With losses continuing and debt obligations looming, Globalstar is facing an almost inevitable slide into Chapter 11 bankruptcy protection as the partnership writes down its 4 billion loss and relaunches the satellite constellation in a similar fashion to Iridium.

For the September quarter, Globalstar, L.P. reported a net loss applicable to ordinary partnership interests for the quarter of $129 million, down 10% from the previous quarter's loss of $144 million. The current quarter's loss is equivalent to $1.98 per partnership interest, which converts to a loss of $0.33 per share of Globalstar Telecommunications Limited.

Although minutes of use continued to climb in the third quarter, service revenue, net of discounts and promotions, declined 18% from the previous quarter to $1.4 million. This decrease was due in large part to the introduction of a revised, aggressive wholesale pricing scheme. Net revenue, including royalty income from phone sales, and less discounts and promotions, was $1.5 million, down 20% from the previous quarter.

To further reduce operating costs, Globalstar has reduced its headcount significantly over the course of this year. By mid-November, the company expects to bring its headcount level down to 125 employees, which will still allow Globalstar to maintain basic operations in conjunction with the consolidation of service provider operations called for in its new business plan.

Restructuring Plan
Globalstar and its partners have been developing a new business plan that is intended to form the basis for restructuring the company's finances and to ensure uninterrupted service for Globalstar customers. This plan assumes the conversion of Globalstar debt obligations into equity in a new Globalstar company, along with the consolidation of certain Globalstar service provider operations into this new company.

The aim of the service provider consolidation is to bring further efficiencies to the operation of the Globalstar network and to allow for increased coordination in the company's service offerings and pricing. Globalstar also intends to continue to offer its services through independent gateway operators in regions not included in the consolidation.

Because the company has been able to reduce its operating expenses more rapidly than originally planned, Globalstar expects to begin 2002 with approximately $45 million cash on hand. If Globalstar's restructuring plan is agreed upon and put into effect, and if the new company receives the revenues currently projected under the plan, Globalstar believes it can achieve cash flow breakeven operations with far less additional funding than would have been required under the company's earlier business model. The company is currently in discussions with a number of possible investors to meet this requirement.

Globalstar has been discussing its new business plan with its principal creditors, with the objective of achieving a negotiated financial restructuring plan. Assuming Globalstar is able to successfully conclude these discussions, the company and certain of its affiliates will commence voluntary Chapter 11 cases and seek to confirm a Chapter 11 plan which both implements the terms agreed with its creditors and binds all of Globalstar's creditors.

Globalstar will likely decide to seek voluntary protection under the federal bankruptcy laws even without a pre-negotiated settlement with its principal creditors. Moreover, its creditors may, at anytime, initiate involuntary bankruptcy proceedings against Globalstar.

In any financial restructuring, all partnership interests will likely be severely diluted, in which event they will have little or no value, or be eliminated entirely. This would apply to equity held by all of Globalstar's partners, including Globalstar Telecommunications Limited, the NASDAQ-listed entity.

As announced in January, in order to have sufficient funds available to pursue continued progress in its marketing and service activities, Globalstar has suspended indefinitely principal and interest payments on all of its funded debt, including its credit facility, vendor financing agreements and Senior Notes, as well as dividend payments on its preferred stock. Suspension of these payments remains in effect, and, as a result of these actions, defaults have now occurred with respect to some of Globalstar's debt.

Sales and Marketing Operations
Use of Globalstar service rose strongly during the quarter in several high-potential markets, including China (up 78%), Canada (up 120%), Russia (up 203%), and Korea (up 157%). Major milestones of the quarter include:

• In the wake of the tragic events of September 11 in the U.S., Globalstar offered its support to a variety of companies and both government and private organizations involved in the recovery effort. In addition, the company saw a significant rise in sales and usage of service. Globalstar continues to receive inquiries from companies and organizations as they now re-evaluate their future telecommunications needs, particularly in the area of emergency communications. Many major media organizations also made extensive use of Globalstar's service in providing coverage of events.

• In late October, Qualcomm held a public demonstration of its MDSS Globalstar communications system, which can provide high-capacity data, voice and video communications to and from commercial aircraft for security and avionics applications.

• The Brazilian civil aviation authority certified Globalstar do Brasil and Avionics, a S�o Paulo-based aviation services company, to sell and install Globalstar equipment on executive jets in Brazil for both voice and data services. The two companies are now working towards further approvals for similar use aboard commercial aircraft.

• The Italian Navy is in the process of installing Globalstar fixed phone units on all major vessels in its entire fleet. The phones will be used to provide secure, reliable communications from virtually anywhere the ships may be operating. Phones are also now being installed across the entire fleet of Sea River, a major U.S. maritime tanker fleet operator. Globalstar fixed units on these vessels will be used by Sea River crews for general communications.

• Globalstar phones were used extensively between September and November by American military troops temporarily stationed in Egypt for personal calls back to their homes in the U.S.

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