of the Registration Rights Agreement relating to the Series A Preferred Shares, Common Shares issuable (A) as dividends thereon, (B) on conversion thereof or (C) in redemption thereof, and any securities into which such Series A Preferred Shares or Common Shares shall be converted or into which they shall be changed by operation of law or otherwise (collectively, the "Registrable Securities"), if Series A Preferred Shares are issued upon the transfer, exchange or replacement of Series A Preferred Shares bearing the Restricted Shares Legend, or if a request is made to remove such Restricted Shares Legend on Series A Preferred Shares, the Series A Preferred Shares so issued shall bear the Restricted Shares Legend, or the Restricted Shares Legend shall not be removed, as the case may be, unless there is delivered to the Company and the Registrar such satisfactory evidence, which may include an opinion of counsel licensed to practice law in the State of New York, as may be reasonably required by the Company or the Registrar, that neither the legend nor the restrictions on transfer set forth therein are required to ensure that transfers thereof 67 67 comply with the provisions of Rule 144A or Rule 144 or, with respect to Restricted Series A Preferred Shares, that such Series A Preferred Shares are not "restricted securities" within the meaning of Rule 144 under the Securities Act. Upon provision of such satisfactory evidence, the Registrar, at the direction of the Company, shall countersign and deliver Series A Preferred Shares that do not bear the Restricted Shares Legend. (d) The Registrar shall have no responsibility for any actions taken or not taken by the Depositary. (e) Each holder of a Series A Preferred Share agrees to indemnify the Company and the Registrar against any liability that may result from the transfer, exchange or assignment of such holder's Series A Preferred Share in violation of any provision of this Schedule and/or applicable U.S. Federal or State securities law; provided, however, that such indemnity shall not apply to acts of wilful misconduct or gross negligence on the part of the Company or the Registrar, as the case may be. (f) Payments (whether in cash or, as permitted by Section 11, in Common Shares) due on the Series A Preferred Shares shall be payable at the office or agency of the Company maintained for such purpose in The City of New York and at any other office or agency maintained by the Company for such purpose. If any such payment is in cash, it shall be payable by United States dollar check drawn on, or wire transfer (provided that appropriate wire instructions have been received by the Registrar at least 15 days prior to the applicable date of payment) to a United States dollar 68 68 account maintained by the holder with, a bank located in New York City; provided that at the option of the Company payment of dividends in cash may be made by check mailed to the address of the person entitled thereto as such address shall appear in the Series A Preferred Share Register. 6. Dividend Rights. (a) The Company shall pay, and the holders of the Series A Preferred Shares shall be entitled to receive, cumulative dividends from the date of initial issuance of such Series A Preferred Shares at a rate of 8% per annum on the amount of the liquidation preference of the Series A Preferred Shares. Dividends will be computed on the basis of a 360-day year of twelve 30-day months and will be payable quarterly, subject to Section 11, (i) in cash, (ii) by delivery of Common Shares or (iii) through any combination of the foregoing in arrears on February 15, May 15, August 15 and November 15 of each year (each a "Dividend Payment Date"), commencing May 15, 1999, until the liquidation preference thereof is paid or made available for payment provided, however., that if such date is not a Business Day, then the Dividend Payment Date shall be the next Business Day. The Company may elect not to declare dividend payments on any Dividend Payment Date; provided, however, that dividends on the Series A Preferred Shares will accrue whether or not the Company has earnings or profits, whether or not there are funds legally available for the payment of such dividends and whether or not dividends are declared. Dividends will accumulate to the extent they are not paid on the Dividend Payment Date for the period to which they relate. The Company will take all actions required or permitted under The Companies Act 1981 69 69 of Bermuda (the "Companies Act") to permit the payment of dividends on the Series A Preferred Shares. Arrearages of unpaid dividends ("Accumulated Dividends") will not themselves bear interest or be added to the liquidation preference of the Series A Preferred Shares. (b) Pursuant to the terms of the Registration Rights Agreement, if (i) on or prior to April 26, 1999, a shelf registration statement (the "Shelf Registration Statement") with respect to resales of the Registrable Securities has not been filed with the SEC; (ii) on or prior to August 24, 1999, the Shelf Registration Statement is not declared effective; or (iii) the Shelf Registration Statement has been declared effective by the SEC and such Shelf Registration Statement ceases to be effective or to be usable as contemplated by Section 2(b) of the Registration Rights Agreement at any time during the Shelf Registration Period (as defined in the Registration Rights Agreement) (without being succeeded by a post-effective amendment to such Shelf Registration Statement that cures such failure and that is itself declared effective) for any period of 10 consecutive days or for any 20 days in any 180-day period in connection with resales of Transfer Restricted Securities (provided, that the Company will have the option of suspending the effectiveness of the Shelf Registration Statement, or of notifying holders 70 70 of Transfer Restricted Securities that the Shelf Registration Statement shall be deemed not to be effective without becoming obligated to pay Preferred Stock Liquidated Damages for periods of up to a total of 60 days in any calendar year if the Board of Directors of the Company determines that compliance with the disclosure obligations necessary to maintain the effectiveness of the Shelf Registration Statement at such time could reasonably be expected to have an adverse effect on the Company or a pending corporate transaction) (each of the foregoing clauses (i) through (iii), a "Registration Default"), additional dividends ("Preferred Stock Liquidated Damages") will accrue on the Series A Preferred Shares, from and including the date of such Registration Default to but excluding the day on which such Registration Default has been cured. In the event of each such Registration Default, the Company shall pay Preferred Stock Liquidated Damages to each holder of Series A Preferred Shares that are Transfer Restricted Securities at a rate of 0.50% per annum of the liquidation preference of such Series A Preferred Shares, which shall accrue from the date of the Registration Default to and including the 30th day following such Registration Default and increase by 0.50% for each subsequent 30 day period; provided, however, that such Preferred Stock Liquidated Damages may not accrue at any time at a rate greater than 2.00% per annum of the liquidation preference of the Series A Preferred Shares. Following the cure of all Registration Defaults, the accrual of Preferred Stock 71 71 Liquidated Damages with respect to such Series A Preferred Shares shall cease (without in any way limiting the effect of any subsequent Registration Default). 7. Payment of Dividend; Mechanics of Payment; Dividend Rights Preserved. (a) Dividends on any Series A Preferred Share which are payable, and are punctually paid or duly provided for, on any Dividend Payment Date shall be paid in arrears to the person in whose name such Series A Preferred Share (or one or more predecessor Series A Preferred Shares) is registered at the close of business on the next preceding February 1, May 1, August 1 and November 1 (each, together with any record date established for the payment of Accumulated Dividends, a "Dividend Record Date"). (b) No dividend whatsoever shall be declared or paid upon, or any sum set apart for the payment of dividends upon, any outstanding share of the Series A Preferred Shares with respect to any dividend period unless all dividends for all preceding dividend periods have been declared and paid, or declared and a sufficient sum set apart for the payment of such dividends, upon all outstanding Series A Preferred Shares. Unless full cumulative dividends on all outstanding Series A Preferred Shares for all past dividend periods shall have been declared and paid, or declared and a sufficient sum for the payment thereof set apart, then: (i) no dividend (other than (A) with respect to Junior Shares or Parity Shares, a dividend payable solely in any Junior Shares or Parity Shares, respectively, or (B) with respect to Parity Shares, 72 72 a partial dividend paid pro rata on such Parity Shares and the Series A Preferred Shares) shall be declared or paid upon, or any sum set apart for the payment of dividends upon, any Junior Shares or Parity Shares, respectively; (ii) no other distribution shall be declared or made upon, or any sum set apart for the payment of any distribution upon, any Junior Shares or Parity Shares, other than a distribution consisting solely of Junior Shares or Parity Shares, respectively; (iii) no Junior Shares or Parity Shares or any warrants, rights, calls or options exercisable for or convertible into any Parity Share or Junior Share shall be purchased, redeemed or otherwise acquired (other than in exchange for other Junior Shares or Parity Shares, respectively) by the Company or any of its subsidiaries; and (iv) no monies shall be paid into or set apart or made available for a sinking or other like fund for the purchase, redemption or other acquisition of any Junior Shares or Parity Shares or any warrants, rights, calls or options exercisable for or convertible into any Parity Share or Junior Share by the Company or any of its subsidiaries. Holders of the Series A Preferred Shares will not be entitled to any dividends, whether payable in cash, property or stock, in excess of the full cumulative 73 73 dividends as herein described. In the event that the Company fails to pay the dividends due for an aggregate of six quarterly payments (whether or not consecutive), the holders will have the rights and remedies set forth in Section 8. (c) Dividends (including Accumulated Dividends) may be paid, subject to Section 11, (i) in cash, (ii) by delivery of Common Shares or (iii) through any combination of the foregoing. The Company will notify the Registrar and make a public announcement no later than the close of business on the tenth Business Day prior to the Record Date for each dividend as to whether it will pay such dividend and, if so, the form of consideration it will use to make such payment. (d) Any Accumulated Dividends on any Series A Preferred Share may be paid, subject to Section 11, by the Company in any lawful manner (which shall include the establishment of a record date not more then 45 days prior to the payment thereof) not inconsistent with the requirements of any securities exchange on which the Series A Preferred Shares may be listed, and upon such notice (which shall precede the record date by at least ten Business Days) as may be required by such exchange, if, after notice given by the Company to the Registrar of the proposed payment pursuant to this clause (d), such manner of payment shall be deemed practicable by the Registrar. (e) Subject to the foregoing provisions of this Section 7, each Series A Preferred Share delivered under this Schedule upon registration of transfer of or in 74 74 exchange for or in lieu of any other Series A Preferred Share shall carry the rights to dividends accumulated and unpaid, and to accrue, which were carried by such other Series A Preferred Share. (f) The holder of record of a Series A Preferred Share at the close of business on a Dividend Record Date with respect to the payment of dividends on the Series A Preferred Shares will be entitled to receive such dividends with respect to such Series A Preferred Share on the corresponding Dividend Payment Date, notwithstanding the conversion of such share after such Dividend Record Date and prior to such Dividend Payment Date. A Series A Preferred Share surrendered for conversion during the period from the close of business on any Dividend Record Date to the opening of business of the corresponding Dividend Payment Date must be accompanied by a payment in cash, Common Shares or a combination thereof, depending on the method of payment that the Company has chosen to pay such dividend, in an amount equal to such dividend payable on such Dividend Payment Date, unless such Series A Preferred Share has been called for redemption on a redemption date occurring during the period from the close of business on any Dividend Record Date to the close of business on the Business Day immediately following the corresponding Dividend Payment Date. The dividend payment with respect to a Series A Preferred Share called for redemption on a date during the period from the close of business on any Dividend Record Date to the close of business on the Business Day immediately following the corresponding Dividend Payment Date will be payable on such Dividend Payment Date to the 75 75 record holder of such share on such Dividend Record Date if such share has been converted after such Dividend Record Date and prior to such Dividend Payment Date. Notwithstanding the immediately preceding three sentences of this Section 7(f), no payment shall be owed or payable to or by any converting holder if the Board of Directors of the Company shall have elected to defer the dividend payment to be made on such Dividend Payment Date pursuant to Section 6(a). Fractional Common Shares will not be issued upon conversion, but in lieu thereof the Company will pay a cash adjustment in the manner set forth in Section 11(c). (g) Except as provided with respect to a Provisional Redemption, no payment or adjustment will be made upon conversion of Series A Preferred Shares for accumulated and unpaid dividends or for dividends with respect to the Common Shares issued upon such conversion. 8. Voting Rights. (a) Holders of Series A Preferred Shares will not be entitled to any voting rights unless (i) required by law or (ii) the Company has not paid scheduled dividend payments for an aggregate of six quarterly payments, whether or not consecutive (a "Voting Rights Triggering Event"). If a Voting Rights Triggering Event occurs while any Series A Preferred Shares are outstanding, the number of directors constituting the Board of Directors of the Company will be adjusted to permit the holders of the then Outstanding Series A Preferred Shares, voting separately and as a class, to elect such number of members to the Board of Directors of the Company as will constitute at least 20% of the then existing Board of 76 76 Directors before such election (rounded to the nearest whole number), provided, however, that such number shall be no less than one nor greater than two (the "Series A Preferred Share Directors"), and the number of members of the Company's Board of Directors will be immediately and automatically increased by one or two, as the case may be. The voting rights set forth in the preceding sentence will continue until such time as all dividends in arrears on the Series A Preferred Shares are paid in full, at which time the term of any Series A Preferred Share Director shall terminate. At any time after voting power to elect Directors shall have become vested and be continuing in the holders of the Series A Preferred Shares pursuant to the second preceding sentence, or if a vacancy shall exist in the offices of Series A Preferred Share Directors, the Board of Directors may, and upon written request of the holders of record of at least 25% of the Outstanding Series A Preferred Shares addressed to the Chairman of the Board of the Company, shall, call a special meeting of the holders of the Series A Preferred Shares for the purpose of electing the Series A Preferred Share Directors that such holders are entitled to elect. At any meeting held for the purpose of electing Series A Preferred Share Directors, the presence in person or by proxy of the holders of at least a majority of the Outstanding Series A Preferred Shares shall be required to constitute a quorum of such Series A Preferred Shares. Any vacancy occurring in the office of a Series A Preferred Share Director may be filled by the remaining Series A Preferred Share Director unless and until such vacancy shall be filled by the holders of the Series A Preferred Shares. 77 77 The Series A Preferred Share Directors shall agree, prior to their election to office, to resign upon any termination of the right of the holders of Series A Preferred Shares to vote as a class for Directors as herein provided, and upon such termination the Series A Preferred Share Directors then in office shall forthwith resign. (b) In addition to the voting rights set forth above, the approval of the holders of at least two-thirds of the then Outstanding Series A Preferred Shares voting or consenting, as the case may be, as one class, will be required for the Company to (i) amend the Memorandum of Association, this Schedule or the Bye-Laws or (ii) so long as the Company owns preferred partnership interests of Globalstar purchased with the proceeds of the issuance of Series A Preferred Shares, to waive any rights under, or agree to the modification of the terms of such preferred partnership interests, in either case (i) or (ii), so as to affect adversely the rights, preferences, privileges or voting rights of holders of the Series A Preferred Shares or authorize the issuance of any additional Series A Preferred Shares (other than Series A Preferred Shares to be sold pursuant to the Purchase Agreement); provided, however, that no such modification or amendment may, without the consent of the holders of each Outstanding Series A Preferred Share affected thereby, (i) change the Mandatory Redemption Date, or the due date of any dividend on, any Series A Preferred Shares, or reduce the liquidation preference or redemption price thereof or the rate of dividends thereon, or change the place of payment where, or the coin or currency in which, any Series A Preferred Share or any payment thereon 78 78 is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Mandatory Redemption Date (or on or after other redemption dates), or adversely affect the rights to convert any Series A Preferred Share as provided in Section 12, or adversely affect the right to require the Company to redeem the Series A Preferred Shares as provided in Section 10, or modify the provisions of this Schedule with respect to the ranking of the Series A Preferred Shares in a manner adverse to the holders, (ii) alter the voting rights with respect to the Series A Preferred Stock or reduce the percentage of the Outstanding Series A Preferred Shares the consent of whose holders is required for any such modification, or the consent of whose holders is required for any waiver of compliance with provisions of this Schedule or (iii) modify any of the provisions of this Section 8 except to increase any such percentage or to provide that certain other provisions of this Schedule cannot be modified or waived without the consent of the holder of each Outstanding Series A Preferred Share affected thereby. (c) The Company will not authorize or issue any new class of Senior Shares or any obligation or security convertible or exchangeable into or evidencing a right to purchase shares of any class or series of Senior Shares, without the approval of the holders of at least two-thirds of the then Outstanding Series A Preferred Shares, voting or consenting, as the case may be, as one class. (d) Except as set forth in Section 8(c) with respect to Senior Shares, neither (i) the creation, 79 79 authorization or issuance of any Junior Shares, Parity Shares or Senior Shares or (ii) the increase or decrease in the amount of authorized capital stock of any class, including any preference shares, shall require the consent of the holders of the Series A Preferred Shares or shall be deemed to affect adversely the rights, preferences, privileges, special rights or voting rights of holders of Series A Preferred Shares. Furthermore, the consent of the holders of Series A Preferred Shares will not be required for the Company to authorize, create (by way of reclassification or otherwise) or issue any Parity Shares or any obligation or security convertible or exchangeable into, or evidencing a right to purchase, shares of any class or series of Parity Shares. 9. Ranking. (a) The Series A Preferred Shares will, with respect to dividend rights and rights on liquidation, winding-up and dissolution, rank (i) senior to all Common Shares (whether issued in one or more classes) and to each other class of capital stock or series of preference shares created after January 21, 1999 by the Company, the terms of which do not expressly provide that it ranks on a parity with the Series A Preferred Shares as to dividend rights and rights on liquidation, winding-up and dissolution of the Company (collectively referred to, together with all Common Shares (whether issued in one or more classes) of the Company, as "Junior Shares"); (ii) on a parity with additional Series A Preferred Shares issued by the Company and each other class of capital stock or series of preference shares created after January 21, 1999 by the Company, the terms of which expressly provide that such 80 80 class or series will rank on a parity with the Series A Preferred Shares as to dividend rights and rights on liquidation, winding-up and dissolution of the Company (collectively referred to as "Parity Shares"); and (iii) junior to each class of capital stock or series of preference shares created after January 21, 1999 in compliance with Section 8(c) by the Company, the terms of which expressly provide that such class or series will rank senior to the Series A Preferred Shares as to dividend rights and rights upon liquidation, winding-up and dissolution of the Company (collectively referred to as "Senior Shares"). (b) No dividend whatsoever shall be declared or paid upon, or any sum set apart for the payment of dividends upon, any outstanding share of the Series A Preferred Shares with respect to any dividend period unless all dividends for all preceding dividend periods have been declared and paid, or declared and a sufficient sum set apart for the payment of such dividends, upon all outstanding Senior Shares. (c) In the event of any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of the Series A Preferred Shares then Outstanding shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of Common Shares or Junior Shares by reason of their ownership thereof, an amount equal to $50 per share for each outstanding Series A Preferred Share, plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends (including Preferred 81 81 Stock Liquidated Damages) thereon to the date fixed for liquidation, dissolution or winding-up (including an amount equal to a pro rata dividend for the period from the last Dividend Payment Date to the date fixed for liquidation, dissolution or winding-up). If upon the occurrence of such event the assets thus distributed among the holders of Series A Preferred Shares shall be insufficient to permit the payment to such holders of the full preferential amount, the entire assets of the Company legally available for distribution shall be distributed ratably based upon their respective liquidation preference, among the holders of the Series A Preferred Shares pari passu with the holders of all Parity Shares. After payment of the full preferential amount (and, if applicable, an amount equal to a pro rata dividend to the holders of Outstanding Series A Preferred Shares), such holders shall not be entitled to any further participation in any distribution of assets of the Company. 10. Redemption. (a) The Company may redeem, in whole or in part (the "Provisional Redemption"), at any time on or prior to February 15, 2002, at the redemption price of 104.6% of the aggregate liquidation preference of the Series A Preferred Shares to be redeemed (the "Provisional Redemption Date"), in the event that the Current Market Value of the Common Stock equals or exceeds the following Trigger Percentages of the prevailing Conversion Price then in effect for at least 20 trading days in any consecutive 30-day trading day period ending on the trading day prior to the date of mailing of the notice of Provisional Redemption (the "Notice Date"), if redeemed in the 12-month period ending on February 15 of the following years: 82 82 Year Trigger Percentage ---- ------------------ 2000 170% 2001 160% 2002 150% Upon any Provisional Redemption, the Company will make an additional payment (the "Dividend Make-Whole Payment") with respect to the Series A Preferred Shares called for redemption, whether or not such Series A Preferred Shares are converted into Common Shares between the Notice Date and the Provisional Redemption Date, in an amount equal to the sum of (i) the present value of the aggregate amount of dividends that would otherwise have accrued from the Provisional Redemption Date through February 15, 2002 (the "Dividend Make-Whole Period") and (ii) the amount of any accumulated and unpaid dividends (including a prorated dividend for any partial dividend period) and Preferred Stock Liquidated Damages, if any, to the Provisional Redemption Date. Such present value shall be calculated using the bond equivalent yield on U.S. Treasury notes or bills having a remaining term nearest in length to that of the Dividend Make-Whole Period as of the Notice Date. 83 83 (b) The Series A Preferred Shares may be redeemed at any time commencing on or after February 20, 2002, in whole or from time to time in part, at the election of the Company (the "Optional Redemption"), at a redemption price equal to the percentage of the liquidation preference set forth below plus accumulated and unpaid dividends (including an amount equal to a prorated dividend for any partial dividend period) and Preferred Stock Liquidated Damages, if any, to the date of redemption (the "Optional Redemption Date"), if redeemed in the 12-month period commencing on the dates set forth below: Date Percentage - ---- ---------- February 20, 2002 104.6% February 19, 2003 103.4% February 19, 2004 102.3% February 19, 2005 101.1% February 19, 2006 and thereafter 100.0% (c) The Series A Preferred Shares (if not earlier redeemed or converted) shall be mandatorily redeemed by the Company on February 15, 2011 (the "Mandatory Redemption Date" provided, however, that is such date is not a Business Day, then the Mandatory Redemption Date shall be the next Business Day), at a redemption price of 100% of the liquidation preference per share plus accumulated and unpaid dividends and Preferred Stock Liquidated Damages, if any, to the Mandatory Redemption Date. (d) The Company may, as provided in Section 11, make any payments in respect of the liquidation preference due on 84 84 the Series A Preferred Shares on the Provisional Redemption Date, the Optional Redemption Date or the Mandatory Redemption Date, (i) in cash, (ii) by delivery of Common Shares or (iii) through any combination of the foregoing. (e) No Provisional Redemption or Optional Redemption may be authorized or made unless, prior to giving the applicable redemption notice, all accumulated and unpaid dividends for periods ended prior to the date of such redemption notice shall have been paid in cash or, subject to Section 11, in Common Shares. (f) In the event of a redemption of fewer than all the Series A Preferred Shares, the Series A Preferred Shares will be chosen for redemption by the Registrar from the Outstanding Series A Preferred Shares not previously called for redemption, pro rata or by lot or by such other method as the Registrar shall deem fair and appropriate, provided that the Company may redeem (an "Odd-lot Redemption") all shares held by holders of fewer than 100 Series A Preferred Shares (or by holders that would hold fewer than 100 Series A Preferred Shares following such redemption) prior to its redemption of other Series A Preferred Shares. If fewer than all the Series A Preferred Shares represented by any share certificate are so to be redeemed, (i) the Company shall issue a new certificate for the shares not redeemed and (ii) if any shares represented thereby are converted before termination of the conversion right with respect to such shares, such converted shares shall be deemed (so far as may be) to be the shares represented by such share certificate that was selected for redemption. Series A 85 85 Preferred Shares which have been converted during a selection of Series A Preferred Shares to be redeemed shall be treated by the Registrar as outstanding for the purpose of such selection but not for the purpose of the payment of the Redemption Price. (g) In the event the Company elects to effect a Provisional Redemption or an Optional Redemption, the Company shall (i) make a public announcement of the redemption (including a statement of the form of consideration it will use to effect the same) and (ii) give a redemption notice (the "Redemption Notice") to the holders not fewer than 30 days nor more than 60 days before the redemption date (the "Redemption Date"). Whenever a Redemption Notice is required to be delivered to the holders, such Notice shall provide the information set forth below and be given by first class mail, postage prepaid to each holder of Series A Preferred Shares to be redeemed, at such holder's address appearing in the Series A Preferred Share Register. All Redemption Notices shall identify the Series A Preferred Shares to be redeemed (including CUSIP number) and shall state: (i) the Redemption Date; (ii) the redemption price (the "Redemption Price") and the form of consideration the Company will use to satisfy the Redemption Price; (iii) if fewer than all the outstanding Series A Preferred Shares are to be redeemed, the identification (and, in the case of partial redemption, the certificate 86 86 number, the total number of shares represented thereby and the number of such shares being redeemed on the Redemption Date) of the particular Series A Preferred Shares to be redeemed; (iv) that on the Redemption Date the Redemption Price, together with (subject to Section 10(k)) dividends accumulated and unpaid to the Redemption Date (including an amount equal to a prorated dividend for any partial dividend period), will become due and payable upon each such Series A Preferred Share to be redeemed and that dividends thereon will cease to accrue on and after said date; (v) the conversion price (and, if applicable, the amount of cash payable on conversion pursuant to Section 12(d)(xii)), the date on which the right to convert Series A Preferred Shares to be redeemed will terminate and the place or places where such Series A Preferred Shares may be surrendered for conversion; and (vi) the place or places where such Series A Preferred Shares are to be surrendered for payment of the Redemption Price. The Redemption Notice shall be given by the Company or, at the Company's request, by the Registrar in the name and at the expense of the Company; provided that if the Company so requests, it shall provide the Registrar adequate time, as reasonably determined by the Registrar, to deliver such notices in a timely fashion. 87 87 (h) Prior to any Redemption Date, the Company shall deposit with the Registrar or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust) an amount of consideration sufficient to pay the Redemption Price of and (except to the extent payable to a holder of Series A Preferred Shares on a Dividend Record Date prior to the Redemption Date) accrued but unpaid dividends (including an amount equal to a prorated dividend for any partial dividend period) on all the Series A Preferred Shares which are to be redeemed on that date other than any Series A Preferred Shares called for redemption on that date which have been converted in Common Shares prior to the date of such deposit. If any Series A Preferred Share called for redemption is converted, any consideration deposited with the Registrar or with any Paying Agent or so segregated and held in trust for the redemption of such Series A Preferred Share shall (subject to any right of the holder of such Series A Preferred Share or any predecessor Series A Preferred Share to receive accrued but unpaid dividends thereon as provided in Section 7(f) or a Dividend Make-Whole Payment as provided in Section 10(a)) be paid or delivered to the Company upon Company Order or, if then held by the Company, shall be discharged from such trust. (i) Notice of redemption having been given as aforesaid, the Series A Preferred Shares so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued but unpaid dividends) dividends on such Series A Preferred Shares shall cease to accrue and 88 88 such shares shall cease to be convertible into Common Shares. Upon surrender of any such Series A Preferred Shares for redemption in accordance with said notice, such Series A Preferred Shares shall be redeemed, subject to Section 7(f), by the Company at the Redemption Price, together with (except to the extent payable to a holder of Series A Preferred Shares on a Dividend Record Date prior to the Redemption Date) accrued but unpaid dividends and Preferred Stock Liquidated Damages, if any, to the Redemption Date. If any Series A Preferred Share called for redemption shall not be so paid upon surrender thereof for redemption, the Redemption Price thereof, exclusive of accrued but unpaid dividends, shall, until paid, bear interest from the Redemption Date at the dividend rate payable on the Series A Preferred Shares. (j) Any certificate that represents more than one Series A Preferred Share and is to be redeemed only in part shall be surrendered at any office or agency of the Company designated for that purpose (with, if the Company or the Registrar so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed by, the holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Registrar shall countersign and deliver to the holder of such Series A Preferred Share without service charge, a new Series A Preferred Share certificate or certificates, representing any number of Series A Preferred Shares as requested by such holder, in aggregate amount equal to and in exchange for the number of 89 89 shares not redeemed and represented by the Series A Preferred Share certificate so surrendered. (k) If a Series A Preferred Share is redeemed subsequent to a Dividend Record Date with respect to any Dividend Payment Date specified above and on or prior to such Dividend Payment Date, then any accumulated but unpaid dividends will be paid to the person in whose name such Series A Preferred Share is registered at the close of business on such Dividend Record Date. 11. Method of Payments. The Company may make any payments due on the Series A Preferred Shares, including dividend payments and redemption payments described in Section 11(b), (i) in cash, (ii) by delivery of Common Shares or (iii) through any combination of the foregoing, provided, however, that if Globalstar shall have paid the scheduled distribution or redemption payment on the Preferred Partnership Interests corresponding to such payment in cash, the Company shall make such payment in cash. The Company, at its option, may make dividend payments notwithstanding the fact that it shall not have received a distribution on the Preferred Partnership Interests for the corresponding Dividend Payment Date. (b) The Company will make each dividend payment, Provisional Redemption payment (including the associated Dividend Make-Whole Payment), Optional Redemption payment and Mandatory Redemption payment on the Series A Preferred Shares in cash, except to the extent it has elected to make all or any portion of such payment in Common Shares. The 90 90 Company may not make any such payment, or any portion thereof (other than a Mandatory Redemption payment, or portion thereof), in Common Shares unless, on the date of such payment, the Shelf Registration Statement covers the resale of such shares and is effective or is no longer required to be effective. If the Company elects to make any such payment, or any portion thereof, in Common Shares, such shares shall be valued for such purpose (i) in the case of any dividend payment, Provisional Redemption payment, Dividend Make-Whole Payment, Optional Redemption payment, or portion thereof, at 95% of the Average Market Value and (ii) in the case of any Mandatory Redemption payment, or portion thereof (A) if on the date of such payment the Shelf Registration Statement covers the resale of such shares and is effective or, pursuant to the Registration Rights Agreement, is no longer required to be effective, at 100% of the Average Market Value and (B) otherwise, at 90% of the Average Market Value. If, as a matter of Bermuda law, the Company is not able to issue Common Shares in payment of the Mandatory Redemption price, then the Company may, at its option, cause the Series A Preferred Shares to be converted on the Mandatory Redemption Date into the same number of Common Shares as the Company could otherwise have issued in satisfaction of the Mandatory Redemption price, provided that the Company has given the holders of Series A Preferred Shares notice of the exercise of such option at least 30 days prior to the Mandatory Redemption Date. (c) No fractional Common Shares will be delivered to the holders, but the Company will instead pay a cash adjustment to each holder that would otherwise be entitled 91 91 to a fraction of a Common Share. The amount of such cash adjustment will be determined based on the proceeds received by the Registrar from the sale of that number of Common Shares, which the Company will deliver to the Registrar for such purpose, equal to the aggregate of all such fractions (round up to the nearest whole share). The Registrar is authorized and directed to sell such shares at the best available prices and distribute the proceeds to the holders in proportion to their respective interests therein. The Company will pay the expenses of the Registrar with respect to such sale, including brokerage commissions. (d) Any portion of any payment on or in respect of the Series A Preferred Shares that is declared and not paid through the delivery of Common Shares will be paid in cash. (e) Prior to the issuance of any Common Shares pursuant to this Section 11, the Company shall have provided for the listing or quotation of such Common Shares on the Nasdaq National Market or any other securities exchange in the United States upon which the Common Shares are then listed or quoted. 12. Conversion. (a) Subject to and upon compliance with the provisions of this Schedule, at the option of the holder thereof, any Series A Preferred Share may be converted at any time on or after March 22, 1999 at the liquidation preference thereof into fully paid and nonassessable Common Shares (calculated as to each conversion to the nearest 1/100 of a share), at the Conversion Price, determined as hereinafter provided, in effect at the time of conversion. Such conversion right 92 92 shall expire at the close of business on the Business Day next preceding the Mandatory Redemption Date. In case a Series A Preferred Share is called for redemption, such conversion right in respect of the Series A Preferred Share so called shall expire at the close of business on the Business Day next preceding the Redemption Date, unless the Company defaults in making the payment due upon redemption. The price at which Common Shares shall be delivered upon conversion (herein called the "Conversion Price") shall be initially $23.2563 per Common Share. The Conversion Price shall be adjusted in certain instances as provided in Section 12(d) and Section 12(e). (b) In order to exercise the conversion privilege, the holder of any Series A Preferred Share to be converted shall surrender the certificate for such share, duly endorsed or assigned to the Company or in blank, at any office or agency of the Company maintained for that purpose, accompanied by written notice to the Company at such office or agency that the holder elects to convert such share or, if fewer than all the Series A Preferred Shares represented by a single share certificate are to be converted, the number of shares represented thereby to be converted. Except as provided in Section 10(a) or 7(f), no payment or adjustment shall be made upon any conversion on account of any dividends accrued on the Series A Preferred Shares surrendered for conversion or on account of any dividends on the Common Shares issued upon conversion. In no event shall the Company be obligated to pay any converting holder any unpaid Accumulated Dividends upon conversion. 93 93 Series A Preferred Shares shall be deemed to have been converted immediately prior to the close of business on the day of surrender of such shares for conversion in accordance with the foregoing provisions, and at such time the rights of the holders of such shares as holders shall cease, and the person or persons entitled to receive the Common Shares issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Shares at such time. As promptly as practicable on or after the conversion date, the Company shall issue and shall deliver at such office or agency a certificate or certificates for the number of full Common Shares issuable upon conversion, together with payment in lieu of any fraction of a share, as provided in Section 12(c). In the case of any conversion of fewer than all the Series A Preferred Shares evidenced by a certificate, upon such conversion the Company shall execute and the Registrar shall countersign and deliver to the holder thereof, at the expense of the Company, a new certificate or certificates representing the number of unconverted Series A Preferred Shares. (c) No fractional Common Shares shall be issued upon the conversion of a Series A Preferred Share. If more than one Series A Preferred Share shall be surrendered for conversion at one time by the same holder, the number of full Common Shares which shall be issuable upon conversion thereof shall be computed on the basis of the aggregate number of Series A Preferred Shares so surrendered. Instead of any fractional Common Share which would otherwise be 94 94 issuable upon conversion of any Series A Preferred Share, the Company shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the closing price (as defined in Section 12(d)(vii)) per Common Share at the close of business on the Business Day prior to the day of conversion. (d) The conversion price shall be adjusted from time to time by the Company as follows: (i) if the Company shall hereafter pay a dividend or make a distribution to holders of the outstanding Common Shares in Common Shares, the Conversion Price in effect at the opening of business on the date following the date fixed for the determination of shareholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of Common Shares outstanding at the close of business on the Common Share Record Date (as defined in Section 12(d)(vii)) fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the Common Share Record Date. If any dividend or distribution of the type described in this Section 12(d)(i) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared; 95 95 (ii) if the Company shall offer or issue rights or warrants to holders of its outstanding Common Shares entitling them to subscribe for or purchase Common Shares at a price per share less than the Current Market Price (as defined in Section 12(d)(vii)) on the Common Share Record Date fixed for the determination of shareholders entitled to receive such rights or warrants, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect at the opening of business on the date after such Common Share Record Date by a fraction of which the numerator shall be the number of Common Shares outstanding at the close of business on the Common Share Record Date plus the number of Common Shares which the aggregate offering price of the total number of Common Shares subject to such rights or warrants would purchase at such Current Market Price and of which the denominator shall be the number of Common Shares outstanding at the close of business on the Common Share Record Date plus the total number of additional Common Shares subject to such rights or warrants for subscription or purchase. Such adjustment shall become effective immediately after the opening of business on the day following the Common Share Record Date fixed for determination of shareholders entitled to purchase or receive such rights or warrants. To the extent that Common Shares are not delivered pursuant to such rights or warrants, upon the expiration or termination of such rights or warrants the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect had the adjustments made upon the issuance of such rights or 96 96 warrants been made on the basis of delivery of only the number of Common Shares actually delivered. If such rights or warrants are not so issued, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such date fixed for the determination of shareholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase Common Shares at less than such Current Market Price, and in determining the aggregate offering price of such Common Shares, there shall be taken into account any consideration received for such rights or warrants, with the value of such consideration, if other than cash, to be determined by the Board of Directors; (iii) if the outstanding Common Shares shall be subdivided into a greater number of Common Shares, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, if the outstanding Common Shares shall be combined into a smaller number of Common Shares, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective; 97 97 (iv) if the Company shall, by dividend or otherwise, distribute to holders of its Common Shares any class of capital stock of the Company (other than any dividends or distributions to which Section 12(d)(i) applies) or evidences of its indebtedness, cash or other assets (including securities, but excluding any rights or warrants of a type referred to in Section 12(d)(ii) and dividends and distributions paid exclusively in cash and excluding any capital stock, evidences of indebtedness, cash or assets distributed upon a merger or consolidation to which Section 12(e) applies) (the foregoing hereinafter in this Section 12(d)(iv) called the "Distributed Securities"), then, in each such case, the Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the Common Share Record Date (as defined in Section 12(d)(vii)) with respect to such distribution by a fraction of which the numerator shall be the Current Market Price (determined as provided in Section 12(d)(vii)) on such date less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors) on such date of the portion of the Distributed Securities 98 98 so distributed applicable to one Common Share and the denominator shall be such Current Market Price, such reduction to become effective immediately prior to the opening of business on the day following the Common Share Record Date; provided, however, that, in the event the then fair market value (as so determined) of the portion of the Distributed Securities so distributed applicable to one Common Share is equal to or greater than the Current Market Price on the Common Share Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each holder of Series A Preferred Shares shall have the right to receive upon conversion of a Series A Preferred Share (or any portion thereof) the amount of Distributed Securities such holder would have received had such holder converted such Series A Preferred Share (or portion thereof) immediately prior to such Common Share Record Date. If such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. If the Board of Directors determines the fair market value of any distribution for purposes of this Section 12(d)(iv) by reference to the actual or when issued trading market for any securities constituting all or part of such distribution, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price pursuant to Section 12(d)(vii) to the extent possible. Rights or warrants distributed by the Company to holders of Common Shares entitling the holders thereof to subscribe for or purchase shares of the Company's capital stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events ("Dilution Trigger Event"): (A) are deemed to be transferred with such Common Shares; (B) are not exercisable; and (C) are also issued in respect 99 99 of future issuances of Common Shares, shall be deemed not to have been distributed for purposes of this Section 12(d)(iv) (and no adjustment to the Conversion Price under this Section 12(d)(iv) shall be required) until the occurrence of the earliest Dilution Trigger Event, whereupon such rights and warrants shall be deemed to have been distributed and an appropriate adjustment to the Conversion Price under this Section 12(d)(iv) shall be made. If any such rights or warrants, including any such existing rights or warrants distributed prior to the first issuance of Series A Preferred Shares, are subject to subsequent events, upon the occurrence of each of which such rights or warrants shall become exercisable to purchase different securities, evidences of indebtedness or other assets, then the occurrence of each such event shall be deemed to be such date of issuance and record date with respect to new rights or warrants (and a termination or expiration of the existing rights or warrants, without exercise by the holder thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Dilution Trigger Event with respect thereto, that was counted for purposes of calculating a distribution amount for which an adjustment to the Conversion Price under this Section 12(d) was made, (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Dilution Trigger Event, as the case may be, as though it were a cash distribution, equal to the 100 100 per share redemption or repurchase price received by a holder or holders of Common Shares with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Shares as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants which shall have expired or been terminated without exercise by any holders thereof, the Conversion Price shall be readjusted as if such rights and warrants had not been issued. Notwithstanding any other provision of this Section 12(d)(iv) to the contrary, rights, warrants, evidences of indebtedness, other securities, cash or other assets (including, without limitation, any rights distributed pursuant to any shareholder rights plan) shall be deemed not to have been distributed for purposes of this Section 12(d)(iv) if the Company makes proper provision so that each holder of Series A Preferred Shares who converts a Series A Preferred Share (or any portion thereof) after the date fixed for determination of shareholders entitled to receive such distribution shall be entitled to receive upon such conversion, in addition to the Common Shares issuable upon such conversion, the amount and kind of such distributions that such holder would have been entitled to receive if such holder had, immediately prior to such determination date, converted such Series A Preferred Share into a Common Share. For purposes of this Section 12(d)(iv) and Sections 12(d)(i) and (ii), any dividend or distribution to which this Section 12(d)(iv) is applicable that also 101 101 includes Common Shares, or rights or warrants to subscribe for or purchase Common Shares to which Section 12(d)(ii) applies (or both), shall be deemed instead to be (A) a dividend or distribution of the evidences of indebtedness, assets, shares of capital stock, rights or warrants other than such Common Shares or rights or warrants to which Section 12(d)(ii) applies (and any Conversion Price reduction required by this Section 12(d)(iv) with respect to such dividend or distribution shall then be made) immediately followed by (B) a dividend or distribution of such Common Shares or such rights or warrants (and any further Conversion Price reduction required by Sections 12(d)(i) or 12(d)(ii) with respect to such dividend or distribution shall then be made), except that (1) the Common Share Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of stockholders entitled to receive such dividend or other distribution", "the Common Share Record Date fixed for such determination" and "the Common Share Record Date" within the meaning of Section 12(d)(i) and as "the date fixed for the determination of shareholders entitled to receive such rights or warrants", "the Common Share Record Date fixed for the determination of the shareholders entitled to receive such rights or warrants" and "such Common Share Record Date" for purposes of Section 12(d)(ii), and (2) any Common Shares included in such dividend or distribution shall not be deemed "outstanding at the close of business on the date fixed for such determination" for the purposes of Section 12(d)(i). 