FORM 10-K

The registrant has 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 has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes x No o

The aggregate market value of the common shares held by non-affiliates of the registrant, based upon the closing sale price of the common shares on June 30, 2003, as reported on the New York Stock Exchange was approximately $133 million.

Loral Space & Communications Ltd., together with our subsidiaries (“Loral”, the “Company”, “we”, “our” and “us”), is a leading satellite communications company. We own and operate a fleet of telecommunications satellites, manage a global network that integrates our satellites with terrestrial facilities and have the rights to numerous well-positioned orbital slots. Managed by our Loral Skynet division, the fleet provides satellite capacity and platforms for use by television and cable networks to broadcast video programming, and by communication service providers, resellers, corporate and government customers for broadband data transmission, Internet services and other value-added communications services. Our subsidiary, Space Systems/ Loral, Inc. (“SS/ L”), is one of the world’s largest designers and manufacturers of satellites and satellite systems for commercial and government applications including satellite services, television broadcasting, direct-to-home (DTH) television services, broadband communications, military communications, wireless telephony, digital satellite radio, weather monitoring and air traffic management. (See “Segment Overview” below for further details on each of our businesses.)

On July 15, 2003, Loral and certain of our subsidiaries (the “Debtor Subsidiaries”, and collectively with Loral, the “Debtors”) filed voluntary petitions for reorganization under chapter 11 of title 11 (“Chapter 11”) of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) (Lead Case No. 03-41710 (RDD), Case Nos. 03-41709 (RDD) through 03-41728 (RDD), collectively, the “Chapter 11 Cases”). The Debtors include, among others, Loral Space & Communications Corporation, Loral SpaceCom Corporation (“Loral SpaceCom”), Loral Satellite, Inc. (“Loral Satellite”), SS/ L and Loral Orion, Inc. (“Loral Orion”). We continue to manage our properties and operate our businesses as “debtors in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the provisions of the Bankruptcy Code. (See “Bankruptcy Filings” below for further details.)

Also on July 15, 2003, Loral Space & Communications Corporation, Loral SpaceCom and Loral Satellite (collectively, the “Sellers”) entered into a definitive agreement, as amended, (the “Asset Purchase Agreement”) to sell to Intelsat, Ltd. and certain of its affiliated companies (“Intelsat”), satellites serving the North American market. The transaction is expected to conclude by early April 2004. Loral expects to use the proceeds from the sale of the assets to repay its outstanding secured bank debt. On March 5, 2004, we and Intelsat entered into an amendment to the Asset Purchase Agreement, the effectiveness of which is subject to approval by the Bankruptcy Court and Intelsat’s bank lenders (See “Sale of Assets” below for further details).

We plan to reorganize Loral around our remaining fleet of international satellites and our satellite manufacturing business.

Loral was incorporated on January 12, 1996, as a Bermuda exempt company and has its registered and principal executive offices at Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda.

As previously stated, we filed for reorganization under Chapter 11 on July 15, 2003 and continue to operate as debtors in possession.

Also on July 15, 2003, Loral and one of our Bermuda subsidiaries (the “Bermuda Group”) filed parallel insolvency proceedings in the Supreme Court of Bermuda (the “Bermuda Court”). On that date, the Bermuda Court entered an order appointing Philip Wallace, Chris Laverty and Michael Morrison, partners of KPMG, as Joint Provisional Liquidators (“JPLs”) in respect of the Bermuda Group. The Bermuda Court granted the JPLs the power to oversee the continuation and reorganization of these businesses under the control of their boards of directors and under the supervision of the U.S. Bankruptcy Court and the Bermuda Court. The JPLs have not audited the contents of this report.

A creditors’ committee has been appointed in the Chapter 11 Cases to represent all unsecured creditors, including all holders of Loral’s and Loral Orion’s senior unsecured notes, and, in accordance with the provisions of the Bankruptcy Code, has the right to be heard on all matters that come before the Bankruptcy Court.

As provided by the Bankruptcy Code, we had the exclusive right to submit our plan (or plans) of reorganization for 120 days from the date of the Chapter 11 filing. On November 12, 2003, the Bankruptcy Court extended this exclusive period for another 120 days. On March 16, 2004, a hearing will be held to consider a further extension of the exclusivity period. We have no assurance that this extension request will be granted. If we fail to file our plan of reorganization during the exclusive period, or if we file a plan of reorganization and the required number of creditors and equity holders do not approve our plan of reorganization within the required period, any party in interest may subsequently file its own plan of reorganization for Loral and its Debtor Subsidiaries.

As a result of the commencement of the Chapter 11 Cases, the pursuit of all pending claims and litigation against the Debtors, arising prior to or relating to events which occurred prior to the Chapter 11 filing, is generally subject to an automatic stay under Section 362 of the Bankruptcy Code. Absent further order of the Bankruptcy Court, a party is generally prohibited from taking any action to recover any pre-petition claims, enforce any lien against or obtain possession of any property from the Debtors. In addition, pursuant to Section 365 of the Bankruptcy Code, the Debtors may reject or assume pre-petition executory contracts and unexpired leases. Parties whose contracts or leases are rejected may file claims with the Bankruptcy Court.

As a result of our Chapter 11 filing, on July 15, 2003, the New York Stock Exchange (“NYSE”) suspended trading of Loral’s common stock and on September 2, 2003 removed our securities from listing and registration. Our common stock is being quoted under the ticker symbol LRLSQ on the Pink Sheets and on the Over-The-Counter Bulletin Board Service.

As stated above, the Sellers agreed on July 15, 2003, to sell certain assets to Intelsat for $1 billion, subject to certain purchase price adjustments. These assets consisted of four satellites then in-orbit: Telstar 5, Telstar 6, Telstar 7 and Telstar 4 (which failed in September 2003); two satellites then under construction: Telstar 13 (which was successfully launched and placed into service on September 12, 2003) and Telstar 8, scheduled for launch in 2004; and certain related assets and liabilities. At the same time, Intelsat agreed to order a new satellite from SS/ L when the sale closes and, subject to obtaining a security interest in certain of our assets, agreed to make a $100 million down payment on that order. Proceeds of the sale will be used to pay off our secured bank debt.

On March 5, 2004, as part of an arrangement to reach agreement with Intelsat on the satisfaction of certain closing conditions, we entered into an amendment to the Asset Purchase Agreement. Among other things, the amendment reduces the purchase price by $20 million (subject to further adjustment based on future events) to cover certain contingent liabilities relating to the transferred assets, reduces from $100 million to $50 million the deposit Intelsat is to make for its new satellite construction contract with SS/L, and provides for a dollar-for-dollar reduction in the price of this satellite if and to the extent the Telstar 4 insurance proceeds are less than $141 million. As part of this amendment, Intelsat agreed to pay SS/L $12.5 million in full settlement and satisfaction of all remaining obligations to make certain orbital payments to SS/ L under the construction contracts relating to the purchased satellites. The effectiveness of this amendment is subject to approval by the Bankruptcy Court and Intelsat’s bank lenders.

We formed our satellite services business by acquiring assets from AT&T in March 1997 and Orion Network Services in 1998, and rapidly established Loral Skynet, which manages and operates our Satellite Services business, as one of the world’s leading satellite operators. We further grew our business through placing additional satellites in service and expanding our product offerings. Our satellites operate in geosynchronous earth orbit approximately 23,000 miles above the equator. In this orbit, satellites remain in a

fixed position relative to points on the earth’s surface. They provide reliable, high-bandwidth services anywhere in their coverage areas and serve as the backbone for many forms of telecommunications.

Customers lease transponder capacity for distribution of network and cable television programming, for direct-to-home (“DTH”) video transmission and for live video feeds from breaking news and sporting events and broadband data distribution. Increasingly, satellites are being used for international communications using Internet Protocol (IP)-based technologies, for high-speed data services for businesses through very small aperture terminal (VSAT) networks, and for distance learning and educational television. Skynet operates in a highly competitive market with other well-established satellite operators including PanAmSat, Intelsat, SES Global, Eutelsat and New Skies. While we also compete with fiber optic cable and other terrestrial delivery systems, satellites are considerably more efficient for certain applications, such as broadcast or point-to-multipoint transmission of video and data. For point-to-point applications, however, fiber may cost less, so satellites compete on the basis of superior reliability, or serve as a back-up service. Satellites also better serve areas with inadequate terrestrial infrastructures, low-density populations or difficult geographic terrain.

The satellite services market has been characterized in recent years by over-capacity, pricing pressure and increased competition from fiber. The downturn in the telecommunications sector led many existing Skynet customers, hampered by a slow-down in demand and lack of access to the capital markets, to postpone expansion plans. Similarly, several start-up companies that leased Skynet’s satellite capacity for the delivery of new applications failed to meet their business objectives. Following the closing of the Intelsat transaction, Skynet’s growth will rely on its ability to differentiate itself from the competition through its customized product offerings, its superior customer service and its successful marketing of available capacity on its international fleet, which is well positioned to serve regions of the world where demand is growing.

When we use the term “Loral Skynet” and “Skynet” in this report, we are, unless the context provides otherwise, referring to our Satellite Services business, the assets (including satellites) of which are held in various companies including Loral SpaceCom, Loral Orion, Loral Satellite, Loral Skynet do Brasil, Ltda. (“Skynet do Brasil”), Loral Skynet Network Services, Inc. (formerly known as Loral Cyberstar, Inc., “Skynet Network Services”) and Cyberstar, LP (“Cyberstar”).

Loral Skynet’s heritage transponder leasing business provides a platform for the global distribution of television programming, video applications and data for large programmers and data service providers, including HBO, AT&T, Cable & Wireless, Singapore Telecom (SingTel), Univision, Telecom Italia, Connexion by Boeing^SM and China Central TV.

The following chart provides details on the satellites that will comprise Loral’s fleet after the sale to Intelsat.


⁽¹⁾	During the fourth quarter of 2003, we determined that Telstar 11 would go out of service in June 2004 which is earlier than its previously expected end of life of March 2005.

⁽²⁾	Brazil 1T is operating in inclined orbit and is not currently generating revenues. Its replacement, Estrela do Sul-1, was launched in January 2004, but failed to deploy its North solar array. The satellite is currently operating between 10 and 14 of its 41 transponders and has a life expectancy of three to six years. See Management’s Discussion and Analysis of Results of Operations and Financial Condition, Results by Operating Segment — Satellite Services.

⁽³⁾	Loral owns the Telstar 18/ Apstar V satellite and will initially lease 37 transponders on the satellite to an Asian satellite services company, in return for its funding a substantial portion of the project cost for Telstar 18.

⁽⁴⁾	In September 2003, Telstar 4 experienced a short-circuit of its primary power bus and ceased operations.

⁽⁵⁾	Our cash collateral order with our secured lenders imposes restrictions on our ability to incur capital expenditures.

⁽⁶⁾	Telstar 13, which is to be sold to Intelsat, is subject to a condosat arrangement: Loral owns the C-band payload on the satellite, consisting of 24 transponders, while EchoStar Communications Corporation owns the Ku- and Ka-band payload.

⁽⁷⁾	To be determined after launch and in-orbit testing.

We offer customers access services and transmission platforms that enable the rapid and reliable transport of content. Our hybrid satellite and ground-based network services solutions allow them to enter the market quickly and easily through a combination of applications that include broadband transport, bandwidth-on-demand, broadcast MCPC (multiple-carriers per channel) platforms, and teleport services. Skynet Network Services’ newest offering is SkyReach^SM, a group of IP-based services that provides customers with secure private networks and high-speed Internet access using Skynet’s established satellite/fiber infrastructure. SkyReach can deliver a wide range of one-way and two-way IP services around the world.

These services are currently provided through an integrated satellite and fiber network that interconnects with customer networks through points of presence in San Jose, California; Ashburn, Virginia; New York, New York and London, England and interconnects with satellite and VSAT services via teleports in Mount Jackson, Virginia, Hawaii and London.

Our team of world-class network architects, engineers, program managers and satellite operations professionals, provides customized services tailored to unique customer requirements for deploying satellites and network services, including satellite operational services (TT&C), satellite construction oversight services, network architecture design, regulatory issue management and customized distribution solutions.

The following information for Satellite Services includes amounts related to the satellites serving the North American market which we have agreed to sell to Intelsat. See Management’s Discussion and Analysis of Results of Operations and Financial Condition.


⁽¹⁾	See Consolidated Operating Results in Management’s Discussion and Analysis of Results of Operations and Financial Condition for the definition of Adjusted EBITDA.

Total Satellite Services assets were $2.0 billion, $1.9 billion and $2.8 billion as of December 31, 2003, 2002 and 2001, respectively. As of December 31, 2003 and 2002, backlog was $1.3 billion and $1.4 billion, respectively, including intercompany backlog of $37 million in 2003 and $41 million in 2002.

Space Systems/ Loral designs, manufactures and integrates satellites and space systems. SS/ L-built satellites have achieved over 1000 years of cumulative on-orbit experience over its 40-year history. SS/ L is a leading supplier of commercial telecommunications satellites, high-powered direct-to-home broadcast satellites, commercial weather satellites, digital audio radio satellites and innovative spot-beam satellites for data networking applications. SS/ L customers include some of the largest satellite service providers, such as Intelsat, DirecTV, EchoStar, Loral Skynet, PanAmSat, Optus, APT Satellite, SingTel, Shin Satellite and Japan’s Ministry of Transport and Civil Aviation Bureau.

SS/ L has a history of technical innovation that includes the first three-axis spin stabilized satellites; bipropellant propulsion systems for commercial satellites that permit significant increases in the satellites’ payload and extend the satellites’ on-orbit lifetime; rechargeable nickel-hydrogen batteries; the use of advanced composites to significantly enhance satellite performance at lighter weights; and, as a result of these innovations, the first communications satellite with more than ten kilowatts of power. SS/ L was also the first satellite manufacturer to employ heat pipes to control heat transfer in commercial satellites, thereby providing a more benign temperature environment, increased reliability and high power. SS/ L also created the first multi-mission geostationary satellite and was one of the first U.S. companies to acquire space technology from Russia’s space industry, obtaining exclusive rights outside the former Eastern bloc to an electric propulsion subsystem that is five times more efficient than bipropellant propulsion systems.

SS/ L offers a broad product line covering the vast majority of customer requirements for satellites with six to 20 kilowatts of power. The capacity offered on these satellites ranges from one to as many as 150 transponders.

SS/ L competes principally on the basis of technical excellence, reliability and pricing with Boeing, Lockheed Martin, Alcatel Space, Astrium and Orbital Sciences. Historically, SS/ L has provided customers with satellites that significantly exceed their designed life expectancies. SS/ L’s continued success depends on its ability to perform on a cost-effective and timely basis. The commercial satellite industry is highly competitive. In recent years, a combination of on-orbit over-capacity and economic pressures profoundly diminished demand for satellites. After a period of nearly two years without being awarded a satellite contract, SS/ L received orders or authorizations to proceed on the construction of four satellites (including the expected Intelsat order) in late 2003. Total SS/ L assets were $362 million, $690 million and $1.2 billion as of December 31, 2003, 2002 and 2001, respectively. Backlog at December 31, 2003 and 2002 was $536 million (excluding approximately $240 million associated with the fourth quarter awards and authorizations to proceed, see Management’s Discussion and Analysis of Results of Operations and Financial Condition) and $763 million, respectively, including intercompany backlog of $145 million and $275 million, respectively.


⁽¹⁾	See Consolidated Operating Results in Management’s Discussion and Analysis of Results of Operations and Financial Condition for the definition of Adjusted EBITDA and for significant items that affect comparability between the periods presented.

We own 56 percent of XTAR, L.L.C. (“XTAR”), a joint venture between Loral and Hisdesat Servicios Estrategicos, S.A. (“Hisdesat”). XTAR is accounted for under the equity method since we do not control certain significant operating decisions. XTAR is constructing and plans to launch an X-band satellite in 2004, to provide X-band services to government users in the United States and Spain, and to other friendly and allied nations. For more information on XTAR, see Management’s Discussion and Analysis of Results of Operations and Financial Condition and Note 7 to the consolidated financial statements.

We own 49 percent of Satelites Mexicanos, S.A. de C.V. (“Satmex”), a satellite communications company providing satellite services in Mexico and Latin America. Satmex has two satellites in operation and a third satellite, Satmex 6, scheduled for launch this year. Satmex is in default on its existing financing and has ceased paying interest on its unsecured debt. It will require additional liquidity to complete its business plan. During 2003, Loral wrote-off its remaining investment in Satmex. For more information on Satmex, see Note 7 to the consolidated financial statements.

Globalstar, L.P. (“Globalstar”) owns and operates a satellite constellation that forms the backbone of a global telecommunications system (the “Globalstar System”). On February 15, 2002, Globalstar and certain of its direct subsidiaries filed voluntary bankruptcy petitions under Chapter 11. For further details, see Note 7 to the consolidated financial statements.

On December 8, 2003, the bankruptcy court approved Globalstar’s plan which includes an investment of $43 million by Thermo Capital Partners, LLC (“Thermo”) and the creation of a new Globalstar company (“New Globalstar”). The effectiveness of Globalstar’s plan is subject to a number of material conditions. If Globalstar’s plan is effected, Loral’s ownership in New Globalstar is expected to be approximately 2.5 percent, which based on the Thermo transaction, is expected to have minimal value.

Loral holds various indirect ownership interests in three foreign companies that currently serve as exclusive service providers for Globalstar service in Brazil, Mexico and Russia and an indirect ownership interest in a U.S.-based distributor that has the exclusive right to sell Globalstar services to certain agencies within the U.S. Government. Globalstar is currently renegotiating its service provider agreements with the various Globalstar service providers, and there can be no assurance that such agreements will be successfully negotiated.

In 2000, we wrote-off $1.7 billion of investments in Globalstar leaving us with an investment balance of $3 million as of December 31, 2003. We do not currently intend to invest further in Globalstar or the service providers in which we continue to have an equity interest.

As an operator of a privately owned global satellite system, we are subject to: the regulatory authority of the U.S. government; the regulatory authority of other countries in which we operate; and the frequency coordination process of the International Telecommunications Union (“ITU”). Our ability to provide satellite services in a particular country or region is subject also to the technical constraints of our satellites, international coordination, local regulatory approval and any limitation to those approvals.

The Federal Communications Commission (FCC) regulates our U.S.-licensed satellites as well as our non-U.S. licensed satellites authorized to operate in the U.S. We are subject to the FCC’s jurisdiction primarily for the licensing of satellites and earth stations, avoidance of interference with other radio stations and compliance with FCC rules. Violations of the FCC’s rules can result in various sanctions including fines, loss of authorizations, forfeiture of bonds, or the denial of new or renewal authorizations. We are not regulated as a common carrier and, therefore, are not subject to rate regulation or the obligation not to discriminate among customers. We must pay FCC filing fees in connection with our space station and earth station applications and annual fees to defray the FCC’s regulatory expenses. We must file annual status reports with the FCC and, to the extent Loral is deemed to be providing interstate/international telecommunications, we must contribute funds supporting universal service. Loral has petitioned the FCC for exemptions from having to pay certain of such fees and contributions. These petitions are under review by the FCC.

Pursuant to satellite licensing rules issued in 2003, the FCC grants satellite authorizations on a first-come, first-served basis to satellite operators that meet its legal and technical qualification requirements. The FCC often receives multiple applications to operate a satellite at a given orbital slot. There can be no assurance that our applications will be granted. Most satellite authorizations include specific construction and launch milestones; failure to meet them may result in license revocations. Under licensing rules, we must post a bond for up to $5,000,000 when we are granted a satellite authorization. The bond may be forfeited if we fail to meet any of the milestones for satellite construction, launch and commencement of operation. In accordance with the current licensing rules, the FCC will issue new satellite licenses for an initial fifteen-year term and will provide a licensee with an “expectancy” that a subsequent license will be granted for the replacement of an authorized satellite. At the end of a fifteen-year term, a satellite that has not been replaced, or that has been relocated to another orbital location following its replacement, may be allowed to continue operations for a limited period of time subject to certain restrictions.

We have final FCC authorization for the following existing or planned satellites which operate or will operate in the C-band, the Ku-band, or both bands: Telstar 9 at 69° W.L., Telstar 11 at 37.5°W.L., Telstar 12 at 15° W.L. and Orion A at 47°W.L. In addition, we have final authorization to operate at the following orbital slots: Ka-band at 15° W.L., 67° W.L., 93° W.L., 115° W.L., 139° E.L., and 126.5° E.L. Certain of our authorizations are subject to pending petitions for reconsideration or review submitted to the FCC by third parties. The final FCC authorizations for certain of the satellites that are not yet in orbit also do not cover certain design changes or milestone extension requests that are the subject of pending modification applications. There can be no assurance that such design changes or milestone extensions will be granted by the FCC. The failure to obtain a milestone extension could result in the loss of the related FCC authorization. If we are unable to obtain FCC approval to implement its requested technical modifications for any particular authorization, we will be obligated to operate the related satellite in accordance with the original authorization. We also have an application pending before the FCC at 126° E.L. for use of the Ku-band. There can be no assurance that the FCC will grant this application.

Under the FCC’s rules, an applicant may commence satellite construction prior to receiving an authorization to launch and operate, but must notify the FCC of its intention to do so. The applicant

undertakes construction at its own risk. We may begin construction, but must recognize that the FCC may not grant the application, may not assign the satellite to its proposed orbital location, or otherwise may reduce or eliminate the value of the construction begun on the satellite.

In 1996, the FCC largely eliminated the regulatory distinction between U.S. domestic satellites and U.S.-licensed international satellites. As a result, each of our FCC-licensed satellites may be used, to the extent technically feasible, to provide both U.S. domestic and international services.

The FCC requires applicants to demonstrate that their proposed satellites would be compatible with the operations of adjacent satellites. Adjacent satellite operators must coordinate with one another to minimize frequency conflicts. The FCC reserves the right to require that an FCC-licensed satellite be relocated if it deems such a change to be in the public interest.

Foreign laws and regulatory practices governing the provision of satellite services to licensed entities and directly to end-users vary substantially from country to country. Some countries may require us to confirm that we have successfully completed technical consultation with other satellite service providers before offering services on a given satellite. In addition, we may be subject to varying communications and/or broadcasting laws with respect to our provision of international satellite services.

Foreign laws and regulatory practices may be applied or changed in ways that may adversely affect our ability to operate or provide service. There are no guarantees that other countries will grant our applications to construct, launch, operate or provide service via satellites, or extend construction or launch milestones, or that we will be permitted to retain or renew our authorizations. As in the U.S., violations of other countries’ laws and rules may result in sanctions, fines, loss of authorizations or denial of applications for new or renewal authorizations. Application and other administrative fees may be required in other countries. License terms for non-U.S. authorizations held by Loral vary but generally authorize operation for at least the life of the satellite and include rights to operate a replacement satellite. Loral’s failure to operate or maintain operation of a satellite pursuant to a non-U.S. authorization may result in revocation.

Many countries have liberalized their regulations for the provision of voice, data or video services. This trend should accelerate with the commitments by many World Trade Organization (“WTO”) members, in the context of the WTO Agreement on Basic Telecommunications Services, to open their satellite markets to competition. Other countries, however, have maintained strict monopoly regimes. In such markets, the provision of service from Loral and other U.S.-licensed satellites may be more complicated.

In addition to the orbital slots licensed by the FCC, Loral has been assigned orbital slots by certain other countries. For example, we have been authorized to use numerous Ku- and Ka-band orbital slots by the Papua New Guinea government. In March 1999, the Brazilian telecommunications authority announced that Loral had won Brazil’s auction for its 63° W.L. Ku-band orbital slot. Telstar 14/ Estrela do Sul 1 is licensed by Brazil and is authorized to operate in the U.S. by the FCC. Pursuant to a lease, Loral operates all of the capacity (with the exception of one transponder) on the Telstar 10/ Apstar IIR C/ Ku-band satellite licensed by China and located at 76.5° E.L. We plan to operate the extended C- and Ku-band payload on Telstar 18/ Apstar V at 138° E.L. using licenses provided by China and Tonga, respectively.

All satellite systems are subject to ITU frequency coordination requirements and must obtain appropriate authority to provide service in a given territory. The required international coordination process may limit the extent to which all or some portion of a particular authorized orbital slot may be used for commercial operations, with a corresponding impact on the useable capacity of a satellite at that location.

All of our satellite registrations are or will be subject to the ITU coordination process. There may be more than one ITU filing submitted for a particular orbital slot, or one adjacent to it, thus requiring coordination between or among the affected operators. Loral cannot guarantee successful frequency coordination for its satellites.

In addition to the ITU filings associated with our satellite authorizations and applications noted above, we have ITU filings at 98° E.L., 122° E.L., 130° E.L., 167.45° E.L., 175° W.L., and 115°W.L. for use of the C- and Ku-band frequencies. We also have ITU filings at 9.9° E.L., 16.1° E.L., 22.3° E.L., 115.5° E.L., 161° E.L., and 97° W.L. for the use of C-, Ku-, and Ka-band frequencies and at 37.5° W.L. for the use of C- and Ka-band frequencies. We have filings at 96.5° W.L. and 123.5° W.L. for Broadcast Satellite Service. Loral also has ITU filings at 1° E.L., 3.5° E.L., 8° E.L., 10° E.L., 11° E.L., 30° E.L., 81° E.L., 105.5° E.L., 135° E.L., 135° W.L., 115° W.L., 95° W.L., 58° W.L. for use of the V-band frequency.

Commercial communication satellites and certain related items, technical data and services, are subject to United States export controls. These laws and regulations affect the export of products and services to foreign launch providers, subcontractors, insurers, customers, potential customers, and business partners, as well as to foreign Loral employees, foreign regulatory bodies, foreign national telecommunications authorities and to foreign persons generally. Commercial communications satellites and certain related items, technical data and services are on the United States Munitions List and are subject to the Arms Export Control Act and the International Traffic in Arms Regulations. Export jurisdiction over these products and services resides with the U.S. Department of State. Other Loral exports remain subject to the jurisdiction of the U.S. Department of Commerce, pursuant to the Export Administration Act and the Export Administration Regulations.

U.S. Government licenses or other approvals generally must be obtained before satellites and related items, technical data and services are exported and may be required before they are re-exported or transferred from one foreign person to another foreign person. There can be no assurance that such licenses or approvals will be granted. Also, licenses or approvals may be granted with limitations, provisos or other requirements imposed by the U.S. Government as a condition of approval, which may affect the scope of permissible activity under the license or approval.

SS/ L relies, in part, on patents, trade secrets and know-how to develop and maintain its competitive position. It holds 218 patents in the United States and 115 patents abroad and has applications for 40 patents pending in the United States. SS/ L patents include those relating to communications, station keeping, power control systems, antennae, filters and oscillators, phased arrays and thermal control as well as assembly and inspections technology. The SS/ L patents that are currently in force expire between 2004 and 2022.

Skynet Network Services, CyberStar and Loral SpaceCom have four, six and two patents in the United States, respectively. Loral SpaceCom holds one patent abroad. Skynet Network Services and Loral SpaceCom have three and four patents pending in the United States, respectively. In addition, Loral SpaceCom has nine patents pending abroad. The Skynet Network Services, CyberStar and Loral SpaceCom patents that are currently in force expire between 2016 and 2020.

There can be no assurance that any of our pending patent applications will be issued. Moreover, because the U.S. patent application process is confidential, there can be no assurance that third parties, including competitors, do not have patents pending that could result in issued patents which we would infringe. In such an event, we could be required to pay royalties to obtain a license, which could increase costs.

Sales to foreign customers, primarily in Asia, Europe and Mexico, represented 29%, 46% and 35% of our consolidated revenues for 2003, 2002 and 2001, respectively. As of December 31, 2003 and 2002, we had substantially all of our long-lived assets located in the United States with the exception of the in-orbit satellites. See Commitments and Contingencies in Management’s Discussion and Analysis of Results of Operations and Financial Condition for a discussion of the risks related to operating internationally.

As of December 31, 2003, we had approximately 1,900 full-time employees, approximately 3% of whom are subject to collective bargaining agreements. We consider our employee relations to be good.

We make available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after such reports are filed electronically with the SEC. Our Internet address is www.loral.com. Loral.com is an inactive textual reference only, meaning that the information contained on the website is not part of this report and is not incorporated in this report by reference.

We lease approximately 38,000 square feet of space for our corporate offices in New York and 8,000 square feet in Washington, D.C. We also maintain office space, manufacturing facilities, and telemetry, tracking and control facilities primarily in the United States.

Loral Skynet owns three telemetry, tracking and control stations covering approximately 66,000 square feet on 212 acres in Hawley, Pennsylvania and Three Peaks, California and on three leased acres in Richmond, California. It also leases two telemetry, tracking and control stations covering approximately 11,000 square feet in Rio de Janeiro, Brazil and Utive, Panama. Loral Skynet also leases approximately 65,000 square feet of office space in Bedminster, New Jersey and 8,100 square feet in various locations around the world.

Skynet Network Services owns seven acres of land including 8,000 square feet of office space in Mt. Jackson, Virginia and leases approximately 77,000 square feet of office space and three acres of land in various locations around the world.

SS/ L’s research, production and testing are conducted in SS/ L-owned facilities covering approximately 563,000 square feet on 28 acres in Palo Alto, California. In addition, SS/ L leases approximately 518,000 square feet of space on 23 acres from various third parties primarily in Palo Alto, Menlo Park and Mountain View, California and Kent, Washington.

Management believes that the facilities are sufficient for its current operations.

Consent Agreement. On January 9, 2002, Loral, SS/ L and the United States Department of State (“Department of State”) entered into a consent agreement (the “Consent Agreement”) settling and disposing of all civil charges, penalties and sanctions associated with alleged violations by SS/ L of the Arms Export Control Act and its implementing regulations. Under the Consent Agreement, SS/ L remains obligated

Alcatel Settlement. SS/ L was a party to an Operational Agreement with Alcatel Space Industries, under which the parties had agreed to cooperate on certain satellite programs. It also was a party to an Alliance Agreement with Alcatel Space (together with Alcatel Space Industries, “Alcatel”), under which Alcatel had certain rights with respect to SS/ L. On June 30, 2003, Loral, SS/ L and Alcatel entered into a master agreement settling all claims among the parties, including arbitration claims brought by Alcatel against Loral alleging breaches of the Operational Agreement and Alliance Agreement. Pursuant to the master settlement agreement, Loral paid Alcatel $5 million and agreed to pay an additional $8 million within one year, resulting in a charge to operations of $13 million. In addition, Alcatel transferred to Loral its minority interest in CyberStar and Loral transferred to Alcatel its minority interests in Europe*Star Limited and SkyBridge Limited Partnership that Loral had previously written off. As a result of receiving Alcatel’s minority interest in CyberStar, Loral recognized an extraordinary gain of $14 million, which represents the extinguishment of the minority interest liability less the fair value of the acquired net assets. Under the terms of the master settlement agreement, because of the commencement of the Chapter 11 Cases, the arbitration and a related court proceeding to confirm a partial arbitration award were suspended, with termination to occur on the date of confirmation of a plan of reorganization or a liquidation, provided that if any action is commenced in the Chapter 11 Cases seeking the repayment, disgorgement or turnover of the transfers made in connection with the master settlement agreement, the arbitration and related court confirmation proceeding would not be terminated until such repayment, disgorgement or turnover action had been dismissed. The master settlement agreement also provides that Alcatel is entitled to reinstate the arbitration if it is required by judicial order to repay, disgorge or turn over the consideration paid to it under the agreement in the context of the Chapter 11 Cases.

PanAmSat Arbitration. In September 2001, the PAS 7 satellite built by SS/ L for PanAmSat experienced an electrical power failure on its solar arrays that resulted in the loss of use of certain transponders on the satellite. Also, the PAS 8 satellite has experienced minor losses of power from its solar arrays, the cause of which is unrelated to the loss of power on the PAS 7 satellite. On June 30, 2003, PanAmSat commenced an arbitration claiming that under its contract with SS/ L it is entitled to $23.7 million as a result of these losses. This arbitration is subject to the automatic stay as a result of the commencement of SS/ L’s Chapter 11 case, and further proceedings in the matter have been suspended. In March 2004, the Company reached an agreement in principle to settle this matter with PanAmSat, which is subject to documentation and Bankruptcy Court approval and has recorded a charge to operations of $8 million in the fourth quarter of 2003.

Globalstar Related Matters. On September 26, 2001, the nineteen separate purported class action lawsuits filed in the United States District Court for the Southern District of New York by various holders of securities of Globalstar Telecommunications Limited (“GTL”) and Globalstar against GTL, Loral, Bernard L. Schwartz and other defendants were consolidated into one action titled In re: Globalstar Securities Litigation. In November 2001, plaintiffs in the consolidated action filed a consolidated amended class action complaint against Globalstar, GTL, Globalstar Capital Corporation, Loral and Bernard L. Schwartz alleging (a) that all defendants (except Loral) violated Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, by making material misstatements or failing to state material facts about Globalstar’s business and prospects, (b) that defendants Loral and Mr. Schwartz are secondarily liable for these alleged misstatements and omissions under Section 20(a) of the Exchange Act as alleged “controlling persons” of Globalstar, (c) that defendants GTL and Mr. Schwartz are liable under Section 11 of the Securities Act of 1933 (the “Securities Act”) for untrue statements of material facts in or omissions of material facts from a registration statement relating to the sale of shares of GTL common stock in January 2000, (d) that defendant GTL is liable under Section 12(2)(a) of the Securities Act for untrue statements of material facts in or omissions of material facts from a prospectus and prospectus supplement relating to the sale of shares of GTL common stock in January 2000, and (e) that defendants Loral and Mr. Schwartz are secondarily liable under Section 15 of the Securities Act for GTL’s primary violations of Sections 11 and 12(2)(a) of the Securities Act as alleged “controlling persons” of GTL. The class of plaintiffs on whose behalf the lawsuit has been asserted consists of all buyers of securities of Globalstar, Globalstar

Capital and GTL during the period from December 6, 1999 through October 27, 2000, excluding the defendants and certain persons related to or affiliated with them. Loral believes that it has meritorious defenses to this class action lawsuit and intends to pursue them vigorously. As a result of the commencement of the Chapter 11 Cases, however, this lawsuit is subject to the automatic stay and further proceedings in the matter have been suspended insofar as Loral is concerned but are proceeding as to GTL and Mr. Schwartz. Loral is obligated to indemnify Mr. Schwartz for any losses or costs he may incur as a result of this lawsuit. In December 2003, a motion to dismiss the amended complaint in its entirety was denied by the court insofar as GTL and Mr. Schwartz are concerned, and discovery has commenced.

On March 2, 2002, the seven separate purported class action lawsuits filed in the United States District Court for the Southern District of New York by various holders of our common stock against Loral, Bernard L. Schwartz and Richard J. Townsend were consolidated into one action titled In re: Loral Space & Communications Ltd. Securities Litigation. On May 6, 2002, plaintiffs in the consolidated action filed a consolidated amended class action complaint alleging (a) that all defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, by making material misstatements or failing to state material facts about Loral’s financial condition and its investment in Globalstar and (b) that Mr. Schwartz is secondarily liable for these alleged misstatements and omissions under Section 20(a) of the Exchange Act as an alleged “controlling person” of Loral. The class of plaintiffs on whose behalf the lawsuit has been asserted consists of all buyers of Loral common stock during the period from November 4, 1999 through February 1, 2001, excluding the defendants and certain persons related to or affiliated with them. After oral argument on a motion to dismiss filed by Loral and Messrs. Schwartz and Townsend, in June 2003, the plaintiffs filed an amended complaint alleging essentially the same claims as in the original amended complaint. Loral believes that it has meritorious defenses to this class action lawsuit and intends to pursue them vigorously. As a result of the commencement of the Chapter 11 Cases, however, this lawsuit is subject to the automatic stay, and further proceedings in the matter have been suspended, insofar as Loral is concerned but are proceeding as to the other defendants. Loral is obligated to indemnify Messrs. Schwartz and Townsend for any losses or costs they may incur as a result of this lawsuit. On February 23, 2004, a motion to dismiss the amended complaint was granted by the court insofar as Messrs. Schwartz and Townsend are concerned.

The primary insurer under Loral’s directors and officers liability insurance policy has denied coverage for the case filed by Loral shareholders under the policy and, on March 24, 2003, filed a lawsuit in the Supreme Court of New York county seeking a declaratory judgment upholding their coverage position. In May 2003, Loral and the other defendants served their answer and filed counterclaims seeking a declaration that the insurer is obligated to provide coverage and damages for breach of contract and the implied covenant of good faith. In May 2003, Loral and the other defendants also filed a third party complaint against the excess insurers seeking a declaration that they are obligated to provide coverage. Loral believes that the insurers have wrongfully denied coverage and intends to defend against the denial vigorously. As a result of the commencement of the Chapter 11 Cases, however, this lawsuit is subject to the automatic stay, and further proceedings in the matter have been suspended insofar as Loral is concerned but are proceeding as to the other defendants.

Lawsuits against our Directors and Officers. In August 2003, plaintiffs Robert Beleson and Harvey Matcovsky filed a purported class action complaint against Bernard Schwartz in the United States District Court for the Southern District of New York. The complaint alleges (a) that Mr. Schwartz violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, by making material misstatements or failing to state material facts about Loral’s financial condition relating to the sale of assets to Intelsat and Loral’s Chapter 11 filing and (b) that Mr. Schwartz is secondarily liable for these alleged misstatements and omissions under Section 20(a) of the Exchange Act as an alleged “controlling person” of Loral. The class of plaintiffs on whose behalf the lawsuit has been asserted consists of all buyers of Loral common stock during the period from June 30, 2003 through July 15, 2003, excluding the defendant and certain persons related to or affiliated with them. In November 2003, three other complaints against Mr. Schwartz with substantially similar allegations were consolidated into the Beleson case. In February 2004, a motion to dismiss the complaint in its entirety was denied by the court. Defendant filed an answer on March 2, 2004, and discovery has commenced.

In November 2003, plaintiffs Tony Christ, individually and as custodian for Brian and Katelyn Christ, Casey Crawford, Thomas Orndorff and Marvin Rich filed a purported class action complaint against Bernard Schwartz and Richard J. Townsend in the United States District Court for the Southern District of New York. The complaint alleges (a) that defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, by making material misstatements or failing to state material facts about Loral’s financial condition relating to the restatement in 2003 of the financial statements for the second and third quarters of 2002 to correct accounting for certain general and administrative expenses and the alleged improper accounting for a satellite transaction with APT Satellite Company Ltd. and (b) that defendants are secondarily liable for these alleged misstatements and omissions under Section 20(a) of the Exchange Act as an alleged “controlling person” of Loral. The class of plaintiffs on whose behalf the lawsuit has been asserted consists of all buyers of Loral common stock during the period from July 31, 2002 through June 29, 2003, excluding the defendants and certain persons related to or affiliated with them. This case is in its preliminary stages, and, on March 11, 2004, a conference was held with the court concerning selection of a lead plaintiff.

In December 2003, plaintiff Wendy Koch, a former employee, filed a purported class action complaint against the Loral Space & Communications Ltd. Savings Plan Administrative Committee, all Loral directors, Richard J. Townsend and certain other Loral officers and employees in the United States District Court for the Southern District of New York. The complaint alleges (a) that defendants violated Section 404 of the Employee Retirement Income Security Act (“ERISA”), by breaching their fiduciary duties to prudently and loyally manage the assets of the Loral Savings Plan (the “Plan”) by including Loral common stock as an investment alternative and by providing matching contributions under the Plan in Loral stock, (b) that the director defendants violated Section 404 of ERISA by breaching their fiduciary duties to monitor the committee defendants and (c) that defendants violated Sections 404 and 405 of ERISA by failing to provide complete and accurate information to Plan participants and beneficiaries. The class of plaintiffs on whose behalf the lawsuit has been asserted consists of all participants in or beneficiaries of the Plan at any time between November 4, 1999 and the present and whose accounts included investments in Loral stock. One other similar complaint against the defendants with substantially similar allegations has been filed, and a motion to consolidate the cases is pending.

Loral is obligated to indemnify its directors and officers for any losses or costs they may incur as a result of these lawsuits.

Natelco. On October 21, 2002, National Telecom of India Ltd. (“Natelco”) filed suit against Loral and a subsidiary in the United States District Court for the Southern District of New York. The suit relates to a joint venture agreement entered into in 1998 between Natelco and ONS Mauritius, Ltd., a Loral Orion subsidiary, the effectiveness of which was subject to express conditions precedent. In 1999, ONS Mauritius had notified Natelco that Natelco had failed to satisfy those conditions precedent. In Natelco’s amended complaint filed in March 2003, Natelco has alleged wrongful termination of the joint venture agreement, has asserted claims for breach of contract and fraud in the inducement and is seeking damages and expenses in the amount of $97 million. Loral believes that the claims are without merit and intends to vigorously defend against them. As a result of the commencement of the Chapter 11 Cases, this lawsuit is subject to the automatic stay and further proceedings in the matter have been suspended.

Environmental Regulation. Our operations are subject to regulation by various federal, state and local agencies concerned with environmental control. We believe that our facilities are in substantial compliance with all existing federal, state and local environmental regulations. With regard to certain sites, environmental remediation is being performed by prior owners who retained liability for such remediation arising from occurrences during their period of ownership. To date, these prior owners have been fulfilling these obligations; their size and current financial condition make it probable that they will be able to complete their remediation obligations without cost to us.

We are subject to various other legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. Although the outcome of these claims cannot be predicted with certainty, we do not believe that any of these other existing legal matters will have a material adverse effect on our consolidated financial position or results of operations.

As a result of the commencement of our Chapter 11 Cases, on July 15, 2003, the NYSE suspended trading of Loral’s common stock and removed our securities from listing and registration on September 2, 2003. Loral’s common stock is being quoted under the ticker symbol LRLSQ on the Pink Sheets and on the Over-The-Counter Bulletin Board Service (OTC). In addition, on June 4, 2003, our Board of Directors approved a reverse stock split of Loral’s common stock at a ratio of one-for-ten, resulting in a new par value of $0.10 per common share. The reverse stock split became effective after the close of business on June 13, 2003. All references to common stock and per share amounts for all prior periods presented have been retroactively restated to reflect this reverse stock split. The following table presents the reported high and low closing prices of our common stock as reported on the Pink Sheets and the NYSE for 2003 and the intra-day high and low sales prices for 2002:

We have not paid any dividends on our common stock. In August 2002, Loral’s Board of Directors approved a plan to suspend indefinitely the future payment of dividends on our two series of preferred stock. Accordingly, we have deferred the payments of quarterly dividends due on our Series C and Series D preferred stock. The Debtors will not pay any dividends or make any distributions during the pendency of the Chapter 11 Cases. The ability of the Debtors to pay dividends or distributions following any emergence from Chapter 11 will depend on various factors that cannot be determined at this time.

The following consolidated selected financial data has been derived from, and should be read in conjunction with, the related consolidated financial statements.


⁽¹⁾	Includes the increase in the deferred tax valuation allowance of $390.4 million to a balance of $576.5 million, based upon management’s assessment during the fourth quarter of 2002 that insufficient positive evidence existed substantiating recoverability of our loss carryforwards and other deferred tax assets (see Note 12 to the consolidated financial statements).

⁽²⁾	Our principal affiliates are XTAR and Satmex. Loral also has investments in Globalstar and other ventures, which are accounted for under the equity method. During 2003, Loral wrote-off its remaining investment of $29 million in Satmex.

⁽³⁾	The results of operations for 2000 includes Loral’s share of Globalstar’s related equity losses and after-tax impairment charges of approximately $1.29 billion (approximately $1.6 billion on a pre-tax basis), which is included in equity in net loss of affiliates and after-tax impairment charges of $112 million ($125 million pre-tax) relating to Loral’s investments in and advances to Globalstar service provider partnerships.

⁽⁴⁾	On January 1, 2002, we recorded a charge of $890 million to write-off all of our goodwill as the cumulative effect of change in accounting principle (see Note 8 to the consolidated financial statements).

⁽⁵⁾	As a result of our Chapter 11 filing, our debt obligations, preferred stock obligations and certain other liabilities existing at July 15, 2003, have been classified as liabilities subject to compromise on our balance sheet as of December 31, 2003 (see Note 9 to the consolidated financial statements).

⁽⁶⁾	On December 21, 2001, Loral Orion completed exchange offers and consent solicitations by issuing $613 million principal amount of new senior notes guaranteed by Loral and 0.6 million five year warrants to purchase Loral common stock in exchange for a total of $841 million principal amount of Loral Orion senior notes due 2007 and senior discount notes due 2007.

The following discussion and analysis should be read in conjunction with our consolidated financial statements included in Item 16.

We use the terms “Loral,” the “Company,” “we,” “our,” and “us” in this report to refer to Loral Space & Communications Ltd. and its subsidiaries. When we use the term “Loral Skynet” or “Skynet”, we are, unless the context provides otherwise, referring to our entire Satellite Services business, the assets of which are held in various companies.

Except for the historical information contained in the following discussion and analysis, the matters discussed are not historical facts, but are “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. In addition, Loral or our representatives have made and may continue to make forward-looking statements, orally or in writing, in other contexts. These forward-looking statements can be identified by the use of words such as “believes,” “expects,” “plans,” “may,” “will,” “would,” “could,” “should,” “anticipates,” “estimates,” “project,” “intend,” or “outlook” or other variations of these words. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict or quantify. Actual events or results may differ materially as a result of a wide variety of factors and conditions, many of which are beyond our control. These include the development of a plan of reorganization, confirmation of the plan by the Bankruptcy Court, and our ability to maintain good relations with our customers, suppliers and employees. For a detailed discussion of these and other factors and conditions, please refer to the Commitments and Contingencies section below and to the other periodic reports filed with the SEC by Loral, our wholly owned subsidiary Loral Orion, Inc. (“Loral Orion”) and our affiliate Satelites de Mexico, S.A. de C.V. (“Satmex”). Loral operates in an industry sector in which securities values may be volatile and may be influenced by economic and other factors beyond our control. We undertake no obligation to update any forward-looking statements.

Loral is a leading satellite communications company organized into two operating segments: Satellite Services and Satellite Manufacturing. Revenues in 2003 were $533 million.

Through our Loral Skynet division we lease satellite capacity and platforms to our customers for video and direct-to-home (“DTH”) broadcasting, high-speed data distribution, Internet access, communications and networking services. The satellite services business is capital intensive and highly competitive. We compete with other satellite operators and with ground-based service providers. The build-out of a satellite fleet requires substantial investment. Once these investments are made, however, the costs to maintain and operate the fleet are relatively low. The upfront investments are earned back through the leasing of transponders to customers over the life of the satellite. Beyond construction, one of the major cost factors is in-orbit insurance, an essential component given the harsh and unpredictable environment in which the satellites operate. Annual receipts from this business are fairly predictable because they are based on an established base of long-term customer contracts. In 2003, Satellite Services sales were $296 million before eliminations of $8 million. Worldwide satellite services industry sales in 2002 were approximately $7 billion, according to available industry estimates. Satellite Services’ backlog at December 31, 2003 was $1.3 billion.

The satellite services market has been characterized in recent years by over-capacity, pricing pressure and competition from fiber. The downturn in the telecommunications sector led many existing Skynet customers, hampered by a slow-down in demand and lack of access to the capital markets, to postpone expansion plans. Similarly, several start-up companies that leased Skynet’s satellite capacity for the delivery of new applications failed to meet their business objectives. Following the closing of the Intelsat transaction, Skynet’s growth will

rely on its ability to differentiate itself from the competition through customized product offerings, its superior customer service and its successful marketing of available capacity on its international fleet which is well positioned to serve regions of the world where demand is growing.

Our Space Systems/ Loral (“SS/L”) subsidiary designs and manufactures satellites, space systems and space systems components for customers in the commercial and government sectors for applications including satellite services, DTH broadcasting, broadband data distribution, wireless telephony, digital radio, military communications, weather monitoring and air traffic management.

While its requirement for ongoing capital investment is low, the satellite manufacturing industry is a knowledge-intensive business, the success of which relies heavily on its technological heritage and the skills of its workforce. The breadth and depth of talent and experience resident in SS/ L’s workforce of approximately 1,500 employees is one of our key competitive advantages.

Satellite manufacturers have high fixed costs relating primarily to labor and overhead. Based on its current cost structure, we estimate that SS/ L covers its fixed costs with an average of four satellite awards a year. Cash flow in the satellite manufacturing business tends to be uneven. It takes two to three years to complete a satellite project and numerous assumptions are built into the estimated costs. Cash receipts are tied to the achievement of contract milestones, which depend in part on the ability of our subcontractors to deliver on time. In addition, the timing of satellite awards is difficult to predict, contributing to the unevenness of revenue and making it more challenging to match the workforce to the workflow.

Satellites are extraordinarily complex devices designed to operate in the very hostile environment of space. This complexity may lead to unanticipated costs during the design, manufacture and testing of a satellite. SS/ L establishes provisions for costs based on historical experience and program complexity to cover anticipated costs. Since most of SS/ L’s contracts are fixed price, cost increases in excess of the provisions reduces profitability and may result in losses borne solely by SS/ L, which may be material. The satellite manufacturing industry is highly competitive and, in recent years, order levels reached an unprecedented low level, resulting in manufacturing over-capacity. Buyers, as a result, are in the advantageous position of being able to negotiate contracts with favorable prices, terms and conditions. In the latter part of 2003, the order rate for new commercial satellites picked up and is expected to continue into 2004. This pick up has been driven by the need for replacement satellites and the resumption of some customers’ expansion plans. Backlog as of December 31, 2003, was $536 million. Backlog excludes approximately $240 million associated with orders or authorizations to proceed on the construction of four satellites (including the expected Intelsat order) received in the fourth quarter of 2003. SS/ L had sales in 2003 of $474 million including $229 million for internal satellites. Commercial satellite manufacturing industry sales in 2002 totaled $3.5 billion worldwide, according to available industry estimates.

We operate in extremely competitive markets characterized in recent years by over-capacity and pricing pressures brought on by the downturn in the telecommunications sector. Our existing and potential customers, having limited access to the capital markets, postponed or reduced the scope of their planned satellite-based applications and services. This resulted in an excess of transponder capacity and a standstill in satellite orders. In the face of these pressures, we further increased our emphasis on cash conservation over the last 18 months, reducing operating expenses, suspending dividend payments on our preferred stock, and closely monitoring capital expenditures. The sustained and unprecedented decline in demand for our satellites and satellite services, however, exacerbated our already strained financial condition brought on primarily by the investments we had previously made in Globalstar and subsequently wrote off. On July 2003, Loral and certain of its subsidiaries filed voluntary petitions for reorganization under Chapter 11. As a result of our Chapter 11 filing, all of our prepetition debt obligations aggregating $2.2 billion at December 31, 2003 have been accelerated. Our $2.2 billion of debt includes $967 million of bank debt that is secured by liens on the assets of Loral SpaceCom and Loral Satellite, consisting primarily of our Satellite Manufacturing assets and satellites serving

For the duration of the bankruptcy proceedings, our businesses are subject to risks and uncertainties of bankruptcy (see “Commitments and Contingencies” section below for examples of such risks and uncertainties).

In a further effort to strengthen our balance sheet, on July 15, 2003, we agreed to sell our satellites serving the North American market and related assets to Intelsat. Proceeds from the sale will be used to repay our outstanding secured bank debt, which was $967 million at December 31, 2003. This will reduce our outstanding principal debt obligations by almost 50 percent. On March 5, 2004, we and Intelsat entered into an amendment to the Asset Purchase Agreement, the effectiveness of which is subject to approval by the Bankruptcy Court and Intelsat’s bank lenders.

We intend to reorganize around our satellite manufacturing operations and our remaining fleet of international satellites, which will cover regions with high growth potential, such as Southeast Asia and South America, where the ground infrastructure is inadequate to support increased demand. We consider these operations to be a viable foundation for the further expansion of our company. We anticipate using excess cash flows from operations to populate our available slots with new satellites to meet market demand. We are in the process now of completing our long-term business plan. We believe the plan is sound and that we will not require any additional financing to fund operations. At this time, however, it is impossible to predict accurately the effect of the Chapter 11 reorganization on Loral, when it may emerge from Chapter 11 and what its capital structure will be. The rights and claims of various creditors and security holders will be determined by our plan of reorganization. No assurance can be given as to what values, if any, will be ascribed in the bankruptcy proceedings to each of these constituencies. We anticipate that, in any plan of reorganization ultimately confirmed by the Bankruptcy Court, our common and preferred stock will, at best, be severely diluted and may be eliminated entirely, with the result that common and preferred stockholders would receive no distribution. Accordingly, we urge that appropriate caution be exercised with respect to existing and future investments in any of such securities and claims.

Critical success factors for us include maintaining our reputation for reliability, quality and superior customer service. During reorganization, in particular, these factors are vital to securing new customers and retaining current ones. In addition, we must align our workforce levels with the needs of the business, continue to contain costs, and maximize the efficiency of both of our operations. Loral Skynet is focused on increasing the capacity utilization of its satellite fleet and successfully introducing new value-added services to its markets. Space Systems/ Loral, which received orders or authorizations to proceed for four new satellites (including the expected Intelsat order) in the fourth quarter of 2003, is focused on increased bookings and backlog in 2004.

See Part 1, Item 1, for a complete description of Loral’s businesses, our Chapter 11 Cases and the sale of our satellite assets serving the North American market.

The accompanying consolidated financial statements have been prepared assuming Loral in its current structure will continue as a going concern. However, the factors mentioned above among other things, raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The ability of Loral to continue as a going concern is dependent on a number of factors including, but not limited to, developing a plan of reorganization, confirmation of the plan by the Bankruptcy Court and maintaining good relations with

our customers, suppliers and employees. If a plan of reorganization is not confirmed and implemented, we may be forced to liquidate under applicable provisions of the Bankruptcy Code. There can be no assurance of the level of recovery that Loral’s creditors would receive in the event of a liquidation. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities if Loral were forced to liquidate.

The common definition of EBITDA is “Earnings Before Interest, Taxes, Depreciation and Amortization.” In evaluating financial performance, we use revenue and operating income (loss) before depreciation and amortization including amortization of unearned stock compensation, and reorganization expenses due to bankruptcy (“Adjusted EBITDA”) as a measure of a segment’s profit or loss. Adjusted EBITDA is equivalent to the common definition of EBITDA before amortization of stock compensation; reorganization expenses due to bankruptcy; gain (loss) on investments and debt exchanges; equity in net losses of affiliates, net of tax; minority interest, net of tax; cumulative effect of change in accounting principle, net of tax, and extraordinary gain on acquisition of minority interest, net of tax. Adjusted EBITDA should be used in conjunction with GAAP financial measures and is not presented as an alternative to cash flow from operations as a measure of our liquidity or as an alternative to net income as an indicator of our operating performance.

We believe the use of Adjusted EBITDA along with GAAP financial measures enhances the understanding of our operating results and is useful to investors in comparing performance with competitors, estimating enterprise value and making investment decisions. Adjusted EBITDA allows investors to compare operating results of competitors exclusive of depreciation and amortization, net losses of affiliates and minority interest, a useful tool given the significant variation that can result from the timing of capital expenditures, the amount of intangible assets recorded, the differences in assets’ lives, the timing and amount of investments, and effects of investments not managed by Loral. Adjusted EBITDA as used here may not be comparable to similarly titled measures reported by other companies. We also use Adjusted EBITDA to evaluate operating performance, to allocate resources and capital, to measure performance for incentive compensation programs, and to evaluate future growth opportunities. See the table below for reconciliations of Adjusted EBITDA to net loss.

The following discussion of revenues and Adjusted EBITDA reflects the results of our operating businesses for 2003, 2002 and 2001. The balance of the discussion relates to our consolidated results, unless otherwise noted. Both of our business segments have been adversely affected by the downturn in the telecommunications sector, which has caused a delay in demand for new telecommunications applications and services.


⁽¹⁾	Represents: (a) the elimination of intercompany sales and intercompany Adjusted EBITDA, primarily for satellites under construction by SS/ L for wholly owned subsidiaries and (b) the reversal of satellite manufacturing sales of $83 million and $73 million of cost of satellite manufacturing on a satellite program with a customer where the contract was changed to a lease arrangement in 2003 (see Note 17 to the consolidated financial statements).

⁽²⁾	Includes revenues from affiliates of $28.7 million, $85.9 million and $100.9 million in 2003, 2002 and 2001, respectively.

⁽³⁾	See 2003 Compared with 2002 and 2001 — Cost of Satellite Manufacturing, for significant items that effect comparability between the periods presented.

⁽⁴⁾	Represents corporate expenses incurred in support of our operations.

Financial Information for Assets Serving the North American Market to be Sold to Intelsat

The net book value of the satellites to be sold to Intelsat was $935 million (including insurance proceeds receivable of $123 million on our balance sheet) and the related assets and liabilities was $30 million and $31 million, respectively, as of December 31, 2003. The net assets to be sold, as well as the results of operations relating to such net assets, have not been segregated in the accompanying financial statements since Bankruptcy Court approval is still required with respect to certain provisions of the asset purchase agreement.

The following table represents the results of operations that are expected to be reclassified for the satellite assets to be sold to Intelsat, for the three years in the period ended December 31, 2003. For the purpose of this presentation, all indirect costs normally associated with these operations have been omitted, including telemetry, tracking and control, access control, maintenance and engineering, selling and marketing and general and administrative.

Revenues from Satellite Services decreased $99 million in 2003 as compared to 2002 primarily due to decreases in prices of $43 million, reduced transponder and network utilization of $48 million and lower customer lease termination fees of $8 million in both transponder leasing and network services. Revenues from Satellite Services decreased $69 million in 2002 as compared to 2001 primarily due to decreases in prices of $15 million, reduced transponder and network utilization of $46 million and lower customer lease termination fees of $5 million in both transponder leasing and network services. Eliminations primarily consist of revenues from leasing transponder capacity to Satellite Manufacturing and an adjustment to present revenues without the implicit interest discount provided to customers who have made prepayments under long-term contracts. As a result of the above, revenues from Satellite Services as reported decreased $102 million and $66 million in 2003 and 2002, respectively, as compared to the respective prior year.

Revenues from Satellite Manufacturing decreased $379 million in 2003 as compared to 2002, primarily resulting from satellite programs nearing completion under the percentage of completion method with no new satellite orders from December 2001 to October 2003. Revenues from Satellite Manufacturing increased $38 million in 2002 as compared to 2001, primarily resulting from the timing of work performed and costs incurred on satellite backlog programs under the percentage of completion method. Eliminations primarily consist of revenues from satellites under construction by SS/ L for Satellite Services. In 2003, eliminations also include the reversal of $83 million of sales on a customer satellite contract that was changed to a lease arrangement in the third quarter (which became an internal program that will be leased to the customer in the future). See Note 17 to the consolidated financial statements. As a result of the above, revenues from Satellite Manufacturing as reported decreased $463 million in 2003 and increased $94 million in 2002 as compared to the respective prior year.

The decrease of $17 million in 2003 as compared to 2002 was primarily due to (i) a $9 million insurance claim recovery on a satellite, (ii) reduced external satellite capacity costs totaling $14 million ($9 million due to lower network services revenues and $5 million due to expirations of capacity leases) and (iii) lower network service costs of $3 million. This was offset by (i) a net increase in depreciation expense of $7 million primarily due to the shortening in the estimated life of a satellite, offset by lower depreciation expense due to the loss of Telstar 4 in 2003, the timing of assets placed in service and assets that became fully depreciated and (ii) increased insurance costs of $5 million resulting from higher premiums on renewals and changes in insurance coverage requirements and the launch of Telstar 13. The decrease of $32 million in 2002 as compared to 2001 was primarily due to decreases of (i) $18 million in amortization expense for goodwill resulting from the adoption of SFAS No. 142 on January 1, 2002 (as we wrote-off our remaining balance of goodwill, see Note 8 to the consolidated financial statements) and (ii) $14 million in depreciation due to the timing of assets placed in service and assets that became fully depreciated. The increases in cost of satellite services as a percentage of revenues in 2003 and 2002, as compared to the prior year, were primarily due to reduced revenues.

The decrease of $338 million in 2003 as compared to 2002 was primarily due to (i) lower overall sales as satellite programs neared completion under the percentage of completion method with no new satellite awards from December 2001 until October 2003, (ii) the reversal of $73 million of costs of satellite manufacturing on a satellite program where the contract was changed to a lease arrangement in the third quarter of 2003 and (iii) lower depreciation expense of $6 million primarily due to reduced capital spending from 2001 to 2003. These factors were offset by the following cost increases for the year ended December 31, 2003 (i) a charge of $24 million due to cancellation of a deposit on a launch vehicle contract; (ii) provisions for inventory obsolescence of $50 million primarily due to the absence of new satellite awards from December 2001 until October 2003; (iii) a charge of $13 million on the settlement of all outstanding issues with Alcatel including a contract dispute that was in arbitration; (iv) a loss of $11 million on the acceleration of receipt of long-term receivables; (v) a charge of $8 million related to an agreement in principle to settle a satellite contract dispute and (vi) a charge of $10 million recorded on SS/ L-provided vendor financing, representing the difference between the carrying value of SS/ L’s receivables of $38 million and the value of the common shares received by SS/ L based on the trading price of Sirius Satellite Radio, Inc. (“Sirius”) common stock on March 7, 2003 of $28 million (see Gain on Investments and Debt Exchanges for gains realized subsequent to receipt of the shares). The increase in cost of satellite manufacturing as a percentage of revenues in 2003 as compared to 2002, was affected by reduced revenues for overhead cost absorption.

The increase of $179 million in 2002 as compared to 2001 primarily resulted from (i) increased sales; (ii) valuation allowances of $69 million recorded on SS/ L-provided vendor financings (in connection with advances related to Europe*Star Limited (“Europe*Star”) and an agreement reached with Sirius to convert vendor financing receivables into Sirius’ equity) and (iii) provisions for inventory obsolescence of $14 million due to the absence of new satellite awards. These factors were offset by (i) $13 million of income recorded from a recovery of a claim from a vendor; (ii) a decrease of $9 million in amortization expense for goodwill resulting from the adoption of SFAS No. 142 on January 1, 2002 (as the Company wrote-off its remaining balance of goodwill, see Note 8 to the consolidated financial statements) and (iii) by lowering costs through workforce reductions since the beginning of 2001, by streamlining certain internal processes and by instituting tighter controls which are designed to provide that subcontracted components are received on time and meet all customer requirements. Costs in 2001, include $12 million for obligations to the U.S. government to settle a case relating to export controls.

The decrease of $8 million in 2003 as compared to 2002 was primarily due to lower research and development costs of $7 million and sales and marketing costs of $2 million at SS/ L. Satellite Services had expense increases of $3 million, primarily due to an increase in bad debt expense of $4 million, offset by cost reductions for headcount and employee related expenses and marketing expenses of $2 million. The decrease

of $41 million in 2002 as compared to 2001 was primarily due to lower SS/ L research and development costs of $17 million in 2002 and lower Satellite Services expenses of $22 million in 2002, primarily due to lower headcount and employee related expenses of $11 million, lower marketing and selling expenses of $7 million and lower professional fees of $3 million.

Reorganization expenses due to bankruptcy in 2003 were $25 million for the period from July 15, 2003 (date of filing) to December 31, 2003, which includes a charge for lease rejection claims of $6 million, professional fees of $15 million associated with bankruptcy services, and employee retention costs of $5 million, offset by interest and investment income earned of $1 million (which represents the interest earned subsequent to filing for bankruptcy, excluding interest earned on satellite programs).

The increase of $2 million in 2003 as compared to 2002 was principally due to higher interest income earned on satellite programs, offset by lower interest income earned on lower average cash balances prior to filing for bankruptcy and interest income earned on available cash balances subsequent to filing for bankruptcy being reclassified into reorganization expenses. The decrease of $16 million in 2002 as compared to 2001 was principally due to lower interest rates and lower average cash balances and lower interest earned on satellite programs.

Interest cost before capitalized interest decreased $11 million in 2003 as compared to 2002, which was primarily attributable to the fact that subsequent to Loral’s voluntary petitions for reorganization on July 15, 2003, we only recognize and pay interest on our bank debt and have stopped recognizing and paying interest on all other outstanding borrowings. Interest cost before capitalized interest is expected to decrease in 2004 when we pay off our bank debt upon closing of the Intelsat transaction. Interest cost before capitalized interest decreased $100 million in 2002 as compared to 2001, primarily because we did not recognize any interest expense on our 10% senior notes issued in connection with exchange offers completed in December 2001. Interest expense on our 10% senior notes was fully offset by amortization of the deferred gain on the debt exchanges (see Note 10 to the consolidated financial statements) and lower debt balances and interest rates in 2002 as compared to 2001. Capitalized interest increased $4 million in 2003 and $7 million in 2002 as compared to the respective prior year, primarily due to higher satellite under construction balances. Capitalized interest is expected to decrease in 2004, as a result of the closing of the Intelsat transaction and the fact that our remaining satellite under construction is expected to be launched in 2004. As a result of the above, interest expense decreased $15 million in 2003 and $107 million in 2002, as compared to the respective prior year.

During 2003, Loral realized $18 million of gains from the sale of all 59 million shares of Sirius common stock received by us in settlement of the vendor financing owed to SS/ L by Sirius. During 2001, we recorded a $34 million gain related to Loral Orion’s debt exchanges (see Note 10 to the consolidated financial statements).

During 2003, we continued to maintain a 100% valuation allowance against our net deferred tax assets and recorded no benefit for our domestic loss. For 2003, we recorded an income tax provision of $4.6 million on a pre-tax loss of $338.6 million, which is primarily for state, local and foreign income taxes and a deferred tax liability recorded for certain foreign entities. This compares to income tax provisions for 2002 and 2001 of $355 million and $2.2 million on pre-tax losses of $147 million and $126 million, respectively.

