8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 7, 2007

LORAL SPACE & COMMUNICATIONS INC.

(Exact name of registrant as specified in its charter)

Delaware	1-14180	87-0748324
(State or other	(Commission	(IRS Employer
jurisdiction of	File Number)	Identification
incorporation)		Number)

600 Third Avenue, New York, New York	10016
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (212) 697-1105

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

EX-2.1: Asset Transfer Agreement

EX-2.2: Asset Purchase Agreement

EX-10.1: Alternative Subscription Agreement

EX-10.2: Ancillary Agreement

Ex-99.1: Financial statements of Loral Skynet Corporation

Ex-99.2: Financial statements of Telesat Canada

Ex-99.3: Pro forma financial information of Loral Skynet and Telesat Canada

Ex-99.4: Pro forma financial information of Loral

Item 1.01 Entry into a Material Definitive Agreement.

     The following background information has been previously reported: Pursuant to a Share Purchase Agreement (the “Telesat SPA”), dated December 16, 2006, 4363213 Canada Inc. (“Acquireco”), a Canadian company agreed to purchase all of the issued and outstanding shares of Telesat Canada, a Canadian crown corporation (“Telesat”) and certain safe income notes from BCE Inc. (“BCE”). At the closing under the Telesat SPA (the “Telesat Closing”), subsidiaries of Loral Space & Communications Inc. (“Loral” or the “Company”) and the Public Sector Pension Investment Board (“PSP”), together with two third-party investors, will own all of the issued and outstanding shares of 4363205 Canada Inc. (“Holdco”), which will own all of the issued and outstanding shares of Acquireco. The Company, PSP and Loral Skynet Corporation, a wholly-owned subsidiary of the Company (“Loral Skynet”) had previously, on December 14, 2006, entered into a letter agreement (the “Investors Letter Agreement”) regarding the capitalization and management of Holdco and the transfer to Holdco of substantially all the assets and related liabilities of Loral Skynet. See Item 8.01 of this Current Report on Form 8-K for more information about the Telesat transaction.

     On August 7, 2007, as contemplated by the Investors Letter Agreement, the Company and Loral Skynet entered into a number of definitive agreements:

     Asset Transfer Agreement. Loral Skynet and Holdco entered into an Asset Transfer Agreement providing for the transfer to Holdco of substantially all of the assets of Loral Skynet and for Holdco’s assumption of the principal amount of Loral Skynet’s senior secured debt and substantially all of its liabilities relating to the transferred assets. The assets to be transferred consist principally of Loral Skynet’s fixed satellite services and network services assets, with the exception of certain excluded assets, and the shares of subsidiaries, including all of the issued and outstanding shares of Skynet Satellite Corporation, the purchaser under the Asset Purchase Agreement described below. The Asset Transfer Agreement provides for Holdco to issue shares to Loral Skynet representing 64% of the economic interests and 33¹/₃% of the voting power of Holdco and, together with the related Ancillary Agreement described below, provides for the adjustment of the purchase price thereunder. The Asset Transfer Agreement contains customary representations and warranties of the parties, based on those provided in the Telesat SPA, and an indemnity in favor of Holdco for losses resulting from a breach of representations, warranties or covenants, as well as against excluded liabilities not assumed by Holdco. Loral Skynet’s obligation to indemnify Holdco is subject to minimum thresholds of US$8,390,575 and US$41,952,875 for losses relating to representations and warranties made on the signing and closing of the Asset Transfer Agreement, respectively, and a cap of US$83,905,750. The indemnification thresholds and cap are not applicable to breaches of certain specified representations and warranties and are subject to reduction based on adjustments made, if any, to the purchase price. The Company has guaranteed all of Loral Skynet’s obligations under the Asset Transfer Agreement.