102 102 (v) If the Company shall, by dividend or otherwise, distribute to holders of its Common Shares cash (excluding any cash that is distributed upon a merger or consolidation to which Section 12(e) applies or as part of a distribution referred to in Section 12(d)(iv)) in an aggregate amount that, combined together with (A) the aggregate amount of any other such distributions to holders of its Common Shares made exclusively in cash within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to this Section 12(d)(v) has been made, and (B) the aggregate of any cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors) of consideration payable in respect of any tender offer by the Company for all or any portion of the Common Shares concluded within the 12 months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to Section 12(d)(vi) has been made, exceeds 20% of the product of the Current Market Price (determined as provided in Section 12(d)(vii)) on the Common Share Record Date with respect to such distribution times the number of Common Shares outstanding on such date, then, and in each such case, immediately after the close of business on such date, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on such Common Share Record Date by a fraction (1) the numerator of which shall be equal to the Current Market Price on the Common Share 103 103 Record Date less an amount equal to the quotient of (x) the excess of such combined amount over such 20% and (y) the number of Common Shares outstanding on the Common Share Record Date and (2) the denominator of which shall be equal to the Current Market Price on such Common Share Record Date; provided, however, that, if the portion of the cash so distributed applicable to one Common Share is equal to or greater than the Current Market Price of the Common Shares on the Common Share Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each holder of Series A Preferred Shares shall have the right to receive upon conversion of a Series A Preferred Share (or any portion thereof) the amount of cash such holder would have received had such holder converted such Series A Preferred Share (or portion thereof) immediately prior to such Common Share Record Date. If such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. Any cash distribution to holders of Common Shares as to which the Company makes the election permitted by Section 12(d)(xii) and as to which the Company has complied with the requirements of such Section 12(d)(xii) shall be treated as not having been made for all purposes of this Section 12(d)(v). (vi) if a tender offer made by the Company or any of its subsidiaries for all or any portion of the Common Shares expires and such tender offer (as amended upon the expiration thereof) requires the payment to shareholders 104 104 (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares) of an aggregate consideration having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors) that, combined together with (A) the aggregate of the cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors), as of the expiration of such tender offer, of consideration payable in respect of any other tender offers, by the Company or any of its subsidiaries for all or any portion of the Common Shares expiring within the 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to this Section 12(d)(vi) has been made and (B) the aggregate amount of any distributions to all holders of the Common Shares made exclusively in cash within 12 months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to Section 12(d)(v) has been made, exceeds 20% of the product of the Current Market Price (determined as provided in Section 12(d)(vii)) as of the last time (the "Expiration Time") tenders could have been made pursuant to such tender offer (as it may be amended) times the number of Common Shares outstanding (including any tendered shares) at the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the 105 105 Conversion Price in effect immediately prior to the close of business on the date of the Expiration Time by a fraction of which the numerator shall be the number of Common Shares outstanding (including any tendered shares) at the Expiration Time multiplied by the Current Market Price of the Common Shares on the trading day next succeeding the Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to shareholders based on the acceptance (up to any maximum specified in the terms of the tender offer) of all shares validly tendered and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of Common Shares outstanding (less any Purchased Shares) at the Expiration Time and the Current Market Price of the Common Shares on the trading day next succeeding the Expiration Time, such reduction (if any) to become effective immediately prior to the opening of business on the day following the Expiration Time. If the Company is obligated to purchase shares pursuant to any such tender offer, but the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such tender offer had not been made. If the application of this Section 12(d)(vi) to any tender offer would result in an increase in the Conversion Price, no adjustment shall be made for such tender offer under this Section 12(d)(vi). 106 106 (vii) For purposes of this Section 12(d), the following terms shall have the meaning indicated: "closing price" with respect to any securities on any day means the closing price on such day or, if no such sale takes place on such day, the average of the reported high and low prices on such day, in each case on the Nasdaq National Market or the New York Stock Exchange, as applicable, or, if such security is not listed or admitted to trading on such national market or exchange, on the principal national securities exchange or quotation system in the United States on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system in the United States, the average of the high and low prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated or a similar generally accepted reporting service in the United States, or, if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose, or a price determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors. "Common Share Record Date" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common 107 107 Shares have the right to receive any cash, securities or other property or in which the Common Shares (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of shareholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). "Current Market Price" means the average of the daily closing prices per Common Share for the 10 consecutive trading days immediately prior to the date in question; provided, however, that (A) if the "ex" date (as hereinafter defined) for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 12(d)(i), (ii), (iii), (iv), (v) or (vi) occurs during such 10 consecutive trading days, the closing price for each trading day prior to the "ex" date for such other event shall be adjusted by multiplying such closing price by the same fraction by which the Conversion Price is so required to be adjusted as a result of such other event, (B) if the "ex" date for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 12(d)(i), (ii), (iii), (iv), (v) or (vi) occurs on or after the "ex" date for the issuance or distribution requiring such computation and prior to the day in question, the 108 108 closing price for each trading day on and after the "ex" date for such other event shall be adjusted by multiplying such closing price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event and (C) if the "ex" date for the issuance or distribution requiring such computation is prior to the day in question, after taking into account any adjustment required pursuant to clause (A) or (B) of this proviso, the closing price for each trading day on or after such "ex" date shall be adjusted by adding thereto the amount of any cash and the fair market value (as determined by the Board of Directors in a manner consistent with any determination of such value for purposes of Section 12(d)(iv) or (v), whose determination shall be conclusive and described in a resolution of the Board of Directors) of the evidences of indebtedness, shares of capital stock or assets being distributed applicable to one Common Share as of the close of business on the day before such "ex" date. For purposes of any computation under Section 12(d)(vi), the Current Market Price on any date shall be deemed to be the average of the daily closing prices per Common Share for such day and the next two succeeding trading days; provided, however, that, if the "ex" date for any event (other than the tender offer requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 12(d)(i), (ii), (iii), (iv), (v) or (vi) occurs on or after the Expiration Time for the tender or 109 109 exchange offer requiring such computation and prior to the day in question, the closing price for each trading day on and after the "ex" date for such other event shall be adjusted by multiplying such closing price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event. For purposes of this paragraph, the term "ex" date (1) when used with respect to any issuance or distribution, means the first date on which the Common Shares trade regular way on the relevant exchange or in the relevant market from which the closing price was obtained without the right to receive such issuance or distribution, (2) when used with respect to any subdivision or combination of Common Shares, means the first date on which the Common Shares trade regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective and (3) when used with respect to any tender or exchange offer means the first date on which the Common Shares trade regular way on such exchange or in such market after the Expiration Time of such offer. Notwithstanding the foregoing, whenever successive adjustments to the Conversion Price are called for pursuant to this Section 12(d), such adjustments shall be made to the Current Market Price as may be necessary or appropriate to effectuate the intent of this Section 12(d) and to avoid unjust or inequitable results, as determined in good faith by the Board of Directors. 110 110 "fair market value" shall mean the amount which a willing buyer would pay a willing seller in an arm's-length transaction. (viii) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this Section 12(d)(viii) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 12 shall be made by the Company and shall be made to the nearest cent. No adjustment need be made for a change in the par value or no par value of the Common Shares. (ix) Whenever the Conversion Price is adjusted as herein provided, the Company shall promptly file with the Registrar an Officers' Certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the date on which each adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Price to each holder of Series A Preferred Shares at such holder's last address appearing on the register of holders maintained for that purpose within 20 days of the effective date of such adjustment. Failure to deliver such notice shall not affect the legality or validity of any such adjustment. 111 111 (x) In any case in which this Section 12(d) provides that an adjustment shall become effective immediately after a Common Share Record Date for an event, the Company may defer until the occurrence of such event issuing to the holder of any Series A Preferred Share converted after such Common Share Record Date and before the occurrence of such event the additional Common Shares issuable upon such conversion by reason of the adjustment required by such event over and above the Common Shares issuable upon such conversion before giving effect to such adjustment. (xi) For purposes of this Section 12(d), the number of Common Shares at any time outstanding shall not include shares held in the treasury of the Company. The Company shall not pay any dividend or make any distribution on Common Shares held in the treasury of the Company. (xii) In lieu of making any adjustment to the Conversion Price pursuant to Section 12(d)(v), the Company may elect to reserve an amount of cash for distribution to the holders of Series A Preferred Shares upon the conversion of the Series A Preferred Shares so that any such holder converting Series A Preferred Shares will receive upon such conversion, in addition to the Common Shares and other items to which such holder is entitled, the full amount of cash which such holder would have received if such holder had, immediately prior to the Common Share Record Date for such distribution of cash, converted its Series A Preferred Shares into Common Shares, together with any interest accrued with respect to such amount, in accordance with this Section 12(d)(xii). The 112 112 Company may make such election by providing an Officers' Certificate to the Registrar to such effect on or prior to the payment date for any such distribution and depositing with the Registrar on or prior to such date an amount of cash equal to the aggregate amount that the holders of Series A Preferred Shares would have received if such holders had, immediately prior to the Common Share Record Date for such distribution, converted all the Series A Preferred Shares into Common Shares. Any such funds so deposited by the Company with the Registrar shall be invested by the Registrar in unconditional U.S. Government obligations with a maturity not more than three months from the date of issuance. Upon conversion of Series A Preferred Shares by a holder thereof, such holder shall be entitled to receive, in addition to the Common Shares issuable upon conversion, an amount of cash equal to the amount such holder would have received if such holder had, immediately prior to the Common Share Record Date for such distribution, converted its Series A Preferred Shares into Common Shares, along with such holder's pro rata share of any accrued interest earned as a consequence of the investment of such funds. Promptly after making an election pursuant to this Section 12(d)(xii), the Company shall give or shall cause to be given notice to all holders of Series A Preferred Shares of such election, which notice shall state the amount of cash per Series A Preferred Share such holders shall be entitled to receive (excluding interest) upon conversion of the Series A Preferred Shares as a consequence of the Company having made such election. 113 113 (e) Subject to Section 13, in case of any consolidation of the Company with, or merger of the Company into, any other corporation, or in case of any merger of another corporation into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancelation of outstanding shares of Common Shares of the Company), or in case of any sale, conveyance or transfer of all or substantially all the assets of the Company, the holder of each Series A Preferred Share then outstanding shall have the right thereafter, during the period such Series A Preferred Share shall be convertible as specified in Section 12(a), to convert such Series A Preferred Share only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, 114 114 conveyance or transfer by a holder of the number of shares of Common Shares of the Company into which such Series A Preferred Share might have been converted immediately prior to such consolidation, merger, conveyance or transfer, assuming such holder of Common Shares of the Company failed to exercise his rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance or transfer (provided that, if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance or transfer is not the same for each Common Share of the Company in respect of which such rights of election shall not have been exercised ("nonelecting share"), then for the purpose of this Section 12 the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance or transfer by each nonelecting share shall be deemed to be the kind and amount so receivable per share by a plurality of the nonelecting shares). Such securities shall provide for adjustments which, for events subsequent to the effective date of the triggering event, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 12. The above provisions of this Section 12 shall similarly apply to successive consolidations, mergers, conveyances or transfers. (f) In case: (i) the Company shall declare a dividend (or any other distribution) on its Common Shares payable otherwise than in cash out of its earned surplus; or (ii) the Company shall authorize the granting to all holders of its Common Shares of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (iii) of any reclassification of the Common Shares of the Company (other than a subdivision or combination of its outstanding Common Shares), or of any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required, or the sale, conveyance or transfer of all or substantially all the assets of the Company; or (iv) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company; 115 115 then the Company shall cause to be filed with the Registrar and at each office or agency maintained for the purpose of conversion of Series A Preferred Shares, and shall cause to be mailed to all holders at their last addresses as they shall appear in the Series A Preferred Shares Register, at least 20 Business Days (or 10 Business Days in any case specified in clause (i) or (ii) above) prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Shares of record to be entitled to such dividend, distribution, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is expected to become effective, and the date as of which it is expected that holders of Common Shares of record shall be entitled to exchange their Common Shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. Failure to give the notice required by this Section 12(f) or any defect therein shall not affect the legality or validity of any dividend, distribution, right, warrant, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up, or the vote upon any such action. (g) The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Shares, for the purpose of 116 116 effecting the conversion of Series A Preferred Shares, the full number of Common Shares then issuable upon the conversion of all outstanding Series A Preferred Shares. (h) The Company will pay any and all taxes that may be payable in respect of the issue or delivery of Common Shares on conversion of Series A Preferred Shares pursuant hereto. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of Common Shares in a name other than that of the holder of the Series A Preferred Share or Series A Preferred Shares to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid or is not payable. 13. Consolidation, Merger, Conveyance or Transfer. Without the vote or consent of the holders of a majority of the then Outstanding Series A Preferred Shares, the Company may not consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, any person unless (a) the entity formed by such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (in any such case, the "resulting entity") is a corporation organized and existing under the laws of Bermuda, the United States or any State thereof or the District of Columbia; (b) if the Company is not the resulting entity, the Series A Preferred Shares are 117 117 converted into or exchanged for and become shares of such resulting entity, having in respect of such resulting entity the same (or more favorable) powers, preferences and relative, participating, optional or other special rights that the Series A Preferred Shares had immediately prior to such transaction; (c) immediately after giving effect to such transaction, no Voting Rights Triggering Event has occurred and is continuing and (d) the Company shall have delivered to the Registrar an Officers' Certificate and an opinion of counsel, each stating that such consolidation, merger, conveyance or transfer complies with this Section 13 and that all conditions precedent herein provided for relating to such transaction have been complied with. 14. SEC Reports; Reports by Company. So long as any Series A Preferred Shares are outstanding, the Company shall file with the SEC and, within 15 days after it files them with the SEC, with the Registrar and, if requested, furnish to the holders of Series A Preferred Shares all annual and quarterly reports and the information, documents, and other reports that the Company is required to file with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act ("SEC Reports"). In the event the Company is not required or shall cease to be required to file SEC Reports, pursuant to the Exchange Act, the Company will nevertheless file such reports with the SEC (unless the SEC will not accept such a filing). Whether or not required by the Exchange Act to file SEC Reports with the SEC, so long as any Series A Preferred Shares are Outstanding, the Company will furnish or cause to be furnished copies of the SEC Reports to the holders of Series A Preferred Shares at the time the Company 118 118 is required to make such information available to the Registrar and to prospective investors who request it in writing. In addition, the Company has agreed that, for so long as any Series A Preferred Shares remain outstanding, it will furnish to the holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under Securities Act. 119 119 15. Definitions. For purposes of this Schedule, the following terms shall have the meaning set forth below: "Accumulated Dividends" has the meaning set forth in Section 6(a). "Agent Members" has the meaning set forth in Section 4(c). "Average Market Value" of the Common Shares means the arithmetic average of the Current Market Value of the Common Shares for the ten trading days ending on the fifth Business Day prior to (i) in the case of the payment of any dividend, the Record Date for such dividend and (ii) in the case of any other payment, the date of such payment. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in The City of New York are authorized or obligated by law or executive order to be closed. "Bye-Laws" has the meaning set forth in the Recitals. "Closing Date" means any Closing Date under the Purchase Agreement. "closing price" has the meaning set forth in Section 12(d)(vii). "Common Share Record Date" has the meaning set forth in Section 12(d)(vii). "Common Shares" means common shares of the Company, par value $1.00 per share. 120 120 "Companies Act" has the meaning set forth in Section 6(a). "Company" has the meaning set forth in the Recitals. "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its President or a Vice President and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary. "Conversion Agent" has the meaning set forth in Section 5(a). "Conversion Price" has the meaning set forth in Section 12(a). "Current Market Value" of the Common Shares means the average of the high and low sale prices of the Common Shares as reported on the Nasdaq National Market or any national securities exchange in the United States upon which the Common Shares are then listed, for the trading day in question. "Current Market Price" has the meaning set forth in Section 12(d)(vii). "Depositary" has the meaning set forth in Section 4(b). "Dilution Trigger Event" has the meaning set forth in Section 12(d)(iv). "Distributed Securities" has the meaning set forth in Section 12(d)(iv). 121 121 "Dividend Make-Whole Payment" has the meaning set forth in Section 10(a). "Dividend Make-Whole Period" has the meaning set forth in Section 10(a). "Dividend Payment Date" means each February 15, May 15, August 15 and November 15 ; provided, however, that if such date shall not be a Business Day, then such date shall be the next Business Day. "Dividend Record Date" has the meaning set forth in Section 7(a). "DTC" has the meaning set forth in Section 4(b). "Expiration Time" has the meaning set forth in Section 12(d)(vi). "fair market value" has the meaning set forth in Section 12(d)(vii). "Global Series A Preferred Share" has the meaning set forth in Section 4(b). "Global Shares Legend" has the meaning set forth in Section 4(b). "Globalstar" means Globalstar, L.P., a Delaware limited partnership. "Initial Purchasers" means Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Lehman Brothers Inc., C.E. Unterberg, Towbin, CIBC Oppenheimer Corp. and ING Baring Furman Selz LLC. 122 122 "Junior Shares" has the meaning set forth in Section 9(a). "Mandatory Redemption Date" has the meaning set forth in Section 10(c); provided, however, that if such date shall not be a Business Day, then such date shall be the next Business Day. "Memorandum of Association" has the meaning set forth in the Recitals. "nonelecting share" has the meaning set forth in Section 12(e). "Notice Date" has the meaning set forth in Section 10(a). "Odd-lot Redemption" has the meaning set forth in Section 10(f). "Officers' Certificate" means a certificate of the Company signed in the name of the Company by its Chairman of the Board, its President or a Vice President and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary. "Optional Redemption" has the meaning set forth in Section 10(b). "Optional Redemption Date" has the meaning set forth in Section 10(b). "Ordinary Partnership Interests" means the ordinary partnership interests of Globalstar. 123 123 "Outstanding" means when used with respect to Series A Preferred Shares means, as of the date of determination, all Series A Preferred Shares theretofore authenticated and delivered under this Schedule, except (a) Series A Preferred Shares theretofore converted into Common Shares in accordance with Section 12 and Series A Preferred Shares theretofore canceled by the Registrar or delivered to the Registrar for cancelation; (b) Series A Preferred Shares for whose payment or redemption money in the necessary amount has been theretofore deposited with the Registrar or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the holders of such Series A Preferred Shares; provided that, if such Series A Preferred Shares are to be redeemed, notice of such redemption has been duly given pursuant to this Schedule or provision therefor satisfactory to the Registrar has been made; and (c) Series A Preferred Shares (x) that are mutilated, destroyed, lost or stolen which the Company has decided to pay or (y) in exchange for or in lieu of which other Series A Preferred Shares have been authenticated and delivered pursuant to this Schedule; provided, however, that, in determining whether the holders of the Series A Preferred Shares have given any request, demand, authorization, direction, notice, consent or waiver or taken any other action hereunder, Series A Preferred Shares owned by the Company or any other obligor upon the Series A Preferred Shares or any affiliate (other than, in the case of Section 8(b) and Section 8(c), Loral and its subsidiaries) of the Company or of such other obligor shall 124 124 be disregarded and deemed not to be Outstanding, except that, in determining whether the Registrar shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, waiver or other action, only Series A Preferred Shares which the Registrar has actual knowledge of being so owned shall be so disregarded. Series A Preferred Shares so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Registrar the pledgee's right so to act with respect to such Series A Preferred Shares and that the pledgee is not the Company or any other obligor upon the Series A Preferred Shares or any affiliate of the Company or of such other obligor. "Parity Shares" has the meaning set forth in Section 9(a). "Paying Agent" has the meaning set forth in Section 5(a). "Preferred Partnership Interests" means the 8% Convertible Redeemable Preferred Partnership Interests of Globalstar purchased by the Company with the proceeds of the issuance of the Series A Preferred Shares. "Preferred Stock Liquidated Damages" has the meaning set forth in Section 6(b). "Provisional Redemption" has the meaning set forth in Section 10(a). "Provisional Redemption Date" has the meaning set forth in Section 10(a). 125 125 "Purchase Agreement" means the Purchase Agreement dated January 21, 1999, among the Company, Globalstar, Loral Space & Telecommunications Ltd. and the Initial Purchasers. "Purchased Shares" has the meaning set forth in Section 12(d)(vi). "QIBs" has the meaning set forth in Section 4(a). "Redemption Date" has the meaning set forth in Section 10(g). "Redemption Notice" has the meaning set forth in Section 10(g). "Redemption Price" has the meaning set forth in Section 10(g). "Registrar" has the meaning set forth in Section 3. "Registrable Securities" has the meaning set forth in Section 5(c). "Registration Default" has the meaning set forth in Section 6(b). "Registration Rights Agreement" means the Registration Rights Agreement dated as of January 26, 1999, among the Company, Globalstar and the Initial Purchasers. "Restricted Series A Preferred Shares" has the meaning set forth in Section 4(d). "Restricted Shares Legend" has the meaning set forth in Section 4(a). 126 126 "resulting entity" has the meaning set forth in Section 13. "Rule 144A" has the meaning set forth in Section 4(a). "SEC" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after the adoption of this Schedule such commission is not existing and performing the duties now assigned to it, then the body performing such duties at such time. "SEC Reports" has the meaning set forth in Section 14. "Securities Act" has the meaning set forth in Section 4(a). "Senior Shares" has the meaning set forth in Section 9(a). "Series A Preferred Share Directors" has the meaning set forth in Section 8(a). "Series A Preferred Shares" has the meaning set forth in Section 1. "Shelf Registration Statement" means the shelf registration statement in respect of the Registrable Securities (other than Registrable Securities beneficially owned by Loral) required pursuant to the Registration Rights Agreement to be filed with the SEC with respect to resales of the Registrable Securities (other than Registrable Securities beneficially owned by Loral). 127 127 "Transfer Restricted Securities" means each Registrable Security (other than Registrable Securities beneficially owned by Loral) until the later of (A) the second anniversary of the last Closing Date pursuant to the Purchase Agreement and (B) such time as (1) such Registrable Security shall no longer constitute a restricted security for purposes of Rule 144(k) of the Securities Act or (2) such Registrable Security has been sold pursuant to the Shelf Registration Statement. "Voting Rights Triggering Event" has the meaning set forth in Section 8(a). IN WITNESS WHEREOF, the Company has caused this Schedule to be duly executed by Gregory J. Clark, President of the Company, and attested by Eric J. Zahler, Vice President and Secretary of the Company, this 26th day of January, 1999. GLOBALSTAR TELECOMMUNICATIONS LIMITED by: /s/ Gregory J. Clark ________________________ Name: Gregory J. Clark Title: President ATTEST: by: /s/ Eric J. Zahler ______________________ Name: Eric J. Zahler Title: Vice President and Secretary 128 128 EXHIBIT A FACE OF SECURITY [Restricted Shares Legend (include if Security is not registered under the U.S. Securities Act of 1933): THE SECURITY EVIDENCED HEREBY (OR ITS PREDECESSOR) (AND (1) THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE AND (2) THE COMMON STOCK ISSUABLE IN PAYMENT OF DIVIDENDS OR REDEMPTION OBLIGATIONS ON THIS SECURITY) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY (AND (1) THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE AND (2) THE COMMON STOCK ISSUABLE IN PAYMENT OF DIVIDENDS OR REDEMPTION OBLIGATIONS ON THIS SECURITY) IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER (OTHER THAN WITH RESPECT TO THE COMMON STOCK). THE HOLDER OF THE SECURITY EVIDENCED HEREBY (AND (1) THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE AND (2) THE COMMON STOCK ISSUABLE IN PAYMENT OF DIVIDENDS OR REDEMPTION OBLIGATIONS ON THIS SECURITY) AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY (AND (1) THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE AND (2) THE COMMON STOCK ISSUABLE IN PAYMENT OF DIVIDENDS OR REDEMPTION OBLIGATIONS ON THIS SECURITY) MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, 129 129 ONLY (1) (a) OTHER THAN WITH RESPECT TO THE COMMON STOCK, TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING SUCH SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION IN A MINIMUM LIQUIDATION PREFERENCE OF NOT LESS THAN $250,000, (c) OUTSIDE THE UNITED STATES TO A NON-U.S. PERSON IN A TRANSACTION COMPLYING WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (d) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND, IN EACH CASE, BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS) (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN CLAUSE (A) ABOVE. IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH REGISTRAR AND TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.] 130 130 [Global Shares Legend (include if Security is issued as a global certificate): UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OF PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO. HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE PREFERRED STOCK SCHEDULE REFERRED TO BELOW. IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH REGISTRAR AND TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.] Number of Shares Number: ________ Shares 144A CUSIP NO.: 379364 50 8 IAI CUSIP NO.: 379364 60 7 131 131 Series A 8% Convertible Redeemable Preferred Stock due 2011 of GLOBALSTAR TELECOMMUNICATIONS LIMITED GLOBALSTAR TELECOMMUNICATIONS LIMITED, an exempted company organized under the laws of Bermuda (the "Company"), hereby certifies that [HOLDER] (the "Holder") is the registered owner of fully paid and non-assessable preference securities of the Company designated the Series A 8% Convertible Redeemable Preferred Stock due 2011, par value U.S.$0.01 and liquidation preference U.S.$50.00 per share (the "Preferred Stock"). The shares of Preferred Stock are transferable on the books and records of the Registrar, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Stock represented hereby are issued and shall in all respects be subject to the provisions of the schedule to the Bye-Laws of the Company dated January 26, 1999, as the same may be amended from time to time in accordance with its terms (the "Preferred Stock Schedule"). Capitalized terms used herein but not defined shall have the meaning given them in the Preferred Stock Schedule. The Company will provide a copy of the Preferred Stock Schedule to a Holder without charge upon written request to the Company at its principal place of business. 132 132 Reference is hereby made to select provisions of the Preferred Stock set forth on the reverse hereof, and to the Preferred Stock Schedule, which select provisions and the Preferred Stock Schedule shall for all purposes have the same effect as if set forth at this place. Upon receipt of this certificate, the Holder is bound by the Preferred Stock Schedule and is entitled to the benefits thereunder. Unless the Transfer Agent's valid countersignature appears hereon, the shares of Preferred Stock evidenced hereby shall not be entitled to any benefit under the Preferred Stock Schedule or be valid or obligatory for any purpose. 133 133 IN WITNESS WHEREOF, the Company has executed this certificate as of the date set forth below. GLOBALSTAR TELECOMMUNICATIONS LIMITED, By: ____________________________ Name: Title: [Seal] By: ____________________________ Name: Title: Dated: COUNTERSIGNED AND REGISTERED THE BANK OF NEW YORK as Transfer Agent, By: Authorized Signatory Dated: 134 REVERSE OF SECURITY GLOBALSTAR TELECOMMUNICATIONS LIMITED Series A 8% Convertible Redeemable Preferred Stock due 2011 Dividends on each share of Preferred Stock shall be payable at a rate per annum set forth in the face hereof or as provided in the Preferred Stock Schedule (including Preferred Stock Liquidated Damages). Dividends may be paid, at the option of the Company, in cash, or, subject to certain limitations, in shares of Common Stock of the Company or a combination of cash and shares of Common Stock of the Company. The shares of Preferred Stock shall be redeemable as provided in the Preferred Stock Schedule. The shares of Convertible Preferred Stock shall be convertible into the Company's Common Stock in the manner and according to the terms set forth in the Preferred Stock Schedule. The Company shall furnish to any Holder upon request and without charge, a full summary statement of the designations, voting rights preferences, limitations and special rights of the shares of each class or series authorized to be issued by the Company so far as they have been fixed and determined and the authority of the Board of Directors to fix and determine the designations, voting rights, preferences, limitations and special rights of the class and series of shares of the Company. ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers the shares of Preferred Stock evidenced hereby to: 135 (Insert assignee's social security or tax identification number) (Insert address and zip code of assignee) and irrevocably appoints: agent to transfer the shares of Preferred Stock evidenced hereby on the books of the Transfer Agent and Registrar. The agent may substitute another to act for him or her. Date: Signature: ______________________________ (Sign exactly as your name appears on the other side of this Convertible Preferred Stock Certificate) 136 Signature Guarantee:______________________________* - -------- *Signature must be guaranteed by an "eligible guarantor institution" (i.e., a bank, stockbroker, savings and loan association or credit union) meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934. 137 NOTICE OF CONVERSION (To be Executed by the Registered Holder in order to Convert the Preferred Stock) The undersigned hereby irrevocably elects to convert (the "Conversion") _________ shares of Series A 8% Convertible Redeemable Preferred Stock due 2011 (the "Preferred Stock"), represented by stock certificate No(s). (the "Preferred Stock Certificates") into shares of common stock, par value U.S.$1.00 per share ("Common Stock"), of Globalstar Telecommunications Limited (the "Company") according to the conditions of the schedule to the Company's Bye-Laws establishing the terms of the Preferred Stock (the "Preferred Stock Schedule"), as of the date written below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates. No fee will be charged to the holder for any conversion, except for transfer taxes, if any. A copy of each Preferred Stock Certificate is attached hereto (or evidence of loss, theft or destruction thereof).* The undersigned represents and warrants that all offers and sales by the undersigned of the shares of Common Stock issuable to the undersigned upon conversion of the Preferred Stock shall be made pursuant to registration of the Common Stock under the Securities Act of 1933 (the "Act"), or pursuant to any exemption from registration under the Act. Any holder, upon the exercise of its conversion rights in accordance with the terms of the Preferred Stock Schedule 138 and the Preferred Stock, agrees to be bound by the terms of the Registration Rights Agreement. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in or pursuant to the Preferred Stock Schedule. Date of Conversion:___________________________________ Applicable Conversion Price:__________________________ Number of shares of Preferred Stock to be Converted:______________________ Number of shares of Common Stock to be Issued:____________________________ Signature:____________________________________________ Name:_________________________________________________ Address:**____________________________________________ Fax No.:______________________________________________ *The Company is not required to issue shares of Common Stock until the original Preferred Stock Certificate(s) (or evidence of loss, theft or destruction thereof) to be converted are received by the Company or its Transfer Agent. The Company shall issue and deliver shares of Common Stock to an overnight courier not later than three business days following receipt of the original Preferred Stock Certificate(s) to be converted. **Address where shares of Common Stock and any other payments or certificates shall be sent by the Company. 139 3 [Global Share Schedule: (include if Security is issued as a global certificate)] SCHEDULE A SCHEDULE OF EXCHANGES FOR GLOBAL SECURITY The initial number of Series A Preferred Shares represented by this Global Series A Preferred Share shall be _______. The following exchanges of a part of this Global Series A Preferred Share have been made: - ------------------------------------------------------------------------- Number of shares Amount of represented decrease in Amount of by this number of increase in Global shares number of Series A represented shares Preferred by this represented Share Global by this following Signature of Series A Global Series such authorized Date of Preferred A Preferred decrease or officer of Exchange Share Share increase Registrar - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- 140 4 EXHIBIT B FORM OF TRANSFER CERTIFICATE (Transfers pursuant to ' 5(b)(ii), ' 5(b)(iii) or ' 5(b)(iv) of the Schedule) The Bank of New York, as Transfer Agent 101 Barclay Street, Floor 21 West New York, New York 10286 Att: Stock Transfer Administration Re: Globalstar Telecommunications Limited 8% Series A Convertible Redeemable Preferred Shares due 2011 (the "Series A Preferred Shares") Reference is hereby made to Schedule III (the "Schedule") to the Bye-laws of Globalstar Telecommunications Limited. Capitalized terms used but not defined herein shall have the meanings given them in the Schedule. This letter relates to __________ Series A Preferred Shares (the "Securities") which are held [in the form of the [Restricted] [Global] Security (CUSIP No. __) with the 141 5 Depositary]** in the name of [name of transferor] (the "Transferor") to effect the transfer of the Securities. In connection with such request, and in respect of Securities, the Transferor does hereby certify the Securities are being transferred (i) in accordance with applicable securities laws of any state of the United States or any other jurisdiction and (ii) in accordance with their terms: CHECK ONE BOX BELOW: (1) to a transferee that the Transferor reasonably believes is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act purchasing for its own account or for the account of a qualified institutional buyer in a transaction meeting the requirements of Rule 144A; 142 6 (2) to a transferee that the Transferor reasonably believes is an institutional "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is acquiring such Securities for investment purposes and not for distribution and is acquiring at least $250,000 aggregate liquidation preference of Series A Preferred Shares for its own account or for one or more accounts (each of which is acquiring at least $250,000 aggregate liquidation preference) as to which the transferee exercises sole investment discretion; (3) outside the United States to a Non-U.S. Person in a transaction complying with Rule 904 of Regulation S under the Securities Act; (4) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available); or (5) in accordance with another exemption from the registration requirements of the Securities Act (based upon an opinion of counsel if the Company so requests). 143 7 [Name of Transferor] by: ________________________ Name: Title: Dated: cc: Globalstar Telecommunications Limited Cedar House 41 Cedar Avenue Hamilton HM12 Bermuda Att.: Corporate Secretary 144 EXHIBIT C FORM OF ACCREDITED INVESTOR TRANSFEREE CERTIFICATE (Transfers pursuant to ' 5(b)(ii) or ' 5(b)(iii) of the Schedule) The Bank of New York, as Transfer Agent 101 Barclay Street, Floor 21 West New York, New York 10286 Att: Stock Transfer Administration Re: Globalstar Telecommunications Limited 8% Series A Convertible Redeemable Preferred Shares due 2011 ( the "Series A Preferred Shares") Reference is hereby made to Schedule III (the "Schedule") to the Bye-laws of Globalstar Telecommunications, Limited. Capitalized terms used but not defined herein shall have the meanings given them in the Schedule. This letter relates to ________ Series A Preferred Shares (the "Securities") which are held [in the form of the [Restricted] [Global] Series A Preferred Share (CUSIP No. ___) with the Depositary] in the name of [name of transferor] (the "Transferor") to effect the transfer of the Securities to the undersigned. In connection with such request, and in respect of the Securities, we confirm that: 1. We understand that the Securities have not been registered under the U.S. Securities Act of 1933 (the "Securities 145 2 Act"), and are being sold to us in a transaction that is exempt from the registration requirements of the Securities Act. 2. We are a corporation, partnership or other entity having such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Securities, and we are (or any account for which we are purchasing under paragraph 4 below is) an accredited investor as defined in Rule 501(a) under the Securities Act, able to bear the economic risk of the proposed investment in the Securities. 3. We are acquiring the Securities for our own account (or for accounts as to which we exercise sole investment discretion and have authority to make, and do make, the statements contained in this letter) and not with a view to any distribution of the Securities, subject, nevertheless, to the understanding that the disposition of our property shall at all times be and remain within our control. 4. We are, and each account (if any) for which we are purchasing Securities is, purchasing Securities having an aggregate liquidation preference of not less than $250,000. 5. We understand that (a) the Securities will be delivered to us in registered form only and that the certificate delivered with respect to the Securities will bear a legend substantially to the following effect: THE SECURITY EVIDENCED HEREBY (OR ITS PREDECESSOR) (AND (1) THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE AND (2) 146 3 THE COMMON STOCK ISSUABLE IN PAYMENT OF DIVIDENDS OR REDEMPTION OBLIGATIONS ON THIS SECURITY) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY (AND (1) THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE AND (2) THE COMMON STOCK ISSUABLE IN PAYMENT OF DIVIDENDS OR REDEMPTION OBLIGATIONS ON THIS SECURITY) IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER (OTHER THAN WITH RESPECT TO THE COMMON STOCK). THE HOLDER OF THE SECURITY EVIDENCED HEREBY (AND (1) THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE AND (2) THE COMMON STOCK ISSUABLE IN PAYMENT OF DIVIDENDS OR REDEMPTION OBLIGATIONS ON THIS SECURITY) AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY (AND (1) THE COMMON STOCK INTO WHICH THIS SECURITY IS CONVERTIBLE AND (2) THE COMMON STOCK ISSUABLE IN PAYMENT OF DIVIDENDS OR REDEMPTION OBLIGATIONS ON THIS SECURITY) MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) OTHER THAN WITH RESPECT TO THE COMMON STOCK, TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING SUCH SECURITY FOR INVESTMENT PURPOSES AND 147 4 NOT FOR DISTRIBUTION IN A MINIMUM LIQUIDATION PREFERENCE OF NOT LESS THAN $250,000, (c) OUTSIDE THE UNITED STATES TO A NON-U.S. PERSON IN A TRANSACTION COMPLYING WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (d) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND, IN EACH CASE, BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS) (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN CLAUSE (A) ABOVE. IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH REGISTRAR AND TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. and (b) such certificates will be reissued without the foregoing legend only in accordance with the terms of the Schedule. 