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                       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:
 
<TABLE>
<CAPTION>
                                               NAME OF EACH EXCHANGE
         TITLE OF EACH CLASS                    ON WHICH REGISTERED
         -------------------                   ---------------------
<S>                                    <C>
GLOBALSTAR TELECOMMUNICATIONS LIMITED
    COMMON STOCK, $1.00 PAR VALUE             NASDAQ NATIONAL MARKET
</TABLE>
 
     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.
 
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                                     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,
 
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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
 
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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
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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.
 
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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:
 
<TABLE>
<CAPTION>
    TELECOMMUNICATIONS                                   TELECOMMUNICATIONS EQUIPMENT AND
    SERVICE PROVIDERS                                     AEROSPACE SYSTEMS MANUFACTURERS
    ------------------                                   --------------------------------
    <S>                                               <C>
    - 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
</TABLE>
 
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.
 
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     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,
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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
 
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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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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.
 
<TABLE>
<CAPTION>
                                                         MARKET PRICE
                                                 -----------------------------
                                                    1998             1997
                                                 -----------    --------------
                                                 HIGH    LOW    HIGH     LOW
                                                 ----    ---    ----    ------
<S>                                              <C>     <C>    <C>     <C>
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
</TABLE>
 
     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
<PAGE>   24
 
ITEM 6.  SELECTED FINANCIAL DATA
 
                     GLOBALSTAR TELECOMMUNICATIONS LIMITED
                     (In thousands, except per share data)
 
<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                   -------------------------------------------
                                                   1998(1)      1997        1996        1995
                                                   -------    --------    --------    --------
<S>                                                <C>        <C>         <C>         <C>
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
</TABLE>
 
<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                         -----------------------------------------------------
                                           1998        1997        1996        1995      1994
                                         --------    --------    --------    --------    -----
<S>                                      <C>         <C>         <C>         <C>         <C>
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
</TABLE>
 
---------------
 
(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
<PAGE>   25
 
                                GLOBALSTAR, L.P.
            (In thousands, except per partnership interest amounts)
 
<TABLE>
<CAPTION>
                                                                                                   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
                                       ----          -------      ----       ----       ----     -----------------   ------------
<S>                              <C>                 <C>        <C>        <C>        <C>        <C>                 <C>
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)
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                  DECEMBER 31,
                                                            --------------------------------------------------------
                                                               1998         1997        1996       1995       1994
                                                            ----------   ----------   --------   --------   --------
<S>                                                         <C>          <C>          <C>        <C>        <C>
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
</TABLE>
 
---------------
(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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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
 
<TABLE>
<CAPTION>
            NAME               AGE                           POSITION
            ----               ---                           --------
<S>                            <C>   <C>
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
</TABLE>
 
EXECUTIVE OFFICERS OF GLOBALSTAR
 
<TABLE>
<CAPTION>
            NAME               AGE                           POSITION
            ----               ---                           --------
<S>                            <C>   <C>
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.
</TABLE>
 
                                       32
<PAGE>   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
<PAGE>   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
<PAGE>   35
 
ITEM 14:  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
 
     (a) 1.  Financial Statements
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
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
</TABLE>
 
                                       35
<PAGE>   36
 
       (a) 3.  Exhibits
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                     DESCRIPTIONS OF EXHIBIT
-------                     -----------------------
<S>       <C>
 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*
</TABLE>
<PAGE>   37
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                     DESCRIPTIONS OF EXHIBIT
-------                     -----------------------
<S>       <C>
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)*
</TABLE>
 
---------------
 
 (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.
<PAGE>   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.
 
<TABLE>
<CAPTION>
                    SIGNATURES                                     TITLE                     DATE
                    ----------                                     -----                     ----
<C>                                                  <S>                                <C>
              /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
</TABLE>
<PAGE>   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.
 
<TABLE>
<CAPTION>
                    SIGNATURES                                     TITLE                     DATE
                    ----------                                     -----                     ----
<C>                                                  <S>                                <C>
              /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
</TABLE>
<PAGE>   40
 
                         INDEX TO FINANCIAL STATEMENTS
 
<TABLE>
<S>                                                           <C>
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
</TABLE>
 
                                       F-1
<PAGE>   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
<PAGE>   42
 
                     GLOBALSTAR TELECOMMUNICATIONS LIMITED
                    (A GENERAL PARTNER OF GLOBALSTAR, L.P.)
 
                                 BALANCE SHEETS
                       (In thousands, except share data)
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              ---------------------
                                                                1998         1997
                                                                ----         ----
<S>                                                           <C>          <C>
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
                                                              =========    ========
</TABLE>
 
                       See notes to financial statements.
 
                                       F-3
<PAGE>   43
 
                     GLOBALSTAR TELECOMMUNICATIONS LIMITED
                    (A GENERAL PARTNER OF GLOBALSTAR, L.P.)
 