     Prior to the closing under the Asset Transfer Agreement, Loral Skynet’s outstanding Preferred Stock and senior secured debt will have been called for redemption and the redemption price therefor will have been deposited with the redemption agent or trustee, as the case may be. The closing under the Asset Transfer Agreement (the “Skynet Closing”) is also conditioned upon the simultaneous or prior consummation of the Telesat Closing, FCC approval and customary closing conditions. Absent any material default or breach on the part of the terminating party,

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the Asset Transfer Agreement may be terminated by Loral Skynet or Holdco if the Skynet Closing does not occur within one year from the Telesat Closing.

     Asset Purchase Agreement. In connection with the Asset Transfer Agreement, Loral Skynet and Skynet Satellite Corporation entered into a related Asset Purchase Agreement providing for Skynet Satellite Corporation to purchase, immediately following its acquisition by Holdco, certain Loral Skynet assets, including real property, FCC licenses and rights to certain vendor and customer contracts (the “Purchased Property”) and to assume certain liabilities of Loral Skynet for a purchase price of US$25,472,000, payable in marketable securities. The Company has guaranteed all of Loral Skynet’s obligations under the Asset Purchase Agreement. The Skynet Closing is a condition to the consummation of the transactions contemplated by the Asset Purchase Agreement, and this agreement will automatically terminate upon the termination of the Asset Transfer Agreement.

     Ancillary Agreement. The Ancillary Agreement among the Company, Loral Skynet, PSP, Holdco and a subsidiary of Holdco provides, among other things, for the settlement of payments by and among the parties in connection with these transactions. The Ancillary Agreement gives effect to the intention of the parties that, absent a material adverse change in the Skynet business between September 30, 2006 and the closing date under the Asset Transfer Agreement and the Asset Purchase Agreement, the Skynet assets to be transferred pursuant to those agreements, will be valued at approximately US$839 million. The Ancillary Agreement also accounts for, among other things, changes in the exchange rates, gains and losses on hedging transactions, accrued interest and dividends, and tax effects, and provides for a downward adjustment in the Skynet valuation and a corresponding cash payment by the Company in the event of a material adverse change in the Skynet business.

     Alternative Subscription Agreement. To provide for the unlikely eventuality that the Skynet Closing does not occur simultaneously with the Telesat Closing, the Company, Loral Skynet and Holdco have entered into the Alternative Subscription Agreement, which provides for the contributions to be made by the Company to Holdco in that event and for its resulting economic interest and voting power in Holdco. In that event, on the date of the Telesat Closing, the Company or a wholly owned subsidiary will purchase Holdco redeemable shares for C$270,900,000, which will be redeemed by Holdco at the Skynet Closing. If the Skynet Closing has not occurred by the first anniversary of the Telesat Closing, the Company will pay an additional US$175,000,000 and will transfer all of its rights to its contract for the construction of a satellite known as Telstar 11N to Holdco, in exchange for additional Holdco shares. If the value of the aggregate contributions made by the Company is less than the amount necessary to bring the Company’s equity interest in Holdco to 64%, the Company shall be required to use commercially reasonable efforts to acquire the funds necessary to enable it to make an equity contribution to Holdco equal to such difference. If the value of the Company’s aggregate contributions are greater than the required amount, the Company shall be entitled to a refund from Holdco.

     Attached as exhibits to the Asset Transfer Agreement are forms of a Consulting Services Agreement and a Shareholders’ Agreement into which the Company intends to enter at the simultaneous consummation of the Telesat Closing and the Skynet Closing (entry into these agreements is also a condition to the closing of the Alternative Subscription Agreement if the Skynet Closing does not occur simultaneously with the Telesat Closing).

     Consulting Services Agreement. The Consulting Services Agreement, to be entered into by the Company and Telesat, provides the terms pursuant to which, the Company will provide to

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Telesat certain non-exclusive consulting services, in relation to the Skynet business to be transferred to Telesat, as well as with respect to certain aspects of the satellite communications business of Telesat. In exchange, Telesat will pay the Company an annual fee of US$5,000,000. For an additional fee, Telesat may request assistance from the Company with respect to certain matters, if the terms for providing such additional services are approved by a majority of the board of directors of Holdco, excluding the Company’s nominees. The Consulting Services Agreement has a term of seven years, with an automatic renewal for an additional seven years if certain conditions are met.