6. We agree that in the event that at some future time we wish to dispose of any of the Securities, we will not do so unless: 148 5 (a) the Securities are sold to the Company; (b) the Securities are sold to a qualified institutional buyer in compliance with Rule 144A under the Securities Act; (c) the Securities are sold to an accredited investor, as defined in Rule 501(a) under the Securities Act, acquiring at least $250,000 liquidation preference of the Securities that, prior to such transfer, furnishes to the Transfer Agent a signed letter containing certain representations and agreements relating to the restrictions on transfer of the Securities (the form of which letter can be obtained from such Transfer Agent); (d) the Securities are sold outside the United States in compliance with Rule 903 or Rule 904 under the Securities Act; (e) the Securities are sold by us pursuant to Rule 144 under the Securities Act; or (f) the Securities are sold pursuant to an effective registration statement under the Securities Act. Very truly yours, [PURCHASER] by: __________________________ Name: Title: Dated: cc: Globalstar Telecommunications Limited Cedar House 41 Cedar Avenue Hamilton HM12 Bermuda EX-10.1 3 AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT 1 CONFORMED AS AMENDED AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF GLOBALSTAR, L.P. ===================== Dated as of January 26, 1999 ===================== 2 TABLE OF CONTENTS Page ---- ARTICLE I. ORGANIZATIONAL MATTERS SECTION 1.1. Continuation...............................................2 SECTION 1.2. Name.......................................................2 SECTION 1.3. Registered Office; Principal Office........................3 SECTION 1.4. Power of Attorney..........................................3 SECTION 1.5. Term.......................................................5 SECTION 1.6. Title to Partnership Property..............................5 SECTION 1.7. Effectiveness of Partnership Agreement.....................5 ARTICLE II. DEFINITIONS SECTION 2.1. Definitions................................................5 ARTICLE III. PURPOSE SECTION 3.1. Purpose...................................................25 ARTICLE IV. CAPITAL CONTRIBUTIONS SECTION 4.1. General Partners..........................................26 SECTION 4.2. Limited Partners..........................................27 SECTION 4.3. Additional Contribution...................................27 SECTION 4.4. Additional Limited Partners...............................27 SECTION 4.5. Capital Accounts..........................................27 SECTION 4.6. Interest..................................................29 SECTION 4.7. No Withdrawal.............................................29 SECTION 4.8. Loans.....................................................29 SECTION 4.9. Preemptive Rights.........................................29 SECTION 4.10. Sale of Partnership Interests and Partnership Securities................................................31 SECTION 4.11. Business Plans............................................32 SECTION 4.12. Limitation on a Limited Partner's Ownership..................34 ARTICLE V. ALLOCATIONS, DISTRIBUTIONS AND SERVICE PROVIDER AGREEMENTS SECTION 5.1. Allocations Generally.....................................34 SECTION 5.2. Regulatory Allocations....................................36 SECTION 5.3. Other Allocations When Book Value Differs from Tax Basis.....................................................39 SECTION 5.4. Special Allocation of Foreign Taxes.......................39 SECTION 5.5. Distributions.............................................40 3 SECTION 5.6. Service Provider Agreements...............................43 SECTION 5.7. Terms of PPIs.............................................43 SECTION 5.8. Guaranteed Payments.......................................43 SECTION 5.9. Allocations Relating to Issue of Partnership Interests.................................................44 ARTICLE VI. MANAGEMENT AND OPERATION OF BUSINESS SECTION 6.1. Management................................................44 SECTION 6.2. Limitations on Authority of Committee and the General Partners..........................................49 SECTION 6.3. Change of Control and Reduction in Interest...............53 SECTION 6.4. Certificate of Limited Partnership........................54 SECTION 6.5. Reliance by Third Parties.................................55 SECTION 6.6. Compensation, Expenses and Reimbursement of General Partners..........................................56 SECTION 6.7. Outside Activities........................................57 SECTION 6.8. Partnership Funds.........................................58 SECTION 6.9. Loans from the General Partners...........................58 SECTION 6.10. Indemnification of Partners...............................59 SECTION 6.11. Liability of General Partners.............................61 SECTION 6.12. Other Matters Concerning the General Partners.............62 SECTION 6.13. Conversion to Corporate Form..............................63 SECTION 6.14. FCC Compliance............................................64 ARTICLE VII. RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS SECTION 7.1. Limitation of Liability...................................64 SECTION 7.2. Management of Business....................................64 ARTICLE VIII. BOOKS, RECORDS, ACCOUNTING AND REPORTS SECTION 8.1. Records and Accounting....................................65 SECTION 8.2. Fiscal Year...............................................65 SECTION 8.3. Reports and Annual Meeting................................65 SECTION 8.4. Disclosure to Limited Partners............................66 SECTION 8.5. Determination of Book Value of Partnership Assets.........67 ARTICLE IX. TAX MATTERS SECTION 9.1. Preparation of Tax Returns................................69 SECTION 9.2. Tax Elections.............................................69 SECTION 9.3. Tax Controversies.........................................69 SECTION 9.4. Taxation as a Partnership.................................70 (ii) 4 ARTICLE X. TRANSFER OF INTERESTS SECTION 10.1. Transfer..................................................70 SECTION 10.2. Transfer of Interests of General Partners.................71 SECTION 10.3. Transfer of Interests of Limited Partners.................73 SECTION 10.4. Certain Transfers.........................................76 ARTICLE XI. ADMISSION OF SUBSTITUTE PARTNERS SECTION 11.1. Admission of Successor Limited Partner....................77 SECTION 11.2. Admission of Successor General Partner....................78 SECTION 11.3. Amendment of Agreement and of Certificate of Limited Partnership.......................................78 ARTICLE XII. WITHDRAWAL OR REMOVAL SECTION 12.1. Withdrawal or Removal of the General Partners.............79 SECTION 12.2. Right of the Managing General Partner to Become a Limited Partner...........................................81 SECTION 12.3. Withdrawal of Limited Partner.............................81 ARTICLE XIII. DISSOLUTION AND LIQUIDATION SECTION 13.1. Dissolution...............................................81 SECTION 13.2. Continuation of the Business of the Partnership after Dissolution.........................................82 SECTION 13.3. Winding Up and Liquidation................................83 SECTION 13.4. Cancellation of Certificate of Limited Partnership........85 SECTION 13.5. Return of Capital.........................................86 SECTION 13.6. Waiver of Partition.......................................86 SECTION 13.7. Deficit Upon Liquidation..................................86 ARTICLE XIV. AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE SECTION 14.1. Amendments to be Adopted Without Consent of the Partners..................................................86 SECTION 14.2. Amendment Procedures......................................87 ARTICLE XV. GENERAL PROVISIONS SECTION 15.1. Addresses and Notices.....................................87 SECTION 15.2. Titles and Captions.......................................88 SECTION 15.3. Pronouns and Plurals......................................88 SECTION 15.4. Further Action............................................88 SECTION 15.5. Binding Effect............................................89 SECTION 15.6. Integration...............................................89 (iii) 5 SECTION 15.7. Creditors.................................................89 SECTION 15.8. Waiver....................................................89 SECTION 15.9. Counterparts..............................................89 SECTION 15.10. Dispute Resolution........................................89 SECTION 15.11. Applicable Law............................................91 SECTION 15.12. Confidentiality...........................................91 SECTION 15.13. Invalidity of Provisions..................................94 SCHEDULE A -- Schedule of Partners SCHEDULE B -- Related Party Transactions SCHEDULE C -- Provisions Relating to Preferred Partnership Interests (iv) 6 AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF GLOBALSTAR, L.P. This AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is entered into and shall be effective as of the 26th day of January, 1999, by and among Loral/QUALCOMM Satellite Services, L.P., a Delaware limited partnership ("LQSS" or the "Managing General Partner"), Globalstar Telecommunications Limited, a company organized under the laws of Bermuda ("GTL", together with LQSS, the "General Partners"), and all of the limited partners set forth on the signature page hereto (collectively referred to herein as the "Limited Partners"), pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act (the "Delaware Act"), on the following terms and conditions: WHEREAS, LQSS formed Globalstar, L.P. (the "Partnership"), a Delaware limited partnership, pursuant to that certain Certificate of Limited Partnership of Globalstar, L.P., filed November 19, 1993, with the Secretary of State of the State of Delaware; WHEREAS, the Limited Partners (other than Finmeccanica S.p.A. and TeleSat Limited) or their predecessors were admitted into the Partnership on March 23, 1994, pursuant to that certain Amended and Restated Agreement of Limited Partnership of Globalstar, L.P., dated as of March 23, 1994, by and among LQSS and the Limited Partners (the "Original Partnership Agreement"); WHEREAS, GTL had filed a registration statement on Form S-1, No. 33-86808, pursuant to which it made offerings (the "GTL Initial Offerings") of shares of its common stock; WHEREAS, in contemplation of the GTL Initial Offerings, the Partnership had pursuant to Section 4.10 of the Original Partnership Agreement, effected a recapitalization in November 1994 to provide for a 6-for-1 split of its Partnership Interests (as defined below); WHEREAS, Finmeccanica S.p.A. ("Finmeccanica") was admitted into the Partnership as a Limited Partner and GTL was admitted into the Partnership as a General Partner on December 31, 1994 and the Original Partnership Agreement was amended and restated on December 31, 1994 (the "Amended and Restated Partnership Agreement") to provide for such admission, the contribution of the proceeds from the GTL Initial Offerings to the 7 Partnership and the creation of a committee (the "Committee") comprised of representatives of LQSS and GTL to manage the Partnership; WHEREAS, GTL made an offering (the "CPEO Offering") of 6 1/2% Convertible Preferred Equivalent Obligations due 2006 (the "CPEOs") on March 6, 1996 and in connection therewith the Amended and Restated Partnership Agreement was amended; WHEREAS, TeleSat Limited was admitted as a partner on April 8, 1998 and in connection therewith the Amended and Restated Partnership Agreement was further amended; WHEREAS, on January 26, 1999, GTL made an offering (the "Preferred Stock Offering") of 8% convertible redeemable preferred Stock due 2011 and in connection therewith the Amended and Restated Partnership Agreement was further amended; and NOW, THEREFORE, the Partners, in consideration of the premises and their mutual agreements as hereinafter set forth, do hereby agree to amend and restate the Amended and Restated Partnership Agreement as follows: ARTICLE I. ORGANIZATIONAL MATTERS SECTION 1.1. Continuation. Subject to the provisions of this Agreement, the Partnership hereby continues as a limited partnership pursuant to the provisions of the Delaware Act. The rights and obligations of the Partners and the administration and termination of the Partnership shall be governed by this Agreement and the Delaware Act. SECTION 1.2. Name. The name of the Partnership shall be, and the business of the Partnership shall be conducted under the name of, "Globalstar, L.P." The Partnership's business may be conducted under any other name or names deemed advisable by the Committee, including the name of a General Partner or any Affiliate (as defined below) of a General Partner. The Committee, upon the Consent of the Partners (as defined below), may change the name of the Partnership at any time and from time to time. Notice will be given to the Limited Partners within ten (10) days after any change in the name of the Partnership. SECTION 1.3. Registered Office; Principal Office. The registered office of the Partnership in the State of Delaware shall be located at c/o Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801, and the registered agent for -2- 8 service of process on the Partnership at such registered office shall be Corporation Trust Company. The principal office of the Partnership shall be 3200 Zanker Road, San Jose, CA 95164, or such other place as the Partnership may from time to time designate to the Partners. Notice will be given to the Limited Partners within ten (10) days after any change in the principal office of the Partnership. The Partnership may maintain offices at such other place as it deems advisable unless such offices create undue adverse tax consequences for the Partners. SECTION 1.4. Power of Attorney. (a) Each Limited Partner hereby irrevocably appoints and empowers each General Partner and each of the General Partner's authorized officers and attorneys-in-fact with full power of substitution as its true and lawful agent and attorney-in-fact (the "Attorney"), with full power and authority in its name, place and stead, for so long as such Attorney is a General Partner or an authorized officer or attorney-in-fact of a General Partner, to: (i) make, execute, acknowledge, publish and file in the appropriate public offices (A) any duly approved amendments to this Agreement or to the Certificate of Limited Partnership pursuant to the Delaware Act and to the laws of any state in which such documents are required to be filed; (B) any certificates, instruments or documents as may be required by, or may be appropriate under, the laws of any state or other jurisdiction in which the Partnership is doing or intends to do business; (C) any other instrument which may be required to be filed by the Partnership under the laws of any state or other jurisdiction or by any governmental agency, or which the Committee deems advisable to file; (D) any documents which may be required to effect the continuation of the Partnership, the admission, withdrawal or substitution of any Partner pursuant to Article XI or Article XII hereof, the dissolution and termination of the Partnership pursuant to the terms of this Agreement, or the surrender of any rights or the assumption of any additional responsibilities by the General Partners or the Committee; and (E) any document which may be required to effect an amendment to this Agreement to correct any mistake, omission or inconsistency, or to cure any ambiguity herein, to the extent such amendment is permitted by Section 14.1 hereof; and (ii) sign, execute, swear to and acknowledge all ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, to make, evidence, give, confirm or ratify any vote, consent, -3- 9 approval, agreement or other action which is made or given by the Partners hereunder or is consistent with the terms of this Agreement and/or appropriate or necessary to effectuate the terms or intent of this Agreement; provided, however, that when the consent or approval of the Partners is required under the terms of this Agreement, an Attorney may exercise the power of attorney made in this subsection (ii) only after the necessary consent or approval has been received. (b) To the maximum extent permitted by applicable law, the foregoing grant of authority (i) is a special power of attorney, coupled with an interest, and it shall survive the death, incompetency, disability, liquidation, dissolution, bankruptcy or termination of any Partner and shall extend to such Partner's heirs, successors, assigns and personal representatives; (ii) may be exercised by an Attorney for each and every Limited Partner acting as attorney-in-fact for each and every Limited Partner; and (iii) shall survive the assignment by any Limited Partner of all or any portion of its Partnership Interest and shall be fully binding upon such assignee but not on the assignor. Each Limited Partner hereby agrees to be bound by any representations made by an Attorney acting in good faith pursuant to such power of attorney in furtherance of the Partnership's business. Each Limited Partner shall execute and deliver to either General Partner, within fifteen (15) days after receipt of a request therefor, such further designations, powers of attorney and other instruments as the Committee deems necessary to effectuate this Agreement and the purposes of the Partnership. SECTION 1.5. Term. The Partnership commenced upon the completion of filing for record of the Certificate of Limited Partnership for the Partnership in accordance with the Delaware Act and shall continue in existence until the earlier termination of the Partnership in accordance with the provisions of Article XIII hereof. SECTION 1.6. Title to Partnership Property. All property owned by the Partnership, whether real or personal, tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner, individually, shall have any ownership of such property. The Partnership shall hold all of its assets in its own name; provided, however, that it may hold marketable securities in street name. SECTION 1.7. Effectiveness of Partnership Agreement. This Agreement shall become effective as of the date hereof. -4- 10 ARTICLE II. DEFINITIONS SECTION 2.1. Definitions. Any capitalized terms used herein and not otherwise defined shall have the meaning ascribed to such term in this Article II. For purposes of this Agreement, the following terms shall have the following meanings: "Accounting Period" means a period beginning on the first day after the end of the prior Accounting Period and ending on the earlier of (i) the end of the Partnership's fiscal year, (ii) the end of the Partnership's tax year, (iii) the day prior to the day on which there is a material adjustment to the Book Values of the Partnership's assets under Section 8.5(c), or (iv) such other date as determined by the Committee. "Additional Closing" means any closing, following the Initial Closing, at which Additional Partnership Interests are issued. "Additional Limited Partner" shall mean the Limited Partners admitted to the Partnership pursuant to Section 4.4. "Additional Partnership Interests" means any Partnership Interests issued by the Partnership after the GTL Effective Date. "Adjusted Capital Account" means, for any Partner, its Capital Account balance (after deducting the amount of expected distributions of Distributable Cash Flow and Distributable Capital Proceeds on hand on the date as of which the computation is made) plus (a) its share of Partnership Minimum Gain, (b) its share of Partner Minimum Gain and (c) the amount, if any, by which a deficit Capital Account balance exceeds the sum of (a) and (b) and which, due to an unpaid Capital Commitment, a Partner is obligated to restore (or is treated as obligated to restore under Treasury Regulation Section 1.704-1(b)(2)(ii)(c)). "Adjusted Income" means the excess, if any, of the sum of (a) Operating Income plus (b) Capital Transaction Gain plus (c) the deductions for depreciation and amortization taken into account in computing Operating Loss over the sum of (d) Operating Loss and (e) Capital Transaction Loss. All the elements of Adjusted Income are reduced by the amounts thereof allocated under Sections 5.2, 5.4 and Section 8.5(c). "Affiliate" means any Person that directly or indirectly controls, is controlled by, or is under common control -5- 11 with the Person in question, provided that (i) in the case of Hyundai/DACOM, such term shall refer to any of Hyundai Electronics Industries Co., Ltd. ("Hyundai"), DACOM Corporation ("Dacom") or an Affiliate of Hyundai or Dacom, (ii) in the case of TE.SA.M. ("TESAM"), such term shall refer to any of Alcatel, NV, Alcatel France, France Telecom or any Persons controlled, directly or indirectly, by any of them, (iii) in the case of Finmeccanica, the term "Affiliate" shall only include any other Person controlled by Finmeccanica, (iv) in the case of Loral SpaceCom or LQSS, GTL shall not be deemed to be an Affiliate of Loral SpaceCom or LQSS with respect to any matter brought before the Partners for a vote in accordance with the terms of this Agreement when the vote of GTL with respect to the transaction in question is determined by directors who are not employed by, or otherwise affiliated with Loral SpaceCom and (v) in the case of TeleSat, the term "Affiliate" shall include only ChinaSat, CTHKG and any Persons controlled by ChinaSat or CTHKG. Upon a GTL Change of Control or Reduction in Interest as described in Section 6.3, the exception with respect to GTL set forth in the preceding sentence shall not apply in determining whether GTL is an Affiliate of Loral SpaceCom or LQSS. As used in this definition of "Affiliate," the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise. The terms "controlled" and "common control" shall have correlative meanings. "Affiliate Successor" has the meaning specified in Section 10.2 hereto. "Agreement" means this Amended and Restated Agreement of Limited Partnership, as it may be amended or supplemented from time to time. "Annual Budget" has the meaning specified in Section 4.11 hereto. "Authorized Partnership Interests" means the sum of (i) 55,448,837 Partnership Interests, (ii) 4,769,231 Partnership Interests, (iii) the number of Ordinary Partnership Interests issuable upon exercise of the warrants issuable to certain Partners or Affiliates thereof and to GTL in connection with the guarantee of the Partnership's obligations under the Globalstar Credit Agreement, (iv) the number of Preferred Partnership Interests issuable to GTL in connection with GTL's offering of 8% convertible redeemable preferred stock of GTL due 2011, including as a result of the exercise by the purchasers thereof of the option to purchase additional shares thereof under the purchase -6- 12 agreement relating thereto and (v) the number of Ordinary Partnership Interests issuable upon conversion of the PPIs or in satisfaction of any distribution, make-whole or redemption payment thereon; provided that any greater number of Authorized Partnership Interests may be authorized from time to time with the Consent of the Partners. "Average Market Value" means the arithmetic average of the Current Market Value of the GTL Common Stock for the ten trading days ending on the fifth business day prior to (i) in the case of a payment of a Scheduled Distribution, the record date for the corresponding dividend payment on the Preferred Stock and (ii) in the case of any other payment, the date of such payment. "Baseline Business Plan" means (i) as to the first generation satellite constellation, the Original Business Plan, insofar as it pertains to that generation, (ii) as to the second generation satellite constellation, the Original Business Plan, but only if the actual total revenues and net income of the Partnership for the 12-month period prior to the month in which a proposed Baseline Business Plan would otherwise be required to be submitted to the Partners pursuant to Section 4.11(b) equal or exceed the projected amounts thereof for such period set forth in the Original Business Plan or, if such 12-month period is not set forth separately therein, the projected amount for such 12-month period implicit in the annual projected amounts set forth therein, (iii) as to the second generation satellite constellation if clause (ii) does not apply, and for all subsequent generations of satellite constellations, a new Baseline Business Plan adopted in accordance with Section 4.11(b) for such generation and all previous generations still in operation, or (iv) as to any generation satellite constellation, a business plan adopted in accordance with Section 4.11(b) expressly intended as a superseding replacement for any of the foregoing. "Book Value" has the meaning determined under Section 8.5. "Business Day" means Monday through Friday of each week, except that a legal holiday recognized as such by the government of the United States shall not be regarded as a Business Day. "Business Plan" means a business plan prepared in accordance with Section 4.11, with only such amendments and modifications thereto adopted from time to time by the Committee as are not inconsistent with the provisions of Sections 4.11, 5.5(c) and 6.2. -7- 13 "CSO" means Council of Service Operators as defined in the Service Provider Agreements. "CTHKG" means China Telecom (Hong Kong) Group Limited. "Capital Account" means each capital account maintained pursuant to Section 4.5 hereof. "Capital Commitment" means the aggregate Capital Contribution which a Partner has made and is committed to make pursuant to a Subscription Agreement for the acquisition of Partnership Interests from the Partnership. "Capital Contribution" means any cash or property which a Partner contributes to the Partnership pursuant to Sections 4.1, 4.2, 4.4 or 4.10. "Capital Transaction" means a sale or disposition of all, or a substantial part, of the Partnership's property in one transaction or in a series of transactions pursuant to the same plan. The term includes a borrowing effected by the Partnership to obtain proceeds for distribution to Partners and a transfer of Partnership assets to a corporation pursuant to Section 6.13, but does not include the rights granted to a Service Provider under a Service Provider Agreement or other dispositions in the ordinary course of a continuing business. "Capital Transaction Gain" means the gross income and gain realized by the Partnership for federal income tax purposes on a Capital Transaction, plus (a) income and gain of the Partnership exempt from tax, described in Code Section 705(a)(1)(B) and realized by the Partnership on a Capital Transaction, (b) on a distribution of a substantial part of the Partnership's property (other than cash and cash equivalents) to Partners, the excess, if any, of the fair market value of the distributed property over its Book Value and (c) the amount of any increase in the Book Value of Partnership property pursuant to Section 8.5(c). The term does not include COD Income or Operating Income. In Computing Capital Transaction Gain, items of income and gain relating to Partnership assets shall be computed based upon the Book Values of the Partnership's assets rather than upon the assets' adjusted basis for federal income tax purposes. "Capital Transaction Loss" means the deductions and loss realized by the Partnership for federal income tax purposes on a Capital Transaction, plus (a) deduction and loss of the Partnership described in Code Section 705(a)(2)(B) and realized by the Partnership on a Capital Transaction, (b) on a distribution of -8- 14 a substantial part of the Partnership's property (other than cash and cash equivalents) to Partners, the excess, if any, of the Book Value of the distributed property over its fair market value and (c) the amount of any decrease in the Book Value of Partnership property pursuant to Section 8.5(c). The term does not include Operating Loss. In Computing Capital Transaction Loss, items of deduction and loss relating to Partnership assets shall be computed based upon the Book Values of the Partnership's assets rather than upon the assets' adjusted basis for federal income tax purposes. "Certificate of Limited Partnership" means the Certificate of Limited Partnership of Globalstar, L.P. filed with the Secretary of State of the State of Delaware on November 19, 1993, as amended on December 31, 1994 pursuant to the Delaware Act, as it may be further amended from time to time. "ChinaSat" means China Telecommunications Broadcast Satellite Corporation, an independent legal entity organized under the laws of the People's Republic of China. "ChinaSat Option" means the option granted to CTHKG by the Partnership in consideration for ChinaSat entering into the ChinaSat Service Provider Agreement to purchase, subject to the satisfaction of certain conditions, an additional 937,500 Ordinary Partnership Interests at an aggregate purchase price of $18.75 million. "ChinaSat Service Provider Agreement" means the Founding Service Provider Agreement, dated as of September 17, 1996, by and between ChinaSat and the Partnership. "COD Income" means income realized by the Partnership on the cancellation of recourse indebtedness under federal income tax principles whether or not the income is excluded from taxable income under Section 108 of the Code or under common law principles of federal income taxation. For this purpose, indebtedness is recourse if it is treated as recourse for purposes of the Treasury Regulations under Code Section 704(b). "Code" means the Internal Revenue Code of 1986, as amended. "Committee" has the meaning specified in the recitals. "Communications Act" means the Communications Act of 1934, as amended. -9- 15 "Confidential Information" has the meaning specified in Section 15.12. "Consent of Disinterested Partners" means the votes at a Representatives Meeting held in accordance with Section 6.2(g) representing a majority of the Partnership Interests present and qualified to vote at a meeting or represented by a qualifying proxy or written consent. Partnership Interests held on behalf of any Delinquent Partner or any Partner or Partners having a direct or indirect financial interest in the transaction in question shall not be qualified to vote. For these purposes, it is to be specifically noted that without limiting the foregoing, that (i) the Partnership Interests held by LQSS will be deemed to be owned and voted by the Upper Tier Partner having the right to direct the vote thereof pursuant to the LQSS Partnership Agreement, (ii) in respect of contracts to supply goods or services to the Partnership (including employment agreements) or other such related matters, Loral SpaceCom and its Affiliates, SS/L and the strategic equity investors in SS/L (as hereinafter described in Section 6.2(a)) and their respective Affiliates shall be deemed to have a direct or indirect financial interest in any transaction to which any of them is a party, and (iii) Loral SpaceCom and its Affiliates, SS/L and Qualcomm Incorporated ("Qualcomm") and their respective Affiliates shall be deemed to have a direct or indirect financial interest in any transaction or event to which any of Loral SpaceCom, SS/L or Qualcomm is a party. "Consent of the Partners" means, as to any action or proposed action by the Partnership, approval of such action by a majority of votes cast at a Representatives Meeting held in accordance with Section 6.2(g), unless 9,000,000 (adjusted to reflect any recapitalizations of the Partnership in the nature of a subdivision or combination of Partnership Interests into a greater or lesser number thereof but not adjusted to reflect dilution caused simply by the issuance of additional Partnership Interests) or more qualifying votes are cast against such action, in which event the Consent of the Partners will be deemed denied, provided that neither any single Limited Partner, any limited partner in any Upper Tier Partnership nor GTL shall be entitled to cast more than 6,000,000 qualifying votes against any such action, regardless of the number of Partnership Interests it holds, and provided further that no more than 3,000,000 qualifying votes shall be cast by GTL in respect of partnership interests acquired using the proceeds of the GTL Offerings or pursuant to the exercise of Exchange Rights. Solely for purposes of determining the number of qualifying votes a Partner who has exercised its Exchange Right in whole or in part, may cast against an action as set forth above, a Partner -10- 16 shall be deemed to continue to own the number of Partnership Interests equal to the amount of GTL Common Stock acquired by such Partner pursuant to its Exchange Right and which have not theretofore been disposed of. "Consumer Price Index" has the meaning of "Index" specified in Article 5.4 of the Service Provider Agreements. "Conversion Ratio" has the meaning ascribed to such term in Section 3.1 of Schedule C to this Agreement. "Current Market Value" means the average of the high and low sales prices of the GTL Common Stock as reported on the Nasdaq National Market or any national securities exchange upon which the GTL Common Stock is then listed for the Trading Day in question. "Debt Securities" means notes, bonds, debentures, loans, capitalized lease obligations and any other debt obligation issued by the Partnership. "Delaware Act" means the Delaware Revised Uniform Limited Partnership Act, as it may be amended from time to time, and any successor to such Act. "Delinquent Partner" means a Partner who has failed to pay any installment of its Remaining Contribution when due, and such delinquency has not been cured. "Descriptive Memorandum" has the meaning specified in Section 3.1. "Distributable Capital Proceeds" means the amount received by the Partnership on a Capital Transaction (including amounts realized on an installment obligation received in a Capital Transaction) minus the costs of that transaction and the amount of any proceeds applied by the Partnership, in its reasonable discretion, towards Partnership expenditures or reserves for Partnership purposes other than distributions to Partners. "Distributable Cash Flow" means the amount by which the sum of (i) the Partnership's receipts (from all sources including borrowings and Capital Contributions, but excluding Distributable Capital Proceeds) and (ii) the amounts released from reserves by the Partnership exceeds the sum of (iii) the Partnership's cash expenditures (including debt service on Partnership borrowings) and (iv) any increase in reserves that the Partnership, in -11- 17 accordance with Section 5.5, determined to be necessary or appropriate for accrued or anticipated Partnership liabilities or expenditures. "Distribution Arrearages" means the amount of Scheduled Distributions that the Partnership has elected to defer that remain unpaid. "Distribution Make-Whole Payment" means the payment due to GTL with respect to the PPIs called for redemption pursuant to a Provisional Redemption, which payment shall be equal to the sum of (i) the present value of the aggregate amount of Scheduled Distributions thereafter payable on such PPIs during the Distribution Make-Whole Period, which shall be calculated using the bond equivalent yield on U.S. Treasury notes or bills having a remaining term nearest in length to that of the Distribution Make-Whole Period as of the Notice Date plus (ii) the amount of any accrued and unpaid Scheduled Distributions (including an amount equal to a prorated Scheduled Distribution for any period following the immediately preceding Scheduled Distribution Payment Date) and Preferred Stock Liquidated Damages, if any, to the Provisional Redemption Date. "Distribution Make-Whole Period" means the period of time from the Provisional Redemption Date through February 15, 2002. "Effective Date" means December 31, 1994. "Equity Rights" has the meaning specified in Section 6.13(a). "Exchange and Registration Rights Agreement" means the Exchange and Registration Rights Agreement among Globalstar, GTL, LQSS and the Limited Partner signatories thereto. "Exchange Right" means the right of LQSS and the Limited Partners signatories thereto to exchange Partnership Interests for shares of GTL Common Stock pursuant to the Exchange and Registration Rights Agreement. "FCC" means the U.S. Federal Communications Commission. "FCC Applications" means the applications relating to the Globalstar System dated June 3, 1991, bearing the file numbers 19 DSS P91C48 and CSS 91 014. "Fiscal Year" has the meaning specified in Section 8.2. -12- 18 "Foreign Taxing Jurisdiction" means a jurisdiction outside the United States that imposes a tax upon the Partnership or a subsidiary of the Partnership. "GAAP" has the meaning specified in Section 5.5(c). "GTL" has the meaning specified in the recitals. "GTL Change of Control" has the meaning specified in Section 6.3. "GTL Common Stock" means the common stock, par value $1.00 per share, of GTL. "GTL Conversion Price" shall mean the conversion price of the Preferred Stock, adjusted upon the occurrence of certain dilutive events as set forth in the Preferred Stock Schedule. "GTL Dividend Payment Notice" means a public announcement by GTL as to whether or not a dividend will be paid and, if a dividend is to be paid, whether GTL is paying the dividend in (A) cash, (B) GTL Common Stock or (C) through any combination of the foregoing. Such Notice shall be delivered on the tenth Business Day prior to the record date relating to such dividend. "GTL Effective Date" means the date on which GTL Offerings were consummated and GTL purchased Partnership Interests in connection therewith. "GTL Independent Directors" means the directors of GTL who are not employed by, or otherwise affiliated with Loral SpaceCom, a Strategic Partner, or any of their respective Affiliates, and who are GTL's representatives on the Committee. "GTL Offerings" has the meaning specified in the recitals. "GTL Registration Default" means the occurrence of any of the following: (i) GTL fails to file the Shelf Registration Statement on or prior to the 90th day after the consummation of the Preferred Stock Offering, (ii) the Shelf Registration Statement is not declared effective by the Securities and Exchange Commission on or prior to the 210th day after the consummation of the Preferred Stock Offering or (iii) the Shelf Registration Statement is declared effective but thereafter ceases to be effective or usable during the period in which GTL is required to maintain the effectiveness of the Shelf -13- 19 Registration Statement, for any period of ten consecutive days or for any 20 days in any 180-day period in connection with resales of Transfer Restricted Securities (provided, that GTL will have the option of suspending the effectiveness of the Shelf Registration Statement, without becoming obligated to pay Preferred Stock Liquidated Damages for periods of up to a total of 60 days in any calendar year if the Board of Directors of GTL determines that compliance with the disclosure obligations necessary to maintain the effectiveness of the Shelf Registration Statement at such time could reasonably be expected to have an adverse effect on GTL or a pending corporate transaction). "GTL Response Redemption Notice" means written notice delivered to the holders of the Preferred Stock notifying them of, among other things, the redemption and whether GTL is paying the redemption price of and Scheduled Distributions (including any applicable Distribution Make-Whole Payment) on such Preferred Stock (i) in cash, (ii) in GTL Common Stock or (iii) through any combination of the foregoing. Such Notice shall be delivered not fewer than 30 days nor more than 60 days before the applicable redemption date. "General Partner" means LQSS or GTL or both, as the context may require, or any successor general partners admitted as such. "Global Service Date" has the meaning specified in the Service Provider Agreements. "Globalstar Credit Agreement" means that certain Credit Agreement dated as of December 15, 1995, among the Partnership, Chemical Bank and the banks signatories thereto. "Globalstar Distribution Payment Notice" means written notice delivered to GTL by the Partnership notifying GTL of (i) whether the Partnership has elected to defer the applicable Scheduled Distribution pursuant to the provisions of this Agreement and (ii) if it has not elected to defer such Scheduled Distribution, whether it will pay such Scheduled Distribution (A) in cash, (B) by delivery of Ordinary Partnership Interests or (C) through any combination of the foregoing. Such Notice shall be delivered at least 15 Business Days prior to the record date corresponding to the applicable Scheduled Distribution Payment Date. "Globalstar Redemption Notice" means written notice delivered to GTL by the Partnership notifying GTL of (i) the Partnership's election to redeem any Preferred Partnership -14- 20 Interests pursuant to the provisions of this Agreement and (ii) whether it will make such redemption (A) in cash, (B) by delivery of Ordinary Partnership Interests or (C) through any combination of the foregoing. Such Notice shall be delivered at least 20 Business Days prior to the applicable Redemption Date and shall contain the information required by Section 2.3 of Schedule C to this Agreement. "Globalstar System" has the meaning specified in Section 3.1. "Governing Documents" has the meaning specified in Section 6.13(b). "Indebtedness" means the principal amount of all secured or unsecured indebtedness for borrowed money of the Partnership, the amount of all guarantees of such indebtedness, the amount of the purchase price in any sale and leaseback transaction accounted for as a capital lease under GAAP, and any interest-bearing vendor financing treated as debt under GAAP. "Initial Closing" means the closing at which GTL was first admitted to the Partnership pursuant to Section 4.1(c) hereof. "Initial Purchasers" means the initial purchasers of the CPEOs set forth in the Purchase Agreement. "In-Service Year" means a period of twelve consecutive calendar months, beginning on the Global Service Date, or beginning on any anniversary of such date. "Joint Venture Company" has the meaning specified in the Service Provider Agreements. "Limited Partners" means all of the limited partners listed on the signature page hereto and any Additional Limited Partners admitted as such pursuant to Section 4.4 hereof, or any successor limited partners admitted as such pursuant to the terms of this Agreement. "Liquidation Preference" means the $50 liquidation preference of each share of Preferred Stock. "Liquidator" has the meaning specified in Section 13.3. "Loral SpaceCom" means, if prior to April 22, 1996, Loral Corporation, a New York corporation, and if thereafter, Loral Space & Communications Ltd, a Bermuda company. -15- 21 "Losses" has the meaning specified in Section 6.10. "LQP" means Loral/QUALCOMM Partnership, L.P., the general partner of LQSS. "LQSS" means Loral/QUALCOMM Satellite Services, L.P. or an Affiliate thereof. "LQSS Partnership Agreement" means the Amended and Restated Agreement of Limited Partnership of LQSS, dated March 23, 1994, as modified, supplemented or amended in accordance with the terms thereof. "Majority in Interest of the Partners" means, as to any action or proposed action by the Partnership, approval of such action by a majority of votes cast at a Representatives Meeting held in accordance with Section 6.2(g). "Managing General Partner" means LQSS or any successor to LQSS continuing the business of the Partnership as a managing general partner. "Mandatory Redemption Date" means February 15, 2011; provided, however, that, if such date shall not be a Business Day, then the Mandatory Redemption Date shall be the next Business Day. "Minimum Gain" has the meaning specified in Treasury Regulation Section 1.704-2(b)(2) for "partnership minimum gain". "Mutual Non-Disclosure Agreement" has the meaning specified in Section 15.6. "Nonperformance" means the substantial and continuing failure by a General Partner to perform its material obligations under the Agreement and/or such continued negligence or misconduct by the General Partner resulting in a material adverse effect upon the assets or business of the Partnership that is not otherwise cured by the General Partner and/or knowing breach of specific provisions of this Agreement and/or fraud or willful misconduct on the part of the General Partner. "Notice Date" means the date of mailing of a notice of provisional redemption of Preferred Stock by GTL to the holders of Preferred Stock. "Offerees" has the meaning specified in Section 10.3. -16- 22 "Offering Memorandum" means the final offering memorandum, dated January 21, 1999, relating to the Preferred Stock. "Operating Expenses" means operating expenses of the Partnership, excluding only Project related items as detailed in the Sources and Uses of Funds Statement of the Original Business Plan and the compensation referred to in Section 6.6. "Operating Income" means the gross income and gains of the Partnership for federal income tax purposes plus, (a) income of the Partnership exempt from taxation and described in Code Section 705(a)(1)(B) and (b) the excess, if any, of the fair market value of distributed property (other than distributed property taken into account in computing Capital Transaction Gain or Capital Transaction Loss) over its Book Value. The term does not include COD Income or Capital Transaction Gain. In computing Operating Income, items of income and gain relating to Partnership assets shall be computed based upon the Book Values of the Partnership's assets rather than upon the assets' adjusted basis for federal income tax purposes. "Operating Loss" means the deductions and losses of the Partnership for federal income tax purposes, plus (a) items of expenditure described in Code Section 705(a)(2)(B), (b) the amount referred to in Section 4.1(b)(iii) and (c) the excess, if any, of the Book Value of distributed property (other than distributed property taken into account in computing Capital Transaction Gain or Capital Transaction Loss) over its fair market value. The term does not include Capital Transaction Loss. In computing Operating Loss, items of deduction and loss relating to the Partnership's assets shall be computed based upon the Book Values of the Partnership's assets rather than upon the assets' adjusted basis for federal income tax purposes. "Optional Redemption" has the meaning specified in Section 2.7 of Schedule C to this Agreement. "Optional Redemption Date" means the Redemption Date for an Optional Redemption as specified in Section 2.7 of Schedule C to this Agreement. "Ordinary Partnership Interests" or "OPIs" means partnership interests, general or limited, as the case may be, in the Partnership, which interests are not entitled to the preferential allocation of profits and losses set forth in Section 5.1(a). -17- 23 "Original Business Plan" means the business plan of the Partnership for the construction, launch and operation of the first and second generations of satellite constellations (including forecasts of operating expenses, capital expenditures, revenues, cash balances (including cash balances set aside in reserve for capital expenditures) and financial structure (i.e. debt and equity capital requirements)), dated March 15, 1994, as restated to the same or a greater level of detail (with a full reconciliation, but not otherwise modified or amended) consistent with GAAP, and including a capital expenditure budget consistent therewith prepared on a cash basis. "Outstanding" when used with respect to PPIs means, as of the date of determination, all PPIs issued pursuant to this Agreement except PPIs theretofore canceled by the Partnership or delivered to the Partnership for cancellation, pursuant to redemption or conversion. "Partner" means the General Partners or the Limited Partners, or both, as the context may require. "Partner Minimum Gain" means "partner nonrecourse debt minimum gain" as defined in Treasury Regulation Section 1.704-2(i)(2). "Partnership" means the limited partnership established by this Agreement. "Partnership Agreement" or this "Agreement" means this Amended and Restated Agreement of Limited Partnership of Globalstar, L.P., as the same may be modified, supplemented, or amended in accordance with the terms hereof. "Partnership Interest" means an interest (whether ordinary or preferred as the context may require) in the Partnership of a General Partner, a Limited Partner, or both, as the context may require, provided, however, that with respect to matters relating to the voting of Partnership Interests, except as provided in Section 13.2, the term shall refer only to Ordinary Partnership Interests. The Partners' respective equity interests in the Partnership are represented by the Partnership Interests they hold, as set forth on Schedule A of this Agreement. "Percentage Interest" means the ratio, expressed as a percentage, that the number of Ordinary Partnership Interests held by a Partner bears to the total number of Ordinary Partnership Interests outstanding. -18- 24 "Person" means an individual or a corporation, partnership, trust, unincorporated organization, association or other entity. "Preemptive Securities" has the meaning specified in Section 4.9. "Preferred Partnership Interests" or "PPIs" means general partnership interests in the Partnership, the capital contributions for which are set forth in Section 4.1(d) and for which separate Capital Accounts will be maintained and that have the right to convert into Ordinary Partnership Interests as set forth in Article III of Schedule C hereto, the right to distributions set forth in Section 5.5(a) and the right to allocations set forth in Section 5.1(a) and that are subject to redemption under Article II of Schedule C hereto. "Preferred Stock" means the 8% Convertible Redeemable Preferred Stock of GTL due 2011. "Preferred Stock Effective Date" means the date on which the Preferred Stock is issued and GTL contributes to the Partnership the net proceeds from the sale of such Preferred Stock. "Preferred Stock Liquidated Damages" means an amount accruing at a rate of 0.50% per annum of the Liquidation Preference of each share of the Preferred Stock constituting Transfer Restricted Securities, which shall accrue from the date of the GTL Registration Default to and including the 30th day following such GTL Registration Default and increase by 0.50% per annum for each subsequent 30 day period; provided, however, that such Preferred Stock Liquidated Damages may not accrue at any time at a rate greater than 2.00% per annum of the Liquidation Preference of the Preferred Stock constituting Transfer Restricted Securities. "Preferred Stock Representative" has the meaning set forth in Section 4.3 of Schedule C to this Agreement. "Preferred Stock Schedule" means the schedule to the Bye-Laws of GTL setting forth the terms of the Preferred Stock. "Preliminary Service Date" has the meaning specified in the Service Provider Agreement. "Project" means each of the following: for each generation of satellites, each line item detailed in the Sources -19- 25 and Uses of Funds Statement of the Original Business Plan under the Use of Funds Heading, except those under S/T Operations). "Provisional Redemption" has the meaning specified in Section 2.6 of Schedule C to this Agreement. "Provisional Redemption Date" means the Redemption Date for a Provisional Redemption as specified in Section 2.6 of Schedule C to this Agreement. "Purchase Agreement" means that certain Purchase Agreement, dated February 29, 1996, among GTL, the Partnership and Lehman Brothers Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation and Unterberg Harris as the Initial Purchasers. "Qualcomm" means QUALCOMM Incorporated. "Redemption Date", when used with respect to any PPI to be redeemed, means the date fixed for such redemption by or pursuant to this Agreement and includes the Provisional Redemption Date, the Optional Redemption Date and Mandatory Redemption Date, as the case may be. "Redemption Price", when used with respect to any PPI to be redeemed, means the price at which it is to be redeemed pursuant to this Agreement. "Regular Record Date" for the distribution payable on any Scheduled Distribution Payment Date means February 1, May 1, August 1 and November 1 (whether or not a Business Day), as the case may be, next preceding such Scheduled Distribution Payment Date. "Remaining Contribution" has the meaning specified in Section 4.5(c) hereof. "Representatives Meeting" has the meaning specified in Section 6.2(g). "SS/L" means Space Systems/Loral, Inc., a Delaware corporation. "Sale Notice" has the meaning specified in Section 4.9. "Scheduled Distribution" means the distribution payable on a Scheduled Distribution Date by the Partnership in respect of the PPIs, which payment, subject to Section 5.5(d), may be deferred by the Committee in its sole discretion. -20- 26 "Scheduled Distribution Payment Date" means February 15, May 15, August 15, and November 15, commencing May 15, 1999; provided, however, that if such date shall not be a Business Day, then the applicable payment date shall be the next Business Day. "Section 704(c) Asset" has the meaning specified in Section 5.3. "Securities Act" means the Securities Act of 1933, as from time to time amended, and any successor to such statute. "Service Provider" has the meaning specified in the Service Provider Agreement. "Service Provider Agreement" means each of the agreements between the Partnership and a Partner or its Affiliate or Joint Venture Company, pursuant to which such Person provides to its subscribers the services of the Globalstar System. "Shelf Registration Statement" means a shelf registration statement filed by GTL with the Securities and Exchange Commission to cover resales of Transfer Restricted Securities by holders thereof (other than Loral) who satisfy certain conditions relating to the provision of information in connection with the Shelf Registration Statement. "Significant Variance" means, as applicable: (i) a cumulative adverse variance (net of any favorable variances) in capital expenditures for any Project: (x) in the case of any Business Plan, as measured over such Project's planned remaining life from the beginning of such Business Plan plus the actual capital expenditures from the beginning of such Project until the beginning of the period to which such Business Plan relates; (y) in the case of any Annual Budget, as measured by the actual capital expenditure from the beginning of such Project until the beginning of the year to which such Annual Budget relates plus the amount of such expenditure as projected in such Annual Budget; compared in each case with the then current Baseline Business Plan, which exceeds 10% of the total cumulative capital -21- 27 expenditure for such Project over such Project's planned life as shown in such Baseline Business Plan; or (ii) an adverse variance in total Operating Expenses in any fiscal year that exceeds 10% of the amount set forth in the then current Baseline Business Plan for such year. provided that the amount of each Significant Variance will be subject to adjustment to account for increases in the Consumer Price Index which are in excess of the inflation assumptions, if any, used in the preparation of the applicable Baseline Business Plan, it being understood and agreed that the Original Business Plan used a 4% per annum inflation assumption, compounded annually and such increases for inflation will apply to expenses or expenditures for Projects set forth in the then current Baseline Business Plan which are fixed by contractual terms from and after the date of the applicable contracts only to the extent provided for in such contracts. "Similar Satellite Service" has the meaning specified in the Service Provider Agreement. "Stated Value" means the $50 face amount of each PPI. "Strategic Partners" means the limited partners in any of Globalstar, LQSS or LQP. "Subscription Agreement" means the agreement entered into by each General Partner and each Limited Partner (or the assignor that assigned its Partnership Interests to such Limited Partner) prior to becoming a Partner. "System Specification" means the specifications for the Globalstar System dated February 1, 1994, No. LQSS/SS/94-0001, heretofore delivered to the Partners. "TeleSat" means TeleSat Limited, a company organized under the International Business Companies Ordinance of the British Virgin Islands. "Trading Day" means (a) if the GTL Common Stock is listed or admitted for trading on the New York Stock Exchange or another national securities exchange, a day on which such GTL Common Stock actually trades on the New York Stock Exchange or another national securities exchange, (b) if the GTL Common Stock is quoted on the Nasdaq National Market, a day on which the GTL Common Stock actually trades or (c) if the GTL Common Stock is -22- 28 not so listed, admitted for trading or quoted, any Business Day on which the GTL Common Stock actually trades. "Transfer Restricted Securities" means each share of Preferred Stock and each share of Common Stock issuable upon conversion of the Preferred Stock or in satisfaction of any dividend or other payment on the Preferred Stock and any securities into which such shares of Preferred Stock or Common Stock shall be converted or into which they shall be changed by operation of law or otherwise until (a) the date on which such security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (b) the date on which such security is distributed to the public pursuant to Rule 144 under the Securities Act or may be distributed to the public pursuant to Rule 144(k) under the Securities Act. "Transferor" has the meaning specified in Section 10.3. "Trigger Percentages" means the percentages set forth in Section 2.6 of Schedule C to this Agreement that triggers the Partnership's option to redeem the PPIs pursuant to a Provisional Redemption. "Upper Tier Partner" means any Partner in either LQSS or LQP. "Upper Tier Partnership" means LQP or LQSS. "Usage Fees" has the meaning specified in the Service Provider Agreements. "Voting Rights Triggering Event" means the