**GLOBALSTAR, L.P., ADEBTOR-IN-POSSESSION**
**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**
continues its business operations as adebtor-in-possession. The amount and settlement terms of thepre-petition liabilities subject to compromise are subject to anapproved plan of reorganization and may differ significantlyfrom the amounts as reflected in these consolidated financialstatements.
     On January 14, 2003, Globalstar and theCreditors’ Committee reached an agreement with New ValleyCorporation (“New Valley”) providing fordebtor-in-possession financing (the “New Valley DIPFacility”) of up to $20 million and a total investmentin a reorganized Globalstar of $55 million. Globalstarfiled a motion with the Bankruptcy Court for approval of thisnew investment on January 15, 2003 and filed aForm 8-K on the same date. A hearing to seek BankruptcyCourt approval of the New Valley DIP Facility was scheduled forJanuary 30, 2003 in Delaware. Prior to the hearing, theCreditors’ Committee informed Globalstar and New Valleythat the Creditors’ Committee would not support approval ofthe New Valley investment, but that a consortium includingcertain individual members of the Creditors’ Committee wasprepared to provide substitute debtor-in-possession financing.As a consequence, New Valley withdrew its investment offer as ofJanuary 30, 2003. Globalstar filed another Form 8-Kreflecting New Valley’s withdrawal on February 4, 2003.
     On February 14, 2003, Globalstar and theconsortium of lenders (the “DIP Lenders”) reachedagreement on debtor-in-possession financing of $10 million(the “DIP Facility”) and filed a motion with theBankruptcy Court seeking approval of such financing. Globalstaralso filed a motion defining certain auction procedures by whichGlobalstar would conclude its search for an investor to fundGlobalstar’s restructuring and exit from bankruptcy. TheBankruptcy Court provided interim approval of the DIP Facilityand approved the auction procedures on February 20, 2003,and the parties executed the DIP Facility documents onFebruary 25, 2003. Copies of the DIP Facility, auctionprocedures and related documents were filed with a Form 8-Kon February 27, 2003. The Bankruptcy Court granted finalapproval of the DIP Facility on March 6, 2003. As acondition to the DIP Lenders obligation to fund draws byGlobalstar under the DIP Facility in excess of $2.0 million,among other things (i) Globalstar was required to secure fromLoral/QUALCOMM Partnership, L.P. (“LQP”) a pledge infavor of the DIP Lenders of LQP’s ownership interest in theoutstanding stock of L/Q Licensee, Inc. (“L/QLicensee”), and (ii) Globalstar was required to reach anagreement, satisfactory to the DIP Lenders, with respect tospecified matters relating to Loral and certain of itsaffiliates (the conditions set forth in clauses (i) and (ii)above, collectively, the “Loral Condition”). The LoralCondition was initially required to be satisfied by March 7,2003, but the DIP Facility was amended to extend the deadlinefor meeting the Loral Condition to March 21, 2003. The LoralCondition was satisfied prior to the extended deadline.
     Under the approved auction procedures, Globalstarreceived expressions of interest from prospective investors inearly March 2003, and with the assistance of its financialadvisors and in consultation with the Creditors’ Committee,determined which of them were “qualified” to performdue diligence and make a definitive proposal for an equityinvestment in Globalstar or the purchase of Globalstar’sassets. March 21, 2003 was the deadline set for thesubmission of investment proposals by the qualified bidders.Globalstar, in consultation with the Creditors’ Committee,expects to choose the highest and best investment proposal inearly-April and to file a modified plan of reorganization withthe Bankruptcy Court shortly thereafter. No assurance can begiven as to whether this auction process will ultimately lead toa successful restructuring of Globalstar.
