Item 8.01 Other Events.
Certain Developments Related to Terms Agreement
On September 7, 2022, Apple Inc. (“Partner”) announced new satellite-enabled services for certain of its products (the “Services”). Globalstar, Inc. (“Globalstar” or the “Company”) will be the satellite operator for the Services pursuant to the terms agreement (the “Terms Agreement”) first disclosed in the Company’s Form 10-K for the year ended December 31, 2019, and certain related ancillary agreements (such agreements, together with the Terms Agreement, the “Partnership Agreements”). The Services constitute the potential service described in the Company’s previous disclosure about the Terms Agreement.
Since execution of the Terms Agreement, the parties have completed several milestones including (i) a feasibility phase, (ii) material upgrades to Globalstar’s ground network to enhance redundancy and coverage, (iii) construction of 10 new gateways around the world, (iv) the successful launch of the ground spare satellite, and (v) rigorous in-field system testing.
The Partnership Agreements generally require Globalstar to allocate network capacity (as described below) to support the Services and provide for the inclusion of Globalstar’s Band 53/n53 in Partner’s cellular-enabled devices that use the Services, for use by third parties, subject to certain terms and conditions.
It is currently expected that Partner will make the Services available to customers during the fourth quarter of 2022 (the “Service Launch”). There is no assurance that the Service Launch will occur or, if it does occur, that the Services and the revenues and other consideration expected to be received under the Partnership Agreements will be fully realized or will continue.
Certain terms of the Partnership Agreements are further described below. The description of the Terms Agreement is qualified in its entirety by the text of such agreement, which the Company has filed as an exhibit to this Current Report on Form 8-K and is incorporated herein by reference.
Fees
In consideration for the services provided by Globalstar, Partner will pay fees to Globalstar under the Partnership Agreements, including a recurring service fee, payments relating to certain Service-related operating expenses and capital expenditures, and potential bonus payments subject to satisfaction of certain licensing, service and related criteria.
In addition, as described in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 24, 2022, Partner has agreed to make certain payments to the Company for (i) 95% of the approved capital expenditures Globalstar makes in connection with the new satellites described therein (to be paid on a straight-line basis over the useful life of the satellites); (ii) certain costs of the Company’s borrowings related to the new satellites; (iii) other approved costs; and (iv) termination costs, as described more fully below, should any arise.
Furthermore, under the terms of the Partnership Agreements, Globalstar is required to raise additional debt capital for the construction and launch of the new satellites. Globalstar has mandated Goldman Sachs & Co. LLC and is currently exploring capital markets opportunities and expects to complete a financing in the fourth quarter of 2022.
Certain Obligations of Globalstar
The Partnership Agreements generally provide for Globalstar to:
•Allocate 85% of its current and future network capacity to support the Services (see further discussion of capacity below);
•Provide and maintain all resources, including personnel, software, satellite, gateways, satellite spectrum and regulatory rights necessary to provide the Services (the “Required Resources”);
•Prioritize the Services and provide Partner with priority access to the Required Resources, including the Company’s licensed satellite spectrum;
•Maintain minimum quality and coverage standards and provide continuity of service;
•Allow Partner to recoup advance payments made to Globalstar from future service fees or, to the extent recoupment is not possible, to repay such amounts in cash; and,
•Provide the Resource Protections described below.
Resource Protections
Under certain limited circumstances, in order to facilitate the continuity of services described above, Globalstar has agreed to protective provisions, subject to certain conditions (the “Resource Protections”) including:
•Maintenance of all U.S. spectrum licenses in a single subsidiary (the “Spectrum Subsidiary”) and granting Partner the right to approve actions that could substantially affect the Services, the Required Resources or Partner’s rights under the Partnership Agreements;
•Certain restrictions on encumbrances on the Spectrum Subsidiary’s equity and assets;
•The right to take or cause the Company to take protective actions on an interim basis to retain continuity of service if the Company fundamentally breaches the Partnership Agreements and is unable to operate the satellite constellation; and,
•Subordinated liens on the Company’s assets that are used in, may be needed in, or are useful for the Services, as well as an intercreditor agreement with senior lenders which includes the right to pay down Globalstar’s senior debt under certain events.
Refinancing Commitments
The Partnership Agreements require Globalstar (i) upon commencement of the Services, to convert all loans outstanding under the 2019 Facility Agreement that are held by affiliates of the Thermo Companies (collectively, “Thermo”) into non-convertible perpetual preferred stock with a cash pay interest rate of 7% per annum or lower, convertible preferred stock with cash pay interest rate of 4% per annum or lower, common stock, or another security acceptable to Partner (the “Thermo Debt Conversion”) and (ii) within 90 days of the commencement of the Services, to refinance or convert all loans outstanding under the 2019 Facility Agreement that are held by persons other than Thermo on terms that are no less favorable to the Company than the Thermo Debt Conversion.
Obligations of Thermo
On September 7, 2022, Partner and Thermo entered into a lock-up and right of first offer agreement that generally (i) requires Thermo to offer any shares of Globalstar common stock to Partner before transferring them to any other Person other than affiliates of Thermo and (ii) prohibits Thermo from transferring shares of Globalstar common stock if such transfer would cause Thermo to hold less than 51.00% of the outstanding common stock of the Company for a period of 5 years from the Service Launch (as defined below). This agreement does not prohibit the Company from entering into a change of control transaction at any time.
Warrants and Right to Participate in Equity Offerings
The Partnership Agreements also provide that Partner may elect to receive warrants (the "Warrants") to purchase up to 2.64% of the Company’s outstanding common stock, to be calculated on a fully diluted basis on the date Partner begins providing the Services, at a blended exercise price of $1.01, which is based on the price of Globalstar common stock on the dates of certain past milestones provided under the Partnership Agreements. Partner is under no obligation to receive the Warrants or to exercise them.
In addition, Partner has the right, but not the obligation, to participate in certain issuances of the Company’s equity securities, in order to maintain its percentage interest in the Company (determined on a fully diluted basis, assuming exercise of all the Warrants).
Termination
The Terms Agreement has no expiration date but provides that each party may terminate it subject to certain notice requirements and, in some cases, other conditions.
In the event Partner terminates the agreements and subject to certain conditions, Partner would be required to reimburse Globalstar for certain capital expenditures, and other costs of materials purchased or manufactured.