At December 31, 2002, we recorded a 100% valuation allowance against our domestic net deferred tax assets under the criteria of SFAS No. 109, Accounting for Income Taxes. The increase in tax expense in 2002 when compared to 2003 and 2001 was primarily attributable to an increase in the deferred tax valuation allowance. See Critical Accounting Matters.

The decrease in equity losses of $25 million in 2003 as compared to 2002, primarily resulted from a decrease in equity losses in Europe*Star of $42 million, as we wrote-off our remaining investment in Europe*Star in the fourth quarter of 2002. This was offset by an increase in equity losses in Satmex of $27 million, primarily because we wrote-off our remaining investment of $29 million in Satmex in the third quarter of 2003. Accordingly, there is no longer any requirement for us to provide for our allocated share of Satmex’s net losses subsequent to September 30, 2003 and Europe*Star’s net losses subsequent to December 31, 2002. The increase in equity losses of $10 million in 2002 as compared to 2001 primarily resulted from our recording increased equity losses in Satmex of $13 million, due primarily to the downturn in the telecommunications sector, and increased equity losses in Europe*Star of $13 million, due primarily to Europe*Star’s loss on the sale of an equity investment and to an impairment charge of $7 million we recorded relating to our investment in Europe*Star in 2002. This was offset by reduced equity losses in Globalstar related activities of $22 million, due primarily to reduced equity losses in Globalstar service provider partnerships. In 2002, equity losses in Globalstar related activities included a recovery of a claim from a vendor on the Globalstar program of which $14 million ($8 million after taxes) was recorded as a benefit to equity in net losses of affiliates, offset by a $9 million charge relating to liabilities we had guaranteed in connection with a Globalstar service provider partnership. See Note 7 to the consolidated financial statements.

On July 1, 2003, we adopted SFAS No. 150, and as a result, recorded a charge of $2 million for the amortization of expenses incurred on the issuance of our preferred stock from their issuance dates through

On January 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets, which resulted in our recording a charge to write-off all of our goodwill of $890 million as the cumulative effect of change in accounting principle. See Note 8 to the consolidated financial statements.

On January 1, 2001, we adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which resulted in our recording a charge for the cumulative effect of a change in accounting principle, net of taxes, of $2 million. See Note 3 to the consolidated financial statements.

As a result of receiving Alcatel’s minority interest in CyberStar, L.P. on June 30, 2003 (as part of a settlement arrangement with Alcatel), we recognized an extraordinary gain of $14 million, which represents the extinguishment of the minority interest liability less the fair value of the acquired net assets.

The $82 million decrease in 2003 from 2002 was primarily due to dividend charges of $60 million ($46 million non-cash charges and $13 million cash charges) and the reduction of dividend obligations. Both resulted from our 2002 exchange offers and privately negotiated exchange transactions where 11.5 million shares of our 6% Series C convertible redeemable preferred stock (the “Series C Preferred Stock”) and 6% Series D convertible redeemable preferred stock (the “Series D Preferred Stock”) were converted into 7.7 million shares of our common stock. Preferred dividends also decreased in 2003 from 2002, as a result of the adoption of SFAS 150 on July 1, 2003, which requires that dividends since adoption be included in interest expense. The increase of $8 million in 2002 from 2001 was due primarily to dividend charges of $60 million resulting from the Company’s 2002 exchange offers and privately negotiated exchange transactions, offset by lower dividends of $23 million as a result of these exchanges and the fact that we incurred non-cash dividend charges of $29 million in 2001 on the conversion of 5.6 million shares of Series C Preferred Stock and Series D Preferred Stock into 3.1 million shares of our common stock, in connection with our exchange offers.

Backlog before eliminations was $1.7 billion, including $479 million related to the satellites to be sold to Intelsat, and $1.8 billion at December 31, 2003 and 2002, which includes $45 million and $142 million, respectively, as a result of transactions entered into with affiliates and related parties for the construction of satellites (primarily with XTAR and Spainsat, Satmex, Europe*Star and Globalstar). Backlog at December 31, 2003, excludes approximately $240 million associated with orders or authorizations to proceed on the construction of four satellites (including the expected Intelsat order), received in the fourth quarter of 2003.

See Revenues from Satellite Services, Cost of Satellite Services and Selling, General and Administrative Expenses, for an explanation of the changes in these items for the periods presented. The net increase in depreciation and amortization expense of $9 million in 2003 as compared to 2002 was primarily due to the shortening in the estimated life of a satellite, offset by lower depreciation expense due to the timing of assets placed in service and assets that became fully depreciated. The decrease in depreciation and amortization expense of $32 million in 2002 as compared to 2001 was primarily due to an $18 million decrease in amortization expense for goodwill resulting from the adoption of SFAS No. 142 and a $14 million decrease in depreciation, due to the timing of assets placed in service and assets that became fully depreciated. As a result of the above, Adjusted EBITDA before eliminations decreased $79 million in 2003 and decreased $43 million in 2002 as compared to the respective prior year.

As of December 31, 2003, Satellite Services had seven satellites in-orbit and three under construction (including one launched in January 2004 that has a problem with its solar array deployment, see below). At December 31, 2003, Satellite Services’ backlog totaled $1.3 billion, including intercompany backlog of $37 million and $479 million in backlog relating to the Intelsat transaction. As of December 31, 2002, backlog was $1.4 billion, including intercompany backlog of $41 million. Approximately $223 million of the 2003 backlog is expected to be realized in 2004, including approximately $4 million of intercompany backlog. Total assets for the segment were $2.0 billion and $1.9 billion as of December 31, 2003 and 2002, respectively. Capital expenditures were approximately $171 million in 2003 and are expected to substantially decrease in 2004, as a result of the sale of the satellite assets serving the North American market to Intelsat and the fact that the remaining satellite under construction is expected to be launched in 2004.

In January 2004, the Company’s Telstar 14/ Estrela do Sul-1 satellite was successfully launched, but after launch the satellite only partially deployed its North solar array. SS/ L, the manufacturer of the satellite, is raising the satellite to geostationary orbit. The satellite is currently generating enough power to operate between 10 and 14 Ku-band transponders, making it capable of meeting immediate customer requirements, as well as Brazilian government requirements. The book value of Telstar14/ Estrela do Sul-1 at December 31, 2003 was $253 million and is included in satellites under construction. It is insured for partial and total losses up to a maximum of $250 million.

See Revenues from Satellite Manufacturing, Cost of Satellite Manufacturing and Selling, General and Administrative Expenses, for an explanation of the changes in these items for the periods presented. The decrease of $6 million in depreciation and amortization in 2003 as compared to 2002 was primarily due to reduced capital spending from 2001 to 2003. The decrease of $8 million in depreciation and amortization expense in 2002 as compared to 2001 was primarily due to the adoption of SFAS No. 142. As a result of the above, Adjusted EBITDA before eliminations decreased $125 million in 2003 and $78 million in 2002, as compared to the respective prior year.

Adjusted EBITDA before eliminations also decreased because of the absence of new satellite awards from December 2001 to October 2003.

In October 2003, SS/ L received three new satellite orders through authorizations to proceed from existing customers (two from DIRECTV and one from PanAmSat) having an aggregate value in excess of $320 million and an option for another satellite for PanAmSat. DIRECTV also increased the total contract value for the nearly completed DIRECTV 7S by $25 million to approximately $165 million. In addition, Intelsat has agreed to order a new satellite from SS/ L upon closing of the sale of the fleet serving the North American market.

As of December 31, 2003 and 2002, backlog for SS/ L was $536 million (excluding approximately $240 million associated with the fourth quarter awards, see Consolidated Backlog) and $763 million, including intercompany backlog of $145 million and $275 million, respectively. Approximately $471 million of the 2003 backlog is expected to be realized in 2004, including approximately $145 million of intercompany backlog. The decline in backlog is due to a lack of new satellite orders resulting from an industry-wide slowdown in orders and concerns regarding Loral’s financial condition. Total SS/ L assets were $362 million and $690 million as of December 31, 2003 and 2002, respectively. Capital expenditures in 2003 were approximately $6 million and are expected to increase slightly in 2004.

The preparation of financial statements in conformity with U.S. GAAP requires us 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 revenues and expenses reported for the period. Actual results could differ from estimates.

The majority of our Satellite Manufacturing revenue is associated with long-term fixed-price contracts. Revenue and profit from satellite sales under these long-term contracts are recognized using the cost-to-cost percentage of completion method, which requires significant estimates. Loral uses this method because reasonably dependable estimates can be made based on historical experience and various other assumptions that are believed to be reasonable under the circumstances. These estimates include forecasts of costs and

schedules, estimating contract revenue related to contract performance (including estimated amounts for penalties, performance incentives and orbital incentives that will be received as the satellite performs on orbit) and the potential for component obsolescence in connection with long-term procurements. These estimates are assessed continually during the term of the contract and revisions are reflected when the conditions become known. Provisions for losses on contracts are recorded when estimates determine that a loss will be incurred on a contract at completion. Under firm fixed-price contracts, work performed and products shipped are paid for at a fixed price without adjustment for actual costs incurred in connection with the contract; accordingly, favorable changes in estimates in a period will result in additional revenue and profit, and unfavorable changes in estimates will result in a reduction of revenue and profit or the recording of a loss that will be borne solely by Loral.

Depreciation is provided for on the straight-line method for satellites over the estimated useful life of the satellite, which is determined by engineering analyses performed at the satellite’s in-service date and re-evaluated periodically. A decrease in the useful life of a satellite would result in increased depreciation expense.

Loral is required to estimate the collectibility of its billed receivables, vendor financing and long-term receivables. A considerable amount of judgment is required in assessing the collectibility of these receivables, including the current creditworthiness of each customer and related aging of the past due balances. Charges for bad debts recorded to the income statement on billed receivables during 2003, 2002, and 2001 were $7.4 million, $4.3 million and $3.7 million, respectively. At December 31, 2003 and 2002, billed receivables were net of allowances for doubtful accounts of $11.7 million and $7.1 million, respectively. Long-term receivables were net of allowances of $8.1 million as of December 31, 2003 and vendor financing was net of a valuation allowance of $32.6 million as of December 31, 2002 (relating to vendor financings in connection with an agreement reached with Sirius to convert vendor financing receivables into Sirius’ equity). We evaluate specific accounts when we become aware of a situation where a customer may not be able to meet its financial obligations due to a deterioration of its financial condition, credit ratings or bankruptcy. The reserve requirements are based on the best facts available to us and are re-evaluated periodically.

Inventory is reviewed for estimated obsolescence or unusable items and, if appropriate, is written down to the net realizable value based upon assumptions about future demand and market conditions. If actual future demand or market conditions are less favorable than those we project, additional inventory write-downs may be required. These are considered permanent adjustments to the cost basis of the inventory. Charges for inventory obsolescence recorded to the income statement during 2003, 2002, and 2001 were $49.5 million, $14.0 million and $5.9 million, respectively.

Loral, as a Bermuda company, is subject to U.S. federal, state and local income taxation at regular corporate rates on any income that is effectively connected with the conduct of a U.S. trade or business. When such income is deemed removed from the U.S. business, it is subject to an additional 30% “branch profits” tax. While any portion of Loral’s income from sources outside the United States may also be subject to taxation by foreign countries, the extent to which these countries may require Loral to pay tax or to make payments in lieu of tax cannot be determined in advance. From its inception, Loral has not received any cumulative benefit as a result of being established in Bermuda because of substantial losses incurred outside the U.S. Loral’s U.S. subsidiaries are subject to U.S. taxes on their worldwide income. In addition, a 30% U.S. withholding tax will be imposed on dividends and interest paid by such subsidiaries to Loral.

We use the liability method in accounting for taxes whereby income taxes are recognized during the year in which transactions enter into the determination of financial statement income or loss. Deferred taxes reflect the future tax effect of temporary differences between the carrying amount of assets and liabilities for financial and income tax reporting and are measured by applying statutory tax rates in effect for the year during which the differences are expected to reverse. We assess the recoverability of our deferred tax assets and, based upon this analysis, record a valuation allowance against the deferred tax assets to the extent recoverability does not satisfy the “more likely than not” recognition criteria in SFAS No. 109.

Based upon this analysis, we concluded during the fourth quarter of 2002 that, due to insufficient positive evidence substantiating recoverability, a 100% valuation allowance should be established for the entire balance of our net deferred tax assets. During 2003, we recorded no benefit for our domestic loss and continued to maintain the valuation allowance, increasing the reserve by $94.4 million to a balance of $670.9 million.

We will maintain the valuation allowance until sufficient positive evidence exists to support its reversal. Until such time, we expect to report no income tax provision net of valuation allowance adjustments, except for potential alternative minimum taxes and minor state, local and foreign tax provisions. When we determine that we will be able to realize all or a part of the benefit from our deferred tax assets, reversal of the valuation allowance will increase income in the period the determination is made.

We maintain a pension plan and a supplemental retirement plan. These plans are defined benefit pension plans. In addition to providing pension benefits, we provide certain health care and life insurance benefits for retired employees and dependents. These pension and other employee benefit costs are developed from actuarial valuations. Inherent in these valuations are key assumptions, including the discount rate and expected long-term rate of return on plan assets. Material changes in these pension and other employee benefit costs may occur in the future due to changes in these assumptions, as well as our actual experience.

The discount rate is subject to change each year, consistent with changes in applicable high-quality long-term corporate bond indices, such as the Moody’s AA Corporate Bond Index. The discount rate determined on this basis was 6.25% as of December 31, 2003, a decline of 50 basis points from December 31, 2002. This had the effect of increasing our accumulated benefit obligations (“ABO”) for pensions by $17.6 million and for other employee benefits by $3.8 million as of December 31, 2003.

The expected long-term rate of return on pension plan assets is selected by taking into account the expected duration of the plan’s projected benefit obligation, asset mix and the fact that its assets are actively managed to mitigate risk. Allowable investment types include equity investments and fixed income investments. Pension plan assets are managed by Russell Investment Corp., which allocates the assets into specified Russell-designed funds as we direct. Each specified Russell fund is then managed by investment managers chosen by Russell. The targeted short and long-term allocation of our pension plan assets is 60% in equity investments and 40% in fixed income investments. Based on this target allocation, the fifteen-year historical return of our investment managers has been 10.9%. The expected long-term rate of return on plan assets determined on this basis was 9.0% for 2003, a decline of 50 basis points from 2002.

These pension and other employee costs are expected to decrease to approximately $22 million in 2004 from $28 million in 2003 primarily due to better asset returns, a reduction in force and other employee benefit plan changes, offset by the drop in discount rate. Lowering the discount rate and the expected long-term rate of return each by 0.5% would have increased these pensions and other employee benefits costs by approximately $3.3 million and $1.0 million, respectively, in 2003.

On December 8, 2003, President Bush signed the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (DIMA). The Act introduces a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In accordance with the FASB Staff Position No. 106-1, we are electing to defer recognition of any potential savings on the measure of accumulated postretirement benefit obligation or net periodic benefit cost as a result of DIMA

The ABO for the pension plan exceeded the fair value of plan assets by $94 million at December 31, 2003 (the “unfunded ABO”). This was primarily due to the negative returns on the pension funds in previous years arising from the overall decline in the equity markets, and a decline in the discount rate used to estimate the pension liability as a result of declining interest rates. Therefore, Loral was required to establish a minimum liability and record an additional $4.5 million during 2003, for a total charge to equity of $69.2 million for the unfunded ABO, to the extent not already reflected as a liability. The ABO was measured using a discount rate of 6.25% as of December 31, 2003. Lowering the discount rate by 0.5% would have increased the ABO and the resulting minimum liability and charge to equity by approximately $17.6 million. Market conditions and interest rates significantly impact future assets and liabilities of Loral’s pension plans. This charge to equity will be revalued based upon plan assets and the measurement of plan obligations at the end of each fiscal year.

Contingencies by their nature relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred as well as in estimating the amount of potential loss, if any. The most important contingencies affecting our financial statements are detailed below under Commitments and Contingencies.

As of December 31, 2003, we had $142 million of cash (not including $3 million of restricted cash presented in other current assets, which we will have access to upon repayment of our bank debt), $6 million of outstanding letters of credit and had no further credit available from our credit facilities. Transfer of this cash, which is held in various separate legal entities, is subject to the provisions of the cash collateral order (see Cash Collateral Order below). Cash flow from Satellite Services is fairly predictable because it is based on an existing base of long-term customer contracts. Cash flow from Satellite Manufacturing, however, is not as predictable, because it depends on a number of factors, some of which are not within SS/ L’s control. For example, most satellite contracts are long-term (two to three years) fixed price contracts that require significant estimates when they are competitively bid (which may include cost estimates for new technologies). In addition, various component manufacturers that subcontract for SS/ L may not meet required manufacturing specifications or timetables, which may cause SS/ L to miss milestones and incur penalties. Customers may also require SS/ L to have a source of liquidity to support new satellite orders in light of Loral’s financial condition.

The following tables aggregate our contractual obligations and other commercial commitments as of December 31, 2003 (in thousands).


⁽¹⁾	Pursuant to Section 365 of the Bankruptcy Code, Loral and its Debtor subsidiaries may reject or assume prepetition executory contracts and unexpired leases, and parties affected by rejections of these contracts or leases may file claims with the Bankruptcy Court which will be addressed in the context of the Chapter 11 Cases. The above table includes amounts that are subject to compromise under a plan of reorganization, including: all of our debt and preferred stock, and certain of our operating leases, unconditional purchase obligations and other long-term obligations. See Note 9 to the consolidated financial statements for further detail on liabilities subject to compromise.

⁽²⁾	Represents cash obligations for principal payments and the difference in the carrying value and principal amount for Loral Orion’s 10% senior notes that was amortized over the life of the notes. As a result of our Chapter 11 filing on July 15, 2003, all of our debt obligations have been accelerated. While we have continued to pay interest on our bank debt, we have stopped accruing and paying interest on all of our senior unsecured notes with an aggregate principal amount of $1.05 billion. This has significantly reduced our cash interest payments. See Note 10 to the consolidated financial statements for further detail on our debt obligations.

⁽³⁾	Represents future minimum payments under operating leases with initial or remaining terms of one year or more, net of sub-lease rentals of $2.0 million.

⁽⁴⁾	SS/ L has entered into various purchase commitments with suppliers due to the long lead times required to produce purchased parts and launch vehicles (year 1 amount includes $36 million of launch vehicle obligations expected to be paid by Intelsat for one of the satellites to be sold). Unassigned launch vehicle commitments represent the minimum amount due if the launch contract is terminated.

⁽⁵⁾	Primarily represents vendor financing related amounts owed to subcontractors, of which $47 million is non-recourse to SS/ L in the event of non-payment by Globalstar due to bankruptcy, and amounts due to APT representing Loral’s share of the project cost of Telstar 18.

⁽⁶⁾	In August 2002, Loral’s Board of Directors approved a plan to suspend indefinitely the future payment of dividends on its two series of preferred stock. Accordingly, we have deferred the payments of quarterly dividends due on our Series C and Series D preferred stock. We stopped accruing dividends on our two


	series of preferred stock on July 15, 2003 in our consolidated financial statements, as a result of our Chapter 11 filing.

Our Series C and Series D preferred stock have mandatory redemption dates in 2006 and 2007, respectively. We have the right to make mandatory redemption payments to the holders in either cash or common stock, or a combination of the two. As a consequence of the Chapter 11 Cases, it is not likely that a mandatory redemption will occur. As a result of the adoption of SFAS 150, we reclassified our preferred stock to liabilities from shareholders’ deficit at June 30, 2003 and the related dividends since adoption have been included in interest expense (see Note 3 to the consolidated financial statements).


⁽⁷⁾	Letters of credit have a maturity of one year and are renewed annually.

As previously stated, substantially all of the assets of Loral SpaceCom and Loral Satellite constitute collateral security for the obligations that are owed to our bank lenders. Under the Bankruptcy Code, Loral SpaceCom and Loral Satellite are authorized to use the existing cash or cash proceeds of this collateral (the “Cash Collateral”) only in accordance with the cash collateral order.

On the date the Chapter 11 Cases were commenced, the Bankruptcy Court entered an order authorizing the Debtors to use the Cash Collateral to fund all operating expenses associated with their businesses in accordance with an agreed upon budget and in accordance with certain other terms set forth in the order. The use of the Cash Collateral can be terminated by the bank lenders upon the occurrence of certain events specified in the order. The bank lenders have granted the Debtors a number of waivers in the past. In fact, the Debtors currently are operating under a waiver that temporarily sets aside certain of the order’s requirements, among them, the requirement for an agreed upon business plan, certain financial tests, maintenance of in-orbit insurance at certain levels and delivery of financial statements. There can be no assurance that the bank lenders will grant future waivers. In the event the Debtors’ ability to use the Cash Collateral is terminated, the Debtors would still have the right to seek the authority of the Bankruptcy Court to use the Cash Collateral notwithstanding any objection by the bank lenders. There can be no assurance, however, that the Bankruptcy Court would grant this request.

Net cash provided by operating activities for 2003 was $225 million, due primarily to (i) a $74 million decrease in long-term receivables arising from the accelerated collection of orbital receivables, (ii) a $41 million increase in accounts payable due primarily to the timing of satellite related payments, including the start up of the three new satellite programs in the fourth quarter of 2003 and unpaid prepetition liabilities, (iii) a $34 million decrease in other current assets and other assets primarily resulting from a decrease in prepaid insurance and pension costs recorded in 2003, (iv) a $32 million decrease in contracts-in-process primarily resulting from net collections on customer contracts, (v) a $50 million increase in customer advances primarily due to the start up of the three new satellite programs in the fourth quarter of 2003 and (vi) a $26 million decrease in deposits primarily arising from the assignment of launch vehicles to satellite programs. These factors were offset by a decrease in long-term liabilities of $20 million due primarily to a decrease in deferred revenue and the settlement of the guaranteed residual value of a leased asset and net loss as adjusted for non-cash items of $30 million.

Net cash provided by operating activities for 2002 was $193 million, due primarily to (i) net income as adjusted for non-cash items of $155 million, (ii) a $97 million decrease in contracts-in-process resulting from net collections on customer contracts and (iii) a $59 million decrease in deposits arising primarily from the assignment of launch vehicles to satellite programs. Offsetting factors include an $89 million decrease in accounts payable due primarily to the timing of satellite related payments and a $35 million decrease in customer advances due primarily to progress on satellite programs.

Net cash used in investing activities was $150 million for 2003, primarily reflecting capital expenditures of $177 million mainly for the construction of satellites, and investments in and advances to affiliates of $19 million (primarily for XTAR), offset by proceeds of $46 million from the sale of Sirius common stock.

Net cash used in investing activities was $139 million for 2002, primarily reflecting capital expenditures of $98 million mainly for the construction of satellites, and investments in and advances to affiliates of $41 million (including $29 million for XTAR).

Net cash provided by financing activities in 2003 was $1 million, primarily due to net borrowings under revolving credit facilities of $71 million, offset by debt amortization payments of $70 million (including $31 million of interest payments on our 10% senior notes) and payment of bank amendment costs of $5 million.

Net cash used in financing activities in 2002 was $148 million, primarily due to debt amortization payments of $133 million (including $46 million of interest payments on our 10% senior notes) and net cash used in equity transactions of $33 million (primarily dividend related payments), offset by net borrowings under revolving credit facilities of $18 million.

On June 4, 2003, our Board of Directors approved a reverse stock split of our common stock at a ratio of one-for-ten, resulting in a new par value of $0.10 per common share (previously $0.01 par value per common share). The reverse stock split became effective after the close of business on June 13, 2003. All references to common stock and per share amounts for all periods presented have been retroactively restated to reflect this reverse stock split.

For 2003, our qualified pension plan, under the Internal Revenue Code and its regulations, was considered fully funded (i.e. assets are greater than liabilities) and there was no contribution required to be made in 2003. During 2004, based on current estimates, we expect to contribute $13 million to the qualified pension plan and expect to fund $3 million for other employee benefit plans.

Loral has made certain investments in joint ventures in the satellite services business that are accounted for under the equity method of accounting. See Note 7 to the consolidated financial statements and Commitments and Contingencies in this Management’s Discussion and Analysis of Results of Operations and Financial Condition for further information on affiliate matters.

Our consolidated statements of operations reflect the effects of the following amounts related to transactions with or investments in affiliates (in millions).

Our revenues from affiliates have declined from 2001 to 2003, primarily because satellite construction programs are nearing completion. We expect that revenues from affiliates will continue to decline for the foreseeable future.

XTAR, a joint venture between Loral and Hisdesat Servicios Estrategicos, S.A. (“Hisdesat”), a consortium comprised of leading Spanish telecommunications companies, including Hispasat, S.A., and agencies of the Spanish government, is constructing and plans to launch an X-band satellite in 2004 to provide X-band services to government users in the United States, Spain, and other friendly and allied nations. XTAR is owned 56% by Loral (accounted for under the equity method since we do not control certain significant operating decisions) and 44% by Hisdesat. For more information on XTAR, see Note 7 to the consolidated financial statements.

Our business and operations are subject to a significant number of risks, the most significant of which are summarized below.

We filed for bankruptcy protection on July 15, 2003 and are subject to its associated risks and uncertainties.

The Chapter 11 Cases could adversely affect relationships with our customers, suppliers and employees. This in turn could adversely affect the going concern value of the business and of its assets, particularly if the Chapter 11 Cases are protracted. Also, transactions outside the ordinary course of business will be subject to the prior approval of the Bankruptcy Court which may limit our ability to respond to certain market events or take advantage of certain market opportunities, and, as a result, our operations could be materially adversely affected.

As a result of the Chapter 11 Cases, all $2.0 billion principal amount of our debt has been accelerated. During the pendency of the Chapter 11 Cases, we have not paid, and will not pay, interest on $1.05 billion of our unsecured debt. Although we and our Debtor Subsidiaries expect to file a plan or plans of reorganization that provide for emergence from Chapter 11 reorganization sometime in 2004, we cannot now describe the components or features of the plan, including whether the plan will provide for creditors to be paid in whole or in part or whether consideration they will receive will consist of cash, debt, equity or some combination thereof. In addition, there can be no assurance that we will be able to propose a plan, obtain court approval of any plan we propose, obtain acceptances from the number of creditors necessary to confirm a plan, or actually confirm and consummate a plan.

We anticipate that, in any plan of reorganization ultimately confirmed by the Bankruptcy Court, our common and preferred stock will, at best, be severely diluted and may be eliminated entirely, with the result that common and preferred stockholders would receive no distribution.

Our emergence from Chapter 11 reorganization depends on the success of our business plan and our ability to generate enough cash to pay our obligations and fund our operations.

We intend to reorganize around our remaining fleet of international satellites and our satellite manufacturing operations. As discussed in our Overview, we operate in highly competitive markets. Our overall financial condition and outstanding debt, and that of our subsidiaries, are factors that potential customers will consider prior to contracting for satellite services or making a satellite procurement decision. Our success depends on our ability to respond to these financial concerns and perform on a cost-effective and timely basis.

There may be certain tax implications upon our emergence from Chapter 11 reorganization.

As of December 31, 2003, our U.S. subsidiaries had net operating loss carryforwards, or NOLs, of approximately $1.5 billion that can be used to offset future taxable income, including the tax gain that will be recognized upon the sale of our satellite assets serving the North American market to Intelsat. Our ability to use these NOLs, however, may be impaired in the future, depending upon various factors relating to our plan of reorganization such as how creditor claims are satisfied, how the equity interests in the reorganized company are distributed, the extent of any capital infusion by new investors, and our value and level of debt at

the time we emerge from bankruptcy, which are all unknown factors at this time. Moreover, if it is determined that an “ownership change” occurred in the three-year period preceding our emergence from bankruptcy, future use of these NOLs would be severely limited. An ownership change would be triggered if shareholders owning 5% or more of our total equity value change their holdings during this three-year period by more than 50% in the aggregate. On August 22, 2003, the Bankruptcy Court entered an order to assist us in protecting our NOLs by establishing procedures that require certain proposed acquirers of our securities to notify us about a prospective acquisition, thus giving us an opportunity to file an objection with the Bankruptcy Court if we deem necessary. There is no guarantee that the Bankruptcy Court will rule in our favor in the event of a dispute between a proposed acquirer and us. A ruling against us could jeopardize a substantial portion of our NOLs.

As of August 1, 2003, Satmex, our 49%-owned Mexican affiliate, ceased paying interest on its unsecured debt, constituting a default under all of its debt agreements. The potential acceleration of Satmex’s debt of $524 million and the shortfall of cash flow to pay interest could force Satmex to file for bankruptcy protection under Chapter 11 in the United States or reorganization under Mexican law or both. Following such a proceeding, our investment in Satmex would likely be worthless.

In addition to Satmex’s debt, Servicios Corporativos Satelitales, S.A. de C.V. (“Servicios”), the parent company of Satmex, has defaulted on its debt obligation. Loral and Principia had previously pledged their respective shares in Servicios’ parent company, the primary vehicle through which our equity interest in Satmex is held, as collateral for Servicios’ debt obligation. These shares are now subject to foreclosure by the Mexican government. See Note 7 to the consolidated financial statements.

Launch failures have delayed some of our operations in the past and may do so again in the future.

We depend on third parties, in the United States and abroad, to launch our satellites. Satellite launches are risky, and some launch attempts have ended in complete or partial failure. We ordinarily insure against launch failures, but at considerable cost. The cost and the availability of insurance vary depending on market conditions and the launch vehicle used. Our insurance typically does not cover business interruption; launch failures may therefore result in uninsured economic losses. Replacing a lost satellite typically requires at least 24 months from contract execution to launch.

For example, on January 10, 2004, Loral’s Telstar 14/ Estrela do Sul-1 communications satellite was launched by Boeing Sea Launch, but only partially deployed its North solar array. Although insured for partial and total losses up to a maximum of $250 million, the failed solar array deployment has resulted in only 10 to 14 ku-band transponders currently being available to customers, which will impact the roll out of our Brazilian business and will reduce operating revenues pending construction of a replacement satellite.

After launch, our satellites remain vulnerable to in-orbit failures which may result in reduced revenues and profits and other financial impact.

In-orbit damage to or loss of a satellite before the end of its expected life results from various causes, some random, including component failure, degradation of solar panels, loss of power or fuel, inability to maintain the satellite’s position, solar and other astronomical events, and space debris. Satellites are built with redundant components to permit their continued operation in case of a component failure. Certain of our satellites are currently operating using back-up components because of the failure of primary components. If these back-up components fail and the primary components cannot be restored, these satellites could lose capacity or be total losses resulting in a loss of revenues and profits. Repair of satellites in space is not feasible.

For example, in September 2003 the high voltage bus on Loral’s Telstar 4 satellite short circuited, causing it to cease operations. The satellite was insured for $141 million. The agent for the secured lenders of Loral SpaceCom is named as the loss payee on the Telstar 4 insurance policy. Under Loral’s agreement to sell its satellite assets serving the North American market to Intelsat as previously discussed, the purchase price for those assets will be reduced by any Telstar 4 insurance proceeds received prior to closing, net of any

payments by Loral to customers for warranty claims. Moreover, to the extent that the insurance proceeds actually received are less than $141 million, our recent amendment to the Intelsat purchase agreement would provide for a dollar-for-dollar reduction in the price paid by Intelsat under its new satellite construction contract with SS/ L. For further details see Note 2 to the consolidated financial statements.

Loral Skynet has in the past entered into prepaid leases, sales contracts and other arrangements relating to transponders on its satellites. Under the terms of these agreements, Loral Skynet may be required to replace transponders that do not meet operating specifications. Failure to replace such transponders may result in a payment obligation on the part of Loral Skynet.

Some satellites built by SS/ L, including six satellites operated by subsidiaries or affiliates of Loral, have experienced minor losses of power from their solar arrays.

Fourteen satellites built by SS/ L have experienced minor losses of power from their solar arrays. None of these, however, have exhibited any performance problems but there can be no assurance that one or more will not experience an additional power loss that could lead to a loss of transponder capacity and performance degradation. A partial or complete loss of a satellite could result in a loss of orbital incentive payments to SS/L and a loss of revenues and profits for Loral Skynet or other affiliates. SS/ L has instituted remedial measures to prevent similar anomalies from occurring on satellites under construction or in development. For further details see Note 17 to the consolidated financial statements.

It may be difficult to obtain full insurance coverage for satellites that have, or are part of a family of satellites that has, experienced problems in the past.

We cannot assure that, upon the expiration of an insurance policy, we will be able to renew the policy on terms acceptable to us. Insurers may require either exclusions of certain components or may place similar limitations on coverage in connection with insurance renewals for such satellites in the future. An uninsured loss of a satellite would have a material adverse effect on our financial performance. For further details see Note 17 to the consolidated financial statements.

Like other satellite operators, we are faced with increased launch and in-orbit insurance premiums and shorter coverage periods.

Insurers also have made more stringent the coverage terms of our launch and in-orbit insurance. At the same time, the cost of obtaining this insurance has increased significantly. While these developments in the insurance industry have increased our cost of doing business there can be no assurance that we will be able to pass the cost on to our customers. For further details see Note 17 to the consolidated financial statements.

Our satellite services businesses compete with other providers for market share and customers.

We face heavy competition in the transponder leasing business from companies such as PanAmSat Corporation, SES Global, New Skies, Intelsat and Eutelsat. Competition puts downward pressure on prices and may result in the reduced utilization of our fleet capacity, both of which may have an adverse effect on our financial performance.

Furthermore, upon closing of the Intelsat transaction, we will be prohibited, subject to certain exceptions, for two years following the closing, from engaging in the following activities:


	•	Leasing or otherwise providing satellite services transponder capacity (other than for our network services business) to a customer for transmission within the United States;

	•	Locating a satellite in the orbital arc between 54 degrees W.L. and 143 degrees W.L. for the purpose of engaging in the prohibited service; and

	•	Soliciting existing customers on the satellite fleet serving the North American market to migrate their service to our satellites.

Our transponder leasing business also competes with fiber optic cable and other terrestrial delivery systems, which have a cost advantage in point-to-point applications. Competition in this sector has increased because there is an over-supply of transponders in the global market, existing customers are using less capacity

and fewer new customers are entering the market than in past years. Moreover, we have had a higher rate of customer defaults than in previous years, a trend, if it continues, that may further increase overcapacity.

Similarly, our network services business faces competition not only from other satellite-based providers, but also from providers of land-based data communications services, such as cable, DSL (digital subscriber line), wireless local loop and traditional telephone service providers. We will face further price pressure from these companies as they continue to compete for our Internet services.

As land-based telecommunications services expand and become more sophisticated, demand for some satellite-based services may be reduced. New technology could render satellite-based services less competitive by satisfying consumer demand in other ways or through the use of incompatible standards. We also compete for local regulatory approval in places where more than one provider may want to operate, and for scarce frequency assignments and fixed orbital positions.

Space Systems/ Loral competes with several large, well-capitalized companies such as: Boeing and Lockheed Martin in the United States, and Alcatel and Astrium in Europe. In 2003, orders were placed for 18 commercial GEO satellites, an improvement over 2002 when only one of the seven orders placed was subject to a competitive bidding process. This compares to approximately 25 to 30 awards across the industry in each of 2001 and 2000. U.S. satellite manufacturers also must contend with export control regulations that put them at a disadvantage when competing for foreign customers. SS/ L, which had not won an order since December 2001, received orders and authorizations to proceed for four satellites in the fourth quarter of 2003 (including the expected Intelsat order) as the market began to improve. If SS/ L is not successful in sustaining a similar order rate and increasing its backlog this year and beyond, our financial performance would be materially and adversely affected.

SS/ L’s contracts are subject to adjustments, cost overruns and termination.

SS/ L’s accounting for long-term contracts requires adjustments to profit and loss based on estimates revised during the execution of the contract. These adjustments may have a material effect on our consolidated financial position and our results of operations in the period in which they are made. The estimates giving rise to these risks, which are inherent in long-term, fixed-price contracts, include the forecasting of costs and schedules, contract revenues related to contract performance, and the potential for component obsolescence due to procurement long before assembly.

SS/ L’s major contracts are primarily firm fixed-price contracts under which work performed and products shipped are paid for at a fixed price without adjustment for actual costs incurred. While cost savings under these fixed-price contracts would result in gains to SS/ L, cost increases would result in losses borne solely by SS/ L. Under such contracts, SS/ L may receive progress payments, or it may receive partial payments upon the occurrence of certain program milestones. Moreover, some of SS/ L’s customers are start-up companies, and there can be no assurance that these companies will be able to fulfill their payment obligations under their contracts with SS/ L.

SS/ L’s contracts are terminable for default for non-performance, including schedule delays. In that event, SS/ L is generally obligated to refund to the customer all payments received plus penalties, and SS/ L may be liable for damages. A termination for default could have a material adverse effect on SS/ L and us.

In addition, many of SS/ L’s contracts and subcontracts may be terminated at will by the customer or the prime contractor. In the event of such a termination, SS/ L is normally entitled to recover the purchase price for delivered items, reimbursement for allowable costs for work in process, and an allowance for profit or an adjustment for loss, depending on whether completion of the project would have resulted in a profit or loss. Such terminations may occur in the future.

SS/ L may forfeit payments from customers as a result of satellite failures or losses after launch, or may be liable for penalty payments under certain circumstances, and these losses may be uninsured.

Some of SS/ L’s satellite manufacturing contracts provide that some of the total price is payable as “incentive” payments earned over the life of the satellite. SS/ L generally does not insure for these payments and in some cases agrees with its customers not to insure them.

SS/ L records the present value of incentive payments as revenue during the construction of the satellite. SS/ L generally receives the present value of these incentive payments if there is a launch failure or a failure caused by customer error. SS/ L forfeits some or all of these payments, however, if the loss is caused by satellite failure or as a result of its own error.

Some of SS/ L’s contracts call for in-orbit delivery, transferring the launch risk to SS/ L. SS/ L generally insures against that exposure. In addition, some of SS/ L’s contracts provide that SS/ L may be liable to a customer for penalty payments under certain circumstances, including late delivery or that a portion of the price paid by the customer are subject to “warranty payback” in the event satellite anomalies were to develop (see Note 17 to the consolidated financial statements). These contingent liabilities are not insured by SS/ L.

We are subject to export controls, which may result in delays and additional costs. SS/ L is still awaiting approval for the launch of ChinaSat 8.

SS/ L is required by the U.S. State Department to obtain licenses and enter into technical assistance agreements to export satellites and related equipment, and to disclose technical data to foreign persons. The delayed receipt of or the failure to obtain the necessary licenses and agreements may interrupt the completion of a satellite contract by SS/ L and could lead to a customer’s cancellation of a contract, monetary penalties and/or the loss of incentive payments. For example, SS/ L completed construction of the ChinaSat 8 satellite in December 1998 but the launch of the satellite has been delayed pending the necessary approvals from the State Department. If, as a result of the delay, ChinaSat were to terminate its contract with SS/ L, it could seek a refund of $82 million for payments made to SS/ L for the satellite as well as up to $11 million in penalties. Moreover, there can be no assurance that an agreement to release SS/ L from $52.5 million of potential liabilities relating to the launcher will be completed. For further details see Note 17 to the consolidated financial statements.

Some of our customers and potential customers, along with insurance underwriters and brokers have raised concerns that U.S. export control laws and regulations excessively restrict their access to information about the satellite during construction and on-orbit. To the extent that our non-U.S. competitors are not subject to these export control laws and regulations, they may enjoy a competitive advantage with foreign customers, and, to the extent that our foreign competitors continue to gain market share, it could become increasingly difficult for the U.S. satellite manufacturing industry, including SS/ L, to recapture this lost market share.

Multiple authorities regulate our business, including the Federal Communications Commission, the International Telecommunication Union (ITU) and the European Union. Regulatory authorities can modify, withdraw or impose charges or conditions upon, or deny or delay action on applications for, the licenses we need, and so increase our costs.

To prevent frequency interference, the regulatory process requires potentially lengthy and costly negotiations with third parties who operate or intend to operate satellites at or near the locations of our satellites. For example, as part of our coordination effort on Telstar 12, we agreed to provide four 54 MHz transponders on Telstar 12 to Eutelsat for the life of the satellite and have retained risk of loss with respect to those transponders. We also granted Eutelsat the right to acquire, at cost, four transponders on the replacement satellite for Telstar 12. We are in discussions with various administrations regarding Telstar 12’s continued operation at 15 degrees W.L. If these coordination discussions are not successful, Telstar 12’s useable capacity may be reduced.

Failure to successfully coordinate our satellites’ frequencies or to resolve other required regulatory approvals could have an adverse effect on our consolidated financial position and our results of operations. For further details, see Note 17 to the consolidated financial statements.

For the year ended December 31, 2003, approximately 29% of our revenue was generated from customers outside of the United States. We could be harmed financially and operationally by changes in foreign regulations and telecommunications standards, tariffs or taxes and other trade barriers. Almost all of our contracts with foreign customers require payment in U.S. dollars, and customers in developing countries could have difficulty obtaining U.S. dollars to pay us due to currency exchange controls and other factors. Exchange rate fluctuations may adversely affect the ability of our customers to pay us in U.S. dollars. If we need to pursue legal remedies against our foreign business partners or customers, we may have to sue them abroad where it could be difficult for us to enforce our rights.

Third parties have significant ownership, voting and other rights in our affiliates. As a result, we do not have control over management of these entities. The rights of these third parties and fiduciary duties under applicable law could result in others acting or omitting to act in ways that are not in our best interest. To the extent that these entities are or become customers of SS/ L, these conflicts could become acute. For example:


	•	Primary control of Satmex is vested in Mexican nationals, as required by Mexican law, subject to certain approval rights that we retain.

	•	Hisdesat enjoys certain approval rights in XTAR, our X-band joint venture.

We need highly qualified personnel. Except for Bernard L. Schwartz, our Chairman and Chief Executive Officer, none of our officers has an employment contract nor do we maintain “key man” life insurance. The departure of any of our key executives could have an adverse effect on our business.

Litigations and disputes. We are involved in a number of ongoing litigations. For further details see Item 3, Legal Proceedings. In addition, we are involved in a number of disputes which may not be resolved without recourse to litigation. For example, International Launch Services claims that it is entitled to termination charges of up to $54.75 million with respect to three terminated launches. For further details, see Note 17 to the consolidated financial statements. If any of these litigations or disputes are decided against us it could have a material adverse affect on our financial condition and our results of operation.

Globalstar. In April 2003, one of Globalstar’s creditors filed a motion seeking reconsideration of court approval of an agreement between Loral and Globalstar and Globalstar’s official creditor’s committee in which, among other things, Globalstar granted to Loral, subject to certain conditions, a general release of all claims Globalstar might have against Loral. The court denied this motion for reconsideration in May 2003, and, in June 2003, the creditor filed with the Federal Appeals Court a notice of appeal of the court’s order approving the Settlement. Although the Company believes that the appeal, which is currently pending, is without merit, no assurance can be given in this regard or as to what relief, if any, might be granted in the event the appeal were to be successful.

Shareholder Rights. Since we are a Bermuda company, the principles of law that govern shareholder rights, the validity of corporate procedures and other matters are different from those that would apply if we were a U.S. company. For example, it is not certain whether a Bermuda court would enforce liabilities against us or our officers and directors based upon United States securities laws either in an original action in Bermuda or under a United States judgment. Bermuda law giving shareholders the right to sue directors is less developed than in the United States and may provide fewer rights.

During 2003, we adopted certain new accounting pronouncements (see Consolidated Operating Results — Cumulative Effect of Change in Accounting Principle above). There are also other pronouncements that have been issued, but are not yet required to be adopted (see Note 3 to the consolidated financial statements).

On January 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”) which addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. Our net loss for the year ended December 31, 2001, without the amortization of goodwill would have been $169.8 million, as adjusted, as compared to $196.5 million as reported. The decrease of $26.6 million would have lowered the reported loss per share from $8.56 to $7.74, as adjusted.

Upon filing Chapter 11, SS/ L’s hedges with counterparties (primarily yen denominated forward contracts) were cancelled leaving SS/ L vulnerable to foreign currency fluctuations in the future. The inability to enter into forward contracts exposes SS/ L’s future revenues, costs and cash associated with anticipated yen denominated receipts and payments to currency fluctuations. As of December 31, 2003, SS/ L had the following amounts denominated in Japanese Yen that were unhedged (in millions):

At December 31, 2003, SS/ L also had future expenditures in EURO’s of $1.5 million ($1.8 million U.S.) that were unhedged.

As of December 31, 2003, our primary interest rate exposure was from loss of earnings and cash flow that could result from the movement in market rates on its bank debt of $967 million, which had a blended interest rate of 5.47%. As a result of our Chapter 11 filing, all $2.2 billion of our debt has been accelerated and is included in liabilities subject to compromise.

As of December 31, 2002, approximately 58% of our outstanding debt had fixed interest rates. In 2002, we strived to manage our interest rate risk by balancing the composition of our fixed versus variable rate borrowings combined with the monitoring of the overall level of borrowings and did not actively manage our interest rate risk through the use of derivatives or other financial instruments.

As of December 31, 2003, the carrying value of our debt obligations was $2.2 billion and the fair value of such debt was $1.7 billion. As of December 31, 2002, the carrying value of our long-term debt was $2.2 billion and the fair value of such debt was $1.3 billion. The fair value of our debt obligations is based on the carrying value for those obligations that have short-term variable interest rates on the outstanding borrowings and quoted market prices for obligations with long-term or fixed interest rates (the fair value for the Loral Orion 11.25% and 12.5% senior notes was based on the quoted market price of the Loral Orion 10% senior notes, as there was no active market for those senior notes). Approximately $214 million and $245 million of the difference between the carrying amount and the fair value of our debt obligations as of December 31, 2003 and 2002, respectively, is attributable to the accounting for the Loral Orion exchange offers (see Note 10 to the consolidated financial statements).

See Index to Financial Statements and Financial Statement Schedules on page F-1.

(a) Disclosure controls and procedures. Our chief executive officer and our chief financial officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in the Securities and Exchange Act of 1934 Rules 13a-15(e) and 15-d-15(e)) as of December 31, 2003, have concluded that, our disclosure controls and procedures were effective and designed to ensure that material information relating to Loral and its consolidated subsidiaries required to be in our filings under the Securities and, Exchange Act of 1934 would be made known to them by others within those entities in a timely manner.

(b) Internal controls over financial reporting. There were no significant changes in our internal controls over financial reporting (as defined in the Securities and Exchange Act of 1934 Rules 13a-15(f) and 15-d-15(f)) during the most recent fiscal quarter that we judge to have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The following sets forth information concerning Loral’s directors as of March 1, 2004.

In addition to the Chapter 11 Cases commenced on July 15, 2003 by Loral and certain of its subsidiaries, as disclosed earlier in this report, on February 15, 2002, Globalstar and certain of its subsidiaries, Loral/ Qualcomm Satellite Services, L.P., the managing general partner of Globalstar, its general partner, Loral/ Qualcomm Partnership, L.P., and certain of Loral’s subsidiaries that serve as general partners of Loral/ Qualcomm Partnership, L.P. filed voluntary petitions with the Delaware bankruptcy court. Messrs. Schwartz and Zahler either currently serve or have previously served as executive officers of these general partner entities and Globalstar and certain of its subsidiaries.

In August 2002, Loral’s Board of Directors approved a plan to suspend indefinitely the future payment of dividends on Loral’s two series of preferred stock. Accordingly, Loral deferred the payment of quarterly dividends due on its Series C Preferred Stock commencing on November 1, 2002 and the payment of quarterly dividends due on its Series D Preferred Stock commencing on November 15, 2002. Because we have failed to pay dividends on the Series C and the Series D preferred stock for six quarters, holders of the majority of each class of such preferred stock are now entitled, subject to the applicable effects of the Chapter 11 Cases and Loral’s Bermuda insolvency proceedings, to elect two additional members, for a total of four, to Loral’s Board of Directors.

The Board of Directors has a standing Audit Committee, the members of which are Messrs. Ruderman, Shapiro and Simon. The Board of Directors has determined that Mr. Simon meets the requirements of a financial expert within the meaning of Section 401(h) of Regulation S-K because of Mr. Simon’s business experience as a former partner of Coopers & Lybrand L.L.P., Certified Public Accountants. The Board of Directors has further determined that Mr. Simon is independent, within the meaning of Schedule 14A under the Securities Exchange Act of 1934, as amended.

The following table sets forth information concerning the executive officers of Loral as of March 1, 2004.

In addition to being officers and directors of Loral and its subsidiaries, Messrs. Schwartz, Zahler, Townsend, Katz, Mastoloni and Rein and Ms. Yeung either currently serve or have previously served as executive officers of Globalstar and certain of its subsidiaries, Loral/ Qualcomm Satellite Services, L.P., the managing general partner of Globalstar, its general partner, Loral/ Qualcomm Partnership, L.P., and certain of Loral’s subsidiaries that serve as general partners of Loral/ Qualcomm Partnership, L.P., which entities filed voluntary petitions with the Delaware bankruptcy court on February 15, 2002.

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors and persons who own more than 10% of our common stock, to file reports with the Securities and

Exchange Commission and based solely on a review of the copies of such reports furnished to us and on written representations from certain reporting persons that no Form 5 was required for such person, Loral believes that during 2003 all executive officers, directors and persons who own more than 10% of Loral’s common stock timely filed all such reports as required to be filed under Section 16(a) of the Securities Exchange Act of 1934, as amended.

The Company has adopted a Code of Ethics for all of its employees, including its executive officers. A copy of this Code of Ethics has been filed as an exhibit to this report. This Code of Ethics is also available on Loral’s web site at www.loral.com. Any amendments or waivers to this Code of Ethics with respect to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller (or persons performing similar functions) will be posted on such web site. One may also obtain, without charge, a copy of this Code of Ethics by contacting the Company’s Investor Relations Department at (212) 338-5345.

The Company has entered into a management agreement with Loral SpaceCom pursuant to which Loral SpaceCom provides certain services to the Company. In accordance with this agreement, compensation for the named executive officers (“NEOs”) and other executive officers and employees of the Company is paid by Loral SpaceCom. The following table summarizes the compensation paid to the NEOs.

Mr. Schwartz is compensated pursuant to an employment agreement with Loral SpaceCom. This agreement, which expires on April 5, 2006, provides for a minimum annual base salary, to be increased each year by the percentage change in a specified consumer price index, plus such other annual increases as the Board of Directors or the Compensation Committee may grant from time to time. At Mr. Schwartz’s request, the Compensation Committee agreed to amend his employment agreement to provide for no base salary for the twelve-month period commencing March 1, 2003. Effective March 1, 2004, Mr. Schwartz resumed receiving a base salary in accordance with his employment agreement.

Pursuant to the amended employment agreement, if Mr. Schwartz is removed as Chairman of the Board of Directors or as Chief Executive Officer other than for cause, or if his duties, authorities or responsibilities are diminished, or if there is a change of control of the Company, Mr. Schwartz may elect to terminate the agreement. A change of control of the Company is defined generally to mean: (1) the acquisition by any person of 35% or more of either (i) the then outstanding common stock or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors; (2) the incumbent directors cease for any reason to constitute at least a majority of the Board of Directors; (3) subject to certain exceptions, consummation of a reorganization, consolidation, merger or sale of substantially all of the assets of the Company; or (4) approval by the shareholders of the Company of a liquidation or dissolution of the Company. In any such event, or upon his death or disability, Mr. Schwartz will be entitled to receive a lump sum payment discounted at 3% per annum, in an amount equal to his highest annual base salary during the five years prior to his termination for a five-year period, an amount of incentive bonus equal to the highest bonus received by Mr. Schwartz during the term of the agreement for a five-year period, and an amount calculated to approximate the annual compensation elements reflected in the difference between fair market value and exercise price of stock options granted to Mr. Schwartz. All such sums are further increased to offset any tax due by Mr. Schwartz under the excise tax and related provisions of Section 4999 of the Internal Revenue Code.

Prior to 2003, Loral SpaceCom established a Supplemental Life Insurance Plan for certain key employees including Messrs. Schwartz, Zahler, Townsend, Hart and Katz. For Messrs. Zahler, Townsend, Hart and Katz, the Plan is funded with “universal” life insurance policies with death benefit amounts of $1,500,000, $1,000,000, $250,000 and $1,000,000, respectively. Mr. Schwartz’s Plan is funded with two “universal” life insurance policies, one with a death benefit of $500,000 (the “Policy”) and one with a death benefit of $20,000,000 (the “Split-Dollar Policy”). The Split-Dollar Policy is subject to a split-dollar agreement between Loral SpaceCom and the trustees of a life insurance trust (the “Trustees”) established by Mr. Schwartz (the “Life Insurance Trust”). Pursuant to the split-dollar agreement, upon the death of Mr. Schwartz, Loral SpaceCom, as sponsor of the Plan, would be entitled to reimbursement from the insurance proceeds of its cumulative contributions to the Split-Dollar Policy. If the split-dollar agreement

were to be terminated prior to Mr. Schwartz’s death, the sponsor would be entitled to the cash surrender value of the Split-Dollar Policy on the date of the termination. The Trustees may terminate the split-dollar agreement at any time, and this agreement will terminate if Mr. Schwartz’s employment with Loral SpaceCom is terminated for cause.

Loral SpaceCom suspended payments under both the Policy and the Split-Dollar Policy in 2002 and 2003 as a result of uncertainty as to whether such payments might be prohibited by the terms of the Sarbanes-Oxley Act, and in 2004, Mr. Schwartz agreed that Loral SpaceCom would not be required to make further payments thereunder. Instead, the Life Insurance Trust paid a total of approximately $955,350 in premium payments on the Split-Dollar Policy in 2003, funded through loans and gifts from Mr. Schwartz.

In December 2003, the United States Bankruptcy Court for the Southern District of New York approved a Key Employee Retention Program (“KERP”) for the Company in which, among others, Messrs. Zahler, Townsend and Katz are eligible to participate. The KERP provides that, in addition to the Company’s standard severance arrangements, if Messrs. Zahler, Townsend and Katz are terminated without cause during Loral’s Chapter 11 case, they will be entitled to a severance payment of up to 175% of their 2003 base salary. Mr. Schwartz does not participate in the KERP.

In connection with the KERP, Messrs. Zahler, Townsend and Katz have waived their rights and released the Company from any and all claims they might have under the employment protection agreements they had previously entered into with the Company.

Mr. Hart has an employment protection agreement that would provide him with certain protections in the event of a change of control of the Company. A change of control of the Company is defined generally to mean: (1) the acquisition by any person of 35% or more of either (i) the then outstanding common stock or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors; (2) the incumbent directors cease for any reason to constitute at least a majority of the Board of Directors; (3) subject to certain exceptions, consummation of a reorganization, consolidation, merger or sale of substantially all of the assets of the Company; or (4) approval by the shareholders of the Company of a liquidation or dissolution of the Company. The agreement provides that, after a change of control, Mr. Hart would be entitled to certain protections relating to his responsibilities and duties, as well as compensation and benefits. In the event of a termination by the Company other than for “cause” or “disability” or a termination by Mr. Hart for “good reason,” in each case as such terms are defined therein, the agreement provides for a severance package consisting of: (i) Mr. Hart’s base salary through the date of termination; (ii) a cash amount equal to three times the sum of Mr. Hart’s base salary, annual bonus, the present value amount of the cost of certain benefit plans and programs in which Mr. Hart participates and the annualized value of his vacation and fringe benefits; and (iii) any deferred compensation and any other amounts or benefits then owing to Mr. Hart. In addition, under Loral Skynet’s standard severance arrangements, Mr. Hart would be entitled to receive a severance payment equal to 18 months of his base salary in the event of a termination.

Mr. DeWitt has an employment protection agreement that would provide him with certain protections in the event that his employment is terminated in connection with a change in control of SS/ L or Loral. A change in control under this agreement is defined generally to mean (i) a third party tender or exchange offer for common stock or securities convertible into common stock of SS/ L or Loral; (ii) subject to certain exceptions, an acquisition by any person of 20% or more of SS/ L’s or Loral’s voting power; (iii) a change in the composition of the board of directors of SS/ L or Loral so that the existing board members and their approved successors do not constitute a majority of the board; (iv) subject to certain exceptions, consummation of a merger or consolidation of SS/ L or Loral and (v) shareholder approval of either a liquidation or dissolution of, or sale of substantially all of the assets of, SS/ L or Loral. A change in control will not generally include a conversion of debt obligations to equity in connection with a plan of reorganization and any change in the board of directors resulting therefrom. This agreement provides that if Mr. DeWitt’s employment is terminated without “cause” or Mr. DeWitt terminates his employment for “good reason” any time within one year following a “change in control”, then Mr. DeWitt will be entitled to receive a cash payment equal to 1.5 times his annual base salary, together with the continuation of his medical and life insurance coverage for a

period expiring upon the earlier of 1.5 years or the date on which Mr. DeWitt starts receiving comparable benefits from another employer. This agreement further provides that if a “change in control” has not occurred by February 4, 2006, the agreement will terminate and have no further force or effect.

The following table presents the year-end values of options held by the NEOs. None of the NEOs exercised options during 2003. The Company granted no stock options in 2003.

Loral maintains a defined benefit pension plan and trust (the “Pension Plan”) that is qualified under Section 401(a) of the Internal Revenue Code. The Pension Plan provides retirement benefits for eligible employees of Loral SpaceCom and Loral SpaceCom’s operating affiliates, including executive officers. Executive officers also participate in a supplemental executive retirement plan (the “SERP”) which provides supplemental retirement benefits to cover certain reductions in retirement benefits under the Pension Plan that are caused by various limitations imposed by the Internal Revenue Code. The benefit formulas differ by operating affiliate. Compensation used in determining benefits under the Pension Plan and SERP includes annual salary and bonus for executives employed by Loral SpaceCom Corporation and Loral Skynet and annual salary only for employees of SS/L. Compensation is the same salary and bonus as disclosed in the summary compensation table except for employees of SS/L. For these employees, the salary on December 31 is annualized and recognized as compensation for that year.

The benefit formula for executive officers employed by Loral SpaceCom, such as Messrs. Schwartz, Zahler, Townsend and Katz, for the period ending December 31, 1996 will generally provide an annual benefit equal to the greater of (A) or (B), where (A) equals (i) 1.2% of compensation up to the Social Security Wage Base and 1.45% of compensation in excess of the Social Security Wage Base for each year prior to the calendar year in which a participant completes 15 years of employment, plus (ii) 1.5% of compensation up to the Social Security Wage Base and 1.75% of compensation in excess of the Social Security Wage Base for the calendar year in which the participant has completed 15 years of employment and for each year thereafter; and (B) equals (i) 1.2% of average annual compensation paid during 1992-1996 up to the 1996 Social Security Wage Base and 1.45% of average annual compensation paid during 1992-1996 in excess of the 1996 Social Security Wage Base for each year prior to the calendar year in which a participant completes 15 years of employment, plus (ii) 1.5% of average annual compensation paid during 1992-1996 up to the 1996 Social Security Wage Base and 1.75% of average annual compensation paid during 1992-1996 in excess of the 1996 Social Security Wage Base for the calendar year in which the participant has completed 15 years of employment and for each year thereafter. The benefit for periods subsequent to December 31, 1996 will be based on (A) above. The estimated credited years of service through December 31, 2003 for Messrs. Schwartz, Zahler, Townsend and Katz are 31.75, 11.75, 5.25 and 7.37, respectively.

For executive officers employed by Space Systems/ Loral, such as Mr. DeWitt, the benefit formula for contributory service (in which a 1% post-tax contribution is required) provides an annual benefit equal to 1.3% of the final five year average salary times years of contributory service plus 0.45% of final five year average salary over 150% of the Social Security Covered Compensation for each year up to 35 years. The benefit formula for non-contributory service provides an annual benefit of $252 for each year of credited service. (See also the explanation

and table below.) The estimated credited years of service through December 31, 2003 for Mr. DeWitt is 30.25. The following table shows the amounts of annual retirement benefits that would be payable at normal retirement for executives who are employed by Space Systems/ Loral. Benefits are shown for various rates of final average salary, assuming that employee contributions were made for the periods indicated.

The table above shows estimated benefits payable under the Plan and SERP including amounts attributable to employee contributions, determined on a straight life annuity basis. Such estimated benefits shown have been offset by Social Security Covered Compensation.

Effective with the sale of Loral Skynet from AT&T to Loral on March 15, 1997, the benefit formula for executive officers employed by Loral Skynet, such as Mr. Hart, provides an annual benefit equal to 1.6% of compensation for each year of service. Service with AT&T preceding March 15, 1997 is recognized for eligibility and vesting purposes but not for benefit accrual. Mr. Hart’s estimated credited years of service with Loral Skynet through December 31, 2003 is 6.75.

Effective April 1, 1997, under the minimum distribution rules prescribed by the Internal Revenue Code, Mr. Schwartz began receiving an annual benefit under the Pension Plan and SERP of $2,165,700, determined on a joint and 50% survivor basis. In connection with the Chapter 11 Cases and subject to Bankruptcy Court approval, effective March 1, 2004, Mr. Schwartz agreed to forego current payment of his SERP benefits but will retain a claim for such benefits which will be addressed in the context of the Chapter 11 Cases. The projected annual benefit under the Pension Plan and SERP upon retirement is $378,727 for Mr. Zahler, $209,310 for Mr. Townsend, $91,045 for Mr. Hart, $206,102 for Mr. Katz and $174,478 for Mr. DeWitt. These projected benefits have been computed assuming that (i) employment will be continued until normal retirement, (ii) current levels of creditable compensation and the Social Security Wage Base will continue without increases or adjustments throughout the remainder of the computation period, (iii) contributions will continue to be made toward a contributory benefit and (iv) payments will be made on a life annuity basis.

Directors are paid a fixed fee of $25,000 per year. Non-employee directors are also paid $6,000 for personal attendance or $2,000 for telephone participation at each meeting. In addition, the Chairman of the Audit Committee is paid $12,000 per year, and Audit Committee members are paid $4,000 per year. Audit Committee members are also paid $2,000 for personal attendance or $1,000 for telephone participation at each meeting. Compensation Committee members are paid an additional $2,000 per year and $1,000 for personal attendance or $500 for telephone participation at each meeting.

The Company provides certain life insurance and medical benefits to certain non-employee directors. For 2003, the cost of the life insurance benefits was $13,565 for Mr. Gittis, $14,553 for Mr. Kekst, $13,872 for

The Company has purchased insurance from various insurance companies insuring the Company against obligations it might incur as a result of its indemnification of officers and directors for certain liabilities they might incur, and insuring such officers and directors for additional liabilities against which they might not be indemnified by the Company. The cost to the Company for the annual insurance premiums covering the period ending April 2004 was approximately $7,050,000. Pursuant to Bermuda law, the Company has entered into indemnity agreements with its directors and executive officers. These indemnity agreements are intended to provide the full indemnity protection authorized by Bermuda law.

The Board of Directors has a standing Compensation Committee comprised of Ms. Minard and Messrs. Shapiro and Simon. None of the members of such Compensation Committee are present or former officers or employed by the Company and its subsidiaries.

On July 15, 2003, Loral and certain of its subsidiaries filed voluntary petitions for reorganization under chapter 11 of title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York. The Company anticipates that, in any plan for reorganization ultimately confirmed by the Bankruptcy Court, the common and preferred stock of the Company, will, at best, be severely diluted and may be eliminated entirely, with the result that common and preferred stockholders would receive no distribution under such plan. Such a plan of reorganization would be deemed a change in control of the Company.

As of the date of this report, based upon filings made with the Securities and Exchange Commission, the Company is not aware of any persons who may be deemed beneficial owners of 5% or more of the outstanding shares of Loral’s common stock because they possessed or shared voting or investing power with respect to the shares of Loral’s common stock.

The following table shows the number of shares of Loral’s common stock beneficially owned by the directors, the NEOs and all directors, NEOs and all other executive officers as a group as of March 1, 2004 (except as


	*	Represents holdings of less than one percent.


⁽¹⁾	Includes shares which, as of March 1, 2004, may be acquired within sixty days pursuant to the exercise of options (which shares are treated as outstanding for the purposes of determining beneficial ownership and computing the percentage set forth) and shares held for the benefit of named executive directors as of February 16, 2004 in the Loral Savings Plan (the “Savings Plan”).

⁽²⁾	Except as noted, all shares are owned directly with sole investment and voting power.

⁽³⁾	Includes 16,000 shares owned by Mr. Schwartz’s wife, 718,000 shares exercisable under the Stock Option Plans and 2,599 shares held in the Savings Plan.

⁽⁴⁾	Includes 40,000 shares of restricted stock, 23,294 shares exercisable under the Stock Option Plans and 3,184 shares held in the Savings Plan.

⁽⁵⁾	Includes 25,340 shares exercisable under the Stock Option Plans.

⁽⁶⁾	Includes 30,000 shares of restricted stock, 11,312 shares exercisable under the Stock Option Plans and 2,752 shares held in the Savings Plan.

⁽⁷⁾	Consists of 2,000 shares held in Mr. Hodes’ IRA account, 200 shares held by Mr. Hodes’ minor children and 25,340 shares exercisable under the Stock Option Plans.

⁽⁸⁾	Includes 12,560 shares exercisable under the Stock Option Plans and 5,454 shares held in the Savings Plan..

⁽⁹⁾	Consists of 3,334 shares exercisable under the Stock Option Plans.


⁽¹⁰⁾	Consists of 25,000 shares of Series C Preferred Stock convertible into 6,250 shares of common stock owned by Mr. Shapiro’s wife and 25,340 shares exercisable under the Stock Option Plans.

⁽¹¹⁾	Includes 2,975 shares held in Mr. Simon’s IRA account, 25 shares in his wife’s IRA account, 4,000 shares of Series C Preferred Stock convertible into 1,000 shares of common stock held in Mr. Simon’s IRA account and 25,340 shares exercisable under the Stock Option Plans.