                            STATEMENTS OF OPERATIONS
                     (In thousands, except per share data)
 
<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                             --------------------------------
                                                               1998        1997        1996
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
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
                                                             ========    ========    ========
</TABLE>
 
                       See notes to financial statements.
 
                                       F-4
<PAGE>   44
 
                     GLOBALSTAR TELECOMMUNICATIONS LIMITED
                    (A GENERAL PARTNER OF GLOBALSTAR, L.P.)
 
                       STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (In thousands)
 
<TABLE>
<CAPTION>
                                                                COMMON STOCK
                                                              ----------------   PAID-IN               ACCUMULATED
                                                              SHARES   AMOUNT    CAPITAL    WARRANTS     DEFICIT      TOTAL
                                                              ------   -------   --------   --------   -----------   --------
<S>                                                           <C>      <C>       <C>        <C>        <C>           <C>
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
                                                              ======   =======   ========   ========    =========    ========
</TABLE>
 
                       See notes to financial statements.
                                       F-5
<PAGE>   45
 
                     GLOBALSTAR TELECOMMUNICATIONS LIMITED
                    (A GENERAL PARTNER OF GLOBALSTAR, L.P.)
 
                            STATEMENTS OF CASH FLOWS
                                 (In thousands)
 
<TABLE>
<CAPTION>
                                                                   YEARS ENDED DECEMBER 31,
                                                              -----------------------------------
                                                                1998         1997         1996
                                                              ---------   -----------   ---------
<S>                                                           <C>         <C>           <C>
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
                                                              =========   ===========   =========
</TABLE>
 
                       See notes to financial statements.
                                       F-6
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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:
 
<TABLE>
<CAPTION>
                                                                           WEIGHTED-
                                                                            AVERAGE
                                                                           EXERCISE
                                                               SHARES        PRICE
                                                              ---------    ---------
<S>                                                           <C>          <C>
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.
</TABLE>
 
     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:
 
<TABLE>
<CAPTION>
                                                      OUTSTANDING                  EXERCISABLE
                                           ----------------------------------   ------------------
                                                        WEIGHTED
                                                         AVERAGE     WEIGHTED             WEIGHTED
                                                        REMAINING    AVERAGE              AVERAGE
                                                       CONTRACTUAL   EXERCISE             EXERCISE
EXERCISE PRICE RANGE                        NUMBER     LIFE-YEARS     PRICE     NUMBER     PRICE
--------------------                       ---------   -----------   --------   -------   --------
<S>                                        <C>         <C>           <C>        <C>       <C>
$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
                                           =========      ====       ========   =======   =======
</TABLE>
 
  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
<PAGE>   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)
 
<TABLE>
<CAPTION>
                                                                      QUARTER ENDED
                                                      ----------------------------------------------
                                                      MARCH 31,   JUNE 30,   SEPT. 30,(*)   DEC. 31,
                                                      ---------   --------   ------------   --------
                                                         (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                   <C>         <C>        <C>            <C>
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
</TABLE>
 
---------------
 
(*) 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
<PAGE>   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
<PAGE>   54
 
                                GLOBALSTAR, L.P.
                   (A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
 
                          CONSOLIDATED BALANCE SHEETS
                  (In thousands, except partnership interests)
 
<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
                                                                 1998          1997
                                                              ----------    ----------
<S>                                                           <C>           <C>
                                        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
                                                              ==========    ==========
</TABLE>
 
                See notes to consolidated financial statements.
                                      F-15
<PAGE>   55
 
                                GLOBALSTAR, L.P.
                   (A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
            (In thousands, except per ordinary partnership interest)
 
<TABLE>
<CAPTION>
                                                                                            CUMULATIVE
                                                                                             MARCH 23,
                                                                                               1994
                                                    YEARS ENDED DECEMBER 31,             (COMMENCEMENT OF
                                           ------------------------------------------     OPERATIONS) TO
                                               1996           1997           1998        DECEMBER 31, 1998
                                           ------------   ------------   ------------    -----------------
<S>                                        <C>            <C>            <C>             <C>
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
                                            =========      =========       ========
</TABLE>
 
                See notes to consolidated financial statements.
                                      F-16
<PAGE>   56
 
                                GLOBALSTAR, L.P.
                   (A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
 
           CONSOLIDATED STATEMENTS OF ORDINARY PARTNERS' CAPITAL AND
                            SUBSCRIPTIONS RECEIVABLE
                                 (IN THOUSANDS)
 
                           ORDINARY PARTNERS' CAPITAL
 
<TABLE>
<CAPTION>
                                                                ORDINARY
                                                              PARTNERSHIP
                                                               INTERESTS        WARRANTS         TOTAL
                                                              ------------    ------------    ------------
<S>                                                           <C>             <C>             <C>
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................................................   $       --                       $     --
                                                               ==========                       ========
</TABLE>
 
                See notes to consolidated financial statements.
                                      F-17
<PAGE>   57
 
                                GLOBALSTAR, L.P.
                   (A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
 
