Company makes Chapter 11 filing; Satellite telephone service to continue
uninterrupted
SAN JOSE, CA, February 15, 2002
Globalstar L.P. announced today that it has reached agreement with several of its major
creditors to restructure the company's debt and, in order to facilitate the timely completion
of the restructuring, has filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy
Code in the U.S. Bankruptcy Court in Delaware.
Normal company operations and customer support will continue uninterrupted while Globalstar
operates under Chapter 11 protection, and the company intends to continue providing its
telecommunications services in the normal course.
Today's announcement follows a November 14, 2001, regulatory filing in which Globalstar
disclosed the likelihood of a Chapter 11 filing, pointing out that demand for the company's
service has continued to grow but that the cost of servicing the company's debt had outpaced
Globalstar's revenues.
"This filing is an important first step in establishing a new Globalstar with renewed
credibility, enabling it to address new business opportunities and to further broaden our
customer base," said Olof Lundberg, chairman and CEO of Globalstar. "Potential customers
have told us that we need to demonstrate financial viability and a commitment to the future.
Now with this step, we're ready to begin. Our major creditors are on board, and we hope to
complete the restructuring process rapidly, returning to expanding the use of both our
current voice and data satellite services and, with new partners, develop new
products.
"I want to assure our 66,000 customers that Globalstar remains very much open for business.
With the cooperation of our gateway operators and local service providers, customers
can expect normal operations and our usual high quality of service as we progress through
the reorganization process," Mr. Lundberg added.
The proposed restructuring plan, which will be submitted for Court approval, calls for the
establishment of a new Globalstar company which will take ownership of all of Globalstar
L.P.'s existing assets, including its satellite constellation and related operations.
In addition, the new company will acquire all equity stakes in three of its service
providers - Globalstar USA, Globalstar Caribbean, and Globalstar Canada - that were
originally held by Vodafone Group Plc and Loral Space & Communications. Acquisition of
equity in Globalstar USA and Globalstar Caribbean are subject to FCC and other regulatory
approvals.
Under this plan, the new company will initially be owned by Globalstar L.P.'s existing
bondholders and other unsecured creditors, with the option later to issue additional
shares for sale to gateway operators outside of the U.S. and Canada who may wish to
invest in the new company.
The reorganization plan also calls for the cancellation of all existing partnership
interests in Globalstar L.P., including partnership interests held by the publicly
traded Globalstar Telecommunications Limited (GTL). As the company has cautioned
earlier in public announcements and SEC filings, this action will likely leave shares
in GTL with very little or no value. The restructuring plan also contemplates a rights
offering to common shareholders in GTL and to GLP creditors which could give them the
option to purchase shares in the new company. There can be no assurance at this time
whether such a rights offering can be achieved, and it would in any case be subject
to review and approval by Globalstar's creditors and the bankruptcy court.
As part of the agreement with its major creditors, Globalstar said it will begin
implementing a new business model, which will broaden its business opportunities
and accelerate the acquisition of new customers. Initial steps of the new business
plan include:
- Aggressively priced service, using existing system capacity and phone inventories to
build cash flow. Service packages will be aimed in particular at volume usage and multiple
phone units, covering both voice and data services.
- Consolidation of selected gateways into the new Globalstar company, allowing
Globalstar to assume responsibility for marketing and operations in several of its largest
markets. Globalstar L.P. had already initiated this process by agreeing in December 2001 to
acquire most of Vodafone Group Plc's North American Globalstar-related assets, which will
now be transferred to the new company. This will create greater operating efficiencies,
lowering the overall cost of delivering service to customers, and avoiding duplication of
functions at each service provider while at the same time allowing Globalstar to capture
the full retail revenue stream in these markets.
- Marketing efforts that will be focused on high-potential countries and customer
segments, primarily enterprise customers, and with particular attention to aviation,
maritime and government services. Recent events have highlighted the utility and value of
mobile satellite telephony, not only in crisis situations but also in day-to-day
applications relating to security, defense, and civil emergency preparedness.
- Use of new 2GHz radio spectrum recently granted to Globalstar by the U.S.
Federal Communications Commission (FCC). The company will explore opportunities to
utilize this valuable asset in both existing and new applications and in terms of
evolution to a second generation system.
- Pursuit of new business opportunities that will evolve out of more flexible
spectrum utilization rules
, following a favorable outcome of the FCC's current Notice of Proposed Rulemaking
(NPRM) proceedings relating to air traffic control.
As part of Globalstar's work to develop its restructuring plan over the past several
months, it has substantially reduced its operating expenses. As a result, the company
today has approximately $46 million of cash on hand, significantly more than its original
projections from a year earlier. The final restructuring will likely require some new
investment to provide enough funds to carry the company through to a cash flow breakeven
point, although the company's new lower cost structure calls for substantially less
additional funding than would have been necessary under the company's earlier business
model. The company is currently in discussions with possible investors to meet this
investment requirement, although there can be no assurance as to the timing, likelihood
or amount of any such investment.
In the meantime, Globalstar continues to make progress in strengthening and expanding
its business and customer base to create a firm foundation for the new, restructured
company. Recent achievements include:
- Expansion of service coverage throughout Central Asia, including Afghanistan.
Globalstar service is already being used extensively in this region to support medical
and humanitarian programs.
- Finalization of plans to ship and construct a second gateway in China. Upon completion,
the new Lanzhou gateway, together with the existing Beijing gateway, will provide service
coverage across over 80% of the country.
- Sale of over 1,000 phones to the U.S. government for use in domestic security,
including communications support at the 2002 Winter Olympics in Salt Lake City.
Globalstar's Chapter 11 filing and business model announcement result from an extended
business review begun in January 2001, when the company announced that it was suspending
payments of interest and principal on all of its funded debt, including its credit
facilities, vendor financing agreements and Senior Notes, as well as dividend payments
on its preferred stock, and that it had engaged The Blackstone Group to assist it in
exploring strategic alternatives.
The Company's informational filings with the Court are available to the public
at the office of the Clerk of the Bankruptcy Court, 824 Market Street, Wilmington,
DE 19801 (tel: 1-888-667-5530). The filings will also be available electronically,
for a fee, through the Court's Internet website at http://www.deb.uscourts.gov (Case
Nos. 02-010499, 02-010501, 02-010503, 02-010504).
This press release contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
statements provide our expectations or forecasts of future events. Actual results could
differ materially as a result of known or unknown risks and uncertainties and other
factors, including our ability to secure sufficient funding with acceptable terms under
credit facilities or from other sources, the ability to attract new investors to fund
continued operations, the ability to restructure our debt, the risk of acceleration of
existing debt facilities and the exercise of remedies with respect thereto, and other
risks, uncertainties and factors disclosed in the most recent report on Form 10-K and
reports on Form 10-Q and Forms 8-K of Globalstar Telecommunications Ltd. and Globalstar,
L.P. filed with the Securities and Exchange Commission. We undertake no obligation to
update any forward-looking statement.