⁽¹²⁾	Includes 2,500 shares of Series C Preferred Stock convertible into 625 shares of common stock, 46,664 shares exercisable under the Stock Option Plans and 2,872 shares held in the Savings Plan.

⁽¹³⁾	Includes 5,000 shares held in Mr. Zahler’s IRA account, 67,912 shares exercisable under the Stock Option Plans and 4,026 shares held in the Savings Plan.

⁽¹⁴⁾	Includes 31,500 shares of Series C Preferred Stock convertible into 7,875 shares of common stock, 1,172,718 shares exercisable under the Stock Option Plans and 44,902 shares held in the Savings Plan.

The following table presents all of the Company’s stock compensation plans previously approved and not previously approved by the Company’s shareholders:


⁽¹⁾	Does not include 34,262 of outstanding options that Loral assumed in connection with the acquisition of Loral Orion. These options have a weighted-average exercise price of $155.07.

⁽²⁾	During the pendency of our Chapter 11 Cases, no grants of stock or stock options will be made under our employee benefit plans.

Equity Compensation Plan Not Approved by Security Holders: 2000 Stock Option Plan

The Company’s 2000 Stock Option Plan (the “2000 Plan”) was adopted by the Board of Directors on April 18, 2000. The 2000 Plan is a “broadly-based plan” as defined in Section 312.04(h) of the New York Stock Exchange Listed Company Manual, which provides that during any three-period at least 50% of grants thereunder exclude senior management. The 2000 Plan provides for the grant of non-qualified stock options and restricted stock. The total number of shares of common stock available under the 2000 Plan is 3,700,000, of which there are 2,114,569 shares remaining for future issuances.

Recipients of stock options under the 2000 Plan are selected by a committee (the “Committee”) consisting of at least two persons, appointed by the Board of Directors of the Company, each of whom must be an “outside director” for purposes of Section 162(m) of the Internal Revenue Code. The Committee determines the terms of each stock option grant, including (i) the purchase price of shares subject to options, (ii) the date on which each option becomes exercisable and (iii) the expiration date of each option (which may not exceed ten years from the date of grant). The terms and conditions of each grant are evidenced by a stock option agreement. The Committee has the power to accelerate the exercisability of outstanding stock options at any time.

The purchase price of the shares of common stock subject to stock options are fixed by the Committee, in its discretion, at the time options are granted; provided that in no event shall the per share purchase price be less than the lower of (i) 50% of the fair market value of a share of common stock on the date of grant and (ii) $20 below the aforesaid fair market value.

Optionees have no voting, dividend, or other rights as shareholders with respect to shares of common stock covered by options prior to becoming the holders of record of such shares. All option grants permit the purchase price to be paid in cash, by tendering stock, or by a brokered or “cashless” exercise.

Recipients of restricted stock under the 2000 Plan are selected by the Committee. The terms and conditions of each restricted stock grant are evidenced by a restricted stock agreement. The holder generally has the rights and privileges of a stockholder as to such restricted stock, including the right to vote such restricted stock. In addition to any other restrictions set forth in a holder’s restricted stock agreement, until the expiration of the applicable restricted period set forth in such restricted stock agreement, the holder is not permitted to sell, transfer, pledge or otherwise encumber the restricted stock. Stop transfer orders are entered with the Company’s transfer agent and registrar against the transfer of legended securities.

In the event that the outstanding shares of common stock are changed by reason of reorganization, merger, consolidation, recapitalization, reclassification, stock split, combination or exchange of shares and the like, or dividends payable in shares of common stock, an appropriate adjustment shall be made by the Committee in the aggregate number of shares of common stock available under the 2000 Plan and in the number of shares of common stock and price per share of common stock subject to outstanding stock options. If the Company shall be sold, reorganized, consolidated or merged with another corporation, or if all or substantially all of the assets of the Company shall be sold or exchanged (a “Corporate Event”), a holder shall at the time of issuance of the stock under such Corporate Event be entitled to receive upon the exercise of his option the same number and kind of shares of stock or the same amount of property, cash or securities as he would have been entitled to receive upon the occurrence of any such Corporate Event as if he had been, immediately prior to such event, the holder of the number of shares of common stock covered by his option; provided, however, that the Committee may, in its discretion, accelerate the exercisability of outstanding options, and shorten the term thereof, to any date within 30 days prior to or concurrent with the occurrence of such Corporate Event.

Restricted stock shall be adjusted as a result of a Corporate Event or changes in capitalization on the same basis as the common stock is adjusted in such events generally.

In connection with contract performance, Loral subsidiaries acquired services from Lockheed Martin for the year ended December 31, 2003. For 2003, the cost of services purchased by Loral subsidiaries from Lockheed Martin was $8,573,000, and such subsidiaries’ net payable to Lockheed Martin at December 31, 2003 was $2,590,000.

Loral SpaceCom has a management services agreement with K&F Industries (“K&F”), a company of which Bernard L. Schwartz is chief executive officer and a 50% owner, to provide administrative and certain other services to K&F. Under this agreement, K&F pays Loral SpaceCom a fee based on the cost of such services plus out of pocket expenses. In 2003, K&F paid Loral SpaceCom $382,000 under this agreement.

In addition, K&F charged the Company $19,000 in 2003 for certain expenses related to the Company’s use of K&F’s corporate jet.

Robert B. Hodes, a Director and a member of the Executive Committee, is counsel to the law firm of Willkie Farr & Gallagher, which acts as counsel to the Company.

For the year ended December 31, 2003, the Company paid fees and disbursements in the amount of approximately $335,000 for corporate communications consultations and related services to Kekst and Company Incorporated, of which company Gershon Kekst, a Director and member of the Executive Committee, is President and the principal stockholder. Kekst and Company continues to render such services to the Company.

During 2003 and 2002, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, the “Deloitte Entities”) provided the following services to the Company.

The aggregate fees billed or expected to be billed by the Deloitte Entities for professional services rendered for the audit of the Company’s annual consolidated financial statements for the fiscal years ended December 31, 2003 and 2002, for the reviews of the condensed consolidated financial statements included in the Company’s Quarterly Reports on Form 10-Q for the 2003 and 2002 fiscal years, stand-alone and statutory audits of the Company’s subsidiaries and accounting research and consultation related to the audits and reviews, totaled approximately $2,789,000 and $1,875,000, respectively. The prior year’s fees include final additional billings agreed to with respect to the fiscal 2002 audits.

The aggregate fees billed by the Deloitte Entities for audit-related services for the fiscal years ended December 31, 2003 and 2002 were $233,000 and $50,000, respectively. The fees in 2003 related primarily to research and consultation on a transfer of interest transaction and various other filings with the Securities and Exchange Commission (“SEC”). The fees in 2002 related primarily to various filings with the SEC.

The aggregate fees billed by the Deloitte Entities for tax-related services for the fiscal years ended December 31, 2003 and 2002 were $388,000 and $231,000, respectively. These fees related to tax consultation and related services.

The aggregate fees billed or expected to be billed by the Deloitte Entities for services rendered to the Company, other than the services described above under “Audit Fees,” “Audit-Related Fees” and “Tax Fees” for the fiscal years ended December 31, 2003 and 2002 totaled approximately $719,000 and $171,000, respectively. The services rendered in 2003 related primarily to the Company’s Chapter 11 filing and related filings and activities. The services in 2002 related to the license and implementation of tax system software.

In accordance with the Audit Committee’s charter, the Audit Committee pre-approves all services provided by the Deloitte Entities. These services are pre-approved annually and updates are provided on a regular basis. All services provided by the Deloitte Entities were approved by the Audit Committee.


(1)	Incorporated by reference from the Registrant’s Registration Statement on Form 10 (No. 1-14180).

(2)	Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on September 27, 1996.

(3)	Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on March 28, 1997.

(4)	Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on October 10, 1997.

(5)	Incorporated by reference from the Registrant’s Registration Statement on Form S-4 filed on February 17, 1998 (File No. 333-46407).

(6)	Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the nine month period ended December 31, 1996.

(7)	Incorporated by reference from the Registration Statement on Form S-1 of Globalstar Telecommunications Limited (File No. 33-86808).

(8)	Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on August 13, 1996.

(9)	Incorporated by reference from the Registrant’s Current Report on Form 8-K filed on July 8, 1997.


(10)	Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997.

(11)	Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998.

(12)	Incorporated by reference from the Current Report on Form 8-K filed on December 21, 1999 by Globalstar Telecommunications Limited and Globalstar, L.P.

(13)	Incorporated by reference from Registrant’s Current Report on Form 8-K filed on August 23, 1999.

(14)	Incorporated by reference from the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999.

(15)	Incorporated by reference from Registrant’s Current Report on Form 8-K filed on November 20, 2000.

(16)	Incorporated by reference from Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000.

(17)	Incorporated by reference from Registrant’s Current Report on Form 8-K filed on December 14, 2001.

(18)	Incorporated by reference from Registrant’s Current Report on Form 8-K filed on January 7, 2002.

(19)	Incorporated by reference from Registrant’s Current Report on Form 8-K filed on January 9, 2002.

(20)	Incorporated by reference from Registrant’s Current Report on Form 8-K filed on January 10, 2002.

(21)	Incorporated by reference from Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001.

(22)	Incorporated by reference from Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

(23)	Incorporated by reference from Registrant’s Quarterly Report on Form 10-Q filed on August 14, 2003.

(24)	Incorporated by reference from Registrant’s Current Report on Form 8-K filed on July 2, 2003.

(25)	Incorporated by reference from Registrant’s Current Report on Form 8-K filed on July 23, 2003.

(26)	Incorporated by reference from Registrant’s Current Report on Form 8-K filed on October 30, 2003.

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.


	By:	/s/ BERNARD L. SCHWARTZ



	Bernard L. Schwartz
	Chairman of the Board and
	Chief Executive Officer
	Dated: March 15, 2004

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 Registrant and in the capacities and on the dates indicated.

To the Shareholders of Loral Space & Communications Ltd. (a Debtor In Possession)

We have audited the accompanying consolidated balance sheets of Loral Space & Communications Ltd. (a Bermuda Company) and its subsidiaries (collectively, the “Company”) (a Debtor In Possession) as of December 31, 2003 and 2002, and the related consolidated statements of operations, shareholders’ (deficit) equity, and cash flows for each of the three years in the period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company’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 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 consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for its convertible redeemable preferred stock to adopt the provisions of Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity, effective July 1, 2003. As discussed in Notes 3 and 8 to the consolidated financial statements, the Company changed its method of accounting for goodwill and other intangibles to adopt the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective January 1, 2002.

As discussed in Note 2 to the consolidated financial statements, the Company has filed for reorganization under Chapter 11 of the Federal Bankruptcy Code. The accompanying consolidated financial statements do not purport to reflect or provide for the consequences of the bankruptcy proceedings. In particular, such consolidated financial statements do not purport to show (a) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (b) as to pre-petition liabilities, the amounts that may be allowed for claims or contingencies, or the status and priority thereof; (c) as to stockholder accounts, the effect of any changes that may be made in the capitalization of the Company; or (d) as to operations, the effect of any changes that may be made in its business.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company filed for reorganization under Chapter 11 of the Federal Bankruptcy Code. This factor, among others, raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans concerning these matters are also discussed in Note 2. The consolidated financial statements do not include adjustments that might result from the outcome of this uncertainty.

Loral Space & Communications Ltd. (“Loral” or the “Company”, which terms shall include its subsidiaries unless otherwise indicated or the context requires) together with its subsidiaries is a leading satellite communications company with substantial activities in satellite-based communications services and satellite manufacturing. Loral is organized into two operating segments (see Note 18):

Satellite Services, managed through Loral Skynet, a division of Loral, generates substantially all of its revenues and cash from leasing transponder capacity to customers for video transmission, direct to home (“DTH”) broadcasting, high-speed data services, international Internet communications and telephone services. Satellite Services also provides network services such as managed communications networks, Internet and intranet services, business television and business media services to customers.

Satellite Manufacturing, conducted by Loral’s subsidiary Space Systems/ Loral (“SS/ L”), generates its revenues and cash from designing and manufacturing satellites and satellite systems for commercial and government applications including satellite services, television broadcasting, DTH services, broadband communications, military communications, wireless telephony, digital satellite radio, weather monitoring and air traffic management.

On July 15, 2003, Loral and certain of its subsidiaries (the “Debtor Subsidiaries” and collectively with Loral, the “Debtors”), including Loral Space & Communications Corporation, Loral SpaceCom Corporation (“Loral SpaceCom”), Loral Satellite, Inc. (“Loral Satellite”), SS/ L and Loral Orion, Inc. (“Loral Orion”), filed voluntary petitions for reorganization under chapter 11 of title 11 (“Chapter 11”) of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) (Lead Case No. 03-41710 (RDD), Case Nos. 03-41709 (RDD) through 03-41728 (RDD)) (the “Chapter 11 Cases”). Loral and its Debtor Subsidiaries continue to manage their properties and operate their businesses as “debtors in possession” under the jurisdiction of the Bankruptcy Court and in accordance with the provisions of the Bankruptcy Code (see Basis of Presentation Note 3).

Also on July 15, 2003, Loral and one of its Bermuda subsidiaries (the “Bermuda Group”) filed parallel insolvency proceedings in the Supreme Court of Bermuda (the “Bermuda Court”). On such date, the Bermuda Court entered an order appointing Philip Wallace, Chris Laverty and Michael Morrison, partners of KPMG, as Joint Provisional Liquidators (“JPLs”) in respect of the Bermuda Group. The Bermuda Court granted the JPLs the power to oversee the continuation and reorganization of these companies’ businesses under the control of their boards of directors and under the supervision of the U.S. Bankruptcy Court and the Bermuda Court. The JPLs have not audited the contents of this report.

As a result of Loral’s and the Debtor Subsidiaries’ voluntary petitions for reorganization, all of Loral’s prepetition debt obligations (aggregating approximately $2.2 billion at December 31, 2003) have been accelerated (see below and Notes 9 and 10). On July 15, 2003, Loral suspended interest payments on all of its senior unsecured notes, with an aggregate principal amount of $1.05 billion. A creditors’ committee has been appointed in the Chapter 11 Cases to represent all unsecured creditors, including all holders of Loral’s and

Loral Orion’s senior unsecured notes, and, in accordance with the provisions of the Bankruptcy Code, has the right to be heard on all matters that come before the Bankruptcy Court (see Note 10).

During the pendency of the Chapter 11 Cases, Loral’s business will be subject to risks and uncertainties relating to the Chapter 11 Cases. For example, the Chapter 11 Cases could adversely affect relationships with Loral’s customers, suppliers and employees, which could adversely affect the going concern value of the business and of its assets, particularly if the Chapter 11 Cases are protracted. Also, transactions outside the ordinary course of business will be subject to the prior approval of the Bankruptcy Court which may limit Loral’s ability to respond to certain market events or take advantage of certain market opportunities, and, as a result, Loral’s operations could be materially adversely affected.

As a result of the commencement of the Chapter 11 Cases, the pursuit of all pending claims and litigation against Loral and its Debtor Subsidiaries arising prior to or relating to events which occurred prior to the commencement of the Chapter 11 Cases is generally subject to an automatic stay under Section 362 of the Bankruptcy Code, and, absent further order of the Bankruptcy Court, a party is generally prohibited from taking any action to recover any prepetition claims, enforce any lien against or obtain possession of any property from Loral or its Debtor Subsidiaries. In addition, pursuant to Section 365 of the Bankruptcy Code, Loral and its Debtor Subsidiaries may reject or assume prepetition executory contracts and unexpired leases, and parties affected by rejections of these contracts or leases may file claims with the Bankruptcy Court which will be addressed in the context of the Chapter 11 Cases.

On July 15, 2003, the New York Stock Exchange suspended trading of Loral’s common stock and removed Loral’s securities from listing and registration on September 2, 2003. Loral’s common stock is being quoted under the ticker symbol LRLSQ on the Pink Sheets and on the Over-The-Counter Bulletin Board Service. The Company anticipates that, in any plan of reorganization ultimately confirmed by the Bankruptcy Court, the common and preferred stock of the Company will, at best, be severely diluted and may be eliminated entirely, with the result that common and preferred stockholders would receive no distribution.

On July 15, 2003, Loral Space & Communications Corporation, Loral SpaceCom and Loral Satellite (collectively, the “Sellers”), direct or indirect subsidiaries of Loral, entered into a definitive agreement (the “Asset Purchase Agreement”) to sell to Intelsat, Ltd. and certain of its affiliated companies (together, the “Purchasers” or “Intelsat”), all of the Sellers’ satellites serving the North American market, then comprised of four satellites in-orbit (one of which failed in September 2003, see below) and two under construction (one of which has been successfully launched and placed into service on September 12, 2003 and one scheduled for launch in 2004), as well as certain related assets and liabilities. In addition, Intelsat has agreed to order a new satellite from SS/ L when the sale closes and, subject to obtaining a security interest in certain of our Brazilian Satellite Services assets, agreed to make a $100 million down payment on that order. The Asset Purchase Agreement provides for a base purchase price of $1.025 billion, subject to certain purchase price adjustments (which include a reduction for any insurance proceeds received prior to closing by the Company from the Telstar 4 failure — see below). On October 24, 2003, after a hearing on the matter, the Bankruptcy Court approved the transactions contemplated by the Asset Purchase Agreement.

On March 5, 2004, as part of an arrangement to reach agreement with Intelsat on the satisfaction of certain closing conditions, the Company entered into an amendment to the Asset Purchase Agreement. Among other things, the amendment reduces the purchase price by $20 million (subject to further adjustment based on future events) to cover certain contingent liabilities relating to the transferred assets, reduces from $100 million to $50 million the deposit Intelsat is to make for its new satellite construction contract with SS/L, and provides for a dollar-for-dollar reduction in the price of this satellite if and to the extent the Telstar 4 insurance proceeds are less than $141 million (see below). As part of this amendment, Intelsat agreed to pay SS/ L $12.5 million in full settlement and satisfaction of all remaining obligations to make certain orbital

payments to SS/ L under the construction contracts relating to the purchased satellites. The effectiveness of this amendment is subject to approval by the Bankruptcy Court and Intelsat’s bank lenders.

Consummation of the transactions is still subject to a number of conditions, including that certain operating parameters continue to be met with respect to the assets being sold and certain other closing conditions typical for transactions of this type (see Note 17). The Sellers expect to use the proceeds from the sale of the assets to repay their outstanding secured bank debt. The Chapter 11 Cases will enable the Sellers to sell the satellites serving the North American market to the Purchasers free and clear of any interests. There can be no assurance, however, that the transactions contemplated by the Asset Purchase Agreement will be consummated. The net book value of the satellites to be sold was $935 million (including insurance proceeds receivable on the Company’s consolidated balance sheet at December 31, 2003, see below) and of the related assets and liabilities was $30 million and $31 million, respectively, as of December 31, 2003. The net assets to be sold, as well as the results of operations relating to such net assets, have not been segregated in the accompanying consolidated financial statements, since the satisfaction of certain closing conditions are still subject to Bankruptcy Court approval.

Upon receipt of Bankruptcy Court approval relating to certain closing conditions, the satellites serving the North American market will be accounted for as a discontinued operation, resulting in the Company’s historical consolidated financial statements being reclassified to reflect such discontinued operations separately from continuing operations. Income from operations for the satellites serving the North American market that will be reclassified to discontinued operations is expected to approximate $19.0 million, $57.6 million and $61.3 million for the years ended December 31, 2003, 2002 and 2001, respectively. For the purpose of this presentation, all indirect costs normally associated with these operations have been omitted, including telemetry, tracking and control, access control, maintenance and engineering, selling and marketing and general and administrative.

In September 2003, Loral’s Telstar 4 satellite experienced a short circuit of its high voltage bus causing the satellite to cease operations. Loral has been unable to reestablish contact with the satellite and has declared the satellite a total loss. At the time of the satellite’s failure, Loral initiated a comprehensive restoration plan that has provided capacity to nearly all Telstar 4 customers on other Loral satellites. Telstar 4 is insured for $141 million and the agent for secured lenders of Loral SpaceCom is currently named as the loss payee on the insurance policy. During October 2003, Loral filed the proof of loss with the insurance underwriters to recover $141 million. Under Loral’s agreement to sell its satellites serving the North American market discussed above, the purchase price will be reduced by any insurance proceeds received for Telstar 4 by Loral prior to closing, net of any payments by Loral to customers for warranty claims. The Company recorded a receivable for insurance proceeds of $123 million at December 31, 2003, primarily representing the carrying value of Telstar 4 and the estimated costs of warranty obligations to customers directly associated with the failure of Telstar 4. Customer cancellations resulting from the failure of Telstar 4 have reduced the future minimum lease receipts due from customers under long-term operating leases for transponder capacity by approximately $47 million.

Loral intends to reorganize around its satellite manufacturing operations and its remaining fleet of international satellites. Loral is in the process now of completing its long-term business plan. Loral believes it will not require any additional financing to fund operations.

As provided by the Bankruptcy Code, the Debtors had the exclusive right to submit their plan or plans of reorganization for 120 days from the date of the Chapter 11 filing. On November 12, 2003, the Bankruptcy Court extended this exclusive period for another 120 days. On March 16, 2004, a hearing will be held to consider a further extension of the exclusivity period and additional extensions may be sought and may be granted or rejected by the Bankruptcy Court. If Loral and its Debtor Subsidiaries fail to file their plan or plans

of reorganization during such period, or if a plan is filed and such plan or plans is not accepted by the required number of creditors and equity holders within the required period, any party in interest may subsequently file its own plan or plans of reorganization for Loral and its Debtor Subsidiaries. A plan of reorganization must be confirmed by the Bankruptcy Court upon certain findings being made by the Bankruptcy Court which are required by the Bankruptcy Code. The Bankruptcy Court may confirm a plan of reorganization notwithstanding rejection of the plan by an impaired class of creditors or equity holders if certain requirements of the Bankruptcy Code are met. Although Loral and its Debtor Subsidiaries expect to file a plan or plans of reorganization that provide for emergence from bankruptcy sometime in 2004, Loral cannot now describe the components or features of the plan, including whether the plan will provide for creditors to be paid in whole or in part or whether consideration they will receive will consist of cash, debt, equity or some combination thereof. In addition, there can be no assurance that Loral will be able to propose a plan, obtain court approval of any plan we propose, obtain acceptances from the number of creditors necessary to confirm a plan, or actually confirm and consummate a plan.

Loral, a Bermuda company has a December 31 year-end. The consolidated financial statements for the three years ended December 31, 2003, include the results of Loral and its subsidiaries and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). All intercompany transactions have been eliminated.

The accompanying consolidated financial statements have been prepared assuming the Company, in its current structure, will continue as a going concern. However, the factors mentioned in Note 2 above, among other things, raise substantial doubt about Loral’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The ability of the Company to continue as a going concern is dependent on a number of factors including, but not limited to, the Company developing a plan of reorganization, confirmation of the plan by the Bankruptcy Court and Loral maintaining good relations with its customers, suppliers and employees. If a plan of reorganization is not confirmed and implemented, the Company may be forced to liquidate under applicable provisions of the Bankruptcy Code. There can be no assurance of the level of recovery that the Company’s creditors would receive in such liquidation. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities if the Company is forced to liquidate (see Reorganization in Note 2).

The consolidated financial statements have been prepared in accordance with Statement of Position No. 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code (“SOP 90-7”). SOP 90-7 requires an entity to distinguish prepetition liabilities subject to compromise from postpetition liabilities in the Company’s consolidated balance sheet. The caption “liabilities subject to compromise” reflects the Company’s best current estimate of the amount of prepetition claims that will be restructured in Loral’s and its Debtor Subsidiaries’ Chapter 11 Cases. In addition, the Company’s consolidated statement of operations portrays the results of operations of the reporting entity during Chapter 11 proceedings. As a result, any revenue, expenses, realized gains and losses, and provision for losses resulting directly from the reorganization and restructuring of the organization are reported separately as reorganization items, except those required to be reported as discontinued operations and extraordinary items in conformity with Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”) and SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (“SFAS 145”). The Company did not prepare condensed combined financial statements for Loral and the Debtor Subsidiaries, since the subsidiaries

that did not file voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code were immaterial to the Company’s consolidated financial position and results of operations.

Investments in XTAR, L.L.C. (“XTAR”), Satelites Mexicanos, S.A. de C.V. (“Satmex”), Europe*Star Limited (“Europe*Star”) and Globalstar, L.P. (“Globalstar”) as well as other affiliates, are accounted for using the equity method, due to the Company’s inability to control significant operating decisions. Income and losses of affiliates are recorded based on Loral’s beneficial interest. Intercompany profit arising from transactions with affiliates is eliminated to the extent of the Company’s beneficial interest. Any difference in the carrying value of these investments as compared to Loral’s interest in the underlying net assets is amortized over the life of the primary asset of the affiliate. Advances to affiliates generally consist of amounts due under extended payment terms. Equity in losses of affiliates is not recognized after the carrying value of an investment, including advances and loans, has been reduced to zero, unless guarantees or other obligations exist. Loral capitalizes interest cost on its investments, until such entities commence commercial operations. Capitalized interest on investments is amortized over the life of the primary asset of the affiliate. Certain of the Company’s affiliates are subject to the risks associated with new businesses. See Note 7.

The preparation of financial statements in conformity with U.S. GAAP 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 revenues and expenses reported for the period. Actual results could differ from estimates.

A significant portion of Loral’s Satellite Manufacturing revenue is associated with long-term contracts which require significant estimates. These estimates include forecasts of costs and schedules, estimating contract revenue related to contract performance (including orbital incentives) and the potential for component obsolescence in connection with long-term procurements. Significant estimates also include the estimated useful lives of the Company’s satellites and, prior to 2002, the amortization period of cost in excess of net assets acquired.

Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less.

Financial instruments which potentially subject Loral to concentrations of credit risk consist principally of cash and cash equivalents, foreign exchange contracts, contracts-in-process, long-term receivables and advances and loans to affiliates (see Note 7). Loral’s cash and cash equivalents are maintained with high-credit-quality financial institutions. Historically, Loral’s customers have been primarily large multinational corporations and U.S. and foreign governments for which the creditworthiness was generally substantial. In recent years, the Company has added commercial customers which include companies in emerging markets or the development stage, some of which are highly leveraged or partially funded. Management believes that its credit evaluation, approval and monitoring processes combined with negotiated billing arrangements mitigate potential credit risks with regard to the Company’s current customer base.

As of December 31, 2003 and 2002, billed receivables (including accounts receivable) were reduced by an allowance for doubtful accounts of $11.7 million and $7.1 million, respectively.

Inventories consist principally of parts and subassemblies used in the manufacture of satellites which have not been specifically identified to contracts-in-process, and are valued at the lower of cost or market. Cost is determined using the first-in-first-out (FIFO) or average cost method.

Property, plant and equipment are stated at cost. Depreciation is provided on the straight-line method for satellites and related equipment over the estimated useful lives of the related assets. Depreciation is provided primarily on an accelerated method for other owned assets over the estimated useful life of the related assets. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the improvements. Below are the estimated useful lives of the Company’s property, plant and equipment as of December 31, 2003:

Costs incurred in connection with the construction and successful deployment of the Company’s satellites and related equipment are capitalized. Such costs include direct contract costs, allocated indirect costs, launch costs, launch insurance and construction period interest. Capitalized interest related to the construction of satellites for 2003, 2002 and 2001 was $32.9 million, $28.6 million and $23.0 million, respectively. All capitalized satellite costs are amortized over the estimated useful life of the related satellite. The estimated useful life of the satellites was determined by engineering analyses performed at the satellite’s in-service date. Satellite lives are reevaluated periodically. Losses from unsuccessful launches and in-orbit failures of the Company’s satellites, net of insurance proceeds, are recorded in the period a loss occurs.

On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), which addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. In connection with the adoption, the Company recorded a non-cash charge for the cumulative effect of the change in accounting principle of $890 million, see Note 8. Prior to January 1, 2002, the excess of the cost of purchased businesses over the fair value of net assets acquired was being amortized over 40 years using the straight-line method.

The carrying value of Loral’s long-lived assets and investments in and advances to affiliates is reviewed for impairment in accordance with SFAS 144 and Accounting Principles Board (“APB”) Opinion No. 18, Equity Method of Accounting for Investments in Common Stock, respectively. Whenever events or changes in circumstances indicate that an asset may not be recoverable, the Company looks to current and future profitability, as well as current and future undiscounted cash flows, excluding financing costs (only for long-lived assets), as primary indicators of recoverability. If impairment is determined to exist, any related

impairment loss is calculated based on fair value. Fair value is determined based on quoted market values, discounted cash flows or appraisals, as appropriate in the circumstances.

Deposits primarily represent prepaid amounts on satellite launch vehicles which are expected to be utilized for the launch of customer or Company-owned satellites.

The Company’s investments in publicly traded common stock are classified as available-for-sale, and are recorded at fair value, with the resulting unrealized gain or loss excluded from net loss and reported as a component of other comprehensive loss until realized (see Notes 4 and 16). The Company accounts for its investment in Globalstar’s $500 million credit facility at fair value, with changes in the value (net of tax) recorded as a component of other comprehensive loss (see Note 7).

On March 7, 2003, Sirius Satellite Radio, Inc. (“Sirius”) completed its recapitalization plan and as part of this recapitalization, SS/ L converted all of its vendor financing receivables of approximately $76 million into 59 million shares of common stock of Sirius. For the year ended December 31, 2003, SS/ L realized net proceeds of $46 million from the sale of all of the shares of Sirius common stock that it received in the recapitalization, and realized gains on such sales of $18 million. In the first quarter of 2003, SS/ L recorded a charge on the vendor financing receivables due from Sirius of $10 million, representing the difference between the carrying value of SS/ L’s receivables of $38 million, and the value of the common shares received by SS/ L based on the trading price of Sirius’s common stock on March 7, 2003 of $28 million. At December 31, 2002, the receivables from Sirius were classified as short-term vendor financing receivables.

In 2002, the Company determined that its investment in The Fantastic Corporation common stock had an other than temporary decline in its value and recognized a loss of $1 million.

Revenue from satellite sales under long-term fixed-price contracts is recognized following the provisions of Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts, using the cost-to-cost percentage-of-completion method. Revenue includes the basic contract price and estimated amounts for penalties and incentive payments, including award fees, performance incentives, and estimated orbital incentives discounted to their present value at launch date. Costs include the development effort required for the production of high-technology satellites, non-recurring engineering and design efforts in early periods of contract performance, as well as the cost of qualification testing requirements. Contracts are typically subject to termination for convenience or for default. If a contract is terminated for convenience by a customer or due to a customer’s default, the Company is generally entitled to its costs incurred plus a reasonable profit.

Revenue under cost-reimbursable type contracts is recognized as costs are incurred; incentive fees are estimated and recognized over the contract term.

U.S. government contract risks include dependence on future appropriations and administrative allotment of funds and changes in government policies. Costs incurred under U.S. government contracts are subject to audit. Management believes the results of such audits will not have a material effect on Loral’s financial position or its results of operations.

Losses on contracts are recognized when determined. Revisions in profit estimates are reflected in the period in which the conditions that require the revision become known and are estimable.

In accordance with industry practice, contracts-in-process include unbilled amounts relating to contracts and programs with long production cycles, a portion of which may not be billable within one year.

The Company provides satellite capacity and network services under lease agreements that generally provide for the use of satellite transponders and, in certain cases, earth stations and other terrestrial communications equipment for periods generally ranging from one year to the end of life of the satellite. Some of these agreements have certain obligations, including providing spare or substitute capacity, if available, in the event of satellite failure. If no spare or substitute capacity is available, the agreement may be terminated. Revenue under transponder lease and network services agreements is recognized as services are performed, provided that a contract exists, the price is fixed or determinable and collectibility is reasonably assured. Revenues under contracts that include fixed lease payment increases are recognized on a straight-line basis over the life of the lease.

Other terrestrial communications equipment represents network elements (antennas, transmission equipment, etc.) necessary to enable communication between multiple terrestrial locations through a customer-selected satellite communications service provider. Revenue from equipment sales is primarily recognized upon acceptance by the customer, provided that a contract exists, the price is fixed or determinable and collectibility is reasonably assured. Revenue from equipment sales under long-term fixed price contracts is recognized using the cost-to-cost percentage-of-completion method. Losses on contracts are recognized when determined and revisions in profit estimates are reflected in the period in which the conditions that require the revision become known and are estimable. Revenues under arrangements that include both services and equipment elements are allocated based on the relative fair values of the elements of the arrangement.

Independent research and development costs, which are expensed as incurred, were $9 million, $16 million and $32 million for 2003, 2002 and 2001, respectively, and are included in selling, general and administrative expenses.

Prior to filing Chapter 11, Loral entered into foreign exchange contracts as hedges against exchange rate fluctuations of future accounts receivable and accounts payable under contracts-in-process which are denominated in foreign currencies. On January 1, 2001, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), which among other things requires that all derivative instruments be recorded on the balance sheet at their fair value. Upon filing Chapter 11, SS/ L’s hedges with counterparties (primarily yen denominated forward contracts) were cancelled leaving SS/ L vulnerable to foreign currency fluctuations in the future. The inability to enter into forward contracts exposes SS/ L’s future revenues, costs and cash associated with anticipated yen denominated receipts and payments to currency fluctuations (see Note 16).

As permitted by SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), Loral accounts for stock-based awards to employees using the intrinsic value method in accordance with APB 25, and its interpretations. The Company accounts for stock-based awards to non-employees in accordance with SFAS 123 and its interpretations.

In the fourth quarter of 2002, the Company adopted SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure (“SFAS 148”), an amendment of SFAS 123. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to

require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.

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 the Company’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. The Company’s calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions: expected life, six to twelve months following vesting; stock volatility, 90% in 2003, 90% in 2002, and 75% in 2001; risk free interest rate, 2.4% to 6.6% based on date of grant; and no dividends during the expected term. The Company’s calculations are based on a multiple option valuation approach and forfeitures are recognized as they occur. The following table summarizes what the Company’s pro forma net loss and pro forma loss per share would have been if the fair value method under SFAS 123 was used (in millions except per share amounts):

During the preparation of the Company’s 2003 consolidated financial statements, management revised the pro forma net loss and pro forma net loss per share for fiscal 2002 to appropriately include the effect of the reversal of the cumulative tax benefit of previous pro forma SFAS 123 charges of $30.4 million. This revision did not impact the Company’s consolidated balance sheet, consolidated statement of operations, net loss or net loss per share for any of the periods presented.

As a Bermuda company, Loral Space & Communications Ltd. is subject to U.S. federal, state and local income taxation at regular corporate rates plus an additional 30% “branch profits” tax on any income that is

effectively connected with the conduct of a U.S. trade or business. Loral’s U.S. subsidiaries are subject to regular corporate tax on their worldwide income.

Deferred income taxes reflect the future tax effect of temporary differences between the carrying amount of assets and liabilities for financial and income tax reporting and are measured by applying statutory tax rates in effect for the year during which the differences are expected to reverse. The deferred tax assets are reduced by a valuation allowance to the extent it is more likely than not that the deferred tax assets will not be realized. See Note 12.

The following represents non-cash activities and supplemental information to the consolidated statements of cash flows (in thousands):

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, Accounting for Asset Retirement Obligations (“SFAS 143”). SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and the normal operation of a long-lived asset, except for certain obligations of lessees. The Company has determined that there was no effect on its consolidated financial position or results of operations upon the adoption of SFAS 143 on January 1, 2003.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others (“FIN 45”). FIN 45 elaborates on the disclosures to be made by the guarantor in its interim and annual

financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this interpretation were applicable on a prospective basis to guarantees issued or modified after December 31, 2002; while the provisions of the disclosure requirements were effective for financial statements of interim or annual reports ending after December 15, 2002. The Company adopted the disclosure provisions of FIN 45 during the fourth quarter of 2002. The Company adopted the recognition provisions of FIN 45 on January 1, 2003 and determined that there was no effect on its consolidated financial position or its results of operation.

In January 2003 and revised in December 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51 (“FIN 46”) and an amendment to FIN 46 entitled FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (“FIN 46R”). FIN 46R requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46R will be applied by the Company for those entities that are considered variable interest entities as of March 31, 2004. The Company is currently evaluating the provisions of FIN 46R as it relates to variable interest entities.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (“SFAS 150”). SFAS 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. SFAS 150 requires that an issuer classify a financial instrument that is within the scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. As a result of the Company’s adoption of SFAS 150 on July 1, 2003, the Company reclassified its redeemable convertible preferred stock to liabilities and increased the recorded values to their redemption values (with an offsetting increase to other assets) and recorded a cumulative effect of accounting change of $2 million during the third quarter of 2003, which represents the amortization of expenses incurred on the issuance of the securities from their issuance dates through June 30, 2003, that were not previously amortized.

In May 2003, the Emerging Issues Task Force of the FASB (“EITF”) reached a consensus on Issue No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables (“EITF 00-21”). EITF 00-21 addresses determination of whether an arrangement involving more than one deliverable contains more than one unit of accounting and how the related revenues should be measured and allocated to the separate units of accounting. EITF 00-21 applies to revenue arrangements entered into after June 30, 2003; however, upon adoption, the EITF allows the guidance to be applied on a retroactive basis, with the change, if any, reported as a cumulative effect of accounting change in the statement of operations. Management determined that the adoption of EITF 00-21 did not have a significant impact on its consolidated financial position or its results of operations.

In December 2003, the FASB issued SFAS No. 132, as revised, Employers’ Disclosures about Pensions and Other Postretirement Benefits, (“Revised SFAS 132”), which requires additional disclosures about

assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The Company adopted the required revised disclosure provisions of Revised SFAS 132 as of December 31, 2003, except for the disclosure of estimated future benefit payments, which the Company is required to and will disclose as of December 31, 2004.

Certain reclassifications have been made to conform prior year amounts to the current year’s presentation.

The components of accumulated other comprehensive loss are as follows (in thousands):

As of December 31, 2003, the Company anticipates reclassifying $2.2 million of the balance of derivatives classified as cash flow hedges (entered into prior to filing bankruptcy) in accumulated other comprehensive loss to earnings in the next year. The unrealized (loss) gain on available for sale securities at December 31, 2003 and 2002 includes a charge of $11.4 million related to deferred taxes on unrealized gains recorded prior to 2002, which pursuant to SFAS 109 will be deferred until the related investment is sold. See Note 12 for the related tax amounts for the table above.

Unbilled amounts include recoverable costs and accrued profit on progress completed, which have not been billed. Such amounts are billed in accordance with the contract terms, typically upon shipment of the product, achievement of contractual milestones, or completion of the contract and, at such time, are reclassified to billed receivables.

The Company has estimated that it will incur approximately $50 million to repair a satellite that was damaged during transit. The Company expects to recover a significant portion of these costs through insurance coverage. Management believes that the resolution of the insurance claim will not have a material adverse effect on its consolidated financial position or its results of operation.

Billed receivables relating to long-term contracts are expected to be collected within one year. Loral classifies billings deferred and the orbital component of unbilled receivables expected to be collected beyond one year as long-term. Receivable balances related to satellite orbital incentive payments and billings deferred as of December 31, 2003 are scheduled to be received as follows (in thousands):

As of December 31, 2003, Loral owed orbital incentive obligations of $4 million to a subcontractor for which Loral has a corresponding long-term receivable from the customer. Payments of such amounts are due in 2004 and are contingent upon collection of the related receivable.

Depreciation and amortization expense for property, plant and equipment was $182.3 million, $180.0 million and $190.0 million in 2003, 2002 and 2001, respectively. Accumulated depreciation and amortization as of December 31, 2003 and 2002 includes $91.5 million and $70.2 million, respectively, related to satellite transponders where Loral has the rights to transponders for the remaining life of the related satellite.

The transponder capacity on satellites in-orbit are either leased by customers or held for lease by the Company. Future minimum lease receipts due from customers under long-term operating leases for transponder capacity on the Company’s satellites in-orbit (including $446.2 million related to the satellites to be sold to Intelsat, see Note 2) and for service agreements as of December 31, 2003, are as follows (in thousands):

Equity in net losses of affiliates, net of taxes (Note 12) consists of (in thousands):

The consolidated statements of operations reflect the effects of the following amounts related to transactions with or investments in affiliates (in thousands):

XTAR, a joint venture between Loral and Hisdesat Servicios Estrategicos, S.A. (“Hisdesat”), a consortium comprised of leading Spanish telecommunications companies, including Hispasat, S.A., and agencies of the Spanish government, is constructing and plans to launch an X-band satellite to provide X-band services to government users in the United States and Spain, as well as other friendly and allied nations. XTAR is owned 56% by Loral (accounted for under the equity method since the Company does not control certain significant operating decisions) and 44% by Hisdesat. In addition, XTAR has agreed to lease certain transponders on the Spainsat satellite, which is being constructed by SS/ L for Hisdesat. As of December 31, 2003, the partners in proportion to their respective ownership interests have contributed $87 million to XTAR.

In October 2003, Loral and Hisdesat entered into an agreement (the “Contribution Agreement”) to contribute over time an additional $25.4 million and $20.0 million, respectively, into XTAR, with Loral’s contribution effected through the cancellation of amounts owed under XTAR’s satellite construction contract with SS/ L. The proceeds from Hisdesat’s capital contributions have been and will be largely used to fund the remaining amounts due under the satellite construction contract. XTAR has entered into a Launch Services Agreement with Arianespace, S.A. providing for launch of its satellite on Arianespace’s Ariane 5 ECA launch vehicle. This flight represents the resumption of the Ariane 5 ECA’s missions since the unsuccessful launch in late 2002. Arianespace has agreed to provide a one-year loan for a portion of the launch price, which loan is secured by certain of XTAR’s assets, including the satellite, ground equipment and rights to the orbital slot. The remainder of the launch price consists of a revenue-based fee to be paid over time following commencement of operations by XTAR. XTAR still requires additional funds to insure its satellite, complete the ground station system and fund its operations. XTAR is in discussions with its shareholders to try and obtain additional capital contributions and is seeking additional funds through other third-party financings.

Loral is seeking the approval of the Bankruptcy Court and its secured lenders to fund an additional $2.8 million to XTAR, which would be matched by $2.2 million of contributions to XTAR from Hisdesat. If XTAR is unable to raise the $5 million from Loral and Hisdesat or the substantial additional funds for launch insurance, the Company’s investment in XTAR of $43 million at December 31, 2003, and any additional investment effected as a result of the Contribution Agreement or otherwise, would be adversely affected. Moreover, if XTAR is unable to repay the Arianespace loan when due, Arianespace will have the right to foreclose on the XTAR assets pledged as collateral, which will also adversely affect the Company’s investment in XTAR.

In connection with the privatization of Satmex by the Mexican Government of its satellite services business, Loral and Principia formed a joint venture, Firmamento Mexicano, S.A. de R.L. de C.V. (“Holdings”). In 1997, Holdings acquired 75% of the outstanding capital stock of Satmex. As part of the acquisition, Servicios Corporativos Satelitales, S.A. de C.V. (“Servicios”), a wholly owned subsidiary of Holdings, issued a seven-year Government Obligation (“Government Obligation”) to the Mexican Government in consideration for the assumption by Satmex of the debt incurred by Servicios in connection with the acquisition. The Government Obligation had an initial face amount of $125 million, which accretes at 6.03% and expires in December 2004. Under the terms of the Government Obligation, assets equal to 1.2 times the value of the Government Obligation are to be maintained in a collateral trust in favor of the Mexican government. Loral and Principia have pledged their respective shares in Holdings in this collateral trust. Because of the decline in the value of Satmex, the shares in Holdings are no longer sufficient to maintain the 1.2 collateral trust ratio requirement. As a result, a default has occurred under the Government Obligation and the government of Mexico could foreclose on the Company’s shares in the parent company of Servicios, which would result in the Company losing nearly all of its investment stake in Satmex.

To conserve cash, on August 1, 2003 Satmex stopped making interest payments on its high yield bonds and is currently in default. Although Satmex is current on interest due on its floating rate notes, the default on its high yield bonds triggered a cross-default provision under the indenture for its existing floating rate notes. In addition, on September 30, 2003, additional defaults occurred under Satmex’s existing floating rate notes as a result of its failure to complete certain proposed financings and the default by Servicios on the Government Obligation, as a result of its failure to maintain the minimum coverage ratio as discussed above. The occurrence of the events of default under each of the high yield bonds and the existing floating rate notes gives the holders of such notes the right to accelerate Satmex’s principal repayment obligations on such notes. Should this occur, Satmex may seek to reorganize under either Chapter 11 of the United States Bankruptcy Code or Mexican reorganization law or both.

As of December 31, 2003, Loral had a 65% economic interest in Holdings and a 49% indirect economic interest in Satmex. Loral accounts for Satmex using the equity method. The covenants of Satmex’s debt instruments restrict the ability of Satmex to pay dividends to Loral. As a result of these recent events, under U.S. GAAP, Loral wrote-off its investment in Satmex of $29 million (as an increase to its equity loss) in the third quarter of 2003. Accordingly, there is no longer any requirement for Loral to provide for its allocated share of Satmex’s net losses subsequent to September 30, 2003. In addition, Loral recorded reductions in estimated contract revenues from Satmex resulting in an increase to the Company’s operating loss of approximately $24 million during 2003.

Satmex has two satellites in operation and a third satellite, Satmex 6, scheduled for launch this year. Satmex will require additional liquidity to complete the launch of Satmex 6. In order to fund the construction, insurance and launch of Satmex 6, Satmex pursued export credit agency financing and a proposed private placement of secured notes. The Export-Import Bank of the United States (“Ex-Im Bank”) has advised Satmex that it will not extend the commitment for the Ex-Im Bank loan guarantee for which Satmex had previously received approval.

The Ex-Im Bank financing was an important element in a financial restructuring of Satmex, which included an exchange offer for its high yield bonds, a prepayment of its secured floating rate notes and funding for the payments remaining for the launch of Satmex 6. Given the recent developments, Satmex is actively exploring, with its financial advisors, alternative means of restructuring its debt obligations and financing the remaining amount for Satmex 6.

The following table presents summary financial data for Satmex as of September 30, 2003 and December 31, 2002 and for the nine months ended September 30, 2003 and for each of the two years in the period ended December 31, 2002 (in thousands):

Pursuant to a master settlement agreement on June 30, 2003 with Alcatel, Loral transferred to Alcatel its minority interest in Europe*Star, a joint venture between Loral and Alcatel that owns and operates the Europe*Star 1 satellite (see Note 17). In the fourth quarter of 2002, the Company’s investment in Europe*Star was reduced to zero, which resulted from the Company recording valuation allowances of $38 million on the vendor financing and the receivables advanced to Europe*Star due to collection concerns and recording an impairment charge relating to its investment in Europe*Star of $7 million. Accordingly,

there is no longer any requirement for Loral to provide for its allocated share of Europe*Star’s net losses subsequent to December 31, 2002.

The following table presents summary financial data for Europe*Star as of December 31, 2002 and for each of the two years in the period ended December 31, 2002 (in thousands):

The Company accounts for its investment in Globalstar on the equity method due to its inability to control significant operating decisions at Globalstar. In 2000, Loral’s allocated share of Globalstar’s losses and Globalstar’s impairment charges reduced Loral’s investment in and advances to Globalstar to zero. Accordingly, there is no longer any requirement for Loral to provide for its allocated share of Globalstar’s net losses subsequent to December 31, 2000. The Company accounts for its investment in Globalstar’s $500 million credit facility at fair value, with changes in the value (net of tax) recorded as a component of other comprehensive loss (see Notes 4 and 16). The Company recorded unrealized net losses after taxes as a component of other comprehensive loss of $17 million, $13 million and $12 million in 2003, 2002 and 2001, respectively, in connection with this security.

During 2002, the Company recorded a $9 million charge to equity in net losses of affiliates relating to liabilities it had guaranteed in connection with a Globalstar service provider partnership, which were paid in 2002. In connection with recording its share of Globalstar’s operating losses in 2000, the Company recorded as a charge to equity in net losses of affiliates of $22.3 million representing the estimated probable uncollectible costs relating to subcontractor obligations to be incurred by the Company on Globalstar’s behalf. In 2002, the Company recovered a claim with a vendor on the Globalstar program. Of this recovery, $14 million ($8 million after taxes) is reflected in the statement of operations as equity income related to Globalstar, which, when combined with the recovery of $8.5 million ($5.5 million, after taxes) recorded in 2001, fully offset the probable uncollectible costs originally recorded. Globalstar or its creditors may assert a claim to some portion or all of the 2002 recovery. If so, the Company will vigorously dispute any such claim.

As of December 31, 2003, the remaining amount of SS/ L provided vendor financing to Globalstar that subcontractors assumed was $70 million (which is included in liabilities subject to compromise). The amount assumed by subcontractors includes $47 million which is non-recourse to SS/ L in the event of non-payment by Globalstar as a result of its bankruptcy.

On February 15, 2002, Globalstar and certain of its direct subsidiaries filed voluntary bankruptcy petitions under the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the

“Court”). In connection therewith, Loral/ Qualcomm Satellite Services, L.P., the managing general partner of Globalstar, its general partner, Loral/ Qualcomm Partnership, L.P. (“LQP”), and certain of Loral’s subsidiaries that serve as general partners of LQP also filed voluntary bankruptcy petitions with the Court.

During the pendency of the Globalstar bankruptcy cases, Loral entered into a settlement and release agreement with Globalstar and Globalstar’s official creditors committee to resolve certain issues related to Globalstar and Globalstar’s restructuring (the “Settlement”). This Settlement was approved on April 14, 2003 by the Court and closed on July 10, 2003. Among other things, the Settlement provided that Globalstar grants to Loral, subject to certain conditions, a general release of all claims Globalstar might have against Loral in exchange for certain consideration including, effective upon Globalstar’s emergence from Chapter 11 reorganization, an approximate 50% reduction in the amount of Loral’s unsecured claims against Globalstar of approximately $875 million. Loral does not expect any material impact on its results of operations or financial position as a result of this Settlement.

On April 24, 2003, one of Globalstar’s creditors filed with the bankruptcy court a motion seeking reconsideration by the bankruptcy court of the bankruptcy court’s approval of the Settlement. The Globalstar Court denied this motion for reconsideration on May 30, 2003, and, on June 9, 2003, the creditor filed a notice of appeal of the bankruptcy court’s order approving the Settlement. Although the Company believes that the appeal, which is currently pending, is without merit, no assurance can be given in this regard or as to what relief, if any, might be granted in the event the appeal were to be successful.

On December 8, 2003, Globalstar and Thermo Capital Partners, LLC (“Thermo”) reached an acquisition agreement for Thermo to acquire a majority interest in a reorganized Globalstar (the “Thermo Transaction”). The Court approved the sale of Globalstar’s assets to a new company (“New Globalstar”) to be controlled by Thermo in exchange for an investment of $43 million for which Thermo would receive an 81.25% equity stake in the new operating company. Following consummation of the Thermo Transaction and upon resolution of the Globalstar bankruptcy cases, Globalstar’s creditors will be allocated the remaining 18.75% equity interest. Loral’s share of any such equity interest allocation is estimated at approximately 2.5% of New Globalstar. Globalstar’s transaction with Thermo is subject to a number of material closing conditions. There can be no assurance that Globalstar will be successful in completing the Thermo Transaction or that Globalstar will be successfully reorganized.

The Company’s investment in Globalstar related activities on its balance sheet as of December 31, 2003 was $3 million, representing the fair value of its investment in Globalstar’s $500 million credit facility which was based on the trading values of Globalstar’s public debt at December 31, 2003. If Globalstar is unable to effectuate a successful restructuring, the Company’s investment in Globalstar would likely be worthless, which would have no effect on the Company’s results of operations.

Loral holds various indirect ownership interests in three foreign companies that currently serve as exclusive service providers for Globalstar service in Brazil, Mexico and Russia and an indirect ownership in a U.S.-based distributor that has the exclusive right to sell Globalstar services to certain agencies within the U.S. Government. In 2002, the Company paid $10 million it had guaranteed in connection with a Globalstar service provider partnership.

On January 1, 2002, the Company adopted SFAS 142, which addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives not be amortized, but rather be tested at least annually for impairment. SFAS 142 also changed the evaluation criteria for testing goodwill for impairment from an undiscounted cash flow approach, which was previously utilized under the

guidance in SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of (“SFAS 121”) and Accounting Principles Board Opinion No. 17, Intangible Assets (“APB 17”), to a test based on fair value. Fair value is determined by the amount at which an asset or liability could be bought or sold in a current transaction between willing parties, that is, other than in a forced or liquidation sale. Quoted market prices in active markets are the best evidence of fair value and must be used as the basis for the measurement, if available. If quoted market prices are not available, the estimate of fair value must be based on the best information available, including prices for similar assets and liabilities and the results of using other valuation techniques, such as public company trading multiples, future discounted cash flows and merger and acquisition transaction multiples.

In accordance with SFAS 142, the Company’s previously recognized cost in excess of net assets acquired (“goodwill”) of $892 million for business acquisitions accounted for under the purchase method of accounting completed prior to July 1, 2001, was reviewed under the new transitional guidance as of January 1, 2002. Goodwill had been previously assigned to the Company’s business segments as follows (based on the net book value at December 31, 2001): Satellite Services $606 million and Satellite Manufacturing $286 million. The Company hired professionals in the valuation consulting business to determine the fair value of each of the Company’s reporting units. Since there were no quoted market prices in active markets for the Company’s reporting units, the measurement of fair value for each reporting unit was based on the best information available for that reporting unit, including reasonable and supportable assumptions and projections, as follows: (1) Satellite Services — public company trading multiples and merger and acquisition transaction multiples and (2) Satellite Manufacturing — future discounted cash flows. Based on the fair values concluded on by those professionals, management determined that the goodwill for each of the Company’s reporting units under the new guidance in SFAS 142 was fully impaired. Accordingly, as of January 1, 2002, the Company recorded a non-cash charge for the cumulative effect of the change in accounting principle of $890 million.

The charge was the result of a change in the evaluation criteria for goodwill from an undiscounted cash flow approach, which was previously utilized under the guidance in SFAS 121 and APB 17, to the fair value approach which is stipulated in SFAS 142.

The following table presents the actual financial results and as adjusted financial results without the amortization of goodwill for the Company for the year ended December 31, 2001 (in thousands, except per share amounts):

The Company evaluated the useful lives of its other acquired intangible assets in connection with the adoption of SFAS 142 and determined that no changes to the useful lives were necessary.

Other acquired intangible assets are included in other assets in the Company’s consolidated balance sheets as follows (in millions):

As of December 31, 2003, the weighted average remaining amortization period for satellite related intangibles was six years, 12 years for regulatory fees and two years for other intangibles.

Total pre-tax amortization expense for other acquired intangible assets was $6.9 million for each of the three years in the period ended December 31, 2003. Annual pre-tax amortization expense for other acquired intangible assets for the five years ended December 31, 2008 is estimated to be as follows (in millions):

As discussed in Note 2, the Company and its Debtor Subsidiaries have been operating as a debtor in possession under the jurisdiction of the Bankruptcy Court and in accordance with the provisions of the Bankruptcy Code.

In the consolidated balance sheet, the caption “liabilities subject to compromise” reflects Loral’s current estimate of the amount of prepetition claims that will be restructured in Loral’s and its Debtor Subsidiaries’ Chapter 11 Cases. Pursuant to court order, Loral has been authorized to pay certain prepetition operating liabilities incurred in the ordinary course of business (e.g. salaries and insurance). Since July 15, 2003, as permitted under the Bankruptcy Code, the Company has rejected certain of its prepetition obligations. Loral is in the process of calculating its estimated liability to the unsecured creditors affected by these contract rejections. The Bankruptcy Court established January 26, 2004 as the bar date in the Debtors’ Chapter 11 Cases, which is the date by which claims against Loral and its Debtor Subsidiaries were required to have been filed for claimants to receive any distribution in the Chapter 11 Cases. Differences between liability amounts estimated by the Company and claims filed by creditors are being investigated and the Bankruptcy Court will make a final determination of the allowable claim. The determination of how liabilities will ultimately be treated cannot be made until the Bankruptcy Court approves a Chapter 11 plan of reorganization. Loral and its Debtor Subsidiaries will continue to evaluate the amount and classification of their prepetition liabilities in general through the remainder of their Chapter 11 Cases. Should Loral or its Debtor Subsidiaries, through this ongoing evaluation, identify additional liabilities subject to compromise, such amounts will be recognized accordingly. As a result, “liabilities subject to compromise” are subject to change. Claims classified as “liabilities subject to compromise” represent secured as well as unsecured claims. Liabilities subject to compromise at December 31, 2003 consisted of the following (in thousands):


⁽¹⁾	Includes $47 million of vendor financing that is non-recourse to SS/ L in the event of non-payment by Globalstar due to bankruptcy.

The Company’s 6% Series C convertible redeemable preferred stock (“the Series C Preferred Stock”) and 6% Series D convertible redeemable preferred stock (“the Series D Preferred Stock”) have mandatory redemption dates in 2006 and 2007, respectively. The Company has the right to make mandatory redemption payments to the holders in either cash or common stock, or a combination of the two. On July 1, 2003, the

Company adopted SFAS 150. As a result of the adoption of SFAS 150, the Company reclassified its preferred stock to liabilities from shareholders’ deficit at June 30, 2003 and the related dividends since adoption have been included in interest expense (see Note 3).

In August 2002, Loral’s Board of Directors approved a plan to suspend indefinitely the future payment of dividends on its two series of preferred stock. Accordingly, Loral has deferred the payments of quarterly dividends due on its Series C and Series D preferred stock. On July 15, 2003, Loral stopped accruing dividends on the two series of its preferred stock in its consolidated financial statements, as a result of the Company’s Chapter 11 filing. Because Loral failed to pay dividends on the Series C and the Series D preferred stock for six quarters, holders of the majority of each class of such preferred stock are now entitled, subject to the applicable effects of the Chapter 11 Cases and Loral’s Bermuda insolvency proceedings, to elect two additional members, for a total of four, to Loral’s Board of Directors.

The Series C Preferred Stock is non-voting unless Loral does not pay dividends for an aggregate of six quarters, and with respect to dividend rights and rights upon liquidation, winding up and dissolution, ranks pari passu with the Series D Preferred Stock and senior to or pari passu with all other existing and future series of preferred stock of Loral and senior to Loral common stock. Prior to redemption, the Series C Preferred Stock is redeemable in cash at any time, in whole or in part, at the option of the Company (at a premium which declines over time). The Series C Preferred Stock is redeemable in cash, Loral common stock or a combination thereof, at the option by the Company, on the mandatory redemption date. As a consequence of the Chapter 11 Cases, it is not likely that a mandatory redemption will occur.

The Series D Preferred Stock is non-voting, unless Loral does not pay dividends for six consecutive quarters, and with respect to dividend rights and rights upon liquidation, winding up and dissolution, ranks pari passu with the Series C Preferred Stock and all other existing and future series of preferred stock of Loral and senior to Loral common stock. The Series D Preferred Stock is redeemable in cash, Loral common stock or a combination thereof, at the option by the Company, on the mandatory redemption date. As a consequence of the Chapter 11 Cases, it is not likely that a mandatory redemption will occur.

As of December 31, 2003, the Company had 12 million authorized shares of preferred stock for which the series had not been designated.

Loral currently has approximately $2.2 billion in debt (including future accrued interest of $214 million associated with the deferred gain on the Loral Orion debt exchanges). This debt includes $967 million of bank debt that is secured by liens on the assets of Loral SpaceCom and Loral Satellite, consisting primarily of Loral’s satellite manufacturing assets and satellites serving the North American market. As a result of the commencement of its Chapter 11 Cases, Loral continues to pay interest only on its bank debt, which has significantly reduced its cash interest payments. Loral expects to use the proceeds from the sale of the satellites serving the North American market to the Purchasers to repay its outstanding secured bank debt (see Note 2). From July 15, 2003 to December 31, 2003, Loral did not recognize $22.3 million of interest expense and $28.1 million of a reduction to its 10% senior notes as a result of the suspension of interest payments on its debt obligations.

As a result of Loral’s and the Debtor Subsidiaries’ voluntary petitions for reorganization, all of Loral’s prepetition debt obligations (aggregating approximately $2.2 billion at December 31, 2003) have been accelerated. On July 15, 2003, Loral suspended interest payments on the 9.50% Senior Notes due 2006, on the 10% Senior Notes due 2006, on the 11.25% Senior Notes due 2007 and on the 12.50% Senior Notes due 2007. A creditors’ committee has been appointed in the Chapter 11 Cases to represent all unsecured creditors, including all holders of Loral’s and Loral Orion’s senior unsecured notes, and, in accordance with the provisions of the Bankruptcy Code, it has the right to be heard on all matters that come before the Bankruptcy Court (see Note 2).

Substantially all of the assets of Loral SpaceCom and Loral Satellite constitute collateral security for the obligations that are owed to their bank lenders. Under the provisions of the Bankruptcy Code, Loral SpaceCom and Loral Satellite are not authorized to use the existing cash or cash proceeds of this collateral (the “Cash Collateral”) without either an order of the Bankruptcy Court authorizing the use of the Cash Collateral or the consent of their bank lenders.

On the date the Chapter 11 cases were commenced, the Bankruptcy Court entered an order authorizing the Debtors to use the Cash Collateral to fund all operating expenses associated with their businesses in accordance with an agreed upon budget and in accordance with certain other terms set forth in the order. The use of the Cash Collateral can be terminated by the bank lenders upon the occurrence of certain events specified in the order. The bank lenders have granted the Debtors a number of waivers in the past. In fact, the Debtors currently are operating under a waiver that temporarily sets aside certain of the order’s requirements, among them, the requirement for an agreed upon business plan, certain financial tests, maintenance of in-orbit insurance at certain levels and delivery of financial statements. There can be no assurance that the bank lenders will grant future waivers. In the event the Debtors’ ability to use the Cash Collateral were terminated, the Debtors would still have the right to seek the authority of the Bankruptcy Court to use the Cash Collateral notwithstanding any objection by the bank lenders. There can be no assurance that the Bankruptcy Court would grant such request.

On December 21, 2001, Loral Satellite, a subsidiary of Loral Space & Communications Corporation, which in turn is a subsidiary of Loral, entered into the first amendment to the $500 million secured credit agreement dated as of November 17, 2000 by and among Loral Satellite, Bank of America as Administrative Agent, and the other lending parties thereto (the “Satellite Credit Agreement”). The first amendment provides for a $200 million revolving credit facility expiring January 7, 2005 and a term loan of which $226.5 million was outstanding as of December 31, 2003. During the first quarter of 2003, Loral had drawn down the full amount of the revolving credit facility. The first amendment also effected certain changes to provisions relating to the collateral pool provided to lenders under the Loral Satellite credit facility and imposed additional limitations on the application of proceeds from any sale of assets from this collateral pool.

Borrowings under the Satellite Credit Agreement bear interest, at Loral Satellite’s option, at various rates based on fixed margins over the lead bank’s base rate or the London Interbank Offer Rate for specified periods. Loral Satellite pays a commitment fee on the unused portion of the revolver. The Satellite Credit Agreement contains customary limitations, including those on indebtedness, fundamental changes, asset sales, dividends, investments, capital expenditures, creating liens (other than those created pursuant to the Satellite Credit Agreement), prepayments or amendments of indebtedness, and transactions with affiliates. During 2002, Loral Satellite paid dividends of $35 million to its parent.

The Satellite Credit Agreement is secured by certain assets of Loral Satellite, including the Telstar 6 and Telstar 7 satellites and the payments due to Loral Satellite under Globalstar’s $500 million credit facility (see Note 7). In addition, as part of the first amendment, lenders under the Satellite Credit Agreement received a junior lien on the assets of Loral SpaceCom and its subsidiaries pledged in favor of the banks under the LSC Amended Credit Agreement (as defined below). Loral has also agreed to guarantee Loral Satellite’s obligations under the Satellite Credit Agreement, which guarantee agreement contains a minimum net worth covenant.

On March 31, 2003, Loral Satellite amended the Satellite Credit Agreement to provide for certain modifications, including to its financial covenants (the “Loral Satellite Amendment”). Loral Satellite’s ability to dividend funds to its parent was substantially reduced in connection with this amendment.

The Loral guarantee was also amended in March 2003 to impose additional restrictions on Loral’s ability to pay dividends and to effect voluntary repayment or purchase of indebtedness. Moreover, under the amended guarantee, Loral’s ability to make investments or otherwise make payment to any of its subsidiaries is limited to a maximum amount of $5 million.

On December 21, 2001, Loral SpaceCom entered into an Amended and Restated Credit Agreement with Bank of America, N.A., as Administrative Agent, and the other lenders parties thereto (the “LSC Amended Credit Agreement”). The Loral SpaceCom Amended Credit Agreement provides for a $200 million revolving credit facility expiring January 7, 2005 and a term loan of which $350 million was outstanding at December 31, 2003. During the first quarter of 2003, Loral SpaceCom had substantially utilized the revolving credit facility through drawdowns and letters of credit. Borrowings under the LSC Amended Credit Agreement bear interest, at Loral SpaceCom’s option, at various rates based on margins over the lead bank’s base rate or the London Interbank Offered Rate for specified periods.

The Loral SpaceCom Amended Credit Agreement contains limitations on Loral SpaceCom and its subsidiaries, including those on indebtedness, liens, fundamental changes, asset sales, dividends, investments, capital expenditures, transactions with affiliates and certain other intercompany transactions.

The Loral SpaceCom Amended Credit Agreement is secured by substantially all of the assets of and the stock of Loral SpaceCom and its subsidiaries, including SS/ L. Loral SpaceCom’s obligations under the Loral SpaceCom Amended Credit Agreement have been guaranteed by certain of its subsidiaries, including SS/ L. As of December 31, 2003, the net book value of the assets that secure the Loral SpaceCom Amended Credit Agreement was approximately $250 million.