     Shareholders’ Agreement. The Shareholders’ Agreement will be entered into by the Company and PSP, Red Isle Private Investments Inc., a subsidiary of PSP, Loral Space & Communications Holdings Corporation, Loral Holdings Corporation, Loral Skynet, the two third-party investors, Holdco, Acquireco, Telesat and MHR Fund Management LLC and will provide for, among other things, the manner in which the affairs of Holdco and its subsidiaries will be conducted and the relationships among the parties thereto and future shareholders of Holdco. Specifically, with respect to Holdco, the Shareholders’ Agreement will provide for its capital structure, the number and election of members of the board of directors, the meetings of directors, the required vote of the board of directors to take certain actions, the approval of the Skynet transaction, the officers, and the rights of observers to the board of directors. The Shareholders’ Agreement will provide for a board of directors of Holdco consisting of 10 directors, three nominated by Loral, three nominated by PSP and four independent directors to be selected by a nominating committee comprised of one PSP nominee, one Loral nominee and one of the independent directors then in office. Each shareholder is obligated to vote all shares for the election of the directors nominated by the nominating committee. The Shareholders’ Agreement will also approve an initial business plan, provide for the preparation and approval of annual budgets and business plan updates and procedures for the purchase of equipment, products and services from the Company and its affiliates, an agreement by the Company not to engage in a competing satellite communications business and agreements by the shareholders not to solicit employees of Holdco or any of its subsidiaries. Additionally, the Shareholders’ Agreement will detail the matters requiring shareholder approval, provide for preemptive rights for certain shareholders upon the issuance of certain shares of capital stock of Holdco and provide for either PSP or the Company to cause Holdco to conduct an initial public offering of its equity shares if an initial public offering is not completed by the fourth anniversary of the Telesat Closing. The Shareholders’ Agreement also will restrict the ability of holders of certain shares to transfer them unless certain conditions are met or approval of the transfer is approved by directors, provide for a right of first offer to equity shareholders if a holder of equity shares wishes to sell them to a third party, provide for, in certain circumstances, tag-along rights in favor of non-Loral shareholders if Loral sells equity shares, drag-along rights in favor of Loral in case Loral or its affiliate enters into an agreement to sell all of its Holdco equity securities and drag-along rights in favor of PSP for the sale of Holdco if Loral is in certain default or undergoes a change of control. Also, the Shareholders’ Agreement will provide for PSP and Loral to have the right to require the other party to sell all of its equity shares or voting shares to PSP or Loral, as applicable, under certain circumstances.

     Upon the consummation of the Telesat Closing and Skynet Closing, the Company will indirectly own a 33¹/3% voting interest and a 64% economic equity interest in Telesat. The Telesat SPA provides that BCE may terminate its obligations thereunder on October 11, 2007 (being the date that is nine months following the filing of the application for approval of the Telesat acquisition with Industry Canada) if through no fault of BCE or Telesat, Industry Canada’s approval to the transactions contemplated under the Telesat SPA has not been obtained by such date, and further provides that if BCE terminates the Telesat SPA after December 16, 2007, it will under certain circumstances be entitled to a reverse break-up fee of C$65 million

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from Acquireco, which break-up fee has been guaranteed 64% and 36% by the Company and PSP, respectively. The principal conditions to the closing of the Telesat and Skynet transactions remaining to be satisfied are the approval of the U.S. FCC and of Industry Canada, which we understand is consulting with another Canadian regulatory body, the Canadian Radio-television and Telecommunications Commission before making its final decision regarding approval.