accumulation of accrued and unpaid dividends on the outstanding Preferred Stock in an amount equal to six quarterly dividends (whether or not consecutive). ARTICLE III. PURPOSE SECTION 3.1. Purpose. The purpose and business of the Partnership shall be: (a) to develop, design, deploy, own and operate a worldwide low-earth orbit satellite-based digital telecommunication system (the "Globalstar System") which is more fully described in the Globalstar Descriptive Memorandum, dated March 1993, as supplemented by the Supplement thereto, dated -23- 29 March 1994 (the "Descriptive Memorandum") and to engage in the business of providing satellite communications and communications related services, including but not limited to voice, data, paging and geolocation services, and search and rescue, disaster relief and environmental and industrial monitoring and control services through the Globalstar System to Service Providers; (b) to acquire, hold, own, operate, lease, manage, maintain, improve, repair, replace, reconstruct, sell or otherwise dispose of and use the assets of the Partnership; and (c) to enter into any lawful transaction and engage in any lawful activity incidental to or in furtherance of the foregoing purposes. ARTICLE IV. CAPITAL CONTRIBUTIONS SECTION 4.1. General Partners. (a) LQSS has made, or will make, at the times and in the amounts set forth in its Subscription Agreement, cash Capital Contributions to the Partnership in the amount set forth in Schedule A hereto in return for 18,000,000 Ordinary Partnership Interests. (b) The amount of cash LQSS is required to contribute pursuant to Section 4.1(a) shall be reduced by the amount of expenditures designated by LQSS and paid or incurred strictly on the Partnership's behalf after December 31, 1992 and prior to March 23, 1994, provided that any property or rights produced by such expenditures shall be contributed to the Partnership. Credit will only be given for expenditures for preexisting goodwill and intangibles of LQSS and its Affiliates if such goodwill or intangibles are purchased from parties other than LQSS, Upper Tier Partners or their Affiliates or created in connection with the business to be conducted by the Partnership. The amount of this reduction shall be allocated by the Partnership on its books and records to (i) the right (which LQSS shall cause to be transferred to the Partnership) to cause LQP to utilize the FCC Applications and, when granted, the FCC licenses, to operate the Globalstar System, exclusively through, and for the exclusive benefit of, the Partnership, (ii) any other property or rights contributed to the Partnership under this Section 4.1(b) and (iii) other expenditures described in this Section 4.1(b) that did not produce property to be contributed to the Partnership under this Section. Nothing in this provision shall alter the ownership of intellectual property as provided in the Contract for Development of Globalstar Ground -24- 30 Communication Segment Equipment between Globalstar and Qualcomm dated March 18, 1994. (c) GTL has made cash Capital Contributions to the Partnership in the amount of $186 million in return for 10,000,000 Ordinary Partnership Interests. (d) On the Preferred Stock Effective Date, GTL will contribute the net proceeds of the Preferred Stock Offering to the Partnership as described in the Offering Memorandum in return for PPIs with an aggregate Stated Value equal to the aggregate Liquidation Preference of the Preferred Stock issued by GTL in the Preferred Stock Offering. The Stated Value of each PPI shall be $50. The aggregate contribution and Stated Value of the PPIs shall be set forth in Schedule A. If, on or after the Preferred Stock Effective Date, the option granted to the purchasers thereof to purchase additional shares of Preferred Stock is exercised (as described in the Offering Memorandum), in full or in part, then GTL shall contribute the additional net proceeds from the exercise of such option to the Partnership in return for additional PPIs which shall be reflected in a similar manner in Schedule A. SECTION 4.2. Limited Partners. Each Limited Partner has made, or will make at the times and in the amounts set forth in its Subscription Agreement, cash Capital Contributions to the Partnership in the amount set forth on Schedule A hereto in return for the number of Ordinary Partnership Interests set forth on such Schedule A. The total number of such Partnership Interests is 19,937,500. SECTION 4.3. Additional Contribution. No Partner is required to make any additional Capital Contribution to the Partnership beyond its capital commitment set forth in Sections 4.1 and 4.2 above. SECTION 4.4. Additional Limited Partners. Subject to Sections 4.9 and 4.10, the Partnership is hereby authorized to offer Additional Partnership Interests, and to admit as Limited Partners those Persons who subscribe to purchase Additional Partnership Interests and who are acceptable to the Committee. At each Additional Closing, the Capital Contributions of those Persons then being admitted as Additional Limited Partners shall be transferred to the Partnership, which amounts shall be credited to their respective Capital Accounts pursuant to Section 4.5 hereof. Upon acceptance by the Committee of the subscription agreement of a Person subscribing to Additional Partnership Interests, the schedule of Partners as set forth on Schedule A -25- 31 hereto shall be amended to reflect such Person's name and Capital Contribution and such Person will be admitted as an Additional Limited Partner. SECTION 4.5. Capital Accounts. (a) The amount of cash contributed to the Partnership by the Partner, and, in addition in the case of LQSS, the Book Value of any property contributed and the amount referred to in Section 4.1(b)(iii) and, in the case of TeleSat, (i) the amount of the bonus in the Capital Account balance that it received for ChinaSat entering into the ChinaSat Service Provider Agreement and (ii) the excess, if any, of the amount credited to the capital accounts for Ordinary Partnership Interests acquired by TeleSat upon its exercise of the ChinaSat Option over the exercise price. The amounts described in this clause (i) and (ii) for purposes of Schedule A and this Agreement shall be considered part of TeleSat's Capital Contribution. (b) A transferee of a Partnership Interest (i) will succeed to the portion of the Capital Account of the Partners transferring such Partnership Interest which relates to the Partnership Interest transferred and (ii) will receive distributions whose Regular Record Date is after the effective date of such transfer. (c) If the Partnership distributes OPIs with respect to PPIs under Section 5.5(a)(iii), a portion of the Adjusted Capital Account for such PPIs will be transferred to such OPIs. The transferred amount shall be equal to the lesser of: (i) the amount of the cash distribution obligation on the PPIs discharged by the distribution of such OPIs, (ii) the excess, if any, of the prior allocations of Adjusted Income to such PPIs under Sections 5.1(a)(i) and (iii) over the sum of the prior allocations of Loss to such PPIs under Section 5.1(c)(iii), prior and current distributions on such PPIs under Section 5.5(a)(ii) not paid in OPIs and the initial Adjusted Capital Accounts of OPIs previously issued in payment of distributions under Section 5.5(a)(ii) or (iii) an amount per distributed OPI equal to the Adjusted Capital Account for outstanding OPI with the highest Adjusted Capital Account. Any excess of (ii) over the lesser of (i) or (iii), shall be transferred among the Partnership Interests as provided in Subsection (e). (d) If the Partnership distributes OPIs in connection with a redemption or conversion of PPIs under Article II or III of Schedule C hereto, the Adjusted Capital Account of the redeemed or converted PPIs (after reduction for any cash or the fair market value of other property paid by the Partnership as -26- 32 part of the redemption or conversion) shall be transferred to such distributed OPIs; provided, however, that the amount transferred shall not exceed an amount per distributed OPI equal to the Adjusted Capital Account for the outstanding OPI with the highest Adjusted Capital Account. Any portion of the Adjusted Capital Account of the redeemed or converted PPI that cannot be transferred to the distributed OPIs, shall be transferred among the Partnership Interests as provided in Subsection (e). (e) The excess amounts described in Subsections (c) and (d) shall be transferred first to the PPIs as if it were Adjusted Income to the extent provided for in the allocation of Adjusted Income under Section 5.1(a), then under Section 5.1(b) and then to all OPIs (including the OPIs being distributed) in accordance with their Percentage Interests. SECTION 4.6. Interest. No interest shall be paid by the Partnership on Capital Contributions, on balances in Partners' Capital Accounts or on any other funds distributed or distributable under this Agreement. SECTION 4.7. No Withdrawal. No Partner shall have the right to the withdrawal or reduction of any part of its Capital Contribution. It is the intent of the Partners that no distribution to the Limited Partners of cash pursuant to Section 5.5 shall be deemed a return or withdrawal of capital, even if such return or distribution represents, for federal income tax purposes or otherwise (in whole or in part), a distribution of depreciation or any other non-cash item accounted for as a loss or deduction from or offset to the Partnership's income, and that the Limited Partners shall not be obligated to pay any such amount to, or for the account of, the Partnership or any creditor of the Partnership; provided, however, that if any court of competent jurisdiction holds that, notwithstanding the provisions of this Agreement, any Limited Partner is obligated to make any such payment, such obligation shall be the obligation of such Limited Partner and not of the General Partners. SECTION 4.8. Loans. Loans by a Partner to the Partnership shall not be considered Capital Contributions. SECTION 4.9. Preemptive Rights. The Partnership hereby grants to the Partners a preemptive right, in accordance with the procedures set forth in this Section 4.9, with respect to the issuance and sale by the Partnership of Additional Partnership Interests or Debt Securities (each referred to hereinafter as "Preemptive Securities"); provided, however, the Partners shall have no preemptive rights with respect to -27- 33 Preemptive Securities issued pursuant to Section 4.10(a)(i) in connection with the execution of a Service Provider Agreement or pursuant to or in connection with an underwritten public offering. (a) At least 30 days prior to the sale of Preemptive Securities to which this preemptive right applies, the Partnership shall deliver a written notice (a "Sale Notice") to each Partner setting forth (i) the number of Preemptive Securities to be sold, (ii) the price for which and other terms and conditions upon which such Preemptive Securities are to be sold, and (iii) all written information distributed to offerees of such Preemptive Securities, together with the following irrevocable offer from the Partnership: to issue and sell to each Partner, at the same price per Preemptive Security and on the same other terms and conditions set forth in the Sale Notice: (i) in the case of Additional Partnership Interests, the number of Additional Partnership Interests which shall equal the sum of (A) the product of the total number of Additional Partnership Interests set forth in the Sale Notice multiplied by the Partner's Percentage Interest, calculated at the time of the Sale Notice and (B) such Partner's pro rata share (calculated as set forth above) of any such Additional Partnership Interests offered to, but not purchased by, other Partners and (ii) in the case of Debt Securities, the sum of (I) the total principal amount of Debt Securities being issued multiplied by such Partner's Percentage Interest and (II) such Partner's pro rata share (calculated as set forth above) of any such Debt Securities offered to, but not purchased by, other Partners. (b) The Partners shall have absolute discretion to accept or decline such offers. If a Partner wishes to accept any of the offers made pursuant to this Section 4.9, it shall give the Partnership irrevocable written notice of its election to accept such offer within 15 days of its receipt of the applicable Sale Notice (which notice may specify acceptance of all securities offered in the Sale Notice, or acceptance of up to a number or principal amount thereof as specified therein) and the closing thereunder shall occur five days thereafter (or, if not a Business Day, on the next Business Day thereafter) at the offices of the Partnership or at such other time and place as the parties shall agree. Promptly after expiration of the acceptance period, the Partnership will give accepting Partners notice of the actual -28- 34 number of Preemptive Securities to be purchased by them pursuant to the Sale Notice. (c) In connection with any proposed or contemplated sale of Preemptive Securities, upon the request of the Partnership, each Partner shall indicate to the Partnership its good faith intentions (which indications shall not be binding) with respect to whether or not it will exercise the preemptive rights described herein. SECTION 4.10. Sale of Partnership Interests and Partnership Securities. (a) Subject to the provisions of Section 4.9 and this Section 4.10, the Partnership may, upon the determination of the Committee, issue or sell, on such terms as the Committee deems appropriate and in the best interests of the Partnership: (i) Additional Partnership Interests to Additional Limited Partners or Partners from time to time or to other Persons and to admit them to the Partnership as Additional Limited Partners pursuant to Section 4.4 hereof, without being required to obtain the approval of the Limited Partners or any other persons who may acquire an interest in the Partnership Interests, provided, that such Additional Partnership Interests may not be issued at a price that is less than $12.50 per Partnership Interest without the Consent of the Partners, provided further that no additional Partner shall be admitted to the Partnership without the Consent of the Partners, which consent shall not be unreasonably withheld. In addition, if any Partner shall have specified to the Partnership on or prior to March 31, 1994 the names of any third parties, no such third party, nor any of its Affiliates, will be admitted as an Additional Limited Partner without the prior, written consent of the specifying Partner. (ii) Subject to Sections 4.9 and 4.10(b) hereof, any other type of security of the Partnership from time to time to Partners or other persons on terms and conditions established in the sole and complete discretion of the Committee, all without the approval of the Partners or any other person who may acquire any other type of security of the Partnership, including, without limitation, unsecured and secured debt obligations of the Partnership, debt obligations of the Partnership convertible into any class or series of Partnership Interests that may be issued by the Partnership, options, rights or warrants to purchase any such class or series of Partnership Interests or any -29- 35 combination of any of the foregoing. The Partnership is also authorized to enter into sale and leaseback transactions with respect to all or any part of the assets of the Partnership. Subject to subsection (b) below, there shall be no limit on the number of Partnership Interests or other securities that may be so issued, and except as set forth in Section 4.10(a)(i) hereto, the Committee shall have the sole and complete discretion in determining the consideration and terms and conditions with respect to any future issuance of Partnership Interests or other securities. (b) The Partnership shall not at any time issue or reserve for issuance Additional Partnership Interests or other equity interests if, immediately after such issuance, the number of Partnership Interests outstanding or reserved for issuance would exceed the Authorized Partnership Interests. (c) The Partnership shall not incur any Indebtedness if, immediately after the incurrence thereof, the Partnership's outstanding Indebtedness would exceed 110% of the maximum amount of debt obligations contemplated over the life of the then current Baseline Business Plan. SECTION 4.11. Business Plans. (a) The Committee shall annually prepare a Business Plan which contains the following elements: (i) a budget for the forthcoming financial year on a quarterly basis (the "Annual Budget") substantially in the same level of detail as the then current Baseline Business Plan and (ii) for the design and operational lifetime of each generation of satellites at the time under active development or design, or currently in orbit: (A) Schedules of estimated capital expenditures for each year, segregated by Project and showing the estimated cost for each year until completion of the Project; (B) Schedules of sources and uses of funds for each such year; (C) a projected income and expense statement for each such year; and (D) projected year-end balance sheet for each such year. Unless it shall have first obtained the Consent of the Partners, the Committee shall not adopt or otherwise approve any -30- 36 Business Plan or Annual Budget containing any Significant Variance from the then-current Baseline Business Plan, provided that where Consent of the Partners is obtained with respect to any Significant Variance, further Consent of the Partners will be required for any subsequent unfavorable variance from the amounts so approved. Where any Business Plan and/or any Annual Budget contains more than one Significant Variance, then a separate Consent of the Partners shall be sought for each such Significant Variance. The Business Plan and the Annual Budget will not otherwise require the approval of the Partners. Except as otherwise provided in this Agreement, the General Partners will not be liable to the Partnership or any Limited Partner solely for any failure to achieve any Business Plan or Annual Budget, or any element thereof which does not amount to Nonperformance. (b) At least 90 days prior to the beginning of the year in which expenditures (excluding cumulative expenditures of $1,500,000 or less pertaining to the preparation of the new Baseline Business Plan) relating to a new generation of satellites are anticipated (except, insofar as the second generation is concerned, in the case that the Original Business Plan is in effect as the Baseline Business Plan therefor), the Committee will submit to the Partners for their approval a proposed new Baseline Business Plan for the Partnership covering the period through the expected useful life of such next generation which, if approved with the consent of a Majority in Interest of the Partners, will constitute a new Baseline Business Plan, provided that, for purposes of such approval, the votes of the Managing General Partner will be cast in favor of such approval if the proposed Baseline Business Plan in question meets the return on investment criteria set forth in Section 6.2(f), and, unless GTL is the Managing General Partner, the vote of GTL will be determined by the GTL Independent Directors. In the event a proposed Baseline Business Plan is submitted for such a vote and is not so approved, no Limited Partner voting against such approval or any of its Affiliates or Joint Venture Companies will have rights under Article 6.1 of the applicable Founding Service Provider Agreement (as such term is defined in the Service Provider Agreements) to purchase the assets of the Partnership. SECTION 4.12. Limitation on a Limited Partner's Ownership. No individual Limited Partner (other than a corporation formed solely for the purpose of holding Partnership Interests, all of whose shares are offered to the public in an underwritten public offering) may acquire more than 20% of the Partnership Interests in the Partnership without the consent of the Committee and the Consent of the Disinterested Partners. -31- 37 ARTICLE V. ALLOCATIONS, DISTRIBUTIONS AND SERVICE PROVIDER AGREEMENTS SECTION 5.1. Allocations Generally. After the allocations in Sections 5.2 and 5.4 at the end of each Accounting Period, Adjusted Income, Operating Income, Operating Loss, Capital Transaction Gain and Capital Transaction Loss will be allocated as follows: (a) Allocation of Adjusted Income to PPIs. Adjusted Income will be allocated to the Capital Account maintained for the outstanding PPIs: (i) in the amount equal to the excess of prior allocations of Operating Loss and Capital Transaction Loss to currently outstanding PPIs under subsections (c)(iii) over prior allocations to them under this subsection (a)(i); (ii) then in the amount necessary to bring the Capital Account of each outstanding PPI to $50; (iii) then in an amount equal to a cumulative 8% per annum return on the Stated Value of each outstanding PPI; this return shall be computed on the basis of a 360-day year with twelve 30-day months; (iv) then in an amount equal to the excess of (x) the cumulative United States federal, state and local income taxes imposed on the cumulative excess of the amounts of income allocated to PPIs under this Agreement (including allocations under this Subsection (a)(iv) and Subsection (a)(v) that are subject to tax by those jurisdictions over the amounts of tax losses allocated to the PPIs pursuant to this Agreement that, under the laws of the particular jurisdiction, could be carried back or carried over to offset such taxable income by a Bermuda company holding the PPIs that was not engaged in business in the United States otherwise than by being a Partner in the Partnership over (y) prior allocations under this Section 5.1(a)(iv); and (v) then in an amount equal to the excess of the sum of (x) the cumulative amounts of branch profits taxes that were imposed on the holder of each outstanding PPI under Section 884 of the Code for prior and current actual or deemed distributions with respect to such interest and (y) the branch profits tax that will be imposed on the holder of such interest under Code section 884 upon the future actual -32- 38 or deemed distribution of taxable amounts allocated to such interests under this Agreement (including allocations under Subsection (a)(iv) (excluding allocations for federal income taxes) and this Subsection (a)(v)) over (z) prior allocations under this Section 5.1(a)(v). (b) Allocation of Adjusted Income to OPIs. Adjusted Income will then be allocated to OPIs that were issued under Section 5.5(a)(iii), Section 1.2(b) of Schedule C or Article III of Schedule C, in proportion to, and to the extent that, the Adjusted Capital Account for each such OPI is less than the Adjusted Capital Account for the outstanding OPI with the highest Adjusted Capital Account. (c) Operating Loss and Capital Transaction Loss. Operating Loss in excess of any remaining Operating Income after the allocations set forth above and then Capital Transaction Loss in excess of any remaining Capital Transaction Gain after the allocations set forth above shall be allocated: (i) among the Partners holding OPIs in accordance with their Percentage Interests until the Adjusted Capital Account for the OPIs of such a Partner is reduced to zero; (ii) then, among such Partners in proportion to, and to the extent of, their Adjusted Capital Accounts for their OPIs; (iii) then, to the holders of outstanding PPIs in proportion to, and to the extent of, the Adjusted Capital Accounts for their PPIs; and (iv) then, among the General Partners in proportion to their Percentage Interests. (d) Operating Income. Any Operating Income remaining after the allocations set forth above in excess of Operating Loss will be allocated among the Partners holding Ordinary Partnership Interests in proportion to, and to the extent of, distributions to be made with respect to such OPIs under Section 5.5(b), then in proportion to, and to the extent of, negative Adjusted Capital Account balances for one or more OPIs, and then in accordance with Percentage Interests. (e) Capital Transaction Gain. Any Capital Transaction Gain remaining after the allocations set forth above in excess of Capital Transaction Loss will be allocated among the Partners holding OPIs (other than a Delinquent Partner); -33- 39 (i) In proportion to, and to the extent of, negative Adjusted Capital Account balances for one or more OPIs; and (ii) Then, in accordance with Percentage Interests. SECTION 5.2. Regulatory Allocations. (a) Partnership Nonrecourse Deductions. Operating Loss and Capital Transaction Loss attributable (under Treasury Regulation Section 1.704-2(c)) to "partnership nonrecourse liabilities" (within the meaning of Treasury Regulation Section 1.704-2(b)(3)) shall be allocated among the Partners in accordance with Percentage Interests. As the allocation of partnership nonrecourse deductions will increase the potential minimum gain chargeback under Section 5.2(d), an allocation of partnership nonrecourse deductions under this provision will not reduce a Partner's Adjusted Capital Account. (b) Partner Nonrecourse Deductions. Operating Loss and Capital Transaction Loss attributable (under Treasury Regulation Section 1.704-2(i)(2)) to "partner nonrecourse debt" (within the meaning of Treasury Regulation Section 1.704-2(b)(4)) shall be allocated, in accordance with Treasury Regulation Section 1.704-2(i)(1), to the Partner who bears the economic risk of loss with respect to the debt to which the Loss is attributable. As the allocation of partner nonrecourse deductions will increase the potential minimum gain chargeback under Section 5.2(e), an allocation of partner nonrecourse deductions under this provision will not reduce a Partner's Adjusted Capital Account. (c) COD Income. COD Income shall be allocated among the Partners in proportion to the deemed distribution each is deemed to receive pursuant to Code Section 752(b) with respect to the canceled debt. (d) Minimum Gain Chargeback. If, in any year there is a net decrease in Minimum Gain (other than a decrease attributable to a "book up" in the Book Value of the Partnership's assets, a decrease offset by an increase in Partner Minimum Gain or any other decrease for which a minimum gain chargeback is not required under Treasury Regulation Section 1.704-2(f)), then each Partner will be allocated Capital Transaction Gain and Operating Income equal to that Partner's share of the net decrease in minimum gain for the year, as determined by Treasury Regulation Section 1.704-2(g)(2). The items of Capital Transaction Gain and Operating Income to be allocated under this section are determined under Treasury -34- 40 Regulation Section 1.704-2(j)(2). In the event there is insufficient Capital Transaction Gain and Operating Income for the year to fully chargeback each Partner's share of the decrease in Minimum Gain, then the chargeback for the year shall be in proportion to each Partner's share of the decrease and any decrease that has not been charged back shall be carried over and be treated as a decrease in Minimum Gain in the following year. This subsection is intended to comply with the minimum gain chargeback requirement of Treasury Regulation Section 1.704-2(f) and shall be interpreted consistently therewith. (e) Partner Minimum Gain Chargeback. If, in any year there is a net decrease in Partner Minimum Gain (other than a decrease attributable to a "book up" in the Book Value of the Partnership's assets, a decrease offset by an increase in Minimum Gain or any other decrease for which a Partner Minimum Gain chargeback is not required under Treasury Regulation Section 1.704-2(i)(4)), then, after the allocation set forth above in Section 5.2(d), each Partner will be allocated Capital Transaction Gain and Operating Income equal to that Partner's share of the net decrease in Partner Minimum Gain for the year, as determined by Treasury Regulation Section 1.704-2(i)(5). The items of Capital Transaction Gain and Operating Income to be allocated under this section are determined under Treasury Regulation Section 1.704-2(j)(2). In the event there is insufficient Capital Transaction Gain and Operating Income for the year to fully chargeback each Partner's share of the decrease in Partner Minimum Gain, then the chargeback for the year shall be in proportion to each Partner's share of the decrease and any decrease that has not been charged back shall be carried over and be treated as a decrease in Partner Minimum Gain in the following year. This subsection is intended to comply with the requirement of Treasury Regulation Section 1.704-2(i)(4) that there be a chargeback of partner nonrecourse debt minimum gain and shall be interpreted consistently therewith. (f) Qualified Income Offset. In the event any Partner received any adjustment, allocation or distribution described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) that was not reasonably expected at the end of the preceding year and that causes, or increases, a deficit in the Partner's Capital Account, Capital Transaction Gain and Operating Income (composed of a pro rata portion of each element remaining after the allocations in earlier subsections of this section) shall be allocated to that Partner in an amount and manner sufficient to eliminate any portion of the deficit balance in the Partner's Capital Account that is attributable to the adjustment, allocation, or distribution referred to above. If there is -35- 41 insufficient Capital Transaction Gain and Operating Income in any year to make the allocation called for under this subsection, then the shortfall shall be carried over to subsequent years and will be treated as items to be offset in those years. Allocations under this subsection will only be made to the extent that a Partner has a deficit in his Capital Account after all other allocations provided in Article V have been tentatively made as if this subsection were not in the Agreement. For purposes of this subsection, a Partner's Capital Account balance shall be (a) increased by (i) its share of Minimum Gain plus (ii) its share of Partner Minimum Gain plus (iii) the amount, if any, by which its deficit Capital Account balance exceeds the sum of (i) and (ii) and which the Partner is obligated to restore (or is treated as obligated to restore under Treasury Regulation Section 1.704-1(b)(2)(ii)(c)) and (b) decreased by (i) the amount of expected distributions in the next year from the current year's earnings plus (ii) to the extent not previously taken into account, the items described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6). SECTION 5.3. Other Allocations When Book Value Differs from Tax Basis. When the Book Value of a Partnership asset is different from its adjusted tax basis for income tax purposes, then, solely for federal, state and local income tax purposes and not for purposes of computing Capital Accounts, income, gain, loss, deduction and credit with respect to such assets ("Section 704(c) Assets") shall be allocated among the Partners to take this difference into account in accordance with the principles of Code Section 704(c), as set forth in the Treasury Regulation thereunder. In addition, under the principles of Treasury Regulation Section 1.704-3(b)(2) Example 2(ii)(C), in order to prevent the shifting of tax consequences with respect to built-in gain or built-in loss prior to the contribution or revaluation of an item of Section 704(c) Property, tax gain on the sale of that Section 704(c) Property shall be allocated among the Partners to offset the ceiling rule limitation of Treasury Regulation Section 1.704-3(b)(1). SECTION 5.4. Special Allocation of Foreign Taxes. If a Foreign Taxing Jurisdiction imposes a tax upon the Partnership, upon a subsidiary of the Partnership or upon payments to one of the foregoing and such tax is not borne by a third party as a result of a "gross up" provision, tax indemnity or otherwise, then, to the extent that such tax would not have been imposed on income allocated with respect to an Ordinary Partnership Interest if any Partner holding such Partnership Interests or a direct or indirect partner in such Partner were subject only to United -36- 42 States income taxes on the income or payments subject to tax by the Foreign Taxing Jurisdiction: (a) the amount of such tax shall be charged against the Capital Account of such Partner for such Ordinary Partnership Interest and shall reduce the amounts distributable to it under Section 5.5; (b) the amounts distributable to each Partner under Section 5.5 shall be increased by an amount equal to the Partner's Percentage Interest times the aggregate amounts specially allocated to all Partners under subsection (a) above; and (c) the Partnership shall use its best efforts to provide documentation to assist a Partner in recovering from a Foreign Taxing Jurisdiction any applicable tax credit for taxes incurred by that Partner with respect to Globalstar income or allocated to that Partner under this Agreement. SECTION 5.5. Distributions. (a) Distributions to Holders of PPIs. (i) The Partnership shall distribute pro rata on the PPIs an amount such that the cumulative distributions under this Subsection (a)(i) equal the sum of (x) the cumulative United States federal, state and local income taxes imposed on the cumulative excess of the amounts of income allocated to the PPIs under this Agreement that are subject to tax by those jurisdictions over the amounts of tax losses allocated to the PPIs pursuant to this Agreement that, under the laws of the particular jurisdiction, could be carried back or carried over to offset such taxable income by a Bermuda company holding the PPIs that was not engaged in business in the United States otherwise than by being a Partner in the Partnership and (y) the cumulative branch profits taxes imposed with respect to PPIs under Section 884 of the Code. Distributions under this Subsection (a)(i) shall be made prior to the time that the holder of the PPI is required to make payments to the relevant taxing authority. (ii) Then, on each Scheduled Distribution Payment Date (or, if not a Business Day, the next succeeding Business Day), Distributable Cash Flow and Distributable Capital Proceeds shall be distributed to the holder of each outstanding PPI, until cumulative distributions under this Subsection (a)(ii) give each such holder a cumulative return -37- 43 in an amount equal to a cumulative 8% per annum return on the Stated Value of each outstanding PPI; this return shall be computed on the basis of a 360-day year with twelve 30-day months. (iii) The Committee may determine to pay all or any portion of the amount of the distributions described above in OPIs, under the procedures set forth in Section 1.2 of Schedule C hereto. Cash distributions under this Section (a) shall first be made from Distributable Cash Flow and then from Distributable Capital Proceeds. (iv) Each holder of a PPI must receive the amount described in Subsection (a)(i) prior to, or contemporaneously with, any distributions with respect to the OPIs and, except for distributions to permit the payment of taxes imposed on the Partners by the jurisdictions in which the Partnership does business, each holder of a PPI must receive the amount described in Subsection (a)(ii) prior to, or contemporaneously with, any other distributions with respect to the OPIs. (b) Distributions of Remaining Distributable Capital Cash Flow. Distributions of any remaining Distributable Cash Flow shall be made among the Partners holding OPIs in accordance with their Percentage Interests. (c) Distributions of Remaining Distributable Capital Proceeds. Distributions of any Distributable Capital Proceeds remaining after the distributions set forth above shall be made after making the allocations under Article V through the date of distribution among the Partners holding OPIs in accordance with their Percentage Interests until the Adjusted Capital Account of a Partner with respect to its OPIs is reduced to zero and then in proportion to, and to the extent of, any positive Adjusted Capital Account balances for OPIs held by the other Partners and then, in accordance with Percentage Interests. (d) Reserves. For any year, the Partnership shall distribute all Distributable Cash Flow, provided that, except as contemplated in the following sentence, without the Consent of the Partners, the Partnership will not establish any reserves more than 10% in excess of the amount of reserves for expenditures contemplated by the Business Plan currently in effect for such period unless the establishment of reserves in a greater amount is required in accordance with generally accepted accounting principles in the United States ("GAAP"), as confirmed in writing by the Partnership's independent accountants, the -38- 44 Partnership specifies in writing to the Partners the contingency for which such reserve is required and undertakes to release the reserve at such time as it is no longer required in respect of such contingency. If the Partnership shall seek to establish reserves at a level that exceeds either the 10% or the GAAP level described above and such reserves shall not have been approved by the Consent of the Partners ("Excess Reserve"), the Partnership may require, as a condition to the distribution of such Excess Reserve, the indemnification of the Partnership by each of the Partners for their share of such Excess Reserve by an 18-month surety bond or other instrument or security reasonably acceptable to the Partnership. In order to trigger such indemnification, the Partnership must (1) have itemized the liabilities which prompted its call for the Excess Reserve and (2) existing reserves must be exhausted. Only then and only to the extent necessary may such indemnification be called upon. In any event, the period of such indemnification or the term of any surety bond purchased pursuant to this Section shall not exceed eighteen months. (e) Prohibited Distributions. No distribution shall be made to a Partner with respect to either a PPI or an OPI under this Section or a payment or redemption under Article I and II of Schedule C hereto, if such distribution or payment would reduce the Adjusted Capital Account for such Partnership Interest to less than zero or such distribution is otherwise prohibited by the Globalstar Credit Agreement or any other applicable indenture or credit agreement that the Partnership may enter into from time to time. (g) Withholding Taxes. Each Partner authorizes the Partnership to withhold and pay over any withholding or other tax payable by the Partnership as a result of such Partner holding an interest in the Partnership. Such amounts, if withheld from distributions to a Partner, shall be treated as a distribution to the Partner and a payment of the withheld tax by such Partner to the appropriate taxing authorities. In the event that current distributions to GTL or any Limited Partner are not sufficient to cover the withheld tax, the amount withheld in excess of the amount covered by distributions to such Partner shall be a loan to such Partner with respect to whom such withholding has been undertaken and such Partner hereby grants the Partnership a security interest in its entire interest in the Partnership at the time any such loan is made to it to secure the repayment of such loan. Such loans shall bear interest at the rate publicly announced by Chemical Bank from time to time in New York City as its prime rate, shall be compounded monthly, and shall be payable on demand. The Partnership may apply future distributions to -39- 45 such Partner against amounts due under the loan. In the event that such excess amounts are withheld on behalf of the Managing General Partner and current distributions to the Managing General Partner are not sufficient to cover the withheld tax, the Managing General Partner shall promptly reimburse the Partnership for the amount of such excess. In the event that the Internal Revenue Service shall determine that the amount of taxes that should have been withheld with respect to a Partner is in excess of the amount withheld by the Partnership, that Partner shall indemnify the Partnership for the amount of any such shortfall. SECTION 5.6. Service Provider Agreements. For federal income tax purposes, each Partner will report as its initial tax basis in the rights it acquires under its Service Provider Agreement the Partnership's basis in such rights. The transfer of rights to the Partner shall not be treated as a distribution under Article V and future transactions between the Partnership and that Partner under the Service Provider Agreement shall be treated for purposes of Articles IV and V as if occurring between the Partnership and the Partner acting other than in its capacity as a partner. SECTION 5.7. Terms of PPIs. The PPIs shall have the additional terms set forth in Schedule C hereto. SECTION 5.8. Guaranteed Payments. If, as of any Scheduled Distribution Payment Date, there shall have been a GTL Registration Default that remains uncured or a GTL Registration Default that has been cured but with respect to which there remains accrued but unpaid Preferred Stock Liquidated Damages, then, not later than such Scheduled Distribution Payment Date, the Partnership shall pay to GTL an amount that, after United States withholding taxes and branch profits taxes, if any, imposed with respect to such payment, shall equal to the accrued but unpaid Preferred Stock Liquidated Damages. Amounts paid pursuant to this Section 5.8 are intended to constitute guaranteed payments within the meaning of Section 707(c) of the Code and shall not be treated as distributions for purposes of computing GTL's Capital Account. SECTION 5.9. Allocations Relating to Issue of Partnership Interests. Upon the issue of PPIs, Adjusted Income, Capital Transaction Gain, Capital Transaction Loss, Operating Income, Operating Loss and COD Income will be allocated on a closing of the books method as of the last day of the month in which the PPIs were issued. In all other cases, the allocations -40- 46 shall be made using reasonable methods and/or conventions that are permitted under Section 706(d) of the Code as determined by the Managing General Partner. ARTICLE VI. MANAGEMENT AND OPERATION OF BUSINESS SECTION 6.1. Management. (a) The Partnership will be managed by the General Partners through the Committee, which will consist of five to seven members, as determined by LQSS. GTL will appoint two members to the Committee and the remaining members will be appointed by LQSS. The members serve on the Committee at the discretion of the General Partner appointing them to the Committee and may be removed and replaced at any time by such General Partner, provided that in the case of GTL's representatives to the Committee, GTL must at all times appoint as representatives GTL Independent Directors. The Committee will be responsible for managing the affairs of Globalstar. The Committee shall have complete and exclusive discretion in the management and control of the affairs and business of the Partnership and shall possess all powers necessary, convenient or appropriate to carrying out the purposes and business of the Partnership; provided however, that the day to day activities of the Partnership will be managed by its officers, subject to the supervision of the Committee. Regular meetings of the Committee shall be held each quarter. Action by the Committee may be taken only with a concurrence of a majority of the members, whether present in person at a meeting or by written consent; provided however, that written notice of any proposed action by the Committee shall be given to all members prior to the taking of any such action, unless waived by any such member. Notwithstanding the foregoing, and any other provision contained in this Agreement, all matters relating to the FCC Applications, compliance with the Communications Act, and all compliance and regulatory matters related thereto will be under the exclusive control of LQP, acting in its capacity as the sole general partner of LQSS. As provided in Section 4.1(b), LQP will use the FCC Applications and any license granted thereunder for the exclusive benefit of the Partnership. (b) The General Partners shall, through their appointed representatives on the Committee, use their best efforts to carry out the purposes of the Partnership through implementation of the Business Plan and shall devote to the management of the business and affairs of the Partnership such time as shall be required for the operation thereof. Without limiting the generality of the foregoing, the General Partners, -41- 47 through their appointed representatives on the Committee, shall be responsible for arranging for the development, design, launch and placement in service of the Globalstar satellite constellation and operations control centers and for ensuring that the Globalstar System will function substantially as anticipated. The General Partners shall be under a fiduciary duty and obligation to conduct the affairs of the Partnership in the best interests of the Partnership and of the Limited Partners, including the safekeeping of all Partnership fund and assets (whether or not in the immediate possession or control of the General Partners) and the use thereof for the exclusive benefit of the Partnership and shall not permit the Partnership to enter into any transactions with any interested Partner on terms less favorable to the Partnership than those which would have been achievable in a transaction negotiated on an arm's length basis. Without delegating the substance of their responsibilities and obligations hereunder, the General Partners may, subject to the provisions of Section 6.2(a), contract or otherwise deal with any Person, including employees of Affiliates of the General Partners, to perform any acts or services for the Partnership as such General Partners shall approve. Notwithstanding any such delegation, the General Partners shall remain liable to the extent provided herein for any action or omission of any such delegee. Any such delegee having access to confidential information shall be deemed to be bound by a confidentiality agreement containing substantially the same terms as Section 15.12 hereof. Without limitation on any power that may be conferred upon it hereunder or by law, and except as hereinafter stated and subject to the limitations in Sections 6.1(a) and 6.2, the Committee shall have the power to authorize the Partnership to: (i) make and enter into such contracts and incur expenses on behalf of the Partnership, as the Committee deems necessary or appropriate for the efficient conduct and operation of the Partnership's business; (ii) compromise, submit to arbitration, sue on or defend all claims in favor of or against the Partnership; commence or defend litigation that pertains to the Partnership or any Partnership assets, and arrange for the settlement of any pending or threatened litigation, by or against the Partnership, through compromise, arbitration or otherwise; (iii) make and revoke any election permitted the Partnership by any taxing authority (having due regard for -42- 48 the interests of any Partners that may be adversely affected thereby); (iv) do all acts the Committee deems necessary or appropriate for the protection and preservation of the Partnership's assets; (v) make distributions and allocations to the Partners in accordance with Article V hereof; (vi) designate such officers of the Partnership as authorized signatories with the authority to execute on behalf of the Partnership, any documents or instruments of any kind that the Committee may deem appropriate or advisable to carry out the purposes of the Partnership taking into consideration the terms and conditions of such document or instrument; (vii) prepare, execute and file federal, state and local income tax returns and pay any taxes on behalf of the Partnership and the Partners; (viii) make all payments required of the Partnership under the terms of this Agreement, including such payments, fees and reimbursements as the General Partners, or any of their respective Affiliates, may be entitled to receive under the terms of this Agreement; (ix) contest any determination by the Internal Revenue Service which the Committee deems to be adverse to the best interests of the Partnership; (x) invest Partnership funds on a temporary basis pending distribution in such investments (other than investments in Affiliates of a General Partner) as the Committee determines appropriate, provided that the Committee shall not invest Partnership funds in such a manner that the Partnership will be considered to be holding itself out as being engaged primarily in the business of investing, reinvesting, or trading in securities or will otherwise be deemed to be an investment company under the Investment Company Act of 1940, as amended; (xi) employ Persons (including any Affiliate of a General Partner) for the operation and management of the Partnership and engage such other experts and advisers as the Committee may deem necessary or advisable, in each case, on such terms and for such compensation as the Committee may -43- 49 determine, (subject, as applicable, to the requirements of Sections 6.1(d), 6.1(e) and 6.2(a)); (xii) borrow money on behalf of the Partnership as the Committee deems necessary or appropriate and in the best interests of the Partnership and make, accept, endorse and execute promissory notes, drafts, bills of exchange and other instruments and evidences of indebtedness in connection therewith and secure the payment of any such Partnership indebtedness by mortgage, pledge or assignment of or security interest in all or any part of the property then owned or thereafter acquired by the Partnership, (subject, as applicable, to the requirements of Sections 4.9 and 4.10); and (xiii) call a meeting of Partners from time to time as the Committee deems necessary or advisable. (c) The Committee may delegate any of such foregoing powers and any additional powers conferred upon it under this Agreement or by law to officers of the Partnership; provided however, that transactions involving amounts in excess of $100,000, other than transactions in the ordinary course of business or actions taken to implement any Business Plan previously approved by the Committee, shall require the prior approval of the Committee. Subject to the foregoing provision, the Partners hereby agree that each such authorized officer of the Partnership is authorized to execute, deliver and perform any agreements, acts, transactions and matters in connection with the exercise of power hereunder on behalf of the Partnership without any further act, approval or vote of the Partners or the Partnership, except in connection with acts otherwise prohibited by this Agreement, the Delaware Act or any applicable law, rule or regulation. (d) The Committee will ensure that the business of the Partnership is conducted under the supervision of a qualified senior executive who shall serve on a full-time basis as the President of Globalstar (with or without the title of Chief Executive Officer) (the "President"). In the event that the President is to be replaced, the Committee will as promptly as practicable seek a qualified replacement, and, prior to offering the position formally to any candidate, will present such candidate, his or her qualifications and proposed compensation and employee benefits arrangements to the Partners, and shall not make any such offer without the Consent of the Partners, provided, that, pending receipt of such consent, and following any failure to obtain the Consent of the Partners to the appointment of any -44- 50 candidate for the office of President, the Committee may appoint as interim President an officer or employee of the Partnership (other than any such officer or employee previously rejected by the Partners as President). The Committee shall diligently and in good faith seek out a suitable candidate for such office and shall present such a candidate to the Partners at a Representatives Meeting within two months of such appointment. Prior to terminating the employment of the President, the Committee will call a Representatives Meeting to explain the reasons for such action and to consult with the representatives of the Limited Partners, unless the Committee certifies to the Limited Partners in writing that immediate action is necessary, specifying the exigent circumstances in question. (e) In addition to the limitations set forth in Section 6.1(d) above, the Committee will not dismiss any officer of the Partnership with a rank of senior vice president or above or appoint any person to serve as an officer of the Partnership with a rank of senior vice president or above, without the consent of at least one GTL Independent Director. If the GTL Independent Directors shall have vetoed the appointment of the Committee's candidate for a position as set forth above, and upon submission by the Committee of a second candidate for such position, shall have also vetoed such candidate, then, notwithstanding the lack of approval by a GTL Independent Director, the Committee shall be authorized to