On March 31, 2003, Loral SpaceCom further amended the LSC Amended Credit Agreement to provide for additional modifications, including to Loral SpaceCom’s financial covenants (the “LSC Amendment”). The amendment imposed additional restrictions on Loral SpaceCom and its subsidiaries, including further restricting their ability to incur capital expenditures, sell assets, incur debt, provide vendor financing and make investments. The lenders under the Loral SpaceCom facilities also received a junior lien on the stock of Loral Satellite as part of this amendment.

In connection with the amendment of the Loral SpaceCom and the Loral Satellite credit facilities, Loral agreed to the continued retention of a financial advisor to assist it in various matters, including advising the Company on strategic alternatives, which may include asset sales and other actions to reduce indebtedness.

On December 21, 2001, Loral Orion issued $613 million principal amount of 10% senior notes due 2006 and guaranteed by Loral, in exchange for the extinguishment of $841 million principal amount of Loral Orion 11.25% senior notes due 2007 and 12.5% senior discount notes due 2007 as discussed below.

As part of the exchange, Loral issued to the new note holders 604,299 five-year warrants to purchase Loral common stock at a price of $23.70 per share. The warrants were valued at $7 million using the Black Scholes option pricing model with the following assumptions: stock volatility, 75%, risk free interest rate, 4.36%, and no dividends during the expected term. As of December 31, 2003, principal amount of $37 million of the existing 11.25% senior notes and principal amount of $49 million of the existing 12.5% senior discount notes remain outstanding at their original maturities and interest rates.

The interest rate on the 10% senior notes is a reduction from the 11.25% interest rate on the existing senior notes and the 12.5% rate on the existing senior discount notes. Interest is payable semi-annually on July 15 and January 15, beginning July 15, 2002. Under U.S. GAAP dealing with debt restructurings, in 2001 the Company recorded a gain of $34 million on the exchange, after expenses of $8 million. The carrying value of the 10% senior notes on the balance sheet at December 31, 2003 was $827 million, although the actual

principal amount of the 10% senior notes is $613 million. The difference between this carrying value and the actual principal amount of the 10% senior notes is being amortized over the remaining life of the 10% senior notes, fully offsetting interest expense through maturity of the 10% senior notes. The indenture relating to the 10% senior notes contains covenants, including, without limitation, restrictions on Loral Orion’s ability to pay dividends or make loans to Loral.

In connection with the consummation of the exchange offer, LSC canceled its $79.7 million intercompany note issued to it by Loral Orion, which ranked pari passu to the senior debt, in exchange for the transfer of Loral Orion’s data services business and the issuance of a new note to LSC in the principal amount of $29.7 million due 2006, having an interest rate of 10% per annum payable in kind, subordinated to Loral Orion’s 10% senior notes.

The Loral Orion 11.25% senior notes are due in 2007 and require interest payments semi-annually. The 12.5% senior discount notes are due in 2007 and require interest payments semi-annually commencing on July 15, 2002. In connection with the Loral Orion acquisition in 1998, the carrying value of the senior notes and senior discount notes were increased to reflect a fair value adjustment based on quoted market prices at the date of acquisition. Such adjustment resulted in effective interest rates of 8.69% and 9.69% on the senior notes and senior discount notes, respectively, through maturity. Along with the issuance of each 11.25% senior note and 12.5% senior discount note, one warrant was originally issued to purchase shares of common stock. Upon the acquisition of Loral Orion, each warrant was converted so that it could purchase shares of Loral common stock. As of December 31, 2003, exercisable warrants for 4,530 shares of Loral common stock at an exercise price of $0.23 per share under the Loral Orion 11.25% senior notes and 8,397 shares of Loral common stock at an exercise price of $0.30 per share under the Loral Orion 12.5% senior discount notes are yet to be exercised.

In 1999, Loral sold $350 million principal amount of 9.5% Senior Notes due 2006 (“Senior Notes”). The Senior Notes are general unsecured obligations of Loral that: (1) are structurally junior in right of payment to all existing and future indebtedness of Loral’s subsidiaries; (2) are equal in right of payment with all existing and future senior indebtedness of Loral (except as to assets pledged to secure such indebtedness); and (3) are senior in right of payment to any future indebtedness which is by its terms junior in right of payment to any senior indebtedness of Loral. Interest on the Senior Notes accrues at the rate of 9.5% per annum and is payable semi-annually on January 15 and July 15. The Senior Notes were scheduled to mature on January 15, 2006. Upon a change of control (as defined), each holder of Senior Notes will have the right to require Loral to repurchase such holder’s Senior Notes at a price equal to 101% of the principal amount thereof plus accrued interest to the date of repurchase.

Reorganization expenses due to bankruptcy for the period from July 15, 2003 (filing date) to December 31, 2003, include professional fees associated with bankruptcy services, employee retention costs, lease rejection claims, vendor settlement gains and interest income earned, excluding interest earned related to satellite activities, and were as follows (in thousands):

The provision for income taxes on the loss before income taxes, equity in net losses of affiliates, minority interest, cumulative effect of change in accounting principle and extraordinary gain on acquisition of minority interest consists of the following (in thousands):

For the years ended December 31, 2003, 2002 and 2001, loss before income taxes includes approximately $22 million, $49 million and $71 million, respectively, of non-U.S. source loss. As of December 31, 2003, the Company had net operating loss carryforwards or NOLs of approximately $1.8 billion, which includes $203 million related to foreign partner interests in Globalstar and CyberStar L.P. (“Cyberstar”), as well as tax credit carryforwards of approximately $11.7 million, which expire at varying dates from 2012 through 2023. While the NOLs can be used to offset future taxable income, including the tax gain that will be recognized upon the sale of the satellite assets to Intelsat (see Note 2), future use may be impaired depending upon various factors relating to the Company’s plan of reorganization such as how creditor claims are satisfied, how the equity interests in the reorganized company are distributed, the extent of any capital infusion by new investors and the Company’s value and level of debt at the time the Company emerges from bankruptcy, which are unknown at this time. Moreover, if it is determined that an “ownership change” occurred in the three-year period preceding the emergence from bankruptcy, future use of these NOLs would be severely limited. An ownership change would be triggered if shareholders owning 5% or more of the Company’s total equity value change their holdings during this three-year period by more than 50% in the aggregate. On August 22, 2003, the Bankruptcy Court entered an order to assist the Company in protecting the NOLs by establishing procedures that require certain proposed acquirers of the Company’s securities to notify the Company about a prospective acquisition, thus giving the Company an opportunity to file an objection with the Bankruptcy Court if deemed necessary. While there is no guarantee that the Bankruptcy Court will rule in the Company’s favor in the event of a dispute between a proposed acquirer and the Company, a ruling against the Company could jeopardize a substantial portion of its NOLs.

The Company assesses the recoverability of its NOLs and other deferred tax assets and based upon this analysis, records a valuation allowance to the extent recoverability does not satisfy the “more likely than not” recognition criteria in SFAS No. 109. Based upon this analysis, management concluded during the fourth quarter of 2002 that, due to insufficient positive evidence substantiating recoverability, a 100% valuation allowance should be established for the entire balance of the Company’s net deferred tax assets. During 2003, Loral continued to maintain the valuation allowance increasing the reserve by $94.4 million to a balance of $670.9 million. Of this net increase, $7.8 million represented deferred tax assets applied directly to shareholders’ deficit for other comprehensive loss items, $12.0 million was applied to equity in net losses of

affiliates and $21.0 million represented a reduction to the allowance which was applied directly against the deferred tax asset. The balance of $95.6 million was charged to the 2003 results.

During 2002, the valuation allowance was increased by $390.4 million to a balance of $576.5 million. Of this net increase, $31.9 million represented deferred tax assets applied directly to shareholders’ deficit for other comprehensive loss items, $18.7 million primarily related to the cumulative effect of a change in accounting principles on the adoption of SFAS 142 and $55.9 million represented a reduction to the allowance which was applied directly against the deferred tax asset. Included in the reduction was the elimination of the benefit for NOLs related to certain foreign partners interests in Globalstar that will expire unrealized. The balance of $395.7 million was charged to the 2002 results. The valuation allowance was $186.1 million at December 31, 2001.

As of December 31, 2003 and 2002, valuation allowances of $670.9 million and $576.5 million, respectively, have been established for the entire balances of the Company’s net deferred tax assets. Loral will maintain the valuation allowance until sufficient positive evidence exists to support its reversal. Until such time, we expect to report no income tax provision net of valuation allowance adjustments, except for potential alternative minimum taxes and minor state, local and foreign tax provisions. When Loral determines that it will be able to realize its deferred tax assets, an adjustment to the valuation allowance will increase income in the period such determination is made.

The significant components of the net deferred income tax asset (liability) are (in thousands):

The net deferred income tax liability is included in other long-term liabilities.

On June 4, 2003, the Company’s Board of Directors approved a reverse stock split of the Company’s common stock at a ratio of one-for-ten, resulting in a new par value of $0.10 per common share (previously $0.01 par value per common share). The reverse stock split became effective after the close of business on June 13, 2003 and reduced the number of shares of common stock then outstanding from 440 million to 44 million. All share and per share amounts for all periods presented have been retroactively restated to reflect the reverse stock split.

At its annual shareholders’ meeting on May 29, 2003, the Company obtained shareholder approval to increase the authorized number of shares of its common stock from 75,000,000 to 125,000,000 (as adjusted for the above-mentioned reverse stock split).

The Series B Preferred Stock will, if issued, be junior to any other series of preferred stock which may be authorized and issued. The Series B Preferred Stock becomes issuable upon exercise by holders of rights issued under the Company’s rights plan. The rights are issued with the Company’s common stock and become detachable, and thus exercisable, only upon the occurrence of certain events. Each right, when it becomes exercisable, entitles the holder to purchase from the Company a unit consisting initially of one-thousandth of a share of Series B Preferred Stock at a purchase price of $50 per unit, subject to adjustment.

Based upon the price of the Company’s common stock at December 31, 2002, the Company did not have available a sufficient number of authorized shares of its common stock to effect payment of the total mandatory redemptions of its preferred stock into common stock in 2006 and 2007. Accordingly, as of December 31, 2002, the Company classified an aggregate of $125 million of its Series C Preferred Stock and Series D Preferred Stock outside the shareholders’ deficit section of the balance sheet, based on the average of the volume weighted average daily price of the Company’s common stock as defined. As a consequence of the Chapter 11 Cases, it is not likely that a mandatory redemption will occur. See Note 9.

In connection with the conversions of the Company’s preferred stock for common stock in 2002 and 2001 detailed below, the Company retired preferred stock with mandatory redemptions in 2006 and 2007 aggregating $921 million (representing 80% of the aggregate redemption values prior to these exchanges).

On October 8, 2002, Loral completed exchange offers for its Series C and Series D preferred stock and converted 4.3 million shares of its Series C Preferred Stock and 2.7 million shares of its Series D Preferred Stock for 4.6 million shares of its common stock and $13.4 million in cash. In connection with the exchange offers, Loral incurred $21.6 million of dividend charges, comprised of the $13.4 million in cash and non-cash dividend charges of $8.2 million. The non-cash dividend charges relate to the difference between the value of the common stock issued in the exchanges and the value of the shares that were issuable under the stated conversion terms of the preferred stock and will have no impact on Loral’s total shareholders’ deficit as the offset was an increase in common stock and paid-in capital.

During the second quarter of 2002, in privately negotiated exchange transactions, Loral converted 1.8 million shares of its Series C Preferred Stock and 2.7 million shares of its Series D Preferred Stock into 3.1 million shares of its common stock. In connection with these transactions, Loral incurred non-cash dividend charges of $38 million, which primarily relate to the difference between the value of the common

stock issued in the exchanges and the value of the shares that were issuable under the stated conversion terms of the preferred stock. The non-cash dividend charges had no impact on Loral’s total shareholders’ deficit, as the offset was an increase in common stock and paid-in capital.

On April 16, 2001, the Company completed exchange offers for its Series C Preferred Stock and its Series D Preferred Stock. As a result, 3.7 million shares of its Series C Preferred Stock and 1.9 million shares of its Series D Preferred Stock were tendered and exchanged into 3.1 million shares of the Company’s common stock. Loral incurred non-cash dividend charges in the second quarter of 2001 of $29 million, which primarily relate to the difference between the value of the common stock issued in the exchanges and the value of the shares that were issuable under the stated conversion terms of the preferred stock. The non-cash dividend charges had no impact on Loral’s total shareholders’ deficit, as the offset was an increase in common stock and paid-in capital.

On April 18, 2000, the Board of Directors of Loral approved a new stock option plan (the “2000 Plan”) in order to provide an inducement to attract and retain the services of qualified employees. The 2000 Plan is intended to constitute a “broadly-based plan” as defined in Section 312.04(h) of the NYSE Listed Company Manual, which provides that at least 50% of grants thereunder exclude senior management. The 2000 Plan provides for the grant of non-qualified stock options only. As of December 31, 2003, up to 3.7 million shares of common stock may be issued under the 2000 Plan, of which approximately 1.6 million options at a weighted average exercise price of $20.30 per share were outstanding as of December 31, 2003.

In April 1996, Loral established the 1996 Stock Option Plan. An aggregate of 1.8 million shares of common stock have been reserved for issuance, of which approximately 0.8 million options at a weighted average exercise price of $95.63 per share were outstanding as of December 31, 2003.

In connection with the acquisition of Loral Orion, Loral assumed the unvested employee stock options of Loral Orion.

A summary of the status of the Company’s stock option plans as of December 31, 2003, 2002 and 2001 and changes during the periods then ended is presented below:

The following table summarizes information about Loral’s outstanding stock options at December 31, 2003:

All options granted during 2002 and 2001 were non-qualified stock options. As of December 31, 2003, 2,996,265 shares of common stock were available for future grant under the plans.

In connection with its exchange offer for certain outstanding stock options completed on March 7, 2003, Loral accepted and cancelled existing stock options to purchase an aggregate of 1,488,440 shares of common stock that were tendered in the exchange offer and agreed to grant in exchange new stock options to purchase an aggregate of 602,149 shares of common stock. The new options were to be granted, subject to the terms and conditions of the exchange offer, on September 8, 2003. As a result of Loral’s Chapter 11 filing, however, Loral will not be able to grant the new stock options. Any claims or rights that option holders whose options were cancelled may have will be addressed in the context of the Chapter 11 Cases. These cancellations have been reflected as forfeitures in 2003.

Basic loss per share is computed based upon the weighted average number of shares of common stock outstanding. Diluted loss per share excludes the assumed conversion of the Series C Preferred Stock and the Series D Preferred Stock (see Note 13), as their effect would have been antidilutive in 2003, 2002 and 2001, respectively. For 2003, 2002 and 2001, weighted options equating to zero, 151,632 and 38,966 shares of common stock, respectively, as calculated using the treasury stock method, were excluded from the calculation of diluted loss per share, as the effect would have been antidilutive.

The following table sets forth the computation of basic and diluted loss per share:

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 vary and benefits are based on members’

compensation and/or 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 a discretionary basis. Plan assets are generally invested in U.S. government and agency obligations and listed stocks and bonds.

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.

The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair value of assets for 2003 and 2002, and a statement of the funded status as of December 31, 2003 and 2002, respectively. The Company uses a December 31 measurement date for the pension plans and other post retirement benefit plans.

The following table provides the details of the net pension liability recognized in the balance sheet as of December 31, 2003 and 2002, respectively (in thousands):

Included in liabilities subject to compromise (Note 9) is $131 million of the accrued benefit liability for pensions and the net amount recognized for other benefits.

The accumulated pension benefit obligation was $321.0 million and $281.1 million at December 31, 2003 and 2002, respectively.

For 2003, the Company’s qualified pension plan, under the Internal Revenue Code and regulations thereunder, was considered fully funded (i.e. assets are greater than liabilities) and there was no contribution required for 2003. During 2004, based on current estimates, the Company expects to contribute $13 million to the qualified pension plan. The significant declines experienced in the financial markets in previous years have unfavorably impacted pension plan asset performance. This, coupled with historically low interest rates (a key factor when estimating pension plan liabilities), caused the Company to recognize an additional $4.5 million during 2003, for a total of $69.2 million of non-cash charges to other comprehensive income (loss) as of December 31, 2003. Market conditions and interest rates significantly impact future assets and liabilities of the Company’s pension plans, and this charge to equity will be revalued in the future based upon plan assets and the measurement of plan obligations which is completed at the end of each fiscal year.

The following table provides the components of net periodic cost for the plans for 2003, 2002 and 2001, respectively (in thousands):

The expected long-term rate of return on pension plan assets is selected by taking into account the expected duration of the projected benefit obligation for the plans, the asset mix of the plans and the fact that the plan assets are actively managed to mitigate risk. Allowable investment types include equity investments and fixed income investments. Pension plan assets are managed by Russell Investment Corp., which allocates the assets into specified Russell designed funds as per the Company’s directed asset allocation. Each specified Russell fund is then managed by investment managers chosen by Russell. The targeted allocation of the Company’s pension plan assets is 60% in equity investments and 40% in fixed income investments. Based on this target allocation, the fifteen year historical return of the Company’s investment managers has been 10.9%. The Company believes that its long-term asset allocation will approximate 60% in equity investments and 40% in fixed income investments. The expected long-term rate of return on plan assets determined on this basis was 9.0% for 2003, a decline of 50 basis points from 2002.

The Company’s pension and other employee benefits plan asset allocations by asset category as of December 31, 2003 and 2002 are as follows:

Actuarial assumptions used a health care cost trend rate of 11.0% decreasing gradually to 4.50% by 2010. 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 2003 would have the following effects (in thousands):

On December 8, 2003, President Bush signed the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (DIMA). The Act introduces a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In accordance with the FASB Staff Position No. 106-1, Loral is electing to defer recognition of any potential savings on the measure of accumulated postretirement benefit obligation or net periodic benefit cost as a result of DIMA until specific authoritative guidance on the accounting of the federal subsidy is issued. Therefore, the consolidated financial statements do not reflect the effects of the Act on the plan.

The Company has an employee savings plan, which provides that the Company match the contributions of participating employees up to a designated level. Under this plan, the matching contributions in Loral common stock or cash were $5.3 million, $6.6 million and $6.7 million in 2003, 2002 and 2001, respectively. Employees vested in the savings plan are able to redirect the Company match to any available fund. In addition, employees are able to direct their individual contributions to any available fund.

The estimated fair values of the Company’s financial instruments are as follows (in thousands):

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 amount of cash and cash equivalents approximates fair value because of the short maturity of those instruments. The fair value of the investments in available-for-sale securities are based on market quotations or, for the Company’s investment in Globalstar’s $500 million credit facility (as adjusted for the settlement agreement), the quoted market price of Globalstar’s public debt securities (see Note 7). The fair value of the Company’s debt is based on the carrying value for those obligations that have short-term variable interest rates on the outstanding borrowings and quoted market prices for obligations with long-term or fixed interest rates (the fair value for the Loral Orion 11.25% and 12.5% senior notes was based on the quoted market price of the Loral Orion 10% senior notes, as there was no active market for those senior notes). The fair value of the Company’s preferred stock is based on market quotations.

The fair value of the investments in available-for-sale securities includes unrealized gains of $3 million and $20 million as of December 31, 2003 and 2002, respectively, which relates to the Company’s investment in Globalstar’s $500 million credit facility (see Note 4). Approximately $214 million and $245 million of the carrying amount of debt as of December 31, 2003 and 2002, respectively, is attributable to the accounting for the Loral Orion exchange offer (see Note 10).

The Company, in the normal course of business, is subject to the risks associated with fluctuations in foreign currency exchange rates. Prior to filing Chapter 11, the Company entered into forward exchange contracts to establish with certainty the U.S. dollar amount of future anticipated cash receipts and payments and firm commitments for cash payments denominated in a foreign currency. The primary business objective of this hedging program is to minimize the gains and losses resulting from exchange rate changes. As of December 31, 2002, the Company had foreign currency exchange contracts (forwards) with several banks to purchase and sell foreign currencies, primarily Japanese yen, with aggregate notionals of $101.8 million. Such contracts were designated as hedges of certain foreign contracts and subcontracts to be performed by SS/ L through May 2006. The fair value of these foreign currency hedges and forward contracts based on quoted market prices as of December 31, 2002 was $11.7 million and were included in cash (foreign currency cash balances designated as hedges) and other current assets (forward contracts) on the consolidated balance sheets.

Ineffectiveness from all hedging activity was immaterial for the years ended December 31, 2003, 2002 and 2001. For the year ended December 31, 2001, SS/ L recognized charges of $0.7 million, for hedges that no

longer qualified as fair value hedges and $1.5 million for excluded forward points on accelerated or delayed cash flows, which were recorded as interest expense.

At December 31, 2003, SS/ L also had future expenditures in EURO’s of $1.5 million ($1.8 million U.S.) that were unhedged.

On January 1, 2001, the Company adopted 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 that do not qualify, or are not effective as hedges, must be recognized currently in earnings. Upon adoption, the Company recorded a $1.7 million reduction in net income, net of tax, and a $1.2 million increase in other comprehensive income (“OCI”), net of tax, relating to the cumulative effect of the change in adopting this new accounting principle. The Company recorded these adjustments to recognize the fair value of foreign currency forward contracts that qualify as derivatives under SFAS 133 and to recognize the fair value of firm commitments designated as hedged items in fair value hedge relationships. Furthermore, the transition adjustments reflect the derecognition of any deferred gains or losses recorded on the balance sheet prior to the effective date of SFAS No. 133 on foreign exchange contracts designated as hedges of foreign currency exposures on long-term construction contracts in process.

The Company had outstanding letters of credit of approximately $6 million as of December 31, 2003.

Due to the long lead times required to produce purchased parts and launch vehicles, the Company has entered into various purchase commitments with suppliers. These commitments aggregated approximately $108 million as of December 31, 2003, and primarily relate to satellite backlog. The Company’s commitments for unassigned launch vehicles were immaterial as of December 31, 2003. The Company is also obligated to pay $10 million over the next five years pursuant to a consent agreement with the U.S. Department of State, which can be reduced by the Company incurring certain costs as required under the consent agreement.

SS/ L has deferred revenue for performance warranty obligations relating to satellites sold to customers which could be impacted by future performance. SS/ L accounts for satellite performance warranties in accordance with the product warranty provisions of FIN 45 which requires disclosure, but not initial recognition and measurement, of performance guarantees. SS/ L estimates the deferred revenue for its warranty obligation based on historical satellite performance. Management periodically reviews and adjusts the deferred revenue for warranty reserves based on the actual performance of each satellite and remaining

warranty period. A reconciliation of such deferred amounts for each of the three years in the period ended December 31, 2003, is as follows (in millions):

Loral Skynet has in the past entered into prepaid leases, sales contracts and other arrangements relating to transponders on its satellites. Under the terms of these agreements, Loral Skynet continues to operate the satellites which carry the transponders and originally provided for a warranty for a period of 10 to 14 years, in the case of sales contracts and other arrangements (19 transponders), and the lease term, in the case of the prepaid leases (six transponders). Depending on the contract, Loral Skynet may be required to replace transponders which do not meet operating specifications. Substantially all customers are entitled to a refund equal to the reimbursement value if there is no replacement, which is normally covered by insurance. In the case of the sales contracts, the reimbursement value is based on the original purchase price plus an interest factor from the time the payment was received to acceptance of the transponder by the customer, reduced on a straight-line basis over the warranty period. In the case of prepaid leases, the reimbursement value is equal to the unamortized portion of the lease prepayment made by the customer. In the case of other arrangements, in the event of transponder failure where replacement capacity is not available on the satellite, one customer is not entitled to reimbursement, and the other customer’s reimbursement value is based on contractually prescribed amounts that decline over time. As a result of the Telstar 4 failure, during the third quarter of 2003 Loral Skynet established warranty liabilities of $11 million for previously sold transponders to customers who were restored and who were not restored (three transponders) on other Loral satellites (see Note 2).

Fourteen of the satellites built by SS/ L and launched since 1997, six of which are owned and operated by Loral’s subsidiaries or affiliates, have experienced minor losses of power from their solar arrays. Although to date, neither the Company nor any of the customers using the affected satellites have experienced any degradation in performance, there can be no assurance that one or more of the affected satellites will not experience additional power loss that could result in performance degradation, including loss of transponder capacity or reduction in power transmitted. In the event of additional power loss, the extent of the performance degradation, if any, will depend on numerous factors, including the amount of the additional power loss, the level of redundancy built into the affected satellite’s design, when in the life of the affected satellite the loss occurred and the number and type of use being made of transponders then in service. It is also possible that one or more transponders on a satellite may need to be removed from service to accommodate the power loss and to preserve full performance capabilities of the remaining transponders. In the case of one satellite, Loral Skynet has removed one transponder from service in order to maintain proper power balance for the remaining transponders, none of which have been degraded in performance as a result of the power loss. A complete or partial loss of satellites could result in a loss of orbital incentive payments and, in the case of satellites owned by Loral subsidiaries and affiliates, a loss of revenues and profits. With respect to satellites under construction and construction of new satellites, based on its investigation of the matter, SS/ L has identified and has implemented remediation measures that SS/ L believes will prevent newly launched

satellites from experiencing similar anomalies. SS/ L does not expect that implementation of these measures will cause any significant delay in the launch of satellites under construction or construction of new satellites. Based upon information currently available, including design redundancies to accommodate small power losses and that no pattern has been identified as to the timing or specific location within the solar arrays of the failures, the Company believes that this matter will not have a material adverse effect on the consolidated financial position or results of operations of Loral.

In September 2001, the PAS 7 satellite built by SS/ L for PanAmSat experienced an electrical power failure on its solar arrays that resulted in the loss of use of certain transponders on the satellite. Also, the PAS 8 satellite has experienced minor losses of power from its solar arrays, the cause of which is unrelated to the loss of power on the PAS 7 satellite. On June 30, 2003, PanAmSat commenced an arbitration claiming that under its contract with SS/ L it is entitled to $23.7 million as a result of these losses. As a result of SS/ L’s Chapter 11 filing, this arbitration is subject to the automatic stay, and further proceedings in the matter have been suspended. In March 2004, the Company reached an agreement in principle to settle this matter with PanAmSat, which is subject to documentation and Bankruptcy Court approval and has recorded a charge to operations of $8 million in the fourth quarter of 2003. In addition, a Loral Skynet satellite has experienced a minor loss of power from its solar arrays, the cause of which may be similar to the cause of the PAS 7 anomaly. SS/ L believes, however, that these failures are isolated events and do not reflect a systemic problem in either the satellite design or manufacturing process. Accordingly, SS/ L does not believe that these anomalies will affect other on-orbit satellites built by SS/ L.

SS/ L has contracted to build a spot beam, Ka-band satellite for a customer planning to offer broadband data services directly to the consumer. SS/ L had suspended work on this program since December 2001 while the customer and SS/ L were in discussions to resolve a dispute under the contract. In March 2003, SS/ L and the customer reached an agreement in principle to restart the satellite construction program, and in June 2003, SS/ L and the customer executed a definitive agreement. As of December 31, 2003, SS/ L had billed and unbilled accounts receivable and vendor financing arrangements of $51 million (including accrued interest of $9 million) with this customer. Under the agreement, the customer will pay the remainder of the purchase price under the contract of $65 million plus accrued interest (including $51 million owed to SS/ L at December 31, 2003) in installments over time, most of which will be due subsequent to completion of the satellite.

SS/ L was a party to an Operational Agreement with Alcatel Space Industries, pursuant to which the parties had agreed to cooperate on certain satellite programs, and an Alliance Agreement with Alcatel Space (together with Alcatel Space Industries, “Alcatel”), pursuant to which Alcatel had certain rights with respect to SS/ L. On June 30, 2003, Loral, SS/ L and Alcatel entered into a master settlement agreement in settlement of all claims among the parties, including arbitration claims brought by Alcatel against Loral alleging breaches of the Operational Agreement and Alliance Agreement. Pursuant to the master settlement agreement, Loral paid Alcatel $5 million and agreed to pay an additional $8 million within one year, resulting in a charge to operations of $13 million. In addition, Alcatel transferred to Loral its minority interest in CyberStar, and Loral transferred to Alcatel its minority interests in Europe*Star and SkyBridge Limited Partnership that Loral had previously written off. As a result of receiving Alcatel’s minority interest in CyberStar, Loral recognized an extraordinary gain of $14 million, which represents the extinguishment of the minority interest liability less the fair value of the acquired net assets. Under the terms of the master settlement agreement, the arbitration and a related court proceeding to confirm the arbitral tribunal’s January partial award were suspended, with termination to occur on the date of confirmation of a plan of reorganization or a liquidation, provided that if any action is commenced in the Chapter 11 Cases seeking the repayment, disgorgement or turnover of the transfers made in connection with the master settlement agreement, because of the commencement of the Chapter 11 Cases, the arbitration and related court confirmation proceeding would not be terminated until such repayment, disgorgement or turnover action had been dismissed. The master settlement agreement also provides that Alcatel is entitled to reinstate the arbitration if it is required by

judicial order to repay, disgorge or turn over the consideration paid to it under the agreement in the context of the Chapter 11 Cases.

SS/ L is required to obtain licenses and enter into technical assistance agreements, presently under the jurisdiction of the State Department, in connection with the export of satellites and related equipment, as well as disclosure of technical data to foreign persons. Due to the relationship between launch technology and missile technology, the U.S. government has limited, and is likely in the future to limit, launches from China and other foreign countries. Delays in obtaining the necessary licenses and technical assistance agreements have in the past resulted in, and may in the future result in, the delay of SS/ L’s performance on its contracts, which could result in the cancellation of contracts by its customers, the incurrence of penalties or the loss of incentive payments under these contracts.

The launch of ChinaSat 8 has been delayed pending SS/ L’s obtaining the approvals required for the launch. SS/ L is continuing to seek the State Department approvals required for the launch of ChinaSat 8. If ChinaSat were to terminate its contract with SS/ L for ChinaSat 8 as a result of these delays, ChinaSat may seek a refund of $82 million for payments made to SS/ L as well as penalties of up to $11 million. The Company does not believe that ChinaSat is entitled to such a refund or penalties and would vigorously contest any such claims by ChinaSat. If ChinaSat were to terminate the contract, SS/ L estimates that it would incur costs of approximately $38 million to refurbish and retrofit the satellite so that it could be sold to another customer, which resale cannot be guaranteed. In addition, subject to approval of the launch vehicle provider and approval of the Bankruptcy Court, the receipt of which cannot be assured, ChinaSat has agreed to release SS/ L from any claim ChinaSat might have to recover some or all of the $52 million deposit that ChinaSat paid to SS/ L, and SS/ L paid to the launch vehicle provider, for a Chinese launch vehicle.

On September 20, 2002, and as further amended in March 2003, Loral agreed with APT Satellite Company Limited (“APT”) to jointly acquire the Apstar V satellite, a satellite then under construction by SS/ L for APT pursuant to which Loral and APT agreed to share, on a 50/50 basis, the project cost of constructing, launching and insuring the satellite. Under this agreement, Loral was to initially acquire 23% of the satellite in return for paying 25% of the project cost, and was to pay to APT over time an additional 25% of the project cost to acquire an additional 23% interest in the satellite. At December 31, 2003, the project cost of the satellite was estimated at $230 million.

In August 2003, in order to expedite the receipt of necessary export licenses from the U.S. government, Loral and APT amended their various agreements to convert their arrangement from a joint ownership arrangement to a lease arrangement, but leaving unchanged the cost allocation between the parties relating to the project cost of the satellite. Under this arrangement, Loral retains title to the entire satellite, now known as Telstar 18, and will lease to APT transponders representing initially 77% of the transponder capacity on the satellite. The number of transponders leased to APT would be reduced over time upon repayment by Loral of the second 25% of the satellite’s project cost, ultimately to 54% of the satellite’s transponder capacity. As a result of this conversion from joint ownership to a lease arrangement in the third quarter of 2003, Loral (a) reversed the cumulative sales of $83 million and cost of satellite manufacturing of $73 million and (b) recorded an increase to self constructed assets of $73 million and recorded long-term obligations of $80 million which, in addition to the $34 million received from APT and subject to repayment, is included in long-term liabilities as of December 31, 2003.

In November 2003, Loral and APT agreed to further revise their existing arrangement. Under this revised arrangement, Loral agreed, among other things, to accelerate the termination of APT’s leasehold interest in 4.5 transponders by assuming $20.4 million of project cost which otherwise would have been initially paid by APT, decreasing APT’s initial leased transponder capacity from 77% to 69%. In addition, Loral will provide to APT, free of charge, available capacity on Telstar 10/ Apstar IIR, during an interim period, and provide APT with certain rights to exchange Ku-band transponder capacity on Telstar 18 for equivalent Ku-band transponder capacity on Telstar 10/ Apstar IIR.

SS/ L has entered into several long-term launch services agreements with various launch providers to secure future launches for its customers, including Loral and its affiliates. SS/ L had launch services agreements with International Launch Services (“ILS”) which covered three launches. In November 2002, SS/ L terminated one of those future launches, which had a termination liability equal to SS/ L’s deposit of $5 million. Subsequently, SS/ L received a letter from ILS alleging SS/ L’s breach of the agreements and purporting to terminate all three launches. Despite ILS’s termination of all three launches, to protect its interest SS/ L also terminated a second launch, which had a termination liability equal to its deposit of $5 million. As a result, SS/ L recognized a non-cash charge to earnings of $10 million in the fourth quarter of 2002 with respect to the two terminated launches. In June 2003, to protect its interest, SS/ L also terminated a third launch, which had a termination liability equal to $23.5 million, and SS/ L recognized a non-cash charge to earnings of $23.5 in the second quarter of 2003 with respect to this launch. ILS has asserted that it is entitled to termination charges of up to $54.75 million with respect to the three terminated launches. SS/ L believes that ILS’s claims are without merit and intends to defend against them vigorously and to seek recovery of its deposits and termination liabilities. The Company does not believe that this matter will have a material adverse effect on its consolidated financial position and its results of operations, although no assurances can be provided.

While the Company has in the past, consistent with industry practice and the requirements in the Company’s debt agreements, typically obtained in-orbit insurance for its satellites, the Company cannot assure that, upon a policy’s expiration, the Company will be able to renew the insurance on acceptable terms, especially on satellites that have, or that are part of a family of satellites that have, experienced problems in the past. Five satellites owned by Loral Skynet and Loral Orion have the same solar array configuration as one other 1300-class satellite manufactured by SS/ L that has experienced an event with a large loss of solar power. SS/ L believes that this failure is an isolated event and does not reflect a systemic problem in either the satellite design or manufacturing process. Accordingly, the Company does not believe that this anomaly will affect the Company’s satellites with the same solar array configuration. The insurance coverage for three of the Company’s satellites, however, provides for coverage of losses due to solar array failures only in the event of a capacity loss of between 75% and 80% or more. The Company believes that the insurers will require either exclusions of, or limitations on, coverage due to solar array failures in connection with renewals of insurance of its five satellites each year. An uninsured loss of a satellite would have a material adverse effect on the Company’s consolidated financial position and its results of operations. Moreover, the Company is required under the terms of its bank facilities and cash collateral order to use the insurance proceeds from any launch or in-orbit failure of a satellite owned by Loral SpaceCom or Loral Satellite to prepay the bank loans (see Note 2), and as a result, these insurance proceeds would not be available to Loral to build a replacement for the lost satellite, which would result in an adverse effect on its future revenue.

Loral Orion did not renew its in-orbit insurance policy on Telstar 11 due to the high cost of such insurance and the relative age of the satellite. As of December 31, 2003, the net book value of Telstar 11 was $42 million and its end of life, as determined in the fourth quarter of 2003, was June 2004.

In an order released on August 8, 2003, the FCC added Telstar 13 to the “Permitted Space Station List” in the C-Band frequency at 121 degrees W.L. As a result of this action, earth stations located in the U.S. will be able to communicate with the Telstar 13 satellite, which was successfully launched on August 7, 2003, and Telstar 13 will be permitted to operate in the U.S. using a non-U.S. ITU filing. The order contains several conditions on this authorization, including (1) a requirement that Telstar 13 be in compliance with all applicable current and future operational requirements as a result of coordination agreements reached with other satellite systems; and (2) that, in the absence of a coordination agreement with a satellite network with higher ITU priority, Telstar 13 must cease service to the U.S. market immediately upon launch and operation of the higher ITU priority satellite, or be subject to further conditions designed to address potential harmful interference to a satellite with ITU date precedence. New Skies Satellites has asserted that its non-U.S. ITU filing at 120.8 degrees W.L. has ITU priority over Telstar 13. Loral Skynet is continuing its international

coordination of the 121 degrees W.L. slot. There can be no assurance, however, that coordination discussions will be successful (see Note 2).

On October 21, 2002, National Telecom of India Ltd. (“Natelco”) filed suit against Loral and a subsidiary in the United States District Court for the Southern District of New York. The suit relates to a joint venture agreement entered into in 1998 between Natelco and ONS Mauritius, Ltd., a Loral Orion subsidiary, the effectiveness of which was subject to express conditions precedent. In 1999, ONS Mauritius had notified Natelco that Natelco had failed to satisfy those conditions precedent. In Natelco’s amended complaint filed in March 2003, Natelco has alleged wrongful termination of the joint venture agreement, has asserted claims for breach of contract and fraud in the inducement and is seeking damages and expenses in the amount of $97 million. Loral believes that the claims are without merit and intends to vigorously defend against them. As a result of the commencement of the Chapter 11 Cases, this lawsuit is subject to the automatic stay and further proceedings in the matter have been suspended.

In August 2003, plaintiffs Robert Beleson and Harvey Matcovsky filed a purported class action complaint against Bernard Schwartz in the United States District Court for the Southern District of New York. The complaint alleges (a) that Mr. Schwartz violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, by making material misstatements or failing to state material facts about Loral’s financial condition relating to the sale of assets to Intelsat and Loral’s Chapter 11 filing and (b) that Mr. Schwartz is secondarily liable for these alleged misstatements and omissions under Section 20(a) of the Exchange Act as an alleged “controlling person” of Loral. The class of plaintiffs on whose behalf the lawsuit has been asserted consists of all buyers of Loral common stock during the period from June 30, 2003 through July 15, 2003, excluding the defendant and certain persons related to or affiliated with them. In November 2003, three other complaints against Mr. Schwartz with substantially similar allegations were consolidated into the Beleson case. In February 2004, a motion to dismiss the complaint in its entirety was denied by the court. Defendant filed an answer on March 2, 2004, and discovery has commenced.

committee defendants and (c) that defendants violated Sections 404 and 405 of ERISA by failing to provide complete and accurate information to Plan participants and beneficiaries. The class of plaintiffs on whose behalf the lawsuit has been asserted consists of all participants in or beneficiaries of the Plan at any time between November 4, 1999 and the present and whose accounts included investments in Loral stock. One other similar complaint against the defendants with substantially similar allegations has been filed, and a motion to consolidate the cases is pending.

Loral is obligated to indemnify its directors and officers for any losses or costs they may incur as a result of these lawsuits. Loral is unable to estimate the maximum potential impact of these obligations on its future results of operations.

The Company is subject to various other legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. Although the outcome of these claims cannot be predicted with certainty, the Company does not believe that any of these other existing legal matters will have a material adverse effect on its consolidated financial position or results of operations. These claims against the Company are subject to the automatic stay as a result of the commencement of the Chapter 11 Cases.

On September 26, 2001, the nineteen separate purported class action lawsuits filed in the United States District Court for the Southern District of New York by various holders of securities of Globalstar Telecommunications Limited (“GTL”) and Globalstar against GTL, Loral, Bernard L. Schwartz and other defendants were consolidated into one action titled In re: Globalstar Securities Litigation. In November 2001, plaintiffs in the consolidated action filed a consolidated amended class action complaint against Globalstar, GTL, Globalstar Capital Corporation, Loral and Bernard L. Schwartz alleging (a) that all defendants (except Loral) violated Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, by making material misstatements or failing to state material facts about Globalstar’s business and prospects, (b) that defendants Loral and Mr. Schwartz are secondarily liable for these alleged misstatements and omissions under Section 20(a) of the Exchange Act as alleged “controlling persons” of Globalstar, (c) that defendants GTL and Mr. Schwartz are liable under Section 11 of the Securities Act of 1933 (the “Securities Act”) for untrue statements of material facts in or omissions of material facts from a registration statement relating to the sale of shares of GTL common stock in January 2000, (d) that defendant GTL is liable under Section 12(2)(a) of the Securities Act for untrue statements of material facts in or omissions of material facts from a prospectus and prospectus supplement relating to the sale of shares of GTL common stock in January 2000, and (e) that defendants Loral and Mr. Schwartz are secondarily liable under Section 15 of the Securities Act for GTL’s primary violations of Sections 11 and 12(2)(a) of the Securities Act as alleged “controlling persons” of GTL. The class of plaintiffs on whose behalf the lawsuit has been asserted consists of all buyers of securities of Globalstar, Globalstar Capital and GTL during the period from December 6, 1999 through October 27, 2000, excluding the defendants and certain persons related to or affiliated with them. Loral and Mr. Schwartz have filed a motion to dismiss the amended complaint in its entirety as to Loral and Mr. Schwartz, which motion is pending before the court. Loral believes that it has meritorious defenses to this class action lawsuit and intends to pursue them vigorously. As a result of the commencement of the Chapter 11 Cases, however, this lawsuit is subject to the automatic stay and further proceedings in the matter have been suspended insofar as Loral is concerned but are proceeding as to GTL and Mr. Schwartz. Loral is obligated to indemnify Mr. Schwartz for any losses or costs he may incur as a result of this lawsuit. Loral is unable to estimate the maximum potential impact of these obligations on its future results of operations. In December 2003, a motion to dismiss the amended complaint in its entirety was denied by the court insofar as GTL and Mr. Schwartz are concerned, and discovery has commenced.

On March 2, 2002, the seven separate purported class action lawsuits filed in the United States District Court for the Southern District of New York by various holders of Loral common stock against Loral, Bernard L. Schwartz and Richard Townsend were consolidated into one action titled In re: Loral Space & Communications Ltd. Securities Litigation. On May 6, 2002, plaintiffs in the consolidated action filed a consolidated amended class action complaint alleging (a) that all defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, by making material misstatements or failing to state material facts about Loral’s financial condition and its investment in Globalstar and (b) that Mr. Schwartz is secondarily liable for these alleged misstatements and omissions under Section 20(a) of the Exchange Act as an alleged “controlling person” of Loral. The class of plaintiffs on whose behalf the lawsuit has been asserted consists of all buyers of Loral common stock during the period from November 4, 1999 through February 1, 2001, excluding the defendants and certain persons related to or affiliated with them. Loral and Messrs. Schwartz and Townsend have filed a motion to dismiss the complaint in its entirety. After oral argument on a motion to dismiss filed by Loral and Messrs. Schwartz and Townsend, in June 2003, the plaintiffs filed an amended complaint alleging essentially the same claims as in the original amended complaint. Loral believes that it has meritorious defenses to this class action lawsuit and intends to pursue them vigorously. As a result of the commencement of the Chapter 11 Cases, however, this lawsuit is subject to the automatic stay, and further proceedings in the matter have been suspended, insofar as Loral is concerned but are proceeding as to the other defendants. Loral is obligated to indemnify Messrs. Schwartz and Townsend for any losses or costs they may incur as a result of this lawsuit. Loral is unable to estimate the maximum potential impact of these obligations on its future results of operations. On February 23, 2004, a motion to dismiss the amended complaint was granted by the court insofar as Messrs. Schwartz and Townsend are concerned.

In addition, the primary insurer under Loral’s directors and officers liability insurance policy has denied coverage for the case filed by Loral shareholders under the policy and, on March 24, 2003, filed a lawsuit in the Supreme Court of New York county seeking a declaratory judgment upholding their coverage position. In May 2003, Loral and the other defendants served their answer and filed counterclaims seeking a declaration that the insurer is obligated to provide coverage and damages for breach of contract and the implied covenant of good faith. In May 2003, Loral and the other defendants also filed a third party complaint against the excess insurers seeking a declaration that they are obligated to provide coverage. Loral believes that the insurers have wrongfully denied coverage and intends to defend against the denial vigorously. As a result of the commencement of the Chapter 11 Cases, however, this lawsuit is subject to the automatic stay and further proceedings in the matter have been suspended insofar as Loral is concerned but are proceeding as to the other defendants.

The Company leases certain facilities, equipment and transponder capacity under agreements expiring at various dates. Certain leases covering facilities contain renewal and or purchase options which may be exercised by the Company. Rent expense, net of sublease income of $1.0 million, $2.0 million and $4.3 million, was $41.6 million, $61.7 million and $62.9 million in 2003, 2002 and 2001 respectively.

Future minimum payments, by year and in the aggregate, under operating leases with initial or remaining terms of one year or more consisted of the following as of December 31, 2003 (in thousands):

Future minimum payments have been reduced by minimum sublease rentals of $2.0 million due in the future under non-cancelable subleases.

Loral is organized into two operating segments: Satellite Services and Satellite Manufacturing (see Note 1 and Note 2 regarding the sale of the Company’s satellite assets to Intelsat).

The common definition of EBITDA is “Earnings Before Interest, Taxes, Depreciation and Amortization”. In evaluating financial performance, management uses revenues and operating income (loss) before depreciation and amortization, including amortization of unearned stock compensation, and reorganization expenses due to bankruptcy (“Adjusted EBITDA”) as the measure of a segment’s profit or loss. Adjusted EBITDA is equivalent to the common definition of EBITDA before amortization of stock compensation; reorganization expenses due to bankruptcy; gain (loss) on investments and debt exchanges; equity in net losses of affiliates, net of tax; minority interest, net of tax; cumulative effect of change in accounting principle, net of tax, and extraordinary gain on acquisition of minority interest, net of tax. Adjusted EBITDA should be used in conjunction with U.S. GAAP financial measures and is not presented as an alternative to cash flow from operations as a measure of the Company’s liquidity or as an alternative to net income as an indicator of the Company’s operating performance.

The Company believes the use of Adjusted EBITDA along with GAAP financial measures enhances the understanding of the Company’s operating results and is useful to investors in comparing performance with competitors, estimating enterprise value and making investment decisions. Adjusted EBITDA allows investors to compare operating results of competitors exclusive of depreciation and amortization, net losses of affiliates and minority interest, a useful tool given the significant variation that can result from the timing of capital expenditures, the amount of intangible assets recorded, the differences in assets’ lives, the timing and amount of investments, and effects of investments not managed by the Company. Adjusted EBITDA as used here may not be comparable to similarly titled measures reported by other companies. The Company also uses Adjusted EBITDA to evaluate operating performance, to allocate resources and capital, to measure performance for incentive compensation programs, and to evaluate future growth opportunities.

Intersegment revenues primarily consist of satellites under construction by Satellite Manufacturing for Satellite Services and the leasing of transponder capacity by Satellite Manufacturing from Satellite Services. In the first quarter of 2003, management changed its basis of evaluating and reporting the financial performance of the Satellite Manufacturing segment to conform it to U.S. GAAP principles for commercial contracts and has restated the segment information for 2002 and 2001, accordingly. Previously the segment was evaluated and reported by management in accordance with accounting principles applicable to government contracts whereby all costs incurred, including G&A were allocated to customer programs.

Summarized financial information concerning the reportable segments is as follows (in millions):


⁽¹⁾	Represents corporate expenses incurred in support of the Company’s operations.

⁽²⁾	Includes revenues from affiliates of $28.7 million, $85.9 million and $100.9 million in 2003, 2002 and 2001, respectively.

⁽³⁾	Represents the elimination of intercompany sales and Adjusted EBITDA, primarily for satellites under construction by SS/ L for wholly owned subsidiaries and the reversal of sales of $83 million and $73 million of cost of satellite manufacturing on a satellite program with a customer where the contract was changed to a lease arrangement in 2003 (see Note 17).

⁽⁴⁾	Includes amortization of unearned stock compensation charges.

⁽⁵⁾	The amounts are presented after the elimination of intercompany profit.

The following table presents revenues by country based on customer location for each of the three years in the period ended December 31, 2003 (in thousands).


⁽¹⁾	The 2003 amount includes the reversal of $83 million of sales on a satellite program with a customer where the contract was changed to a lease arrangement (see Note 17).

During 2003, two customers of Loral accounted for approximately 15% and 10% of its consolidated revenues. During 2002, two customers of Loral accounted for approximately 12% and 10% of its consolidated revenues. During 2001, one customer of Loral accounted for approximately 14% of its consolidated revenues.

With the exception of the Company’s satellites in-orbit (see Note 6), the Company’s long-lived assets are primarily located in the United States.

In connection with contract performance, Loral acquired services from Lockheed Martin. A summary of such transactions and balances as of December 31, 2003 and 2002, and for the three years in the period ended December 31, 2003, respectively, is as follows (in thousands):

In 2002, Alcatel ceased being a related party of Loral. Loral’s sales to, purchases from, and balances with Alcatel as of December 31, 2002, and for the two years in the period ended December 31, 2002, respectively, were as follows (in thousands):

Loral is a holding company (the “Parent Company”), which is the ultimate parent of all Loral subsidiaries. In December 2001, the Company’s wholly owned subsidiary, Loral Orion (the “Subsidiary Issuer”), issued new senior notes in an exchange offer (see Note 10) which are fully and unconditionally guaranteed, on a joint and several basis, by the Parent Company and several of Loral Orion’s wholly-owned subsidiaries (the “Guarantor Subsidiaries”). The Parent Company, the Subsidiary Issuer and the Guarantor Subsidiaries, as well as certain other non-guarantor subsidiaries of the Parent Company (including the Sellers and SS/ L) filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code on July 15, 2003.

Presented below is condensed consolidating financial information for the Parent Company, the Subsidiary Issuer, the Guarantor Subsidiaries and the other wholly-owned subsidiaries of the Parent Company (the “Non-Guarantor Subsidiaries”) as of December 31, 2003 and 2002 and for the years ended December 31, 2003, 2002 and 2001. The condensed consolidating financial information has been presented to show the nature of assets held, results of operations and cash flows of the Parent Company, Subsidiary Issuer, Guarantor Subsidiaries and Non-Guarantor Subsidiaries.

The supplemental condensed consolidating financial information reflects the investments of the Parent Company in the Subsidiary Issuer, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries using the equity method of accounting. The Company’s significant transactions with its subsidiaries other than the investment account and related equity in net loss of unconsolidated subsidiaries are intercompany payables and receivables between its subsidiaries resulting primarily from the funding of the construction of satellites for the Satellite Services segment and the management fee charged by Loral SpaceCom to the Parent Company (in 2001). Loral’s $200 million note receivable from unconsolidated subsidiaries is due from Loral Space & Communications Corporation (“LSCC”) and bears interest at 8.2% per annum. Loral SpaceCom (a non-guarantor subsidiary) holds a $29.7 million subordinated note receivable from the subsidiary issuer. The note is subordinated to all existing and future indebtedness of the subsidiary issuer and guaranteed by the Parent Company. The note bears interest at a rate of 10% per annum. Loral Satellite has provided $59.8 million to Loral as of December 31, 2003, in the form of a note receivable which bears no interest and is payable upon maturity of the Loral Satellite Credit Agreement. As a result of filing Chapter 11, the accrual of interest on all related party notes in the following condensed consolidating financial statements was suspended.


20.	Financial Information for Subsidiary Issuer, Guarantor Subsidiaries and Non-Guarantor Subsidiaries


20.	Financial Information for Subsidiary Issuer, Guarantor Subsidiaries and Non-Guarantor Subsidiaries


20.	Financial Information for Subsidiary Issuer, Guarantor Subsidiaries and Non-Guarantor Subsidiaries


20.	Financial Information for Subsidiary Issuer, Guarantor Subsidiaries and Non-Guarantor Subsidiaries


20.	Financial Information for Subsidiary Issuer, Guarantor Subsidiaries and Non-Guarantor Subsidiaries


20.	Financial Information for Subsidiary Issuer, Guarantor Subsidiaries and Non-Guarantor Subsidiaries


20.	Financial Information for Subsidiary Issuer, Guarantor Subsidiaries and Non-Guarantor Subsidiaries


20.	Financial Information for Subsidiary Issuer, Guarantor Subsidiaries and Non-Guarantor Subsidiaries


⁽¹⁾	The quarterly earnings per share information is computed separately for each period. Therefore, the sum of such quarterly per share amounts may differ from the total for the year.

⁽²⁾	Represents the reported high and low closing prices of Loral’s common stock as reported on the Pink Sheets and the NYSE for 2003 and the intra-day high and low sales prices for 2002.

To the Board of Directors and Stockholders of Loral Space & Communications Ltd. (a Debtor In Possession):

We have audited the consolidated financial statements of Loral Space & Communications Ltd. (a Bermuda Company) and its subsidiaries (collectively, the “Company”) (a Debtor In Possession) as of December 31, 2003 and 2002, and for each of the three years in the period ended December 31, 2003 and have issued our report thereon dated March 15, 2004 included elsewhere in this Annual Report on Form 10-K. Our audits also included the consolidated financial statement schedule of the Company listed in Item 15 (a) (2) of this Annual Report on Form 10-K. Our audits were conducted for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. This consolidated schedule is the responsibility of the Company’s management. Such consolidated schedule has been subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects when considered in relation to the basic consolidated financial statements taken as a whole. The basic consolidated financial statements have been prepared assuming the Company will continue as a going concern; our report thereon, included elsewhere in this Annual Report on Form 10-K, includes explanatory paragraphs which indicate that (1) the Company changed its methods of accounting to adopt the provisions of Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity, effective July 1, 2003, and Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective January 1, 2002 and (2) the Company has filed for reorganization under Chapter 11 of the Federal Bankruptcy Code and that (i) the consolidated financial statements do not purport to reflect or provide for the consequences of the bankruptcy proceedings and (ii) the aforementioned matter, among others, raises substantial doubt about its ability to continue as a going concern.

F-68 EX-2.5.4 3 y94860exv2w5w4.txt AMENDMENT 4 TO ASSET PURCHASE AGREEMENT EXHIBIT 2.5.4 EXECUTION COPY AMENDMENT NO. 4 TO ASSET PURCHASE AGREEMENT This Amendment No. 4 (this "Amendment") to that certain Asset Purchase Agreement, dated as of July 15, 2003, as amended prior to the date hereof (the "Asset Purchase Agreement"), among Intelsat, Ltd., a Bermuda company ("Parent"), Intelsat (Bermuda), Ltd., a Bermuda company ("Purchaser"), Loral Space & Communications Corporation, a Delaware corporation and a debtor and debtor in possession ("Loral Space"), Loral SpaceCom Corporation, a Delaware corporation and a debtor and debtor in possession ("Loral SpaceCom"), and Loral Satellite, Inc., a Delaware corporation and a debtor and debtor in possession (together with Loral Space and Loral SpaceCom, the "Sellers"), is entered into as of March 5, 2004 among Parent, Purchaser and Sellers. W I T N E S S E T H WHEREAS, the parties have previously entered into the Asset Purchase Agreement, including Amendments No. 1, 2 and 3 thereto; and WHEREAS, subject to Section 18 hereof, the parties now wish to further amend and modify the Asset Purchase Agreement on the terms and conditions set forth herein. NOW THEREFORE, in consideration of the foregoing premises and the parties' respective covenants and agreements and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and accepted, the parties hereto hereby agree as follows: SECTION 1. Definitions. Capitalized terms used but not defined herein shall have the respective meanings ascribed to them in the Asset Purchase Agreement. SECTION 2. Amendment to Section 2.5 of the Asset Purchase Agreement. (a) Section 2.5(d) of the Asset Purchase Agreement is hereby amended by deleting that section in its entirety and replacing it with the following: "(d)(i) If, on or prior to the Closing Date, Sellers, in compliance with Section 6.17 (and subject to availability of capacity), shall have entered into a New Lease that constitutes a Lease Agreement under Section 6.17, and the Lease Agreement is a valid and binding Contract (which is an Assumed Contract under Section 6.17(d), all rights under which are legally and validly assigned to Purchaser at Closing), then: (A) if the New Lease is an Assumed Contract pursuant to Section 6.17(c), the Base Price shall be increased by $100 million, or (B) if the New Lease is an Assumed Contract pursuant to Section 6.17(d), the Base Price shall be increased by $50 million; provided that if the services offered under the proposed New Lease may be used to provide direct-to-home satellite services, the proposed New Lease shall provide: (1) that such services will not commence until Parent completes an initial public offering in compliance with the Open-Market Reorganization for the Betterment of International Telecommunications Act and (2) the parties thereto shall have no right to terminate the New Lease (in whole or in part) prior to the completion of that initial public offering. (ii) Sellers will cause SS/L to execute and deliver at Closing amendments to the Purchased Satellite Procurement Agreements eliminating all obligations to make orbital incentive payments. On the Closing Date, Purchaser shall pay $12,500,000 to SS/L and the covenant of Sellers in Section 6.16 hereof and the closing condition in Section 9.1(r) shall be deemed to have been performed. (iii) In consideration of the irrevocable waiver by Parent and Purchaser of the condition to Closing set forth in the final sentence of Section 9.1(j), the Base Price shall be reduced by $20,000,000, which payment the Parties agree shall be subject to adjustment following the Closing in accordance with the provisions of Schedule 2.5(d)(iii) attached hereto." (b) Section 2.5(j) of the Asset Purchase Agreement is hereby amended by deleting that section in its entirety and replacing it with the following: "(j)(i) If there is an amount owed by Sellers to Purchaser under Section 2.5(i) and Sellers have failed to make payment to Purchaser of such amount on the date provided therein, Purchaser may, in lieu of having a continuing claim against Sellers for such unpaid amount, elect, by written notice to Sellers and SS/L, to reduce the purchase price under the New Procurement Agreement by an amount equal to such unpaid amount and SS/L shall have a claim only against the Sellers (and not against Parent, Purchaser or any of their Affiliates) with respect to such reductions. (ii) If the insurance proceeds received by Parent or its Affiliates following the Closing with respect to the loss of Telstar 4 are less than $141 million (before giving effect to Purchaser's obligation to reimburse T-4 Warranty Payments), the purchase price payable under the New Procurement Agreement for the 85 Degrees Spacecraft (as defined in Annex I hereto) shall be reduced by the amount of such shortfall and SS/L shall have a claim only against the Sellers (and not against Parent, Purchaser or any of their Affiliates) with respect to such reduction. The amount of any such purchase price reduction shall be applied as a credit against the milestone payments as they first become due under the New Procurement Agreement. If the purchase price reduction exceeds the unpaid amount of the purchase price payable under the New Procurement Agreement, Sellers shall cause SS/L to pay such excess amount to Intelsat LLC within ten (10) Business Days of its written demand. Sellers acknowledge that, as of and -2- from the Closing, no Seller shall be named as a loss payee on the Telstar 4 insurance policies. (iii) Sellers acknowledge that there will be no upward adjustment to Recurring Revenues or Backlog, and no downward adjustment to the Revenue Threshold or the Backlog Threshold to reflect lost Revenues or Backlog as a result of the loss of Telstar 4, and Sellers hereby waive any right to object to the calculation of such Recurring Revenues or Backlog (under Section 2.5(f) or otherwise, including, without limitation, in any proceeding before the Bankruptcy Court or in any other proceeding before any Governmental Authority or arbitrator) as a result of the loss of Telstar 4." SECTION 3. Amendment to Section 2.7(a)(v) of the Asset Purchase Agreement. Section 2.7(a)(v) of the Asset Purchase Agreement is hereby amended by deleting that section in its entirety and replacing it with the following: "(v) A deposit of $50 million with respect to the New Procurement Agreement (the "Deposit") in immediately available funds by wire transfer to the accounts designated, in writing, by the Sellers not less than three (3) Business Days prior to the Closing; provided that if Sellers are unable to deliver a valid, perfected, first priority security interest in the Deposit Collateral, as provided in the Deposit and Security Agreement, the Deposit shall not be a condition to Closing and shall only be required to be made when the required security interest in the Deposit Collateral, together with all appropriate documentation, is so delivered." SECTION 4. Amendment to Section 2.9 of the Asset Purchase Agreement. Section 2.9 of the Asset Purchase Agreement. Section 2.9 is hereby amended to read in its entirety as follows: "Section 2.9. Title to Telstar 4. Notwithstanding any other provision of this Agreement, Purchaser will not acquire ownership of or title to Telstar 4, but will, unless for any reason there shall have been a decrease in the Base Price pursuant to Section 2.5(b)(iii) with respect to the insurance proceeds payable with respect to the Total Loss (or lesser loss) of Telstar 4, be entitled to receipt and ownership of such proceeds, to the extent such proceeds are received on or after the Closing, and will reimburse the Sellers from such proceeds upon demand and presentation of appropriate documentation for payments they make to parties under Contracts With Warranty with respect to the insured loss ("T-4 Warranty Payments"). For avoidance of doubt, if such proceeds are received prior to Closing and so reduce the Base Price, such proceeds shall not constitute Purchased Assets hereunder. -3- Sellers agree to cooperate with Parent and Purchaser in the prosecution of all claims for insurance arising from the loss of Telstar 4. This cooperation shall include, without limitation and at no additional cost to Parent and Purchaser, the provision of technical assistance and support as requested by Purchaser in connection with: (i) interactions with Willis Inspace, the insurance underwriters and Lockheed Martin; (ii) provision of reports and notifications required in the insurance policies being assigned to Purchaser at the Closing such as state of health reports, notices of occurrence, and proofs of loss; (iii) briefings to insurance underwriters, which shall include assistance in responding to questions from the insurance underwriters; and (iv) at Purchaser's request, performance by Sellers of all obligations of the named insured relating to salvage requirements under Section 6 of the Telstar 4 insurance contract. Each Seller, jointly and severally, represents and warrants to Parent and Purchaser that to their Knowledge after due inquiry, as of the date hereof, it has not received any oral or written notice that any Person will assert or is contemplating asserting any claims for T-4 Warranty Payments, except as noted on Schedule 2.9 hereto." SECTION 5. Amendment to Article 2 of the Asset Purchase Agreement. Article of the Asset Purchase Agreement is hereby amended by adding a new Section 2.10 as follows: "Section 2.10 Replacement ABC Promissory Notes. Purchaser agrees to enter into an agreement with ABC to indemnify ABC against any claims or liabilities to which ABC may be subjected by reason of or in connection with the issuance to SpaceCom of new replacement promissory notes for the five separate promissory notes issued to Loral SpaceCom that it has advised Purchaser and ABC have been lost, misplaced or destroyed; provided, however, that Purchaser's obligation to indemnify ABC shall be conditioned upon the Closing and the execution by SpaceCom of a similar indemnity agreement with ABC. If ABC seeks indemnity from Purchaser pursuant to the foregoing, Purchaser shall so notify Sellers and allow them the opportunity to assume the defense thereof. Sellers agree, jointly and severally, to reimburse Purchaser within five (5) Business Days of Purchaser's written demand, for any and all costs and expenses it may incur in connection with fulfilling its obligation to indemnify ABC. If Sellers fail to so reimburse Purchaser within such five (5) Business Day period, Sellers' payment obligation shall accrue interest at the rate of eight percent (8%) per annum until paid in full. SECTION 6. Amendment to Article VI of the Asset Purchase Agreement. Article VI of the Asset Purchase Agreement is hereby amended by adding a new Section 6.18 as follows: "Section 6.18 Sale of Business. -4- (a) Sellers hereby agree to cause the LSNS Agreement to be amended prior to Closing to require LSNS to cause any Person to whom all or substantially all of LSNS's assets (whether now owned or hereafter acquired) are sold, leased or otherwise transferred to assume, in writing, all of LSNS's obligations under the LSNS Agreement, on terms reasonably acceptable to Intelsat USA Sales Corporation. (b) The Parties agree that the New Procurement Agreement shall include a provision requiring SS/L to cause any Person to whom all or substantially all of SS/L's assets (whether now owned or hereafter acquired) are sold, leased or otherwise transferred to assume, in writing, all of SS/L's obligations under the New Procurement Agreement, on terms reasonably acceptable to Intelsat LLC." SECTION 7. Waiver of Sections 9.1(h) and 9.1(k)(i) of the Asset Purchase Agreement. Parent and Purchaser hereby irrevocably waive the conditions to Closing set forth in Sections 9.1(h) and 9.1(k)(i) of the Asset Purchase Agreement. SECTION 8. Waiver of Section 9.1(j) of the Asset Purchase Agreement. Parent and Purchaser hereby irrevocably waive the condition to Closing set forth in the final sentence of Section 9.1(j), in consideration for which the Base Price shall be reduced as provided in Section 2 of this Amendment. SECTION 9. Amendment to Section 9.1(o) of the Asset Purchase Agreement. Section 9.1(o) of the Asset Purchase Agreement is hereby amended by deleting that section in its entirety and replacing it with the following: "(o) Backlog as set forth in the Final Report (which the Parties agree shall be the Monthly Report as of January 31, 2004 if the Closing occurs on or before March 31, 2004 or such later date as may be extended by Purchaser in accordance with the last sentence of this Section 9.1(o)) shall not be less than the amount set forth in Schedule 9.1(o). Parent and Purchaser acknowledge that the Final Report shall include the Backlog under (i) that certain Amended and Restated Agreement, dated as of February 25, 2004 (the "Starband Agreement"), between Loral SpaceCom and Starband Communications Inc., and (ii) that certain Agreement, entered into on February 24, 2004 and effective as of January 1, 2004 (the "LSNS Agreement"), between Loral SpaceCom and Loral Skynet Network Services, Inc. ("LSNS") fully as though such contracts were in full force and effect on January 31, 2004. Parent and Purchaser agree that the Starband Agreement and the LSNS Agreement shall be Assumed Contracts. Sellers agree to use Best Reasonable Efforts to cause Grant Thornton to deliver the Monthly Report as of January 31, 2004 to Parent and Purchaser as soon as practicable. The Parties agree that Purchaser may extend the Closing Date until the date which is five (5) Business Days following its receipt of the Final Report." SECTION 10. Amendment to Annex H to the Asset Purchase Agreement. Section 4 of Annex H is hereby amended by adding the following at the end thereof: -5- "Section 1.1.d of the Statement of Work to the Telstar 8 Procurement Agreement shall be amended by deleting that section in its entirety and replacing it with the following: Intelsat will arrange for access to its Clarksburg TT&C facilities, equipment and support personnel for Bus, C-band, Ku-band and Ka-band IOT. In addition, Intelsat shall arrange for data lines for transmitting baseband spacecraft telemetry data between Intelsat's Clarksburg facility and SS/L's Palo Alto MCC. Intelsat will arrange for one CONUS TT&C RF site at Clarksburg for use by the Palo Alto MCC. To the extent SS/L is not already contractually committed to purchase such services from another vendor, SS/L agrees to obtain transfer orbit services for Telstar 8 (i.e., TT&C ground station and mission operations support) from Intelsat Global Service Corporation under the parties' existing Master Ordering Agreement." SECTION 11. Amendment to Annex I to the Asset Purchase Agreement. (a) Section 1 of Annex I to the Asset Purchase Agreement is hereby amended by deleting the third sentence of that section and replacing it with the following: "Notwithstanding the foregoing, Intelsat shall provide SS/L with an authorization to proceed with the Contract no later than June 30, 2004." (b) Section 2 of Annex I to the Asset Purchase Agreement is hereby amended by deleting the reference to "One Hundred Million Dollars ($100,000,000)" in the fourth sentence of that section and replacing it with "Fifty Million Dollars ($50,000,000)." SECTION 12. Amendment to Annex J to the Asset Purchase Agreement. Annex J to the Asset Purchase Agreement is hereby amended as follows: (a) Annex J is amended by adding the following at the end thereof: "The Parties agree that the Pledge and Security Agreement to be entered into at Closing in connection with the New Procurement Agreement shall require Sellers, as a condition to Purchaser's obligation to fund the Deposit, to obtain an endorsement in form and substance satisfactory to Parent designating Intelsat LLC as loss payee under the insurance policies relating to the Satellite Collateral (as defined in Annex J to the Asset Purchase Agreement) and specifying that the first $50 million of insurance proceeds thereunder shall be paid into a cash collateral account under the exclusive control of Intelsat LLC." (b) Attachment A to Annex J is amended by adding the following at the end thereof: "7. Pledge of stock of Loral Holdings Ltd." -6- SECTION 13. Certain Additional Representations and Warranties of Sellers. Each Seller, jointly and severally, represents and warrants to Parent and Purchaser that: (a) Subject to Section 17, the execution, delivery and performance by each Seller of this Amendment has been duly and validly authorized, and no additional corporate authorization or consent is required in connection with the execution, delivery and performance by such Seller of this Amendment; and (b) Subject to Section 17, this Amendment constitutes a valid and legally binding obligation of each Seller, enforceable in accordance with its terms. SECTION 14. Certain Additional Representations and Warranties of Parent and Purchaser. Parent and Purchaser, jointly and severally, represent and warrant to each Seller that: (a) Subject to Section 17, the execution, delivery and performance by each of Parent and Purchaser of this Amendment has been duly and validly authorized, and no additional corporate authorization or consent is required in connection with the execution, delivery and performance by Parent or Purchaser of this Amendment; and (b) Subject to Section 17, this Amendment constitutes a valid and legally binding obligation of each of Parent and Purchaser, enforceable in accordance with its terms SECTION 15. No Other Amendments; Continuing Effect of the Asset Purchase Agreement. This Amendment shall not constitute an amendment or waiver of any other provision of the Asset Purchase Agreement, the TT&C Transition Services Agreement or the LSNS Agreement not expressly referred to herein (including, for the avoidance of doubt and without limitation, such provisions of Sections 2.5, 2.7, 2.9, 6.2 and 9.1 of the Asset Purchase Agreement and Annexes H and I to the Asset Purchase Agreement, as are not expressly referred to herein). The provisions of Section 2.5(j) as amended in accordance with Section 2 of this Amendment shall not be exclusive of any other rights or remedies of Parent and Purchaser under the Asset Purchase Agreement or provided by Law. Except as expressly provided hereby, the Asset Purchase Agreement shall continue in full force and effect in accordance with the provisions thereof and the Asset Purchase Agreement is in all respects hereby ratified, confirmed and preserved. This Amendment and all of its provisions shall be deemed a part of the Asset Purchase Agreement in the manner and to the extent herein provided. SECTION 16. Incorporation of Article XII of the Asset Purchase Agreement. Article XII of the Asset Purchase Agreement is incorporated herein by reference as if set forth fully in this amendment. SECTION 17. Effective Date. The Parties acknowledge that this Amendment is conditioned upon and shall become effective only upon the later of (a) the date on which the Bankruptcy Court approves the execution, delivery and performance of this Amendment (the "Bankruptcy Court Approval Date"), and (b) the date on which, under the Credit Agreement, dated as of December 17, 2003, by and among Parent, the lenders party thereto and Citicorp North America, Inc., as Administrative Agent (the "Credit Agreement"), the Required Lenders -7- (as such term is defined in the Credit Agreement) consent to the terms of this Amendment. The Parties agree to use Best Reasonable Efforts to obtain such approvals as promptly as practicable. If the Parties fail to obtain such approvals by the earlier of the Bankruptcy Court Approval Date or April 12, 2004, either Sellers, on the one hand, or Parent and Purchaser, on the other hand, may terminate this Amendment upon written notice to the other Parties. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] -8- IN WITNESS THEREOF, the parties hereto have executed or caused this Amendment to be executed as of the date first above written. LORAL SPACE & COMMUNICATIONS CORPORATION, as debtor and debtor in possession By: ______________________________ Name: Title: LORAL SPACECOM CORPORATION, as debtor and debtor in possession By: ______________________________ Name: Title: LORAL SATELLITE, INC., as debtor and debtor in possession By: ______________________________ Name: Title: INTELSAT, LTD., By: ______________________________ Name: Title: INTELSAT (BERMUDA), LTD., By: ______________________________ Name: Title: -9- EX-3.2.3 4 y94860exv3w2w3.txt MEMORANDUM OF INCREASE OF SHARE CAPITAL EXHIBIT 3.2.3 FORM NO. 7a Registration No. 21558 BERMUDA CERTIFICATE OF DEPOSIT OF MEMORANDUM OF INCREASE OF SHARE CAPITAL THIS IS TO CERTIFY that a Memorandum of Increase of Share Capital of LORAL SPACE & COMMUNICATIONS LTD. was delivered to the Registrar of Companies on the 20TH of JUNE, 2003 in accordance with section 45(3) of THE COMPANIES ACT 1981 ("the Act"). Given under my hand and Seal of the REGISTRAR OF COMPANIES this 24TH day of JUNE, 2003 /s/ A. Buchan ----------------------------------- for ACTING REGISTRAR OF COMPANIES ~~Capital prior to increase: US$ 9,407,500.00 Amount of increase: US$ 5,000,000.00 Present Capital: US$ 14,407,500.00~~