     Globalstar has developed a business plan inconnection with its restructuring; the business plan will be anintegral part of Globalstar’s plan of reorganization. Thebusiness plan, which is predicated on an infusion of funds,assumes the consolidation of certain Globalstar service provideroperations into a new Globalstar company (“NewGlobalstar”). Several of the acquisitions contemplated inthe business plan were completed during 2001 and 2002. Theconsolidation strategy has brought additional efficiencies tothe operation of the Globalstar System and allowed for increasedgeographic coverage and pricing coordination inGlobalstar’s service offerings and pricing. In addition,Globalstar intends to revise its business relationships with theremaining independent service providers, including exploring thepossible acquisition of their businesses or
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**GLOBALSTAR, L.P., ADEBTOR-IN-POSSESSION**
**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS — (Continued)**
assets. Globalstar believes that these, andadditional, steps are needed to achieve and maintain financialviability (see Note 4).
     Globalstar has incurred cumulative partnershiplosses of $5.21 billion through December 31, 2002,which have been funded primarily through the issuance ofpartnership interests and debt by Globalstar.
**3. Summary of Significant AccountingPolicies**
     Since the Petition Date, Globalstar’sconsolidated financial statements have been prepared incompliance with Statement of Position(“SOP 90-7”) on Financial Reporting by Entitiesin Reorganization Under the Bankruptcy Code issued by theAmerican Institute of Certified Public Accountants.Specifically, all pre-petition liabilities subject to compromisehave been segregated on the balance sheet and classified asliabilities subject to compromise. No interest expense onpre-petition liabilities or dividends on redeemable preferredpartnership interests since the Petition Date have been accruedor recorded as these amounts are not expected to be allowedclaims. No debt discounts or deferred financing costs have beenamortized since the Petition Date as the value of the alloweddebt has not been fixed by the Bankruptcy Court. Debtobligations have not been adjusted to reorganization valuessince the Bankruptcy Court has not yet confirmed a plan ofreorganization. Management expects that the allowed claims willbe established near the date that a final plan of reorganizationis confirmed by the Bankruptcy Court and pre-petitionliabilities will be adjusted as the claims are resolved.
     Adjusting the debt obligations to redemptionvalues may result in a reorganization charge approximating$102.2 million. Interest income since the Petition Date hasbeen reported as a reorganization item as the amounts areconsidered to be proceeds of the bankruptcy proceedings.
**     ***Pre-petitionDebt, Accrued Interest, and Dividends Payable*
     Under Chapter 11, substantially allunsecured liabilities as of the Petition Date are subject tocompromise or other treatment under a plan of reorganization,which must be approved and confirmed by the Bankruptcy Court.For financial reporting purposes, those liabilities andobligations whose treatment and satisfaction are dependent onthe outcome of the Chapter 11 case have been segregated inthe consolidated balance sheet as liabilities subject tocompromise. Generally, all actions to enforce or otherwiserequire repayment of pre-petition liabilities are stayed whileGlobalstar continues its business operations as adebtor-in-possession. The amount and settlement terms of thepre-petition liabilities subject to compromise are subject to anapproved plan of reorganization and may differ significantlyfrom the amounts as reflected in these consolidated financialstatements.
     As a result of the Chapter 11 filing, noprincipal or interest payments will be made on unsecuredpre-petition debt without Bankruptcy Court approval or until aplan of reorganization providing for the repayment terms hasbeen confirmed by the Bankruptcy Court and becomes effective.Interest expense on pre-petition debt will not be paid duringthe bankruptcy proceeding and is not expected to be an allowedclaim; therefore, $266.2 million of interest onpre-petition debt has not been recorded since the Petition Date.In addition, $15.0 million and $41.0 million ofamortization have not been recorded since the Petition Date onthe debt discounts and premiums and deferred financing costs,respectively. Dividends of $16.8 million on RPPIs since thePetition Date have not been accrued or recorded as these amountsare not expected to be allowed claims.
**     ***Useof Estimates in Preparation of Financial Statements*
     The preparation of consolidated financialstatements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date ofthe financial statements and the amounts of expenses reportedfor the period. Actual results could differ from estimates.
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