     The foregoing discussion of the Asset Transfer Agreement, the Asset Purchase Agreement, the Alternative Subscription Agreement, the Ancillary Agreement and the Letter Agreement, is qualified in its entirety by reference to the Asset Transfer Agreement, the Asset Purchase Agreement, the Alternative Subscription Agreement, the Ancillary Agreement and the Letter Agreement, copies of which are attached to this Form 8-K as Exhibits 2.1, 2.2, 10.1 and 10.2, respectively, and are incorporated in this Item 1.01 by reference.

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Item 8.01. Other Events.

     On December 16, 2006, a joint venture company (“Acquireco”) formed by Loral Space & Communications Inc. (“Loral”, the “Company”, we”, “our” or “us”) and its Canadian partner, the Public Sector Pension Investment Board (“PSP”) entered into a definitive agreement with BCE Inc. to acquire 100% of the stock of Telesat Canada and certain other assets from BCE Inc. for CAD 3.25 billion (approximately $2.79 billion based on an exchange rate of $1.00/CAD 1.1652 as of December 31, 2006), which purchase price is not subject to adjustment for Telesat Canada’s performance during the pre-closing period. Under the terms of this purchase agreement, Telesat Canada’s business is, subject to certain exceptions, being operated entirely for Acquireco’s benefit beginning from December 16, 2006. Telesat Canada is the leading satellite services provider in Canada and earns its revenues principally through the provision of broadcast and business network services over eight in-orbit satellites. This transaction is subject to various closing conditions, including approvals of the relevant Canadian and U.S. government authorities, and is expected to close in the third quarter of 2007. Loral and PSP have agreed to guarantee 64% and 36%, respectively, of Acquireco’s obligations under the Telesat share purchase agreement, up to CAD 200 million.

     At the time of, or following the Telesat Canada acquisition, substantially all of Loral Skynet’s assets and related liabilities are expected to be transferred to a subsidiary of Acquireco at an agreed upon enterprise valuation, subject to downward adjustment under certain circumstances (the “Skynet Transaction”). This subsidiary will be combined with Telesat Canada and the resulting new entity (“Telesat Holdings” or “Telesat”) will be a Canadian company that will be headquartered in Ottawa.

     PSP has agreed to contribute up to CAD 595.8 million in cash to the parent company of Acquireco (“Holdings”) of which $150 million (or CAD 174.8 million based on an exchange rate of $1.00/CAD 1.1652 as of December 31, 2006) will be for the purchase of fixed rate senior non-convertible mandatorily redeemable preferred stock of Holdings.

     We and PSP have arranged for Holdings to obtain $3.1 billion of committed debt financing from a group of financial institutions, of which up to approximately $2.8 billion is available to fund the purchase price of the Telesat Canada acquisition, if the acquisition were to close simultaneously with the Skynet Transaction, and approximately $2.4 billion in the event the Skynet Transaction is delayed. The remainder of the debt facilities would be available to fund Telesat Holdings’ post-closing capital expenditures and any other requirements, including in the case of a delayed Skynet Transaction, up to $386 million to fund a redemption of Loral Skynet’s preferred stock and senior secured notes upon closing of the Skynet Transaction.

     At closing of the Telesat Canada acquisition, assuming a simultaneous closing of the Skynet Transaction, we would hold equity interests in Holdings, the ultimate parent company of Telesat Holdings, effectively representing 64% of the economic interests and 33 1/3% of the voting power, of Telesat Holdings. PSP would in turn acquire the preferred stock described above, and equity interests effectively representing 36% of the economic interest, and together with two other Canadian investors, 66 2/3% of the voting power of Telesat Holdings.

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     If the Telesat Canada acquisition and the Skynet Transaction were to occur at the same time, then on the closing date, Holdings will fund the redemption of the principal amount of Loral Skynet’s outstanding 14% senior notes (approximately $126 million as of December 31, 2006) and Loral will redeem Loral Skynet’s outstanding 12% preferred stock and accrued dividends thereon (approximately $226 million as of December 31, 2006), as well as pay all interest and the redemption premium (approximately $21 million as of December 31, 2006) and any other amounts that may be due in respect of Loral Skynet’s senior secured notes.