EX-3.5 5 y94860exv3w5.txt FOUTH AMENDED AND RESTATED BYE-LAWS EXHIBIT 3.5 FOURTH AMENDED AND RESTATED BYE-LAWS OF LORAL SPACE & COMMUNICATIONS LTD. INTERPRETATION 1. In these Bye-Laws unless the context otherwise requires: (a) "Bermuda" means the Islands of Bermuda; (b) "Board" means the Board of Directors of the Company or the Directors present at a meeting of Directors at which there is a quorum; (c) "Bye-Laws" means these Fourth Amended and Restated Bye-Laws in their present form or as from time to time amended; (d) "Common Shares" means the Common Shares of par value $0.01 per share; (e) "the Companies Acts" means every Bermuda statute from time to time in force concerning companies insofar as the same applies to the Company; (f) "Company" means the company incorporated in Bermuda under the name of LORAL SPACE & COMMUNICATIONS LTD. on the 12th day of January, 1996; (g) "paid up" means paid up or credited as paid up; (h) "Preferred Shares" means the Series A Preferred Shares, the Series B Preferred Shares and any other series of preferred shares of the Company designated as such by Resolution adopted from time to time. (i) "Register" means the Register of Shareholders of the Company; (j) "Registered Office" means the registered office for the time being of the Company; (k) "Resolution" means a resolution of the Shareholders or, where required, of a separate class or separate classes of Shareholders, adopted in general meeting in accordance with the provisions of these Bye-Laws; (l) "Seal" means the common seal of the Company and includes any duplicate thereof; (m) "Secretary" includes a temporary or assistant Secretary and any person appointed by the Board to perform any of the duties of the Secretary; (n) "Series A Preferred Shares" means the Series A Convertible Non-Voting Preferred Shares of par value $0.01 per share; (o) "Series B Preferred Shares" means the Series B Preferred Shares of par value $0.01 per share issued in accordance with the shareholders right plan referred to in Bye-Law 4; (p) "Shareholder" means a shareholder or member of the Company; -2- (q) "shares" means Common Shares or Preferred Shares, or both, as the case may be. 2. For the purposes of these Bye-Laws: (a) A corporation shall be deemed to be present in person if its representative duly authorized pursuant to the Companies Acts is present; (b) Words importing only the singular number include the plural number and vice versa; (c) Words importing only the masculine gender include the feminine and neuter genders respectively; (d) Words importing persons include companies or associations or bodies of persons, whether corporate or un-incorporate; (e) Reference to writing shall include typewriting, printing, lithography, photography and other modes of representing or reproducing words in a legible and non-transitory form; (f) Any words or expressions defined in the Companies Acts in force at the date when these Bye-Laws or any part thereof are adopted shall bear the same meaning in these Bye-Laws or such part (as the case may be). REGISTERED OFFICE 3. The Registered Office shall be at such place in Bermuda as the Board shall from time to time appoint. -3- SHARE CAPITAL AND VARIATION OF RIGHTS 4. (a) The respective rights and restrictions attached to the Series A Preferred Shares, the Series B Preferred Shares and the Series C Preferred Shares are set forth in Schedules I, II and III (as the same may be amended from time to time) to these Bye-Laws, which Schedules shall be deemed to be incorporated in and from part of this Bye-Law 4. (b) In addition to the Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares, the Board shall be authorized to issue other preference shares and such shares may be issued from time to time, in one or more series with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as may be designated by the Board prior to the issuance of such series, and the Board is hereby expressly authorized to fix by resolution or resolutions prior to such issuance such designations, preferences and relative, participating, optional or other special rights, or qualifications, limitations or restrictions, including without limiting the generality of the foregoing, the following: (i) the designation of such series or class; (ii) the dividend rate of such series or class, the conditions and dates upon which such dividends will be payable, the relation which such dividends will bear to the dividends payable on any other class or classes of shares or any other -4- series of any class of shares of the Company, and whether such dividends will be cumulative or non-voting; (iii) the redemption provisions and times, prices and other terms and conditions of such redemption, if any, for such series or class, which may include provisions that they are to be redeemed on the happening of a specified event or on a given date, that they are liable to be redeemed at the option of the Company or that if authorized by the Memorandum of Association of the Company, that they are liable to be redeemed at the option of the holder; (iv) the terms and amount of any sinking fund provided for the purchase or redemption of the shares of such series or class; (v) the terms and conditions, if any, on which shares of such series or class shall be convertible into, or exchangeable for, shares of the Company or any other securities, including the price or prices, or the rates of exchange thereof; (vi) the voting rights, if any; (vii) the restrictions, if any, on the issue or reissue of any additional preference shares; and (viii) the rights of the holders of such series or class upon the liquidation, dissolution or distribution of assets of the Company. -5- The designations, preferences and relative, participating, optional or other special rights or qualifications, limitations or restrictions thereof, of each additional series, if any, may differ from those of any or all other series outstanding. (c) The Board may be authorised by Resolution from time to time to determine the ratio of a consolidation within a range specified by such Resolution of all or any of the Company's common share capital into shares of larger par value than its existing shares and granted the discretion to implement such consolidation at any time prior to the Annual Meeting of Shareholders immediately following the date of such Resolution. In exercising its power under this provision, the Board shall also have the power set out in Bye-law 43, in dealing with any difficulty which arises in regard to any consolidation under this Bye-law 4(c). 5. The Company may adopt a scheme or arrangement (hereinafter called a "shareholder rights plan") providing for the creation and issuance of rights entitling the Shareholders of the Company or certain of them, to purchase from the Company shares of any class or assets of the Company or a subsidiary of the Company or otherwise, and the terms and conditions of such shareholder rights plan and the rights may be amended or modified as the Directors or any committee thereof may determine. 6. Subject to the Companies Acts, all or any of the special rights for the time being attached to any class of shares -6- for the time being issued may, unless otherwise provided in the rights attaching to or by the term of issue of the shares of that class, from time to time (whether or not the Company is being wound up), be altered or abrogated with the sanction of a Resolution passed at a separate general meeting of the holders of shares of that class by a majority of the votes cast. To any such separate general meeting, all the provisions of these Bye-Laws as to general meetings of the Company shall mutatis mutandis apply, but so that the necessary quorum shall be two or more persons holding or representing by proxy thirty-three per cent of the shares of the relevant class; provided, however, that if the Company or a class of Shareholders shall have only one Shareholder present in person or by proxy, one Shareholder shall constitute the necessary quorum. 7. The special rights conferred upon the holders of any shares or class of shares shall not, unless otherwise expressly provided in the rights attaching to or the terms of issue of such shares, be deemed to be altered by the creation or issue of further shares ranking pari passu therewith. SHARES 8. (a) Subject to the provisions of these Bye-Laws, the unissued shares of the Company (whether forming part of the original capital or any increased capital) shall be at the disposal of the Board, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times and -7- for such consideration and upon such terms and conditions as the Board may determine. (b) The Board may issue its shares in fractional denominations and deal with such fractions to the same extent as its whole shares and shares in fractional denominations shall have in proportion to the respective fractions represented thereby all the rights of the whole shares including (but without limiting the generality of the foregoing) the right to vote, to receive dividends and distributions and to participate in a winding up. 9. The Board may in connection with the issue of any shares exercise all powers of paying commission and brokerage conferred or permitted by law. 10. The Company shall be entitled to treat the holder of record of any share or shares of capital stock as the holder in fact thereof. Accordingly, except as ordered by a court of competent jurisdiction or as required by law, no person shall be recognized by the Company as holding any share upon trust and the Company shall not be bound by or required in any way to recognize (even when having notice thereof) any equitable, contingent, future or partial interest in any share or any interest in any fractional part of a share or (except only as otherwise provided in these Bye-Laws or by law) any other right in respect of any share except an absolute right to the entirety thereof in the registered holder. -8- CERTIFICATES 11. The shares shall be issued in registered form and shall be evidenced by share certificates in such form as the Directors may from time to time prescribe. The preparation, issue and delivery of share certificates shall be governed by the Companies Acts. In the case of a share held jointly by several persons, delivery of a certificate to one of several joint holders shall be sufficient delivery to all. 12. If a share certificate is defaced, lost or destroyed, it may be replaced without fee but on such terms (if any) as to evidence and indemnity and to payment of the costs and out of pocket expenses of the Company in investigating such evidence and preparing such indemnity as the Board or the Company's transfer agent may think fit and, in case of defacement, on delivery of the old certificate to the Company. 13. All certificates for shares (other than letters of allotment, scrip certificates and other like documents) shall, except to the extent that the terms and conditions for the time being relating thereto otherwise provide, be issued under the Seal. Each certificate shall be signed by the Chairman of the Board, President or a Vice-President and also by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and shall be sealed with the seal of the Company, which may be facsimile. If the certificate is signed by either a transfer agent or a transfer clerk acting on behalf of the -9- Company and a registrar, the signature or any such officer of the Company and the signature of a transfer agent acting on behalf of the Company may be facsimile. In the case of any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates shall cease to be such officer or officers of the Company, whether because of death, resignation or otherwise, such certificate or certificates may nevertheless be adopted by the Company and be used and delivered as though the officer or officers who signed the said certificate or certificates or whose facsimile signature or signature shall have been used thereon had not ceased to be such officer or officers of the Company. The Board may by resolution determine, either generally or in any particular case, that any signatures on any such certificates need not be autographic but may be affixed to such certificates by some mechanical means or may be printed thereon or that such certificates need not be signed by any persons. LIEN 14. The Company shall have a first and paramount lien on every share (not being a fully paid share) for all moneys, whether presently payable or not, called or payable, at a date fixed by or in accordance with the terms of issue of such share in respect of such share, and the Company shall also have a first and paramount lien on every share (other than a fully paid share) standing registered in the name of a Shareholder, whether singly -10- or jointly with any other person, for all the debts and liabilities of such Shareholder or his estate to the Company, whether the same shall have been incurred before or after notice to the Company of any interest of any person other than such Shareholder, and whether the time for the payment or discharge of the same shall have actually arrived or not, and notwithstanding that the same are joint debts or liabilities of such Shareholder or his estate and any other person, whether a Shareholder or not. The Company's lien on a share shall extend to all dividends payable thereon. The Board may at any time, either generally or in any particular case, waive any lien that has arisen or declare any share to be wholly or in part exempt from the provisions of this Bye-Law. 15. The Company may sell, in such manner as the Board may think fit, any share on which the Company has a lien but no sale shall be made unless some sum in respect of which the lien exists is presently payable nor until the expiration of fourteen days after a notice in writing, stating and demanding payment of the sum presently payable and giving notice of the intention to sell in default of such payment, has been served on the holder for the time being of the share. 16. The net proceeds of sale by the Company of any shares on which it has a lien shall be applied in or towards payment or discharge of the debt or liability in respect of which the lien exists so far as the same is presently payable, and any residue -11- shall (subject to a like lien for debts or liabilities not presently payable as existed upon the share prior to the sale) be paid to the holder of the share immediately before such sale. For giving effect to any such sale the Board may authorize some person to transfer the share sold to the purchaser thereof. The purchaser shall be registered as the holder of the share and he shall not be bound to see to the application of the purchase money, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings relating to the sale. CALLS ON SHARES 17. The Board may from time to time make calls upon the Shareholders in respect of any moneys unpaid on their shares (whether on account of the par value of the shares or by way of premium) and not by the terms of issue thereof made payable at a date fixed by or in accordance with such terms of issue, and each Shareholder shall (subject to the Company serving upon him at least fourteen days' notice specifying the time or times and place of payment) pay to the Company at the time or times and place so specified the amount called on his shares. A call may be revoked or postponed as the Board may determine. 18. A call may be made payable by installments and shall be deemed to have been made at the time when the resolution of the Board authorizing the call was passed. -12- 19. The joint holders of a share shall be jointly and severally liable to pay all calls in respect thereof. 20. If a sum called in respect of the share shall not be paid before or on the day appointed for payment thereof the person from whom the sum is due shall pay interest on the sum from the day appointed for the payment thereof to the time of actual payment at such rate as the Board may determine, but the Board shall be at liberty to waive payment of such interest wholly or in part. 21. Any sum which, by the terms of issue of a share, becomes payable on allotment or at any date fixed by or in accordance with such terms of issue, whether on account of the nominal amount of the share or by way of premium, shall for all the purposes of these Bye-Laws be deemed to be a call duly made, notified and payable on the date on which, by the terms of issue, the same becomes payable and, in case of non-payment, all the relevant provisions of these Bye-Laws as to payment of interest, forfeiture or otherwise shall apply as if such sum had become payable by virtue of a call duly made and notified. 22. The Board may on the issue of shares differentiate between the allottees or holders as to the amount of calls to be paid and the times of payment. FORFEITURE OF SHARES 23. If a Shareholder fails to pay any call or installment of a call on the day appointed for payment thereof, the Board may -13- at any time thereafter during such time as any part of such call or installment remains unpaid serve a notice on him requiring payment of so much of the call or installment as is unpaid, together with any interest which may have accrued. 24. The notice shall name a further day (not being less than 14 days from the date of the notice) on or before which, and the place where, the payment required by the notice is to be made and shall state that, in the event of nonpayment on or before the day and at the place appointed, the shares in respect of which such call is made or installment is payable will be liable to be forfeited. The Board may accept the surrender of any share liable to be forfeited hereunder and, in such case, references in these Bye-Laws to forfeiture shall include surrender. 25. If the requirements of any such notice as aforesaid are not complied with, any share in respect of which such notice has been given may at any time thereafter, before payment of all calls or installments and interest due in respect thereof has been made, be forfeited by a resolution of the Board to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited shares and not actually paid before the forfeiture. 26. When any share has been forfeited, notice of the forfeiture shall be served upon the person who was before forfeiture the holder of the share; but no forfeiture shall be in -14- any manner invalidated by any omission or neglect to give such notice as aforesaid. 27. A forfeited share shall be deemed to be the property of the Company and may be sold, re-offered or otherwise disposed of either to the person who was, before forfeiture, the holder thereof or entitled thereto or to any other person upon such terms and in such manner as the Board shall think fit, and at any time before a sale, re-allotment or disposition the forfeiture may be canceled on such terms as the Board may think fit. 28. A person whose shares have been forfeited shall thereupon cease to be a Shareholder in respect of the forfeited shares but shall, notwithstanding the forfeiture, remain liable to pay to the Company all moneys which at the date of forfeiture were presently payable by him to the Company in respect of the shares with interest thereon at such rate as the Board may determine from the date of forfeiture until payment, and the Company may enforce payment without being under any obligation to make any allowance for the value of the shares forfeited. 29. An affidavit in writing that the deponent is a Director or the Secretary and that a share has been duly forfeited on the date stated in the affidavit shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the share. The Company may receive the consideration (if any) given for the share on the sale, re-allotment or disposition thereof and the Board may authorize some person to -15- transfer the share to the person to whom the same is sold, re-allotted or disposed of, and he shall thereupon be registered as the holder of the share and shall not be bound to see to the application of the purchase money (if any) nor shall his title to the share be affected by any irregularity or invalidity in the proceedings relating to the forfeiture, sale, re-allotment or disposal of the share. REGISTER OF SHAREHOLDERS 30. The Register of Shareholders of the Company containing the names and addresses of the Shareholders and the number of shares held by them respectively, shall be kept in the manner prescribed by the Companies Acts at the Registered Office by the Secretary or at the offices of the transfer agent of the Company or at such other location as may be authorized by the Board from time to time. Unless the Board otherwise determines, the Register of Shareholders shall be open to inspection at the Registered Office of the Company in the manner prescribed by the Companies Acts between 10:00 a.m. and 12:00 noon on every working day. Unless the Board so determines, no Shareholder or intending Shareholder shall be entitled to have entered in the Register any indication of any trust or any equitable, contingent, future or partial interest in any share or any interest in any fractional part of a share and if any such entry exists or is permitted by the Board it shall not be deemed to abrogate any provisions of Bye-Law 10. -16- REGISTER OF DIRECTORS AND OFFICERS 31. The Secretary shall establish and maintain a register of the Directors and Officers of the Company as required by the Companies Acts. The register of Directors and Officers shall be open to inspection in the manner prescribed by the Companies Acts between 10:00 a.m. and 12:00 noon on every working day. TRANSFER OF SHARES 32. Subject to the Companies Acts and to such of the restrictions contained in these Bye-Laws as may be applicable, any Shareholder may transfer all or any of his shares by an instrument of transfer in the usual common form or in any other form which the Board may approve or in accordance with the general rules and standard practices of any exchange on which such shares are then listed. 33. The instrument of transfer of a share shall be signed by or on behalf of the transferor and where any share is not fully paid the transferee, and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the Register in respect thereof. All instruments of transfer when registered may be retained by the Company. The Board may, in its absolute discretion and without assigning any reason therefor, decline to register any transfer of any share which is not a fully-paid share. The Board may also decline to register any transfer unless: -17- (a) the instrument of transfer is duly stamped, if required, and lodged with the Company, accompanied by the certificate for the shares to which it relates, and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer, (b) the instrument of transfer is in respect of only one class of share, (c) where applicable, the permission of the Bermuda Monetary Authority with respect thereto has been obtained. Subject to any directions of the Board from time to time in force, the Secretary may exercise the powers and discretions of the Board under this Bye-Law and Bye-Laws 32 and 34. 34. If the Board declines to register a transfer it shall, within three months after the date on which the instrument of transfer was lodged, send to the transferee notice of such refusal. 35. No fee shall be charged by the Company for registering any transfer, probate, letters of administration, certificate of death or marriage, power of attorney, distringas or stop notice, order of court or other instrument relating to or affecting the title to any share, or otherwise making an entry in the Register relating to any share. TRANSMISSION OF SHARES 36. In the case of the death of a Shareholder, the survivor or survivors, where the deceased was a joint holder, and the -18- estate representative, where he was sole holder, shall be the only person recognized by the Company as having any title to his shares; but nothing herein contained shall release the estate of a deceased holder (whether the sole or joint) from any liability in respect of any share held by him solely or jointly with other persons. For the purpose of this Bye-Law, estate representative means the person to whom probate or letters of administration has or have been granted in Bermuda or, failing any such person, such other person as the Board may in its absolute discretion determine to be the person recognized by the Company for the purpose of this Bye-Law. 37. Any person becoming entitled to a share in consequence of the death of a Shareholder or otherwise by operation of applicable law may, subject as hereafter provided and upon such evidence being produced as may from time to time be required by the Board as to his entitlement, either be registered himself as the holder of the share or elect to have some person nominated by him registered as the transferee thereof. If the person so becoming entitled elects to be registered himself, he shall deliver or send to the Company a notice in writing signed by him stating that he so elects. If he shall elect to have his nominee registered, he shall signify his election by signing an instrument of transfer of such share in favor of his nominee. All the limitations, restrictions and provisions of these Bye-Laws relating to the right to transfer and the registration of -19- transfer of shares shall be applicable to any such notice or instrument of transfer as aforesaid as if the death of the Shareholder or other event giving rise to the transmission had not occurred and the notice or instrument of transfer was an instrument of transfer signed by such Shareholder. 38. A person becoming entitled to a share in consequence of the death of a Shareholder or otherwise by operation of applicable law shall (upon such evidence being produced as may from time to time be required by the Board as to his entitlement) be entitled to receive and may give a discharge for any dividends or other moneys payable in respect of the share, but he shall not be entitled in respect of the share to receive notices of or to attend or vote at general meetings of the Company or, save as aforesaid, to exercise in respect of the share any of the rights or privileges of a Shareholder until he shall have become registered as the holder thereof. The Board may at any time give notice requiring such person to elect either to be registered himself or to transfer the share and if the notice is not complied with within sixty days the Board may thereafter withhold payment of all dividends and other moneys payable in respect of the shares until the requirements of the notice have been complied with. 39. Subject to any directions of the Board from time to time in force, the Secretary may exercise the powers and discretions of the Board under Bye-Laws 36, 37 and 38. -20- INCREASE OF CAPITAL 40. The Company may from time to time increase its capital by such sum to be divided into shares of such par value as the Company by Resolution shall prescribe. 41. The Company may, by the Resolution increasing the capital, direct that the new shares or any of them shall be offered in the first instance either at par or at a premium or (subject to the provisions of the Companies Acts) at a discount to all the holders for the time being of shares of any class or classes in proportion to the number of such shares held by them respectively or make any other provision as to the issue of the new shares. 42. The new shares shall be subject to all the provisions of these Bye-Laws with reference to lien, the payment of calls, forfeiture, transfer, transmission and otherwise. ALTERATION OF CAPITAL 43. The Company may from time to time by Resolution: (a) divide its shares into several classes and attach thereto respectively any preferential, deferred, qualified or special rights, privileges or conditions; (b) consolidate and divide all or any of its share capital into shares of larger par value than its existing shares; (c) sub-divide its shares or any of them into shares of smaller par value than is fixed by its memorandum, so, however, that in the sub-division the proportion between the -21- amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; (d) make provision for the issue and allotment of shares which do not carry any voting rights; (e) cancel shares which, at the date of the passing of the Resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so canceled; and (f) change the denomination of its share capital. Where any difficulty arises in regard to any division, consolidation, or sub-division under this Bye-Law, the Board may settle the same as it thinks expedient and, in particular, may arrange for the sale of the shares representing fractions and the distribution of the net proceeds of sale in due proportion amongst the Shareholders who would have been entitled to the fractions, and for this purpose the Board may authorize some person to transfer the shares representing fractions to the purchaser thereof, who shall not be bound to see to the application of the purchase money nor shall his title to the shares be affected by any irregularity or invalidity in the proceedings relating to the sale. 44. Subject to the Companies Acts and to any confirmation or consent required by law or these Bye-Laws, the Company may by -22- Resolution from time to time convert any preference shares into redeemable preference shares. REDUCTION OF CAPITAL 45. Subject to the Companies Acts, its memorandum and any confirmation or consent required by law or these Bye-Laws, the Company may from time to time by Resolution authorize the reduction of its issued share capital or any capital redemption reserve fund or any share premium or contributed surplus account in any manner. 46. In relation to any such reduction, the Company may by Resolution determine the terms upon which such reduction is to be effected including in the case of a reduction of part only of a class of shares, those shares to be affected. GENERAL MEETINGS 47. (a) The Board shall convene and the Company shall hold general meetings as Annual General Meetings in accordance with the requirements of the Companies Acts at such times and places as the Board shall appoint. The Board may, whenever it thinks fit, and shall, at the written request of shareholders holding not less than 10% of the paid-up capital of the Company carrying the right to vote at such proposed meeting, convene general meetings other than Annual General Meetings which shall be called Special General Meetings. With respect to Special General Meetings, any written request by a Shareholder under the Act shall not be valid unless it states the purpose of the proposed -23- meeting and is delivered to the Chairman of the Board at the registered office of the Company no less than six weeks nor more than ten weeks prior to the date proposed for such meeting or the latest date at which such meeting must be held at the request of such shareholders pursuant to the provisions of the Companies Act and shall otherwise comply with the provisions of U.S. securities laws. Any Shareholder's notice relating to the conduct of business other than the election of Directors must contain certain information about such business and about the proposing Shareholders including, without limitation, a brief description of the business such Shareholder proposed to bring before the meeting, the reasons for conducting such business at such meeting, the name and address of such shareholder, the class and number of shares of the Company beneficially owned by the such Shareholder, and any material interest of such Shareholder in the business so proposed. If the Chairman of the Board or other officer presiding at such meeting determines that any business brought before a meeting was not brought in accordance with the provisions set forth above, such business will not be conducted at the meeting. (b) Until such time as the appointment by the Company of a resident representative under section 130 (2) of the Companies Act becomes effective, the Company may act by resolution in writing signed by all the shareholders who at the date of such resolution would be entitled to attend a shareholder -24- meeting. Thereafter, the taking of shareholder action by way of written resolution shall be expressly prohibited. NOTICE OF GENERAL MEETINGS 48. An Annual General Meeting shall be called by not less than 20 days' notice in writing and a Special General Meeting shall be called by not less than 30 days' notice in writing. The notice shall be exclusive of the day on which it is served or deemed to be served and of the day for which it is given, and shall specify the place, day and time of the meeting, and, in the case of a Special General Meeting, the general nature of the business to be considered. Notice of every general meeting shall be given in any manner permitted by Bye-Laws 124, 125 and 126 to all Shareholders other than those which, under the provisions of these Bye-Laws or the terms of issue of the shares they hold, are not entitled to receive such notice from the Company. Notwithstanding that a meeting of the Company is called by shorter notice than that specified in this Bye-Law, it shall be deemed to have been duly called if it is so agreed: (i) in the case of a meeting called as an Annual General Meeting, by all the shareholders entitled to attend and vote thereat; (ii) in the case of any other meeting, by a majority in number of the Shareholders having the right to attend and vote at the meeting, being a majority together holding not less than 95% in nominal value of the shares giving that right. -25- 49. The accidental omission to give notice of a meeting or (in cases where instruments of proxy are sent out with the notice) the accidental omission to send such instrument of proxy to, or the non-receipt of notice of a meeting or such instrument of proxy by, any person entitled to receive such notice shall not invalidate the proceedings at that meeting. PROCEEDINGS AT GENERAL MEETINGS 50. (a) No business shall be transacted at any Annual General Meeting of the Shareholders unless such business has been brought before the meeting by, or at the direction of the Chairman of the Board or by Shareholders who have given written notice of their intent to bring such business before the meeting not less than 6 weeks nor more than 10 weeks prior to the first anniversary of the previous year's Annual General Meeting. No business shall be transacted at any special general meeting of the Shareholders unless such business has been stated in the notice of such meeting sent to the Shareholders prior to the meeting. (b) No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business, but the absence of a quorum shall not preclude the appointment, choice or election of a chairman which shall not be treated as part of the business of the meeting. Save as otherwise provided by these Bye-Laws, Shareholders together representing in person or by proxy and entitled to vote more than -26- 50% of the voting capital of the Company shall be a quorum for all purposes; provided, however, that if the Company shall have only one Shareholder, one Shareholder present in person or by proxy shall constitute the necessary quorum. 51. If within five minutes (or such longer time as the chairman of the meeting may determine to wait) after the time appointed for the meeting, a quorum is not present, the meeting, if convened on the requisition of Shareholders, shall be dissolved. In any other case, it shall stand adjourned to such other day and such other time and place as the chairman of the meeting may determine, without notice other than announcement at the meeting, until a quorum shall be present. At such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally called. 52. Except as otherwise provided in these Bye-Laws and subject to the provisions of the Companies Act, any question proposed for the consideration by the Shareholders shall be decided on by a simple majority of the votes cast by Shareholders entitled to vote at such meeting. 53. (a) Notwithstanding the provisions of these Bye-laws, the affirmative vote of Shareholders holding at least 80% of the shares of the Company carrying voting rights then outstanding shall be necessary to approve any Business Combination proposed by an Interested Shareholder, as these terms are defined below, -27- provided that such additional voting requirement shall not apply if: (i) the Business Combination was approved by not less than a majority of the Continuing Directors (as defined below) or (ii) a series of conditions are satisfied requiring (1) that the consideration to be paid to the Company's Shareholders in the Business Combination must be at least equal to the higher of (x) the highest per-share price paid by the Interested Shareholder in acquiring any Common Shares during the two years prior to the announcement date of the Business Combination or in the transaction in which it became an Interested Shareholder (the "Determination Date"), whichever is higher or (y) the fair market value per Common Shares on the announcement date or Determination Date, whichever is higher, in either case appropriately adjusted for any shares dividend, stock split, combination of shares or similar event (any non-cash consideration is treated similarly) and (2) certain "procedural" requirements are complied with, such as the solicitation of proxies pursuant to the rules of the Securities and Exchange Commission and no decrease in regular dividends (if any) after the Interested Shareholder became an Interested Shareholder (except as approved by a majority of the Continuing Directors). (b) An "Interested Shareholder" is defined as anyone who is the beneficial owner of more than 15% shares carrying voting rights, other than the Company and any employee stock plans sponsored by the Company, and includes any person who is an -28- assignee of, or has succeeded to any voting shares in a transaction not involving a public offering that were at any time within the prior two-year period beneficially owned by, an Interested Shareholder. The term "beneficial owner" includes persons directly and indirectly owning or having the right to acquire or vote the shares. Interested Shareholders participate fully in all shareholder voting. (c) A "Business Combination" includes the following transactions: (i) merger or consolidation of the Company or subsidiary with an Interested Shareholder or with any other corporation or entity which is, or after such merger or consolidation would be, an affiliate of an Interested Shareholder; (ii) the sale or other disposition by the Company or subsidiary of assets having a fair market value of $5,000,000 or more if an Interested Shareholder (or an affiliate thereof) is a party to the transaction; (iii) the adoption of any plan or proposal for the liquidation or dissolution of the Company proposed by or on behalf of an Interested Shareholder (or an affiliate thereof); or (iv) any reclassification of securities, recapitalization, merger with a subsidiary, or other transaction which has the effect, directly or indirectly, of increasing the proportionate share of any class of the outstanding shares (or securities convertible into shares) of the Company or a subsidiary owned by an Interested Shareholder (or an affiliate thereof). Determinations of the fair market value of any non- -29- cash consideration are made by a majority of the Continuing Directors. (d) As used in these Bye-Laws, the term "Continuing Directors", means any member of the Board of Directors of the Company, while such person is a member of the Board, who is not an affiliate or associate or representative of the Interested Shareholder and was a member of the Board prior to the time that the Interested Shareholder became an Interested Shareholder, and any successor of a Continuing Director while such successor is a member of the Board, who is not an affiliate or associate or representative of the Interested Shareholder and is recommended or elected to succeed the Continuing Director by a majority of Shareholder Continuing Directors. 54. A meeting of the Shareholders or any class thereof may be held by means of such telephone, electronic or other communication facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously and participation in such a meeting shall constitute presence in person at such meeting. 55. Each Director shall be entitled to attend and speak at any general meeting of the Company. 56. The Chairman (if any) of the Board or, in his absence, the President shall preside as chairman at every general meeting. If there is no such Chairman or President, or if at any meeting neither the Chairman nor the President is present within five -30- minutes after the time appointed for holding the meeting, or if neither of them is willing to act as chairman, the Directors present shall choose one of their number to act or if one Director only is present he shall preside as chairman if willing to act. If no Director is present or if each of the Directors present declines to take the chair, the persons present and entitled to vote on a poll shall elect one of their number to be chairman. 57. The chairman of the meeting may, with the consent of any meeting at which a quorum is present (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place but no business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting from which the adjournment took place. When a meeting is adjourned for three months or more, notice of the adjourned meeting shall be given as in the case of an original meeting. 58. Save as expressly provided by these Bye-Laws, it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting. VOTING 59. Save where a greater majority is required by the Companies Acts or these Bye-Laws, any question proposed for consideration at any general meeting shall be decided as set forth in Bye-Law 52 above. -31- 60. At any general meeting, a Resolution put to the vote of the meeting shall be decided on a poll in accordance with the provisions of the Companies Act. 61. Each Shareholder present in person or by proxy shall have one vote for each share held. The result of the poll shall be deemed to be the Resolution of the meeting at which the poll demanded. 62. Votes may be cast either personally or by proxy. 63. A person entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way. 64. In the case of an equality of votes at a general meeting, the chairman of such meeting shall not be entitled to a second or casting vote. 65. In the case of joint holders of a share, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the Register in respect of the joint holdings. 66. A Shareholder who is a patient for any purpose of any statute or applicable law relating to mental health or in respect of whom an order has been made by any Court having jurisdiction for the protection or management of the affairs of persons incapable of managing their own affairs may vote, whether on a show of hands or on a poll, by his receiver, committee, curator bonis or other person in the nature of a receiver, committee or curator -32- bonis appointed by such Court and such receiver, committee, curator bonis or other person may vote on a poll by proxy, and may otherwise act and be treated as such Shareholder for the purpose of general meetings. 67. No Shareholder shall, unless the Board otherwise determines, be entitled to vote at any general meeting unless all calls or other sums presently payable by him in respect of shares in the Company have been paid. 68. If (i) any objection shall be raised to the qualification of any voter or (ii) any votes have been counted which ought not to have been counted or which might have been rejected or (iii) any votes are not counted which ought to have been counted, the objection or error shall not vitiate the decision of the meeting or adjourned meeting on any Resolution unless the same is raised or pointed out at the meeting or, as the case may be, the adjourned meeting at which the vote objected to is given or tendered or at which the error occurs. Any objection or error shall be referred to the chairman of the meeting and shall only vitiate the decision of the meeting on any Resolution if the chairman decides that the same may have affected the decision of the meeting. The decision of the chairman on such matters shall be final and conclusive. -33- PROXIES AND CORPORATE REPRESENTATIVES 69. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney authorized by him in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorized to sign the same. 70. Any Shareholder may appoint a standing proxy or (if a corporation) representative by depositing at the Registered Office a proxy or (if a corporation) an authorization and such proxy or authorization shall be valid for all general meetings and adjournments thereof as the case may be, until notice of revocation is received at the Registered Office. Where a standing proxy or authorization exists, its operation shall be deemed to have been suspended at any general meeting or adjournment thereof at which the Shareholder is present or in respect to which the Shareholder has specially appointed a proxy or representative. The Board may from time to time require such evidence as it shall be necessary as to the due execution and continuing validity of any such standing proxy or authorization and the operation of any such standing proxy or authorization shall be deemed to be suspended until such time as the Board determines that it has received the requested evidence or other evidence satisfactory to it. 71. Subject to Bye-Law 70, the instrument appointing a proxy together with such other evidence as to its due execution -34- as the Board may from time to time require, shall be delivered at the Registered Office (or at such place as may be specified in the notice convening the meeting or in any notice of any adjournment or, in either case, in any document sent therewith) prior to the holding of the relevant meeting or adjourned meeting at which the person named in the instrument proposes to vote or, in the case of a poll taken subsequently to the date of a meeting or adjourned meeting, before the time appointed for the taking of the poll and in default the instrument of proxy shall not be treated as valid. 72. Instruments of proxy shall be in any common form or in such other form as the Board may approve and the Board may, if it thinks fit, send out with the notice of any meeting forms of instruments of proxy for use at that meeting. The instrument of proxy shall be deemed to confer authority to demand or join in demanding a poll and to vote on any amendment of a Resolution put to the meeting for which it is given as the proxy think fit. The instrument of proxy shall unless the contrary is stated therein be valid as well for any adjournment of the meeting as for the meeting to which it relates. 73. A vote given in accordance with the term of an instrument of proxy shall be valid notwithstanding the previous death or insanity of the principal, or revocation of the instrument of proxy or of the authority under which it was executed, provided that no instrument in writing of such death, -35- insanity or revocation shall have been received by the Company at the Registered Office (or such other place as may be specified for the delivery of instruments of proxy in the notice convening the meeting or other documents sent therewith) one hour at least before the commencement of the meeting or adjourned meeting, or the taking of the poll. 74. Subject to the Companies Acts, the Board may at its discretion waive any of the provisions of these Bye-Laws related to proxies or authorizations and, in particular, may accept such verbal or other assurances as it thinks fit as to the right of any person to attend and vote on behalf of any Shareholder at general meetings. APPOINTMENT AND REMOVAL OF DIRECTORS 75. The number of Directors shall be such number not less than two nor more than 15 as the Company by Resolution may from time to time determine and shall serve unless removed until their successors are appointed in accordance with the provisions of these Bye-Laws. 76. Nominations of persons for election to the Board at an Annual General Meeting may be made by the Board and any number of Shareholders holding at least 5% of the total voting rights of all Shareholders or no less than 100 Shareholders who have given written notice to the Secretary of the Company not less than 6 weeks nor more than 10 weeks prior to the anniversary of the previous year's Annual General Meeting, provided that no person -36- other than a Director whose term shall have expired at an Annual General Meeting shall be eligible for election by the Shareholders unless the person has been recommended by the Directors in the notice of Annual General Meeting sent to the Shareholders. 77. Any Shareholder's notice to the Company proposing to nominate a person for election as a Director must contain the identity and address of the nominating shareholder, the class and number of shares of the Company which are owned by such Shareholder and all information regarding the proposed nominee that would be required to be included in a proxy statement soliciting proxies for the proposed nominee and such other information as shall be necessary to enable the Board to evaluate the proposed nomination. If the Chairman of the Board or other officer presiding at a meeting determines that a person was not nominated in accordance with the provisions set forth above, such person will not be eligible for election as a Director. 78. The Directors shall be divided into three classes, as nearly equal to in number as possible. One class of Directors shall be elected for term expiring at the Annual General Meeting of the Shareholders to be held in 1997, another class shall be elected for a term expiring at the Annual General Meeting of the shareholders to be held in 1998, and another class shall be elected for a term expiring at the Annual General Meeting of the Shareholders to be held in 1999. Members of each class shall -37- hold office unless earlier removed until their successors are elected or appointed. At each succeeding Annual General Meeting the successors of the class of Directors whose term expires at the meeting shall be elected by a majority vote of all votes cast at such meeting to hold office for a term expiring at the Annual General Meeting of the Shareholders held in the third year following the year of their election. 79. The Company shall at the Annual General Meeting and may by Resolution determine the number of Directors and may by Resolution determine that one or more vacancies in the Board shall be deemed casual vacancies for the purposes of these Bye-Laws. Without prejudice to the power of the Company by Resolution in pursuance of any of the provisions of these Bye-Laws to appoint any person to be a Director, any vacancy on the Board may be filled by the Directors, so long as a quorum of Directors remains in office. 80. Directors may be removed by the vote of the Shareholders at a Special General Meeting specifically called for that purpose and only for cause. A Director may not be removed at a Special General Meeting unless notice of any such meeting shall have been served upon the Director concerned not less than 14 days before the meeting and such Director has been given an opportunity to be heard at that meeting. Any Resolution contemplating the removal of any Director must be adopted by Shareholders holding not less than eighty percent (80%) of the -38- shares of the Company at the time in issue and outstanding and entitled to vote generally in the election of Directors. Any vacancy created by the removal of a Director at a Special General Meeting may be filled at such meeting by the election of another Director in his or her place, or in the absence of such election, by the Board. RESIGNATION AND DISQUALIFICATION OF DIRECTORS 81. The office of a Director shall be vacated upon the happening of any of the following events: (a) if he resigns his office by notice in writing delivered to the Registered Office or tendered at a meeting of the Board; (b) if he becomes of unsound mind or a patient for any purpose of any statute or applicable law relating to mental health and the Board resolves that his office is vacated; (c) if he becomes bankrupt or compounds with his creditors; (d) if he is prohibited by law from being a Director; (e) if he ceases to be a Director by virtue of the Companies Acts or is removed from office pursuant to these Bye-Laws. ALTERNATE DIRECTORS 82. The Company may by Resolution elect any person or persons to act as Directors in the alternative to any of the Directors or may authorize the Board to appoint such Alternate Directors and a Director may appoint and remove his own Alternate -39- Director. Any appointment or removal of an Alternate Director by a Director shall be effected by depositing a notice of appointment or removal with the Secretary at the Registered Office, signed by such Director, and such appointment or removal shall become effective on the date of receipt by the Secretary. Any Alternate Director may be removed by Resolution of the Company and, if appointed by the Board, may be removed by the Board. Subject as aforesaid, the office of Alternate Director shall continue until the next annual election of Directors or, if earlier, the date on which the relevant Director ceases to be a Director. An Alternate Director may also be a Director in his own right and may act as alternate to more than one Director. 83. An Alternate Director shall be entitled to receive notices of all meetings of Directors, to attend, be counted in the quorum and vote at any such meeting at which any Director to whom he is alternate is not personally present, and generally to perform all the functions of any Director to whom he is alternate in his absence. 84. Every person acting as an Alternate Director shall (except as regards powers to appoint an alternate and remuneration) be subject in all respects to the provisions of these Bye-Laws relating to Directors and shall alone be responsible to the Company for his acts and defaults and shall not be deemed to be the agent of or for any Director for whom he -40- is alternate. An Alternate Director may be paid expenses and shall be entitled to be indemnified by the Company to the same extent mutatis mutandis as if he were a Director. Every person acting as an Alternate Director shall have one vote for each Director for whom he acts as alternate (in addition to his own vote if he is also a Director). The signature of an Alternate Director to any resolution in writing of the Board or a committee of the Board shall, unless the terms of his appointment provides to the contrary, be as effective as the signature of the Director or Directors to whom he is alternate. DIRECTORS' FEES AND ADDITIONAL REMUNERATION AND EXPENSES 85. The amount, if any, of Directors' fees shall from time to time be determined by the Board and in the absence of a determination to the contrary, such fees shall be deemed to accrue from day to day. Each Director may be paid his reasonable traveling, hotel and incidental expenses in attending and returning from meetings of the Board or committees constituted pursuant to these Bye-Laws or general meetings and shall be paid all expenses properly and reasonably incurred by him in the conduct of the Company's business or in the discharge of his duties as a Director. Any Director who, by request, goes or resides abroad for any purposes of the Company or who performs services which in the opinion of the Board go beyond the ordinary duties of a Director may be paid such extra remuneration (whether by way of salary, commission, participation in profits or -41- otherwise) as the Board may determine, and such extra remuneration shall be in addition to any remuneration provided for by or pursuant to any other Bye-Law. DIRECTORS' INTERESTS 86. (a) A Director may hold any other office or place of profit with the Company (except that of auditor) in conjunction with his office of Director for such period and upon such terms as the Board may determine, and may be paid such extra remuneration therefor (whether by way of salary, commission, participation in profits or otherwise) as the Board may determine, and such extra remuneration shall be in addition to any remuneration provided for by or pursuant to any other Bye-Law. (b) A Director may act by himself or his firm in a professional capacity for the Company (otherwise than as auditor) and he or his firm shall be entitled to remuneration for professional services as if he were not a Director. (c) Subject to the provisions of the Companies Acts, a Director may notwithstanding his office be a party to, or otherwise interested in, any transaction or arrangement with the Company or in which the Company is otherwise interested; and be a Director or other officer of, or employed by, or a party to any transaction or arrangement with, or otherwise interested in, any body corporate promoted by the Company or in which the Company is interested. The Board may also cause the voting power conferred -42- by the shares in any other Company held or owned by the Company to be exercised in such manner in all respects as it thinks fit, including the exercise thereof in favor of any resolution appointing the Directors or any of them to be Directors or officers of such other company, or voting or providing for the payment of remuneration to the Directors or officers of such other company. (d) So long as, where it is necessary, he declares the nature of his interest at the first opportunity at a meeting of the Board or by writing to the Directors as required by the Companies Acts, a Director shall not by reason of his office be accountable to the Company for any benefit which he derives from any office or employment to which these Bye-Laws allow him to be appointed or from any transaction or arrangement in which these Bye-Laws allow him to be interested, and no such transaction or arrangement shall be liable to be avoided on the ground of any interest or benefit. (e) Subject to the Companies Acts and any further disclosure required thereby, a general notice to the Directors by a Director or officer declaring that he is a Director or officer or has an interest in a person and is to be regarded as interested in any transaction or arrangement made with that person, shall be a sufficient declaration of interest in relation to any transaction or arrangement so made. -43- POWERS AND DUTIES OF THE BOARD 87. Subject to the provisions of the Companies Acts and these Bye-Laws, the Board shall manage the business of the Company and may pay all expenses incurred in promoting and incorporating the Company and may exercise all the powers of the Company. No alteration of these Bye-Laws shall invalidate any prior act of the Board which would have been valid if that alteration had not been made. The powers given by this Bye-Laws shall not be limited by any special power given to the Board by these Bye-Laws and a meeting of the Board at which a quorum is present shall be competent to exercise all the powers, authorities and discretions for the time being vested in or exercisable by the Board. 88. The Board may exercise all the powers of the Company to borrow money and to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company and to issue debentures and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any other persons. 89. All checks, promissory notes, drafts, bills of exchange and other instruments, whether negotiable or transferable or not, and all receipts for money paid to the Company shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may -44- be, in such manner as the Board shall from time to time by resolution determine. 90. The Board on behalf of the Company may provide benefits, whether by the payment of gratuities or pensions or otherwise, for any person including any Director or former Director who has held any executive office or employment with the Company or with any body corporate which is or has been a subsidiary or affiliate of the Company or a predecessor in the business of the Company or of any such subsidiary or affiliate, and to any member of his family or any person who is or was dependent on him, and may contribute to any fund and pay premiums for the purchase or provision of any such gratuity, pension or other benefit, or for the insurance of any such person. 91. The Board may from time to time appoint one or more of its body to hold an executive office with the Company for such period and upon such terms as the Board may determine and may revoke or terminate any such appointments. Any such revocation or termination as aforesaid shall be without prejudice to any claim for damages that such Director may have against the Company or the Company may have against such Director for any breach of any contract of service between him and the Company which may be involved in such revocation or termination. Any person so appointed shall receive such remuneration (if any) (whether by way of salary, commission, participation in profits or otherwise) -45- as the Board or any committee thereof may determine, and either in addition to or in lieu of his remuneration as a Director. DELEGATION OF THE BOARD'S POWERS 92. The Board may by power of attorney appoint any company, firm or person or any fluctuating body of persons, whether nominated directly or indirectly by the Board, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Board under these Bye-Laws) and for such period and subject to such conditions as it may think fit, and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney and of such attorney as the Board may think fit, and may also authorize any such attorney to sub-delegate all or any of the powers, authorities and discretions vested in him. 93. The Board may entrust to and confer upon any Director or officer any of the powers exercisable by it upon such terms and conditions with such restrictions as it thinks fit, and either collaterally with, or to the exclusion of, its own powers, and may from time to time revoke or vary all or any of such powers but no person dealing in good faith and without notice of such revocation or variation shall be affected thereby. 94. The Board may delegate any of its powers, authorities and discretions to committees, consisting of such person or persons (whether a member or members of its body or not) as it -46- thinks fit. Any committee so formed shall, in the exercise of the powers, authorities and discretions so delegated, conform to any regulations which may be imposed upon it by the Board. PROCEEDINGS OF THE BOARD 95. The Board may meet for the dispatch of business, adjourn and otherwise regulate its meetings as it thinks fit. Questions arising at any meeting shall be determined by a majority of the votes cast. In the case of an equality of votes the motions shall be deemed to have been lost. A Director may, and the Secretary on the requisition of a Director shall, at any time summon a meeting of the board. 96. Notice of a meeting of the board shall be deemed to be duly given to a Director if it is given to him personally or by word of mouth or sent to him by post, cable, telex, telecopier or other mode of representing or reproducing words in a legible and non-transitory form at his last known address or any other address given by him to the Company for this purpose. A Director may waive notice of any meeting either prospectively or retroactively or at such meeting to which the notice would have applied. 97. (a) The quorum necessary for the transaction of business at any meeting of the Board shall be two individuals until such time as the appointment by the Company of a resident representative under section 130(2) of the Companies Acts becomes effective. Thereafter, the quorum shall be a majority of the -47- Board. Any Director who ceases to be a Director at a meeting of the Board may continue to be present and to act as a Director and be counted in the quorum until the termination of the meeting if no other Director objects and if otherwise a quorum of Directors would not be present. (b) A Director who to his knowledge is in any way, whether directly or indirectly, interested in a contract or proposed contact, transaction or arrangement with the Company and has complied with the provisions of the Companies Acts and these Bye-Laws with regard to disclosure of his interest shall be entitled to vote in respect of any contract, transaction or arrangement in which he is so interested and if he shall do so his vote shall be counted, and he shall be taken into account in ascertaining whether a quorum is present. 98. So long as a quorum of Directors remains in office, the continuing Directors may act notwithstanding any vacancy in the Board but, if no such quorum remains, the continuing Directors or a sole continuing Director may act only for the purpose of calling a general meeting. 99. The Chairman (if any) of the Board or, in his absence, the President shall preside as chairman at every meeting of the Board. If there is no such Chairman or President, or if at any meeting the Chairman or the President is not present within five minutes after the time appointed for holding the meeting, or is -48- not willing to act as chairman, the Directors present may choose one of their number to be chairman of the meeting. 100. The meetings and proceedings of any committee consisting of two or more members shall be governed by the provisions contained in these Bye-Laws for regulating the meetings and proceedings of the Board so far as the same are applicable and are not superseded by any regulations imposed by the Board. 101. A resolution in writing signed by all the Directors for the time being entitled to receive notice of a meeting of the Board or by all the members of a committee for the time being shall be as valid and effectual as a resolution passed at a meeting of the Board or, as the case may be, of such committee duly called and constituted. Such resolution may be contained in one document or in several documents in the like form each signed by one or more of the Directors or members of the committee concerned. 102. A meeting of the Board or a committee appointed by the Board may be held by means of such telephone, electronic or other communication facilities as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously and participation in such a meeting shall constitute presence in person at such meeting. 103. All acts done by the Board or by any committee or by any person acting as a Director or member of a committee or any -49- person duly authorized by the Board or any committee, shall, notwithstanding that it is afterwards discovered that there was some defect in the appointment of any member of the Board or such committee or person acting as aforesaid or that they or any of them were disqualified or had vacated their office, be as valid as if every such person had been duly appointed and was qualified and had continued to be a Director, member of such committee or person so authorized. OFFICERS 104. (a) The officers of the Company shall include a President and a Vice-President or a Chairman of the Board of Directors and a Deputy Chairman who shall be Directors and, subject to Bye-Law 104(c) below, who may be elected by the Board as soon as possible after each Annual General Meeting. In addition, the Board may appoint any person whether or not he is a Director to hold such office as the Board may from time to time determine. Any person elected or appointed pursuant to this Bye-Law shall hold office for such period and upon such terms as the Board may determine and the Board may revoke or terminate any such election or appointment with or without cause, at any time by the affirmative vote of a majority of the Directors then in office. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board. Any such revocation or termination shall be without prejudice to any claim for damages that such officer may have against the Company or the -50- Company may have against such officer for any breach of any contract of service between him and the Company which may be involved in such revocation or termination. Save as provided in the Companies Acts or these Bye-Laws, the powers and duties of the officers of the Company shall be such (if any) as are determined from time to time by the Board. (b) Any officer may resign at any time. Such resignation shall be made in writing and shall take effect at the time specified therein and, if no time be specified at the time of its receipt by the president, vice-president or secretary, the acceptance of which resignation shall not be necessary to make it effective. (c) Until such time as the appointment by the Company of a resident representative under section 130 (2) of the Companies Act becomes effective, the Shareholder of the Company may appoint the officers of the Company upon such terms and conditions as the Shareholder may determine. (d) The salaries of the Chairman of the Board, the Chairman of the Executive Committee, if any, the President, any Vice-President, the Secretary and the Treasurer shall be fixed by the Board. The salaries of all other officers and agents of the Company shall be fixed by the Board or by such officer or officers as the Board may designate. -51- MINUTES 105. The Directors shall cause minutes to be made and books kept for the purpose of recording: (a) all appointments of officers made by the Directors; (b) the names of the Directors and other persons (if any) present at each meeting of Directors and of any committee; (c) of all proceedings at meetings of the Company, of the holders of any class of shares in the Company, and of committees; (d) of all proceedings of managers (if any). SECRETARY 106. The Secretary shall be appointed by the Board at such remuneration (if any) and upon such terms as it may think fit and any Secretary so appointed may be removed by the Board. The duties of the Secretary shall be those prescribed by the Companies Acts together with such other duties as shall from time to time be prescribed by the Board. 107. A provision of the Companies Acts or these Bye-Laws requiring or authorizing a thing to be done by or to a Director and the Secretary shall not be satisfied by its being done by or to the same person acting both as Director and as, or in the place of, the Secretary. -52- THE SEAL 108. (a) The Seal shall consist of a circular metal device with the name of the Company around the outer margin thereof and the country and year of incorporation across the center thereof. Should the Seal not have been received at the Registered Office in such form at the date of adoption of this Bye-Law then, pending such receipt any document requiring to be scaled with the Seal shall be sealed by affixing a red wafer seal to the document with the name of the Company, and the country and year of incorporation type written across the center thereof. (b) The Board shall provide for the custody of every Seal. A Seal shall only be used by authority of the Board or of a committee constituted by the Board. Subject to Companies Acts, any instrument to which a Seal is affixed may be signed by a Director or an Officer of the Company, or by any person who has been authorized by the Board either generally or specifically to attest to the use of a Seal. DIVIDENDS AND OTHER PAYMENTS 109. The Board may from time to time declare cash dividends or distributions out of contributed surplus to be paid to the Shareholders according to their rights and interests including such interim dividends as appear to the Board to be justified by the position of the Company. The Board may also pay any fixed cash dividend which is payable on any shares of the Company half -53- yearly or on such other dates, whenever the position of the Company, in the opinion of the Board, justifies such payment. 110. Except insofar as the rights attaching to, or the terms of issue of, any share otherwise provide: (a) all dividends or distributions out of contributed surplus may be declared and paid according to the amounts paid-up on the shares in respect of which the dividend or distribution is paid, and an amount paid-up on a share in advance of calls may be treated for the purpose of this Bye-Law as paid-up on the share; (b) dividends or distributions out of contributed surplus may be apportioned and paid pro rata according to the amounts paid-up on the shares during any portion or portions of the period in respect of which the dividend or distribution is paid. 111. The Board may deduct from any dividend, distribution or other moneys payable to a Shareholder by the Company on or in respect of any shares all sums of money (if any) presently payable by him to the Company on account of calls or otherwise in respect of shares of the Company. 112. No dividend, distribution or other moneys payable by the Company on or in respect of any Common Share shall bear interest against the Company. 113. Any dividend, distribution, interest or other sum payable in cash to the holder of shares may be paid by check, warrant or other means approved by the Board, in the case of a -54- check or warrant sent through the post addressed to the holder at his address in the Register or, in the case of joint holders, addressed to the holder whose name stands first in the Register in respect of the shares at his registered address as appearing in the Register or addressed to such person at such address as the holder or joint holders may in writing direct. Every such check or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first in the Register in respect of such shares, and shall be sent at his or their risk and payment of the check or warrant by the bank on which it is drawn shall constitute a good discharge to the Company. Any one of two or more joint holders may give effectual receipts for any dividends, distributions or other moneys payable or property distributable in respect of the shares held by such joint holders. 114. Any dividend or distribution out of contributed surplus unclaimed for a period of six years from the date of declaration of such dividend or distribution shall be forfeited and shall revert to the Company and the payment by the Board of any unclaimed dividend, distribution, interest or other sum payable on or in respect of the share into a separate account shall not constitute the Company a trustee in respect thereof. 115. The Board may direct payment or satisfaction of any dividend or distribution out of contributed surplus wholly or in -55- part by the distribution of specific assets, and in particular of paid-up shares or debentures of any other company, and where any difficulty arises in regard to such distribution or dividend the Board may settle it as it thinks expedient, and in particular, may authorize any person to sell and transfer any fractions or may ignore fractions altogether, and may fix the value for distribution or dividend purposes of any such specific assets and may determine that cash payments shall be made to any Shareholders upon the footing of the values so fixed in order to secure equality of distribution and may vest any such specific assets in trustees as may seem expedient to the Board. RESERVES 116. The Board may, before recommending or declaring any dividend or distribution out of contributed surplus, set aside such sums as it thinks proper as reserves which shall, at the discretion of the Board, be applicable for any purpose of the Company and pending such application may, also at such discretion, either be employed in the business of the Company or be invested in such investments as the Board may from time to time think fit. The Board may also without placing the same to reserve carry forward any sums which it may think it prudent not to distribute. CAPITALIZATION OF PROFITS 117. The Company may, upon the recommendation of the Board, at any time and from time to time pass a Resolution to the effect -56- that it is desirable to capitalize all or any part of any amount for the time being standing to the credit of any reserve or fund which is available for distribution or to the credit of any share premium account or any capital redemption reserve fund and accordingly that such amount be set free for distribution amongst the Shareholders or any class of Shareholders who would be entitled thereto if distributed by way of dividend and in the same proportions, on the footing that the same be not paid in cash but be applied either in or towards paying up amounts for the time being unpaid on any shares in the Company held by such Shareholders respectively or in payment up in full of unissued shares, debentures or other obligations of the Company, to be allotted, distributed and credited as fully paid amongst such Shareholders, or partly in one way and partly in the other, and the Board shall give effect to such Resolution, provided that for the purpose of this Bye-Law, a share premium account and a capital redemption reserve fund may be applied only in paying up of unissued shares to be issued to such Shareholders credited as fully paid and provided further that any sum standing to the credit of a share premium account may only be applied in crediting as fully paid shares of the same class as that from which the relevant share premium was derived. 118. Where any difficulty arises in regard to any distribution under the last preceding Bye-Law, the Board may settle the same as it thinks expedient and, in particular, may -57- authorize any person to sell and transfer any fractions or may resolve that the distribution should be as nearly as may be practicable in the correct proportion but not exactly so or may ignore fractions altogether, and may determine that cash payments should be made to any Shareholders in order to adjust the rights of all parties, as may seem expedient to the Board. The Board may appoint any person to sign on behalf of the persons entitled to participate in the distribution any contract necessary or desirable for giving effect thereto and such appointment shall be effective and binding upon the Shareholders. RECORD DATES 119. Notwithstanding any other provisions of these Bye-Laws, the Company may by Resolution or the Board may fix any date as the record date for any dividend, distribution, allotment or issue and for the purpose of identifying the persons entitled to receive notices of general meetings. Any such record date may be on or at any time before or after any date on which such dividend, distribution, allotment or issue is declared, paid or made or such notice is dispatched. ACCOUNTING RECORDS 120. The Board shall cause to be kept accounting records sufficient to give a true and fair view of the state of the Company's affairs and to show and explain its transactions, in accordance with the Companies Acts and the provisions of United States securities laws. -58- 121. The records of account shall be kept at the Registered Office or at such other place or places as the Board thinks fit, and shall at all times be open to inspection by the Directors: PROVIDED that if the records of account are kept at some place outside Bermuda, there shall be kept at an office of the Company in Bermuda such records as will enable the Directors to ascertain with reasonable accuracy the financial position of the Company at the end of each three-month period. No Shareholder (other than an officer of the Company) shall have any right to inspect any accounting record or book or document of the Company except as conferred by law or authorized by the Board or by Resolution. 122. A copy of every balance sheet and statement of income and expenditure, including every document required by law to be annexed thereto, which is to be laid before the Company in general meeting, together with a copy of the auditors' report, shall be sent to each person entitled thereto in accordance with the requirements of the Companies Acts. AUDIT 123. Save and to the extent that an audit is waived in the manner permitted by the Companies Acts, auditors shall be appointed and their duties regulated in accordance with the Companies Acts, any other applicable law and such requirements not inconsistent with the Companies Acts as the Board may from time to time determine. -59- SERVICE OF NOTICES AND OTHER DOCUMENTS 124. Any notice or other document (including a share certificate) may be served on or delivered to any Shareholder by the Company either personally or by sending it through the post (by air mail where applicable) in a pre-paid letter addressed to such Shareholder at his address as appearing in the Register or by delivering it to or leaving it at such registered address. In the case of joint holders of a share, service or delivery of any notice or other document on or to one of the joint holders shall for all purposes be deemed as sufficient service on or delivery to all the joint holders. Any notice or other document if sent by post shall be deemed to have been served or delivered seven days after it was put in the post, and in proving such service or delivery, it shall be sufficient to prove that the notice or document was properly addressed, stamped and put in the post. 125. Any notice of a general meeting of the Company shall be deemed to be duly given to a Shareholder if it is sent to him by cable, telex, telecopier or other mode of representing or reproducing words in a legible and non-transitory form at his address as appearing in the Register or any other address given by him to the Company for this purpose. Any such notice shall be deemed to have been served twenty-four hours after its dispatch. 126. Any notice or other document delivered, sent or given to a Shareholder in any manner permitted by these Bye-Laws shall, notwithstanding that such Shareholder is then dead or bankrupt or -60- that any other event has occurred, and whether or not the Company has notice of the death or bankruptcy or other event, be deemed to have been duly served or delivered in respect of any share registered in the name of such Shareholder as sole or joint holder unless his name shall, at the time of the service or delivery of the notice or document, have been removed from the Register as the holder of the share, and such service or delivery shall for all purposes be deemed as sufficient service or delivery of such notice or document on all persons interested (whether jointly with or as claiming through or under him) in the share. WINDING UP 127. If the Company shall be wound up, the liquidator may, with the sanction of a Resolution of the Company and any other sanction required by the Companies Acts, divide amongst the Shareholders in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for such purposes set such values as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the Shareholders or different classes of Shareholders. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trust for the benefit of the contributories as the liquidator, with the like sanction, shall think fit, but so that no Shareholder shall be compelled to -61- accept any shares or other assets upon which there is any liability. INDEMNITY 128. (a) Subject to the proviso below, every Director, officer of the Company and member of a committee constituted under Bye-Law 94 shall be indemnified out of the funds of the Company against all civil liabilities, loss, damage or expense (including but not limited to liabilities under contract, tort and statute or any applicable foreign law or regulation and all reasonable legal and other costs and expenses properly payable) incurred or suffered by him as such Director, officer or committee member and the indemnity contained in this Bye-Law shall extend to any person acting as a Director, officer or committee member in the reasonable belief that he has been so appointed or elected notwithstanding any defect in such appointment or election PROVIDED ALWAYS that the indemnity contained in this Bye-Law shall not extend to any matter which would render it void pursuant to the Companies Acts. (b) The rights to indemnification, reimbursement or advancement of expenses provided by, or granted pursuant to, this Bye-Law shall not be deemed exclusive of any other rights to which a person seeking indemnification or reimbursement or advancement of expenses may have or hereafter be entitled. 129. Every Director, officer and member of a committee duly constituted under Bye-Law 94 of the Company shall be indemnified -62- out of the funds of the Company against all liabilities incurred by him as such Director, officer or committee member in defending any proceedings, whether civil, criminal or administrative, in which judgment is given in his favor, or in which he is acquitted, or in connection with any application under the Companies Acts in which relief from liability is granted to him by the court. 130. To the extent that any Director, officer or member of a committee duly constituted under Bye-Law 94 is entitled to claim an indemnity pursuant to these Bye-Laws in respect of amounts paid or discharged by him, the relative indemnity shall take effect as an obligation of the Company to reimburse the person making such payment or effecting such discharge. ALTERATION OF BYE-LAWS 131. The Directors may from time to time revoke, alter, amend or add to these Bye-Laws provided that no such revocation, alteration, amendment or addition with respect to Bye-Laws 47(b), 53 and 75 to 81 (inclusive) and shall be operative unless and until it is confirmed at subsequent general meeting of the Company where the amendments have been approved by Shareholders holding not less than 80% of the shares of the Company issued and outstanding and entitled to vote generally; and all other Bye-Law amendments shall be approved by Shareholders holding not less than a majority of the shares issued and outstanding and entitled to vote. -63- EX-10.38 6 y94860exv10w38.txt CASH COLLATERAL ORDER EXHIBIT 10.38 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - -------------------------------------------------- ) In re: ) ) ) Chapter 11 LORAL SPACE & COMMUNICATIONS LTD., et al., ) ) Case No. 03-41710 (RDD) ) ) Jointly Administered Debtors. ) ) ) - -------------------------------------------------- FINAL ORDER (I) AUTHORIZING DEBTORS (A) TO UTILIZE CASH COLLATERAL PURSUANT TO 11 U.S.C. SECTION 363, AND (B) TO OBTAIN POST- PETITION FINANCING PURSUANT TO 11 U.S.C. SECTIONS 105, 361, 362, 364(C)(1), 364(C)(2), 364(C)(3), 364(D)(1) AND 364(E), (II) GRANTING ADEQUATE PROTECTION TO LENDERS PURSUANT TO 11 U.S.C. SECTIONS 361, 362, 363 AND 364, AND (III) GRANTING RELATING RELIEF Upon the motion (the "MOTION"), dated July 15, 2003, of Loral Space & Communications Ltd. (the "COMPANY") and its affiliated debtors, each as debtor and debtor-in-possession (collectively, the "DEBTORS"), in the above-captioned cases (the "CASES") pursuant to Sections 105, 361, 362, 363(c)(2), 364(c)(1), 364(c)(2), 364(c)(3), 364(d)(1) and 364(e) of title 11 of the United States Code, 11 U.S.C. Sections 101, et seq. (the "BANKRUPTCY CODE"), and Rules 2002, 4001 and 9014 of the Federal Rules of Bankruptcy Procedure (the "BANKRUPTCY RULES"), seeking, among other things: (1) authorization for the Debtors to use Cash Collateral (as defined below) pursuant to Section 363 of the Bankruptcy Code and subject to the terms and conditions set forth herein; (2) the granting of adequate protection to the Agents and the Lenders (each as defined below, and together, the "CREDIT AGREEMENT PARTIES") with respect to, inter alia, such use of Cash Collateral and any diminution in the value of the Pre-Petition Collateral (as defined below) granted under or in connection with (a) that certain Amended and Restated Credit Agreement dated as of December 21, 2001 (as heretofore amended, supplemented or otherwise modified, the "SPACECOM CREDIT AGREEMENT") among Loral SpaceCom Corporation ("SPACECOM"), the several banks and other financial institutions from time to time parties thereto (the "SPACECOM LENDERS") and Bank of America, N.A., in its capacity as administrative agent for the SpaceCom Lenders (in such capacity or as Collateral Agent for the SpaceCom Lenders, the "SPACECOM AGENT") and the related Guarantee Agreement dated as of December 21, 2001 (as heretofore amended, supplemented or otherwise modified, the "SPACECOM GUARANTEE") by Loral Space & Communications Corporation and certain subsidiaries of SpaceCom in favor of the SpaceCom Agent, (b) that certain Credit Agreement dated as of November 17, 2000 (as heretofore amended, supplemented or otherwise modified, the "SATELLITE CREDIT AGREEMENT", together with the SpaceCom Credit Agreement, the "CREDIT AGREEMENTS") among Loral Satellite, Inc. ("SATELLITE"), the several banks and other financial institutions from time to time parties thereto (the "SATELLITE LENDERS", together with the SpaceCom Lenders, the "LENDERS"), and Bank of America, N.A., in its capacity as administrative agent for the Satellite Lenders (in such capacity or as Collateral Agent for the Satellite Lenders, the "SATELLITE AGENT", 2 together with the SpaceCom Agent in its capacity as such, the "AGENTS") and the related Guarantee dated as of November 17, 2000 (as heretofore amended, supplemented or otherwise modified, the "SATELLITE GUARANTEE") by the Company in favor of the Satellite Agent, (c) that certain Security Agreement dated as of December 21, 2001 among SpaceCom, the other grantors party thereto and the Agents (as heretofore amended, supplemented or otherwise modified, the "SPACECOM SECURITY AGREEMENT"), (d) that certain Second Intercreditor and Subordination Agreement dated as of March 31, 2003 among the Agents and Loral Space & Communications Corporation (as heretofore amended, supplemented or otherwise modified, the "SPACECOM INTERCREDITOR AGREEMENT" and collectively with the SpaceCom Credit Agreement, the SpaceCom Guarantee, the SpaceCom Security Agreement and the other guarantee agreements, security agreements, pledge agreements, mortgages, deeds of trust and all other security and other documentation executed in connection therewith (including, for the avoidance of doubt, any obligations under subparagraph (iii) of the definition of SpaceCom Indebtedness in the SpaceCom Security Agreement, the "SPACECOM EXISTING AGREEMENTS"), (e) (i) that certain Amended and Restated Collateral Agreement dated as of November 17, 2000 among Satellite, the other grantors party thereto, and the Satellite Agent (the "COLLATERAL AGREEMENT"), (ii) the Amended and Restated Collateral Agency 3 Agreement dated as of November 17, 2000 among Satellite, the guarantors party thereto and the Satellite Agent (the "COLLATERAL AGENCY AGREEMENT") and (iii) that certain Amended and Restated Cash Collateral Agreement dated as of November 17, 2000 made by Satellite in favor of the Satellite Agent (the "CASH COLLATERAL AGREEMENT"), ((i), (ii) and (iii), in each case as heretofore amended, supplemented or otherwise modified, the "SATELLITE SECURITY AGREEMENTS"), and (f) that certain Intercreditor and Subordination Agreement dated as of December 21, 2001 among the Agents and SpaceCom (as heretofore amended, supplemented or otherwise modified, the "SATELLITE INTERCREDITOR AGREEMENT" and together with the SpaceCom Intercreditor Agreement, the "INTERCREDITOR AGREEMENTS", and, collectively with the Satellite Credit Agreement, the Satellite Guarantee, the Satellite Security Agreements, and the other guarantee agreements, security agreements, pledge agreements, mortgages, deeds of trust and all other security and other documentation executed in connection therewith (including, for the avoidance of doubt, any Hedge Agreement (as defined in the Satellite Credit Agreement), the "SATELLITE EXISTING AGREEMENTS" and together with the SpaceCom Existing Agreements, the "EXISTING AGREEMENTS"); (3) authorization for SpaceCom to obtain certain limited secured post-petition financing from Satellite in connection with the Master Lease (as defined below), and for all of the SpaceCom Obligor Debtors to be 4 jointly and severally liable for SpaceCom's obligations in connection with such financing;(1) (4) authorization for Cyberstar (as defined below) to obtain secured post-petition financing from SpaceCom upon the terms and conditions contained herein; (5) the granting of certain superpriority claims to Satellite, SpaceCom, the Agents and the Lenders payable from, and having recourse to, all pre-petition and post-petition property of the Obligor Debtors' or Cyberstar's estates and all proceeds thereof (including any proceeds of Avoidance Actions (as defined below)), subject to the Carve Out (as defined below), which is an "Extraordinary Provision" (an "EXTRAORDINARY PROVISION") under General Order No. M-274 of the United States Bankruptcy Court for the Southern District of New York (the "GENERAL ORDER"); (6) the limitation of the Debtors' right to surcharge against Collateral pursuant to Section 506(c) of the Bankruptcy Code, which is an Extraordinary Provision under the General Order; (7) the inclusion of a right to terminate use of Cash Collateral if any Debtor challenges any liens granted pursuant to the Existing Agreements or any prepetition conduct of the Agents or Lenders or if any - -------- (1) "SPACECOM OBLIGOR DEBTORS" shall mean SpaceCom, Loral Space & Communications Corporation, Space Systems/Loral, Inc. ("SSL"), Loral Communications Services, Inc. and Loral Ground Services LLC. 5 unstayed order adverse to the Credit Agreement Parties is granted as a result of such challenge by any other person, which is an Extraordinary Provision under the General Order; (8) pursuant to Bankruptcy Rule 4001, that an interim hearing (the "INTERIM HEARING") on the Motion be held before this Court to consider entry of the proposed interim order annexed to the Motion (a) authorizing SpaceCom, on an interim basis, to enter into the Master Lease Loan (as defined in the Interim Order), (b) authorizing the Debtors' use of Cash Collateral, and (c) granting the adequate protection described herein; and (9) that this Court schedule a final hearing (the "FINAL HEARING") to be held within 30 days of the entry of the Interim Order to consider entry of a final order authorizing the Master Lease Loan, the use of Cash Collateral and granting the adequate protection described herein on a final basis, as set forth in the Motion. Due and appropriate notice of the Motion, the relief requested therein and the Final Hearing having been served by the Debtors on the twenty largest unsecured creditors of the Debtors on a consolidated basis, the Agents and on the United States Trustee for the Southern District of New York; The Interim Hearing having been held by this Court on July 15, 2003 at which the Court (a) issued and entered the Interim Order authorizing the use of Cash Collateral and the post-petition financing (the "INTERIM ORDER") and (b) scheduled a Final Hearing to consider entry of a final order as set forth in the Motion and Interim Order; 6 The Final Hearing having been held by this Court on August 22, 2003; and Upon the record of the Interim Hearing and the Final Hearing including the clarifications of this Order set forth on the record, and after due deliberation and consideration and sufficient cause appearing therefor; IT IS FOUND, DETERMINED, ORDERED AND ADJUDGED, that: 1. Jurisdiction. This Court has core jurisdiction over the Cases, this Motion, and the parties and property affected hereby pursuant to 28 U.S.C. Sections 157(b) and 1334. Venue is proper before this Court pursuant to 28 U.S.C. Sections 1408 and 1409. 