appoint its second candidate to serve in the designated office if it shall have submitted such candidate to the Limited Partners and such selection shall have received the Consent of the Partners. Pending the receipt of the consent required under this Section 6.1(e), the Committee may appoint a person to serve as interim officer of the Partnership (other than any such person previously rejected by the GTL Independent Directors). SECTION 6.2. Limitations on Authority of Committee and the General Partners. (a) Notwithstanding anything herein to the contrary, the Partnership shall not, after the date hereof, sign or enter into any agreement or agreements between the Partnership and any Partner, any Upper Tier Partner, any direct or indirect corporate parent thereof, any strategic equity investor in SS/L (consisting as of December 31, 1994 of Aerospatiale Societe Nationale Industrielle, Alcatel Espace, Finmeccanica and Daimler-Benz Aerospace AG) or any of their respective Affiliates which, in the aggregate, involve payments or receipts in excess of $1,000,000 unless the terms and conditions thereof have been approved with the Consent of the Disinterested Partners. The Partnership hereby warrants that it has not entered into any such contracts during the period from -45- 51 March 23, 1994 to December 31, 1994, except for the agreements itemized in the Subscription Agreements and those contracts set forth on Schedule B hereto, which are hereby authorized and approved and, if required, are consented to. The Partnership shall report to the Partners no less frequently than annually on the terms and conditions of any such contracts that would, but for the $1,000,000 limitation referred to above, require such approval. (b) Notwithstanding anything herein to the contrary, the Partnership shall not undertake any of the actions specified in this Section 6.2(b) without the Consent of the Partners and in the case of clauses (i) through (vi), will not bring such actions before a vote of the Partners without the consent of at least one GTL Independent Director: (i) Make any material amendments or modifications to this Agreement, except as otherwise provided in Section 14.1; (ii) Approve any business plan of the Partnership that would result in any material change in the purpose of the Partnership as set forth in this Agreement or otherwise change the Partnership's business so that it varies materially from the business set forth in this Agreement; (iii) Acquire (x) a controlling interest in, or a majority of the voting stock or equity of, any corporation or other entity or (y) any other assets not in the ordinary course of business of the Partnership, in either case if the aggregate fair market value thereof is greater than $10 million; (iv) Sell, lease (as lessor), exchange or otherwise dispose of material assets of the Partnership (other than to a Person controlled by the Partnership); provided, however that in the event of a sale of all or substantially all of the assets of the Partnership (other than to a Person controlled by the Partnership), the Partnership shall distribute the proceeds of such sale to the Partners as soon as practicable thereafter; (v) Except as provided in Section 6.13 hereof, cause or permit the dissolution and/or liquidation of the Partnership; (vi) Take any action for the (A) commencement of a voluntary case under any applicable bankruptcy, insolvency -46- 52 or similar law now or hereafter in effect, (B) consent to the entry of any order for relief in an involuntary case under any such law to the extent that the giving or withholding of such consent is within the Partnership's discretion, (C) consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of it or of any substantial part of its property or (D) making by it of a general assignment for the benefit of creditors; (vii) Initiate or settle any litigation, arbitration or other proceeding if such litigation, arbitration or other proceeding is against, or names as an adverse party, a Partner; (viii) Enter into any material business outside the scope contemplated in this Agreement; (ix) Commence any litigation or arbitration that pertains to the Partnership or any Partnership assets, or arrange for the settlement of any pending or threatened litigation, by or against the Partnership, through compromise, arbitration or otherwise if the damages claimed for such lawsuit or arbitration shall exceed $100,000; or (x) Adopt any modification to the System Specification that would change any major parameter by more than 10% of the amount set forth in the System Specification or otherwise result in a material adverse effect on any Service Provider and the Partnership shall give the Limited Partners reasonable notice of any such proposed modification. (c) Notwithstanding the foregoing, in the event that any of the decisions set forth in paragraph (b) above would result in the Partnership being engaged in a business entirely unrelated to that disclosed in the Descriptive Memorandum, such actions shall require the prior, written consent of all the Partners. (d) Unless it shall have received the prior consent of the affected Partner or Partners, the Partnership shall not enter into contracts or agreements with any Person or Persons which conflict with or prejudice in any material respect the rights of any Partner under (i) the provisions of this Agreement or (ii) any contract or agreement between the Partnership and a Partner or its Affiliates except as otherwise disclosed in the Subscription Agreement. LQSS warrants that neither it nor the Partnership has entered into any such contract or agreement as of December 31, 1994 without such consent. -47- 53 (e) The Partnership shall submit to the Partners for their review and comment the material elements of its proposed launch strategy for the Globalstar System, including the selection of launch vehicles, cost, and risk allocation (including issues of space risk management and related insurance coverage and self-insurance), and shall consider in good faith any alternative launch strategies proposed by any Partner. If the Partnership's proposed strategy does not obtain the Consent of the Partners, the Partnership shall promptly undertake a detailed review of such strategy, especially addressing any particular issues identified by the dissenting Partner representatives, and analyze any alternative launch strategies proposed by any of them, and shall not undertake any material commitments with respect to its launch strategy until it has made a written report to the Partners of the results of such review, and called a Representatives Meeting to discuss such report. (f) Any decision on the part of the Committee not to undertake either action set forth below shall require the consent of a Majority in Interest of the Partners: (i) construction and launch of additional first-generation satellites, or in the event a second or subsequent generation constellation has been launched, additional second generation or subsequent generation satellites, as the case may be, that can be financed by the Partnership without additional Capital Contributions from its Partners, if such satellites are anticipated to produce a compound return on investment of 25% per annum or more or (ii) the design, development, construction and launch of a second or subsequent generation satellite constellation that can be financed by the Partnership without additional Capital Contributions from its Partners if such system is anticipated to produce a rate of return on investment greater than the rates applicable to 30-year U.S. Treasury obligations. The Partnership shall give each Partner prompt written notice of any decision not to launch a second or subsequent generation of satellites at least 48 months in advance of the termination or significant degradation of service from the satellite constellation then in operation, and will discuss any such decision with the CSO within a period of two months after such notification. (g) The Partnership shall give notice of a proposed action calling for the Consent of the Partners, the Consent of the Disinterested Partners, or the consent of a Majority in Interest of the Partners or such other matters requiring the action of Partners as set forth herein or pursuant to the Subscription Agreements. The Partnership shall give such notice to each of the -48- 54 Partners in the manner set forth in Section 15.1 hereto as soon as practicable but in no event less than 15 days prior to the date called for a meeting of senior management representatives (the "Representatives") of the Partners (a "Representatives Meeting") regarding such proposal. The quorum for a Representatives Meeting shall be as follows: (x) with respect to a matter requiring the Consent of the Partners or a Majority in Interest of the Partners, Representatives present in person, by proxy or written consent, representing a majority of the Partnership Interests outstanding and (y) with respect to a matter requiring Consent of the Disinterested Partners, Representatives present in person, by proxy or written consent, representing a majority of the Partnership Interests outstanding held by the disinterested Partners. Each Partner (in the case of a matter requiring the Consent of the Partners or the consent of a Majority in Interest of the Partners) or each disinterested Partner (in the case of a matter requiring the Consent of the Disinterested Partners) (and in all cases other than a Delinquent Partner), shall have the right to designate one Representative to attend each Representatives Meeting, who will have the right to cast at the meeting a number of votes equal to the number of Partnership Interests such Partner holds, provided that LQSS shall in all instances vote in accordance with Section 6.4 of the LQSS Partnership Agreement, or, in lieu of voting in such a manner, may assign any Upper Tier Partner the right to designate a Representative to cast at the Representatives Meeting a number of votes equal to the number of Partnership Interests LQSS's Representative is required to cast on its behalf in accordance with such Section 6.4, provided, however, that in no event shall such votes exceed the total number of Partnership Interests held by LQSS. In the event of such an assignment, the Upper Tier Partners' Representatives shall have the same right to attend and vote at Partners' meetings as Representatives of Partners in the Partnership. SECTION 6.3. Change of Control and Reduction in Interest. (i) For purposes of this Section 6.3, "GTL Change of Control" shall mean an event or series of events not approved either by the Managing General Partner or by the Consent of the Partners, at a time when GTL owns less than 50% of the Partnership Interests outstanding, by which (i) any "person" or "group" (as such terms are defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")) becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 30% of the GTL Common Stock then outstanding, (ii) GTL consolidates with -49- 55 or merges into another corporation or conveys, transfers or leases all or substantially all of its assets to any Person, or any corporation consolidates with or merges into GTL, in either event pursuant to a transaction in which the outstanding GTL Common Stock is changed into or exchanged for cash, securities or other property, other than any transaction (A) between GTL and either Loral SpaceCom, an Affiliate of Loral SpaceCom or a wholly-owned subsidiary of Loral SpaceCom or (B) after which the shareholders who beneficially owned GTL Common Stock immediately before such transaction beneficially own at least 50% of the outstanding voting stock of the surviving entity and no Person beneficially owns more than 30% of the outstanding voting stock of the surviving entity, (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of GTL (together with any new directors whose election by the Board of Directors or whose nomination for election was approved by a vote of 66 2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors then in office, or (iv) GTL makes on any day any distribution or distributions of cash, property or securities (other than regular dividends, common stock or rights to acquire common stock) to its shareholders, or purchases or otherwise acquires GTL Common Stock, and the sum of the fair market value of such distribution or purchase, plus the fair market value of all other such distributions and purchases which have occurred during the preceding twelve months, exceeds 30% of the fair market value of GTL Common Stock outstanding. (b) A "Reduction in Interest" shall have occurred upon the sale or other disposition of Partnership Interests by GTL after which GTL's Percentage Interest is reduced to less than 5% and such reduction was not previously approved either by the Managing General Partner or by the Consent of the Partners. (c) Upon a GTL Change of Control or a Reduction in Interest, GTL will become a Limited Partner and will lose all of its rights as a General Partner under this Agreement, including the right to appoint representatives to serve on the Committee and, through the GTL Independent Directors, to veto certain actions of the Partnership. The Committee will thereby dissolve and all actions previously authorized to be taken by the Committee will thereupon be taken by the Managing General Partner as the sole General Partner. In addition, upon a GTL Change of Control or a Reduction in Interest, any PPIs then held by GTL would automatically -50- 56 convert into preferred limited partnership interests and any OPIs then held by GTL would automatically convert into limited OPIs. GTL's preferred limited partnership interests will have the same terms as the PPIs except that they will convert into, and payments of any OPIs with respect thereto, would be made in limited OPIs rather than general OPIs. SECTION 6.4. Certificate of Limited Partnership. The Partnership has filed the Certificate of Limited Partnership with the Secretary of State of the State of Delaware as required by the Delaware Act and shall file such other certificates or documents as may be deemed by the Partnership to be reasonable and necessary or appropriate for the formation or qualification and operation of a limited partnership (or a partnership in which the limited partners have limited liability) in the State of Delaware or any other state in which the Partnership may elect to do business. To the extent that the Committee in its discretion determines such action to be reasonable and necessary or appropriate and to the extent consistent with this Agreement, the Committee shall file amendments to the Certificate of Limited Partnership and do all the things to maintain the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) under the laws of the State of Delaware or any other state in which the Partnership may elect to do business. SECTION 6.5. Reliance by Third Parties. Notwithstanding any other provision of this Agreement to the contrary, no lender or purchaser, including any purchaser of property from the Partnership or any other Person dealing with the Partnership, shall be required to look to the application of proceeds hereunder or to verify any representation by the Managing General Partner as to the extent of the interest in the assets of the Partnership that the Managing General Partner is entitled to encumber, sell or otherwise use, and any such lender or purchaser shall be entitled to rely exclusively on the representations of the Managing General Partner as to its authority to enter into such financing or sale arrangements and shall be entitled to deal with the Managing General Partner as if it were the sole party in interest therein, both legally and beneficially. In no event shall any Person dealing with the Managing General Partner or the Managing General Partner's representative with respect to any business or property of the Partnership be obligated to ascertain that the terms of this Agreement have been complied with, or be obligated to inquire into the necessity or expedience of any act or action of the Managing General Partner or the Managing General Partner's representative; and every contract, agreement, deed, mortgage, security agreement, promissory note or other instrument or document executed by the Managing General Partner or the Managing -51- 57 General Partner's representative with respect to any business or property of the Partnership shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (a) at the time of the execution and/or delivery thereof this Agreement was in full force and effect, (b) such instrument or document was duly executed in accordance with the terms and provisions of this Agreement and is binding upon the Partnership, and (c) the Managing General Partner or the Managing General Partner's representative was duly authorized and empowered to execute and deliver any and every such instrument or document for and on behalf of the Partnership. SECTION 6.6. Compensation, Expenses and Reimbursement of General Partners. (a) Commencing from and after the time in which Globalstar receives revenue from Usage Fees, the Partnership shall pay to the Managing General Partner in cash for each quarter during the period the Partnership is in existence, as payment in connection with services rendered by the Managing General Partner, compensation equal to 2.5% of the Partnership's gross operating revenue up to $500 million per annum, based upon revenues through the end of the quarter in question plus 3.5% of the Partnership's gross operating revenue in excess of $500 million per annum (the "Management Fee"). All quarterly payments are subject to adjustment based on year-end audit. The Management Fee shall be paid quarterly during each In-Service Year, provided that for any In-Service Year in which there is a net loss to the Partnership computed under GAAP, the Management Fee shall be reduced by 50% and the Managing General Partner will reimburse the Partnership for Management Fee payments, if any, received in any prior quarter of such In-Service Year, sufficient to reduce its Management Fee by 50%. To the extent the year-to-date result through the first, second or third quarter of an In-Service Year is a net loss, no Management Fee will be paid with respect to such quarter to the extent it would (together with any Management Fee payments with respect to any earlier quarter in such In-Service Year) exceed 50% of the Management Fee otherwise payable (but for such net loss). No further Management Fee payments shall be required to be paid after the date that distribution of all of the Partnership's assets to the Partners has been completed. In any quarter in which the Partnership would report negative cash flow from operations if the Management Fee for such quarter is paid in full in cash, payment of the Management Fee (or such lesser portion thereof as shall equal the amount of such negative cash flow) shall be deferred with interest at a rate equal to 4% per annum and shall be payable at such time as the Partnership shall have sufficient cash flow. No -52- 58 Management Fee or other compensation shall be owing to GTL in connection with its services as a General Partner. (b) All expenses incurred in connection with the organization of the Partnership (other than expenses borne by LQSS or any Upper Tier Partner for which capital contribution credit is received pursuant to Section 4.1) will be borne by the Partnership and, to the extent not otherwise allocated by Article V, charged to the Partners' Capital Accounts according to their Percentage Interests. Such expenses, including legal and investment banking fees, are approximately $3,728,000. (c) The General Partners shall be reimbursed on a monthly basis for all fair and reasonable expenses they incur or make on behalf of the Partnership (including amounts paid to any Person to perform services for the Partnership or the General Partners or who is an employee of the Partnership or the General Partners). Such reimbursement shall be in addition to any reimbursement to a General Partner as a result of indemnification pursuant to Section 6.10 hereof, but shall only be in respect of reasonable out-of-pocket expenses incurred solely on behalf of Globalstar, and shall not include any amounts in respect of compensation of persons who are officers, directors or employees of GTL, the Upper Tier Partners or their Affiliates or any other corporate overhead of such persons. SECTION 6.7. Outside Activities. (a) Subject to Section 6.7(b), each Partner agrees, subject to the requirements of applicable law, that the Partners and their respective subsidiaries, partners, associates, employees, Affiliates and agents may engage in other business activities or possess interests in other business activities of every kind and description, independently or with others, except that no Partner or any of its subsidiaries or Affiliates shall possess an interest, directly or indirectly, in any business activity operating Similar Satellite Service until the earlier of (i) the third anniversary of the date such Partner (including its Affiliates) ceases to be a Partner of the Partnership, (ii) the beginning of the third In-Service Year and (iii) the date 183 days following the date that such Partner (including its Affiliates) ceases to be or have equity interest in a Service Provider; provided, however, that (i) a passive investment representing not more than 5% of the equity securities of a company in direct competition with the Partnership whose equity securities are listed on a nationally recognized securities exchange or (ii) the sale or provision of goods or services (except as may otherwise be specifically agreed to between the Partnership and the Partner) in the ordinary course of business -53- 59 of a Partner or its Affiliates shall not violate this provision. For purposes of this Section 6.7, governmental and military systems and satellite systems such as OmniTRACS or Euteltracs, and, insofar as France Telecom is concerned, intergovernmental systems, such as INMARSAT and EUTELSAT, and their respective logical extensions, shall not be considered Similar Satellite Service. This paragraph may not be amended without the consent of TESAM. ChinaSat and its Affiliates, as Chinese government entities, shall not be subject to this Section 6.7(a). (b) The General Partners shall not engage in any business other than management of the business and affairs of the Partnership, and shall not own any assets other than Partnership Interests, Partnership capital contributions and distributions, and related assets, without the Consent of the Disinterested Partners. (c) The General Partners shall not, and shall not permit any of their respective Affiliates, including SS/L, to, act as prime contractor or systems integrator for any Similar Satellite Service. SECTION 6.8. Partnership Funds. The funds of the Partnership shall be deposited in such account or accounts as are designated by the Partnership and shall not be commingled with any other funds. All withdrawals from or charges against such accounts shall be made by duly authorized officers or agents of the Partnership. Funds of the Partnership may be invested as determined by the Committee, except in connection with acts otherwise prohibited by this Agreement. SECTION 6.9. Loans from the General Partners. A General Partner or any Affiliate of the General Partner may lend to the Partnership funds needed by the Partnership for such periods of time as the General Partner may determine; provided, however, that such loan is approved in advance with the Consent of the Disinterested Partners. The Partnership shall reimburse the General Partner or its Affiliate, as the case may be, for any additional costs incurred by the General Partner or such Affiliate in connection with the borrowing of funds obtained by the General Partner or such Affiliate and loaned to the Partnership. SECTION 6.10. Indemnification of Partners. (a) The Partnership shall indemnify and hold harmless the Partners, the Upper Tier Partners, their respective Affiliates, and all of their respective officers, directors, partners, controlling shareholders, employees, and agents (individually, an -54- 60 "Indemnitee"), from and against any and all losses, claims, demands, costs, damages, liabilities, joint and several, expenses of any nature (including attorneys' fees and disbursements), judgments, fines, settlements, and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, in which an Indemnitee may be involved, or threatened to be involved, as a party or otherwise ("Losses"), arising out of or incidental to the business of the Partnership, regardless of whether an Indemnitee continues to be a Partner, an Affiliate, or an officer, director, partner, controlling shareholder, employee, or agent of a Partner or of an Affiliate at the time any such Loss is paid or incurred, if the Indemnitee's conduct did not constitute actual fraud, gross negligence, knowing breach of specific provisions of this Agreement or willful or wanton misconduct. The termination of any action, suit, or proceeding by settlement or upon a plea of nolo contendere, or its equivalent, shall not, in and of itself, create a presumption or otherwise constitute evidence that the Indemnitee's actions constituted actual fraud, gross negligence or willful or wanton misconduct. (b) Expenses (including legal fees and expenses) incurred in defending any proceeding subject to subsection (a) of this Section 6.10 shall be paid by the Partnership in advance of the final disposition of such proceeding upon receipt of an undertaking (which need not be secured) by or on behalf of the Indemnitee to repay such amount if it shall ultimately be determined, by a court of competent jurisdiction or otherwise, that the Indemnitee is not entitled to be indemnified by the Partnership as authorized hereunder. (c) The indemnification provided by this Section 6.10 shall be in addition to any other rights to which each Indemnitee may be entitled under any agreement or vote of the Partners, as a matter of law or otherwise, both as to action in the Indemnitee's capacity as a Partner or as a partner, controlling shareholder, officer, director, employee or agent of a Partner, or as to action in the Indemnitee's capacity as a Person serving at the request of the Partnership as set forth above, and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns, administrators and personal representatives of the Indemnitee. Such indemnification, however, shall only apply to Losses incurred by virtue of the Indemnitee's status as a Partner, the Upper Tier Partner, Affiliate or officer, director, partner, controlling shareholder, employee or agent thereof, and not as to Losses incurred in other capacities (for example, by virtue of being a Service Provider or otherwise contracting with the Partnership). -55- 61 (d) The Partnership may purchase and maintain insurance on behalf of any one or more Indemnitees and other such Persons as the Partnership shall determine against any liability which may be asserted against or expense which may be incurred by such Person in connection with the Partnership's activities, whether or not the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement. (e) Any indemnification hereunder shall be satisfied only out of the assets of the Partnership and no Partner shall be subject to personal liability by reason of these indemnification provisions. (f) An Indemnitee shall not be denied indemnification in whole or in part under this Section 6.10 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement. (g) The provisions of this Section 6.10 are for the benefit of the Indemnitees and the heirs, successors, assigns, administrators and personal representatives of the Indemnitees and shall not be deemed to create any rights for the benefit of any other Persons. (h) Any Person that proposes to assert the right to be indemnified under this Article VI shall, promptly after receipt of notice of any action which is subject to indemnification hereunder, notify the Partnership of the commencement of such action, enclosing a copy of all papers served. The failure so to notify the Partnership of any such action shall not relieve it from any liability that it may have to any indemnified party hereunder, unless such party is prejudiced thereby. In case any such action shall be brought and notice given to the Partnership of the commencement thereof, the Partnership shall be entitled to participate in, and to assume the defense thereof, with counsel reasonably satisfactory to the indemnified party, and after notice from the Partnership to such indemnified party of its election so to assume the defense thereof, the Partnership shall not be liable to such indemnified party for any legal or other expenses, except as provided below and except for the reasonable costs of investigation subsequently incurred by such indemnified party at the request of the Partnership in connection with the defense thereof. The indemnified party shall have the right to employ separate counsel and to participate in (but not control) any such action, but the fees and expenses of such counsel shall be the expense of such indemnified party unless (i) the employment of -56- 62 counsel by such indemnified party has been authorized by the Partnership, (ii) the employment of separate counsel is necessitated by a conflicting interest among indemnified parties, or (iii) the Partnership shall not in fact have employed counsel to assume the defense of such action. In each such case, the fees and expenses of counsel shall be at the expense of the Partnership. The Partnership shall not be liable for any settlement of any action or claims effected without its written consent unless the Partnership has failed to assume the defense of any such action or claims. SECTION 6.11. Liability of General Partners. (a) The General Partners, the Upper Tier Partners and their respective Affiliates and all officers, directors, partners, controlling shareholders, employees and agents of the General Partners, the Upper Tier Partner and their respective Affiliates shall not be liable to the Partnership or to the Limited Partners for any losses sustained or liabilities incurred as a result of any act or omission of the General Partners, their Affiliates or any such officers, directors, partners, controlling shareholders, employees or agents if (i) the General Partner, such Affiliate, or such officer, director, partner, controlling shareholder, employee or agent acted in good faith and in a manner it or he reasonably believed to be in, or not opposed to, the best interests of the Partnership, and (ii) the conduct of the General Partner, such Affiliate or such officer, director, partner, shareholder, employee or agent did not constitute gross negligence or Nonperformance. For purposes of this Agreement, any act or omission, if done or omitted to be done in reliance upon the advice of legal counsel or public accountants (the "Professionals") selected with reasonable care, will be conclusively presumed to have been done or omitted to be done in good faith and not to constitute willful or wanton misconduct, gross negligence or Nonperformance; provided, however, that the reliance was reasonable and the General Partner had disclosed all relevant facts to the Professionals. (b) Each General Partner shall fully indemnify and hold harmless the Limited Partners and their Affiliates and their respective partners, officers, directors, employees and agents to the fullest extent permitted by law from and against any and all losses, claims, demands, costs, damages, liabilities (joint or several), expenses of any nature (including attorney's fees and disbursements), judgments, fines, settlements and other amounts including, but not limited to, those arising directly or indirectly from or relating to any civil, criminal, administrative or investigative proceeding, arising out of or incidental to conduct by such General Partner or one of its Affiliates with -57- 63 respect to the business or activities of or relating to the Partnership which constituted bad faith, gross negligence or Nonperformance. The obligations of a General Partner under this Section 6.11 shall extend only to its own acts or omissions or acts or omissions by one of its Affiliates and not with respect to acts or omissions of the other General Partner or its Affiliates. For purposes of the preceding sentence, actions by the Committee shall be deemed to be actions of LQSS only. GTL shall not be deemed to be an Affiliate of LQSS and LQSS shall not be deemed to be an Affiliate of GTL, for purposes of this Section 6.11(b) with respect to any action determined solely by directors who are not employed by, or otherwise affiliated with Loral SpaceCom. SECTION 6.12. Other Matters Concerning the General Partners. (a) Each General Partner may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. (b) A General Partner may consult with legal counsel, Service Providers, and other consultants and advisers selected by it, and any advice of such Person as to matters which the General Partner believes to be within such Person's professional experience shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by the General Partner hereunder in good faith and in accordance with such advice. Any such Person receiving confidential information shall be deemed to be bound by a confidentiality agreement containing substantially the same terms as Section 15.12 hereof. SECTION 6.13. Conversion to Corporate Form. (a) In the event that the Committee shall determine that it is desirable or helpful for the business of the Partnership to be conducted in a corporate rather than in a partnership form, the Committee may incorporate the Partnership or take such other action as it may deem advisable in light of such changed conditions, including, without limitation, dissolving the Partnership, provided that, the Committee may not incorporate the Partnership without the Consent of the Partners. In connection with any such incorporation of the Partnership, the Partners shall receive, in exchange for their Partnership Interests, shares of capital stock of such corporation having the same relative rights and preferences as to dividends and distributions and the same voting and transfer rights, subject in each case to any modifications required solely as a result of the conversion to corporate form (all such rights and preferences being referred to, collectively, -58- 64 as "Equity Rights"), as are set forth in this Agreement as among the holders of interests in the Partnership. (b) Prior to taking any such action to incorporate the Partnership, the Committee shall submit to the Partners the proposed forms of a certificate or articles of incorporation, by-laws, shareholders' agreement and any other governing documents proposed to be established for such corporation (the "Governing Documents"). If Limited Partners holding Partnership Interests representing at least 20% (or 15% in the event GTL becomes a Limited Partner pursuant to Section 6.3 hereof) of the total number of outstanding Partnership Interests held by all Limited Partners (not including any Partnership Interest held by LQSS or its Affiliates) notify the Committee within 15 days of the date the proposed forms of Governing Documents are submitted to the Limited Partners that they have concluded in good faith that, based upon such Governing Documents, the shares of capital stock of such corporation proposed to be issued to them in exchange for such Partnership Interests do not have the same Equity Rights as are set forth in this Agreement, the Committee and such Limited Partners shall negotiate in good faith to resolve any differences with respect thereto. If the Committee and such Limited Partners do not resolve such differences, the Committee may appoint an investment banking firm of internationally recognized standing reasonably acceptable to such Limited Partners to advise the Partnership as to such dispute, and the conclusion of such firm shall be binding on the parties, and any modification recommended by such investment banking firm in the Equity Rights shall be incorporated into the Governing Documents. Nothing contained herein shall be construed to give the Limited Partners any right to cause the business of the Partnership to be conducted in corporate form or to limit the right of the Committee to elect, at any time, to continue such business as a partnership. SECTION 6.14. FCC Compliance. The Partners hereby understand, agree and acknowledge that the rights described in Section 4.1(b)(i) of this Agreement are subject to the Communications Act, and the rules and regulations promulgated thereunder. ARTICLE VII. RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS SECTION 7.1. Limitation of Liability. No Limited Partner shall be personally liable for any debts, liabilities or obligations of the Partnership, whether to the Partnership, to the General Partners, or to creditors of the Partnership, beyond -59- 65 the amount contributed by such Limited Partner to the capital of the Partnership and such Limited Partner's share of the accumulated but undistributed profits of the Partnership and the amount of any distribution (including the return of any Capital Contribution) made to such Limited Partner that must be returned to the Partnership pursuant to applicable state law. The General Partners shall use reasonable efforts, in the conduct of the Partnership's business, to put all Persons with whom the Partnership does business on notice that the Limited Partners and their Affiliates are not liable for Partnership obligations, and all material agreements to which the Partnership is a party shall include a statement to the effect that the Partnership is a limited partnership organized under the laws of Delaware. SECTION 7.2. Management of Business. The Limited Partners shall not take part in the operation, management or control (within the meaning of the Delaware Act) of the Partnership's business, transact any business in the Partnership's name or have the power to sign documents for or otherwise bind the Partnership. No Limited Partner has the right to require the partition of Partnership property or compel any sale or appraisal of Partnership assets or sale of a deceased Partner's interest therein. ARTICLE VIII. BOOKS, RECORDS, ACCOUNTING AND REPORTS SECTION 8.1. Records and Accounting. The Partnership shall keep or cause to be kept appropriate books and records with respect to the Partnership's business, which books shall at all times be kept at the principal office of the Partnership. Any records maintained by the Partnership in the regular course of its business, books of account and records of Partnership proceedings, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, micrographics or any other information storage device, provided that the records so kept are convertible into clearly legible written form within a reasonable period of time. The records and books of account of the Partnership will be audited as of the end of each Fiscal Year by Deloitte & Touche LLP ("Deloitte & Touche"). In the event the Partnership shall seek to replace Deloitte & Touche, the Partnership shall select as Deloitte & Touche's successor independent certified public accountants of recognized international standing (other than the principal auditors of Loral SpaceCom or Qualcomm), provided that such choice may be disapproved once, but only once, by a vote requiring the Consent of the Partners, and thereafter such accountants may be selected -60- 66 by the Partnership in its sole discretion (other than the principal auditors of Loral SpaceCom or of Qualcomm). SECTION 8.2. Fiscal Year. The fiscal year (the "Fiscal Year") of the Partnership shall be the calendar year, unless otherwise determined by the Partnership in its sole discretion. SECTION 8.3. Reports and Annual Meeting. (a) As soon as practicable, but in no event later than 90 days after the close of each fiscal year, the Partnership shall deliver to the Partners reports containing financial statements of the Partnership for the fiscal year, presented in accordance with GAAP, including a balance sheet, a statement of income, a statement of Partners' equity and a statement of changes in cash flow, such statements to be audited by the firm of independent certified public accountants selected in accordance with Section 8.1. (b) As soon as practicable, but in no event later than 45 days after the close of each calendar quarter, including the last calendar quarter of each fiscal year, the Partnership shall deliver to the Partners a quarterly report containing a balance sheet and statements of income and changes in financial position for such calendar quarter. (c) In addition to any meetings of the Partners called pursuant to Section 6.1(b)(xiii) or any Representatives Meeting called pursuant to Section 6.2(g), the Partnership shall hold an annual meeting of the Partners ("Annual Meeting") on fifteen (15) days prior written notice to the Partners, such Annual Meeting to be held no sooner than thirty (30) days and no later than sixty (60) days after delivery to the Partners of the annual financial statements for the preceding fiscal year pursuant to Section 8.3(a). At the Annual Meeting, officers of the Partnership will review the operations of the Partnership during the preceding year, discuss the plans and operating budget for the current year and any amendments to the Business Plan and answer whatever questions may be raised by representatives of the Partners at the Annual Meeting. SECTION 8.4. Disclosure to Limited Partners. (a) The Limited Partners shall have full access to all financial and other information directly related to the business and affairs of the Partnership. In particular, the following will be open for examination, by any Limited Partner or his duly authorized representatives: -61- 67 (i) books and records pertaining to the Partnership's business showing all of its assets and liabilities, receipts and disbursements, realized profits and losses, and all transactions (including all contracts and commitments) entered into by the Partnership; (ii) a current list of the full name and last known mailing address of each Partner set out in alphabetical order, together with a list showing the Capital Contributions and Capital Account of each Partner; (iii) a copy of the Certificate of Limited Partnership and all amendments to it, together with executed copies of any powers of attorney pursuant to which the Certificate and any amendments to it have been executed; (iv) copies of all the Partnership's U.S. Federal, state, local and foreign income tax returns and reports, if any; and (v) copies of this Agreement as may be amended from time to time. (b) The Partnership shall make available, on a reasonable basis, its financial officers and auditors to the Limited Partners for consultation and to respond to questions of the Limited Partners relating to the financial condition of the Partnership. The Partnership will prepare and mail to each Limited Partner promptly upon the request of any Limited Partner such further information concerning the business, affairs and financial conditions of the Partnership, as any Limited Partner may reasonably request. (c) Notwithstanding the provisions set forth in this Section 8.4, the Partnership may keep confidential from the Limited Partners for a period of time deemed reasonable by it information (excluding any matters required to be disclosed pursuant to Section 8.3 or clause (ii)-(v) of Section 8.4) to the extent the Partnership, in good faith, determines (i) that disclosure is not in the best interests of the Partnership, (ii) that disclosure could damage the Partnership or its business or (iii) that the Partnership is required by law or by a third party to keep the information confidential. SECTION 8.5. Determination of Book Value of Partnership Assets. (a) Except as set forth below, Book Value of any Partnership asset is its adjusted basis for federal income tax purposes. -62- 68 (a) The initial Book Value of any assets contributed by a Partner to the Partnership shall be the gross fair market value of such assets. The Book Value of property and property rights contributed by LQSS and described in Section 4.1(b)(i) and (ii) shall be the amount allocated to them pursuant to Section 4.1(b). (b) The Book Values of all of the Partnership's assets shall be adjusted by the Partnership to equal their respective gross fair market values as of the following times: (a) the admission of a new Partner to the Partnership or acquisition by an existing Partner of an additional interest in the Partnership from the Partnership (including the acquisition of PPIs as set forth in Section 4.1(d)); (b) the distribution by the Partnership of money or property to a withdrawing, retiring or continuing Partner in consideration for the retirement of all or a portion of such Partner's interest in the Partnership; and (c) the termination of the Partnership for Federal income tax purposes pursuant to section 708(b)(1)(B) of the Code; provided, however, that no adjustment shall be made upon the issue of an OPI pursuant to Section 5.5(a)(iii) or Section 1.2(b) of Schedule C. The Partnership will not be required to make an adjustment upon the exercise of a warrant to acquire an OPI or upon a conversion of a PPI pursuant to Article III of Schedule C until the sum of the cumulative face amount of PPIs converted and the exercise price of warrants exercised since the last adjustment exceeds $15,000,000. In such case, the Partnership shall make at least one adjustment during the year and, if no other adjustment event occurs during the year and after the $15,000,000 threshold was reached, a required adjustment shall be made as of the date of the last PPI conversion or warrant exercise during the year. Upon a conversion of a PPI and an adjustment to the Book Values of Partnership assets under this Section, any resulting Capital Transaction Loss shall be first allocated to holders of OPIs whose Adjusted Capital Accounts are higher than the Adjusted Capital Accounts of the OPIs acquired on exercise of a warrant or on conversion in amounts and proportions to reduce the differences between such Adjusted Capital Accounts and any resulting Capital Transaction Gain shall first be allocated to the Capital Account of the OPIs acquired on exercise of a warrant and on conversion in an amount to reduce or eliminate the amount by which the Adjusted Capital Accounts for such OPIs are less than the Capital Account for the outstanding OPI with the highest Adjusted Capital Account. Any remaining Capital Transaction Gain or Loss shall be allocated under Section 5.1. The Partnership will promptly report any such adjustment to the Partners. -63- 69 ARTICLE IX. TAX MATTERS SECTION 9.1. Preparation of Tax Returns. (a) The Partnership shall arrange for the preparation and timely filing of all returns of Partnership income, gains, deductions, losses and other items necessary for federal and state income tax purposes. The Partnership shall use all reasonable efforts to furnish to the Partners within 90 days of the close of the taxable year the tax information reasonably required for federal, state and foreign income tax reporting purposes. Subject to the provisions of Section 9.2, the classification, realization and recognition of income, gain, losses and deductions and other items shall be on the accrual method of accounting for federal income tax purposes, to the extent permitted by applicable law. The taxable year of the Partnership shall be the calendar year, unless otherwise required by the federal income tax laws and the Treasury Regulations thereunder or unless otherwise determined by the Partnership. (b) The Partnership will prepare the state and local tax returns for those non-U.S. Limited Partners who are not otherwise engaged in business in the United States. SECTION 9.2. Tax Elections. Except as otherwise provided herein, the Partnership shall, in its sole discretion, determine whether to make any available election, including but not limited to an election under Code Section 709 to amortize organization and start-up expenditures over a sixty month period, and an election under Code Section 754 to adjust the bases of Partnership property with respect to the Partnership or with respect to a transferee Partner. In the event a Section 754 election is made, the Partnership may in its sole discretion charge transferees for the additional costs incurred in preparing their tax information under such election. SECTION 9.3. Tax Controversies. Subject to the provisions hereof, the Managing General Partner is designated the Tax Matters Partner (as defined in Section 6231 of the Code), and is authorized and required to represent the Partnership (at the Partnership's expense) in connection with all examinations of the Partnership's affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Partnership funds for professional services and costs associated therewith. The Partners agree to cooperate with the Managing General Partner and to do or refrain from doing any or all things reasonably required by the Managing General Partner to conduct such proceedings, provided that the foregoing shall not be -64- 70 construed to prevent a Partner from taking steps reasonably necessary to protect and defend its own interests. SECTION 9.4. Taxation as a Partnership. No election shall be made by the Partnership or any Partner for the Partnership to be excluded from the application of any of the provisions of Subchapter K, Chapter 1 of Subtitle A of the Code or from any similar provisions of any state tax laws. ARTICLE X. TRANSFER OF INTERESTS SECTION 10.1. Transfer. (a) The term "transfer," when used in this Article X with respect to a Partnership Interest, includes a sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition; provided however, that an exchange of Partnership Interests by LQSS or the Limited Partners pursuant to the terms of the Exchange and Registration Rights Agreement shall not, other than with respect to Section 10.4(c) hereof, be deemed to be a "transfer" for purposes of this Article X. (b) Any Partnership Interest may be transferred, in whole or in part, provided that such transfer shall be made, where applicable, in accordance with the terms and conditions set forth in this Article X. Any transfer or purported transfer of any Partnership Interest not made in accordance with this Article X shall be null and void. (c) Notwithstanding anything contained herein to the contrary, no transfer of a Partnership Interest may be made if such transfer (i) would violate the then applicable federal or state securities laws or rules and regulations of the Securities and Exchange Commission, state securities commissions, the Communications Act, or rules and regulations of the FCC and any other government agencies with jurisdiction over such transfer or (ii) would affect the Partnership's existence or qualification under the Delaware Act. In the event a transfer of a Partnership Interest is otherwise permitted hereunder, notwithstanding any provision hereof, no Partner shall transfer all or any portion of such Partner's Partnership Interest unless and until such Partner, upon the request of the Partnership, delivers to the Partnership an opinion of counsel, addressed to the Partnership, reasonably satisfactory to the Partnership, to the effect that (1) such Partnership Interest has been registered under the Securities Act and any applicable state securities laws, or that the proposed transfer of such Partnership Interest is exempt from any -65- 71 registration requirements imposed by such laws and that the proposed transfer does not violate any other applicable requirements of federal or state securities laws and (2) that such transfer will not adversely affect the tax status of the Partnership. Such opinion shall not be deemed delivered until the Partnership confirms to such Partner that such opinion is acceptable, which confirmation will not be unreasonably withheld. (d) For so long as the Exchange Right is in effect, each of the Partners hereby agrees that it will not (i) make a public offering of its Partnership Interests, or (ii) transfer any of their Partnership Interests to a Person, other than to GTL, if (x) such Partnership Interests would constitute all or substantially all of the assets of such transferee and (y) the purpose of the transfer is to enable the transferee Person make a public offering of its equity interests. SECTION 10.2. Transfer of Interests of General Partners. (a) Subject to Section 12.1 hereof, a General Partner shall not transfer all or any part of its Partnership Interests without the Consent of the Disinterested Partners; provided, that a transfer by GTL is further subject to the provisions of Section 6.3 hereof. A General Partner may transfer any or all of its Partnership Interests to an Affiliate of the General Partner ("Affiliate Successor") without such approval; provided however, that in the case of GTL, GTL may transfer only to an Affiliate that is 100% owned by GTL and any such transfer shall be subject to the consent of the Managing General Partner, which consent may be granted or withheld in the Managing General Partner's sole discretion. Such transfer to an Affiliate Successor shall not