     If the Skynet Transaction does not close simultaneously with the Telesat Canada acquisition, Loral would in place of funding the redemption of Loral Skynet’s preferred stock and accrued dividends and interest and redemption premium on Loral Skynet’s senior secured notes (approximately $247 million as of December 31, 2006), make a cash equity contribution to Holdings of CAD 270.9 million (approximately $233 million based on an exchange rate of $1.00/CAD 1.1652 as of December 31, 2006) to acquire redeemable shares of Holdings. Loral’s economic interest in Holdings would be approximately 38%, assuming an exchange rate of $1.00/CAD 1.1652, to reflect the fact that it has not contributed the Skynet assets into Telesat Holdings, but would be reinstated to 64%, as of the Telesat closing date as if the contribution had been made on such date, upon the closing of the Skynet Transaction. Upon the later closing of the Skynet Transaction, Holdings will draw upon its credit facilities to redeem the principal amount of Loral Skynet’s senior secured notes and the redeemable shares issued to Loral. Loral will use the proceeds from Holdings to redeem Loral Skynet’s preferred stock and pay the interest, premium and any other amounts due under the Loral Skynet notes.

     We would have a year from the closing of the Telesat Canada acquisition to complete the Skynet Transaction. If we are unable to close the Skynet Transaction during that period, we would then be required, under the terms of our agreement with PSP, to contribute our rights to the Telstar 11N satellite as well as $175 million in cash (the “Alternative Contribution”) to Telesat Holdings, in order to bring our economic interest in Holdings to 64%.

     To the extent necessary, upon closing of the Telesat Canada acquisition, the Skynet Transaction and/or the Alternative Contribution, as the case may be, there will be an appropriate cash true-up between us, PSP and Holdings to reflect the amount of our relative contributions, after giving effect to among other things, the exchange rate then in effect, gains and/or losses on hedging transactions, the spending on Telstar 11N, the resulting diminution in the agreed upon value of Loral Skynet in the event of a material adverse change, as defined, to Loral Skynet’s business during the period prior to closing the Skynet Transaction, and in the event the Alternative Contribution is effected in place of the Skynet Transaction, the extent to which the value of the Alternative Contribution plus the CAD 270.9 million of Loral’s equity contribution is greater or less than the agreed upon value of the assets to be transferred in the Skynet Transaction.

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     In connection with the acquisition we have received a commitment from a syndicate of banks to provide Telesat Holdings with, in each case as described below, senior secured credit facilities (the “Credit Facility”) and a senior bridge facility (the “Bridge Facility”) (together the “Facilities”). As is customary with such Facilities, the lead arrangers of such Facilities have reserved the right at any time, after consulting with us, to change within defined limits, the pricing, structure or other terms of the Facilities to ensure a successful syndication.

     It is the current intent to issue on the Telesat Canada acquisition date senior unsecured notes that will make it unnecessary to draw on the Bridge Facility. If the Bridge Facility is drawn, Telesat Holdings would intend to refinance it promptly through the issuance of replacement senior unsecured notes. It is expected that the senior unsecured notes would have standard market terms and conditions for a financing of this type.

     Senior Secured Credit Facilities

     The Credit Facility will consist of the following tranches that each contain a description of its costs, terms and conditions. The applicable margins of the Facilities will be based upon the achievement of certain credit ratings and the lenders will have the ability to increase such margins depending on agreed upon conditions up to a maximum of 1.0%.

     Term Loan A

     The CAD 500 million loan (approximately $429 million based on an exchange rate of $1.00/CAD 1.1652 as of December 31, 2006) will have a maturity of five years from issuance. The Term Loan A will be denominated in CAD and will bear interest at a floating rate of the Bankers Acceptance rate plus an applicable margin.