2. Notice. Under the circumstances, the notice given by the Debtors of the Motion, the Interim Hearing and the Final Hearing, constitutes due and sufficient notice thereof and complies with Bankruptcy Rules 4001(b) and (c). 3. Debtors' Stipulations. Without prejudice to the rights of any other party (but subject to the limitations thereon and the other parties' rights contained in paragraph 14 below), the Debtors admit, stipulate and agree that: (a) (i) as of the filing of the Debtors' chapter 11 petitions (the "PETITION DATE"), the Debtors were, under the Existing Agreements to which they are a party, indebted and liable to (A) the SpaceCom Lenders, without defense, counterclaim or offset of any kind, in the aggregate principal amount of approximately $535,000,000.00 in respect of loans made and in the aggregate principal amount of approximately $12,656,958.00 in respect of letters of credit issued (the "PRE-PETITION LETTERS OF CREDIT"), in each case, by the SpaceCom Lenders pursuant to, and in accordance with the terms of, the SpaceCom Existing Agreements, plus, in each case, interest thereon and 7 fees, expenses (including any attorneys', accountants', appraisers' and financial advisors' fees that are chargeable or reimbursable under the SpaceCom Existing Agreements), charges and other obligations incurred in connection therewith as provided in the SpaceCom Existing Agreements and (B) the Satellite Lenders, without defense, counterclaim or offset of any kind, in the aggregate principal amount of approximately $426,500,000.00 in respect of loans made by the Satellite Lenders pursuant to, and in accordance with the terms of, the Satellite Existing Agreements, plus, in each case, interest thereon and fees, expenses (including any attorneys', accountants', appraisers' and financial advisors' fees that are chargeable or reimbursable under the Satellite Existing Agreements), charges and other obligations incurred in connection therewith as provided in the Satellite Existing Agreements ((A) and (B) collectively, together with the obligations of any Debtors pursuant to any Bank of America Hedge Agreements and JPMorgan Chase Hedge Agreements (in each case, as defined below), the "PRE-PETITION OBLIGATIONS"), (ii) the Pre-Petition Obligations constitute legal, valid and binding obligations of the applicable Debtors, enforceable in accordance with their respective terms (other than in respect of the stay of enforcement arising from Section 362 of the Bankruptcy Code), (iii) no portion of the Pre-Petition Obligations is subject to avoidance, recharacterization or subordination pursuant to the Bankruptcy Code or applicable nonbankruptcy law and (iv) the Debtors do not have, and hereby forever release, any claims, counterclaims, causes of action, defenses or setoff rights, whether arising under the Bankruptcy Code or otherwise, against the Lenders, the Agents and their respective affiliates, agents, officers, directors, employees, representatives, attorneys, and advisors 8 arising in connection with any Pre-Petition Obligations, the Existing Agreements, any loan, letter of credit or commitment thereunder or any use of the proceeds thereof, or any other agreements, instruments, engagements or transactions contemplated by or relating to any of the foregoing; (b) the liens and security interests granted to the Agents pursuant to and in connection with the Existing Agreements (including, without limitation, all security agreements, pledge agreements, mortgages, deeds of trust and other security documents executed by any of the Debtors in favor of the Agents, for their benefit and for the benefit of the Lenders) are (i) valid, binding, perfected and enforceable liens and security interests, as described in the Existing Agreements, in the personal and real property specified therein (the "PRE-PETITION COLLATERAL"), (ii) not subject to avoidance, recharacterization or subordination pursuant to the Bankruptcy Code or applicable nonbankruptcy law and (iii) subordinate only to (A) the Carve Out (as defined below) and (B) valid, perfected and unavoidable liens permitted under the Existing Agreements to the extent such liens are permitted to be and are senior to or pari passu with the liens of the Agents on the Pre-Petition Collateral; and (c) the aggregate value of the Pre-Petition Collateral exceeds the aggregate amount of the Pre-Petition Obligations. 4. Findings Regarding the Use of Collateral. (a) Good cause has been shown for the entry of this Order. 9 (b) The SpaceCom Obligor Debtors and Satellite Obligor Debtors(2) (collectively, the "OBLIGOR DEBTORS") have an immediate need to use Cash Collateral in order to permit, among other things, the orderly continuation of the operation of their businesses, to maintain business relationships with vendors, suppliers and customers, to make payroll, to make capital expenditures and to satisfy other working capital needs. The ability of the Obligor Debtors to obtain sufficient working capital and liquidity through the use of Cash Collateral, incurrence of new indebtedness for borrowed money and other financial accommodations is vital to the preservation and maintenance of the going concern values of the Obligor Debtors and to a successful reorganization of the Obligor Debtors. (c) Loral Cyberstar ("CYBERSTAR") is unable to obtain financing from sources other than SpaceCom on more favorable terms and is unable to obtain adequate unsecured credit allowable under Section 503(b)(1) of the Bankruptcy Code as an administrative expense. Cyberstar is also unable to obtain secured credit allowable under Sections 364(c)(1), 364(c)(2) and 364(c)(3) of the Bankruptcy Code without Cyberstar granting to SpaceCom, subject to the Carve Out as provided for herein, the Cyberstar Liens and the Cyberstar Superpriority Claims (each as defined below) under the terms and conditions set forth in this Order. The Credit Agreement Parties have objected to the use by the Obligor Debtors of their Pre-Petition Collateral, including Cash Collateral and to the Cyberstar Loans (as defined below) except on the terms of this Order. - -------- (2) "SATELLITE OBLIGOR DEBTORS" shall mean Satellite, Loral Space and Communications Corporation ("Loral Delaware") and the Company. 10 (d) The terms of the Cyberstar Loans and the use of Cash Collateral are fair and reasonable, reflect the Debtors' exercise of prudent business judgment consistent with their fiduciary duties and are supported by reasonably equivalent value and fair consideration. The terms of the use of Cash Collateral and the Cyberstar Loans have been negotiated in good faith and at arm's length among the Debtors, the Agents, the Committee and the Lenders. All of Cyberstar's obligations and indebtedness arising under, in respect of or in connection with the Cyberstar Loans shall be deemed to have been extended by SpaceCom in good faith, as that term is used in Section 364(e) of the Bankruptcy Code and in express reliance upon the protections offered by Section 364(e) of the Bankruptcy Code, and shall be entitled to the full protection of Section 364(e) of the Bankruptcy Code if this Order or any provision hereof is vacated, reversed or modified, on appeal or otherwise. (e) The Debtors have requested entry of this Order pursuant to Bankruptcy Rules 4001(b)(2) and 4001(c)(2). Absent entry of this Order, the Debtors' estates will be immediately and irreparably harmed. Authorization of the Cyberstar Loans and the use of Cash Collateral in accordance with this Order is therefore in the best interest of the Debtors' estates. 5. Cash Collateral. Subject to parties' rights under paragraph 14 hereof, all funds of the Obligor Debtors (including any funds of such Debtors on deposit at any Lender or at any other institution) as of the Petition Date are cash collateral of the applicable Credit Agreement Parties within the meaning of Section 363(a) of the Bankruptcy Code. In addition, all cash proceeds of Pre-Petition Collateral received after 11 the Petition Date are cash collateral of the Lenders within the meaning of Section 363(a) of the Bankruptcy Code. Furthermore, to the extent that any funds of any Obligor Debtor were on deposit with any Lender as of the Petition Date, such funds were subject to rights of setoff. By virtue of such setoff rights, such funds are subject to a lien in favor of such Lenders pursuant to Sections 506(a) and 553 of the Bankruptcy Code. The Lenders are obligated, to the extent provided for in the Existing Agreements, to share the benefit of such liens with the other Lenders party to such Existing Agreements based upon their respective pro rata shares of the obligations under the Existing Agreements. All such cash collateral (including with limitation, funds subject to such setoff rights) is referred to herein as "CASH COLLATERAL". 6. Use of Cash Collateral. (a) Subject to the provisions of this Order (including the proviso of the last sentence of this subparagraph (a)) and to the condition that the Lenders are granted adequate protection as hereinafter set forth, the Debtors specified in the Approved Forecast (as defined below) are hereby authorized to use Cash Collateral from the Effective Date until the Termination Date (each as defined below) to fund the types of disbursements specified in the line items set forth in the Approved Forecast for each entity included therein; provided that under no circumstance shall the Debtors permit the aggregate amount of cash disbursements by SS/L, Loral Skynet (a division of SpaceCom) ("SKYNET") or SpaceCom from July 7, 2003 (the "BEGINNING DATE") until the last day of any week, beginning with the week ending July 25, 2003, to exceed 110% of the aggregate amount of cash disbursements projected for the applicable Debtor, in the Approved Forecast during the applicable period (excluding (x) in the case 12 of SS/L, disbursements of a type specified in line items relating to launch costs, insurance or "known required subcontractor payments", (y) in the case of Skynet, any payments under the Master Lease (as defined below) and (z) in the case of Satellite, any Master Lease Loans (as defined in the Interim Order)). As used herein, "APPROVED FORECAST" (i) means initially, the 13-week cash forecast delivered by the Company to the Agents and the steering committee appointed by the Agents (the "STEERING COMMITTEE") and designated by the Company and the Agents as the Approved Forecast prior to the Petition Date; (ii) if the Business Plan (as defined below) (including a weekly cash forecast for the thirteen weeks ended November 14, 2003 included therein) is approved by both the "Majority Lenders" as defined in the Satellite Credit Agreement (the "SATELLITE REQUIRED LENDERS") and the "Required Banks" as defined in clause (ii) of the definition thereof in the SpaceCom Credit Agreement (the "SPACECOM REQUIRED LENDERS"), means thereafter, until November 14, 2003, the weekly cash forecast included in the Business Plan and (iii) if the Final Weekly Forecast (as defined below) is approved by the Satellite Required Lenders and SpaceCom Required Lenders, means thereafter the Final Weekly Forecast. The Debtors' right to use Cash Collateral shall terminate automatically on the Termination Date; provided that after the Termination Date, the Debtors are hereby authorized to use Cash Collateral to pay salaries and wages in accordance with the Approved Forecast but solely to the extent such salaries and wages were accrued and unpaid prior to the Termination Date and are included in the "Payroll" and "Payroll Taxes" line items for SpaceCom, "Payroll-Baseline" line item for SS/L and "Wages & Salaries" line item for Skynet and Cyberstar in the Approved Forecast. 13 (b) The "EFFECTIVE DATE" shall be deemed to have occurred upon entry of the Interim Order. (c) The "TERMINATION DATE" shall occur immediately upon the occurrence of any event described in clause (i), (ii), (xvii), (xviii), (xix), (xxii) or (xxiv) below or, if any event described in any other clause below shall occur, three business days after any Agent at the request of the Satellite Required Lenders or SpaceCom Required Lenders, as applicable, shall deliver written notice to the Company (which may be delivered at any time after the occurrence of any such event) that the Termination Date has occurred (each event below, a "TERMINATION EVENT"): (i) September 12, 2003 (the "OUTSIDE DATE"); provided that if the Business Plan (as defined below) including the intercompany allocations, funds flows, transfers and payments contained therein is approved by the Satellite Required Lenders and SpaceCom Required Lenders prior to September 12, 2003, the Outside Date shall be extended to November 14, 2003 without further order of this Court; provided further that if the Final Weekly Forecast is approved by the Satellite Required Lenders and the SpaceCom Required Lenders prior to November 14, 2003, the Outside Date shall be extended to December 31, 2003 without further order of this Court; (ii) any Debtor shall fail to comply with paragraph 6(d) or 8(c) of this Order; (iii) any Debtor shall fail to comply with any of the terms or conditions of this Order other than paragraph 6(d) or 8(c); (iv) any Debtor shall seek any modification or extension of this Order without the prior written consent of the Agents, the Satellite Required Lenders and the SpaceCom Required Lenders (unless such modification is not material, in which case the 14 Debtors shall not seek such modification without the consent of the Agents (which consent shall not unreasonably be withheld)) or any order shall be entered, other than with the consent of the Agents, the Satellite Required Lenders and the SpaceCom Required Lenders, reversing, amending, supplementing, staying, vacating or otherwise modifying this Order in any material respect adverse to any Agents or Lenders or terminating the use of Cash Collateral by the Debtors pursuant to this Order; (v) the aggregate amount of cash disbursements by any of SS/L, Satellite, Skynet and SpaceCom, from the Beginning Date until the last day of any week, beginning with the week ending July 25, 2003, exceeds 110% of the aggregate amount of cash disbursements projected for the applicable Debtor in the Approved Forecast during the applicable period (excluding (x) in the case of SS/L and SpaceCom, line items related to launch vehicle costs, insurance and known required subcontractor payments and (y) in the case of Skynet and SpaceCom, any payments under the Master Lease), provided that as to Satellite, such test shall commence with the week beginning September 15, 2003; (vi) the aggregate amount of payments in respect of "critical vendor payments" (identified in the Approved Forecast as "Known Required Subcontractor Payments") by any Debtors, from the Beginning Date until the last day of any week, beginning with the week ending July 25, 2003, exceeds 100% of the aggregate amount of "Known Required Subcontractor Payments" projected for SS/L in the Approved Forecast during the applicable period; (vii) the aggregate amount of cash receipts by any of SS/L, Skynet, SpaceCom and Satellite, from the Beginning Date until the last day of any week, beginning with the week ending July 25, 2003 (or, in the case of SS/L, with the week ending August 8, 2003), is less than 90% of the aggregate amount of cash receipts projected for the applicable entity in 15 the Approved Forecast during the applicable period (excluding (x) in the case of SS/L and SpaceCom, line items related to launch vehicle costs and insurance, (y) in the case of SpaceCom, any Master Lease Loans and (z) in the case of Satellite, any payments related to the Master Lease), provided that as to SpaceCom and SSL, such test shall commence with the week beginning September 15, 2003; (viii) the cumulative aggregate disbursements made by SpaceCom (through Skynet) on behalf of Cyberstar on or after the Petition Date shall exceed the cumulative aggregate payments made by Cyberstar to SpaceCom (through Skynet) by more than $1,000,000; (ix) (i) SpaceCom shall fail to calculate the corporate allocation amounts owed to it by Satellite, Cyberstar, Loral Orion Inc. ("ORION") and Orion Data Inc. (each a "PAYOR ENTITY") each month in accordance with the historical formula used by Spacecom in a manner acceptable to the Agents and invoice the Payor Entities for such amounts; provided that the allocation of reorganization expenses shall not be pursuant to the historical formula or (ii) any Payor Entity shall fail to pay the corporate allocation owed by it to SpaceCom within 5 business days of the end of each month; (x) the Debtors transfer, loan or otherwise provide any cash or cash equivalents to Loral Skynet do Brasil ("BRASIL") other than as expressly provided for in the Business Plan or Final Weekly Forecast; (xi) the Debtors shall fail to (i) calculate the amounts owed by Satellite to Skynet for items included in the "Satellite - TT&C Telstar 6&7" line item in the Approved Forecast pursuant to the Amended and Restated Agreement between Loral Satellite, Inc. and Loral SpaceCom Corporation Concerning Professional Services or (ii) pay such amounts when forecast to be paid in the Approved Forecast; 16 (xii) the Debtors shall fail to (i) calculate the amounts owed by Satellite to SS/L for items included in the "Satellite - Telstar 6 (Orbitals)" line item in the Approved Forecast pursuant to Contract Amendment No. 3 to Contract No LLJ108E between Loral Skynet, a division of Loral SpaceCom Corporation and Space Systems/Loral or (ii) pay such amounts when forecast to be paid in the Approved Forecast; (xiii) Cyberstar shall fail to (i) pay SS/L the amounts included in the Approved Forecast in the line item "Cyberstar - Mabuhay Payments" for the weeks ended July 11 and August 1, 2003, by August 26, 2003 or (ii) make the payments included in the "Cyberstar - Mabuhay Payments" line item for the period following the week ended August 1, 2003 as shown in the Approved Forecast; (xiv) Orion shall fail to pay to Skynet the Orion fees calculated pursuant to the contract under which Orion pays to Skynet such fees covering the operations, management, marketing, telemetry, tracking and control of Orion's satellites on a monthly basis; (xv) the aggregate amount of cash or cash equivalents held (a) by Satellite at any time is less than $4 million prior to October 31, 2003 and $10 million thereafter or (b) by the Company at any time is less than $3.25 million; (xvi) (a) except as modified herein or with the written consent of the Agents, any Debtor shall fail to make any payment or fail to comply with any other material terms or conditions or seek rejection of the Amended and Restated Master Lease Agreement dated as of November 17, 2000 between Satellite and SpaceCom (the "MASTER LEASE") or (b) the Master Lease shall be rejected pursuant to an order of this Court; (xvii) (a) an Asset Purchase Agreement with Intelsat, Ltd. ("Intelsat"), providing for the proposed purchase of satellites and other assets (the "SATELLITE ASSETS") by 17 Intelsat, substantially in the form and materially on the same economic terms delivered to the Agents and the Steering Committee prior to the Petition Date, is not executed by Intelsat and the applicable Debtors by the date that is five days after the Petition Date (as signed, the "INTELSAT AGREEMENT"); (b) the Intelsat Agreement is amended in any material respect unfavorable to any Debtor or the Lenders or the Intelsat Agreement is terminated (other than a termination because the Debtors have accepted a higher or better offer pursuant to the bid procedures previously approved by this Court); or (c) an order approving the sale of the Satellite Assets pursuant to the terms of the Intelsat Agreement (or any higher and better offer resulting from the bidding process) is not entered by November 1, 2003; (xviii) an application shall be filed by any Obligor Debtor for the approval of any superpriority claim or any lien in any of the Cases of any Obligor Debtor that is pari passu with or senior to the Adequate Protection Claims or Adequate Protection Liens, or there shall be granted any such pari passu or senior superpriority claim or lien, as to any Obligor Debtor except any such superpriority claims and liens arising hereunder or pursuant to any other financing arrangements that are approved in writing by the Agents; (xix) the commencement of any action by any Debtor against the Agents or any Lender with respect to the Existing Agreements, including without limitation any action to avoid or subordinate any Pre-Petition Obligations or any liens securing any Pre-Petition Obligations or, in the case of any such action commenced by any person other than a Debtor, the court enters an order granting any such relief and any such order is not subject to a stay; (xx) any order shall be entered granting relief from the automatic stay applicable under Section 362 of the Bankruptcy Code to the holder or holders of any security interest, lien or right of setoff to permit foreclosure (or the granting of a deed in lieu of 18 foreclosure or the like), possession, set-off or any similar remedy with respect to any assets of any Obligor Debtor that have a value in excess of $1,000,000 in the aggregate; (xxi) except as permitted by the First Day Orders (as reviewed and approved by the Agents and included in the Approved Forecast), any Obligor Debtor (including all present and future Obligor Debtors) shall make any payment in respect of a pre-petition claim in excess of $100,000 individually or $500,000 in the aggregate; (xxii) (A) any of the Cases shall be dismissed or converted to a case under Chapter 7 of the Bankruptcy Code or any Debtor shall file a motion or other pleading seeking the dismissal of any of the Cases under Section 1112 of the Bankruptcy Code or otherwise; or (B) a trustee under Chapter 11 of the Bankruptcy Code, a responsible officer or an examiner with enlarged powers relating to the operation of the business (powers beyond those set forth in Section 1106(a)(3) and (4) of the Bankruptcy Code) under Section 1106(b) of the Bankruptcy Code shall be appointed or elected in any of the Cases, other than a Case in which the relevant Debtor has assets of less than $1,000,000; (xxiii) (A) Conway Del Genio Gries & Co., LLC shall cease to be retained as financial advisor for the Company, Satellite or SpaceCom and a replacement reasonably acceptable to the Satellite Required Lenders and SpaceCom Required Lenders shall not have been appointed within 10 days thereafter, (B) the Company shall cease to own all of the capital stock and voting interests in SpaceCom or Satellite or (C) the board of directors of SpaceCom or Satellite shall cease to consist of a majority of Continuing Directors of SpaceCom or Satellite, as applicable. "CONTINUING DIRECTORS" shall mean the directors of SpaceCom or Satellite, as applicable, on the Petition Date and each other director, if, in each case, such other director's nomination for election to the board of directors of either SpaceCom or 19 Satellite is recommended by at least a majority of the then Continuing Directors; (xxiv) any material provision of this Order shall for any reason, cease to be valid and binding or any Debtor shall so assert in any pleading filed in any court; (xxv) any failure to comply with Section 8.1, 8.2, 8.5, 8.6 or 8.8 of the SpaceCom Credit Agreement, Section 5.1, 5.2, 5.5, 5.6, 5.8 or 5.12 of the Satellite Credit Agreement, Section 5 of the SpaceCom Security Agreement, Section 6 to the Pledge Agreement dated as of December 21, 2001, Section 5 of the Second Amendment dated as of March 31, 2003 to the Satellite Credit Agreement, Section 6 of the Second Amended and Restated Pledge Agreement dated as of March 31, 2003, Section 4.4 of the Collateral Agency Agreement or Section 6 of the Cash Collateral Agreement; (xxvi) [intentionally deleted]; (xxvii) any transponder lessee on the Telstar 6 or Telstar 7 satellite is transferred to another satellite of any Debtor (other than Telstar 6 or Telstar 7), other than for technical reasons or as requested by the lessee (not at the suggestion of any Debtor); or (xxviii) bank concentration account number 1076-121464 held at Comerica Bank shall at any time have a balance in excess of $50,000; and any other concentration accounts of any Debtor maintained with any financial institutions in the United States shall not have their daily account balances swept into an account maintained at Bank of America, N.A.; ; provided that the Satellite Required Lenders may waive any Termination Event with respect to the Satellite Obligor Debtors, in which case the Termination Date shall be deemed not to have occurred with respect to the Satellite Obligor Debtors, and the SpaceCom Required Lenders may waive any Termination Event with respect to the SpaceCom Obligor Debtors, in which case the 20 Termination Date shall be deemed not to have occurred with respect to the SpaceCom Obligor Debtors. The Debtors shall immediately provide notice to the Agents and the Committee (as defined below) of the occurrence of any Termination Event. (d) On the last business day of each month commencing with August 2003, SpaceCom (through Skynet) shall pay to Satellite an amount agreed to by SpaceCom, Satellite and the Agents, on account of the rent payable on such date in connection with the Master Lease net of the amount agreed to between Satellite, SpaceCom and the Agents as the appropriate monthly allocation in respect of management, marketing, customer service and TT&C relating to the satellites that are the subject of the Master Lease(3) The amount of these monthly net payments (which for August 2003 shall be approximately $3.7 million) shall be without prejudice to the Agents' and Committee's rights to challenge such agreed amounts. The Debtors shall provide the Committee with notice of the calculation of such monthly payments within 3 business days of making such payments. Moreover, the Master Lease Loan in the amount of $8,187,445 made by Satellite to SpaceCom in July, 2003 shall continue to have all of the claims, rights, liens and priorities in respect of such loan set forth in the Interim Order, all of which are incorporated herein by reference as if expressly set forth herein. (e) For purposes hereof, the "CARVE OUT" means (i) all fees required to be paid to the Clerk of the Bankruptcy Court and to the Office of the United States - ---------- (3) This and the other references herein to corporate allocations shall be without prejudice to the Agents' and Committee's rights to challenge such allocations, funds flows, transfers and payments as not being appropriate in amount. 21 Trustee under section 1930(a) of title 28 of the United States Code and (ii) an amount not exceeding $4,000,000 in the aggregate, which amount may be used after the occurrence of the Termination Date, subject to the terms of this Order, including, without limitation, paragraph 15 hereof, to pay fees or expenses incurred by the Obligor Debtors and the Official Committee of Unsecured Creditors (the "COMMITTEE") in respect of (A) allowances of compensation for services rendered or reimbursement of expenses awarded by the Bankruptcy Court to the Obligor Debtors' or the Committee's professionals and (B) the reimbursement of expenses allowed by the Bankruptcy Court incurred by Committee members in the performance of their duties (but excluding fees and expenses of third party professionals employed by such members) and of which amount up to $100,000 in the aggregate may be applied towards the reasonable fees and disbursements of a chapter 7 trustee in any liquidation of one or more Debtors pursuant to Chapter 7 of the Bankruptcy Court, pursuant to section 726 of the Bankruptcy Code; provided, however, that the dollar limitation in this clause 6(e)(ii) on fees and disbursements shall neither be reduced nor increased by the amount of any compensation or reimbursement of expenses incurred, awarded or paid to any party prior to the Termination Date or by any fees, expenses, indemnities or other amounts paid to any Agent, Lender or their respective attorneys and agents under the Existing Agreements or otherwise; and provided further that nothing herein shall be construed to impair the ability of any party to object to any of the fees, expenses, reimbursement or compensation described in clauses (A) and (B) above. 22 (f) The Carve Out shall be allocated among the Collateral and Pre-Petition Obligations of each of the Obligor Debtors as follows: (i) to the extent the proceeds of any liquidation or foreclosure of the Collateral granted by such Obligor Debtor on a first lien basis exceeds the Pre-Petition Obligations of such Obligor Debtor, the Carve Out shall be allocated to (and satisfied from) such excess, and (ii) if after giving effect to clause (i) all or a portion of the Carve Out remains unallocated and unsatisfied, the Carve Out shall be allocated between the Collateral of and Pre-Petition Obligations owed to the SpaceCom Lenders and the Collateral of and Pre-Petition Obligations owed to the Satellite Lenders on a proportional basis calculated on the basis of the relative percentage recovery ratio for each (for example, if the recovery with respect to the Pre-Petition Obligations of the SpaceCom Lenders is 80% and the recovery with respect to the Pre-Petition Obligations of the Satellite Lenders is 40%, the relative percentage recovery ratio is 2:1 and the Carve Out will be allocated 2/3 to the Pre-Petition Obligations of the SpaceCom Lenders and 1/3 to the Pre-Petition Obligations of the Satellite Lenders). 7. Intercompany Transfers and Cyberstar Loans. No payments to or for benefit of any other Debtor or any non-Debtor affiliate shall be made by SpaceCom, SSL, Satellite, Orion, Cyberstar, Brazil or Loral Space & Communications Corporation other than those payments set forth in the Approved Forecast. To the extent that any payments permitted under the Approved Forecast shall be made by SpaceCom (through Skynet) to Cyberstar, such payments shall be deemed to constitute loans (the "CYBERSTAR LOAN") made by SpaceCom to Cyberstar. Cyberstar shall repay the full amount of the Cyberstar 23 Loan to SpaceCom, in cash, on or before the Termination Date. Pursuant to Section 364(c)(1) of the Bankruptcy Code, Cyberstar's obligations to SpaceCom with respect to the Cyberstar Loan (the "CYBERSTAR OBLIGATIONS") shall constitute allowed claims with priority over any and all administrative expenses, diminution claims and all other claims against Cyberstar, now existing or hereafter arising, of any kind whatsoever, including, without limitation, all administrative expenses of the kind specified in sections 503(b) and 507(b) of the Bankruptcy Code, and over any and all administrative expenses or other claims arising under sections 105, 326, 328, 330, 331, 503(b), 506(c), 507(a), 507(b), 726, 1113 or 1114 of the Bankruptcy Code (the "CYBERSTAR SUPERPRIORITY CLAIMS"), which Cyberstar Obligations shall be payable from and have recourse to all pre- and post-petition property of Cyberstar and all proceeds thereof, subject only to the payment of the Carve Out. As security for the Cyberstar Obligations, effective and perfected upon the date of this Order and without the necessity of the execution or recordation of filings of mortgages, security agreements, control agreements, pledge agreements, financing statements or other similar documents, the following security interests and liens are hereby granted to SpaceCom (all property identified in clauses (a) and (b) below being collectively referred to as the "CYBERSTAR COLLATERAL"), subject to the provisions of paragraph 7(d) below and, after the occurrence of a Termination Event, to the payment of the Carve Out (all such liens and security interests granted to SpaceCom, pursuant to this Order, the "CYBERSTAR LIENS"): (a) First Lien on Cash Balances and Unencumbered Property. Pursuant to Section 364(c)(2) of the Bankruptcy Code, SpaceCom is hereby granted a valid, 24 binding, continuing, enforceable, fully-perfected first priority senior security interest in and lien upon all pre- and post-petition property of Cyberstar (including without limitation, all cash and cash collateral of Cyberstar (whether maintained with the Agents, any Lender or otherwise) and any investment of such cash and cash collateral, inventory, accounts receivable, other rights to payment whether arising before or after the Petition Date, contracts, properties, plants, equipment, general intangibles, documents, instruments, interests in leaseholds, real properties, patents, copyrights, trademarks, trade names, other intellectual property, capital stock of subsidiaries, and the proceeds of all the foregoing), whether existing on the Petition Date or thereafter acquired, that, on or as of the Petition Date is not subject to valid, perfected and non-avoidable liens (collectively, "UNENCUMBERED PROPERTY"). Unencumbered Property shall exclude Cyberstar's claims and causes of action under Sections 502(d), 544, 545, 547, 548, 549 and 550 of the Bankruptcy Code, and any other avoidance actions under the Bankruptcy Code (collectively, "CYBERSTAR AVOIDANCE ACTIONS"), but shall include any proceeds or property recovered as a consequence of, unencumbered by or otherwise the subject of successful Cyberstar Avoidance Actions. (b) Liens Junior to Certain Other Liens. Pursuant to Section 364(c)(3) of the Bankruptcy Code, SpaceCom is hereby granted valid, binding, continuing, enforceable, fully-perfected security interests in and liens upon all pre- and post-petition property of Cyberstar (other than the property described in clause (a) of this paragraph 7, as to which the liens and security interests in favor of SpaceCom will be as described in such clause), whether now existing or hereafter acquired, that is subject to valid, perfected 25 and unavoidable liens in existence immediately prior to the Petition Date or to valid and unavoidable liens in existence immediately prior to the Petition Date that are perfected subsequent to the Petition Date as permitted by Section 546(b) of the Bankruptcy Code, which security interests and liens in favor of SpaceCom are junior to such valid, perfected and unavoidable liens. (c) Liens Senior to Certain Other Liens. The Master Lease Loan Liens, Cyberstar Liens and Adequate Protection Liens (as defined below) shall not be subject or subordinate to (i) any lien or security interest that is avoided and preserved for the benefit of the Obligor Debtors and their estates or Cyberstar, as the case may be, under Section 551 of the Bankruptcy Code, or (ii) except as provided below in paragraph 7(d), any liens arising after the Petition Date including, without limitation, any liens or security interests granted in favor of any federal, state, municipal or other governmental unit, commission, board or court for any liability of the Obligor Debtors. (d) Relative Priority of Pre-Petition Obligations and Liens and Adequate Protection Obligations and Liens. The Adequate Protection Obligations of, and Adequate Protection Liens granted by, any Obligor Debtor to the SpaceCom Lenders (and Agents for the benefit of the SpaceCom Lenders) shall be immediately junior to any liens securing the Pre-Petition Obligations of the SpaceCom Lenders, and the Adequate Protection Obligations of, and Adequate Protection Liens granted by, any Obligor Debtor to the Satellite Lenders (and Agents for the benefit of the Satellite Lenders) shall be immediately junior to any liens securing the Pre-Petition Obligations of the Satellite Lenders. In each case where any Obligor Debtor owes Adequate Protection Obligations 26 to both the SpaceCom Lenders (and Agents for the benefit of the SpaceCom Lenders) and the Satellite Lenders (and Agents for the benefit of the Satellite Lenders), the Adequate Protection Obligations and Adequate Protection Liens of each group of Lenders will have the same relative priority as they would have if they were Pre-Petition Obligations owed to such group of Lenders and governed by the Intercreditor Agreement applicable to such Obligor Debtor. If an Intercreditor Agreement does not apply to any Obligor Debtor, the Adequate Protection Obligations of, and Adequate Protection Liens granted by, such Obligor Debtor to the SpaceCom Lenders shall rank pari passu with the Adequate Protection Obligations of, and Adequate Protection Liens granted by, such Obligor Debtor to the Satellite Lenders. 8. Adequate Protection. Subject to parties' rights under paragraph 14 hereof, the Credit Agreement Parties are entitled, pursuant to Sections 361 and 363(e) of the Bankruptcy Code, to adequate protection of their interest in the Pre-Petition Collateral, including the Cash Collateral, as to each of the Satellite Lenders and SpaceCom Lenders, for and equal in amount to the aggregate diminution in value of such Lender's interests in the Pre-Petition Collateral, including, without limitation, any such diminution resulting from the sale, lease or use by the Debtors (or other decline in value) of Cash Collateral and any other Pre-Petition Collateral, the granting of certain security interests and liens to Satellite pursuant to the Interim Order and the imposition of the automatic stay pursuant to Section 362 of the Bankruptcy Code (collectively, the "ADEQUATE PROTECTION OBLIGATIONS"). As adequate protection, the Credit Agreement Parties are hereby granted the following: 27 (a) Adequate Protection Liens. The Agents (for themselves and for the benefit of the Lenders) are hereby granted (effective and perfected upon the date of this Order and without the necessity of the execution by the Obligor Debtors of mortgages, security agreements, pledge agreements, financing statements or other agreements) a replacement security interest in and lien upon all the Collateral(4), subject and subordinate only to (i) Master Lease Loan Liens (to the extent provided in paragraph 7(e) of the Interim Order), (ii) to the extent provided in paragraph 7(d) hereof, the Pre-Petition Obligations and (iii) the Carve Out (the "ADEQUATE PROTECTION LIENS"), provided that solely in connection with Adequate Protection Obligations arising under the Satellite Existing Agreements, such Adequate Protection Liens shall not attach to any property of Loral Delaware that was not, immediately prior to the Petition Date, pledged under the Satellite Existing Agreements; (b) Section 507(b) Claim. The Obligor Debtors shall be jointly and severally liable for the Adequate Protection Obligations and the Lenders are hereby granted by each such Obligor Debtor, subject to the Carve Out, a superpriority claim in the amount of the Adequate Protection Obligations, as provided for in section 507(b) of the Bankruptcy Code, provided that solely as to Loral Delaware and solely in connection with Adequate Protection Obligations arising under the Satellite Existing Agreements, such superpriority claims shall be satisfied solely from collateral pledged under the Satellite Existing Agreements immediately prior to the Petition Date. - ---------- (4) As used herein, "COLLATERAL" shall mean all of the types of property of all of the Obligor Debtors of the type described in paragraphs 7(a) and (b) hereof as well as all property that is subject to existing liens presently securing the Pre-Petition Obligations. 28 (c) Interest, Fees and Expenses. Subject to the right of parties in interest, to the extent permitted in paragraph 14, to seek the reallocation, recharacterization or disgorgement of payments made to the Agents as authorized in this paragraph and the entry of a final order of this Court ordering any of the foregoing, the Obligor Debtors shall pay to the Agents (i) current cash payment of all accrued and unpaid interest on the Pre-Petition Obligations and all accrued but unpaid letter of credit fees payable in respect thereof, in each case both for the pre- and post-petition periods and at the non-default rates provided for in and calculated in accordance with the Existing Agreements (including LIBOR pricing options), and all other accrued and unpaid fees and expenses payable to the Agents under the Existing Agreements and incurred prior to the Petition Date as due under the Existing Agreements and (ii) current cash payment of all reasonable fees and expenses payable to the Agents under the Existing Agreements, including, but not limited to, the reasonable fees and disbursements of counsel, financial and other consultants for the Agents (including without limitation Davis Polk & Wardwell, Morgan, Lewis & Bockius LLP and Ernst & Young Corporate Finance LLC); provided that notwithstanding the provisions of this paragraph 8(c) without prejudice to the rights of any other party to contest such assertion, the Lenders reserve their rights to assert claims for the payment of additional interest, letter of credit and other fees calculated at any other applicable rates (including, without limitation, default rates), or on any other basis, provided for in the Existing Agreements; (d) Monitoring of Collateral. The Lenders shall be permitted to retain expert consultants and financial advisors in accordance with the Existing Agreements, 29 which consultants and advisors shall be given reasonable access for purposes of monitoring the business of the Debtors and the value of the Collateral; (e) Information. The Debtors shall provide the following information to the Agents, the Steering Committee and the Committee: (i) within four business days after the end of each week, an updated rolling 13-week forecast of cash receipts and disbursements for each Debtor for the next succeeding 13 weeks, substantially in the form of the Approved Forecast, with a variance report comparing such updated forecast with the Approved Forecast; (ii) within four business days after the end of each week, a certificate signed by the Company's chief financial officer (the "CFO") (x) certifying that no Termination Event has occurred (except with respect to a Termination Event described in clause (viii) of paragraph 6(c) hereof, the "CYBERSTAR TERMINATION EVENT") (or, if a Termination Event has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto) and (y) setting forth computations in reasonable detail to demonstrate whether a Termination Event described in clause (v), (vi), (vii), (ix), (x), (xi), (xii), (xiii), (xiv) or (xv) of paragraph 6(c) hereof has occurred, (iii) within nine business days after the end of each week, a certificate signed by the CFO certifying that the Cyberstar Termination Event has not occurred (or if the Cyberstar Termination Event has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto), (iv) by not later than August 19, 2003, an updated business plan through June 2004 and weekly forecast of cash receipts and disbursements for each Debtor included in the initial Approved Forecast for the period from August 15, 2003 through November 14, 2003 (the 30 "BUSINESS PLAN"); (v) by not later than November 1, 2003, a weekly forecast of cash receipts and disbursements for each Debtor included in the initial Approved Forecast for the period from November 14, 2003 through December 31, 2003 (the "FINAL WEEKLY FORECAST") and (vi) as and when required by the Existing Agreements, all information that is required to be provided to the Agents or any Lenders pursuant to the Existing Agreements; provided that the consolidated statements of income and cash flows for the month of July, 2003 shall be delivered by September 15, 2003. (f) Payment from Proceeds of Collateral. (i) On the date of any sale, lease, transfer, license or other disposition of property of any Obligor Debtor that constitutes Collateral outside the ordinary course of business (other than any individual item having a value or resulting in net proceeds of less than $50,000, or up to $250,000 in the aggregate for all such individual items disposed of since the Petition Date), the Obligor Debtors are authorized and directed to pay to the Agents, for the benefit of the Agents and Lenders with liens on such Collateral, 100% of the gross proceeds resulting therefrom, net of attorneys' fees, accountants' fees, investment banking fees, and other customary fees and expenses incurred in connection therewith and net of taxes paid or reasonably estimated to be payable as a result thereof (other than income taxes). (ii) In the event of any casualty, condemnation or similar event with respect to property that constitutes Collateral, the Obligor Debtors are authorized and directed to pay to the Agents, for the benefit of the Agents and Lenders with liens on such Collateral, 100% of any insurance proceeds, condemnation award or similar payment within two business days of receipt thereof. (iii) In the event any Obligor Debtor receives any proceeds pursuant to a successful Avoidance 31 Action(5), the Obligor Debtors are authorized and directed to pay to the Agents, for the benefit of the Agents and Lenders, 100% of such proceeds within two business days of receipt thereof. (iv) All proceeds and payments delivered to the Agents pursuant to this paragraph 8(f) shall be applied to the payment of any Pre-Petition Obligations, the Master Lease Loan Obligations, and the Adequate Protection Obligations in accordance with the priorities set forth in the Interim Order (as to the Master Lease Loan Obligations), this Order and the Existing Agreements; provided, however, that any proceeds and payments pursuant to paragraph 8(f)(iii) shall only be applied to the payment of any Master Lease Loan Obligations and Adequate Protection Obligations. (g) Hedging Agreements. Bank of America, N.A. shall be permitted to exercise its rights of termination with respect to any foreign currency exchange agreement with any Obligor Debtor (the "BANK OF AMERICA HEDGE AGREEMENTS") and its right of setoff pursuant to the Existing Agreements, to setoff any obligations owed by Bank of America, N.A. to such Obligor Debtor upon such termination in accordance with the provisions thereof against an equal amount of Pre-Petition Obligations owed by such Obligor Debtor to Bank of America, N.A. pursuant to the Existing Agreements and as a result of such setoff the Pre-Petition Obligations then outstanding would be reduced by such amount on a dollar for dollar basis, and the automatic stay is hereby modified and vacated to the extent necessary to permit such setoff. JPMorgan Chase Bank shall be permitted to exercise its rights of termination with respect to any foreign currency - --------- (5) As used herein, "AVOIDANCE ACTIONS" shall mean any claim or cause of action under sections 502(d), 544, 545, 547, 548, 549 or 550 of the Bankruptcy Code, and any other avoidance actions under the Bankruptcy Code. 32 exchange agreement with any Obligor Debtor (the "JPMORGAN CHASE HEDGE AGREEMENTS") and its right of setoff pursuant to the Existing Agreements, to setoff any obligations owed by JPMorgan Chase to such Obligor Debtor upon such termination in accordance with the provisions thereof against an equal amount of Pre-Petition Obligations owed by such Obligor Debtor to JPMorgan Chase pursuant to the Existing Agreements and as a result of such setoff the Pre-Petition Obligations then outstanding would be reduced by such amount on a dollar for dollar basis, and the automatic stay is hereby modified and vacated to permit such setoff. (h) Pre-Petition Letters of Credit. In consideration of the benefits afforded to them pursuant to this Order, with respect to any Pre-Petition Letters of Credit, notwithstanding any provision to the contrary in the SpaceCom Credit Agreement: (i) the Issuing Bank under the SpaceCom Credit Agreement (the "ISSUING BANK") is hereby authorized (but not required) and permitted to extend, renew, amend or replace any Pre-Petition Letter of Credit (each of which is listed on Annex A hereto) with a new letter of credit issued to the same beneficiary, with an expiration date no later than the earlier of one year after the expiration date of such Pre-Petition Letter of Credit and December 31, 2004 and in an amount no greater than the applicable Pre-Petition Letter of Credit as set forth on Annex A (such extended, renewed, amended or replacement Pre-Petition Letter of Credit, a "NEW LETTER OF CREDIT") and such New Letter of Credit shall be deemed to constitute a Letter of Credit issued under the SpaceCom Credit Agreement, with each Revolving Credit Bank under the SpaceCom Credit Agreement (a "PRE-PETITION REVOLVING LENDER") holding the same participation in such New Letter of Credit as it had held in the applicable Pre-Petition Letter of Credit; (ii) each Pre-Petition Revolving Lender shall be obligated to reimburse the Issuing Bank for any payment made on any New Letter of Credit and any other amounts due in respect 33 thereof under the SpaceCom Credit Agreement on the same terms as contained in the SpaceCom Credit Agreement for the Pre-Petition Letters of Credit; (iii) any claims (as defined in the Bankruptcy Code) that the Issuing Bank or any Pre-Petition Revolving Lender may have against any Obligor Debtor in respect of any New Letter of Credit (including for the reimbursement of any payment made on such New Letter of Credit) shall constitute Pre-Petition Obligations, entitled to treatment as pre-petition claims, pari passu with the loans outstanding under the SpaceCom Credit Agreement, and as such shall be entitled to the adequate protection as provided herein. 9. Protection of Lenders' Rights. The automatic stay provisions of Section 362 of the Bankruptcy Code are vacated and modified to permit the Credit Agreement Parties to exercise, upon the occurrence of the Termination Date (unless waived as required herein), and the giving of five business days prior written notice to the Debtors and counsel for the Committee, all rights and remedies against the Collateral provided for in the Existing Agreements (including, without limitation, the right to setoff monies of the Obligor Debtors in accounts maintained with the Agents or any Lender). In no event shall the Agents or the Lenders be subject to the equitable doctrine of "marshaling" or any similar doctrine with respect to the Collateral. 10. Limitation on Charging Expenses Against Collateral. Except to the extent of the Carve Out and as to expenses contained in the Approved Forecast actually paid prior to the Termination Date (including, but not limited to, fees and expenses of professionals retained by the Debtors and the Committee), no expenses of administration of the Cases or any future proceeding that may result therefrom, including liquidation in bankruptcy or other proceedings under the Bankruptcy Code, shall be charged against or recovered from the Collateral pursuant to Section 506(c) of the Bankruptcy Code or any 34 similar principle of law, without the prior written consent of the Agents, as applicable, and no such consent shall be implied from any other action, inaction, or acquiescence by the Agents or any Lender. 11. Reservation of Rights of Lenders. Under the circumstances and given that the above described adequate protection is consistent with the Bankruptcy Code, including Section 506(b) thereof, the Court finds that the adequate protection provided herein is reasonable and sufficient to protect the interests of the Credit Agreement Parties. However, upon proper notice, the Credit Agreement Parties may request further or different adequate protection, and the Debtors or any other party may contest any such request. Moreover, nothing contained in this Order (including, without limitation, the authorization of the use of any Cash Collateral) shall impair or modify the right of the Agents or any Lender (i) to propose, subject to the provisions of Section 1121 of the Bankruptcy Code, a chapter 11 plan or plans of reorganization, (ii) to object, contest or appeal entry of any order or seek to modify any order, including without limitation, any order authorizing "critical vendor payments" or retention and/or severance payments to employees of any Debtor but excluding any First Day Orders or (iii) that is a party to a swap agreement, securities contract, commodity contract, forward contract or repurchase agreement with a Debtor to assert rights of setoff or other rights with respect thereto as permitted by law (or the right of the Debtors to contest such assertions). 12. Perfection of Liens. (a) SpaceCom and the Credit Agreement Parties are hereby authorized, but not required, to file or record financing statements, trademark filings, copyright 35 filings, mortgages, notices of lien or similar instruments in any jurisdiction or take any other action in order to validate and perfect the liens and security interests granted to them hereunder. Whether or not SpaceCom or any Agent on behalf of the Lenders shall, in its sole discretion, choose to file such financing statements, trademark filings, copyright filings, mortgages, notices of lien or similar instruments or otherwise confirm perfection of the liens and security interests granted to them hereunder, such liens and security interests shall be deemed valid, perfected, allowed, enforceable, non-avoidable and not subject to challenge dispute or subordination, at the time and on the date of entry of the Interim Order. Each Agent, without any further consent or other action of any Obligor Debtor or other party, is authorized to take, execute and deliver such instruments (in each case without representation or warranty of any kind) to enable the Agents to further validate, perfect, preserve and enforce the Adequate Protection Liens. (b) A certified copy of this Order may, in the discretion of any Agent, be filed with or recorded in filing or recording offices in addition to or in lieu of such financing statements, mortgages, notices of lien or similar instruments, and all filing offices are hereby authorized to accept such certified copy of this Order for filing and recording. (c) In furtherance of the foregoing and without further approval of this Court, each Obligor Debtor is authorized and directed to do and perform all acts, to make, execute and deliver all instruments and documents (including, without limitation, the execution or recordation of security agreements, mortgages and financing statements), 36 and to pay all fees, that may be reasonably required or necessary for the Obligor Debtors' performance hereunder. (d) No obligation, payment, transfer or grant of security under this Order shall be stayed, restrained, voidable, or recoverable under the Bankruptcy Code or under any applicable law (including without limitation, under Section 502(d) of the Bankruptcy Code), or subject to any defense, reduction, setoff or counterclaim. 13. Preservation of Rights Granted Under the Order. (a) Except as expressly provided herein, (i) no claim or lien having a priority superior to or pari passu with those granted by the Interim Order or this Order to Satellite, SpaceCom, the Agents or the Lenders, respectively, shall be granted or allowed while any Adequate Protection Obligations, Master Lease Loans or Cyberstar Obligations remain outstanding, and (ii) the Master Lease Loan Liens, the Cyberstar Liens and Adequate Protection Liens shall not be subordinated to or made pari passu with any other lien or security interest, whether under Section 364(d) of the Bankruptcy Code or otherwise. (b) If an order dismissing any of the Cases of the Obligor Debtors under Section 1112 of the Bankruptcy Code or otherwise is at any time entered, such order shall provide (in accordance with Sections 105 and 349 of the Bankruptcy Code) that (i) the Master Lease Loan Obligations, Cyberstar Obligations, Adequate Protection Obligations, Master Lease Loan Liens, Cyberstar Liens and Adequate Protection Liens granted to Satellite, SpaceCom, the Agents and the Lenders pursuant to this Order shall continue in full force and effect and shall maintain their priorities as provided in this Order until all 37 Adequate Protection Obligations, Master Lease Loan Obligations and Cyberstar Obligations shall have been indefeasibly paid in full (and that all such claims, liens and security interests shall, notwithstanding such dismissal, remain binding on all parties in interest) and (ii) this Court shall retain jurisdiction, notwithstanding such dismissal, for the purposes of enforcing the claims, liens and security interests referred to in (i) above. (c) If any or all of the provisions of this Order are hereafter reversed, modified, vacated or stayed, such reversal, stay, modification or vacation shall not affect (i) the validity of any Master Lease Loan Obligations, Cyberstar Obligations or Adequate Protection Obligations incurred prior to the actual receipt of written notice by the Agents of such reversal, stay, modification or vacation or (ii) the validity or enforceability of any lien or priority authorized or created hereby. Notwithstanding any such reversal, stay, modification or vacation, any use of Cash Collateral and all Master Lease Loan Obligations, Cyberstar Obligations and Adequate Protection Obligations incurred prior to the actual receipt of written notice by the Agents of such reversal, stay, modification or vacation shall be governed in all respects by the original provisions of this Order. (d) Except as expressly provided in this Order, the Master Lease Loan Obligations, Cyberstar Obligations, Master Lease Loan Liens, Cyberstar Liens, the Adequate Protection Obligations and Adequate Protection Liens, the Cyberstar Superpriority Claims and all other rights and remedies of Satellite, SpaceCom and the Credit Agreement Parties granted by the provisions of this Order shall survive, and shall not be modified, impaired or discharged by (i) the entry of an order converting any of the Cases to a case under chapter 7, dismissing any of the Cases, terminating the joint 38 administration of these Cases or by any other act or omission, or (ii) the entry of an order confirming a plan of reorganization in any of the Cases and, pursuant to Section 1141(d)(4) of the Bankruptcy Code, the Obligor Debtors have waived any discharge as to any remaining Master Lease Loan Obligations, Cyberstar Obligations or Adequate Protection Obligations and such waiver is hereby approved. The terms and provisions of this Order shall continue in these Cases, in any successor cases if these Cases cease to be jointly administered, or in any superceding chapter 7 cases under the Bankruptcy Code, and the Master Lease Loan Liens, Cyberstar Liens, Adequate Protection Liens, the Cyberstar Superpriority Claims and all other rights and remedies of the Credit Agreement Parties and SpaceCom granted by the provisions of this Order shall continue in full force and effect until the Master Lease Loan Obligations, Cyberstar Obligations and Adequate Protection Obligations are indefeasibly paid in full. 14. Effect of Stipulations on Third Parties. The stipulations and admissions contained in this Order, including, without limitation, in paragraph 3 of this Order, shall be binding upon the Debtors in all circumstances and shall be binding upon all other parties in interest, including, without limitation, any Committee, unless (a) a party in interest has timely filed an adversary proceeding or contested matter (subject to the limitations contained herein, including, inter alia, in paragraph 15) by no later than September 23, 2003, provided that said deadline shall be October 31, 2003 in the case of the Committee (or such later date as has been agreed to, in writing, by the Agents in their sole discretion), (i) challenging the validity, enforceability, priority or extent of the Pre-Petition Obligations or the Agents' or the Lenders' liens on the Pre-Petition Collateral or 39 (ii) otherwise asserting or prosecuting any action for preferences, fraudulent conveyances, other avoidance power claims or any other any claims, counterclaims or causes of action , objections, contests or defenses (collectively, "CLAIMS AND DEFENSES") against the Agents or any of the Lenders or their affiliates, representatives, attorneys or advisors in connection with matters related to the Existing Agreements, the Pre-Petition Obligations, the Pre-Petition Collateral, and (b) there is a final order in favor of the plaintiff sustaining any such challenge or claim in any such timely filed adversary proceeding or contested matter; provided that as to the Debtors (but not as to any party that specifically preserves any rights it may have as provided for in this paragraph), all such Claims and Defenses are hereby irrevocably waived and relinquished as of the Petition Date. If no such adversary proceeding or contested matter is timely filed, (x) the Pre-Petition Obligations shall constitute allowed claims, not subject to counterclaim, setoff, subordination, recharacterization, defense or avoidance, for all purposes in the Cases and any subsequent chapter 7 cases, (y) the Agents' and the Lenders' liens on the Pre-Petition Collateral shall be deemed to have been, as of the Petition Date, legal, valid, binding and perfected, not subject to recharacterization, subordination or avoidance and (z) the Pre-Petition Obligations, the Agents' and the Lenders' liens on the Pre-Petition Collateral and the Credit Agreement Parties shall not be subject to any other or further challenge by any party in interest seeking to exercise the rights of the Debtors' estates, including, without limitation, any successor thereto (including, without limitation, any chapter 7 or 11 trustee appointed or elected for any of the Debtors). If any such adversary proceeding or contested matter is timely filed, the stipulations and admissions 40 contained in paragraph 3 of this Order shall nonetheless remain binding and preclusive (as provided in the second sentence of this paragraph) on any official committee (including the Creditors' Committee) and on any other person or entity, except to the extent that such findings and admissions were expressly challenged in such adversary proceeding or contested matter. 15. Limitation on Use of Collateral. Notwithstanding anything herein or in any other order of this Court to the contrary, no Master Lease Loans, Cyberstar Loans, Cash Collateral, Collateral or the Carve Out may be used to (a) object, contest or raise any defense to, the validity, perfection, priority, extent or enforceability of any amount due under the Existing Agreements, or the liens or claims granted under this Order or the Existing Agreements; provided, however, that such limitation shall not apply to the costs of investigation of whether any such objection, contest or defense may be brought or asserted, (b) assert or prosecute any Claims or Defenses or causes of action against the Agents or the Lenders or their respective agents, affiliates, officers, directors, employees, representatives, attorneys or advisors, (c) prevent, hinder or otherwise delay the Agents' assertion, enforcement or realization on the Cash Collateral or the Collateral in accordance with the Existing Agreements or this Order, (d) seek to modify any of the rights granted to the Agents or the Lenders hereunder or under the Existing Agreements, in each of the foregoing cases without such parties' prior written consent or (e) pay any amount on account of any claims arising prior to the Petition Date unless such payments are (i) approved by an Order of this Court and (ii) in accordance with the Approved Forecast. 41 16. Limits on Lenders' Liability. Nothing in this Order or any other documents related to this transaction shall in any way be construed or interpreted to impose or allow the imposition upon the Agents or the Lenders any liability for any claims arising from the pre-petition or post-petition activities by the Debtors or any of their affiliates in the operation of their businesses, or in connection with their restructuring efforts. 17. Binding Effect; Successors and Assigns. Except as to parties' rights under paragraph 14 hereof, the provisions of this Order, including all findings herein, shall be binding upon all parties in interest in these Cases, including, without limitation, the Agents, the Lenders, the Committee and the Debtors and their respective successors and assigns (including any chapter 7 or chapter 11 trustee hereinafter appointed or elected for the estate of any of the Debtors) and shall inure to the benefit of the Agents, the Lenders and the Debtors and their respective successors and assigns, provided that the Credit Agreement Parties shall have no obligation to permit the use of Cash Collateral by any chapter 7 trustee or similar responsible person appointed for the estates of the Debtors. In exercising any rights or remedies as and when permitted pursuant to this Order or the Existing Agreements, the Credit Agreement Parties shall not be deemed to be in control of the operations of the Debtors or to be acting as a "responsible person" or "owner or operator" with respect to the operation or management of the Debtors (as such terms, or any similar terms, are used in the United States Comprehensive Environmental Response, Compensation and Liability Act, 29 U.S.C. Sections 9601 et seq. as amended, or any similar federal or state statute). 42 Dated: August 22, 2003 /s/ Robert D. Drain ------------------------------ UNITED STATES BANKRUPTCY JUDGE 43 Annex A Pre-Petition Letters of Credit
LC NUMBER AMOUNT --------- ------ 3029341 $ 45,000.00 3034724 693,000.00 3035160 6,521,191.80 3037887 500,000.00 3039462 1,239,000.00 3048556 407,000.00 3049998 1,486,000.00 3052093 1,100,000.00 7310438 334,800.00 7310427 330,966.00 -------------- Total................. $12,656,957.80
44 EX-10.39 7 y94860exv10w39.txt CONFORMED AS AMENDED APSTAR V SATELLITE AGREEMENT EXHIBIT 10.39 CONFORMED AS AMENDED SATELLITE AGREEEMENT between APT SATELLITE COMPANY LIMITED and LORAL ORION, INC. Form of Amended & Restated as of August 26, 2003, as Amended Pursuant to the Settlement Agreement dated November 16, 2003 PROPRIETARY AGREEMENT INDEX
Page ---- ARTICLE 1. INTERPRETATION........................................................ 1 ARTICLE 2. PARTIES' INTERESTS IN THE SATELLITE................................... 2 ARTICLE 3. PAYMENT PLAN AND INSURANCE............................................ 7 ARTICLE 4. OPERATION OF TRANSPONDERS............................................. 8 ARTICLE 5. THE SATELLITE AND RELATED CONTRACTS................................... 9 ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE PARTIES........................................................ 10 ARTICLE 7. LEASE OF ADDITIONAL TRANSPONDERS...................................... 11 ARTICLE 8. [RESERVED]............................................................ 12 ARTICLE 9. ORBITAL SLOT.......................................................... 12 ARTICLE 10. LANDING RIGHTS........................................................ 14 ARTICLE 11. SUCCESSOR SATELLITE RENEWAL........................................... 14 ARTICLE 12. EFFECTIVE DATE OFTHIS AGREEMENT....................................... 16 ARTICLE 13. PLEDGES............................................................... 16 ARTICLE 14. TRANSFER.............................................................. 16 ARTICLE 15. RELATIONSHIP OF PARTIES............................................... 17 ARTICLE 16. TAXES................................................................. 17 ARTICLE 17. ENTIRE AGREEMENT, TRANSACTION......................................... 17 DOCUMENTS ARTICLE 18. TERMINATION AND CERTAIN BANKRUPTCY EVENTS............................. 18 ARTICLE 19. FORCE MAJEURE......................................................... 18
PROPRIETARY
ARTICLE 20. DEFAULT............................................................... 19 ARTICLE 21. CONFIDENTIALITY....................................................... 20 ARTICLE 22. ASSIGNMENT............................................................ 20 ARTICLE 23. GOVERNING LAW......................................................... 21 ARTICLE 24. DISPUTE RESOLUTION.................................................... 21 ARTICLE 25. NOTICES............................................................... 22 ARTICLE 26. MISCELLANEOUS......................................................... 23
Schedule 1 Definitions Annex A Description of Loral Transponders Annex B Take Up Schedule for the Remaining Loral Transponders Annex C The Parties' Respective Interests in the 54 Transponders on the Satellite Annex D [Reserved] Annex E Transponder Performance Validation Annex F Material Restrictions or Agreements that Impact the Loral Transponders Annex G Ku-band Beam #2 Modification PROPRIETARY FORM OF SATELLITE AGREEMENT, AS AMENDED AND CONFORMED This Amended and Restated Agreement is dated as of the 26th day of August, 2003, as conformed to reflect the amendments entered into on November 16, 2003 as described below, by and between APT SATELLITE COMPANY LIMITED, a company organized and existing under the laws of Hong Kong with its registered office at Rooms 3111-3112, One Pacific Place, 88 Queensway, Hong Kong ("APT") and LORAL ORION, INC., a corporation organized and existing under the laws of the state of Delaware, U.S.A., with its principal place of business at 500 Hills Drive, Bedminster, NJ 07921, U.S.A. ("Loral Orion") WHEREAS APT and Space Systems/Loral, Inc. ("SS/L") have entered into a satellite procurement contract dated as of January 8, 2001, for the construction, testing and purchase of the Satellite; and WHEREAS on December 10, 2002, APT and Loral Orion entered into an agreement to provide among other things, for the joint acquisition of the Satellite (formerly known as the Condosat Agreement, now referred to herein as the "Satellite Agreement"); and WHEREAS, SS/L and Loral Orion entered into an agreement dated June 30, 2003, pursuant to which Loral Orion agreed to make certain payments to SS/L relating to the construction and launch of the Satellite; and WHEREAS, on August 26, 2003, APT and SS/L entered into an amendment to the SS/L Contract to provide that SS/L will transfer title to the Satellite to Loral Orion upon Intentional Ignition of the Launch Vehicle providing Launch Services for the Satellite as set forth therein; and WHEREAS, on August 26, 2003, APT and Loral entered into a satellite transponder agreement (the "APT Lease Agreement") pursuant to which Loral Orion will, in consideration of the payments made and to be made by APT with respect to the Satellite, lease to APT certain transponder capacity on the Satellite until the End of Life of such Satellite in accordance with the terms set forth therein; and WHEREAS, on November 16, 2003, APT, Loral Orion and SS/L entered into a settlement agreement (the "Settlement Agreement"), which agreement provided for the amendment of this Agreement and the assumption of this Agreement pursuant to Section 365 of the U.S. Bankruptcy Code; and PROPRIETARY WHEREAS, the Amended and Restated Satellite Agreement dated as of August 26, 2003, as further amended to conform to the Settlement Agreement, is as set forth below: NOW, THEREFORE, in consideration of the premises and of the mutual representations, warranties, covenants and agreements hereinafter contained, the parties hereto agree as follows: ARTICLE 1 INTERPRETATION 1.1 Words and expressions used in this Agreement shall have the meanings set out in Schedule 1, unless the context requires otherwise. 1.2 The Schedules and Annexes to this Agreement shall form part of this Agreement. 1.3 References to a Party giving consent or approval shall be deemed to be in such Party's sole judgment and discretion, except as specifically set forth herein. ARTICLE 2 PARTIES' INTERESTS IN THE SATELLITE 2.1 APT's Interest in the Satellite Pursuant to the terms of the APT Lease Agreement, and subject to the conditions set forth therein, APT will have a leasehold interest in all transponders on the Satellite that are not identified herein as the Initial Loral Transponders (the "APT Leasehold Interest"). Subject to the terms set forth therein, the term of the APT Lease Agreement shall commence at the time that SS/L transfers title of the Satellite to Loral Orion and continue thereafter until the End of Life of the Satellite or, with respect to each Remaining Loral Transponder, until such time when Loral Orion terminates the APT Leasehold Interest in such Remaining Loral Transponder as set forth in Paragraph 2.4.2 of this Agreement. In addition, APT is the licensee of the rights to the Orbital Slot and has agreed to make the Orbital Slot available to Loral Orion for use in connection with the operation of the Satellite for no additional consideration as set forth in the Orbital Sub-License Agreement. 2.2 Loral Orion's Interest in the Satellite Pursuant to the terms of the SS/L Contract and the Related Orion Agreement, Loral Orion will assume APT's rights to receive title to the Satellite upon Intentional Ignition of the Launch Vehicle providing Launch Services for the Satellite on the condition that Loral Orion will, simultaneously with its receipt from SS/L of title to the Satellite, grant the APT Leasehold Interest to APT. However, upon payment of the termination payments required to be made by Loral Orion to APT as described in Article 3 below, the APT Leasehold Interest in certain transponders on the Satellite will be terminated so that upon completion of all termination payments to be made as set forth in Article 3 below, Loral Orion's right, title PROPRIETARY and interest in the Satellite shall be as follows: (i) title to twenty-five (25) of the transponders on the Satellite (free of any APT Leasehold Interest), as follows: - 12 standard frequency C-band transponders; - 6 extended frequency C-band transponders; and - 7 Ku-band transponders on Beam #2, in each case as identified and described on Annex A hereto (collectively and including any replacement capacity allocated to Loral Orion, the "Loral Transponders"); and (ii) title to the remaining transponders on the Satellite (subject to the APT Leasehold Interest). Title in the Common Elements shall be vested in Loral Orion. 2.3 Identification and Assignment of Loral Transponders 2.3.1 Assuming all transponders on the Satellite are performing according to specifications, APT shall be entitled, on or before March 31, 2004, to make minor adjustments to the designation of the six (6) transponders identified as the "Assigned Transponders" in Annex A hereto, subject to obtaining Loral Orion's consent thereto, which consent shall not be unreasonably withheld. 2.3.2 APT represents and warrants that the six (6) transponders on APSTAR I corresponding to the Assigned Transponders shall have historically not experienced any unacceptable level of interference from adjacent or nearby satellites and can be fully saturated. 2.3.3 Reserved. 2.3.4 APT and Loral Orion agree that they will not enter into any coordination or other agreement relating to the Russian Filing or the satellite that is the subject of the Russian Filing (the "Russian Satellite") that would result in the other Party bearing a disproportionate amount (i.e., more than 54% in the case of APT and more than 46% in the case of Loral Orion) of the potential or actual risk of coordination with the Russian Filing or the Russian Satellite. 2.3.5 APT will use its reasonable best efforts, subject to the principles set forth in this Paragraph 2.3 and the requirements in any coordination agreements affecting the Orbital Slot presently existing or permitted under Paragraph 9.1 of this Agreement, so that all Loral Transponders will not suffer unacceptable levels, as reasonably determined by Loral Orion (after consultation with APT), of PROPRIETARY interference from adjacent satellites. 2.3.6 APT will support Loral Orion's selection and loading of the Loral Transponders by providing technical information concerning transponder performance, interference considerations and operation. 2.3.7 APT represents that the interference it has experienced on APSTAR I, on a historical basis, is as set forth in Annex F hereto. 2.4 Loral Orion's Interest in the Loral Transponders 2.4.1 The Initial Loral Transponders (which shall not be subject to the APT Leasehold Interest) shall consist of the following: - - 8 standard C-band transponders; - 5 extended C-band transponders; and - 4 Ku-band transponders; in each case as identified and described in Annex A hereto. 2.4.2 As to the Remaining Loral Transponders, which are subject to the APT Leasehold Interest, APT agrees that, subject to the provisions of Paragraph 2.4.4 below and the relevant payment by Loral Orion pursuant to Paragraph 3.1 below, the entire APT Leasehold Interest in the Remaining Loral Transponders shall be terminated as follows: - as to 4 transponders on each of the fourth and fifth anniversaries of the Satellite's in-service date (each such date, including any accelerated take up date as described in Paragraph 2.4.3 below, a "Termination Date"). The termination of the relevant APT Leasehold Interest shall become automatically and immediately effective with respect to any Remaining Loral Transponder on the date that Loral Orion makes the termination payment with respect to such transponder as provided in Paragraph 3.1 below by wire transfer of funds into the following bank account (the "Designated Account"): Company name: APT Satellite Company Limited Bank: Bank of China (Hong Kong) Limited Bank Branch: Bank of China Tower Branch Bank Address: 1 Garden Road, Hong Kong Account No.: 012-875-9-223700-5 Swift Code: BKCHUS33 Upon such termination, Loral Orion shall have no further obligation or liability in respect of such Remaining Loral Transponder under the APT Lease Agreement, and APT shall have no further right or interest, whatsoever, in PROPRIETARY respect of such Remaining Loral Transponder. APT shall cooperate with and assist Loral Orion from time to time as required to evidence any such termination and Loral Orion's interest in the Loral Transponders for which the APT Leasehold Interest has been terminated as set forth in this Agreement, including without limitation, executing an acknowledgement of termination or such other documents as Loral Orion may reasonably request to evidence its interest in the applicable transponders. Subject to Loral Orion's acceleration rights to earlier termination as set forth in Paragraph 2.4.3 below, the termination schedule for the Remaining Loral Transponders is set forth in Annex B hereof. 2.4.3 Loral Orion shall have the right at its option to accelerate the date on which it terminates the APT Leasehold Interest as provided in Paragraph 2.4.2 of this Agreement in one (1) of the standard frequency C-band Remaining Loral Transponders and any or all of the extended frequency C-band and Ku-band Remaining Loral Transponders; provided however that Loral Orion may not, without APT's prior written consent, exercise such acceleration right with respect to any Remaining Loral Transponder that is then subject to a sub-lease agreement with a customer or otherwise subject to the contractual rights of a customer, including any contractually provided renewal term, if the expiration date of such sub-lease agreement or other contractual rights shall be later than Loral Orion's proposed accelerated termination date. 2.4.4 With respect to Loral Orion's obligation to make termination payments to APT as set forth in Paragraph 3.1 below with respect to the Remaining Loral Transponders, APT shall bear the risk of loss with respect to any such transponder until the termination payment is made by Loral Orion in respect of such transponder in accordance with Paragraph 3.1. Accordingly, Loral Orion shall have no obligation to make the termination payment in respect of any Remaining Loral Transponder if such transponder (i) fails to meet the requirements set forth on Annex E hereto on the relevant Termination Date, or (ii) for which APT has submitted an insurance claim. Loral Orion shall be obligated to terminate and pay the related termination payment for a Remaining Loral Transponder in accordance with Paragraph 3.1 of this Agreement, even if APT shall have previously received a warranty payback or transponder performance-based reduction in the amount of the final milestone payment by APT under the SS/L Contract in respect thereof, if (i) neither of the requirements set forth in the preceding sentence has been met and (ii) the termination payment to be made by Loral Orion to APT to terminate the APT Leasehold Interest in such transponder shall be reduced by an amount equal to the amount of such warranty payback and/or the amount of such final milestone payment reduction, as applicable, that relates to such transponder. PROPRIETARY 2.5 Reserved 2.6 Respective Interests in the Satellite A table of APT's and Loral Orion's respective interests in the Satellite's transponders after each scheduled Termination Date is set forth in Annex C. 2.7 Economic Interest Prior to Title Transfer. 2.7.1 Notwithstanding that the SS/L Contract calls for performance from SS/L to APT only, APT acknowledges and agrees that, prior to the time that title to the Satellite is transferred by SS/L to Loral Orion pursuant to the SS/L Contract, Loral Orion has a vested economic interest in the SS/L Contract, including but not limited to work-in-progress thereunder, to the extent of the following: (i) the reduction in APT's purchase price for the Satellite and other deliverable items under the SS/L Contract, effected by Amendment No. 3 to the SS/L Contract and the Settlement Agreement dated November 16, 2003 between APT, SS/L and Loral Orion; (ii) payments made by Loral Orion to SS/L for the redesign of Ku-band Beam #2 pursuant to Paragraph 5.2 of this Agreement; and (iii) payments made or launch deposits (or other similar prepayments) applied by Loral Orion toward launch services for the Satellite. 2.7.2 APT represents and warrants to Loral Orion that any pledge or assignment of its interest under the SS/L Contract to its lenders shall not extend to Loral Orion rights and interests set forth in Paragraph 2.7.1 above. 2.8 Management Agreement. The Parties acknowledge and agree that notwithstanding their respective economic interests in the Satellite, certain decisions regarding the Satellite shall be made in accordance with the terms and conditions of the Management Agreement and that they shall exercise their rights with respect to their interests in the Satellite in accordance with such Agreement. ARTICLE 3 PAYMENT PLAN 3.1 Subject to the provisions of Paragraphs 2.4.3, 2.4.4 and 3.2, Loral Orion shall pay APT as follows to terminate the APT Leasehold Interest in the Remaining Loral Transponders as provided in Paragraph 2.4.2 of this Agreement: PROPRIETARY (a) On the fourth anniversary of the Satellite's in-service date, US$18,132,400 to terminate the APT Leasehold Interest in the 4 additional transponders specified on Annex B hereto. (b) On the fifth anniversary of the Satellite's in-service date, US$18,132,400 to terminate the APT Leasehold Interest in the 4 additional transponders specified on Annex B hereto. All payments to be made to APT hereunder shall be made by wire transfer of immediately available funds in U.S. dollar currency to the Designated Account. 3.2 The total price set forth in Paragraph 3.1 above to terminate the APT Leasehold Interest in the Remaining Loral Transponders as provided in Paragraph 2.4.2 of this Agreement shall at all times equal 16% of the cost of constructing (exclusive of the modification costs described in Paragraph 5.2 below (the "Modification Costs") but including the costs for the ground system under the Ground Equipment Contract and launching the Satellite (collectively the "Satellite and Launch Costs") and 32% of the cost of insuring the Satellite under the two insurance policies brokered by Willis Inspace as described in Paragraph 3.4 below but excluding any costs related to the Additional Insurance Amount (the "Loral Insurance Cost"). The Satellite and Launch Costs shall consist of any payment, liability or other amount paid or incurred by APT or Loral Orion under the SS/L Contract, the Ground Equipment Contract, the Related Orion Agreement or the LSA, excluding the Modification Costs or any payment, liability or other amount paid or incurred by APT or Loral Orion as a result of such Party's willful misconduct, gross negligence or material breach of the relevant agreements (other than any such breach resulting from joint action or decision of APT and Loral Orion). If subsequent to the date of this Agreement, there shall be any increase or decrease in the Satellite and Launch Costs or the Loral Insurance Cost (including as a result of the operation of the first paragraph of Article 13.5 of the SS/L Contract and the analogous provision in the Related Orion Agreement) such that the sum (the "Allocable Share of Project Cost") of (i) 16% of the Satellite and Launch Costs and (ii) 32% of the Loral Insurance Cost shall be other than US$36,264,800, then the total price to terminate the APT Leasehold Interest in the Remaining Loral Transponders shall be adjusted accordingly, after taking into account which Party shall have borne the additional cost or received the benefit of any decrease in price. 3.3 Reserved. 3.4 The Launch Insurance (as defined) for the Satellite will be divided into three policies, among which two policies will have an aggregate insured value of approximately US$115 million to be brokered by Willis Inspace and a third policy, which will also have an insured value of approximately US$115 million to be brokered by Marsh McLennan. Loral Orion shall be responsible for 68% (approximately US$14,584,300) of the gross insurance premiums related to the two policies for Launch Insurance brokered by Willis Inspace, with APT being responsible for the remaining 32% (approximately US$6,863,200). If Loral Orion increases the aggregate insured value PROPRIETARY (the "Additional Insurance Amount") over US$115 million for the launch insurance brokered by Willis Inspace, then APT shall not be responsible for the insurance premiums relating to such Additional Insurance Amount and Loral Orion shall be responsible for 100% of such additional insurance premiums. APT shall be responsible for 100% of the gross insurance premiums related to the policy for Launch Insurance brokered by Marsh McLennan. Such insurance shall consist of coverage commencing from Intentional Ignition to 365 days thereafter (the "Launch Insurance"). Loral Orion or its designee shall be the named insured and the loss payee in respect of the Initial Loral Transponders and APT or its designee shall be the named insured and the loss payee in respect of the remaining transponders on the Satellite with respect to the Launch Insurance; provided however, that if Loral Orion shall have accelerated the termination of the APT Leasehold Interest in any Remaining Loral Transponders so that such termination shall occur within the coverage period of the Launch Insurance, then APT agrees that it shall cause Loral Orion or its designee to be the named insured and the loss payee in respect of any Remaining Loral Transponders, the APT Leasehold Interest of which was terminated within such coverage period, effective as of the applicable Termination Date. Loral Orion shall be responsible for procuring at its own expense in-orbit insurance for the Loral Transponders following expiration of the coverage period of the Launch Insurance policies described above. ARTICLE 4 OPERATION OF TRANSPONDERS Except as set forth in the Marketing Agreement, each of APT and Loral Orion shall be entitled to all revenues generated from the APT Transponders and the Loral Transponders, respectively. ARTICLE 5 THE SATELLITE AND RELATED CONTRACTS 5.1 The Satellite shall generally have such design and other specifications as are set forth in the SS/L Contract and in this Agreement. 5.2 The footprint of Beam #2 Ku-band transponders on the Satellite will be modified by SS/L as requested by Loral Orion, which modification costs shall be borne by Loral Orion. Such modifications, and the costs thereof, are set forth in Annex G hereto, which modifications are hereby approved by APT. In the event of any further modification to the footprint of Beam #2 Ku-band transponders, such further modifications, and the costs thereof, shall be agreed between SS/L and Loral Orion provided the modifications do not materially impact the Common Elements or the APT Transponders. If such modifications do materially impact the Common Elements or the APT Transponders, APT and Loral Orion shall jointly approve them pursuant to the Management Agreement. 5.3 Loral Orion acknowledges that it has reviewed the SS/L Contract and the Launch Services Agreement and agrees to all the terms and conditions contained therein and that PROPRIETARY it shall be bound by all actions taken by APT with respect thereto or with regard to the selection of the Launch Agency or with regard to the Launch Services Agreement, provided such action is taken in full compliance with the obligations of the Management Agreement. 5.4 Loral Orion acknowledges that: EXCEPT AND TO THE EXTENT EXPRESSLY PROVIDED IN THIS AGREEMENT, APT HAS NOT MADE, NOR DOES IT MAKE, ANY REPRESENTATION OR WARRANTY, WHETHER WRITTEN OR ORAL, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF DESIGN, OPERATION, CONDITION, QUALITY, SUITABILITY OR MERCHANTABILITY OR FITNESS FOR USE OR FOR A PARTICULAR PURPOSE, ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, WITH REGARD TO THE SATELLITE, AND APT HAS NOT MADE ANY WARRANTY WITH RESPECT TO THE PERFORMANCE OF ANY LAUNCH VEHICLE. 5.5 Loral Orion agrees to be bound by the no-fault, no-subrogation inter-party waiver of liability and related indemnity provisions provided in the Launch Services Agreement and to cause its contractors and subcontractors at any tier (including suppliers of any kind) that are involved in any performance of this Agreement and any other person who through Loral Orion has an interest in the Satellite or any transponder thereon, as required by the Launch Services Agreement, to accede to such waiver. Loral Orion shall execute and deliver any instrument that may be reasonably required by the Launch Agency to evidence its agreement to be bound by such waiver. In no event shall such no-fault, no-subrogation inter-party waiver and related indemnity provisions have any effect on the rights, obligations, and liabilities of and between Loral Orion and APT under this Agreement or under the other Transaction Documents. 5.6 APT and Loral Orion hereby agree that in the event any payment (whether in the form of a refund, reduction or damages) is made by the Launch Agency in respect of the LSA, APT and Loral Orion shall agree in good faith upon an allocation of such payment between the two parties consistent with the intent of the parties and the principles set forth in this Agreement. Each of APT and Loral Orion hereby agrees that to the extent that it receives any such payment, whether from the Launch Agency or otherwise, that is in excess of its agreed upon allocated amount, it shall promptly remit any such excess amount to the other Party. 5.7 APT and Loral Orion agree that in the event that either of them issues an invoice to SS/L where the right to payment depends upon the respective interests of APT and Loral Orion in the Satellite, it shall provide a copy of such invoice to the other Party and that the SS/L Contract and the Related Orion Agreement, as the case may be, shall provide that SS/L shall not pay any invoice to which the other Party has notified SS/L of an objection within 15 days after the date of issuance thereof. PROPRIETARY ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF THE PARTIES Each of the parties, as of August 26, 2003, hereby represents and warrants to the other, as follows: 6.1 Organization and Standing. It is a company with limited liability duly organized, validly existing and in good standing under the laws of the place of its incorporation and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its businesses as now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would neither have a material adverse effect on its financial condition, business or results of operation nor materially impair or delay its ability to consummate the transactions contemplated hereby (a "Material Adverse Effect"). 6.2 Authority Relative to this Agreement. Subject to any approval of the U.S. Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") that may be required, in the case of Loral Orion, it has all corporate power and authority to execute and deliver this Agreement and the other Transaction Documents, and to perform all of its obligations hereunder and thereunder. Its execution and delivery of this Agreement and the other Transaction Documents, and its performance of its obligations hereunder and thereunder have been duly authorized by all necessary and proper corporate action. This Agreement and the other Transaction Documents have been duly executed and delivered by it and constitute the legal, valid and binding obligations, enforceable against it in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws relating to or affecting creditors' rights and subject, as to enforceability, to general principles of equity (regardless whether enforcement is sought in a proceeding in equity or at law). 