relieve the General Partner of any of its obligations hereunder unless the Affiliate Successor has been adjudged by the Consent of the Disinterested Partners (which consent shall not be unreasonably withheld) to be a Person that has at least such comparable financial strength and technical and managerial capabilities and know-how sufficient for it to perform its duties and obligations hereunder. The Partners hereby consent to any such approved transfer or any transfer to an Affiliate Successor, subject to the provisos set forth above. The Affiliate Successor of a General Partner pursuant to this Section 10.2 shall be admitted to the Partnership as General Partner immediately prior to the effective date of transfer of the General Partner's Partnership Interests and the Affiliate Successor shall continue the business and operations of the Partnership without dissolution provided that prior to such effective date the Affiliate Successor shall have furnished to (a) the Partnership (i) acceptance in form satisfactory to counsel to the Partnership of all the terms and conditions of this Agreement and (ii) such -66- 72 other documents or instruments as may be required by such counsel in order to effect such transfer and (b) to the other Partners an opinion of counsel to the effect that such transfer will not adversely affect the tax status of the Partnership. Such opinion will not be deemed furnished until approved by the Consent of the Partners, which consent will not be unreasonably withheld. The transferring General Partner hereby further agrees to hold the Partnership and each other Partner wholly and completely harmless from any cost, liability or damage (including, without limitation, liabilities for income taxes and costs of enforcing this indemnity) incurred by any of such indemnified Persons as a result of a transfer or attempted transfer by it in violation of this Agreement. (a) Notwithstanding anything to the contrary contained herein, a General Partner will not take any action which would constitute or result in the transfer of control of the Partnership if such transfer would require, under existing law (including, without limitation, the written rules and regulations promulgated by the FCC), the prior approval of the FCC, without first obtaining such approval of the FCC. (b) A General Partner shall diligently prosecute its application for approval of the transfer identified in Section 10.2(b) hereof and shall immediately provide to the FCC all information requested by the FCC in connection with the application. (c) Prior to the FCC's grant of the approval of the transfer application identified in Section 10.2(b) hereof, a General Partner seeking to transfer its Partnership Interests shall continue to act in a manner consistent with the provisions of Article VI of this Agreement. (d) Any transfer by GTL, other than to an Affiliate, shall be further subject to a right of first offer as set forth in Section 10.3(b) hereof fully as though it were a Limited Partner. SECTION 10.3. Transfer of Interests of Limited Partners. (a) Restrictions on Transfers. Except as expressly permitted or required by this Agreement or by the Limited Partner's Subscription Agreement, absent a Change of Control, as defined below, no Limited Partner shall transfer all or any portion of its Partnership Interests or any rights therein within the three year period following March 23, 1994 without the consent of the General Partners acting through the Committee -67- 73 (which consent shall not be unreasonably withheld or delayed), and provided that if such consent is given, any such transfer shall be subject to Section 10.3(b) and (c) hereof; provided, however, that a Limited Partner may transfer any or all of its Partnership Interests to an Affiliate of such Limited Partner without such approval. Any transfer or attempted transfer by any Limited Partner in violation of the preceding sentence shall be null and void and of no effect whatsoever. Each Limited Partner hereby acknowledges the reasonableness of the restrictions on transfer imposed by this Agreement in view of the Partnership purposes and the relationship of the Partners. Accordingly, the restrictions on transfer contained herein shall be specifically enforceable. Each Limited Partner hereby further agrees to hold the Partnership and each Partner (and each Partner's successors and assigns) wholly and completely harmless from any cost, liability, or damage (including, without limitation, liabilities for income taxes and costs of enforcing this indemnity) incurred by any of such indemnified Persons as a result of a transfer or an attempted transfer in violation of this Agreement. As used in this Section 10.3, a "Change of Control" shall be deemed to have occurred if (i) any person or group (as defined in Section 13(d)(3) of the Exchange Act) shall have acquired ownership of a majority of the voting stock of Loral SpaceCom, or (ii) Loral SpaceCom shall no longer be in control, directly or indirectly, of LQSS. (b) Rights of First Offer. Except as expressly permitted or required by this Agreement or by the Limited Partner's Subscription Agreement, absent a Change of Control, no Limited Partner shall transfer any or all of its Partnership Interests unless the Limited Partner desiring to make the transfer (the "Transferor") shall have first made the offers to sell to the other Partners and, as hereinafter provided, to the Partnership (the "Offerees") and such offers shall not have been accepted. (i) Copies of the Transferor's offer (the "Offer Notice") shall be given to the Offerees and shall consist of an offer to sell to the Offerees such number of Partnership Interests (the "Offered Interests") then proposed to be transferred by the Transferor, at a cash price designated by the Transferor ("Stated Price"), upon only customary terms and conditions, representations, warranties, covenants and conditions. (ii) Within 15 days after the receipt of the offer described in Section 10.3(b)(i) above, each Partner Offeree may, at its option, by written notice elect to purchase some -68- 74 or all the Offered Interests, as specified in such notice, provided that in the event of an oversubscription, purchases will be pro rated according to the relative Percentage Interest of all Partners Offerees electing to exercise their rights of first offer, subject to the 20% ownership limitation set forth in Section 4.12 hereof. The Partner Offerees shall exercise such option by giving notice thereof to the Transferor within such 15-day period. The Partnership will promptly inform each Partner Offeree in the event that fewer than all of the Offered Interests are subscribed for, and each Partner Offeree may, within 48 hours thereafter, increase the amount of its requested maximum subscription. (iii) Within 10 days after the expiration of the Partners' exercise period set forth in Section 10.3(b)(ii), if the Partners choose not to exercise all their rights of first offer under Section 10.3(b)(ii), the Partnership may, at its option, with the Consent of the Partners, elect to purchase some or all of the remaining Offered Interests, unless it shall have refused a request to waive the provisions of Section 4.12 with respect to a proposed purchase by one or more Limited Partners pursuant to Section 10.3(b)(ii) above. The Partnership shall exercise such option by giving notice thereof to the Transferor within such 10-day period. (iv) If the Transferor's offer shall not be fully subscribed by the Partners and/or the Partnership at the end of the twenty-five day period described above, the Transferor shall terminate its offer to the Offerees on the twenty-sixth day after receipt by the Offerees of the Transferor's Offer Notice (the "Termination Date") and the Transferor shall be free to solicit offers for its Offered Interests from third parties for a period of three months following the Termination Date; provided, however, that the Transferor shall not offer the Offered Interests at a price that is less than 95% of the Stated Price, and provided further that if the sale to the third party is other than entirely for cash on terms described in clause (a) above, the Transferor shall certify to each of the other Partners as to the cash value of any noncash consideration. In the event that the Transferor shall have offered the Offered Interests to third parties at a price that is less than 95% of the Stated Price or the three month period shall have lapsed and no bona fide sale of the Offered Interests shall have been made by the Transferor to a third party, the restrictions provided for herein shall again become -69- 75 effective, and no transfer of Offered Interests may be made thereafter without again offering the same in accordance with this Section 10.3. (v) The above-described right of first offer will apply following any public offering of Partnership Interests, provided that once the Partners shall have declined to accept an offer at the then-prevailing market price of the Partnership Interests, the Transferor shall have the right to sell at any price equal to or in excess of 95% of the prevailing market price at the time it is permitted to sell hereunder. (c) Permitted Transfers of Limited Partner Interests. Sections 10.3(a) and (b) hereof shall not apply to any transfer by a Limited Partner of all or any portion of its Partnership Interests to any Affiliate of such Limited Partner and will not apply to any of the transactions contemplated by such Memorandum of Agreement, dated as of January 1, 1995, by and between AirTouch and Loral Corporation, a New York corporation. Prior to such transfer, such Affiliate shall affirm in writing that it shall be subject to the terms and conditions of this Agreement and, if such Affiliate is not controlled by the Limited Partner transferring its Partnership Interest, the Person who controls such Affiliate shall agree in writing not to transfer control of such Affiliate for so long as such Affiliate remains a Limited Partner. If the Limited Partner transferring its interest controls such Affiliate, the Limited Partner hereby agrees that it shall not transfer control of such Affiliate for so long as such Affiliate remains a Limited Partner. SECTION 10.4. Certain Transfers. (a) Change of Control. A Partner, substantially all of whose assets shall consist of Partnership Interests of the Partnership, shall not offer to sell its securities, or permit its securities or the securities of any controlling Affiliate to be sold, to another party if such sale would result in a "Change in Control" of that Partner until and unless such Partner shall have first made a right of first offer with respect to such securities to the other Partners and the Partnership in the same manner as that set forth in Section 10.3(a)-(b) above. For purposes of this paragraph, a "Change of Control" shall be defined as the acquisition of a majority of the voting stock or analogous equity interest of a Partner by a party other than an Affiliate of the Partner. -70- 76 (b) Pre-Approved Transfers. The provisions of Section 10.3(a) and (b) shall not apply to any transfer of Partnership Interests contemplated by Schedule X to the Subscription Agreements. (c) Prior to the third anniversary of the Global Service Date, LQSS (i) will not withdraw, (ii) will not permit LQSS to be controlled by any Person other than Loral SpaceCom and (iii) will not, and will not permit any of its Affiliates to sell, assign or otherwise transfer securities or Partnership Interests such that, immediately following such transfer, Loral SpaceCom's direct and indirect interest in the Partnership is reduced to less than 23% of the total number of Partnership Interests outstanding. Thereafter, unless it shall have received the Consent of the Disinterested Partners, Loral SpaceCom's interest in the Partnership held through a General Partner (including GTL for so long as there has been no GTL Change of Control), whether direct or indirect, shall not be reduced to less than 15% of the total number of Partnership Interests outstanding. ARTICLE XI. ADMISSION OF SUBSTITUTE PARTNERS SECTION 11.1. Admission of Successor Limited Partner. (a) A transferee of a Limited Partner's Partnership Interest shall not be admitted to the Partnership as a substituted Limited Partner, until the transferee shall have furnished the Partnership with an agreement, in form reasonably satisfactory to the Partnership, to be bound by all the terms and conditions of this Agreement and such other documents or instruments as may be required by the Partnership in order to effect such transferee's admission as a Limited Partner. Prior to the time that any transferee of Partnership Interests is admitted to the Partnership as a Partner, it will have only the rights of a transferee under Delaware law, shall have no right to require any information or account of the Partnership transactions constituting Confidential Information or to inspect the Partnership's books. (b) Any transferee of a Limited Partner's Partnership Interest who meets the requirements of subsection (a) may be admitted as a substituted Limited Partner in the Committee's sole discretion. (c) For a transferee of a Limited Partner's Partnership Interest to be admitted as a substituted Limited -71- 77 Partner under subsection (d) or (e) below, the transferee must deliver to the Partnership an opinion of counsel, addressed to the Partnership and in form and substance satisfactory to the Partnership, to the effect that, assuming the Partnership has the corporate characteristic of free transferability of interests and that the transferee is admitted as a substituted Limited Partner, the Partnership would be classified as a partnership for federal income tax purposes and would not be classified as an association taxable as a corporation. (d) Any transferee of a Limited Partner's Partnership Interest who meets the requirements of subsections (a) and (c) and who is an Affiliate of the transferor will be admitted as a substituted Limited Partner. (e) Any transferee of a Limited Partner's Partnership Interest who meets the requirements of subsections (a) and (c) will be admitted as a substituted Limited Partner with the consent of the Committee, which consent will not be unreasonably withheld. SECTION 11.2. Admission of Successor General Partner. A successor General Partner selected pursuant to Section 12.1 or the transferee of or successor to the entire Partnership Interest of a General Partner pursuant to Section 10.2 shall be admitted to the Partnership as a General Partner, effective immediately prior to the withdrawal of the withdrawing General Partner and upon the receipt of proper FCC approval pursuant to Section 10.2(b), and shall continue the business of the Partnership without dissolution. Notwithstanding the foregoing, the provisions of Section 11.1 shall govern the admission of a transferee in a transfer resulting in a GTL Change of Control or a Reduction in Interest as though GTL were a Limited Partner. The successor General Partner shall furnish to the Partnership (a) acceptance in form satisfactory to counsel to the Partnership of all the terms and conditions of this Agreement and (b) such other documents or instruments as may be required by such counsel in order to effect its admission as a General Partner. No such admission shall be effected until the General Partner delivers to the Partnership an opinion of counsel, addressed to the Partnership and its Partners to the effect that such admission will not adversely affect the tax status of the Partnership. Such opinion will not be deemed delivered until approved by the Consent of the Disinterested Partners, which consent will not be unreasonably withheld. Any transferee of less than all of the Partnership Interests of a General Partner pursuant to Section 10.2 shall have only the rights of an assignee under Delaware law, shall have no right to require any information or account of the Partnership transactions constituting Confidential Informa- -72- 78 tion or to inspect the Partnership's books and shall not be admitted to the Partnership as a successor General Partner. SECTION 11.3. Amendment of Agreement and of Certificate of Limited Partnership. For the admission to the Partnership of any successor Partner, the Partnership shall take all steps necessary and appropriate to prepare and record or file as soon as practicable an amendment of this Agreement and the Certificate of Limited Partnership and may for this purpose exercise the power of attorney granted pursuant to Section 1.4. ARTICLE XII. WITHDRAWAL OR REMOVAL SECTION 12.1. Withdrawal or Removal of the General Partners. (a) Any transfer by a General Partner of all of its Partnership Interests as a General Partner pursuant to Section 10.2 or the conversion of all of its Partnership Interests pursuant to the Exchange and Registration Rights Agreement shall constitute the withdrawal of the General Partner for purposes of, and may be effected only in accordance with, this Section 12.1 and in the case of GTL, shall be further subject to the provisions of Section 6.3 and in the case of LQSS, 10.4(c) hereof. A General Partner may not withdraw from the Partnership as General Partner unless it gives at least 90 days prior written notice of such withdrawal to the other Partners, such withdrawal shall have been approved by Consent of the Disinterested Partners and a successor General Partner shall have been elected by Consent of the Disinterested Partners; provided, however, that such transfer shall not relieve the General Partner of any of its obligations hereunder unless the transferee has been adjudged by the Consent of the Disinterested Partners (which consent shall not be unreasonably withheld) to be a Person that has at least such comparable financial strength and technical and managerial capabilities and know-how sufficient for it to perform its duties and obligations hereunder and it has assumed all preexisting liabilities and obligations of the General Partner. The notice and election described above shall not be required in connection with a withdrawal resulting from a transfer of all of the General Partner's Partnership Interest to an Affiliate Successor, but the General Partner shall not be relieved of any of its obligations hereunder without the Consent of the Disinterested Partners required under the third sentence of Section 10.2(a). (b) A General Partner may be removed if such removal is for Nonperformance and if such removal is approved with the Consent of the Disinterested Partners. Such removal shall be -73- 79 effective immediately subsequent to the admission of the successor general partner who shall be subject to the qualifications of Section 12.1(a) hereto. The right to remove a General Partner shall not exist or be exercised unless the Partnership has received an opinion of counsel (which may be counsel selected by Consent of the Disinterested Partners) that the removal of the General Partner and the selection of a successor general partner (a) would not cause the loss of limited liability pursuant to Delaware law of the Limited Partners under this Agreement, and (b) would not cause the Partnership to be treated as an association taxable as a corporation for federal income tax purposes. (c) A General Partner will be discharged from, and the Partnership or any Person or Persons continuing the business of the Partnership in the event it has dissolved, shall assume and pay, as they mature, all Partnership obligations and liabilities that exist on the date of a General Partner's removal or Approved Withdrawal from the Partnership and, except as otherwise expressly provided herein, will hold the General Partner harmless from any action or claim arising or alleged to arise from such assumed obligations and liabilities accruing after such date. The Partnership or any such Person or Persons continuing the business of the Partnership will promptly pay all creditors as of such date or notify such creditors (i) of the withdrawal or removal of such General Partner, as the case may be, (ii) of the discharge of such General Partner from all of the Partnership's obligations and liabilities, and (iii) of the assumption thereof by the Partnership or such Person or Persons continuing the business of the Partnership. The Partnership or such Person or Persons continuing the business of the Partnership if the Partnership has dissolved will use reasonable efforts to procure and execute an agreement from creditors of the Partnership discharging such General Partner from liability to such creditors as of the date of such removal or Approved Withdrawal of such General Partner. Nothing contained in this Section 12.1 shall relieve a General Partner of any liability it may have as of the date of its withdrawal under Section 6.11(b). As used in this Section 12.1(c), the term "Approved Withdrawal" shall mean a withdrawal of a General Partner following the election of a successor General Partner by Consent of the Disinterested Partners pursuant to the second sentence of Section 12.1(a) and approval by Consent of the Disinterested Partners of such successor General Partner's financial strength and technical and managerial -74- 80 capabilities and know-how pursuant to the proviso to the second sentence of Section 12.1(a) or, in the case of an Affiliate Successor, approval by Consent of the Disinterested Partners of such Affiliate Successor's financial strength and technical and managerial capabilities and know-how pursuant to the third sentence of Section 10.2(a). (d) Upon such removal, and the election of a successor General Partner, the interest of a General Partner in the Partnership shall be converted into limited Partnership Interests, provided that, no representative of such Limited Partner will be entitled to a vote with respect to such Partnership Interests to the extent the voting thereof is controlled by Loral SpaceCom pursuant to Section 6.4 of the LQSS Partnership Agreement. SECTION 12.2. Right of the Managing General Partner to Become a Limited Partner. The Managing General Partner may become a Limited Partner by either (i) converting some but not all of its Partnership Interests to limited Partnership Interests or (ii) acquiring limited Partnership Interests and thereby become entitled to all of the rights of a Limited Partner to the extent of the limited Partnership Interest so converted or acquired, and the Consent of the Partners need not be obtained. Such event shall not be deemed to reduce any of the Managing General Partner's liability hereunder and will not prevent the Managing General Partner from continuing to act as a General Partner. Any transfer by the Managing General Partner of such limited Partnership Interests shall be subject to the provisions of Section 10.2(b)-(d). The Managing General Partner's Capital Contribution referred to in Section 4.1 hereof will be made in its capacity as General Partner and such Capital Contribution will not entitle the Managing General Partner to any rights of a Limited Partner, including those set forth in Article VII hereof. SECTION 12.3. Withdrawal of Limited Partner. A Limited Partner who shall have withdrawn from the Partnership shall have no further rights hereunder. ARTICLE XIII. DISSOLUTION AND LIQUIDATION SECTION 13.1. Dissolution. The Partnership shall dissolve upon: (a) December 31, 2044; (b) the withdrawal of a General Partner, or any other event that results in its ceasing to be a General Partner such as the removal, bankruptcy or dissolution of the General Partner (other than by reason of a transfer pursuant to Section 10.2 or withdrawal effective following selection of a successor pursuant -75- 81 to Section 12.1) unless at the time LQSS or a successor to LQSS remains a general partner of the Partnership; (c) a sale of all or substantially all of the assets of the Partnership; (d) the bankruptcy or the dissolution (and commencement of winding up) of the Managing General Partner; (e) any other event that under the Delaware Act would cause its dissolution, except as otherwise provided herein; or (f) with the Consent of the Partners, as set forth in Section 6.2(b)(v). For purposes of this Section 13.1, bankruptcy of the Managing General Partner shall be deemed to have occurred when (i) it commences in good faith and under appropriate circumstances a voluntary proceeding or files in good faith and under appropriate circumstances an answer or other pleading admitting or failing to contest the material allegations of a petition filed against it in any involuntary proceeding, which voluntary or involuntary proceeding seeks a liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect, (ii) it is adjudged bankrupt or insolvent, or has entered against it a final and non-appealable order for relief under any bankruptcy, insolvency or similar law now or hereafter in effect, (iii) it executes and delivers a general assignment for the benefit of its creditors, (iv) it seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator for it or for all or any substantial part of its properties, or (v) (1) any proceeding of the nature described in clause (i) above has not been dismissed 120 days after the commencement thereof or (2) the appointment without its consent or acquiescence of a trustee, receiver or liquidator appointed pursuant to clause (ii) above has not been vacated or stayed within 90 days of such appointment, or (3) such appointment is not vacated within 90 days after the expiration of any such stay. SECTION 13.2. Continuation of the Business of the Partnership after Dissolution. To the extent permitted by the Delaware Act, upon dissolution of the Partnership in accordance with Section 13.1(b), (d) or (e), the remaining Partners may elect to reconstitute the Partnership and continue its business on the same terms and conditions set forth in this Agreement if holders of a majority of the outstanding PPIs and a Majority in Interest of the Partners agree in writing (1) to continue the business of the Partnership and (2) to the appointment, if -76- 82 necessary, effective as of the date of withdrawal, of a successor Managing General Partner. Unless such an election is made within 90 days after dissolution, the Partnership shall conduct only activities necessary to wind up its affairs. If such an election is made within 90 days after dissolution, then: (a) the reconstituted Partnership shall continue unless earlier dissolved in accordance with this Article XIII; and (b) all necessary steps shall be taken to cancel this Agreement and the Certificate of Limited Partnership and to enter into a new partnership agreement and certificate of limited partnership, and the successor Managing General Partner or GTL, as the case may be, may for this purpose exercise the powers of attorney granted pursuant to Section 1.4 or such similar provision in the new partnership agreement. SECTION 13.3. Winding Up and Liquidation. (a) Upon dissolution of the Partnership other than pursuant to Section 6.13, unless the Partnership is continued under an election to reconstitute and continue the Partnership pursuant to Section 13.2, the Managing General Partner or, in the event the Managing General Partner has been dissolved or removed, has become bankrupt as defined in Section 13.1 or has withdrawn from the Partnership, a liquidator or liquidating committee selected by Consent of the Partners, shall be responsible for the winding up of the affairs of the Partnership and the distribution of its assets. The Person or Persons who assume such responsibility (whether they be the Managing General Partner or not) are referred to herein as the "Liquidator." In connection with a winding up of the affairs of the Partnership, the Liquidator shall cause an accounting to be made of the assets and liabilities of the Partnership. If any liability is contingent or uncertain in amount, a reserve will be established in such amount as the Liquidator deems reasonably necessary. Upon satisfaction or other discharge of such contingency, the amount of the reserve not required, if any, will be distributed as provided in this Section 13.3. (b) The Liquidator (if other than the Managing General Partner) shall be entitled to receive such compensation for its services as may be approved by Consent of the Partners. The Liquidator shall agree not to resign at any time without fifteen (15) days' prior written notice and (if other than the Managing General Partner) may be removed at any time, with or without cause, by notice of removal signed by Consent of the Partners. Upon dissolution, removal or resignation of the Liquidator, a -77- 83 successor and substitute Liquidator (who shall have and succeed to all rights, powers and duties of the original Liquidator) shall within thirty (30) days thereafter be selected by Consent of the Partners. The right to appoint a successor or substitute Liquidator in the manner provided herein shall be recurring and continuing for so long as the functions and services of the Liquidator are authorized to continue under the provisions hereof, and every reference herein to the Liquidator will be deemed to refer also to any such successor or substitute Liquidator appointed in the manner herein provided. Except as expressly provided in this Article XIII, the Liquidator appointed in the manner provided herein shall have and may exercise, without further authorization or consent of any of the parties hereto, all of the powers conferred upon the Committee under the terms of this Agreement (but subject to all of the applicable limitations, contractual and otherwise, upon the exercise of such powers) to the extent necessary or desirable in the good faith judgment of the Liquidator to carry out the duties and functions of the Liquidator hereunder for and during such period of time as shall be reasonably required in the good faith judgment of the Liquidator to complete the winding up and liquidation of the Partnership as provided for herein. (c) The Liquidator shall liquidate the assets of the Partnership, and apply and distribute the proceeds of such liquidation in the following order of priority, unless otherwise required by mandatory provisions of applicable law: (i) to the payment of Partnership creditors, including Partners in respect of loans or guaranteed payments, in order of priority provided by law; (ii) to the establishment of reasonable reserves for contingencies; and (iii) to the Partners in proportion and to the extent of the positive balances in their respective Capital Accounts (determined after applying the provisions of Article V). (d) The Liquidator shall be authorized to sell any, all or substantially all of the assets of the Partnership for deferred payment obligations, and to hold, collect and otherwise administer any such obligations or any other deferred payment obligations held or acquired as assets of the Partnership, regardless of the terms of such obligations. -78- 84 (e) A reasonable time, including, without limitation, any time required to collect deferred payment obligations, shall be allowed for the orderly liquidation of the assets of the Partnership and the discharge of liabilities to creditors so as to enable the Liquidator to minimize the normal losses attendant upon the liquidation. Upon the Liquidator's compliance with the foregoing distribution plan, the Partners shall execute, acknowledge, swear to and cause to be filed a Certificate of Cancellation of the Partnership. Except as otherwise expressly provided herein, the General Partners shall not be personally liable for the return of the original investment or contributions of the Limited Partners, or any portion thereof. Any such return shall be made solely from Partnership assets and in accordance with the express provisions hereof. (f) If, in the process of collecting any deferred payment obligation generated by a sale of assets of the Partnership, the Partnership reacquires any such assets, and if, at such time, there is a Managing General Partner and the same so determines, the Partnership shall be reconstituted with the Consent of the Partners upon the terms and conditions hereof. SECTION 13.4. Cancellation of Certificate of Limited Partnership. Upon the completion of the distribution provided for in Section 13.3, the Partnership shall be terminated, and the Liquidator (or the General Partners and the Limited Partners if necessary) shall cause the cancellation of the Certificate of Limited Partnership and all qualifications of the Partnership as a foreign limited partnership in jurisdictions other than the State of Delaware and shall take such other actions as may be necessary to terminate the Partnership. SECTION 13.5. Return of Capital. Except as otherwise expressly provided herein, the General Partners shall not be personally liable for the return of the Capital Contribution of the Limited Partners, or any portion thereof, it being expressly understood that any such return shall be made solely from Partnership assets. SECTION 13.6. Waiver of Partition. Each Partner hereby waives any rights to partition of Partnership property. SECTION 13.7. Deficit Upon Liquidation. Upon liquidation, the Partners shall not be obligated to the Partnership for any deficit in their Capital Accounts. -79- 85 ARTICLE XIV. AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE SECTION 14.1. Amendments to be Adopted Without Consent of the Partners. The Partnership (pursuant to powers of attorney granted under Section 1.4 hereof), without the Consent of the Partners, may amend any provision of this Agreement, and execute, swear to, acknowledge, deliver, file and record whatever documents may be required in connection therewith, to reflect: (a) a change in the name of the Partnership approved with the Consent of the Partners or a change in the location of the principal place of business of the Partnership; (b) a change that the Partnership, based upon the opinion of outside counsel, furnished to all the Partners, has determined to be reasonable and necessary or advisable (i) to qualify or continue the qualification of the Partnership as a limited partnership or a partnership in which the limited partners have limited liability under the laws of any state or (ii) to ensure that the Partnership will not be treated other than as a partnership for federal income tax purposes; (c) a change (i) that the Partnership, based upon the opinion of outside counsel, furnished to all the Partners, has determined is necessary or desirable to satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of any federal or state agency or judicial authority or contained in any federal or state statute, compliance with any of which the Partnership deems to be in the best interests of the Partners, or (ii) that is expressly required or expressly contemplated by this Agreement or is otherwise herein expressly permitted to be made by the Partnership; (d) immaterial amendments to correct any mistake or clear omission or to reflect the surrender of any rights or the assumption of any additional responsibilities by the General Partners; or (e) any amendment necessary to give effect to the issuance and sale of Additional Partnership Interests permitted by Sections 4.4 and 4.10 hereof or to give effect to the admission of any Additional Limited Partners pursuant thereto, including such amendments to Article V hereof as are necessary to give effect to any allocations of Income or Loss to the holder of such Additional Partnership Interests and any distributions to be -80- 86 made to such holders and do not adversely affect the other Partners. SECTION 14.2. Amendment Procedures. Except as provided in Section 14.1, all amendments to this Agreement shall be made in accordance with the following requirements. Subject to Sections 6.2(b)(i) and 14.1, any proposed amendment shall be effective only upon the consent of the Committee and the Consent of the Partners, provided, that no amendment adversely affecting the capital account or other economic rights of any Partner shall be made without such Partner's consent. Promptly after the adoption of an amendment to this Agreement as provided hereunder, the Partnership shall forward a copy of such amendment to each Partner. ARTICLE XV. GENERAL PROVISIONS SECTION 15.1. Addresses and Notices. The address of each Partner for all purposes shall be the address as set forth on the signature page of this Agreement or such other address of which each other Partner has received written notice. All notices, requests, demands and other communications required or permitted to be given under this Agreement shall be sent to the party to whom the notice is to be given, by telex, fax (confirmed by first class mail, postage prepaid), telegram or first class mail, postage prepaid and properly addressed as provided in this Agreement (in each case such notice shall be deemed to have been duly given on the day the notice is first received by that party) or to such other address or Person as may be designated by a party, by notice given in accordance with this Section. SECTION 15.2. Titles and Captions. All article or section titles or captions in this Agreement are for convenience only. They shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions hereof. Except as specifically provided otherwise, references to "Articles" and "Sections" are to Articles and Sections of this Agreement. SECTION 15.3. Pronouns and Plurals. Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa. -81- 87 SECTION 15.4. Further Action. (a) The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement. (b) At any time or times, upon the request of the Partnership, the Partners hereby agree to sign and swear to any certificate required by Delaware or other applicable law, to sign and swear to any amendment to or cancellation of any such certificate whenever such amendment or cancellation is required by or appropriate under law, to sign and swear to or acknowledge similar certificates or affidavits or certificates of fictitious firm name, trade name or the like (and any amendments or cancellations thereof) required by or appropriate under the laws of Delaware or any other jurisdiction in which the Partnership does or proposes to do business, and cause the filing of any of the same for record wherever such filing shall be required by law. SECTION 15.5. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns. SECTION 15.6. Integration. This Agreement together with the Subscription Agreement entered into by each Partner or the assignor of its Partnership Interests and the Mutual Non-Disclosure Agreement dated January 11, 1994, entered into by and among the Partnership and certain of its Partners (the "Mutual Non-Disclosure Agreement"), constitutes the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements and understandings pertaining thereto. SECTION 15.7. Creditors. None of the provisions of this Agreement shall be for the benefit of or enforceable by any creditors of the Partnership. SECTION 15.8. Waiver. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition. SECTION 15.9. Counterparts. This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or -82- 88 the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto independently of the signature of any other party. SECTION 15.10. Dispute Resolution. (a) The Parties shall attempt to resolve by good faith and diligent negotiation any dispute, controversy or claim between them arising out of or relating to this Agreement, or the breach, termination or invalidity thereof. If such negotiations are not concluded within 30 days of a Party's request for negotiations, a Party may (other than with respect to a controversy arising pursuant to Section 12.1 hereof) initiate arbitration as provided for below. (b) International Arbitration. Any dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity thereof, that involves a non-U.S. Party and that has not been amicably resolved pursuant to the procedures of Section 15.10(a), shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules as at present in force. The language of the arbitration proceedings shall be English. The number of arbitrators shall be one. If such an international arbitration is initiated by the Partnership, the place of arbitration shall be Geneva, Switzerland, the appointing authority shall be the Chamber of Commerce and Industry of Geneva; and any arbitrator appointed by the appointing authority shall be a retired Swiss federal or cantonal judge of a federal or cantonal court of general jurisdiction or any court having appellate jurisdiction over such a court. If the arbitration is initiated by GTL or the Limited Partners, the place of arbitration shall be New York, New York; the appointing authority shall be the American Arbitration Association; and any arbitrator appointed by the appointing authority shall be a retired United States federal judge or a retired state court judge of a federal or state court of general jurisdiction or any court having appellate jurisdiction over such a court. (c) U.S. Arbitration. Any dispute, controversy or claim arising out of or related to this Agreement, or the breach, termination or invalidity thereof, that involves only U.S. Parties and that has not been amicably resolved pursuant to the procedures of Section 15.10(a), shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules as at present in force. The language of the arbitration proceedings shall be English. The number of arbitrators shall be one. If the arbitration is initiated by the Partnership, the place of arbitration shall be San Francisco, California. If the arbitration is initiated by the Limited Partners, the place of arbitration shall be New York, New York. The appointing authority shall be the American Arbitration -83- 89 Association. Any arbitrator appointed by the appointing authority shall be a retired United States federal judge or a retired state court judge of a federal or state court of general jurisdiction or any court having appellate jurisdiction over such a court. (d) Resolution of Common Issues. If at any time there is pending an arbitration under this Section 15.10 and such arbitration involves one or more significant issues of law or fact the resolution of which a Partner desires binding on some or all its Partners, the Partnership may give written notice to such Partners identifying the issue of law or fact the resolution of which the Partnership desires to be so binding and inviting each Partner to join in such arbitration as provided in this Section 15.10(d). Each Partner which shall have received such a notice shall have the right (but shall not be obligated) to become a party to such arbitration for the limited purpose of the resolution of such issue of law or fact. The arbitrator in such arbitration may supplement and alter the UNCITRAL Rules in their application to such arbitration as may be necessary or appropriate to accommodate the multi-party nature of the arbitration and to ensure the just, expeditious, economical and final determination of the dispute. The award in any such arbitration shall be final and binding, as to resolution of the issues of fact and law decided therein and identified in the notice from the Partnership given pursuant to this Section 15.10(d), on all of the Partners who were given notice of such arbitration and an opportunity to participate as parties therein, whether or not they participated in such arbitration. (e) Enforcement. Arbitral awards under this Section 15.10 shall be final and binding, and shall be enforceable in any court having jurisdiction. SECTION 15.11. Applicable Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW. REFERENCES HEREIN TO TEMPORARY OR FINAL TREASURY REGULATIONS ALSO REFER TO CORRESPONDING PROVISIONS OF SUCCESSOR AND SUPERSEDING REGULATIONS. SECTION 15.12. Confidentiality. (a) For purposes of this Agreement, "Confidential Information" shall mean all oral, written and/or tangible technical, financial, business and/or any other information of whatever kind created by the Partnership or disclosed by a Partner or its Affiliate or the Partnership (in any case "Owner") to a receiving party ("Recipient") which is confidential, proprietary and/or not generally available to the public, including, but not limited to, information relating, in -84- 90 whole or in part, to present and future services related to the Partnership's business, business plans and strategies, marketing ideas and concepts, pricing, volume estimates, financial data, market testing information, development plans, specifications, configurations, designs, plans, drawings, apparatus, sketches, software, hardware, data, connecting requirements or other technical and business information. Confidential Information provided by Owner shall remain the sole and exclusive property of Owner. (b) During the term of this Agreement, and until the fifth anniversary of the termination thereof, or in the event of the transfer by a Partner of all of its Partnership Interests prior to the termination of this Agreement, until the fifth anniversary of such transfer, Confidential Information: (i) shall be treated in confidence by Recipient and shall be used only for purposes of Recipient's performance of its obligations under this Agreement, or any other written agreement between Owner and Recipient entered into subsequent to the Effective Date or the GTL Effective Date, as the case may be, in connection with the Partnership's business; (ii) shall not be reproduced or copied in whole or in part, except as necessary for use as authorized herein; and (iii) shall be disseminated only to those of its and its Affiliates' employees, agents and subcontractors who have a need to know it (and such employees, agents and subcontractors shall be advised of the obligations assumed herein). Recipient shall ensure by appropriate procedures that those employees, agents and subcontractors to whom Confidential Information is disseminated or disclosed treat such Confidential Information in confidence pursuant to this paragraph. (c) Notwithstanding the foregoing, information shall not be deemed Confidential Information and Recipient shall have no obligation with respect to any such information which: (i) is or was in the possession of the Recipient at the time of disclosure by Owner, and was not previously acquired by the Recipient directly or indirectly from Owner under an obligation to keep such information confidential; or (ii) is or becomes publicly known, through no negligence or other wrongful act of Recipient; or -85- 91 (iii) is received by Recipient from a third party having, to the best knowledge of the Recipient, a lawful right to disclose, subject to, as to disclosed information, any restriction as to use, imposed by such third party; or (iv) is independently developed by Recipient, as evidenced by its records. (d) Upon the termination of this Agreement, or upon a transfer by a Partner of its Partnership Interest, written Confidential Information will be returned to Owner or destroyed immediately upon the request of Owner, and no copies, extracts or other reproductions shall be retained by Recipient. All documents, memoranda, notes and other writings whatsoever prepared by Recipient which contain the Confidential Information shall be returned to Owner or destroyed at Owner's request. The redelivery or destruction of such materials shall not relieve Recipient of its obligation of confidentiality or other obligations hereunder. (e) If Recipient (or its Affiliate) is required by order of any competent authority (by oral questions, interrogatories, directions, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any Confidential Information, Recipient will promptly notify Owner of such order or requirement and shall cooperate with Owner in seeking appropriate protective arrangements requested by Owner. If, in the absence of a protective order or the receipt of a waiver hereunder, Recipient (or any of its Affiliates) is in the written opinion of Recipient's counsel compelled to disclose the Confidential Information or else stand liable for contempt or suffer other censure or significant penalty, Recipient (or its Affiliate) may disclose only so much of the Confidential Information to the authority compelling disclosure as is required by law. Recipient will exercise (and will cause its Affiliate to exercise) reasonable efforts to obtain appropriate protective arrangements or other reliable assurance that confidential treatment will be accorded to Confidential Information. (f) The terms and conditions of this Agreement and all exhibits, attachments and amendments hereto and thereto shall be considered Confidential Information protected under this Section 15.12. (g) Notwithstanding anything in this Section 15.12 to the contrary, in the event that any Confidential Information is also subject to a limitation on disclosure or use contained in another written agreement between Owner and Recipient which is -86- 92 more restrictive than the limitations contained in this Section 15.12, then the limitation in such agreement shall supersede this Section 15.12. (h) The Partners hereby agree that within six months of the date of this Agreement, they shall conform the provisions set forth in this Section 15.12 with those contained in the Mutual Non-Disclosure Agreement and any other agreement relating to confidentiality that may be in effect among the parties hereto. SECTION 15.13. Invalidity of Provisions. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby, unless the effect would be to materially and adversely affect the economic rights of any Partner. -87- 93 IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed and delivered by this respective duly authorized officer as of the day and year first above written. LORAL/QUALCOMM SATELLITE SERVICES, L.P. by LORAL/QUALCOMM PARTNERSHIP, L.P. its General Partner by LORAL GENERAL PARTNER, INC. its General Partner By:/s/Eric J. Zahler -------------------------------------- Name: Eric J. Zahler Title: Vice President GLOBALSTAR TELECOMMUNICATIONS LIMITED By:/s/Eric J. Zahler -------------------------------------- Name: Eric J. Zahler Title: Vice President Limited Partners: AIRTOUCH SATELLITE SERVICES, INC. DACOM CORPORATION DACOM INTERNATIONAL, INC. HYUNDAI CORPORATION HYUNDAI ELECTRONICS INDUSTRIES CO., INC. LORAL/DASA GLOBALSTAR, L.P. LORAL SPACE & COMMUNICATIONS LTD. SAN GIORGIO S.p.A. TELESAT LIMITED TE.SA.M VODAFONE SATELLITE SERVICES LIMITED By: LORAL/QUALCOMM SATELLITE SERVICES, L.P. by LORAL/QUALCOMM PARTNERSHIP, L.P. its General Partner by LORAL GENERAL PARTNER, INC. its General Partner By:/s/Eric J. Zahler -------------------------------------- Name: Eric J. Zahler as Attorney-in-Fact -88- 94 Addresses for Notices of Limited Partners: AIRTOUCH SATELLITE SERVICES, INC. One California Street San Francisco, CA 94105 DACOM CORPORATION DACOM Building 65-228 3 Ka. Hangang-Ro Yongson-ku Seoul, Korea DACOM INTERNATIONAL, INC. DACOM Building Kukje Elec. Center Seochu Ku, Seoul 137 070 Korea HYUNDAI CORPORATION Hyundai-Jeonja Building #1003 66 Chuckseon-Dong, Chongro-Ku Seoul, Korea 110-052 HYUNDAI ELECTRONICS INDUSTRIES CO., LTD. Hyundai-Jeonja Building #1003 66 Chuckseon-Dong, Chongro-Ku Seoul, Korea 110-052 LORAL/DASA GLOBALSTAR, L.P. 3825 Fabian Way Palo Alto, CA 94303 LORAL SPACE & COMMUNICATIONS LTD. 600 Third Avenue 38th Floor New York, N.Y. 10016 -89- 95 SAN GIORGIO S.p.A. Viale Maresciallo Pilsudski 92 00197 Roma, Italy TELESAT LIMITED c/o ChinaSat 42 Xue Yuan Road Beijing, China 10083 T.E.SA.M. 66, Avenue du Maine 75014 Paris, France VODAFONE SATELLITE SERVICES LIMITED The Courtyard 2-4 London Road Newbury, Berkshire RG13 1JL United Kingdom -90- 96 SCHEDULE A SCHEDULE OF PARTNERS Initial Capital Interests Currently Partner Contribution* Held - ------- ------------- ---- LQSS $50,000,000 18,000,000 OPIs $326,956,000** 15,338,533 OPIs see Footnote No. 1A 4,904,060 OPIs GTL see Footnote No. 1B 7,000,000 PPIs AirTouch Satellite Services $37,500,000 3,000,000 OPIs DACOM International see Footnote No. 2 90,000 OPIs Hyundai Corporation see Footnote No. 2 183,000 OPIs Hyundai Electronics see Footnote No. 2 1,281,000 OPIs Loral/DASA Globalstar, L.P. $37,500,000 3,000,000 OPIs Loral Space & Communications Ltd. $37,500,000 7,176,000 OPIs San Giorgio S.A. $18,750,000 610,000 OPIs TE.SA.M $37,500,000 1,830,000 OPIS TeleSat $18,750,000 937,500 OPIs Vodafone Satellite Services Limited $37,500,000 1,830,000 OPIs - ------------------- * Represents initial capital contributions funded by the partners to acquire partnership interests at the outset. ** Includes the net proceeds from GTL's initial public offerings and issuance by GTL of common stock upon the exercise of outstanding warrants and employee stock options as of December 31, 1998. 1A. 4,769,231 PPIs were issued in consideration of the net proceeds from the CPEO Offering; these were subsequently converted into 4,769,231 OPIs. In addition, an interest make-whole payment of 134,829 OPIs were issued in April, 1998 in connection with a provisional redemption of the PPIs. 1B. Issued in consideration of the net proceeds from the Preferred Stock Offering. -91- 97 2. The initial contribution of $37,500,000 was made by the Hyundai/DACOM consortium. -92- 98 SCHEDULE B RELATED PARTY TRANSACTIONS 1. Contract for the Development of Certain Portions of the Ground Operations Control Center between Globalstar and Loral Western Development Laboratories, a division of Loral Aerospace Corp. as outlined in the request for Consent of Disinterested Partners, dated May 2, 1994. 