     Term Loan B

     The Term Loan B facility is for a $1.054 billion loan with a maturity of seven years from issuance. In order to hedge the currency risk for Telesat Holdings both at closing and over the life of the loans, Loral Skynet entered into a currency basis swap to synthetically convert the US dollar commitment to CAD 1.224 billion. An additional feature of the currency basis swap is that the Term Loan B will bear interest at a floating rate of Bankers Acceptance plus an applicable margin. For more information about the currency basis swap see Note 18 to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

     Term Loan B-1

     The Term Loan B-1 facility is a $386 million (approximately CAD 450 million based on an exchange rate of $1.00/CAD 1.1652 as of December 31, 2006) loan with a maturity of seven years after the closing date of the Telesat Canada acquisition, which bears interest at LIBOR plus an applicable margin. The Term Loan B-1 includes the option for a one year delayed draw period so that the proceeds can be used to repay Loral Skynet’s existing financing arrangements if the Skynet Transaction were to occur after the closing of the Telesat Canada acquisition. If the closing of the Telesat Canada acquisition and the Skynet Transaction were to occur simultaneously, the Term Loan B-1 will be drawn at the acquisition closing to fund the Telesat Canada acquisition.

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     Term Loan B-2

     The Term Loan B-2 facility is a $150 million (approximately CAD 175 million based on an exchange rate of $1.00/CAD 1.1652 as of December 31, 2006) delayed draw loan with the same interest rate and maturity as the Term Loan B-1. The Term Loan B-2 is available to be drawn for 18 months after the closing of the acquisition to fund satellite capital expenditures. The undrawn amount of the Term Loan B-2 is subject to a commitment fee.

     Revolving Credit

     The Credit Facility also includes a CAD denominated revolving credit facility of up to CAD 175 million (approximately $150 million based on an exchange rate of $1.00/CAD 1.1652 as of December 31, 2006) that is expected to be undrawn at the closing of the Telesat Canada acquisition. The Revolving Credit facility matures five years after issuance and is available to be drawn at any time. The drawn loans will bear interest at LIBOR plus an applicable margin. Undrawn amounts under the facility are subject to a commitment fee.

     Senior Bridge Facility

     The Bridge Facility is a committed $910 million (approximately CAD 1,060 million based on an exchange rate of $1.00/CAD 1.1652 as of December 31, 2006) senior unsecured loan available to the borrower on the closing date of the acquisition. The Bridge Facility has a maturity of one year and an initial interest rate per annum equal to the greater of a fixed percentage or three-month LIBOR plus the applicable margin, excluding any additional payment required to compensate lenders for Canadian withholding tax. The applicable margin increases over time up to a cap. Lenders under the Bridge Facility have also committed to provide rollover loans at the maturity of the Bridge Facility for an additional seven years.

     The current intent is not to borrow under the Bridge Facility but instead to issue senior unsecured notes to finance the Telesat acquisition. However, if for any reason the senior notes are not issued at closing, the Bridge Facility is available to fund the acquisition.

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Item 9.01 FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS

d. Exhibits

Exhibit 2.1	Asset Transfer Agreement, dated as of August 7, 2007, by and among 4363205 Canada Inc., Loral Skynet Corporation and Loral Space & Communications Inc.
Exhibit 2.2	Asset Purchase Agreement, dated as of August 7, 2007, by and among Loral Skynet Corporation, Skynet Satellite Corporation and Loral Space & Communications Inc.
Exhibit 10.1	Alternative Subscription Agreement, dated as of August 7, 2007, by and between Loral Space & Communications Inc., Loral Skynet Corporation and 4363205 Canada Inc.
Exhibit 10.2	Ancillary Agreement, dated as of August 7, 2007, by and among Loral Space & Communications Inc., Loral Skynet Corporation, Public Sector Pension Investment Board, 4363205 Canada Inc. and 4363230 Canada Inc.
Exhibit 99.1	Financial statements of Loral Skynet Corporation as of December 31, 2006 and 2005 and for the year ended December 31, 2006, for the period from October 2, 2005 to December 31, 2005 (Successor Business Operations), for the period from January 1, 2005 to October 1, 2005 and the year ended December 31, 2004 (Predecessor Business Operations).
Exhibit 99.2	Financial statements of Telesat Canada as of December 31, 2006 and 2005 and for the years ended December 31, 2006, 2005 and 2004.
Exhibit 99.3	Pro forma financial information of Loral Skynet and Telesat Canada as of and for the year ended December 31, 2006.
Exhibit 99.4	Pro forma financial information of Loral as of and for the year ended December 31, 2006.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Loral Space & Communications Inc.
	By: /s/ RICHARD J. TOWNSEND
Name:		Richard J. Townsend
Title:		Executive Vice President and Chief Financial Officer

