ACQUISITION OF AXONN

12 Months Ended

Dec. 31, 2011

ACQUISITION OF AXONN

7. ACQUISITION OF AXONN

On December 18, 2009, Globalstar entered into an agreement with Axonn L.L.C. (“Axonn”) pursuant to which one of the Company’s wholly-owned subsidiaries acquired certain assets and assumed certain liabilities of Axonn in exchange for $1.5 million in cash and $5.5 million in shares of the Company’s voting common stock (6,298,058 shares). Of these amounts, $500,000 in cash was withheld and used to cover expenses related to the voluntary replacement of first production models of the Company’s SPOT Satellite GPS Messenger devices and warranty obligations related to other products. Prior to the acquisition, Axonn was the principal supplier of the Company’s SPOT products.

In addition to the consideration paid to Axonn upon closing of the acquisition, Globalstar is obligated to pay up to an additional $10.8 million in contingent consideration for earnouts based on sales of existing and new products over a five-year earnout period beginning January 1, 2010. The Company will make earnout payments in stock (not to exceed 10% of the Company’s pre-transaction outstanding common stock), but at its option may make payments in cash after 13 million shares have been issued. The Company’s initial estimate of the total earnout expected to be paid was $10.8 million. During 2011, the Company revised this estimate to $10.6 million. Through December 31, 2011, the Company had made $3.0 million in earnout payments by issuing 8,914,813 shares of voting common stock.

 The following table summarizes the Company’s allocation of the purchase price to the assets acquired and liabilities assumed in the acquisition (in thousands):

	December 18, 2009
Accounts receivable	$	1,176
Inventory		2,897
Property and equipment		931
Intangible assets		7,600
Goodwill		2,703
Total assets acquired	$	15,307
Accounts payable and other accrued liabilities		2,311
Total liabilities assumed	$	2,311
Net assets acquired	$	12,996

The Company accounted for the acquisition using the purchase method of accounting. The Company allocated the total estimated purchase price to net tangible assets and identifiable intangible assets based on their fair values as of the date of the acquisition, recording the excess of the purchase price over those fair values as goodwill.

The Company has included the results of operations of Axonn in its consolidated financial statements from the date of acquisition. The results of Axonn prior to the acquisition are not material.

As a result of the Axonn acquisition, the Company reported goodwill of $2.7 million at December 31, 2009. The Company tested the fair value of the goodwill at December 31, 2010 using a two-step approach.  The first step was to estimate of the fair value of the reporting unit to ensure that its fair value exceeds its carrying value.  If step one indicates that a potential impairment exists, the second step is performed to measure the amount of impairment, if any.  The impairment charge is calculated as the amount, if any, that the carrying value of the goodwill exceeds the implied value amount of goodwill that results from this hypothetical purchase price allocation.

As the result of step one of its annual impairment test, the Company concluded that the fair value of its reporting unit was below its carrying value, indicating that goodwill had been impaired.  In step two of the impairment test, the goodwill of the reporting unit was determined to have no implied value.  Accordingly, in 2010 the Company recorded a pre-tax charge of $2.7 million.

Also, as a result of the Axonn acquisition, the Company recorded other intangible assets of $7.6 million at December 31, 2009. During 2011, the Company wrote down the value of intangibles by $0.9 million due to the discontinuance of the sale of certain products resulting from a strategic decision to focus on core products and curtail substantially all on-going product development activities.

Intangible assets consist of the following (in thousands):

	December 31, 2011										December 31, 2010
	Gross		Write			Accumulated			Net		Gross		Accumulated			Net
	Amount		Down			Amortization			Balance		Amount		Amortization			Balance
Developed technology	$	5,300	$	(909	)	$	(2,428	)	$	1,963	$	5,300	$	(1,062	)	$	4,238
Customer relationships		2,100		—			(1,078	)		1,022		2,100		(242	)		1,858
Trade name		200		—			(200	)		—		200		(200	)		—
Total	$	7,600	$	(909	)	$	(3,706	)	$	2,985	$	7,600	$	(1,504	)	$	6,096

Developed technology, customer relationships, and trade name are amortized over the life of the related asset with weighted average lives of 10 years, 8 years, and 2 years, respectively.  Estimated annual amortization of intangible assets is approximately $1.2 million for 2012, $0.7 million for 2013, $0.5 million for 2014, $0.3 million for 2015 and $0.3 million thereafter, excluding the effects of any acquisitions or dispositions subsequent to December 31, 2011.