2. Contract for the Development of Satellite Orbital Operations Centers between Globalstar and Loral Aerosys, a division of Loral Aerospace Corp. 3. Office Lease between Globalstar and Loral Western Development Laboratories. 4. Subcontract Providing Work for Hyundai, dated April 29, 1994, between Globalstar, SS/L and Hyundai. 5. Support Agreement (completed), dated August 26, 1994, between Globalstar and AirTouch. -93- 99 SCHEDULE C ARTICLE I Covenants SECTION 1.1. Distributions on PPIs. Cumulative accrued distributions shall be payable on the PPIs as set forth in Section 5.5(a)(ii) and subject to Section 5.5(e) of this Agreement on each Scheduled Distribution Payment Date commencing on May 15, 1999 (or, if such date is not a Business Day, on the next succeeding Business Day). Subject to Section 5.5 of this Agreement, distributions on the PPIs shall occur, as and if designated by the Committee in its sole discretion. Distributions on the PPIs will accrue on a daily basis (360 day year and twelve 30-day months) (without interest or compounding) whether or not the Partnership has earnings or profits, whether or not there are funds legally available for the payment of such distributions and whether or not such distributions are declared. Distribution Arrearages shall not accrue interest. SECTION 1.2. Deferral of Distributions. The Partnership may defer paying Scheduled Distributions on any Scheduled Distribution Payment Date if the Committee so determines in its sole discretion, but so long as any Distribution Arrearage remains outstanding, except as set forth in Section 5.5(a)(iv) of the Partnership Agreement and Section 4.1 of this Schedule C, the Partnership will be prohibited from paying distributions on (i) its OPIs or (ii) preferred partnership interests that may be issued in the future other than pro rata based on the redemption amount of such preferred partnership interests, except for distributions (A) on OPIs consisting solely of OPIs, (B) on securities that rank pari passu or junior to the PPIs, in securities that rank pari passu or junior to the PPIs, respectively, or (C) on securities that rank senior to the PPIs. SECTION 1.3. Payment of Redemption Price and Distributions. (a) The Partnership will duly and punctually pay or cause to be paid by no later than one Business Day prior to the date such payment is due the redemption price of the PPIs, and any applicable additional amounts in accordance with the terms of Sections 2.6, 2.7 and 2.8 of this Schedule C; (b) The Partnership may elect, at its option, to pay the Redemption Price (including any Distribution Make Whole 100 Payment) of, and Scheduled Distributions, on, the PPIs, (i) in cash, (ii) by delivery of OPIs (in the manner described in paragraph (c) of this Section 1.3) or (iii) through any combination of the foregoing as selected by the Committee in its sole discretion. (c) If the Partnership elects to deliver any OPIs in lieu of a cash payment on the applicable date of payment, the Partnership shall deliver, in the aggregate, the number of OPIs equal to (i) the amount of payment that is not being paid in cash, (ii) divided by: (A) in the case of any Scheduled Distributions, Provisional Redemption payment, Distribution Make-Whole Payment, Optional Redemption payment, or portion thereof, 95% of the Average Market Value of the GTL Common Stock; (B) in the case of any Mandatory Redemption payment, or portion thereof, (1) if on the date of such payment the Shelf Registration Statement covers the resale of such shares and is effective or no longer required to be effective, 100% of the Average Market Value of the GTL Common Stock and (2) otherwise, 90% of the Average Market Value of the GTL Common Stock; provided, however, if GTL shall have made a GTL Dividend Payment Notice or a GTL Response Redemption Notice which indicates that GTL shall have elected to make its corresponding payment from the proceeds from the sale of any issuance of GTL Common Stock, then the valuation of the OPIs to be issued by the Partnership pursuant to Section 1.3(c) of this Schedule C shall be based upon the actual price at which such GTL Common Stock is sold. (d) The Partnership shall deliver a Globalstar Distribution Payment Notice to GTL 15 Business Days prior to the applicable record date corresponding to the Scheduled Distribution Payment Date. SECTION 1.4. Certain Accompanying Payments. PPIs surrendered for conversion during the period from the close of business on any Regular Record Date next preceding any Scheduled Distribution Payment Date to the opening of business on such Scheduled Distribution Payment Date (except PPIs called for redemption on a Redemption Date from the close of business on any Regular Record Date to the close of business on the Business Day immediately following the corresponding Scheduled Distribution Payment Date) must be accompanied by payment in cash, OPIs or a combination thereof in an amount equal to the distribution thereon which GTL is entitled to receive; provided, that no payment shall be owed or payable to GTL if the Committee shall have elected to defer the distribution to be made on such Scheduled Distribution Payment Date. No other adjustment for -2- 101 distributions, including any Distribution Arrearages, is to be made upon conversion. ARTICLE II Redemption of PPIs SECTION 2.1. Right of Redemption; Mechanics of Redemption. (a) The PPIs may be redeemed pursuant to (i) a Provisional Redemption (as described in Section 2.6 of this Schedule C, any such Provisional Redemption shall include the Distribution Make-Whole Payment, as well as accrued and unpaid Scheduled Distributions (including an amount equal to a prorated Scheduled Distribution for any period following the immediately preceding Scheduled Distribution Payment Date) and Preferred Stock Liquidated Damages, if any, to the date of such Provisional Redemption)) or (ii) an Optional Redemption (as described in Section 2.7 of this Schedule C, any such Optional Redemption shall include accrued and unpaid Scheduled Distributions (including an amount equal to a prorated Scheduled Distribution for any period following the immediately preceding Scheduled Distribution Payment Date) and Preferred Stock Liquidated Damages, if any, to the date of such Optional Redemption), at the election of the Partnership, in whole or from time to time in part; the PPIs shall be redeemed at the Mandatory Redemption Date, at the Redemption Price specified in Section 2.8, together with accrued and unpaid Scheduled Distributions and Preferred Stock Liquidated Damages, if any, to the Mandatory Redemption Date. (b) The Partnership shall deliver a Globalstar Redemption Notice to GTL not fewer than 40 days nor more than 60 days before any such Redemption Date. SECTION 2.2. Selection by the Managing General Partner of PPIs to be Redeemed. If any PPI selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the PPI so selected, the converted portion of such PPI shall be deemed (so far as may be) to be the portion selected for redemption. PPIs which have been converted during a selection of PPIs to be redeemed shall be treated by the Managing General Partner as Outstanding for the purpose of such selection, but not for the purpose of paying the Redemption Price thereof. For all purposes of this Schedule C, unless the context otherwise requires, all provisions relating to the redemption of PPIs shall relate, in the case of any PPIs redeemed or to be -3- 102 redeemed only in part, to the portion of the redemption amount of such PPI which has been or is to be redeemed. SECTION 2.3. Notice of Redemption. Whenever a Globalstar Redemption Notice is required to be delivered to GTL, such Notice shall state: (1) the Redemption Date; (2) the Redemption Price and the form of consideration the Partnership will use to satisfy the Redemption Price; (3) if less than all the Outstanding PPIs are to be redeemed, the identification (and, in the case of partial redemption, the redemption amounts) of the particular PPIs to be redeemed; (4) that on the Redemption Date the Redemption Price, together with (i) in the case of a Provisional Redemption, the Distribution Make-Whole Payment and accrued and unpaid Scheduled Distributions (including an amount equal to a prorated Scheduled Distribution for any period following the immediately preceding Scheduled Distribution Payment Date) and Preferred Stock Liquidated Damages, if any, to the Provisional Redemption Date (ii) in the case of an Optional Redemption, accrued and unpaid Scheduled Distributions (including an amount equal to a prorated Scheduled Distribution for any period following the immediately preceding Scheduled Distribution Payment Date) and Preferred Stock Liquidated Damages, if any, to the Optional Redemption Date, and (iii) in the case of a Mandatory Redemption, accrued and unpaid Scheduled Distributions and Preferred Stock Liquidated Damages, if any, to the Mandatory Redemption Date, will become due and payable upon each such PPI to be redeemed and that distributions thereon will cease to accrue on and after said date; (5) the Conversion Ratio, the date on which the right to convert the PPIs to be redeemed will terminate and the place or places where such PPIs may be surrendered for conversion; and (6) the place or places where such PPIs are to be surrendered for payment of the Redemption Price. SECTION 2.4. Deposit of Redemption Price. Prior to any Redemption Date, the Partnership shall deposit with the -4- 103 Partnership's paying agent (or, with the Partnership if the Partnership is acting as its own paying agent with respect to the PPIs) an amount of consideration sufficient to pay, in the case of a cash payment, or deliver, in the case of delivery of OPIs, the Redemption Price, together with (i) in the case of a Provisional Redemption, the Distribution Make-Whole Payment and accrued and unpaid Scheduled Distributions (including an amount equal to a prorated Scheduled Distribution for any period following the immediately preceding Scheduled Distribution Payment Date) and Preferred Stock Liquidated Damages, if any, to the Provisional Redemption Date (ii) in the case of an Optional Redemption, accrued and unpaid Scheduled Distributions (including an amount equal to a prorated Scheduled Distribution for any period following the immediately preceding Scheduled Distribution Payment Date) and Preferred Stock Liquidated Damages, if any, to the Optional Redemption Date, and (iii) in the case of a Mandatory Redemption, accrued and unpaid Scheduled Distributions and Preferred Stock Liquidated Damages, if any, to the Mandatory Redemption Date, on all the PPIs which are to be redeemed on that date (other than any PPIs called for redemption on that date which have been converted prior to the date of such deposit, except with respect to any applicable Distribution Make-Whole Payment and Preferred Stock Liquidated Damages, which shall be payable regardless of such conversion). If any PPI called for redemption is converted, any cash or OPIs deposited with the Partnership's paying agent or with the Partnership shall (subject to any right of GTL to receive accrued and unpaid distributions as provided in Section 1.3 of this Schedule C) be paid or delivered to the Partnership upon its request. Any Distribution Make-Whole Payment will be paid to GTL on the date of conversion or the Provisional Redemption Date, as the case may be. SECTION 2.5. PPIs Payable on Redemption Date. Notice of redemption having been given as aforesaid, the PPIs so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified plus such other amounts as may be due and payable pursuant to the terms hereof, and from and after such date (unless the Partnership shall default in the payment of the Redemption Price and accrued Scheduled Distributions (including an amount equal to a prorated Scheduled Distribution for any period following the immediately preceding Scheduled Distribution Payment Date) and Preferred Stock Liquidation Damages, if any, to the Redemption Date or, if applicable, any Distribution Make-Whole Payment) no further distributions shall be payable or accrue with respect to such -5- 104 PPIs and such PPIs shall cease to be convertible into OPIs. Upon surrender of any such PPI for redemption in accordance with said notice, such PPI shall be paid, subject to Section 1.3, by the Partnership at the Redemption Price, together with accrued Scheduled Distributions to the Redemption Date. If any PPI called for redemption shall not be so paid upon surrender thereof for redemption, the Redemption Price (but not any accrued and unpaid Scheduled Distributions) shall, until paid, bear interest from the Redemption Date at 8% per annum. SECTION 2.6. Provisional Redemption. The Partnership may redeem, in whole or in part (a "Provisional Redemption"), at any time on or prior to February 15, 2002, at the Redemption Price of 104.6% of the aggregate Stated Value of the PPIs to be redeemed (the "Provisional Redemption Date"), in the event that the Current Market Value of the GTL Common Stock equals or exceeds the following Trigger Percentages of the prevailing GTL Conversion Price then in effect for at least 20 Trading Days in any consecutive 30 Trading Day period ending on the Trading Day prior to the date of mailing of the Globalstar Redemption Notice if called for Provisional Redemption in the 12-month period ending February 15 of the following years: Year Trigger Percentage ---- ------------------ 2000 170% 2001 160% 2002 150% Upon any Provisional Redemption, the Partnership shall make the Distribution Make-Whole Payment with respect to the PPIs called for redemption. The Partnership shall make the Distribution Make-Whole Payment on all PPIs called for Redemption, regardless of whether such PPIs are converted prior to the Provisional Redemption Date. SECTION 2.7. Subsequent Optional Redemption. The PPIs may be redeemed, in whole or from time to time in part, at the option of the Partnership (the "Optional Redemption") on or after February 20, 2002 at a redemption price equal to the percentage of the Stated Value set forth below, in each case, together with accrued and unpaid Scheduled Distributions (including an amount equal to a prorated Scheduled Distribution for any period following the immediately preceding Scheduled Distribution -6- 105 Payment Date) and Preferred Stock Liquidated Damages, if any, to the date of redemption, upon not less than 30 nor more than 60 days' prior written notice, if redeemed during the 12-month period commencing on the dates set forth below: Year Redemption Price ---- ---------------- February 20, 2002 104.6% February 19, 2003 103.4% February 19, 2004 102.3% February 19, 2005 101.1% February 19, 2006 and thereafter 100.0% SECTION 2.8. Mandatory Redemption. Each PPI (if not earlier redeemed or converted) will be mandatorily redeemed by the Partnership on the Mandatory Redemption Date at a Redemption Price of 100% of the Stated Value thereof, together with accrued and unpaid Scheduled Distributions and Preferred Stock Liquidated Damages, if any, to the Mandatory Redemption Date. SECTION 2.9. Other Redemption Procedures. No Provisional Redemption or Optional Redemption may be authorized or made unless, prior to giving the applicable redemption notice, all accumulated and unpaid distributions for periods ended prior to the date of such redemption notice shall have been paid in cash or OPIs. In the event of partial redemptions of PPIs, the PPIs to be redeemed will be determined pro rata or by lot, as determined by the Partnership, provided that the Partnership may redeem all PPIs held by holders of fewer than 100 PPIs (or by holders that would hold fewer than 100 PPIs following such redemption) prior to its redemption of other PPIs. ARTICLE III Conversion of PPIs SECTION 3.1. Conversion Privilege and Conversion Price. Subject to and upon compliance with the provisions of this Article, one PPI initially shall be convertible into the number of OPIs (the "Conversion Ratio") determined by dividing $50 by the product of the initial conversion price applicable to the Preferred Stock, which is $23.2563, and 4.05. One PPI shall initially be convertible into .53085 OPIs (i.e., $50 Stated -7- 106 Value/($23.5623 initial conversion price times 4.05)). This Conversion Ratio shall be adjusted in certain circumstances as provided in Section 3.4. Upon any conversion of Preferred Stock by a holder thereof, GTL shall convert a proportionate amount of PPIs into OPIs. Such conversion right shall expire at the close of business on the Business Day next preceding the Mandatory Redemption Date. In case a PPI or portion thereof is called for redemption, such conversion right in respect of the PPI so called shall expire at the close of business on the Business Day next preceding the Redemption Date, unless the Partnership defaults in making the payment due upon redemption. SECTION 3.2. Exercise of Conversion Privilege. PPIs surrendered for conversion during the period from the close of business on any Regular Record Date next preceding any Scheduled Distribution Payment Date to the opening of business on such Scheduled Distribution Payment Date shall (except PPIs called for redemption on a Redemption Date from the close of business on any Regular Record Date to the close of business on the Business Day immediately following the corresponding Scheduled Distribution Payment Date) be accompanied by payment in cash, OPIs or a combination thereof in an amount equal to the distribution thereon which GTL is entitled to receive; provided, that no payment shall be owed or payable to GTL if the Committee shall have elected to defer the distribution to be made on such Scheduled Distribution Payment Date. No other adjustment for distributions, including any Distribution Arrearages, is to be made upon conversion. PPIs shall be deemed to have been converted immediately prior to the close of business on the day of surrender of such PPIs for conversion in accordance with the foregoing provisions, and at such time the rights of GTL with respect to such PPIs shall cease, and OPIs issuable upon conversion shall be treated for all purposes as having been issued at such time. SECTION 3.3. Fractions of Interests. In the event that GTL shall be required to pay a cash adjustment in lieu of any issuance of fractional interests in GTL Common Stock as provided in its Bye-Laws and GTL shall not have cash available to make such payment, then the Partnership shall make a cash distribution to GTL, in lieu of a payment of such amount in OPIs under this Agreement and to the extent that funds shall be legally available thereof, to allow GTL to make such cash adjustments. -8- 107 SECTION 3.4. Adjustment of Conversion Ratio. Upon a subdivision, combination or reclassification of OPIs, the Conversion Ratio shall be adjusted to take into account such subdivision, combination or reclassification. SECTION 3.5. Provisions in Case of Consolidation, Merger or Conveyance or Transfer of Properties and Assets. In case of any consolidation of the Partnership with, or merger of the Partnership into, any other partnership or other business entity, or in case of any merger of another partnership or other business entity into the Partnership (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding Partnership Interests or a transaction governed by Section 6.13 of this Agreement), or in case of any conveyance or transfer of the properties and assets of the Partnership substantially as an entirety, the partnership, corporation, or other business entity formed by such consolidation or resulting from such merger or which acquires by conveyance or transfer such properties and assets, as the case may be, shall execute and deliver to GTL an agreement providing that GTL shall have the right thereafter, during the period PPIs shall be convertible as specified in this Article III, to convert such PPIs only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance or transfer by a Partner holding OPIs immediately prior to such consolidation, merger, conveyance or transfer, assuming such Partner failed to exercise its rights of election, if any, as to the kind or amount of partnership interests, securities, cash and other property receivable upon such consolidation, merger, conveyance or transfer (provided that, if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance or transfer is not the same for each unit of Ordinary Partnership Interests in respect of which such rights of election shall not have been exercised ("nonelecting share"), then for the purpose of this Section the kind and amount of partnership interests, cash and other property receivable upon such consolidation, merger, conveyance or transfer by each nonelecting OPI shall be deemed to be the kind and amount so receivable per share by a plurality of the nonelecting OPIs). Such agreement shall provide for adjustments which, for events subsequent to the effective date of such agreement, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The above provisions of this Section shall similarly apply to successive consolidations, mergers, conveyances or transfers. The Partnership will not become a party to any consolidation or -9- 108 merger unless the terms of such consolidation or merger are consistent with this Section. SECTION 3.6. Taxes on Conversions. The Partnership will pay any and all taxes that may be payable in respect of the issue or delivery of OPIs on conversion of PPIs pursuant hereto. ARTICLE IV Subordination of PPIs SECTION 4.1. PPIs Subordinate to All Liabilities. The PPIs shall be subordinated and subject, to the extent and in the manner herein set forth, in right of payment to the prior payment in full of all existing and future liabilities of the Partnership, including without limitation: (i) certain distributions made to partners in respect of taxes levied upon the operations of Globalstar; (ii) distributions of the Management Fee; and (iii) guarantee fees to be made to partners and other persons in connection with their guarantee of the Partnership's obligations under the Globalstar Credit Agreement. SECTION 4.2. No Payments When Liabilities in Default; Payment Over of Proceeds upon Dissolution, etc. In the event the Partnership shall default in the payment of any liabilities of the Partnership when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise, then, unless and until such default shall have been cured or waived or shall have ceased to exist, no direct or indirect payment (in cash or property, by setoff or otherwise) need be made or agreed to be made on account of the PPIs (excepting cash payment for fractional interests as set forth in Section 3.3 above). Upon the happening of an event of default with respect to any liability, as defined therein or in the instrument under which the same is outstanding, permitting the holders thereof to accelerate the maturity thereof (under circumstances when the terms of the preceding paragraph are not applicable), unless and until such event of default shall have been cured or waived or shall have ceased to exist, no direct or indirect payment (in cash or property, by setoff or otherwise) need be made or may agreed to be made on account of the PPIs (excepting cash payment for fractional interests as set forth in Section 3.3 above). In the event of: -10- 109 (a) any insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding relating to the Partnership or its property; (b) any proceeding for the liquidation, dissolution or other winding up of the Partnership or its property; (c) any assignment by the Partnership for the benefit of creditors; or (d) any other marshaling of the assets of the Partnership; all liabilities (including any interest thereon accruing after the commencement of any such proceedings) shall first be paid in full before any payment or distribution (direct or indirect), whether in cash or property, by setoff or otherwise, need be made on account of any PPIs. SECTION 4.3. Voting Rights. Excepting as required by law, the PPIs will not have any voting rights. Upon a Voting Rights Deferral Triggering Event, (i) the number of members of the Committee will be increased by one and (ii) the holders of the Preferred Stock, voting separately as a class with the holders of any other securities upon which similar voting rights have been conferred and are exercisable, will be entitled to elect one representative to the Committee (the "Preferred Stock Representative"). The Preferred Stock Representative will promptly resign upon receipt of notice from GTL that all Distribution Arrearages with respect to the PPIs have been paid. -11- EX-10.5 4 SUBSCRIPTION AGREEMENT 1 10/07/97 GLOBALSTAR, L.P. SUBSCRIPTION AGREEMENT 1. (a) Globalstar, L.P., a limited partnership with offices at 3200, Zanker Road, San Jose, California, U.S.A. organized under the laws of the State of Delaware (the "Partnership") for the purpose of developing, designing, deploying, owning and operating a worldwide low-earth orbit satellite-based digital telecommunication system ("the Globalstar System") which will, among other things, extend terrestrial telecommunications networks by radio frequency access to handhold and various other terminals. China Telecommunications Broadcast Satellite Corporation ("Chinasat" or "Subscriber") with offices at No.2 Xi Tu Cheng Road, Beijing, Peoples Republic of China, is an independent legal entity organized under the laws of China and is under the direct supervision of the Ministry of Posts and Telecommunications (MPT of CHINA) with responsibility for the development and operation of satellite telecommunication including mobile satellite telecommunication services. The Parties reached this agreement through negotiation based on the existing cooperation and the same propose to promote the development of Globalstar mobile telecommunication service. Meanwhile, (i) Whereas, in connection with this Subscription Agreement, Chinasat has signed the Founding Service Provider Agreement with Globalstar L.P., set forth attached as Exhibit 3. (ii) Whereas, Globalstar L.P. fully recognizes that Chinasat will play an important role on promoting Globalstar mobile telecommunication service in China. Chinasat will have the same right and obligation as other Limited Partners, based on Percentage Interest. (iii) Whereas, in connection with the execution of the Service Provider Agreement, Globalstar L.P. is willing to sell the Partnership Interests to Chinasat. (iv) Whereas, in connection with the execution of the Service Provider Agreement, Chinasat is willing to purchase the Partnership Interests from Globalstar L.P. (v) Whereas, the China Telcom (Hong Kong) Group Limited is a Telecommunications company under the direct supervision of the Ministry of Posts and Telecommunications of China with offices at Hong Kong, and with responsibility for the development and operation of international telecommunication services. Subject to the Founding Service Provider Agreement dated November 11, 1996 and item 5(a) of Schedule X hereof, CHINASAT and Globalstar L.P. have agreed that the Subscription Agreement will be signed by the China Telcom (Hong Kong) Group Limited and Globalstar L.P. The parties hereby agree: Globalstar L.P. has agreed to sell Chinasat $37.5 million Partnership Interests set forth on Schedule I and Schedule II, for an amount in cash in U.S. dollars equal to the Agreed Contribution set forth on such Schedule I and the Agreed additional Contribution set forth on Schedule II (the "Agreed Contribution"). Attached hereto as Exhibit A is the Amended and Restated Agreement of Limited Partnership of Globalstar, L.P., dated as of December 31, 1994, as amended on March 6, 1996 (the "Partnership Agreement") and Exchange and Registration Rights Agreement pursuant to which Subscriber or its Affiliate shall become an Additional Limited Partner on the Closing Date (as hereinafter defined). Attached hereto as Exhibit 4 is Exchange and Registration Rights Agreement to be entered into by Chinasat, the Partnership and Globalstar Telecommunications Limited, a company organized under the laws of Bermuda ("the Exchange and Registration Rights 1 2 Agreement") pursuit to which Subscriber or its Affiliate shall receive certain exchange and registration rights described therein. Capitalized terms not defined herein shall have the meanings set forth in the Partnership Agreement. (b) In addition to the sale to Subscriber of the Partnership Interests set forth on Schedule I to this Subscription Agreement, the Partnership hereby grants to Subscriber, on the terms and subject to the conditions set forth herein, an option (the "Option") to purchase the additional Partnership Interests set forth on Schedule II to this Subscription Agreement (the "Additional Partnership Interests") for an amount in cash in U.S. dollars equal to the Agreed Additional Contribution set forth on, such Schedule II (the "Agreed Additional Contribution") (i) The Option is not currently exercisable and shall not become exercisable prior to the date on which all of the conditions to exercise shall have been satisfied (the "Satisfaction Date"). The following are the conditions to exercise the Option: (a) Subscriber or an MPT Affiliate shall have purchased the Partnership Interests set forth on Schedule I to this Subscription Agreement. (b) The Service Provider Agreement is in full force and effect. (c) Subscriber shall have commenced Globalstar mobile telecommunications services in China on the Full Service Date (as defined in the Service Provider Agreement) and revenues from such service shall have exceeded certain target revenue levels in accordance with the MOA signed in April of 1996. (ii) The Option shall be exercisable in whole, but not in part, on or after the Satisfaction Date through the date that is 30 calendar days after the Satisfaction Date the "Exercise Period. Subscriber may exercise the Option during the Exercise Period by delivering a written notice to the Partnership of Subscriber's election to exercise (the "Exercise Notice"). Upon receipt of the Exercise Notice, the Partnership shall, within 30 calendar days, cause to be prepared a subscription agreement, substantially in the form of this Subscription Agreement (the "Additional Partnership Interest Subscription Agreement"), relating to the purchase of the Additional Partnership Interests underlying the Option, which shall be promptly executed and delivered by the Partnership and Subscriber. The Partnership shall sell and Subscriber shall purchase the Additional Partnership Interests for an amount in cash in U.S. dollars equal to the Agreed Additional Contribution in accordance with the Additional Partnership Interest Subscription Agreement, where as closing shall be held no later than 30 days following the day for additional Partnership Interest Subscription Agreement is delivered by the Partnership to Chinasat for execution. 2. Subscriber acknowledges that the subscription for the Partnership Interests set forth on Schedule I to this Subscription Agreement is irrevocable and subject only to the conditions set forth in Section 10 hereof (the "Closing Conditions"). 2 3 3. Subject to Section 10 hereof, Subscriber shall pay to the Partnership on November 24, 1997 or on such later date as the Partnership may specify in writing to Subscriber (the "Closing Date") an amount in cash in U.S. dollars equal to the Agreed Contribution set forth on Schedule I to this Subscription Agreement. Subscriber shall pay the Agreed Contribution by wire transfer of same day funds to [Bank of America, Chicago, Illinois ABA #071000039, for the account of Globalstar L.P. #79-10061] 4. (Reserved) 5. Subscriber represents and warrants to the Partnership as follows: (a) The Partnership Interests are being acquired by Subscriber for investment purposes only and not as a nominee or agent for the benefit of any other person, and Subscriber has no current intention of distributing, reselling or assigning the Partnership Interests or any part thereof other than as set forth in item 5(a)to Schedule X hereto. (b) Subscriber understands that the Partnership Interests have not been registered under the Securities Act of 1933, as amended (the "1933 Act"), or under the laws of any jurisdiction, and that the Partnership does not contemplate and is under no obligation to register the Partnership Interests except pursuit to the Exchange and Registration Rights Agreement. Subscriber understands and agrees further (i) that the Partnership Interests must be held indefinitely unless the Partnership Interests are subsequently registered under the 1933 Act or other applicable laws or an exemption from registration under the 1933 Act or other applicable laws covering the sale of Partnership Interests is available, and (ii) that, even if an exemption from the 1933 Act or other applicable laws is available, the assignability and transferability of the Partnership Interests will be governed by the Partnership Agreement, which imposes substantial restrictions on transfer. Subscriber understands that legends stating that the Partnership Interests have not been registered under the 1933 Act and setting out or referring to the restrictions on transferability and sale of the Partnership Interests will be placed on all documents evidencing the Partnership Interests. (c) Subscriber has been furnished and has carefully read the Partnership Agreement, the Form 10-K for the years ended December 31, 1995 and 1996 and l0-Q for the quarters ended March 31, 1997 and June 30, 1997 of GTL (the "GTL 10-K and l0-Q"), GTL's proxy statement for its 1996 Annual Meeting (the "GTL Proxy Statement"), and the Offering Memorandum of GTL dated February 29, 1996, relating to the issuance by GTL of 6.5% Convertible Preferred Equivalent Obligations due 2006 (the "GTL Offering Memorandum," and together with the GTL 10-K and the GTL Proxy Statement, the "GTL Disclosure Documents"). (d) Subscriber is aware that: (i) an investment in the Partnership involves a degree of risk and (ii) no Federal or state agency has approved or disapproved the Partnership Interests nor has any such agency passed upon the accuracy or adequacy of the Memorandum. 3 4 (e) Subscriber has sufficient financial resources available to support the loss of all or a portion of Subscriber's investment in the Partnership, and is able to bear the economic risk of the investment. (f) Subscriber is sophisticated and experienced in investment matters, and, as a result, Subscriber is in a position to evaluate an investment in the Partnership. (g) Subscriber has been furnished any and all materials Subscriber has requested relating to the Partnership or the offering of Partnership Interests and Subscriber has been questions of afforded the opportunity to ask representatives of the Partnership concerning the terms and conditions of the offering and to obtain any additional information necessary to verify the accuracy of any representations or information appearing in the Partnership Agreement or the GTL Disclosure Documents. (h) Subscriber has relied only on the Partnership Agreement, the Exchange and Registration Rights Agreement, the GTL Disclosure Documents, the representations and warranties set forth in Section hereto and any other material set forth in item 5(h) to Schedule X hereto in determining to invest in the Partnership. (i) Subscriber is an "accredited investor" within the meaning of Rule 501(a) of Regulation D promulgated under the 1933 Act. (j) Subscriber has: (i) duly taken any and all action necessary to authorize Subscriber's execution, delivery and performance of this Subscription Agreement in accordance with its terms and (ii) validly executed and delivered this Subscription Agreement. This Subscription Agreement constitutes the valid and binding obligation of Subscriber, enforceable in accordance with its terms. The execution and delivery of this Subscription Agreement do not and will not, and the performance of the Subscription Agreement, upon obtaining all required approvals by the People's Republic of China and any other governmental authority having jurisdiction over Subscriber, each of which is set forth on Schedule III hereto (collectively, the "Required Governmental Approvals"), will not (i) violate any provisions of law, statute, rule or regulation to which Subscriber is subject or any order, decree or judgment applicable to Subscriber or (ii) conflict with, result in a material breach of or constitute (with due notice or lapse of time or both) a material default under, any term or condition of any indenture, agreement or other instrument to which Subscriber is a party or by which it or any of its properties or assets is bound or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of Subscriber. (k) Subscriber's fiscal year ends on December 31 and Subscriber understands and agrees that it shall not attempt to transfer its interests hereunder unless it shall have first obtained information relating to the transferee's fiscal year. (l) To the representations and warranties, if any, set forth in item 5(1) to Schedule X hereto. 4 5 6. The Partnership represents, warrants and covenants to Subscriber as follows: (a) The Partnership has been duly formed, is validly existing and in good standing under the laws of the State of Delaware, and has all requisite partnership power and authority to conduct the business in which it proposes to engage as described in the Partnership Agreement and Exchange and Registration Rights Agreement (a complete and correct copies of which have been furnished to Subscriber) and to enter into this Subscription Agreement and perform its obligations hereunder. (b) The Partnership Agreement has been duly executed and delivered by the General Partners and, assuming the valid authorization, execution and delivery of the Partnership Agreement by the Limited Partners, will, as to each of such Limited Partners, constitute a legal, valid and binding agreement, enforceable in accordance with its terms. The execution and delivery of this Subscription Agreement and Exchange and Registration Rights Agreement and the issuance of Partnership Interests contemplated hereby will not conflict with or result in any violation of or default under any of the provisions of the Partnership Agreement, or any agreement or other instrument to which the Partnership is a party or by which the Partnership or any of its respective properties are bound, or any permit, franchise, judgment, decree, statute, rule or regulation applicable to the Partnership or its business or its respective properties. The Partnership Interest to be issued and sold to the Subscriber pursuant to this Subscription Agreement and the Partnership Agreement have been duly and validly authorized, and when issued and delivered in accordance with the terms of the Subscription Agreement, will be validly issued, fully paid and will constitute valid and binding obligations of the Partnership. (c) Neither the Partnership nor anyone acting on its behalf of the Partnership has taken or will take any action that would subject the issuance and sale of Partnership Interests to the registration and prospectus delivery provisions of the Securities Act of ,1933, as amended. (d) The Partnership is not required to register as an "investment company" under the Investment Company Act of 1940, as amended. (e) This Subscription Agreement, the Partnership Agreement, the Exchange and Registration Rights Agreement do not, to the best knowledge of the Partnership, as of the date hereof, and the GTL Disclosure Documents as of their respective dates do not, to the best knowledge of the Partnership, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (f) Since March 31, 1997, there has not been any occurrence, development or change that has had, either alone or together with all such occurrences, developments or changes, a material adverse effect on the Partnership. 5 6 (g) The Partnership has acquired or will acquire rights from QUALCOMM subject and pursuant to terms and conditions of the QUALCOMM Development Agreement (including but not limited to the royalty provisions contained therein). The Partnership has acquired or will acquire rights from SS/L pursuant to the Satellite Contract and/or (on a royalty-free non-exclusive license basis) from Loral ("Loral") and its Affiliates, Space & Communication Ltd., to use all of the intellectual property rights owned by such parties which the Partnership deems necessary to license or acquire or use in regard to the design, development, deployment and operation of the Globalstar System, Gateways (as such term is defined in the Service Provider Agreement) and compatible handsets for the effectuation of the Partnership's Business Plan. The Partnership has received no notice that the name and trademark "GLOBALSTAR" or any of the intellectual property rights described above infringe upon any patent or copyright, violate a patent license, copyright registration or any pending application relating thereto or conflict with or violate any trademark or trade secret right of any person except for such infringement, violation or conflict which would not have a material adverse effect on the Partnership or its business. No licenser who has granted material technology or intellectual property rights to the Partnership and who is an Affiliate of the General Partner or an Upper Tier Partner may terminate or modify in any materially adverse way any material license granted to the Partnership, even if such licensor were no longer to be an Affiliate of the General Partner or of an Upper Tier Partner or if the General Partner withdrew or was removed from or transferred all or part of its interest in the Partnership or any Upper Tier Partner withdrew or was removed from or transferred all or part of its interest in any Upper Tier Partnership or if the Partnership were dissolved. The General Partner will not, and will not permit any of its Affiliates, including SS/L to, utilize any of the intellectual property created pursuant to the Satellite Contract in support of any competing Mobile Satellite Service (as defined by the FCC). (h) There are no actions, suits or proceedings pending or, to the knowledge of the Partnership, threatened against or affecting the Partnership or any property of the Partnership in any court or before any arbitrator of any kind or before or by any governmental authority which in the aggregate, if adversely determined, would have a material adverse effect on the Partnership or the business of the Partnership. (i) Upon the grant by the FCC to Loral/QUALCOMM Partnership, L.P. ("LQP") as successor to Loral Qualcomm Satellite Services, Inc., of the license to operate the Globalstar System, as discussed in the REGULATION" section of the GTL Offering Memorandum, LQP will utilize such license exclusively through, and for the exclusive benefit of, the Partnership without further consideration other than the partnership awarded in respect of rights granted under this covenant. To the best of the Partnership s knowledge, Affiliates of the Partnership, including Loral, have provided to the FCC sufficient evidence of Loral's financial resources and its endorsement of the Globalstar project to meet the financial qualification requirements for the grant of the FCC Applications, and will continue to submit such future financial information required by the FCC and will not retract the commitments heretofore made to the FCC. Having due regard for 6 7 the FCC Notice of Proposed Rulemaking, dated January 19, 1994, the Partnership is not aware of any reason why the grant of the FCC Applications is unlikely. 7. This agreement shall be executed on the date set forth below. Chinasat will not become a Limited Partner until the Closing Date. Chinasat shall have the same rights and obligations defined in the Partnership Agreement and Exchange and Registration Rights Agreement as other existing Limited Partners after the Closing Date, based on its Percentage Interest in Globalstar L.P. 8. Subscriber acknowledges receipt of the Partnership Agreement and the GTL Disclosure Documents, and Subscriber and the General Partners specifically accept, adopt and agree to each and every provision of the Partnership Agreement. The Partnership Interests subscribed for and in this Subscription Agreement will not be deemed issued, or owned by subscriber until the Partnership Agreement is amended to include subscriber as a Limited Partner as contemplated by Section 10(e) hereto on or prior to the Closing Date. 9. Subscriber (or its Affiliate) and the Partnership have entered into the founding Service Provider Agreement, in connection with this Subscription Agreement, in the form attached hereto as Exhibit 3. 10. The obligations of the Partnership and Subscriber to consummate the transactions contemplated by this Subscription Agreement are subject to the following conditions: (a) Subscriber shall have obtained all Required Governmental Approvals (as indicated in Schedule III attached hereto); (b) the representations and warranties of each of the Partnership and Subscriber contained in this Subscription Agreement shall be true and correct in all material respects when made at and as of the Closing Date; (c) Subscriber shall have received favorable opinions of counsel, dated the Closing Date, from Willkie Farr & Gallagher, substantially in the forms of Exhibit 1 and 2 hereto; (d) The Partnership shall have received the Consent of the Partners (as defined in the Partnership Agreement), with respect to the admission of Subscriber as a Limited Parter prior to or on the Closing Date. (e) Each of the Partnership Agreement and the Exchange and Registration Right Agreement shall have been amended (i) to reflect the admission of the Subscriber as a Limited Partner and (ii) The Subscriber shall be in entitled to all of the rights of a Limited Partner, set forth in the Partnership Agreement. Concurrently with the closing, Chinasat, the Partnership and GTL shall have executed the Exchange and Registration Rights Agreement prior to or on the Closing Date; and (f) the additional conditions, if any, set forth in item 10(d) of Schedule X. 7 8 11. Each party hereto represents that no person or firm acting on behalf of such party or under such party's authority is or will be entitled to any broker's or finder's fees or commissions or similar fees directly or indirectly from any of the parties hereto in connection with any of the transactions contemplated herein. 12. Subscriber recognizes that the sale of the Partnership Interests to Subscriber is based upon its representations and warranties as set forth herein, and hereby agrees to indemnify the Partnership, the General Partners and the partners, employees, agents and representatives of the Partnership and the General Partner and their respective partners, employees, agents and representatives harmless from and against all liability, damage, cost or expenses (including reasonable attorneys' fees) (i) arising as a result of the sale or distribution of the Partnership Interests or any part thereof or interest therein, by the Subscriber in violation of the 1933 Act or other applicable law, including other federal and state securities laws, or (ii) which the Partnership, the General Partner and their respective partners, directors, employees, agents and representatives may incur by reason of any material breach of such warranties and representations by the Subscriber or any inaccuracy or other deficiency in the information provided by the Subscriber. 13. The Partnership recognizes that the purchase of the Partnership Interests by Subscriber is based upon the Partnership's representations and warranties in this Subscription Agreement, and hereby agrees to defend and indemnify Subscriber its Affiliates and their respective directors, officers, employees, agents and representatives against any and all liability, damage, cost or expense (including reasonable attorneys' fees) which Subscriber or its Affiliates or their respective directors, officers, employees, agents or representatives may incur in excess of $100,000, in the aggregate, by reason of any material breach of such representations and warranties of the Partnership. 14. Such representations and warranties will survive for one year following the date hereof (provided that the representations and warranties contained in paragraphs (e) and (I) (other than the first sentence of paragraph (i)) of Section 6 shall survive until the first anniversary of the Globalstar In-Service Date, the representations and Warranties contained in Section 6 (h) herein shall Survive until the first anniversary of the date of discovery of any breach thereof by Subscriber and the representations and warranties contained in Section 6(g) and the first sentence of Section 6 (i) of section 5 shall survive indefinitely), after which time they shall be of no further force or effect, except with respect to claims asserted prior to such date. 15. This Subscription Agreement shall be construed in accordance with, and governed in all respects by, the laws of the State of Delaware, U.S.A., without giving effect to the conflicts of laws provisions thereof. 16. The dispute resolution provision of the Partnership Agreement contained in Article 15.10 thereof shall apply to this Subscription Agreement. 17. This Subscription Agreement will have two versions, one in English and one in Chinese, both will be effective upon signing by the Parties. 18. Except as set forth in. item 18 of Schedule X hereto, neither party shall assign delegate any of the obligations or rights (including the Option) created under this Subscription Agreement without the prior written consent of the other party except to an Affiliate, provided 8 9 that no such assignment will relieve Subscriber of any of its obligations hereunder. This Subscription Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns 19. Except as otherwise expressly provided in this Subscription Agreement, all legal and other fees, costs and expenses incurred in connection with this Subscription Agreement and the transactions contemplated hereby shall be paid by the party incurring such fees, costs or expenses. 20. This Subscription Agreement, and the documents referenced herein, represents the entire agreement and understanding of the parties hereto with reference to the transactions set forth herein. 21. The waiver by any party hereto of a breach of any provision of this Subscription Agreement shall not Operate or be construed as a waiver of any subsequent breach, whether or not similar. This Subscription Agreement may be amended, modified or supplemented only by a written instrument executed by the parties through friendly negotiation hereto. 22. All notices, requests, demands or other communications provided herein shall be made in writing and shall be deemed to have been duly given if delivered personally, telecopied or sent by registered or certified first class mail, postage prepaid, as follows: (a) if to the Partnership, to it at the address shown on the first page hereof; and (b) if to Subscriber to it at the address shown on Schedule I hereto or to such other address as either party shall have specified by notice in writing to the other party. All such notices, requests, demands and communications shall be deemed to have been received on the date of delivery or telecopy on the third business day after the mailing thereof. 23. The terms and conditions set forth on Schedule X hereto shall be deemed to be incorporated herein and made part of this Subscription Agreement and shall supersede any inconsistent provisions hereof. 9 10 24. Subscriber has executed this Subscription Agreement on the date set forth below. Date: Oct. 24, 1997 CHINA TELECOM (HONG KONG) GROUP LIMITED By /s/ Chen Zhaobin Name: Chen Zhaobin Title: President Accepted: GLOBALSTAR, L.P. By: /s/ Tony Navarra Name: Tony Navarra Title: Executive Vice President 10 11 SCHEDULE - I Name of Subscriber: China Telecommunications Broadcast Satellite Corporation Address: No.2, Xi Tu Cheng Road Beijing 100088, People's Republic of China Telecopier #-. 937,500 Partnership Interests Agreed Contribution: $18.75 million 11 12 SCHEDULE II OPTION Name of Subscriber: China Telecommunications Broadcast Satellite Corporation 937.500 Additional Partnership Interests* Agreed Additional Contribution: $18.75 million * In the event of any reclassification, recapitalization, combination or exchange of Partnership Interests in the Partnership or other similar events after the date of this Subscription Agreement, the number and form of additional Partnership Interests to be purchased shall adjusted appropriately. 