Date: August 9, 2007

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EXHIBIT INDEX

Exhibit	Description
Exhibit 2.1	Asset Transfer Agreement, dated as of August 7, 2007, by and among 4363205 Canada Inc., Loral Skynet Corporation and Loral Space & Communications Inc.
Exhibit 2.2	Asset Purchase Agreement, dated as of August 7, 2007, by and among Loral Skynet Corporations Skynet Satellite Corporation and Loral Space & Communications Inc.
Exhibit 10.1	Alternative Subscription Agreement, dated as of August 7, 2007, by and between Loral Space & Communications Inc., Loral Skynet Corporation and 4363205 Canada Inc.
Exhibit 10.2	Ancillary Agreement, dated as of August 7, 2007, by and among Loral Space & Communications Inc., Loral Skynet Corporation, Public Sector Pension Investment Board, 4363205 Canada Inc. and 4363230 Canada Inc.
Exhibit 99.1	Financial statements of Loral Skynet Corporation as of December 31, 2006 and 2005 and for the year ended December 31, 2006, for the period from October 2, 2005 to December 31, 2005 (Successor Business Operations), for the period from January 1, 2005 to October 1, 2005 and the year ended December 31, 2004 (Predecessor Business Operations).
Exhibit 99.2	Financial statements of Telesat Canada as of December 31, 2006 and 2005 and for the years ended December 31, 2006, 2005 and 2004.
Exhibit 99.3	Pro forma financial information of Loral Skynet and Telesat Canada as of and for the year ended December 31, 2006.
Exhibit 99.4	Pro forma financial information of Loral as of and for the year ended December 31, 2006.

EX-2.1

Exhibit 2.1

ASSET TRANSFER AGREEMENT

          ASSET TRANSFER AGREEMENT, dated as of August 7, 2007, by and among 4363205 CANADA INC., a corporation existing under the laws of Canada (“Holdco”), LORAL SKYNET CORPORATION, a corporation existing under the laws of Delaware (together with any successor thereto, “Skynet”), and LORAL SPACE & COMMUNICATIONS INC., a corporation existing under the laws of Delaware which indirectly owns all of the issued and outstanding common stock of Skynet (“Parent”).

R E C I T A L S:

          WHEREAS, on December 16, 2006, 4363213 Canada Inc., a Canadian corporation and a wholly owned subsidiary of Holdco (“Acquisition Sub”), BCE Inc., a Canadian corporation (“BCE”), and Telesat Canada, a Canadian corporation (“Telesat”), entered into a Share Purchase Agreement (as amended from time to time, the “Share Purchase Agreement”), pursuant to which Acquisition Sub has agreed to purchase from BCE, and BCE has agreed to sell to Acquisition Sub, the Purchased Shares and the Safe Income Notes (each, as hereinafter defined);

          WHEREAS, in connection with the Share Purchase Agreement, on December 16, 2006, Parent executed and delivered to Holdco a letter (as amended from time to time, the “Parent Commitment Letter”), pursuant to which Parent has committed to acquire shares of Holdco simultaneously with the consummation of the Telesat Closing (as hereinafter defined) under the Share Purchase Agreement;