6.3 Noncontravention. Subject to any approval of the Bankruptcy Court that may be required, in the case of Loral Orion, its execution and delivery of this Agreement and the other Transaction Documents, its performance of its obligations to be performed hereunder and thereunder and the consummation of the transactions contemplated hereby and thereby will not (i) contravene or conflict with its memorandum and articles of Association, by-laws or other organizational documents; (ii) contravene or conflict with or constitute a violation of any provision of any laws or license to which it or any of its properties or assets is subject; or (iii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, cause it to make an offer to purchase under, create in any party the right to accelerate, terminate, modify or cancel, require any notice or give rise to a loss of any benefit under, any contract, lease, lien or other arrangement to which it is a party or by which is bound or to which any of its properties or assets is subject or result in the creation or imposition of any liens on any of its assets, other than any loss of benefit, lien or any other such event which would not have a Material Adverse Effect. PROPRIETARY 6.4 Governmental Proceeding; Litigation. Except for the Consent Agreement dated January 9, 2002 entered into by Loral Space & Communications Ltd. with the U.S. Department of State, any order of the Bankruptcy Court that may be issued approving this Agreement and any export control approvals, licenses, technical assistance or other similar agreements obtained to date or required by applicable law, there is not in effect any judgment, order, writ, decree, stipulation or injunction by or with any governmental entity to which it or any of its Affiliates is party or by which it or any of its Affiliates or any properties or assets of any of the foregoing is bound, and which relates to or affects this Agreement or the transactions contemplated hereby, and neither it nor any of its Affiliates is party to, engaged in or, to its Knowledge, threatened with any Action which relates to or affects this Agreement or the transactions contemplated hereby, and, to its Knowledge, no event has occurred and no condition exists which could reasonably be expected to result in any such Action. Neither it nor any of its Affiliates is in default under or with respect to any judgment, ruling, order, writ, decree, stipulation or injunction of the type described in this Paragraph. ARTICLE 7 LEASE OF ADDITIONAL TRANSPONDERS 7.1 Loral Orion may elect to lease or sub-lease from APT additional standard C-band frequency transponders on the Satellite or on APSTAR VI, if available. Loral Orion shall give written notice to APT of its desire to lease or sub-lease an additional transponder, which notice shall identify the desired number of transponders, the proposed lease term, and the desired protection level. APT shall respond within fifteen (15) days of receipt of such notice, as to whether such transponder is available. If APT responds that such transponder is available, it shall propose the terms and conditions for such lease or sub-lease. APT agrees that such terms and conditions shall reflect the fact that Loral Orion is entitled to "most favored customer" status in respect of such lease, subject to all relevant terms being equal. The parties agree that they will look to APT's leases in the ordinary course of business with wholesale customers (as opposed to retail customers) for purposes of determining "most favored customer" status and the parties shall negotiate the terms of any such lease on an arms length basis. APT may decline to lease additional transponder(s) to Loral Orion under this Paragraph 7.1, even if available, if Loral Orion's proposed term for such lease is less than twelve (12) months. Further, if the term of such lease arrangement is to the End of Life of the Satellite or APSTAR VI, as the case may be, Loral Orion shall have follow-on rights to continue such lease arrangement in respect of the relevant successor satellite on terms and conditions substantially similar to those set forth under the original lease arrangement, except for price, which shall be agreed upon by the parties, based on the "most favored customer" pricing then available on such successor satellite. 7.2 Loral Orion may also elect to lease the transponders on APSTAR I, if available, that correspond to the standard C-band Initial Loral Transponders on the Satellite, on the most favored customer terms described in Paragraph 7.1 above. Loral Orion shall give written notice to APT of its desire to lease an additional transponder, which notice shall PROPRIETARY identify the desired number of transponders, the proposed lease term, and the desired protection level. APT shall respond within fifteen (15) days of receipt of such notice, as to whether such transponder is available, and if so, shall propose the terms and conditions for such lease. ARTICLE 8 [RESERVED] ARTICLE 9 ORBITAL SLOT 9.1 Coordination Activities. 9.1.1 APT shall keep Loral Orion fully informed of the status of all coordination activities relating to the Orbital Slot and shall, if so requested by Loral Orion, allow Loral Orion to participate in such activities, subject to the restrictions of OFTA and other relevant governmental authorities and of any license arrangements with regard to the Orbital Slot. APT agrees that it will not, without Loral Orion's prior written consent, take any action or enter into any agreement in relation to the Orbital Slot that materially impacts the Loral Transponders or involves the payment of money or other financial accommodation which will be borne by Loral Orion. APT shall use its reasonable best efforts to fully enforce the terms of coordination agreements entered into for the benefit of the Satellite or any successor satellite. 9.1.2 APT has taken all actions required of APT to date to coordinate the Satellite in the Orbital Slot. Annex F sets forth (i) all material restrictions on the Satellite resulting from coordination activities as of August 26, 2003, (ii) all material agreements or commitments relating to coordination proceedings for the Orbital Slot and all Summary Record Documents, true and complete copies of which were previously provided to Loral, (iii) lists of all the countries and operators with which the operator of the Satellite has been or will be required to enter into coordination discussions and the status of those discussions. 9.1.3 APT will use its reasonable best efforts so that (i) the Loral Transponders will not suffer from any unacceptable restrictions, as reasonably determined by Loral Orion (after consultation with APT), with regard to allowing unencumbered carrier loading on the transponders and (ii) operation of the Loral Transponders will be free of unacceptable interference, as reasonably determined by Loral Orion (after consultation with APT), from adjacent satellite operations, subject however in each case to any regulatory restrictions or restrictions contained in coordination agreements relating to the Orbital Slot presently existing or permitted under Paragraph 9.1.1. APT will use its reasonable best efforts so that Loral Orion may place either analog or digital PROPRIETARY carriers on the Loral Transponders without restrictions as full transponders, single channel per carrier, or multiple channels per carrier. 9.2 License Rights. APT shall, in consultation with Loral Orion, (a) make all regulatory filings and take such other actions on a timely basis with the MII, the OFTA, TongaSat, the ITU and the applicable governmental entities of those jurisdictions to which the Satellite may provide coverage, as may be necessary or appropriate to secure and maintain its rights to utilize the Orbital Slot, including without limitation, using its best efforts to preserve the unencumbered and unrestricted use of the Orbital Slot and diligently prosecuting renewal of the ITU authorization during a reasonable period prior to its scheduled expiration date; (b) use its best efforts to achieve, maintain and renew notification for the Orbital Slot at the ITU and have the filing entered in the ITU Master Frequency Register; and (c) make such filings as Loral Orion may reasonably request, including filings to expand the frequencies and coverage area of the Orbital Slot. 9.3 APT shall use its best efforts to provide Loral Orion with quiet enjoyment of the Orbital Slot. 9.4 APT shall keep Loral Orion fully informed with regard to its license agreements and all regulatory filings, correspondence and notices from or with MII, OFTA, TongaSat, the ITU and relevant governmental entities relating to the authorization to use the Orbital Slot. 9.5 Loral Orion and APT will share the Orbital Slot license fees payable to TongaSat pursuant to the Licence Agreement entered into between APT and TongaSat dated July 8, 2003 (the "Slot License Agreement") as follows: (a) APT shall pre-pay US$4 million to TongaSat (the "Orbital Slot Prepayment"). (b) Commencing with the completion of in-orbit testing of the Satellite ("IOT") and continuing through the fifth anniversary of IOT, a fee of $1.1 million per year, which fee will be payable quarterly in arrears and shared between APT and Loral Orion in a ratio equal to the ratio between the number of transponders in each Party's Payload during the period in question (pro rated for any change in relative interest during such period). Pursuant to the Slot License Agreement, in recognition of PROPRIETARY APT having made the Orbital Slot Prepayment, during the five-year period commencing from completion of IOT, APT shall receive a credit of US$800,000 per year (that is, US$200,000 per quarter), and such credit shall be applied towards payment of the license fee described in this clause (b). The balance of the license fee referred to in this clause (b), payable for each of the first five years after IOT shall be US$300,000 per year. (c) Commencing with the sixth anniversary of IOT and through the fifteenth anniversary of IOT, a fee of $1.175 million per year, which fee will be payable quarterly in arrears and shared between APT and Loral Orion in a ratio equal to the ratio between the number of transponders in each Party's Payload during the period in question (pro rated for any change in relative interest during such period). (d) Commencing with IOT and continuing through the fifteenth anniversary of IOT, Loral Orion and APT shall provide to TongaSat, free of charge, use of 1/2 of a standard C-band transponder and 1/2 of an extended C-band on the Satellite, to be allocated between APT and Loral Orion in a ratio equal to the ratio between the number of transponders in each Party's Payload during the period in question (pro rated for any change in relative interest during such period), with the exact identification of transponder capacity to be mutually agreed by Loral Orion and APT. (e) Loral Orion agrees to reimburse APT (in the same proportion as that applicable for the license fee as set forth in clause (b) above) for the interest charges incurred by APT (not to exceed LIBOR plus 1.5% per annum with interest calculated on the basis of a year of _360 days) to effect the Orbital Slot Prepayment. For purposes of calculating the foregoing interest charges, the principal amount of the loan shall be deemed reduced by US$200,000 per quarter starting with the first quarter after IOT until the fifth anniversary of the IOT, at which time the loan shall be deemed to be paid in full and thereafter no further interest charges shall be incurred. (f) Within 15 days after IOT, and thereafter, at least 30 days prior to each quarterly payment date as set forth below, APT shall deliver to Loral Orion an invoice showing, in reasonable detail and with such supporting documentation as Loral Orion may reasonably request, the amount for which APT is seeking reimbursement from Loral Orion in relation to either the license fee payable for the relevant quarter under clause (b) above and/or interest on the Orbital Slot Prepayment as set forth in clause (e) above. The first reimbursement date shall be 30 days after IOT and shall cover Loral Orion's share of the interest expense on the Orbital Slot Prepayment which has accrued from the date on which the prepayment was first made to TongaSat by APT through IOT. Thereafter, the reimbursement date shall coincide with the quarterly payment date for the license fee to TongaSat as set forth in clause (b) above and shall cover Loral Orion's share of the license fee and the interest expense on the Orbital Slot Prepayment for the relevant quarter. PROPRIETARY APT and Loral Orion agree that except as set forth in this Paragraph 9.5, no other amounts shall be payable by Loral Orion with regard to the Orbital Slot, except as may be incurred by Loral Orion with respect to its participation in coordination activities as contemplated by Paragraph 9.1.1 above. ARTICLE 10 LANDING RIGHTS 10.1 APT and Loral Orion will each cooperate with, and assist the other, on a reasonable best efforts basis, in obtaining such consents, and otherwise complying with such requirements, as may be required or imposed, from time to time, by the governments of the People's Republic of China and the United States in connection with the use of transponders on the Satellite, in each case to the extent such approval or compliance is needed for a Party's transponders to be allowed to provide service in the People's Republic of China or the United States, respectively. 10.2 Each of APT and Loral Orion agrees, and each will require any lessee, sub-lessee or user of any transponder to agree, to restrict its use of the transponders to transmission only for any lawful purpose and agrees to comply in all material respects with all applicable laws and government regulations. ARTICLE 11 SUCCESSOR SATELLITE RENEWAL 11.1 Loral Orion shall have the right, but not the obligation, to participate in the ownership of up to forty-six percent (46%) of the transponder capacity on the successor satellite, if any, to the Satellite or the number of transponders on Loral Orion's Payload at the End of Life of the Satellite, whichever is greater; provided it exercises such right by giving written notice thereof to APT no later than three (3) years before the scheduled End of Life of the Satellite, as notified by APT in writing to Loral Orion. 11.2 The terms and conditions of such participation shall be substantially similar to the terms hereof (including but not limited to transponder types and specific transponder assignments and rights with respect to a successor satellite) except the percentage of cost to be borne by Loral Orion shall be equal to the percentage of its ownership interest in the successor satellite (e.g., Loral Orion will bear 46% of the cost if its ownership interest in the successor satellite is 46%) and for appropriate adjustments based on satellite capabilities and cost; provided however that if Loral Orion shall participate in less than forty percent (40%) of Adjusted Transponder Capacity, the price shall not be at cost, but rather shall be calculated using a cost-plus formula based on the percentage of Adjusted Transponder Capacity taken up, as follows: PROPRIETARY
Percentage of Adjusted Transponder Capacity Price Calculation ------------------------------------------- ----------------- 1 - 4% Cost plus 40% 5 - 9% Cost plus 35% 10 - 14% Cost plus 30% 15 - 19% Cost plus 25% 20 - 24% Cost plus 20% 25 - 29% Cost plus 15% 30% - 34% Cost plus 10% 35 - 39% Cost plus 5% 40% - 100% Cost
11.3 "Adjusted Transponder Capacity" shall equal (a) the amount of the transponder capacity on the Satellite, if the transponder capacity on the successor satellite is greater than the transponder capacity on APSTAR V; or (b) the transponder capacity on the successor satellite, if the transponder capacity on the successor satellite is less than the transponder capacity on APSTAR V. 11.4 If APT decides not to launch a replacement satellite into the Orbital Slot having capacity and capability that is the same as or better than that of the Satellite, Loral Orion shall be offered the first opportunity to replace the Satellite, including assignment, subject to any necessary consents, of the TongaSat and ChinaSat orbital slot agreements and any other relevant licenses so that replacement can occur before the End of Life of the Satellite. If such assignment cannot be effected in whole or in part, then APT and Loral Orion shall enter into an agreement to enable Loral Orion to use the Orbital Slot with respect to such license rights which cannot be assigned. If Loral Orion launches a replacement satellite, APT shall have the same rights, mutatis mutandis, as Loral Orion to participate in the ownership of capacity in the successor satellite as set forth in Paragraphs 11.1 through 11.3 above. 11.5 If the Parties elect to launch a replacement satellite for the Satellite, then: (a) APT shall provide the services for such replacement satellite pursuant to the terms and conditions of a Satellite Services Agreement substantially similar to the form of the Satellite Services Agreement dated December 10, 2002 (the "Model Agreement"), except for price, which the Parties shall negotiate in good faith based on the principle that the price for the services to be delivered shall (i) be established at a cost-based rate (as opposed to a demand-based rate) that is intended to minimize the Parties' cost basis in their respective transponders, (ii) reflect a service price / service cost ratio similar to the service price / service cost ratio created by the Model Agreement, and (iii) take into account such additional factors as the inflation and satellite technology changes that have occurred since the Model Agreement was entered into; and PROPRIETARY (b) the Parties agree to enter into a new management agreement with respect to such replacement satellite on substantially the same terms and conditions as those contained in the form of Management Agreement dated December 10, 2002. ARTICLE 12 EFFECTIVE DATE OF THIS AGREEMENT; NO ASSUMPTION 12.1 This Amended and Restated Agreement shall become effective on the date (the "Effective Date") that this Agreement is approved by the Bankruptcy Court. 12.2 [Reserved] ARTICLE 13 PLEDGES 13.1 Neither APT nor Loral Orion shall have the right to pledge, mortgage, charge, grant any security interest in or otherwise encumber all or part of its interest in the Satellite, except for the purpose of security relating to financing (whether new or existing), and then only provided that: (a) such Party shall remain liable for all obligations hereunder relating to such interest; (b) the encumbrance shall be subject to any necessary approvals or restrictions of any relevant governmental authority or telecommunications administration; and (c) Either (x) satisfactory arrangements as agreed between the parties (including a party's lenders) shall have been made to recognize and protect the rights of the other party under this Agreement and the Transaction Documents or (y) the rights of such secured party with respect to any such interest in the Satellite shall at all times be subject to the rights of the other Party under this Agreement and the other Transaction Documents. 13.2 Notwithstanding anything to the contrary set forth in Paragraph 13.1 above, Loral Orion agrees that it shall not pledge, mortgage, charge, grant any security interest in, or otherwise encumber all or part its interests in any transponders on the Satellite that is then subject to the APT Leasehold Interest or the Common Elements associated therewith (collectively any "Lien"), for any purpose except for any Lien incurred pursuant to the next sentence. Loral Orion agrees that it will submit to the Bankruptcy Court a request to approve the grant by Loral Orion of a Lien in favor of APT's banks with respect to Loral Orion's ownership interest in the APT Transponders and the Remaining Loral Transponders, but with respect to any Remaining Loral Transponder, only for so long as such transponder is subject to the APT Leasehold Interest, and to the extent such approval is obtained, to grant such Lien PROPRIETARY in the manner and to the extent so approved provided that the foreclosure of any such Lien shall be subject to the export control laws and regulations of the United States. ARTICLE 14 TRANSFER 14.1 In the event APT or Loral Orion desires to transfer (other than sales to customers in the ordinary course of business in the form of long term leases or otherwise) all or part of its interest in the Satellite other than to an Affiliate, such transfer shall be subject to a right of first offer in favor of the other party in accordance with the terms, conditions and procedures of which are set forth in the Management Agreement. A Party's interest in the Satellite that is subject to any such right of first offer obligation shall consist, in the case of APT, of the APT Leasehold Interest and in the case of Loral Orion, of the Loral Transponders not subject to the APT Leasehold Interest and the Common Elements. In addition, Loral Orion agrees that any transfer by it of its ownership interest in the transponders on the Satellite that are subject to the APT Leasehold Interest shall be accompanied by a concomitant assignment of its rights and obligations under the APT Lease Agreement. 14.2 In the event the other party declines to exercise its right of first offer or such right of first offer is not otherwise applicable as provided in the Management Agreement, the transferring party may transfer its interests to a third party in accordance with the terms set forth in the Management Agreement, provided the transferee agrees to be bound by the relevant terms of this Agreement and the Transaction Documents (but excluding the APT Lease Agreement, which will be assumed by the transferee only to the extent permitted under Section 15 of the APT Lease Agreement) and any necessary governmental approvals required in connection with maintaining the right to use the Orbital Slot have been obtained. 14.3 In the event APT transfers its interest in the Satellite to a third party, APT shall remain fully obligated to Loral Orion, regardless of such third party's agreement to be bound by the terms of this Agreement, with regard to the performance of all obligations set forth herein that do not pertain or relate exclusively to the Satellite, including but not limited to obligations regarding the Orbital Slot, APSTAR I, APSTAR VI, and any successor satellite. ARTICLE 15 RELATIONSHIP OF THE PARTIES The rights and obligations of the parties hereunder shall be individual, not joint or collective. It is not the intention of the parties to create, nor shall this be deemed or construed to create a partnership, joint venture, association or trust, or as authorizing any party to act as an agent, servant or employee for any other party for any purpose except as explicitly set forth herein. PROPRIETARY ARTICLE 16 TAXES Each of APT and Loral Orion shall be responsible for the payment of any and all taxes assessed on the construction, use and operation of its respective Payload. ARTICLE 17 ENTIRE AGREEMENT This Agreement and the other Transaction Documents together constitute the entire agreement and understanding between the parties in connection with the transactions hereby contemplated. The Transaction Documents supersede all previous agreements, arrangements and understandings between the parties with regard to such transaction which shall cease to have any further force or effect. No party is entering into any of the Transaction Documents or any of the arrangements hereby contemplated in reliance upon any representation, warranty or undertaking which is not expressly set out or referred to in any of the Transaction Documents. ARTICLE 18 TERMINATION AND CERTAIN BANKRUPTCY EVENTS 18.1 This Agreement may be terminated as follows: (a) By mutual written agreement of the parties; (b) By either party by written notice to the other and in accordance with Article 20 hereof in the event of a default by the other party provided such default meets the requirements stated in said Article 20; and (c) By the Non-Force Majeure Party, by giving at least thirty (30) days' prior written notice to the Force Majeure Party, if an event of force majeure as described in Article 19 below prevents the Force Majeure Party from performing its fundamental obligations hereunder for a period of more than 120 days. 18.2 Termination of this Agreement shall not affect: (i) either Party's obligations under any other Transaction Document, (ii) Loral Orion's title to the Satellite (including without limitation any Remaining Loral Transponder for which the APT Leasehold Interest shall have been terminated as provided in Paragraph 2.4.2), (iii) APT's Leasehold Interest, or (iv) either party's obligations pursuant to Articles 9, 10, 11, and 13 of this Agreement, which obligations shall expressly continue for so long as both parties possess an economic interest in the Satellite. PROPRIETARY ARTICLE 19 FORCE MAJEURE 19.1 Neither party shall be liable for nonperformance or delays in performance when caused by acts or events which are beyond the reasonable control of the delayed party, including but not limited to the following: acts of God, acts of the public enemy, acts of civil or military authority, governmental priorities, strikes or other labor disturbances, hurricanes, earthquakes, fires, floods, epidemics, embargoes, war, and riots. In the event of any such delay the date of delivery or of performance of the obligation affected by the force majeure event shall be extended for a period equal to the effect of time lost by reason of the delay. 19.2 A party claiming delay in delivery or performance due to an event of force majeure as set forth herein (the "Force Majeure Party") shall send written notice thereof and a statement of particulars to the other party (the "Non-Force Majeure Party") within a reasonable time. 19.3 The party affected shall take appropriate measures to minimize or remove the effects of the event of force majeure and, within the shortest time possible, shall attempt to resume performance of the obligations affected by the event of force majeure. 19.4 Each party shall use its reasonable best efforts to minimize the losses and damages caused and/or to be caused to the other party by an event of force majeure. Both parties shall consult as soon as possible to find an appropriate solution. ARTICLE 20 DEFAULT 20.1 Monetary Default. Should either APT or Loral Orion fail to make timely payment of any amount required hereunder in accordance with the provisions defined herein, and such failure to pay shall have continued for a period of three (3) months, the party in breach shall pay interest to the other party at the 30-day LIBOR rate plus two percent (2%) per annum in respect of the amounts in arrears. Such interest shall be calculated on a daily basis from the date payment was due until the date payment is received by the non-breaching party. Should the party in breach continue to fail to make such payment for a period of nine (9) months in the aggregate, then in addition to the interest amount due from the breaching party, the other party shall have the right to terminate this Agreement and to claim damages from the party in breach in accordance with the provisions of Paragraph 20.4 hereof. 20.2 Non-Monetary Default. Should either APT or Loral Orion fail to cure a material breach of any provisions of this Agreement (other than provisions regarding payment of monies, which are provided for in Paragraph 20.1 above) within forty-five (45) days after receipt of written notice from the other party outlining such breach, then the other, non-breaching party shall have the right to terminate this Agreement (but, for the PROPRIETARY avoidance of doubt, without prejudice to the APT Leasehold Interest) and to claim damages from the party in breach in accordance with the provisions of Paragraph 20.4 hereof. 20.3 In the event Loral Orion fails to make timely payment of any amount due on a Termination Date pursuant to Paragraph 3.1, APT shall retain its leasehold interest in the related Remaining Loral Transponders (and all other Remaining Loral Transponders for which payment has not yet been made in full) and all proceeds therefrom and shall not be required to obtain Loral Orion's consent to enter into commercially reasonable lease agreements for such Remaining Loral Transponders, even if such lease or other rights would extend beyond the relevant Termination Date but Loral Orion's consent right with respect to future lease agreements which extend beyond the relevant Termination Date shall be reinstated at such time as it shall have cured its payment default. If such delay continues for a period of nine (9) months after the scheduled Termination Date, Loral Orion shall no longer be entitled to terminate the APT Leasehold Interest in the relevant Remaining Loral Transponders as provided in Paragraph 2.4.2 of this Agreement. 20.4 If the other party suffers any cost, liability or loss as a direct result of a material breach of this Agreement by any party, and such breach shall not have been cured by such party within forty-five (45) days from receipt of notice of breach, the party in breach shall indemnify and hold the non-breaching party harmless in respect of any such cost, liability or loss; provided always, however, that in no event shall a party be liable under any theory of tort, contract, strict liability, or other legal or equitable theory, for any indirect, special, incidental, or consequential loss or damage (including without limitation, loss of profit or business opportunity). ARTICLE 21 CONFIDENTIALITY 21.1 No press release, announcement or disclosure to a third party concerning the transactions contemplated hereby will be made by any party hereto without the prior consent of the other party hereto, except as such release, announcement or disclosure may be:- (a) required by law or the rules of any applicable securities exchange; (b) necessary to be made to a party's lenders for financing purposes provided that such lenders agree to maintain the confidentiality of any such disclosed information on customary and reasonable terms; or (c) is or becomes publicly known, otherwise than as a consequence of a breach of this Agreement. PROPRIETARY 21.2 The parties have entered into a Confidentiality Agreement covering disclosure of information that may be made in connection with the parties' performance under the Transaction Documents. The rights and obligations thereunder shall apply to all such proprietary information disclosed in the implementation or performance of this Agreement. ARTICLE 22 ASSIGNMENT This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither this Agreement nor any of the rights or obligations hereunder may be assigned without the prior written consent of the other party except for (i) assignments, in whole or in part, to an Affiliate, provided that notwithstanding any such assignment to an Affiliate, the assigning party shall, unless otherwise consented to by the other party, nevertheless remain responsible for all obligations hereunder; and (ii) assignments by way of security to any entity for the purpose of security relating to financing, subject to compliance with the requirements of Article 13 hereof, or otherwise with the written consent of the other Party. In the event that APT shall wish to assign its rights and obligations hereunder to an Affiliate, it may do so, provided however that Loral Orion will not be adversely affected or prejudiced by any assignment or delegation by APT to its Affiliate of its rights and obligations under the MII and OFTA filings and under the license agreements with TongaSat and ChinaSat with respect to the Orbital Slot. ARTICLE 23 GOVERNING LAW This Agreement and the Transaction Documents will be governed by and construed in accordance with the laws of the State of New York without giving effect to the choice of law principles therein. ARTICLE 24 DISPUTE RESOLUTION In the event that a dispute arises out of or relates to this Agreement, Loral Orion and APT shall attempt to resolve such dispute through friendly consultation. If the parties are unable to resolve the matter in dispute through consultation within thirty (30) days following the date on which one party's request for consultation is delivered to the other party, the parties shall resolve the dispute through arbitration. The party shall submit the dispute to arbitration in Singapore to the Singapore International Arbitration Centre for resolution in accordance with the arbitration rules of that body, in which case:- (a) there should be three (3) arbitrators (one appointed by each party and the third arbitrator appointed by the Singapore International Arbitration Centre); PROPRIETARY (b) all proceedings in any such arbitration shall be conducted in English; and (c) any such arbitration award shall be final and binding on the parties. A dispute arising under this Agreement may be consolidated with any arbitration proceeding relating to the other Transaction Documents, and vice versa. The arbitrators may not limit, expand or otherwise modify the terms of this Agreement or award exemplary or punitive damages or attorney's fees. The arbitrators shall apply the substantive (not the conflicts) law of the state specified in the governing law provision set forth in Article 23 above. The award shall be in U.S. Dollars. Judgment upon the award rendered in the arbitration may be entered in any court having jurisdiction thereof. Unless otherwise determined by the arbitration award, each party shall bear its own expenses (including attorney's fees) and an equal share of the expenses of the arbitrators and the fees of the Singapore International Arbitration Centre. The parties shall require that the arbitrators and the arbitral body shall hold the existence, content and result of the arbitration in confidence. Nothing in this clause shall be construed to preclude any party from seeking injunctive relief in order to protect its rights pending arbitration. A request by a party to a court for such injunctive relief shall not be deemed a waiver of the obligation to arbitrate. ARTICLE 25 NOTICES Any notice, request, demand, waiver, consent, approval or other communication required or permitted to be given hereunder shall be in writing and shall be delivered by hand, by facsimile (with confirmation of receipt), or by DHL or other comparable international courier service, return receipt required, as follows:- If to Loral, to: Loral Orion, Inc. 600 Third Avenue New York, NY 10016 Facsimile No.: 212-338-5320 Attention: General Counsel PROPRIETARY If to APT, to: APT Satellite Company Limited Rooms 3111-3112 One Pacific Place 88 Queensway Hong Kong Facsimile No.: 852-2522-0419 Attention: Mr. Brian Lo and Mr. Wu Shou Kang or to such other address as the addressee may have specified in a notice duly given to the sender as provided herein. Such notice, request, demand, waiver, consent, approval or other communication will be deemed given when so delivered by hand or faxed, or two business days after being sent in the case of international courier service. ARTICLE 26 MISCELLANEOUS 26.1 Headings The headings in this Agreement and the Annexes are inserted for convenience of reference only and shall not constitute a part hereof. 26.2 Severability Any provision of this Agreement which is invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 26.3 Expenses Except as specifically provided otherwise in this Agreement, the parties hereto shall pay all of their own expenses relating to the transactions contemplated by this Agreement, including, without limitation, the fees and expenses of their respective counsel, accountants and financial advisors. PROPRIETARY 26.4 Time of the Essence Time shall be of the essence of this Agreement, both as regards the dates and periods specifically mentioned and as to any dates and periods which may be substituted by agreement in writing of the parties. 26.5 Amendment No variation or amendment of this Agreement shall be valid unless it is in writing and signed by or on behalf of both parties to this Agreement. 26.6 Waivers No failure or delay by any party in exercising any right or remedy provided by law under or pursuant to this Agreement shall impair such right or remedy or be construed as a waiver or variation of it or preclude its exercise at any subsequent time and no single or partial exercise of any such right or remedy shall preclude any other or further exercise of it or the exercise of any other right or remedy. 26.7 Counterparts This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. 26.8 Survival of Obligations The obligations of the Parties under this Agreement which by their nature logically would be expected to survive termination, cancellation, or expiration of this Agreement, including without limitation those set forth in Paragraphs 9, 10, 11, 13, 15, 17, 18, 20, 23, 24, 25, and 26, shall survive termination, cancellation, or expiration of this Agreement for the applicable time period specified in such section or, if no time period is specified, for a reasonable period of time under the circumstances. PROPRIETARY THIS AMENDED AND RESTATED AGREEMENT HAS BEEN SIGNED THIS 26th DAY OFAUGUST, 2003, AND CONFORMED TO REFLECT THE AMENDMENTS SET FORTH IN THE SETTLEMENT AGREEMENT DATED NOVEMBER 16, 2003. APT SATELLITE COMPANY LIMITED LORAL ORION, INC. By:_________________________________ By:_______________________________ Name: Name: Title: Title: PROPRIETARY SCHEDULE 1 DEFINITIONS In this Agreement the terms set forth hereinafter shall have the meanings defined in this Article: "Action" means any action, suit or proceeding at law or in equity, arbitration, inquiry, investigation or governmental, administrative, regulatory or other proceeding by or before any governmental entity. "Adjusted Transponder Capacity" shall have the meaning set forth in Paragraph 11.3. "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person. For purposes of the immediately preceding sentence, the term "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise. "Agreement" means this agreement (including the Schedules and Annexes hereto), as the same may be amended, modified or supplemented from time to time in accordance with its terms. "APSTAR I" means the satellite with 24 C-Band transponders located at geostationary orbital slot at 138 degrees east longitude. "APSTAR VI" means the new satellite based on a SB4000 model satellite with 38 C-band and 12 Ku-band transponders to be built and delivered to APT by Alcatel Space Industries. "APT Transponders" shall mean all transponders on the Satellite that are not identified as Loral Transponders. "APT" shall have the meaning set forth in the preamble to this Agreement. "APT Lease Agreement" shall mean the Satellite Transponder Agreement referred to in the recitals to this Agreement. "APT Leasehold Interest" shall have the meaning set forth in Paragraph 2.1 hereof. "ChinaSat" means China Telecommunications Broadcast Satellite Corporation. "Common Elements" means the elements on the Satellite that are common to and/or shared by the Loral Orion Payload and the APT Payload. "Confidentiality Agreement" means the confidentiality agreement entered into by APT and Loral Orion on December 10, 2002 with respect to the confidentiality of proprietary PROPRIETARY information relating to the Satellite, as such contract may be amended from time to time in accordance with its terms. "Effective Date" shall have the meaning set forth in Article 12 hereof. "End of Life" means the date on which the actual orbital maneuver life of a satellite is permanently terminated. "Force Majeure Party" shall have the meaning set forth in Paragraph 19.2 hereof. "Hong Kong" means the Hong Kong Special Administrative Region of the PRC. "Initial Loral Transponders" shall mean the 17 Loral Transponders which are not subject to the APT Leasehold Interest as described in Paragraph 2.4.1 hereof. "Ground Equipment Contract" means the contract which was entered into between APT and SS/L as of August 26, 2003 for the purchase of certain ground equipment and certain associated services. "Intentional Ignition" has the meaning set forth in the SS/L Contract. "Knowledge" means actual knowledge after reasonable inquiry and investigation. "Launch Agency" means the provider responsible for conducting the launch services for the Satellite pursuant to the Launch Services Agreement. "Launch Services" has the meaning set forth in the SS/L Contract. "Launch Services Agreement" or "LSA" means the contract dated December 20, 2002 entered into by SS/L, APT and Sea Launch Limited Partnership, which contract provides for launch services for the Satellite, as such contract may be amended from time to time in accordance with its terms. "Launch Vehicle" has the meaning set forth in the SS/L Contract. "LIBOR" means the rate of interest per annum, at any relevant time, at which thirty (30) day U.S. dollar deposits are offered at such time in the London interbank market. "Loral Orion" shall have the meaning set forth in the preamble to this Agreement. "Loral Transponders" shall have the meaning set forth in Paragraph 2.2 hereof. "Management Agreement" means the agreement entered into by APT and Loral Orion on December 10, 2002 with regard to the joint management of the use and operation of the transponders on the Satellite, as such contract may be amended from time to time in accordance with its terms. "Marketing Agreement" means the agreement entered into by APT and Loral Orion on December 10, 2002 with regard to the marketing of the Remaining Loral Transponders prior to their take up by Loral Orion, as such contract may be amended from time to time in accordance with its terms. PROPRIETARY "MII" means the Ministry of Information Industries of the PRC. "Non-Force Majeure Party" shall have the meaning set forth in Paragraph 19.2 hereof. "OFTA" means the Office of Telecommunication Authority in Hong Kong. "Orbital Slot" means the geostationary orbital slot located at 138 degrees east longitude. "Orbital Sub-License Agreement" means the orbital slot sub-license agreement dated August 26, 2003 entered into between APT and Loral Orion. "Party" or "Parties" shall mean APT and/or Loral Orion. "Payload" of a party means the transponders on the Satellite to which such party has title free of the APT Leasehold Interest, in the case of Loral Orion, or leasehold interest, in the case of APT, on the date in question. "Person" means any individual, partnership, joint venture, trust, corporation, limited liability entity, unincorporated organization or other entity (including a governmental entity). "PRC" means the People's Republic of China, excluding, for purposes of this Agreement only, Hong Kong, Macau and Taiwan. "Related Orion Agreement" shall mean the agreement dated June 30, 2003 entered into between SS/L and Loral Orion, pursuant to which among other things, Loral Orion agrees to pay a portion of the purchase price of the Satellite, including the Launch Services, under the SS/L Contract as such contract may be amended from time to time in accordance with its terms. "Remaining Loral Transponders" shall mean all the Loral Transponders other than those which are identified and designated as Initial Loral Transponders. "Satellite" means the SS/L FS 1300 satellite designated to be built by SS/L pursuant to the SS/L Contract. "Services Agreement" means the agreement entered into by APT and Loral Orion dated December 10, 2002 with regard to the TT&C, Access Management and Coordination services to be provided by APT for the Satellite, as such contract may be amended from time to time in accordance with its terms. PROPRIETARY "SS/L" shall have the meaning set forth in the preamble to this Agreement. "SS/L Contract" means the satellite procurement contract dated as of January 8, 2001, between APT and SS/L, as such contract may be amended from time to time in accordance with its terms. "Slot License Agreement" shall have the meaning set forth in Paragraph 9.5 hereof. "Subsidiary" of a specified Person means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the Board of Directors or other Persons performing similar functions are directly or indirectly owned by such Person. "Termination Date" shall have the meaning set forth in Paragraph 2.4.2 hereof. "TongaSat" means Friendly Islands Satellite Communication Ltd. of the Kingdom of Tonga. "Transaction Documents" means this Agreement, the Management Agreement, the Services Agreement, the Marketing Agreement, the Confidentiality Agreement, the APT Lease Agreement and the Orbital Sub-License Agreement. "TT&C" means telemetry, tracking and command. PROPRIETARY EX-10.40 8 y94860exv10w40.txt CONSENT ORDER EXHIBIT 10.40 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - ------------------------------------------X : IN RE : CHAPTER 11 CASE NOS. : LORAL SPACE : LEAD CASE 03-41710 (RDD) & COMMUNICATIONS LTD., ET AL., : 03-41709 (RDD) THROUGH : 03-41728 (RDD) DEBTORS. : (JOINTLY ADMINISTERED) : - ------------------------------------------X CONSENT ORDER APPROVING KEY EMPLOYEE RETENTION PLAN AND THER RELIEF FOR SPACE SYSTEMS/LORAL, INC. AND LORAL SKYNET DIVISION OF LORAL SPACECOM CORPORATION PURSUANT TO SECTIONS 105(A) AND 363(B) OF THE BANKRUPTCY CODE By motion dated November 3, 2003 (the "Motion"), Loral Space & Communications Ltd. ("Loral") and its affiliated debtors (collectively, with Loral, the "Debtors") moved, inter alia, for the approval of (i) a key employee retention plan (the "Retention Plan") for certain employees of Space Systems/Loral ("SS/L"), for certain employees of the Loral Skynet Division ("Loral Skynet") of Loral SpaceCom Corporation ("SpaceCom") and for certain employees of the Debtors' corporate headquarters ("Corporate"); (ii) enhanced severance (the "Enhanced Severance Arrangements") for certain employees of SS/L and Corporate; and (iii) certain "change in control" severance agreements for SS/L (the "Change in Control Agreements" and, together with the Retention Plan and the Enhanced Severance Arrangements, the "Employee Retention Programs"), as more fully set forth in the Motion; and the Motion having been continued to December 2, 2003 at 2 o'clock in the afternoon of that day at the request of the statutory Creditors' Committee (the "Creditors' Committee") to enable the Creditors' Committee fully to consider the Debtors' requests, and the Debtors and the Creditors' Committee having considered and agreed to certain amendments to the Employee Retention Programs as they relate to SS/L and Loral Skynet as hereinafter set forth, and there being no objections to the Employee Retention Program for Loral Skynet and SS/L, as amended; and the Debtors, the Committee, the agents for the Debtors' secured bank creditors (the "Agent") and the Ad Hoc Committee of Preferred Shareholders of Loral having agreed to defer further consideration of the Debtors' requests as to the Employee Retention Programs as it relates to Corporate and as to the Change in Control Agreements, and to continue the hearing as to those portions of the Motion; and it appearing that due and sufficient notice of the Motion having been provided in accordance with the order of the Court dated July 15, 2003, establishing notice procedures in these chapter 11 cases, and it further appearing that no other or further notice need be provided; and the Court having jurisdiction to consider the Motion and the relief requested by the Debtors and having deemed that the relief requested as to SS/L, as amended, and Loral Skynet, as amended, is in the best interests of the Debtors and all parties in interest; and upon the Motion and all the proceedings had before the Court and after due deliberation and sufficient cause appearing therefor, it hereby is, ORDERED, ADJUDGED AND DECREED: I. Loral Skynet Retention Plan. The Loral Skynet Employee Retention Plan as hereinafter set forth, be and the same hereby is, approved. A. Thirteen identified employees at Loral Skynet will be eligible for Retention Plan payments (which shall be in addition to their 2003 Management Incentive Bonus) as stated below: (i) Group 1 - two employees. These employees will be entitled to receive an amount equal to 20% of each employee's 2003 annual base salary. 2 (ii) Group 2 - five employees. These employees will be entitled to receive an amount equal to 30% of each employee's 2003 annual base salary. (iii) Group 3 - six employees (inclusive of the President of Loral Skynet and other senior management persons). These employees will be entitled to receive an amount equal to 50% of each employee's 2003 annual base salary. B. Retention Plan payments will be made as follows, provided the employee is in the employment of Loral Skynet on the payment date: (i) Loral Skynet President - 100% upon the occurrence of Triggering Event(s) (as defined below) for both of Loral Orion, Inc. ("Orion") and SpaceCom. If the Triggering Event(s) do not occur by September 1, 2004, then 25% of the total retention payment will be paid on September 1, 2004, and the balance of 75% of the total retention payment shall be paid upon the occurrence of the Triggering Event(s). (ii) For all other participants, 25% of the total retention payment will be paid on each of December 1, 2003, and July 1, 2004, and the balance of 50% shall be paid upon the occurrence of the Triggering Event(s) for both of Orion and SpaceCom. C. The Maximum amount of retention payments of the Loral Skynet Retention Plan will not exceed $1 million. II. SS/L Retention Plan. The SS/L Retention Plan as hereinafter set forth, be and the same hereby is, approved: A. The SS/L Retention Plan is in lieu of annual bonuses under the Management Incentive Plan for 2003 and will include 447 employees. B. Each participating employee shall receive Retention Plan payments equal to the greater of the employee's 2002 Management Incentive Bonus or 15% of the employee's 2003 annual base salary. C. Retention Plan payments will be made as follows, provided the employee is in the employment of SS/L on the payment date: (i) For the President of SS/L, 50% of the total retention payment on March 1, 2004, and the remaining 50% shall be paid upon a Triggering Event for SS/L. (ii) For all other participants, 25% of the total retention payment will be paid on December 1, 2003, 25% on March 1, 2004, 25% on July 1, 2004, and the balance of 25% shall be paid upon the occurrence of a Triggering Event for SS/L. 3 D. The maximum amount of retention payments under the SS/L Retention Plan will not exceed $11.5 million plus an additional $1.5 million that may be disbursed in the discretion of Loral and SS/L provided that Loral and SS/L will give at least five business days' written notice to the Creditors' Committee and the Agent of any proposed payment from the discretionary fund that exceeds $65,000.00 to any individual employee. III. General Retention Plan Provisions. A. A Triggering Event shall mean any of (i) the effective date of a plan of reorganization, (ii) a liquidation, closure or shutdown, or (iii) a sale of all or substantially all of the capital stock or the assets (excluding the sale of assets to Intelsat approved by the Court on October 24, 2003.) B. Notwithstanding any requirement that an employee be employed by Loral Skynet or SS/L on specified payment dates, if an employee's employment is terminated as a result of death, disability or termination without cause, or resignation for good reason, if applicable, employee shall receive, to the extent not already paid, a pro rata amount of such employee's full retention payment based on employee's actual service from September 1, 2003 through the applicable Triggering Event(s). Any payment of a pro rata amount to an employee shall be paid at the same time as payments are made pursuant to the payment schedules set forth above. IV. SS/L Enhanced Severance Arrangements. Certain SS/L employees who may be involuntarily terminated without cause will be eligible to receive enhanced severance payments as hereinafter set forth (such severance amounts being inclusive and in lieu of severance amounts payable under SS/L's existing severance policy). A. Group 1 - 13 employees. These employees shall receive severance payments equal to 100% of the employee's 2003 annual base salary. B. Group 2 - 37 employees. These employees shall receive severance payments equal to 75% of the employee's 2003 annual base salary. C. Group 3 - 119 employees. These employees shall receive severance payments equal to 50% of the employee's 2003 annual base salary. D. Group 4 - 278 employees. These employees shall receive severance payments equal to 33% of the employee's 2003 annual base salary. E. Aggregate severance amounts in excess of the greater of (i) 50% of an employee's 2003 annual base salary or (ii) the amount payable under SS/L's existing severance policy are subject to mitigation. Any mitigation 4 will be based on a dollar for dollar reduction for any salary or similar cash compensation received from a subsequent employer during the severance period. Severance payments, if made, will be paid in a lump sum or, if subject to mitigation, in the same manner as salaries are paid. F. The potential cost of the Enhanced Severance Arrangements shall not exceed $17.3 million (exclusive of severance payable to both covered and noncovered employees under the existing severance policy) based upon the current aggregate 2003 annual salary amount. V. The Debtors are authorized to execute, deliver, implement and to perform in accordance with any and all instruments and documents and to take any and all actions necessary or appropriate to effectuate the Skynet and SS/L portions of the Employee Retention Programs, as set forth above, including, without limitation, the payments approved by this order. VI. Nothing contained in the Motion or in this order shall be deemed a request by the Debtor for approval to assume any executory contract pursuant to section 365 of the Bankruptcy Code. VII. The approval of the Corporate Employee Retention Program and Change in Control Agreements as set forth in the Motion, is subject to further order of the Court and the hearing as to that aspect of the Motion is continued to December 18, 2003 at 10 o'clock in the morning of that day. VIII. The Court retains jurisdiction to interpret, implement, and enforce the terms and provisions of this Order. 5 IX. The requirement pursuant to Rule 9013-1(b) of the Local Bankruptcy Rules for the Southern District of New York that the Debtors file a memorandum of law in support of the Motion hereby is waived. Dated: November 26, 2003 New York, New York /s/ Robert D. Drain ------------------------------------ UNITED STATES BANKRUPTCY JUDGE CONSENTED TO: Akin, Gump, Strauss, Hauer & Feld, LLP 590 Madison Avenue New York, New York 10022 (212) 872-1000 Attorneys for the Creditors' Committee By: /s/ David Botter ------------------------------------ A Member of the Firm Sonnenschein Nath & Rosenthal 1221 Avenue of the Americas New York, New York 10020-1089 (212) 768-6700 Attorneys for Ad Hoc Committee of Preferred Shareholders of Loral Space & Communications, Ltd. By: /s/ John A. Bicks ------------------------------------ A Member of the Firm NO OBJECTION: Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 (212) 450-4000 Attorneys for the Agent By: /s/ Marshall Huebner ------------------------------------ A Member of the Firm 6 EX-10.41 9 y94860exv10w41.txt CONSENT ORDER EXHIBIT 10.41 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - ------------------------------------------x : In re : Chapter 11 Case Nos. : LORAL SPACE : LEAD CASE 03-41710 (RDD) & COMMUNICATIONS LTD., et al., : 03-41709 (RDD) through : 03-41728 (RDD) Debtors. : (Jointly Administered) : - ------------------------------------------x CONSENT ORDER APPROVING KEY EMPLOYEE RETENTION PLAN AND OTHER RELIEF FOR CERTAIN EMPLOYEES OF THE DEBTORS' CORPORATE HEADQUARTERS PURSUANT TO SECTIONS 105(A) AND 363(B) OF THE BANKRUPTCY CODE Upon the motion dated November 3, 2003 (the "Motion"), of Loral Space & Communications Ltd. ("Loral Ltd.") and its affiliated debtors (collectively, with Loral Ltd., "Loral" or the "Debtors") for, inter alia, the approval of (i) a key employee retention plan (the "Retention Plan") for certain employees of Space Systems/Loral ("SS/L"), for certain employees of the Loral Skynet Division ("Loral Skynet") of Loral SpaceCom Corporation ("SpaceCom") and for certain employees of the Debtors' corporate headquarters ("Corporate"); (ii) enhanced severance (the "Enhanced Severance Arrangements") for certain employees of SS/L and Corporate; and (iii) certain "change in control" severance agreements for two SS/L employees (the "Change in Control Agreements" and, together with the Retention Plan and the Enhanced Severance Arrangements, the "Employee Retention Programs"), as more fully set forth in the Motion; and this Court's Order dated November 26, 2003 (the "Consent Order"), (x) approving the relief requested in the Motion with respect to SS/L and Loral Skynet, as consensually amended by the Debtors and the statutory committee of unsecured creditors appointed in these chapter 11 cases (the "Creditors' Committee"), and (y) continuing the hearing to December 18, 2003 at 10 a.m., as agreed by the Debtors, the Creditors' Committee, the agents for the Debtors' secured bank creditors (the "Agent") and the Ad Hoc Committee of Preferred Shareholders of Loral to enable the Creditors' Committee fully to consider the Debtors' requests as to the Employee Retention Programs as they relate to Corporate and as to the Change in Control Agreements; and it appearing that due and sufficient notice of the Motion having been provided in accordance with the Order of the Court dated July 15, 2003, establishing notice procedures in these chapter 11 cases, and it further appearing that no other or further notice need be provided; and the Court having jurisdiction to consider the Motion and the relief requested by the Debtors and having deemed that the relief requested as to Corporate, as amended following extensive negotiations with the Creditors' Committee, is in the best interests of the Debtors and all parties in interest; and upon the consent of the Creditors' Committee, and there being no objection from the Agent or from the Ad Hoc Committee of Preferred Shareholders of Loral to the relief granted herein, and upon all the proceedings had before the Court and after due deliberation and sufficient cause appearing therefor, it hereby is, ORDERED, ADJUDGED AND DECREED: I. Corporate Retention Plan. The Corporate Retention Plan as amended and hereinafter set forth be, and the same hereby is, approved. A. Fourteen identified employees at Corporate will be eligible for Retention Plan payments as stated below: (i) Group 1 - two employees. Each of these employees will be entitled to receive an amount equal to 55% of such employee's 2003 annual base salary. 2 (ii) Group 2 - eight employees. Each of these employees will be entitled to receive an amount equal to 50% of such employee's 2003 annual base salary. (iii) Group 3 - four employees. Each of these employees will be entitled to receive an amount equal to 40% of such employee's 2003 annual base salary. B. Retention Plan payments will be made as follows, provided the employee is in the employment of Corporate on the payment date: (i) The President, the Chief Financial Officer, and the General Counsel - 100% upon the occurrence of Triggering Event(s) (as defined below) for all of SpaceCom, Loral Orion, Inc. ("Orion") and SS/L. If the Triggering Event(s) do not occur by September 1, 2004, then 25% of the total retention payment will be paid on September 1, 2004, and the balance of 75% of the total retention payment shall be paid upon the occurrence of the Triggering Event(s) for all of SpaceCom, Orion and SS/L. (ii) For all other participants, 25% of the total retention payment will be paid on each of December 24, 2003, and June 30, 2004, and the balance of 50% shall be paid upon the occurrence of the Triggering Event(s) for all of SpaceCom, Orion and SS/L. II. General Retention Plan Provisions. A. A Triggering Event shall mean any of (i) the effective date of a plan of reorganization, (ii) a liquidation, closure or shutdown, (iii) a sale of all or substantially all of the assets (excluding the sale of assets to Intelsat approved by the Court on October 24, 2003), or (iv) a termination of employment without "cause" (other than death or disability) by Loral or resignation for "good reason" by executive, in each case after a majority of Loral's Board of Directors is not comprised of members of the "Incumbent Board," with such terms having the meaning ascribed to them in the Debtors prepetition employee protection agreements (other than clause (iv) of the definition of "good reason"). B. Notwithstanding any requirement that an employee be employed by Corporate on specified payment dates, if an employee's employment is terminated as a result of death or disability, such employee shall receive, to the extent not already paid, a pro rata amount of such employee's full retention payment based on employee's actual service from September 1, 2003 through the applicable Triggering Event(s). Any payment of a pro 3 rata amount to an employee shall be paid at the same time as payments are made pursuant to the payment schedules set forth above. C. Retention Plan payments are in addition to any amounts awarded under Loral's 2003 management incentive bonus plan which amounts shall not exceed the per employee amount as submitted to the Creditors' Committee pursuant to a letter dated December 17, 2003 (the "Letter"). D. The Debtors agree that they will provide the Creditors' Committee with prior notice of any proposed 2004 management incentive plan or other bonus plan prior to implementation thereof. III. Corporate Enhanced Severance Arrangements. Certain Corporate employees who may be involuntarily terminated without cause will be eligible to receive enhanced severance payments as hereinafter set forth (such severance amounts being in addition to amounts payable under Corporate's existing severance policy). A. Group 1 - 3 employees. Each of these employees shall receive severance payments equal to 175% of such employee's 2003 annual base salary. These severance payments are not subject to mitigation by the employee. B. Group 2 - 6 employees. Each of these employees shall receive severance payments equal to 133% of such employee's 2003 annual base salary. These severance payments are subject to mitigation by the employee starting on the 12 month anniversary of such employee's termination. C. Group 3 - 6 employees. Each of these employees shall receive severance payments equal to 100% of such employee's 2003 annual base salary. These severance payments are subject to mitigation by the employee starting on the 9 month anniversary of such employee's termination. D. Group 4 - 13 employees. Each of these employees shall receive severance payments equal to 66% of such employee's 2003 annual base salary. These severance payments are not subject to mitigation by the employee E. Severance payments shall be made as follows: (i) Group 1 - Lump sum payment. (ii) Group 2 - Lump sum payment of severance attributable to period prior to mitigation period; upon the commencement of the mitigation period, severance payments shall be made in the form of salary continuation based on a dollar for dollar reduction of severance for any salary received from a new employer during the severance mitigation period. 4 (iii) Group 3 - Lump sum payment of severance attributable to period prior to mitigation period; upon the commencement of the mitigation period, severance payments shall be made in the form of salary continuation based on a dollar for dollar reduction of severance for any salary received from a new employer during the severance mitigation period. (iv) Group 4 - Lump sum payment. F. Employees in each Group will receive continued medical coverage on the same terms and conditions as active employees until the earlier of the end of the applicable severance period and the date upon which such employee becomes covered under the medical plan(s) of another employer and outplacement assistance. G. Each employee entitled to payments hereunder that also is a party to a prepetition Employee Protection Agreement, shall execute a waiver and release of all of such employee's claims under such employee's prepetition Employee Protection Agreement, including but not limited to any rejection damage claim thereunder, prior to receipt of any payment hereunder and in the case of Eric Zahler, Richard Townsend, Avi Katz, C. Patrick DeWitt, by not later than December 24, 2003. The foregoing shall not apply to, and no employee shall release, any severance amounts payable under Corporate's existing severance policy. H. If severed from their employment, Eric Zahler and Richard Townsend shall execute appropriately reasonable nondisclosure agreements with a term of one year from the date of severance. IV. Change in Control Agreements. The Debtors may provide additional severance protection through Change in Control Agreements to C. Patrick DeWitt and Ronald Haley (each, an "Executive") to cover the Executive if such Executive is involuntarily terminated without cause or if the Executive terminates employment for "good reason" within one year following a change in control as hereinafter set forth: A. The Change in Control Agreements shall be in lieu of any existing prepetition Employee Protection Agreements and payments thereunder shall be equal to 1.5 times current annual base salary for each such Executive and continuation of existing benefits for each such Executive until the earlier of 1.5 years and the date upon which such Executive starts receiving comparable benefits from another employer. B. With respect to any employee that is entitled to become a party to a Change in Control Agreement that is a party to a prepetition Employee Protection Agreement, such employee will not receive any payment under 5 any Employee Retention Program unless and until such employee executes a waiver and release of all of such employee's claims under such employee's prepetition Employee Protection Agreement. The foregoing shall not apply to, and no employee shall release, any severance amounts payable under SS/L's existing severance policy. C. The Change in Control Agreements, which have a two year term, provide that severance benefits are payable if the Executive is involuntarily terminated without cause or for "good reason" within one year following a change in control. D. "Good reason" to terminate employment exists with respect to the Executive if there is (i) any diminution of, or assignment by SS/L or Loral Ltd. (as applicable, "Company"), of duties inconsistent with Executive's position, duties, responsibilities and status with the Company immediately prior to a Change in Control (as defined below), or a change in Executive's titles or positions as in effect immediately prior to a Change in Control, or any removal of Executive from, or any failure to reelect Executive to, any of such titles or positions, except in connection with Executive's termination of employment for disability, voluntary termination or Cause or as a result of Executive's death, or by Executive other than for "good reason", (ii) a reduction by the Company in Executive's base salary as in effect on the date hereof or as the same may be increased from time to time, or the Company's failure to increase Executive's base salary (within twelve (12) months of Executive's last increase in base salary prior to a Change in Control or any anniversary of the date of such increase) after a Change in Control in an amount which at least equals, on a percentage basis, the average percentage increase in base salary for all officers of the Company (excluding Executive) effected in the preceding 12 months; (iii) any failure to continue any material employee benefit, incentive or securities plan or arrangement, or the taking of action that adversely affects the Executive's participation in or reduces benefits under such plans or arrangements unless a substantially comparable plan or arrangement is provided; (iv) the relocation of the primary workplace of the Executive by more than a reasonable commuting distance; (v) a substantial increase in business travel obligations over such obligations as they shall have existed at the time of a Change in Control; (vi) any failure to provide the number of paid vacation days to which the Executive was entitled at the time of the Change in Control; (vii) any material breach of the Change in Control Agreement; (viii) any failure to obtain the satisfactory agreement from any successor to assume and agree to perform the Change in Control Agreement; and (ix) any purported termination of employment without prior written notice specifying the reason for such termination. E. For the purposes of the Change in Control Agreements, a "Change in Control" includes (i) any purchase of shares of the Company's common 6 stock or securities convertible into shares of common stock made pursuant to a tender or exchange offer (other than any such tender offer or exchange made by the Company); (ii) acquisition by any person (other than any employee benefit plan sponsored by the Company or its subsidiaries) of beneficial ownership of 20% or more of the total voting power of the Company's then outstanding stock and securities, except as a result of a merger or consolidation in which the voting securities of the Company immediately prior to such merger or consolidation represent at least 75% of the combined voting power of the stock of the Company or the surviving company or any parent thereof outstanding immediately after such merger or consolidation; (iii) change in the composition of the Board of the Company, so that existing Board members and their approved successors do not constitute a majority of such Board; (iv) consummation of a merger or consolidation of the Company unless shareholders of voting securities immediately prior to the merger or consolidation continue to hold 75% or more of the voting securities of the resulting entity; and (v) shareholder approval of a liquidation or dissolution of the Company or there is a sale of substantially all of the Company's assets. F. The definition of Change in Control set forth in paragraph IV.C hereof shall not include the conversion of debt obligations of the Debtors prior to the petition date to equity in the reorganized Company on account of such interest pursuant to a plan of reorganization, or the resultant change in the composition of the Board of Directors of the Company, except in the event of the acquisition of the requisite amount of stock to control the Company directly or indirectly by a "competitor" of SS/L (as defined in the Letter). G. Severance payments may be grossed-up to the extent necessary to cover any "golden parachute" excise taxes under Section 4999 of the Internal Revenue Code such that the net amount retained by Executive after income taxes and excises taxes on the gross-up amount equals the severance amount. Legal fees in connection with a good faith dispute involving the Change in Control Agreements shall be paid or reimbursed by the Debtors. V. The Debtors are authorized to execute, deliver, implement and to perform in accordance with any and all instruments and documents and to take any and all actions necessary or appropriate to effectuate the Corporate portions of the Employee Retention Programs, as set forth above, including, without limitation, the payments approved by this Order. VI. Nothing contained in the Motion or in this order shall be deemed a request by the Debtor for approval to assume any executory contract pursuant to section 365 of the Bankruptcy Code. VII. The Court retains jurisdiction to interpret, implement, and enforce the terms and provisions of this Order. 7 VIII. The requirement pursuant to Rule 9013-1(b) of the Local Bankruptcy Rules for the Southern District of New York that the Debtors file a memorandum of law in support of the Motion hereby is waived. Dated: December 18, 2003 New York, New York /s/ Robert D. Drain ----------------------------------- UNITED STATES BANKRUPTCY JUDGE CONSENTED TO: Akin, Gump, Strauss, Hauer & Feld, LLP 590 Madison Avenue New York, New York 10022 (212) 872-1000 Attorneys for the Creditors' Committee By: /s/ David Botter ------------------------------------- A Member of the Firm NO OBJECTION: Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 (212) 450-4000 Attorneys for the Agent By: /s/ Marshall S. Huebner ------------------------------------- A Member of the Firm Sonnenschein Nath & Rosenthal 1221 Avenue of the Americas New York, New York 10020-1089 (212) 768-6700 Attorneys for Ad Hoc Committee of Preferred Shareholders of Loral Space & Communications, Ltd. By: /s/ John A. Bicks ------------------------------------- A Member of the Firm 8 EX-10.42 10 y94860exv10w42.txt CHANGE-IN-CONTROL SEVERANCE AGREEMENT EXHIBIT 10.42 CHANGE-IN-CONTROL SEVERANCE AGREEMENT AGREEMENT, made and entered into as of the 4th day of February, 2004 by and between Loral Space & Communications Ltd., a Bermuda company, and its successors (the "Parent"), its wholly-owned subsidiary, Space Systems/Loral, Inc. ("SS/L") (hereinafter, SS/L and to the extent applicable, Parent, is a "Company"), and C. Patrick DeWitt (the "Executive"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, the Executive is a key employee of the Company; and WHEREAS, the Parent has filed voluntary petitions for relief under chapter 11 of title 11 of the United States Bankruptcy Code on or since July 15, 2003, and it would be in the best interests of the Parent and its shareholders to induce the Executive to remain with the Company and encourage his continued attention and dedication to the Company in order for the Parent to successfully reorganize and succeed post-bankruptcy; and WHEREAS, the Parent and the Company desire to enter into this agreement ("Agreement") with the Executive providing for a severance payment to the Executive if the Executive's employment is terminated in connection with a Change-in-Control (as hereinafter defined), subject to the terms and conditions specified herein; WHEREAS, the U.S. Bankruptcy Court overseeing the Parent's reorganization has issued a consent order dated December 18, 2003, allowing the Parent to provide additional severance protection to the Executive through such Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt of which is mutually acknowledged, the Parent, the Company and the Executive agree as follows: 1. TERM (a) This Agreement is effective as of the date hereof (the "Effective Date") and shall terminate one year following the date on which the Change-in-Control occurs (the "Term"). (b) If a Change-in-Control does not occur on or before the date two (2) years from the Effective Date, this Agreement shall terminate and be of no further force or effect. 2. TERMINATION OF THE EXECUTIVE'S EMPLOYMENT FOLLOWING A CHANGE-IN-CONTROL (a) If the Executive's employment is terminated by the Company without Cause (as hereinafter defined), or the Executive terminates his employment with the Company for Good Reason (as hereinafter defined), and such Date of Termination (as hereinafter defined) occurs within one year following a Change-in-Control, the Executive shall be entitled to receive a Change-in-Control Payment (as hereinafter defined). (b) Notwithstanding the foregoing, the Executive shall not be entitled to receive the Change-in-Control Payment if any of the following apply to the Executive (hereinafter a "Circumstance of Ineligibility"): (i) Death, Disability or Voluntary Termination. If the Executive is terminated due to death or Disability or if the Executive elects to voluntarily terminate his employment, including a termination due to retirement, with the Company or a successor, the Executive shall not be eligible to receive the Change-in-Control Payment; provided, however, that in the case of a termination of employment by the Executive for Good Reason, the Executive shall be entitled to receive the Change-in-Control Payment. For purposes of the Agreement, "Disability" shall mean as result of the Executive's incapacity due to physical or mental condition, the Executive shall have been absent from the Executive's duties with the Company on a full-time basis for twelve (12) consecutive months, and the Executive shall not have returned to the full-time performance of the Executive's duties within thirty (30) days after written notice of termination, pursuant to Section 2(d), is given to the Executive by the Company. (ii) Termination for Cause. If the Executive's employment with the Company or a successor is terminated for Cause, the Executive shall not be eligible to receive the Change-in-Control Payment. (c) "DATE OF TERMINATION" shall mean: (i) if the Executive's employment is terminated by the Company other than for Disability, the date of receipt of the Notice of Termination (as hereinafter defined) by the Executive (or the date the Executive should have reasonably received the Notice of Termination, whichever is earlier), (ii) if the Executive's employment is terminated by reason of death, the date of death of Executive, (iii) if the Executive's employment is terminated by reason of Disability, the 30th day after receipt of Notice of Termination by the Executive (or the date the Executive should have reasonably received the Notice of Termination, whichever is earlier), provided that, within the 30 days after Notice of Termination is received by the Executive, the Executive shall not have returned to the full-time performance of the Executive's duties with the Company, (iv) if the Executive's employment is terminated by the Executive, the date of receipt of the Notice of Termination by the Company (or the date the Company should have reasonably received the Notice of Termination, whichever is earlier). (d) "NOTICE OF TERMINATION" means that any purported termination by the Company or by the Executive shall be communicated by written notice, to be sent by 2 first class mail, which shall indicate the specific termination provision in this Agreement upon which such notice is based, to the other party hereto. (e) "CHANGE-IN-CONTROL PAYMENT" means: (i) the product of 1.5 times the Executive's annual base salary at the Date of Termination of the Executive's employment (or, in the case of a termination of employment for Good Reason based on a reduction of the Executive's annual base salary, the annual base salary in effect immediately prior to such reduction); and (ii) continuation of medical and life insurance coverage or arrangement in which the Executive shall have been participating immediately prior to the Date of Termination until the earlier of (a) 1.5 years and (b) the date upon which the Executive starts receiving comparable benefits from another employer, provided that the Executive's continued participation (or to the extent that a particular type of coverage) shall be possible under the general terms and provisions of any such plans and arrangements, on the same cost-sharing basis that applied to the Executive immediately prior to the Executive's Date of Termination. In the event the Executive's participation (or a particular type of coverage) under any such plan or arrangement shall be barred, the Company shall arrange to provide the Executive with benefits, at substantially the same after-tax cost to the Executive, which shall be substantially similar to those which the Executive shall be entitled to receive under such plans and arrangements. In the case of a termination of employment for Good Reason based on a reduction of the Executive's welfare benefit plan coverage or arrangement, the Executive's welfare benefit plan coverage or arrangement in effect immediately prior to such reduction. (f) "CHANGE-IN-CONTROL" means that any of the following has occurred: (i) any purchase of shares of the Company's common stock or securities convertible into shares of common stock made pursuant to a tender or exchange offer (other than any such tender offer or exchange made by the Company); (ii) acquisition by any person (other than any employee benefit plan sponsored by the Company or its subsidiaries) of beneficial ownership of 20% or more of the total voting power of the Company's then outstanding stock and securities, except as a result of a merger or consolidation in which the voting securities of the Company immediately prior to such merger or consolidation represent at least 75% of the combined voting power of the stock of the Company or the surviving company or any parent thereof outstanding immediately after such merger or consolidation; (iii) change in the composition of the Board of the Company, so that existing Board members and their approved successors do not constitute a majority of such Board; 3 (iv) consummation of a merger or consolidation of the Company unless shareholders of voting securities of the Company immediately prior to the merger or consolidation continue to hold 75% or more of the voting securities of the resulting entity; and (v) shareholder approval of a liquidation or dissolution of the Company or a sale of substantially all of the Company's assets. (A) For purposes of this Agreement, a "Change-in-Control" shall not be deemed to have occurred if there is a conversion of debt obligations of the Parent and its affiliated debtors incurred prior to the petition date to equity in the reorganized Company on account of such interest pursuant to a plan of reorganization, or the resultant change in the composition of the Board of Directors of the Company, except in the event of the acquisition of the requisite amount of stock to control the Company directly or indirectly by a "competitor" of SS/L (as defined in the Letter to the Creditors Committee dated December 17, 2003) (B) For purposes of this Agreement, "Person" shall mean any person (as defined in Section 3(a)(9) of the Securities Exchange Act, as amended (the "Exchange Act"), as such term is modified in Section 13(d) and 14(d) of the Exchange Act) other than (i) an employee plan established by the Parent or the Company, or any of its affiliates (as defined in Rule 12b-2 promulgated under the Exchange Act), (ii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iii) a corporation owned, directly or indirectly, by stockholders of the Company in substantially the same proportions as their ownership interest of the Company. "Beneficial Owner" shall mean a beneficial owner as defined in Rule 13d-3 under the Exchange Act. (g) "CAUSE" means that any of the following has occurred: (A) the Executive's fraud upon, or misappropriation or embezzlement of assets of, the Company, or (B) the Executive's willful and continued failure to substantially perform the Executive's duties hereunder (other than such failure resulting from the Executive's incapacity due to physical or mental condition or any such actual or anticipated failure after the issuance of a notice of termination, pursuant to Section 2(d)); provided, however, that Cause shall occur with respect to clause (B) of this sentence only if such action constituting Cause has not been corrected or cured by the Executive within thirty (30) days after the Executive has received written notice from the Company of the Company's intent to terminate the Executive's employment for Cause and specifying in detail the basis for such termination. For purposes of this paragraph, no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three quarters of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with the 4 Executive's counsel, to be heard before the Board), finding that in the good faith opinion of the Board, the Executive was guilty of conduct set forth in this section and specifying the particulars thereof in detail. (h) "GOOD REASON" to terminate employment exists with respect to the Executive if there is: (i) any diminution of, or assignment by Company, of duties inconsistent with the Executive's position, duties, responsibilities and status with the Company immediately prior to a Change-in-Control, or a change in the Executive's titles or positions as in effect immediately prior to a Change-in-Control, or any removal of Executive from, or any failure to reelect the Executive to, any of such titles or positions, except in connection with the Executive's termination of employment for disability, voluntary termination or Cause or as a result of the Executive's death, or by the Executive other than for "good reason;" (ii) a reduction by the Company in the Executive's base salary as in effect on the date hereof or as it may be increased from time to time, or the Company's failure to increase the Executive's base salary (within twelve (12) months of Executive's last increase in base salary prior to a Change-in-Control or any anniversary of the date of such increase) after a Change-in-Control in an amount which at least equals, on a percentage basis, the average percentage increase in base salary for all officers of the Company (excluding the Executive) effected in the preceding 12 months; (iii) any failure to continue any material employee benefit, incentive or securities plan or arrangement, or the taking of action that adversely affects the Executive's participation in or reduces benefits under such plans or arrangements unless a substantially comparable plan or arrangement is provided; (iv) the relocation of the primary workplace of the Executive by more than a reasonable commuting distance; (v) a substantial increase in business travel obligations over such obligations as they shall have existed at the time of a Change-in-Control; (vi) any failure to provide the number of paid vacation days to which the Executive was entitled at the time of the Change-in-Control; (vii) any material breach of the Agreement; (viii) any failure to obtain the satisfactory agreement from any successor to assume and agree to perform the Agreement; and (ix) any purported termination of employment without prior written notice specifying the reason for such termination. 5 3. TIME OF PAYMENT OF CHANGE-IN-CONTROL PAYMENT The Change-in-Control Payment (if any) shall be paid to the Executive in cash in a lump sum within 10 business days following the Date of Termination of the Executive's employment with the Company or the successor. 4. EXCISE TAXES The following provisions shall apply with respect to any excise tax imposed under Section 4999 of the Internal Revenue Code as amended (the "Code"), (the "Excise Tax"): (a) Whether or not the Executive becomes entitled to any Change-in-Control Payment, if any of the payments or benefits received or to be received by the Executive in connection with a Change-in-Control or the Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change-in-Control of the Company or any person affiliated with the Company or such person (the "Total Payments")) will be subject to Excise Tax, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive after payment of (a) any Excise Tax on the Total Payments and (b) any Excise Tax and income tax due in respect of the Gross-Up Payment, shall equal the Total Payments. Such payment shall be made in the manner described in Section 3 above. (b) For purposes of determining whether any of the Total Payments will be subject to Excise Tax and the amount of such Excise Tax, (i) any Total Payments shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel selected by the Company's independent auditors and reasonably acceptable to the Executive, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, and all "excess parachute payments" (within the meaning of Section 280G(b)(1) of the Code) shall be treated as subject to the Excise Tax unless, in the opinion of such tax counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code), or are otherwise not subject to the Excise Tax, and (ii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Section 280G(d)(3) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income and employment taxes at the highest marginal rate of federal income and employment taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income and employment taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or such other time as hereinafter described), net of the maximum reduction in federal income or employment taxes which could be obtained from deduction of such state and local taxes. 6 In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of the Executive's employment (or such other time as is hereinafter described), the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive's employment (or such other time as is hereinafter described) (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. 5. MISCELLANEOUS (a) No Employment Agreement. This Agreement does not constitute a contract of employment or impose on the Company any obligation to retain the Executive as an employee. (b) Deductions and Withholding. The Executive agrees that the Company shall withhold from any and all compensation required to be paid to the Executive pursuant to this Agreement all federal, state, local and/or other taxes which the Company determines are required to be withheld in accordance with applicable statutes and/or regulations from time to time in effect. (c) Waiver and Release. The Executive acknowledges that (i) the Change-in-Control Payment is in excess of the amounts that the Executive would otherwise be entitled to receive under any employment or severance agreement, plan, program or arrangement of the Company or between the Company and the Executive, except for the prepetition Employee Protection Agreement dated July 18, 2000, and amended February 7, 2002 (the "Employee Protection Agreement") and (ii) the Company has no obligation to enter into this Agreement. In consideration of the Company assuming these additional obligations and entering into this Agreement, the Executive agrees to (i) execute, upon receipt of the Change-in-Control Payment, a release of all claims related to the Executive's employment or termination thereof, in substantially the same form as Annex A annexed hereto other than any modifications which may be required to effectuate such release based upon any changes in law, and (ii) waive and release any and all claims he may have pursuant to such prepetition Employee Protection Agreement. (d) Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration conducted in New York under the Commercial Arbitration Rules then prevailing of the American 7 Arbitration Association and such submission shall request the American Arbitration Association to: (i) appoint an arbitrator experienced and knowledgeable concerning the matter then in dispute; (ii) require the testimony to be transcribed; (iii) require the award to be accompanied by findings of fact and a statement of reasons for the decision; and (iv) request the matter to be handled by and in accordance with the expedited procedures provided for in the Commercial Arbitration Rules. The determination of the arbitrators, which shall be based upon a de novo interpretation of this Agreement, shall be final and binding and judgment may be entered on the arbitrators' award in any court having jurisdiction. All costs of the American Arbitration Association and the arbitrator shall be borne by the Company, unless the position advanced by the Executive is determined by the arbitrator to be frivolous in nature. (e) Legal Fees. The Parent and its affiliated debtors shall pay to the Executive all reasonable legal fees and expenses incurred by the Executive in disputing in good faith any issues hereunder relating to the termination of the Executive's employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within 30 days after delivery of the Executive's written request for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. The Parent and its affiliated debtors shall pay to the Executive interest at the prime lending rate as announced from time to time by the Federal Reserve Bank on all or any part of the Change-in-Control Payment that is not paid when due. The prime rate for each calendar quarter shall be the prime rate in effect on the first day of the calendar quarter. (f) No Duty to Mitigate/Set-off. The Company agrees that if the Executive's employment with the Company or a successor is terminated during the Term, the Executive shall not be required to seek other employment. Further, the amount of any payment or benefit hereunder shall not be reduced by any compensation earned by the Executive or any benefit provided to the Executive as the result of employment by another employer or otherwise except as set forth in Section 2(e)(ii) herein. The Company's obligations to make any payment or provide any benefit hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company or a successor corporation may have against the Executive except as set forth in Section 2(e)(ii) herein. (g) Other Severance. The Company acknowledges and agrees that the Change-in-Control Payment is in addition to any severance payments to which Executive may be entitled under the Company's Key Employee Retention Plan and which are described in the consent order of the U.S. Bankruptcy Court overseeing the Parent's reorganization dated November 26, 2003. (h) Amendment and Termination. No party may amend, modify or terminate this Agreement without the express written consent of the other party. 8 (i) Binding Agreement. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devises and legatees. (j) Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of New York without reference to principles of conflict of laws. (k) Counterparts. This Agreement may be executed and delivered in separate counterparts, each of which when so executed and delivered shall be deemed an original and all of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written above. LORAL SPACE & COMMUNICATIONS, LTD. By: /s/ Avi Katz --------------------- Avi Katz Vice President SPACE SYSTEMS/LORAL, INC. By: /s/ Avi Katz --------------------- Avi Katz Vice President ACCEPTED AND AGREED TO as of the date first written above By: /s/ C. Patrick DeWitt --------------------- C. Patrick DeWitt Address: 44372 Arapaho Avenue Fremont, CA 94539 9 Annex A Form of Release Executive waives and releases any and all potential claims, known or unknown, he has against the Company, related corporations, subsidiaries, and their officers, directors, employees or agents, relating to or arising out of, his employment with the Company and the termination of that employment. This waiver and release applies to all claims relating to his employment, including, but not limited to, claims arising under the New York State Executive Law or the New York City Civil Rights Law, claims arising under the California Fair Employment & Housing Act and/or any other applicable California statute, any contract or tort claims, claims arising under Title VII of the Civil Rights Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act of 1990, and the Fair Labor Standards Act. EX-12 11 y94860exv12.htm STATEMENT RE: COMPUTATION OF RATIOS STATEMENT RE: COMPUTATION OF RATIOS