12 EX-10.16 5 FOUTH AMENDMENT TO REVOLVING CREDIT AGREEMENT 1 FOURTH AMENDMENT TO THE GLOBALSTAR, L.P. REVOLVING CREDIT AGREEMENT FOURTH AMENDMENT (the "Amendment"), dated as of November 13, 1998 to the Revolving Credit Agreement, dated as of December 15, 1995, as amended by the First Amendment dated March 25, 1996, the Second Amendment dated July 31, 1997, and the Third Amendment dated October 15, 1997 (as such agreement may be further amended, supplemented or otherwise modified from time to time, the "Credit Agreement") among GLOBALSTAR, L.P., a Delaware limited partnership ( the "Borrower""), the several financial institutions parties from time to time thereto (the "Banks") and THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative agent (the "Administrative Agent"). All capitalized terms used herein and not otherwise defined herein shall have the respective meanings provided such terms in the Credit Agreement. WHEREAS, the Borrower, the Banks and the Administrative Agent hereby agree to amend the Credit Agreement and set forth below, such changes to be effective as of the date hereof: 1. Amendment to Section 6.1 (c). Section 6.1 (c) shall be amended by deleting such section in its entirety and inserting the following in lieu thereof: Permit for any period of four consecutive fiscal quarters ending prior to the Release Date (and commencing March 31, 2000) the ratio of (i) the sum of Consolidated Net Income for such period plus income taxes deducted in determining such Consolidated Net Income plus Consolidated Fixed Charges for such period to (ii) Consolidated Fixed Charges for such period to be less than 2.0 to 1.0, provided that for the Borrower's fiscal quarter ending on (A) March 31, 2000, such ratio shall be calculated for the fiscal quarter then ended, (B) June 30, 2000, such ratio shall be calculated for the two consecutive fiscal quarters then ended and (iii) September 30, 2000, such ratio shall be calculated for the three consecutive fiscal quarters then ended and provided further that for the fiscal quarter ending on March 31, 2000, such ratio shall not be less than 1.5 to 1.0. 2 2. Representations and Warranties. The Borrower hereby confirms that (i) all of the representations and warranties made by the Borrower and its subsidiaries contained in the Loan Documents are true and correct in all material respects on and as of the date hereof (other than representations and warranties made as of a specific date) after giving effect to this Amendment; (ii) no consent or authorization of any other Loan Party is required to render this Amendment effective or validate or confirm any other Loan Document; (iii) no Default or Event of Default shall have occurred and be continuing in the date hereof after giving effect to this Amendment. 3. Counterparts. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts , each of which counterparts when executed and delivered shall be an original, but all of which together shall constitute one and the same instrument. A complete set of counterparts shall be lodged with the Borrower and the Administrative Agent. 4. Governing Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. 5. Construction. From and after the date hereof, references in the Credit Agreement and the other Loan Documents to the Credit Agreement shall be deemed to reference the Credit Agreement as modified hereby. 2 3 IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed and delivered by their respective duly authorized officer as of the day and year first above written. GLOBALSTAR, L.P. By:/s/Stephen Wright -------------------------------- Name: Stephen Wright Title: Chief Financial Officer THE CHASE MANHATTAN BANK, as Administrative Agent and as a Bank By:/s/Richard C. Smith -------------------------------- Name: Richard C. Smith Title: Vice President BANK OF AMERICA ILLINOIS By:/s/Steve A. Aronowitz -------------------------------- Name: Steve A. Aronowitz Title: Managing Director MORGAN GUARANTY TRUST COMPANY OF NEW YORK By:________________________ Name: Title: THE BANK OF NEW YORK By:/s/Ken Sneider -------------------------------- Name: Kenneth P. Sneider, Jr. Title: Vice President THE BANK OF NOVA SCOTIA By:______________________ Name: Title: 3 4 BARCLAYS BANK PLC By:/s/L. Peter Yetman -------------------------------- Name: L. Peter Yetman Title: Associate Director BAYERISCHE LANDESBANK CIROZENTRALE By:/s/James H. Boyle -------------------------------- Name: James H. Boyle Title: Second Vice President BANQUE NATIONALE DE PARIS By:______________________ Name: Title: By:______________________ Name: Title: CIBC INC. By:______________________ Name: Title: CITICORP USA, INC. By:/s/George E. Moyer, Jr.___ __________________________ Name: George E. Moyer, Jr. Title: Attorney-In-Fact CREDIT LYONNAIS CAYMAN ISLAND BRANCH By:_____________________ Name: Title: 4 5 CREDIT SUISSE By:/s/Credit Suisse____________ ----------------------------- Name: Credit Suisse Title: THE DAI-ICHI KANGYO BANK, LIMITED, NEW YORK BRANCH By:/s/Masaaki Ishikura -------------------------------- Name: Masaaki Ishikura Title: Vice President THE FUJI BANK, LIMITED NEW YORK BRANCH By:_____________________ Name: Title: HYPOBANK, NEW YORK BRANCH By:/s/Constance Madden -------------------------------- Name: Constance Madden Title: Vice President THE INDUSTRIAL BANK OF JAPAN, LIMITED - NEW YORK BRANCH By:/s/Kenneth Begen -------------------------------- Name: J. Kenneth Begen Title: Senior Vice President LTCB TRUST COMPANY By:/s/Ken Yoshizakt -------------------------------- Name: Ken Yoshizakt Title: Senior Vice President MELLON BANK, N.A. By:_____________________ Name: Title: 5 6 THE MITSUBISHI TRUST AND BANKING CORPORATION By:_____________________ Name: Title: NATIONAL CITY BANK By:_____________________ Name: Title: NATIONSBANK, N.A. By:/s/Pamela S. Kurtzman -------------------------------- Name: Pamela s. Kurtzman Title: Vice President PNC BANK, NATIONAL ASSOCIATION By:/s/PNC Bank, National Association -------------------------------- Name: PNC Bank, National Association Title: ROYAL BANK OF CANADA By:/s/Royal Bank of Canada -------------------------------- Name: Royal Bank of Canada Title: ISTITUTO BANCARIO SAN PAOLO DI TORINO S.P.A. By:/s/W. Jones -------------------------------- Name: W. Jones Title: Vice President THE SANWA BANK, LIMITED By:/s/The Sanwa Bank, Limited -------------------------------- Name: The Sanwa Bank, Limited Title: 6 7 SOCIETE GENERALE By:_____________________ Name: Title: THE SUMITOMO BANK, LIMITED By:/s/Kozo Masaki ______________________________ Name: Kozo Masaki Title: General Manager TORONTO DOMINION (TEXAS), INC. By:_____________________ Name: Title: THE YASUDA TRUST & BANKING COMPANY, LIMITED By:_____________________ Name: Title: 7 EX-10.18 6 AMENDED EXCHANGE AND REGISTRATION RIGHTS AGREEMENT 1 AMENDMENT TO THE EXCHANGE AND REGISTRATION RIGHTS AGREEMENT AMENDMENT, dated as of April 8, 1998 to the EXCHANGE AND REGISTRATION RIGHTS AGREEMENT, dated as of December 31, 1994 (the "Agreement"), among GLOBALSTAR, L.P., a Delaware limited partnership ("Globalstar"), GLOBALSTAR TELECOMMUNICATIONS LIMITED, a Bermuda company ("GTL") and TeleSat Limited, a company organized under the International Business Companies Ordinance of the British Virgin Islands ("Telesat"). WHEREAS, pursuant to Section 7 of the Agreement, Globalstar and GTL have the right to amend the Agreement to grant to any partner of Globalstar admitted into the partnership after December 31, 1994 the exchange and registration rights afforded in the Agreement; and WHEREAS, TeleSat and the partners of Globalstar have on the date hereof entered into an amendment to the Globalstar partnership agreement to reflect the admission of TeleSat as a limited partner in Globalstar (the "Partnership Amendment"); and WHEREAS, Globalstar and GTL wish to amend the Agreement to include TeleSat as a Partner within the meaning of the Agreement effective as of the effective date of the Partnership Amendment: 1. Addition of TeleSat as a Partner. The parties hereto agree that from and after the effective date of the Partnership Amendment, all references to "Partner" or "Partners" in the Agreement shall be deemed also to refer to TeleSat. 2. TeleSat. TeleSat hereby agrees that from and after the effective date of the Partnership Amendment, it shall be bound by the terms of the Agreement, including without limitation, the representations and warranties of the Partners contained therein. 3. Defined Terms. Capitalized terms used herein not otherwise defined shall have the meanings set forth in the Agreement. 4. Counterpart. This Amendment may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto. 5. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW. 2 IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed and delivered by their respective duly authorized officer as of the day and year first above written. GLOBALSTAR, L.P. By: /s/ A. Navarra Name: A. Navarra Title: Executive Vice President GLOBALSTAR TELECOMMUNICATIONS LIMITED By: /s/ A. Navarra Name: A. Navarra Title: Executive Vice President CHINA TELECOMMUNICATIONS BROADCAST SATELLITE CORPORATION By: /s/ Chen Zhaobin Name: Chen Zhaobin Title: Director EX-10.26 7 REGISTRATION RIGHTS AGREEMENT 1 EXECUTION COPY GLOBALSTAR TELECOMMUNICATIONS LIMITED Up to 5,400,000 Shares of 8% Convertible Redeemable Preferred Stock due 2011 (Liquidation Preference of $50 Per Share) REGISTRATION RIGHTS AGREEMENT New York, New York January 26, 1999 Bear, Stearns & Co. Inc. Donaldson, Lufkin & Jenrette Securities Corporation Lehman Brothers Inc. C.E. Unterberg, Towbin CIBC Oppenheimer Corp. ING Baring Furman Selz LLC c/o Bear, Stearns & Co. Inc. 245 Park Avenue New York, New York 10167 Dear Sirs: Globalstar Telecommunications Limited, a Bermuda company (the "Company"), proposes to issue and sell to you (the "Purchasers"), upon the terms set forth in the Purchase Agreement dated January 21, 1999 (the "Purchase Agreement"), among the Company, Globalstar, L.P., a Delaware limited partnership ("Globalstar"), Loral Space & Communications Ltd., a Bermuda company ("Loral"), and the Purchasers, up to 5,400,000 shares (including up to 1,400,000 shares that the Company has granted the Purchasers an option to purchase pursuant to the Purchase Agreement) of its 8% Convertible Redeemable Preferred Stock due 2011, par value $0.01 per share, liquidation preference of $50 per share (the "Preferred Stock") (such issuance and sale, the "Initial Placement"). The Preferred Stock will be convertible into shares of Common Stock, par value $1.00 per share, of the Company (the "Common Stock") at the conversion price set forth in the Final Memorandum (as defined below). For purposes of this Agreement, the term "Securities" shall 2 2 refer to the Preferred Stock (other than any shares of Preferred Stock beneficially owned by Loral), all shares of Common Stock issued (i) as dividends thereon, (ii) on conversion thereof or (iii) in redemption thereof, and any securities into which such shares of Preferred Stock or Common Stock shall be converted or into which they shall be changed by operation of law or otherwise. The Company will use the proceeds of such sale to purchase preferred partnership interests in Globalstar. In satisfaction of a condition to your obligations under the Purchase Agreement, the Company agrees with you (i) for your benefit and (ii) for the benefit of the holders of the Securities (including you) from time to time until the later of (i) the second anniversary of the last Closing Date (as defined below) and (ii) such time as (A) such Securities shall no longer constitute restricted securities for purposes of Rule 144(k) of the Act (as defined below) or (B) all such Securities have been sold pursuant to the Shelf Registration Statement (as defined below) (each of the foregoing a "Holder" and together the "Holders"), as follows: 1. Definitions. Capitalized terms used herein without definition shall have their respective meanings set forth in the Purchase Agreement. As used in this Agreement, the following capitalized defined terms shall have the following meanings: "Act" means the Securities Act of 1933 and the rules and regulations of the Commission promulgated thereunder. "Affiliate" of any specified person means any other person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such specified person. For purposes of this definition, control of a person means the power, direct or indirect, to direct or cause the direction of the management and policies of such person whether by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Closing Date" has the meaning set forth in the Purchase Agreement. 3 3 "Commission" means the Securities and Exchange Commission. "Damages Payment Date" means each of the quarterly dividend payment dates set forth in the schedule to the Bye-Laws of the Company setting forth the terms of the Preferred Stock. "Exchange Act" means the Securities Exchange Act of 1934 and the rules and regulations of the Commission promulgated thereunder. "Final Memorandum" has the meaning set forth in the Purchase Agreement. "First Closing Date" has the meaning set forth in the Purchase Agreement. "Holder" has the meaning set forth in the preamble hereto. "Incorporated Documents" means filings made by the Company with the Commission pursuant to Section 13, 14 or 15 of the Exchange Act and incorporated by reference in the Shelf Registration Statement. "Initial Placement" has the meaning set forth in the preamble hereto. "Majority Holders" means the Holders of a majority of the shares of the Preferred Stock registered (or if no shares are registered, entitled to be registered) under a Shelf Registration Statement; provided, however, that Holders of Common Stock issued in respect of the Preferred Stock shall be deemed to be Holders of the number of shares of Preferred Stock which, when converted, would have resulted in such number of shares of Common Stock. "Managing Underwriters" means the investment banker or investment bankers and manager or managers that shall administer an underwritten offering of the securities covered by the Shelf Registration Statement. "Preferred Stock" has the meaning set forth in the preamble hereto. 4 4 "Prospectus" means the prospectus included in any Shelf Registration Statement, as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Securities or Common Stock issuable upon conversion thereof covered by such Shelf Registration Statement, and all amendments and supplements to the Prospectus, including post-effective amendments. "Securities" has the meaning set forth in the preamble hereto. "Shelf Registration" means a registration effected pursuant to Section 2 hereof. "Shelf Registration Period" has the meaning set forth in Section 2(b) hereof. "Shelf Registration Statement" means a "shelf" registration statement of the Company pursuant to the provisions of Section 2 hereof which covers some or all of the Securities, on an appropriate form under Rule 415 under the Act or any similar rule that may be adopted by the Commission, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Transfer Agent" means The Bank of New York. "Transfer Restricted Securities" means each Security until the later of (i) the second anniversary of the last Closing Date and (ii) such time as (A) such Security shall no longer constitute a restricted security for purposes of Rule 144(k) of the Act or (B) such Security has been sold pursuant to the Shelf Registration Statement. "underwriter" means any underwriter of Securities in connection with an offering thereof under a Shelf Registration Statement. 5 5 2. Shelf Registration; Suspension of Use of Prospectus. (a) The Company shall prepare and, not later than 90 days following the First Closing Date, shall file with the Commission and thereafter shall use its reasonable efforts to cause to be declared effective under the Act, as promptly as practicable but no later than 210 days following the First Closing Date (the "Effectiveness Target Date"), a Shelf Registration Statement relating to the offer and sale of the Transfer Restricted Securities by the Holders from time to time in accordance with the methods of distribution elected by such Holders and set forth in such Shelf Registration Statement. The sole and exclusive remedy available to the Holders in the event that a Shelf Registration Statement is not filed or declared effective within the time periods specified in this Section 2(a) is the collection of additional dividends in accordance with Section 6 and the terms of the Preferred Stock. (b) The Company shall use its reasonable efforts to keep the Shelf Registration Statement continuously effective in order to permit the Prospectus forming part thereof to be usable by Holders until the later of (i) the second anniversary of the last Closing Date and (ii) such time as (A) such Securities shall no longer constitute restricted securities for purposes of Rule 144(k) of the Act or (B) all such Securities have been sold pursuant to the Shelf Registration Statement (in any such case, such period being called the "Shelf Registration Period"). The Company shall be deemed not to have used its reasonable efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of securities covered thereby not to be able to offer and sell such securities during that period, unless such action is (i) required by applicable law or (ii) taken pursuant to Section 2(c) hereof, and, in either case, so long as the Company promptly thereafter complies with the requirements of Section 3(i) hereof, if applicable. (c) The Company may suspend the use of the Prospectus for a period not to exceed 60 days (or such longer period as is reasonably necessary under the circumstances) in any calendar year for valid business 6 6 reasons (not including avoidance of the Company's obligations hereunder), including the acquisition or divestiture of assets, public filings with the Commission, pending corporate developments and similar events. 3. Registration Procedures. In connection with any Shelf Registration Statement, the following provisions shall apply: (a) The Company shall furnish to you, prior to the filing thereof with the Commission, a copy of any Shelf Registration Statement, and each amendment thereof and each amendment or supplement, if any, to the Prospectus included therein and shall use its best efforts to reflect in each such document, when so filed with the Commission, such comments as you reasonably may propose; provided, however, that the Company shall be required only to furnish an Incorporated Document to you as promptly as practicable following its filing with the Commission. (b) The Company shall ensure that (i) any Shelf Registration Statement and any amendment thereto and any Prospectus forming part thereof and any amendment or supplement thereto complies in all material respects with the Act, (ii) any Shelf Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any Prospectus forming part of any Shelf Registration Statement, and any amendment or supplement to such Prospectus, does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (c) (1) The Company shall advise you and the Holders and, if requested by you or any such Holder, confirm such advice in writing: (i) when a Shelf Registration Statement and any amendment thereto has been filed with the Commission and when the Shelf Registration 7 7 Statement or any post-effective amendment thereto has become effective; and (ii) of any request by the Commission for amendments or supplements to the Shelf Registration Statement or the Prospectus included therein or for additional information. (2) The Company shall advise you and the Holders and, if requested by you or any such Holder, confirm such advice in writing: (i) of the issuance by the Commission of any stop order suspending the effectiveness of the Shelf Registration Statement or the initiation of any proceedings for that purpose; (ii) of the receipt by the Company of any notification with respect to the suspension of the qualification of the securities included in any Shelf Registration Statement for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (iii) of the suspension of the use of the Prospectus pursuant to Section 2(c) hereof or of the happening of any event that requires the making of any changes in the Shelf Registration Statement or the Prospectus so that, as of such date, the statements therein are not misleading and do not omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading (which advice shall be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made); provided that such notice shall not be required to specify the nature of the event giving rise to the notice requirement hereunder. (d) The Company shall use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of any Shelf Registration Statement at the earliest possible time. 8 8 (e) The Company shall furnish to each Holder of securities included within the coverage of any Shelf Registration Statement, without charge, at least one copy of such Shelf Registration Statement and any post-effective amendment thereto, including documents incorporated by reference therein, financial statements and schedules, and, if the Holder so requests in writing, all exhibits (including those incorporated by reference). (f) The Company shall, during the Shelf Registration Period, deliver to each Holder of Securities included within the coverage of any Shelf Registration Statement, without charge, as many copies of the Prospectus (including each preliminary Prospectus) included in such Shelf Registration Statement and any amendment or supplement thereto as such Holder may reasonably request; and the Company consents to the use of the Prospectus or any amendment or supplement thereto by each of the selling Holders of Securities in connection with the offering and sale of the Securities covered by the Prospectus or any amendment or supplement thereto. (g) Prior to any offering of securities pursuant to any Shelf Registration Statement, the Company shall register or qualify or cooperate with the Holders of Securities included therein and their respective counsel in connection with the registration or qualification of such Securities for offer and sale under the securities or blue sky laws of such jurisdictions as any such Holders reasonably request in writing and do any and all other acts or things reasonably necessary or advisable to enable the offer and sale in such jurisdictions of the Securities covered by such Shelf Registration Statement; provided, however, that the Company will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject. (h) The Company shall cooperate with the Holders of Securities to facilitate the timely preparation and 9 9 delivery of certificates representing Securities to be sold pursuant to any Shelf Registration Statement free of any restrictive legends and in such denominations and registered in such names as Holders may request prior to sales of Securities pursuant to such Shelf Registration Statement. (i) Upon the occurrence of any event contemplated by paragraph (c)(2)(iii) above, the Company shall, if required pursuant to the Act or paragraph (c)(2)(iii) above, as promptly as practicable prepare a post-effective amendment to any Shelf Registration Statement or an amendment or supplement to the related Prospectus or file any other required document so that, as thereafter delivered to purchasers of the Securities included therein, the Prospectus will not include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (j) Not later than the effective date of any Shelf Registration Statement hereunder, the Company shall provide a CUSIP number for each class of Securities registered under such Shelf Registration Statement, and provide the Transfer Agent with printed certificates for such Securities, in a form eligible for deposit with The Depository Trust Company. (k) The Company shall use its best efforts to comply with all applicable rules and regulations of the Commission and shall make generally available to its security holders as soon as practicable after the effective date of the applicable Shelf Registration Statement an earnings statement satisfying the provisions of Section 11(a) of the Act. (l) The Company may require each Holder of Securities to be sold pursuant to any Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of such Securities as the Company may from time to time reasonably require for inclusion in such Shelf Registration Statement. Any Holder who fails to 10 10 provide such information shall not be entitled to use the Prospectus. (m) The Company shall, if requested, promptly incorporate in a Prospectus supplement or post-effective amendment to a Shelf Registration Statement, such information as the Managing Underwriters and Majority Holders reasonably agree should be included therein and shall make all required filings of such Prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment. (n) The Company and Globalstar shall enter into such agreements (including underwriting agreements) and take all other appropriate actions in order to expedite or facilitate the registration or the disposition of any Securities, and in connection therewith, if an underwriting agreement is entered into, cause the same to contain indemnification provisions and procedures no less favorable than those set forth in Section 5 (or such other provisions and procedures acceptable to the Majority Holders and the Managing Underwriters, if any), with respect to all parties to be indemnified pursuant to Section 5, it being understood that all underwriting discounts and commissions, and all other underwriting fees, associated with such agreement in connection with such offering of the Securities shall, except as otherwise expressly agreed herein (including those expenses covered by Section 4), be for the account of the Holders or the underwriters. (o) The Company and Globalstar shall (i) make reasonably available for inspection by Holders of Securities to be registered thereunder and any Managing Underwriter participating in any disposition pursuant to such Shelf Registration Statement, and any attorney, accountant or other agent retained by the Majority Holders of Securities to be registered thereunder or by any such Managing Underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company or Globalstar, as the case may be; (ii) cause the officers, directors and employees of the Company or Globalstar, as the case may be, to supply all relevant information reasonably 11 11 requested by any such Holders or Managing Underwriter, attorney, accountant or agent in connection with such Shelf Registration Statement as is customary for similar due diligence examinations; provided, however, that any information that is designated in writing by the Company or Globalstar, as the case may be, in good faith, as confidential at the time of delivery of such information shall be kept confidential by any such Holders and Managing Underwriter, attorney, accountant or agent, unless disclosure thereof is made in connection with a court proceeding or required by law, or such information has become available (not in violation of this Agreement) to the public generally or through a third party without an accompanying obligation of confidentiality; (iii) make such representations and warranties to the Holders of securities registered thereunder and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in primary underwritten offerings and covering matters including those set forth in the Purchase Agreement; (iv) obtain opinions of counsel to the Company and Globalstar and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the Holders and Managing Underwriter, if any) addressed to each selling Holder and the underwriters, if any, covering such matters as are customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by the Majority Holders of the securities covered by such Shelf Registration Statement and by such Managing Underwriter; (v) obtain "cold comfort" letters and updates thereof from the independent certified public accountants of the Company and Globalstar, as the case may be (and, if necessary, use its reasonable best efforts to retain any other independent certified public accountants of any subsidiary of the Company or Globalstar or of any business acquired by the Company or Globalstar for which financial statements and financial data are, or are required to be, included in the Shelf Registration Statement), addressed to each selling Holder of Securities registered thereunder and the underwriters, if any, in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with primary 12 12 underwritten offerings; and (vi) deliver such documents and certificates as may be reasonably requested by the Majority Holders and the Managing Underwriters, if any, including those to evidence compliance with Section 3(i) and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company or Globalstar. The foregoing actions set forth in clauses (iii), (iv), (v) and (vi) of this Section 3(o) shall be performed at (A) the effectiveness of such Shelf Registration Statement and each post-effective amendment thereto and (B) each closing under any underwriting or similar agreement as and to the extent required thereunder. 4. Registration Expenses. Globalstar shall bear all expenses incurred in connection with the performance of the Company's obligations under Sections 2 and 3 hereof and shall reimburse the Holders for the reasonable and duly documented fees and disbursements of (i) counsel designated by the Majority Holders to act as counsel for the Holders in connection therewith or (ii) in the absence of such selection of counsel by the Majority Holders, one firm designated by the underwriters to act as counsel for the Holders in connection therewith. It is understood, however, that as except provided in this Section 4, the Holders shall pay all their own costs and expenses, including stock transfer taxes due upon resale by them of any of the securities covered by a Shelf Registration Statement and any advertising expenses incurred in connection with any offers and sales they make. 5. Indemnification and Contribution. (a) In connection with any Shelf Registration Statement, the Company and Globalstar (the "Indemnitors"), jointly and severally, agree to indemnify and hold harmless each Holder of securities covered thereby (including the Purchasers), the directors, officers, employees and agents of each such Holder and each person who controls any such Holder within the meaning of either the Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon 13 13 any untrue statement or alleged untrue statement of a material fact contained in the Shelf Registration Statement as originally filed or in any amendment thereof, or in any preliminary Prospectus or Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that (i) the Indemnitors will not be liable in any case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Indemnitors by or on behalf of any such Holder specifically for inclusion therein, (ii) the Indemnitors shall not be liable to any indemnified party under this indemnity agreement with respect to any Shelf Registration Statement or Prospectus to the extent that any such loss, claim, damage or liability of such indemnified party results solely from an untrue statement of a material fact contained in, or the omission of a material fact from, the Shelf Registration Statement or Prospectus which untrue statement or omission was corrected in an amended or supplemented Shelf Registration Statement or Prospectus, if the person alleging such loss, claim, damage or liability was not sent or given, at or prior to the written confirmation of such sale, a copy of the amended or supplemented Shelf Registration Statement or Prospectus if the Indemnitors had previously furnished copies thereof to such indemnified party and if such delivery of a prospectus is finally judicially determined to be required by the Act and was not so made and (iii) the Indemnitors will not be liable to any indemnified party under this indemnity agreement with respect to any Shelf Registration Statement or Prospectus to the extent that any such loss, claim, damage or liability of such indemnified party results (a) from the use of a Shelf Registration Statement during a period when a stop order has been issued in respect thereof or any proceedings for that purpose have been initiated or (b) from the use of the Prospectus during a period when the use of the Prospectus has been suspended in accordance with 14 14 Section 3(c)(2)(iii) hereof, provided, in each case, that Holders received prior notice of such stop order, initiation of proceedings or suspension. This indemnity agreement will be in addition to any liability which the Indemnitors may otherwise have. The Indemnitors also agree to indemnify or contribute to Losses, as provided in Section 5(d), of any underwriters of Securities registered under a Shelf Registration Statement, their officers and directors and each person who controls such underwriters on substantially the same basis as that of the indemnification of the Holders provided in this Section 5(a) and shall, if requested by any Holder, enter into an underwriting agreement reflecting such agreement, as provided in Section 3(n) hereof. (b) Each Holder of securities covered by a Shelf Registration Statement (including the Purchasers) severally agrees to indemnify and hold harmless (i) the Indemnitors, (ii) each of their respective directors, (iii) each of their respective officers who signs such Shelf Registration Statement and (iv) each person who controls either of the Indemnitors within the meaning of either the Act or the Exchange Act to the same extent as the foregoing indemnity from the Indemnitors to each such Holder, but only with reference to written information relating to such Holder furnished to the Indemnitors by or on behalf of such Holder specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement will be in addition to any liability which any such Holder may otherwise have. (c) Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 5, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification 15 15 obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint counsel of the indemnifying party's choice at the indemnifying party's expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); provided, however, that such counsel shall be reasonably satisfactory to the indemnified party. Notwithstanding the indemnifying party's election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel (and local counsel) if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, (iii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding. (d) In the event that the indemnity provided in paragraph (a) or (b) of this Section 5 is unavailable to or insufficient to hold harmless an indemnified party for any 16 16 reason, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall have a joint and several obligation to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively, "Losses") to which such indemnified party may be subject in such proportion as is appropriate to reflect the relative benefits received by such indemnifying party, on the one hand, and such indemnified party, on the other hand, from the Initial Placement and the Shelf Registration Statement which resulted in such Losses; provided, however, that in no case shall the Purchasers be responsible, in the aggregate, for any amount in excess of the purchase discount or commission applicable to such Security, nor shall any underwriter be responsible for any amount in excess of the underwriting discount or commission applicable to the securities purchased by such underwriter under the Shelf Registration Statement which resulted in such Losses. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the indemnifying party and the indemnified party shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of such indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Indemnitors shall be deemed to be equal to the total net proceeds from the Initial Placement (before deducting expenses). Benefits received by the Purchasers shall be deemed to be equal to the total purchase discounts and commissions, and benefits received by any other Holders shall be deemed to be equal to the value such Holders realize by receiving Securities registered under the Act. Benefits received by any underwriter shall be deemed to be equal to the total underwriting discounts and commissions, as set forth on the cover page of the Prospectus forming a part of the Shelf Registration Statement which resulted in such Losses. Relative fault shall be determined by reference to whether any alleged untrue statement or omission relates to information provided by the indemnifying party, on the one hand, or by the indemnified party, on the other hand. The parties agree that it would not be just and equitable if contribution were determined by pro rata 17 17 allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 5, each person who controls a Holder within the meaning of either the Act or the Exchange Act and each director, officer, employee and agent of such Holder shall have the same rights to contribution as such Holder, and each person who controls either of the Indemnitors within the meaning of either the Act or the Exchange Act, each officer of the Company or Globalstar who shall have signed the Shelf Registration Statement and each director of the Company or Globalstar shall have the same rights to contribution as the Company or Globalstar, as the case may be, subject in each case to the applicable terms and conditions of this paragraph (d). (e) The provisions of this Section 5 will remain in full force and effect, regardless of any investigation made by or on behalf of any Holder or the Indemnitors or any of the officers, directors or controlling persons referred to in Section 5 hereof, and will survive the sale by a Holder of securities covered by a Shelf Registration Statement. 6. Liquidated Damages. (a) The Company and the Purchasers agree that the Holders of Transfer Restricted Securities shall suffer damages if the Company fails to fulfill its obligations pursuant to Section 2 hereof and that it would not be possible to ascertain the extent of such damages. Accordingly, the Company hereby agrees to pay liquidated damages ("Preferred Stock Liquidated Damages") to each Holder of Transfer Restricted Securities under the circumstances and to the extent set forth below: (i) if the Registration Statement has not been filed with the Commission on or prior to the date by which such filing is required to be made in Section 2(a); or 18 18 (ii) if the Registration Statement is not declared effective by the Commission on or prior to the Effectiveness Target Date; or (iii) if the Shelf Registration Statement has been declared effective by the Commission and such Shelf Registration Statement ceases to be effective or to be usable as contemplated by Section 2(b) at any time during the Shelf Registration Period (without being succeeded by a post-effective amendment to such Shelf Registration Statement that cures such failure and that is itself immediately declared effective) for any period of ten consecutive days or for any 20 days in any 180-day period in connection with resales of Transfer Restricted Securities (provided, that the Company will have the option of suspending the effectiveness of the Shelf Registration Statement, without becoming obligated to pay Preferred Stock Liquidated Damages, for periods of up to a total of 60 days in any calendar year if the Board of Directors of the Company determines that compliance with the disclosure obligations necessary to maintain the effectiveness of the Shelf Registration Statement at such time could reasonably be expected to have an adverse effect on the Company or a pending corporate transaction) (each of the foregoing clauses (i) through (iii), a "Registration Default"). (b) In the event of each such Registration Default, the Company shall pay Preferred Stock Liquidated Damages to each Holder of shares of Preferred Stock that are Transfer Restricted Securities at a rate of 0.50% of the liquidation preference of the shares of Preferred Stock constituting Transfer Restricted Securities, which shall accrue from the date of the Registration Default to and including the 30th day following such Registration Default and increase by 0.50% for each subsequent 30 day period; provided, however, that the rate of such Preferred Stock Liquidated Damages may not exceed 2.00% of the Liquidation Preference of the Preferred Stock at any time. Following the cure of all Registration Defaults relating to any shares of Preferred Stock that are Transfer Restricted Securities, the accrual of Preferred Stock Liquidated Damages with respect to such shares of Preferred Stock that are Transfer Restricted Securities shall cease (without in any way 19 19 limiting the effect of any subsequent Registration Default). A Registration Default under clause (i) above shall be cured on the date that the Shelf Registration Statement is filed with the Commission. A Registration Default under clause (ii) above shall be cured on the date that the Shelf Registration Statement is declared effective by the Commission. A Registration Default under clause (iii) above shall be cured on the date the Shelf Registration Statement is declared effective or becomes usable. (c) The Company shall notify the Transfer Agent within one business day after each and every date on which a Registration Default occurs. Preferred Stock Liquidated Damages shall be paid by the Company to the record Holders of shares of Preferred Stock that are Transfer Restricted Securities on each Damages Payment Date by mailing checks to their registered addresses as they appear in the Preferred Stock register if no such accounts have been specified on or before the Damages Payment Date; provided that any Preferred Stock Liquidated Damages accrued with respect to any Preferred Stock or portion thereof called for redemption on a redemption date or converted into Common Stock on a conversion date prior to the Damages Payment Date, shall, in any such event, be paid instead to the Holder that submitted such Preferred Stock for redemption or conversion on the applicable redemption date or conversion date, as the case may be, on such date (promptly following the conversion date, in the case of conversion of Preferred Stock). Each obligation to pay Preferred Stock Liquidated Damages shall be deemed to commence accruing on the date of the applicable Registration Default and to cease accruing when all Registration Defaults have been cured. (d) All Preferred Stock Liquidated Damages with respect to any shares of Preferred Stock that are Transfer Restricted Securities, that remain unpaid when such Securities cease to be Transfer Restricted Securities or cease to be outstanding, shall remain unpaid obligations of the Company until they have been paid in full. 7. Rules 144 and 144A. The Company shall use its reasonable efforts to file the reports required to be filed under the Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, will, upon the request of any Holder of Transfer 20 20 Restricted Securities, make publicly available other information so long as necessary to permit sales of its securities pursuant to Rules 144 and 144A. The Company covenants that it will take such further action as any Holder of Transfer Restricted Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Transfer Restricted Securities without registration under the Act within the limitation of the exemptions provided by Rules 144 and 144A (including the requirements of Rule 144A(d)(4)). The Company will provide a copy of this Agreement to prospective purchasers of Securities identified to the Company by the Purchasers upon request. Upon the request of any Holder of Transfer Restricted Securities, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 8. Miscellaneous. (a) No Inconsistent Agreements. The Company has not, as of the date hereof, entered into, nor shall it, on or after the date hereof, enter into, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders herein or otherwise conflicts with the provisions hereof. (b) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, qualified, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of the Majority Holders; provided that, with respect to any matter that directly or indirectly affects the rights of the Purchasers hereunder, the Company shall obtain the written consent of the Purchasers against which such amendment, qualification, supplement, waiver or consent is to be effective. Notwithstanding the foregoing (except the foregoing proviso), a waiver or consent to departure from the provisions hereof with respect to a matter that relates exclusively to the 21 21 rights of Holders whose Securities are being sold pursuant to a Shelf Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by the Majority Holders, determined on the basis of securities being sold rather than registered under such Shelf Registration Statement. (c) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail, telecopier, or air courier guaranteeing overnight delivery: (1) if to a Holder, at the most current address given by such holder to the Company in accordance with the provisions of this Section 8(c), which address initially is, with respect to each Holder, the address of such Holder maintained by the Registrar of the Securities, with a copy in like manner to Bear, Stearns & Co. Inc.; (2) if to you, initially at the address set forth in the Purchase Agreement; and (3) if to the Company or Globalstar, initially at its address set forth in the Purchase Agreement. All such notices and communications shall be deemed to have been duly given when received. The Purchasers or the Company by notice to the other may designate additional or different addresses for subsequent notices or communications. (d) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including, without the need for an express assignment or any consent by the Company or Globalstar thereto, subsequent Holders of Securities. The Company and Globalstar hereby agree to extend the benefits of this Agreement to any Holder of Securities and any such 22 22 Holder may specifically enforce the provisions of this Agreement as if an original party hereto. (e) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (f) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. (h) Jurisdiction. EACH OF THE COMPANY AND GLOBALSTAR HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURTS LOCATED IN THE CITY OF NEW YORK FOR ANY LAWSUITS, CLAIMS OR OTHER PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT AND AGREES NOT TO COMMENCE ANY SUCH LAWSUIT, CLAIM OR OTHER PROCEEDING EXCEPT IN SUCH COURTS. EACH OF THE COMPANY AND GLOBALSTAR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY LAWSUIT, CLAIM, OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT IN THE COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES DISTRICT COURTS LOCATED IN THE CITY OF NEW YORK, AND HEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH LAWSUIT, CLAIM OR OTHER PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE COMPANY AND GLOBALSTAR HAS APPOINTED ERIC J. ZAHLER AT 600 THIRD AVENUE, NEW YORK, NEW YORK 10016, U.S.A. (HEREINAFTER REFERRED TO IN EACH SUCH CAPACITY AS THE "PROCESS AGENT"), AS ITS AUTHORIZED AGENT UPON WHOM PROCESS MAY BE SERVED IN ANY SUCH SUIT OR PROCEEDING. EACH OF THE COMPANY AND GLOBALSTAR REPRESENTS TO YOU THAT IT HAS NOTIFIED THE PROCESS 23 23 AGENT OF SUCH DESIGNATION AND APPOINTMENT AND THAT THE PROCESS AGENT HAS ACCEPTED THE SAME IN WRITING. EACH OF THE COMPANY AND GLOBALSTAR HAS AUTHORIZED AND DIRECTED THE PROCESS AGENT TO ACCEPT SUCH SERVICE. IF THE PROCESS AGENT SHALL CEASE TO ACT AS THE COMPANY'S OR GLOBALSTAR'S AGENT FOR SERVICE OF PROCESS, THE COMPANY OR GLOBALSTAR, AS APPLICABLE, SHALL APPOINT WITHOUT DELAY ANOTHER SUCH AGENT AND NOTIFY YOU OF SUCH APPOINTMENT. EACH OF THE COMPANY AND GLOBALSTAR FURTHER AGREES THAT SERVICE OF PROCESS UPON THE PROCESS AGENT AND WRITTEN NOTICE OF SAID SERVICE TO THE COMPANY OR GLOBALSTAR, AS APPLICABLE, MAILED BY FIRST CLASS MAIL OR DELIVERED TO THE PROCESS AGENT SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON IT IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT YOUR RIGHT OR THE RIGHT OF ANY PERSON CONTROLLING ANY OF YOU TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. EACH OF THE COMPANY AND GLOBALSTAR AGREES THAT A FINAL ACTION IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER LAWFUL MANNER. (i) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired or affected thereby, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law. (j) Securities Held by the Company or Globalstar, etc. Whenever the consent or approval of Holders of a specified percentage of principal amount or liquidation preference, as the case may be, of Securities is required hereunder, Securities held by the Company, Globalstar or their respective Affiliates (other than subsequent Holders of Securities if such subsequent Holders are deemed to be Affiliates solely by reason of their holdings of such Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. 24 24 Please confirm that the foregoing correctly sets forth the agreement between the Company and you. Very truly yours, GLOBALSTAR TELECOMMUNICATIONS LIMITED, by /s/ Eric J. Zahler ------------------------------ Name: Title: GLOBALSTAR, L.P., by LORAL/QUALCOMM SATELLITE SERVICES, L.P., its general partner, by LORAL/QUALCOMM PARTNERSHIP, L.P., its general partner, by LORAL GENERAL PARTNER, INC., its general partner, by /s/ Eric J. Zahler ------------------------------ Name: Title: 25 25 Accepted in New York, New York January 26, 1999 BEAR, STEARNS & CO. INC. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION LEHMAN BROTHERS INC. C.E. UNTERBERG, TOWBIN CIBC OPPENHEIMER CORP. ING BARING FURMAN SELZ LLC by BEAR, STEARNS & CO. INC. by /s/ M. Andrew Decker ------------------------------- Name: M. Andrew Decker Title: Senior Managing Director EX-12 8 STATEMENT REGARDING COMPUTATION OF RATIOS 1 EXHIBIT 12 STATEMENT REGARDING COMPUTATION OF RATIOS (IN THOUSANDS, EXCEPT RATIOS) GLOBALSTAR TELECOMMUNICATIONS LIMITED RATIO OF EARNINGS TO FIXED CHARGES
YEARS ENDED DECEMBER 31, ----------------------------------- 1998 1997 1996 --------- --------- --------- Earnings: Net loss........................................ $ (50,561) $ (24,152) $ (15,080) Add: Equity in loss applicable to ordinary partnership interests of Globalstar, L.P................................... 50,561 24,152 15,080 Interest expense........................ 22,197 21,202 17,370 --------- --------- --------- Earnings available to cover fixed charges(1)...... $ 22,197 $ 21,202 $ 17,370 ========= ========= ========= Fixed charges -- interest expense................. $ 22,197 $ 21,202 $ 17,370 ========= ========= ========= Ratio of earnings to fixed charges................ 1x 1x 1x ========= ========= =========
- --------------- (1) The earnings of GTL available to cover fixed charges, consist solely of dividends from Globalstar, L.P. on the redeemable preferred partnership interests held by GTL. GLOBALSTAR, L.P. DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES
YEARS ENDED DECEMBER 31, ----------------------------------- 1998 1997 1996 --------- --------- --------- Net loss.......................................... $(129,543) $ (67,586) $ (54,646) Dividends on redeemable preferred partnership interests....................................... (22,197) (21,202) (17,323) Capitalized interest.............................. (178,735) (95,895) (9,900) --------- --------- --------- Deficiency of earnings to cover fixed charges..... $(330,475) $(184,683) $ (81,869) ========= ========= =========
EX-21 9 LIST OF SUBSIDIARIES 1 Exhibit 21 GLOBALSTAR, L.P. As of February 28, 1999, active subsidiaries, all 100% owned directly or indirectly (except as noted below) consist of the following: GLOBALSTAR CAPITAL CORPORATION DELAWARE GLOBALTEL (1) RUSSIAN FEDERATION GLOBALTRAK PTY AUSTRALIA GLOBALSTAR SERVICES COMPANY, INC. DELAWARE GLOBALSTAR CORPORATION DELAWARE TABLE (1) ONLY 49% OWNED DIRECTLY OR INDIRECTLY EX-23 10 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23 CONSENT OF DELOITTE & TOUCHE LLP We consent to the incorporation by reference in Registration Statement Nos. 333-6477, 333-22063, 333-25457 and 333-67731 on Form S-3 and No. 333-29447 on Form S-8 of Globalstar Telecommunications Limited of our reports dated February 16, 1999, on the financial statements of Globalstar Telecommunications Limited and the consolidated financial statements of Globalstar, L.P. appearing in this Annual Report on Form 10-K of Globalstar Telecommunications Limited and Globalstar, L.P. for the year ended December 31, 1998. Deloitte & Touche LLP San Jose, California March 30, 1999 EX-27 11 FINANCIAL DATA SCHEDULE
5 This schedule contains summary consolidated financial information extracted from the financial statements of Globalstar Telecommunications Limited for the year ended December 31, 1998 and is qualified in its entirety by reference to such financial statements. 0000933401 GLOBALSTAR TELECOMMUNICATIONS LTD. 12-MOS DEC-31-1998 DEC-31-1998 0 0 0 0 0 0 0 0 580,428 0 0 0 0 82,017 498,411 580,428 0 0 0 0 0 0 22,197 (50,561) 0 (50,561) 0 0 0 (50,561) (0.67) (0.67)
EX-27.1 12 FINANCIAL DATA SCHEDULE
5 This schedule contains summary consolidated financial information extracted from the financial statements of Globalstar Telecommunications Limited for the year ended December 31, 1998 and is qualified in its entirety by reference to such financial statements. 0001037927 GLOBALSTAR L.P. 12-MOS DEC-31-1998 DEC-31-1998 56,739 0 28,500 0 0 236,288 2,374,288 3,968 2,670,025 401,190 1,396,175 0 0 602,401 0 2,670,025 0 0 0 0 146,684 0 0 (129,543) 0 (129,543) 0 0 0 (151,740) (2.69) (2.69)
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