<TABLE>
<CAPTION>
                                                                                                      CUMULATIVE
                                                                                                      MARCH 23,
                                                                                                         1994
                                                                                                    (COMMENCEMENT
                                                                                                          OF
                                                                   YEARS ENDED DECEMBER 31,         OPERATIONS) TO
                                                              -----------------------------------    DECEMBER 31,
                                                                1996         1997         1998           1998
                                                              ---------   ----------   ----------   --------------
<S>                                                           <C>         <C>          <C>          <C>
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
                                                              =========   ==========   ==========    ===========
</TABLE>
 
                See notes to consolidated financial statements.
                                      F-18
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   63
                                GLOBALSTAR, L.P.
                   (A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
4.  PROPERTY AND EQUIPMENT
 
<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                                    -----------------
                                                                     1998      1997
                                                                    ------    -------
                                                                     (IN THOUSANDS)
    <S>                                                             <C>       <C>
    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
                                                                    ======    =======
</TABLE>
 
     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
<PAGE>   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
<PAGE>   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
<PAGE>   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):
 
<TABLE>
<S>                                                   <C>
1999..............................................    $3,246
2000..............................................     2,218
2001..............................................       160
2002..............................................       160
2003..............................................       160
Thereafter........................................       455
                                                      ------
Total minimum lease payments......................    $6,399
                                                      ======
</TABLE>
 
     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
<PAGE>   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
<PAGE>   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
<PAGE>   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
<PAGE>   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:
 
<TABLE>
<CAPTION>
                                                                          WEIGHTED-
                                                                           AVERAGE
                                                                           EXERCISE
                                                               SHARES       PRICE
                                                              ---------   ----------
<S>                                                           <C>         <C>
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
                                                              =========   ==========
</TABLE>
 
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:
 
<TABLE>
<CAPTION>
                                                        OUTSTANDING                   EXERCISABLE
                                            ------------------------------------   ------------------
                                                          WEIGHTED
                                                          AVERAGE       WEIGHTED             WEIGHTED
                                                         REMAINING      AVERAGE              AVERAGE
                                                        CONTRACTUAL     EXERCISE             EXERCISE
EXERCISE PRICE RANGE                         NUMBER      LIFE-YEARS      PRICE     NUMBER     PRICE
--------------------                        ---------   ------------    --------   -------   --------
<S>                                         <C>         <C>             <C>        <C>       <C>
$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
                                            =========       ====        ========   =======   =======
</TABLE>
 
                                      F-31
<PAGE>   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
<PAGE>   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.
 
<TABLE>
<CAPTION>
                                                 PENSION BENEFITS    OTHER BENEFITS
                                                 ----------------    --------------
                                                  1998      1997     1998     1997
                                                 ------    ------    -----    -----
                                                           (IN THOUSANDS)
<S>                                              <C>       <C>       <C>      <C>
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)
                                                 ======    ======    =====    =====
</TABLE>
 
     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):
 
<TABLE>
<CAPTION>
                                         PENSION BENEFITS         OTHER BENEFITS
                                       --------------------    --------------------
                                       1998    1997    1996    1998    1997    1996
                                       ----    ----    ----    ----    ----    ----
<S>                                    <C>     <C>     <C>     <C>     <C>     <C>
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
                                       ====    ====    ====    ====    ====    ===
</TABLE>
 
                                      F-33
<PAGE>   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:
 
<TABLE>
<CAPTION>
                                                                1998    1997    1996
                                                                ----    ----    ----
<S>                                                             <C>     <C>     <C>
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%
</TABLE>
 
     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:
 
<TABLE>
<CAPTION>
                                                             1% INCREASE    1% DECREASE
                                                             -----------    -----------
<S>                                                          <C>            <C>
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)
</TABLE>
 
  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
<PAGE>   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):
 
<TABLE>
<CAPTION>
                                    DECEMBER 31, 1998       DECEMBER 31, 1997
                                   --------------------    --------------------
                                   CARRYING      FAIR      CARRYING      FAIR
                                    AMOUNT      VALUE       AMOUNT      VALUE
                                   --------    --------    --------    --------
<S>                                <C>         <C>         <C>         <C>
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
</TABLE>
 
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
<PAGE>   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):
 
<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                                          ------------------------
                                                             1998          1997
                                                          ----------    ----------
<S>                                                       <C>           <C>
SS/L..................................................     $358,207      $211,843
Qualcomm..............................................      225,811        90,817
Other affiliates......................................        3,694           420
                                                           --------      --------
Total due to affiliates...............................     $587,712      $303,080
                                                           ========      ========
</TABLE>
 
     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
<PAGE>   76
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                     DESCRIPTIONS OF EXHIBIT
-------                     -----------------------
<S>       <C>
 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*
</TABLE>
<PAGE>   77
 
<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                     DESCRIPTIONS OF EXHIBIT
-------                     -----------------------
<S>       <C>
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)*
</TABLE>
 
---------------
 
 (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.