		Name of each exchange
Title of each class		on which registered

Common stock, $.10 par value		None


PART I
	Item 1. Business
THE COMPANY
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition
	Item 7A. Quantitative and Qualitative Disclosures about Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
	Item 9A. Disclosure Controls and Procedures
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 13. Certain Relationships and Related Transactions
	Item 14. Principal Accountant Fees and Services
PART IV
	Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
INDEX TO EXHIBITS
SIGNATURES
AMENDMENT 4 TO ASSET PURCHASE AGREEMENT
MEMORANDUM OF INCREASE OF SHARE CAPITAL
FOUTH AMENDED AND RESTATED BYE-LAWS
CASH COLLATERAL ORDER
CONFORMED AS AMENDED APSTAR V SATELLITE AGREEMENT
CONSENT ORDER
CONSENT ORDER
CHANGE-IN-CONTROL SEVERANCE AGREEMENT
STATEMENT RE: COMPUTATION OF RATIOS
CODE OF CONDUCT
LIST OF SUBSIDIARIES
CONSENT OF DELOITTE & TOUCHE LLP
CERTIFICATION OF CEO
CERTIFICATION OF CFO
CERTIFICATION OF CEO
CERTIFICATION OF CFO




					Expected End
Satellite	Location	Frequency	Coverage	In Service Date	of Life


Telstar 10/ ApstarIIR	76.5°E.L.	C/ Ku-band	Asia and portions of Europe, portions of Africa and Australia	December 1997	September 2012

Telstar 11	37.5°W.L.	Ku-band	Europe, SE Canada, U.S. East of the Rockies and portions of Mexico	January 1995	June 2004⁽¹⁾

Telstar 12	15°W.L.	Ku-band	Eastern U.S., SE Canada, Europe, Russia, Middle East, North Africa, portions of South and Central America	January 2000	June 2016

Telstar 14/ Estrela do Sul-1⁽²⁾	63°W.L.	Ku-band	Brazil and portions of Latin America, North America, Atlantic Ocean	March 2004	See footnote 2 below

Brazil 1T⁽²⁾	63°W.L.	Ku-band	Brazil, North America and North Atlantic	September 2000	February 2002

Telstar 18/ Apstar V⁽³⁾⁽⁵⁾	138°E.L.	C/ Ku-band	India, South East Asia, China, Australia and Hawaii	To be launched in 2004	TBD⁽⁷⁾




Telstar 4⁽⁴⁾	89°W.L.	C/ Ku-band	U.S., Northern Mexico, Southern Canada	November 1995	September 2003

Telstar 5	97°W.L.	C/ Ku-band	U.S., Mexico, Canada, Northern and Central America	July 1997	June 2015

Telstar 6	93°W.L.	C/ Ku-band	U.S., Mexico, Southern Canada, Central America	April 1999	March 2017

Telstar 7	129°W.L.	C/ Ku-band	U.S., Mexico, Southern Canada, Northern and Central America	November 1999	October 2014

Telstar 8⁽⁵⁾	89°W.L.	C/ Ku/ Ka-band	U.S. and portions of South America	To be launched in 2004	TBD⁽⁷⁾

Telstar 13⁽⁶⁾	121°W.L.	C -band	North America, Central America, Puerto Rico and Hawaii	September 2003	August 2019



	For the years ending
	December 31,

	2003			2002			2001


	(in millions)
Total segment revenues	$	296		$	395		$	464
Eliminations		(8	)		(5	)		(8	)

Revenues from satellite services as reported	$	288		$	390		$	456

Segment adjusted EBITDA before eliminations⁽¹⁾	$	141		$	220		$	263


Item 4.	*Submission of Matters to a Vote of Security Holders*


Item 5.	*Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities*


	High		Low

Year ended December 31, 2003
Quarter ended December 31, 2003	$	0.48	$	0.26
Quarter ended September 30, 2003		3.06		0.15
Quarter ended June 30, 2003		4.60		2.59
Quarter ended March 31, 2003		5.20		3.00
Year ended December 31, 2002
Quarter ended December 31, 2002	$	7.00	$	2.30
Quarter ended September 30, 2002		10.80		2.20
Quarter ended June 30, 2002		24.40		9.10
Quarter ended March 31, 2002		32.70		18.00



		Years Ended December 31,

		2003			2002			2001			2000			1999

Statement of operations data:
Revenues		$	533,385		$	1,098,425		$	1,069,575		$	1,224,111		$	1,457,720
Operating loss			(309,915	)		(82,029	)		(5,228	)		(86,086	)		(62,263	)
Loss before income taxes, equity in net losses of affiliates, minority interest, Globalstar related impairment charges, cumulative effect of change in accounting principle and extraordinary gain on acquisition of minority interest			(338,575	)		(147,354	)		(126,333	)		(56,843	)		(62,138	)
Income tax (provision) benefit			(4,647	)		(355,042	) ⁽¹⁾		(2,170	)		(9,375	)		32,516
Loss before equity in net losses of affiliates, minority interest, Globalstar related impairment charges, cumulative effect of change in accounting principle and extraordinary gain on acquisition of minority interest			(343,222	)		(502,396	)		(128,503	)		(66,218	)		(29,622	)
Equity in net losses of affiliates, net of taxes⁽²⁾			(51,153	)		(76,280	)		(66,677	)		(1,294,910	) ⁽³⁾		(177,819	)
Globalstar related impairment charges, net of taxes												(112,241	) ⁽³⁾
Loss before cumulative effect of change in accounting principle and extraordinary gain on acquisition of minority interest			(394,355	)		(578,902	)		(194,719	)		(1,469,678	)		(201,916	)
Cumulative effect of change in accounting principle, net of taxes			(1,970	)		(890,309	) ⁽⁴⁾		(1,741	)
Extraordinary gain on acquisition of minority interest			13,615
Net loss			(382,710	)		(1,469,211	)		(196,460	)		(1,469,678	)		(201,916	)
Preferred dividends and accretion			(6,719	)		(89,186	)		(80,743	)		(67,528	)		(44,728	)
Net loss applicable to common stockholders			(389,429	)		(1,558,397	)		(277,203	)		(1,537,206	)		(246,644	)
Basic and diluted loss per share:
	Before cumulative effect of change in accounting principle and extraordinary gain on acquisition of minority interest	$	(9.15	)	$	(17.92	)	$	(8.51	)	$	(51.96	)	$	(8.50	)
	Cumulative effect of change in accounting principle		(0.05	)		(23.89	)		(0.05	)
	Extraordinary gain on acquisition of minority interest		0.31

	Loss per share	$	(8.89	)	$	(41.81	)	$	(8.56	)	$	(51.96	)	$	(8.50	)

Other data:
Deficiency of earnings to cover fixed charges		$	379,134		$	266,356		$	230,173		$	141,453		$	191,075



	December 31,

	2003⁽⁵⁾			2002⁽¹⁾⁽⁴⁾			2001⁽⁶⁾		2000⁽³⁾		1999

Balance sheet data:
Cash and cash equivalents	$	141,644		$	65,936		$	159,949	$	394,045	$	239,865
Total assets		2,455,741			2,692,802			4,426,187		4,692,082		5,610,421
Debt, including current portion					2,236,497			2,352,956		2,445,996		1,988,194
Non-current liabilities and minority interest		199,323			354,475			272,302		261,432		262,900
Convertible redeemable preferred stock					125,081
Liabilities subject to compromise		2,906,095
Shareholders’ (deficit) equity		(855,670	)		(354,227	)		1,350,868		1,586,388		2,750,664


Item 7.	*Management’s Discussion and Analysis of Results of Operations and Financial Condition*


Adjusted EBITDA	$	133.6	$	184.0	$	213.3
Depreciation and amortization		54.6		57.7		59.9

Operating income		79.0		126.3		153.4
Interest expense		48.9		36.1		49.8
Income tax provision		11.1		32.6		42.3

Net income	$	19.0	$	57.6	$	61.3



										% Increase
										(Decrease)
	Years Ended
	December 31,									2003			2002
										vs.			vs.
	2003			2002			2001			2002			2001


	(in millions)
Revenues from Satellite Services	$	296		$	395		$	464			(25	)%		(15	)%
Eliminations		(8	)		(5	)		(8	)		60	%		(38	)%

Revenues from Satellite Services as reported	$	288		$	390		$	456			(26	)%		(14	)%



	Payments Due by Period

	Total		1 Year		2-3 Years		4-5 Years		After 5 Years

Debt⁽²⁾	$	2,236,864	$	2,236,864	$	—	$	—	$	—
Operating leases⁽³⁾		175,082		30,452		43,742		32,196		68,692
Unconditional purchase obligations ⁽⁴⁾		107,568		105,003		2,487		78		—
Other long-term obligations⁽⁵⁾		164,648		113,920		9,072		39,972		1,684
Preferred stock redemptions⁽⁶⁾		223,981		—		187,274		36,707		—

Total contractual cash obligations	$	2,908,143	$	2,486,239	$	242,575	$	108,953	$	70,376



			Amount of Commitment Expiration Per Period
	Total
	Amounts								After
	Committed		1 Year		2-3 Years		4-5 Years		5 Years

Standby letters of credit and Guarantees⁽⁷⁾	$	7,850	$	5,470	$	—	$	—	$	2,380


Item 1.	*Business*


	XTAR


	Satmex


	Globalstar


Item 7A.	*Quantitative and Qualitative Disclosures about Market Risk*


	Japanese Yen		U.S.$

Future revenues		¥2,263	$	21.6
Future expenditures		1,339		12.5
Contracts-in-process (unbilled receivables)		3,449		31.0


Item 8.	*Financial Statements and Supplementary Data*


Item 9.	*Changes in and Disagreements with Accountants on Accounting and Financial Disclosure*


Item 10.	*Directors and Executive Officers of the Registrant*


Bernard L. Schwartz


Age:		78
Director Since:		1996
Business Experience:		Mr. Schwartz is Chairman of the Board of Directors and Chief Executive Officer of the Company.
Other Directorships:		First Data Corp., K&F Industries, Inc. and Satélites Mexicanos, S.A. de C.V. Trustee of NYU Medical Center and Health System, Thirteen/ WNET Educational Broadcasting Corporation and the Baruch College Fund.

Howard Gittis


Age:		70
Director Since:		1996
Business Experience:		Mr. Gittis is Director, Vice Chairman and Chief Administrative Officer of MacAndrews & Forbes Holdings Inc. and its various affiliates.
Other Directorships:		Jones Apparel Group, Inc., M & F Worldwide Corp., REV Holdings Inc., Revlon Consumer Products Corporation, Revlon, Inc. and Scientific Games Corporation

Robert B. Hodes


Age:		78
Director Since:		1996
Business Experience:		Mr. Hodes is counsel to Willkie Farr & Gallagher, a law firm in New York, N.Y., and, until 1996, was a partner in and co-chairman of that firm.
Other Directorships:		K&F Industries, Inc., LCH Investments, N.V., Mueller Industries, Inc., The National Philanthropic Trust, Restructured Capital Holdings, Ltd. and R.V.I. Guaranty Ltd.

Gershon Kekst


Age:		69
Director Since:		1996
Business Experience:		Mr. Kekst is President of Kekst and Company Incorporated, a strategic corporate communications (consulting) firm.

Charles Lazarus


Age:		80
Director Since:		1996
Business Experience:		Mr. Lazarus is Chairman Emeritus of Toys “R” Us, Inc.


Sally Minard


Age:		61
Director Since:		2002
Business Experience:		Ms. Minard is co-chair of the Women’s Leadership Forum of the Democratic National Committee in New York State. She was co-founder and CEO of Lotas Minard Patton McIver, an advertising communications firm in New York, N.Y., from 1986-1999.
Other Directorships:		American Red Cross (NY), Metropolitan Museum of Art, NARAL Pro-Choice New York Foundation and The New School

Malvin A. Ruderman


Age:		76
Director Since:		1996
Business Experience:		Dr. Ruderman is the Centennial Professor of Physics at Columbia University in New York, N.Y. He has been a member of the Board of Trustees of the Institute for Advanced Study and of Associated Universities, Inc.

E. Donald Shapiro


Age:		72
Director Since:		1996
Business Experience:		Mr. Shapiro has been The Joseph Solomon Distinguished Professor of Law at New York Law School since 1983 and Dean Emeritus since 2000 and was previously Dean/ Professor of Law (1973-1983).
Other Directorships:		Frequency Electronics, Inc., Group Health Incorporated, Kramont Realty Trust, NSTAR and Vasomedical, Inc.

Arthur L. Simon


Age:		72
Director Since:		1996
Business Experience:		Mr. Simon is an independent consultant. Previously, he was a partner at Coopers & Lybrand L.L.P., Certified Public Accountants, from 1968 to 1994.
Other Directorships:		L-3 Communications Corporation

Daniel Yankelovich


Age:		79
Director Since:		1996
Business Experience:		Mr. Yankelovich is Chairman of DYG, Inc., a market, consumer and opinion research firm in New York, N.Y. He is also Chairman of Viewpoint Learning, Inc., a consulting firm based in San Diego, CA.
Other Directorships:		Director Emeritus of Arkla, Inc., CBS, Inc., Meredith Corporation and U S West, Inc.

Eric J. Zahler


Age:		53
Director Since:		2001
Business Experience:		Mr. Zahler has been President and Chief Operating Officer of the Company since February 2000. Previously, he was Executive Vice President of the Company since October 1999, Senior Vice President, General Counsel and Secretary of the Company since February 1998 and Vice President, General Counsel and Secretary of the Company since 1996.
Other Directorships:		Satélites Mexicanos, S.A. de C.V.


Name	Age		Position

Bernard L. Schwartz		78	Chairman of the Board of Directors and Chief Executive Officer since January 1996.
Eric J. Zahler		53	Director since July 2001 and President and Chief Operating Officer since February 2000. Prior to that, Executive Vice President since October 1999. Prior to that, Senior Vice President, General Counsel and Secretary since February 1998 and Vice President, General Counsel and Secretary since April 1996
Richard J. Townsend		53	Executive Vice President and Chief Financial Officer since March 2003. Prior to that, Senior Vice President and Chief Financial Officer since October 1998.
Robert E. Berry		75	Senior Vice President since November 1996 and Chairman of Space Systems/ Loral since September 1999. Prior to that, President of Space Systems/ Loral since 1990.
Laurence D. Atlas		46	Vice President, Government Relations — Telecommunications since May 1997.
Jeanette H. Clonan		55	Vice President — Communications and Investor Relations since December 1996.
C. Patrick DeWitt		57	Vice President. President of Space Systems/ Loral since November 2001. Prior to that, Executive Vice President of Space Systems/ Loral since 1996.
Terry J. Hart		57	Vice President. President of Loral Skynet since March 1997.
Stephen L. Jackson		62	Vice President — Administration since March 1997.
Avi Katz		45	Vice President, General Counsel and Secretary since November 1999. Prior to that, Vice President, Deputy General Counsel and Assistant Secretary since February 1998.
Russell R. Mack		49	Vice President — Business Ventures since February 1998.
Richard P. Mastoloni		39	Vice President and Treasurer since February 2002. Prior to that, Vice President since September 2001 and Assistant Treasurer since August 2000. Prior to that, Director of Corporate Finance since August 1997.
Harvey B. Rein		50	Vice President and Controller since April 1996.
Janet T. Yeung		39	Vice President, Deputy General Counsel and Assistant Secretary since February 2000. Prior to that, Associate General Counsel and Assistant Secretary since November 1999. Prior to that, Associate General Counsel since February 1998.



													Long Term
													Compensation
				Annual Compensation
																Securities
										Other			Restricted			Underlying
Name and										Annual			Stock			Stock		All Other
Principal Position		Year		Salary			Bonus			Compensation			Awards			Options		Compensation(a)

Bernard L. Schwartz,
	Chairman of the Board of		2003	$	292,150	^(b)		—		$	42,763	^(c)		—			—	$	32,200
	Directors and Chief		2002	$	1,744,576			—			—			—			25,000	$	261,648
	Executive Officer		2001	$	1,708,581			—			—			—			330,500	$	219,713
Eric J. Zahler, President			2003	$	1,000,000		$	400,000			—			—			—	$	53,946
	and Chief Operating		2002	$	1,000,000		$	225,000			—			—			16,250	$	53,346
	Officer		2001	$	1,000,000			—			—			—			77,500	$	27,866
Richard J. Townsend,
	Executive Vice President		2003	$	770,000		$	360,000			—			—			—	$	21,435
	and Chief Financial		2002	$	640,673		$	150,000			—			—			15,000	$	20,835
	Officer		2001	$	552,212			—			—			—			47,500	$	20,355
Terry J. Hart, Vice			2003	$	380,000		$	266,000		$	69,600	^(e)		—			—	$	12,689
	President and President		2002	$	378,154		$	275,000	^(d)		—		$	96,000	^(f)		—	$	12,022
	of Loral Skynet		2001	$	351,461		$	198,000			—			—			16,970	$	11,689
Avi Katz, Vice President,			2003	$	400,404		$	150,000			—			—			—	$	15,921
	General Counsel and		2002	$	369,154		$	135,000			—			—			—	$	15,321
	Secretary		2001	$	325,019		$	112,500			—			—			18,840	$	14,841
C. Patrick DeWitt, Vice
	President and President		2003	$	426,675			—^(g	⁾		—			—			—	$	7,197
	of Space Systems/		2002	$	363,462		$	250,000		$	148,269	^(h)	$	152,000	⁽ⁱ⁾		—	$	7,194
	Loral, Inc.		2001	$	311,558		$	75,057			—			—			34,945	$	6,118


(a)		For 2003, includes annual Board of Directors fee in the amount of $25,000 to each of Messrs. Schwartz and Zahler and Company matching contributions to the Savings Plan in the amount of $7,200 for each of Messrs. Schwartz, Zahler, Townsend and Katz, $8,000 for Mr. Hart and $7,197 for Mr. DeWitt and the value of supplemental life insurance premiums in the amounts of $21,746, $14,235, $4,689 and $8,721 for Messrs. Zahler, Townsend, Hart and Katz, respectively.

(b)		At Mr. Schwartz’s request, the Compensation Committee of the Board of Directors agreed to amend his employment agreement to provide for no base salary for the twelve-month period commencing March 1, 2003. Salary paid in 2003 is for the period of January 1, 2003 through February 28, 2003.


(c)		Represents the aggregate incremental cost to Loral for use of Loral’s corporate jet by Mr. Schwartz.

(d)		For 2002, represents a $275,000 one-time cash bonus payment to Mr. Hart on the fifth anniversary of the closing date of the purchase by Loral of Loral Skynet from AT&T.

(e)		Consists of $68,605 for Mr. Hart for a tax gross-up on his restricted stock award and the Company’s medicare match on this income of $995.

(f)		Represents the market value on 30,000 shares of restricted stock granted to Mr. Hart on March 6, 2003 for performance in 2002. Such shares had a market value of $6,300 based on the closing price of Loral’s common stock at December 31, 2003. The restrictions lapse on the third anniversary of the date of grant. This is the only restricted stock grant that has been awarded to Mr. Hart and represents his entire restricted stock holdings at year-end.

(g)		Mr. DeWitt will receive payments under a key employee retention program in lieu of his 2003 bonus.

(h)		Consists of $146,150 for Mr. DeWitt for a tax gross-up on his restricted stock award and the Company’s medicare match on this income of $2,119.

(i)		Represents the market value on 40,000 shares of restricted stock granted to Mr. DeWitt on December 18, 2002. Such shares had a market value of $8,400 based on the closing price of Loral’s common stock at December 31, 2003. The restrictions lapse on the third anniversary of the date of grant. This is the only restricted stock grant that has been awarded to Mr. DeWitt and represents his entire restricted stock holdings at December 31, 2003.



	Number of Securities				Value of Unexercised In-the-
	Underlying Unexercised				Money Options at Fiscal
	Options at Fiscal Year-End				Year-End

Name	Exercisable		Unexercisable		Exercisable		Unexercisable

Bernard L. Schwartz		718,000		0		0		0
Eric J. Zahler		67,912		25,838		0		0
Richard J. Townsend		46,664		15,836		0		0
Terry J. Hart		11,312		5,658		0		0
Avi Katz		12,560		6,280		0		0
C. Patrick DeWitt		23,294		11,651		0		0



	Years of Contributory Service

Final Average Salary	10		15		20		25		30		35

$100,000	$	14,530	$	21,800	$	29,060	$	36,330	$	43,590	$	50,860
125,000		18,910		28,360		37,810		47,260		56,720		66,170
150,000		23,280		34,920		46,560		58,200		69,840		81,480
175,000		27,660		41,480		55,310		69,140		82,970		96,790
200,000		32,030		48,050		64,060		80,080		96,090		112,110
225,000		36,410		54,610		72,810		91,010		109,220		127,420
250,000		40,780		61,170		81,560		101,950		122,340		142,730
275,000		45,160		67,730		90,310		112,890		135,470		158,040
300,000		49,530		74,300		99,060		123,830		148,590		173,360
350,000		58,280		87,420		116,560		145,700		174,840		203,980
400,000		67,030		100,550		134,060		167,580		201,090		234,610
450,000		75,780		113,670		151,560		189,450		227,340		265,230
500,000		84,530		126,800		169,060		211,330		253,590		295,860


Item 12.	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*


	Amount and Nature of Beneficial			Percent of
Name of Individual	Ownership ⁽¹⁾⁽²⁾			Class

Bernard L. Schwartz		1,111,925	⁽³⁾		2.5	%
C. Patrick DeWitt		68,078	⁽⁴⁾		*
Howard Gittis		35,940	⁽⁵⁾		*
Terry J. Hart		44,464	⁽⁶⁾		*
Robert B. Hodes		27,540	⁽⁷⁾		*
Avi Katz		18,114	⁽⁸⁾		*
Gershon Kekst		27,340	⁽⁵⁾		*
Charles Lazarus		25,340	⁽⁵⁾		*
Sally Minard		3,334	⁽⁹⁾		*
Malvin A. Ruderman		28,540	⁽⁵⁾		*
E. Donald Shapiro		34,690	⁽¹⁰⁾		*
Arthur L. Simon		29,340	⁽¹¹⁾		*
Richard J. Townsend		54,211	⁽¹²⁾		*
Daniel Yankelovich		32,440	⁽⁵⁾		*
Eric J. Zahler		90,058	⁽¹³⁾		*
All directors, NEOs and other executive officers as a group (23 persons)		1,758,126	⁽¹⁴⁾		3.9	%


Item 13.	*Certain Relationships and Related Transactions*


Item 15.	*Exhibits, Financial Statement Schedules and Reports on Form 8-K*


		Page

Index to Financial Statements and Financial Statement Schedule			F-1
Loral Space & Communications Ltd., A Debtor In Possession
	Independent Auditors’ Report		F-2
	Consolidated Balance Sheets as of December 31, 2003 and 2002		F-3
	Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001		F-4
	Consolidated Statements of Shareholders’ (Deficit) Equity for the years ended December 31, 2003, 2002 and 2001		F-5
	Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001		F-6
	Notes to Consolidated Financial Statements		F-7
(a) 2. Financial Statement Schedule
	Independent Auditors’ Report on Supplemental Schedule		F-67
	Schedule II		F-68


Exhibit
Number			Description

	2	.1	Restructuring, Financing and Distribution Agreement, dated as of January 7, 1996, among Loral Corporation, Loral Aerospace Holdings, Inc., Loral Aerospace Corp., Loral General Partner, Inc., Loral Globalstar L.P., Loral Globalstar Limited, the Registrant and Lockheed Martin Corporation(1)
	2	.2	Amendment to Restructuring, Financing and Distribution Agreement, dated as of April 15, 1996(1)
	2	.3	Agreement for the Purchase and Sale of Assets dated as of September 25, 1996 by and between AT&T Corp., as Seller, and Loral Space & Communications Ltd., as Buyer(2)
	2	.3.1	First Amendment to Agreement for the Purchase and Sale of Assets dated as of March 14, 1997, by and between AT&T Corp., as Seller, and Loral Space & Communications Ltd., as Buyer(3)
	2	.4	Agreement and Plan of Merger dated as of October 7, 1997 by and among Orion Network Systems, Inc., Loral Space & Communications Ltd. and Loral Satellite Corporation(4)
	2	.4.1	First Amendment to Agreement and Plan of Merger dated as of February 11, 1998 by and among Orion Network Systems, Inc., Loral Space & Communications Ltd. and Loral Satellite Corporation(5)
	2	.4.2	Second Amendment to Agreement and Plan of Merger dated as of March 20, 1998 by and among Orion Network Systems, Inc., Loral Space & Communications Ltd. and Loral Satellite Corporation (10)
	2	.5	Asset Purchase Agreement dated as of July 15, 2003, among Intelsat, Ltd., Intelsat (Bermuda), Ltd., Loral Space & Communications Corporation, Loral SpaceCom Corporation and Loral Satellite, Inc. (25)
	2	.5.1	Amendment No. 1 to Asset Purchase Agreement dated as of July 15, 2003, among Intelsat, Ltd., Intelsat (Bermuda), Ltd., Loral Space & Communications Corporation, Loral SpaceCom Corporation and Loral Satellite, Inc.(26)
	2	.5.2	Amendment No. 2 to Asset Purchase Agreement dated as of July 15, 2003, among Intelsat, Ltd., Intelsat (Bermuda), Ltd., Loral Space & Communications Corporation, Loral SpaceCom Corporation and Loral Satellite, Inc.(26)
	2	.5.3	Amendment No. 3 to Asset Purchase Agreement dated as of July 15, 2003, among Intelsat, Ltd., Intelsat (Bermuda), Ltd., Loral Space & Communications Corporation, Loral SpaceCom Corporation and Loral Satellite, Inc.(26)
	2	.5.4	Amendment No. 4 to Asset Purchase Agreement dated as of March 5, 2004, among Intelsat, Ltd., Intelsat (Bermuda), Ltd., Loral Space & Communications Corporation, Loral SpaceCom Corporation and Loral Satellite, Inc. †
	3	.1	Memorandum of Association(1)
	3	.2	Memorandum of Increase of Share Capital dated January 1996(1)
	3	.2.1	Memorandum of Increase of Share Capital dated May 1997(21)
	3	.2.2	Memorandum of Increase of Share Capital dated May 1999(21)
	3	.2.3	Memorandum of Increase of Share Capital dated June 2003†
	3	.3	Third Amended and Restated Bye-laws (14)
	3	.4	Schedule IV to the Third Amended and Restated Bye-laws(14)
	3	.5	Fourth Amended and Restated Bye-laws†
	4	.1	Rights Agreement dated March 27, 1996 between the Registrant and The Bank of New York, Rights Agent(1)
	4	.2	Indenture dated as of January 15, 1999 relating to the Registrant’s 9 1/2% Senior Notes due 2006(11)
	10	.1	Shareholders Agreement dated as of April 23, 1996 between Loral Corporation and the Registrant(1)


Date of Report		Description

October 8, 2003	Item 7 — Financial Statements, Pro Forma Financial Information and Exhibits Item 9 — Regulation FD Disclosure	Monthly Operating Report for the Period of July 15, 2003 through August 22, 2003 as filed with the U.S. Bankruptcy Court for the Southern District of New York
October 30, 2003	Item 5 — Other Events Item 7 — Financial Statements, Pro Forma Financial Information and Exhibits	Amendment Nos. 1, 2 and 3 to the Asset Purchase Agreement among Intelsat, Ltd., Intelsat (Bermuda), Ltd., Loral Space & Communications Corporation, Loral SpaceCom Corporation and Loral Satellite, Inc.
November 17, 2003	Item 9 — Regulation FD Disclosure	Monthly Operating Report for the Period of August 23, 2003 through September 30, 2003 as filed with the U.S. Bankruptcy Court for the Southern District of New York
November 18, 2003	Item 7 — Financial Statements, Pro Forma Financial Information and Exhibits	Earnings release for the three months ended September 30, 2003
	Item 12 — Results of Operations and Financial Condition
December 8, 2003	Item 9 — Regulation FD Disclosure	Monthly Operating Report for the Period of October 1, 2003 through October 24, 2003 as filed with the U.S. Bankruptcy Court for the Southern District of New York
December 11, 2003	Item 5 — Other Events and Regulation FD Disclosure	Damage to the SpainSat satellite under construction by Space Systems/ Loral, Inc.
December 18, 2003	Item 9 — Regulation FD Disclosure	Amended Monthly Operating Reports for the Periods of July 15, 2003 through August 22, 2003 and August 23, 2003 through September 30, 2003 as filed with the U.S. Bankruptcy Court for the Southern District of New York