          WHEREAS, in connection with the Share Purchase Agreement, on December 14, 2006, Parent entered into the Investors Letter Agreement (as hereinafter defined) with the Public Sector Pension Investment Board, a Canadian Crown corporation (such entity, together with Red Isle Private Investments Inc., “PSP”), to which is attached as Schedule C thereto a “Contribution Term Sheet” relating to a “Skynet Contribution Agreement” contemplating the transfer by Skynet of certain of its assets and related liabilities to Holdco in connection with Skynet’s acquisition of shares of Holdco;

          WHEREAS, in connection with the transactions contemplated by the Share Purchase Agreement and the Investors Letter Agreement, Holdco desires to acquire and Skynet desires to transfer and convey to Holdco at Closing (as hereinafter defined) the Transferred Property (as hereinafter defined) upon the terms and subject to the conditions set forth herein;

          WHEREAS, Holdco desires to transfer the Transferred Property to the Subsidiaries of Holdco (the “Successive Transfers”); and

          WHEREAS, the parties intend that, for United States federal income tax purposes, the transfer of the Transferred Property hereunder, when taken together with the acquisition of shares of Holdco pursuant to the Parent Subscription Agreement and with the purchase of additional shares of Holdco by certain third party investors (including PSP), qualify as an exchange under the provisions of Section 351 of the Code (as hereinafter defined) (a “351 Transfer”);

          NOW, THEREFORE, in consideration of the foregoing premises, and of the representations, warranties, covenants and agreements contained herein, the parties hereto hereby covenant and agree as follows:

ARTICLE I.

DEFINITIONS AND INTERPRETATION

1.1. Definitions.

          For the purpose of this Agreement, unless the context otherwise requires, capitalized terms shall have the respective meanings set out below and grammatical variations of such terms shall have corresponding meanings:

“351 Transfer” is defined in the recitals;

“Accounts Receivable” means all accounts and notes receivable of Skynet relating to the Business arising from and after January 1, 2007 and existing on the Closing Date, including any and all accounts receivable of Skynet from XTAR (including deferred accounts receivable from XTAR);

“Acquisition Sub” is defined in the recitals;

“Actions” is defined in Section 3.1(j);

“Actual Interim Taxes Due” means the actual amount of the Interim Taxes, as finally determined in accordance with Section 2.7;

“Actual Satellite Operational Capability” means, for any Specified Satellite Capacity, as measured on a date after the relevant occurrence or series of occurrences, (a) in the case of Telstar 12, the product of (i) the number of Operating Transponders on such satellite and (ii) the sum of (x) the number of remaining 30-day periods from such date until the end of the expected life of such satellite and (y) the number of 30-day periods which have lapsed from the time of determination of the Stated Satellite Operational Capability to such date, and (b) in the case of the Other Skynet Satellites, the sum of the products calculated in accordance with clause (a) hereof, determined for each of Skynet Satellites referred to as “Telstar 10,” “Telstar 14” and “Telstar 18.”

“Affiliate Cash Amount” means the amount of any cash paid or distributed from Skynet or any of its Subsidiaries to Parent or any of its Affiliates (other than Skynet or any of its Subsidiaries) from September 30, 2006 through the Closing Date excluding any of the following payments made during such period: Permitted Payments, payments referred to in Section 4.13(b) of the Skynet Disclosure Letter and other payments as shall have been consented to by Holdco in writing.

“Affiliate” means, with respect to any Person, (a) each Person that, directly or indirectly, owns or controls such Person, and (b) each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person. For the purpose of this definition,

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“control” of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise;

“Agreed Exchange Rate” is defined in Section 2.6(b);

“Agreement” means, collectively, this Agreement including all exhibits attached to, and instruments supplementing or amending or confirming, this Agreement;

“Ancillary Agreement” means the Ancillary Agreement, dated of even date herewith, by and among Parent, Skynet, PSP, Holdco and 4363230 Canada Inc., a Canadian corporation and a wholly owned subsidiary of Holdco;

“Applicable Limitation Date” is defined in Section 7.1;

“Asset Purchase Agreement” means that certain Asset Purchase Agreement, dated of even date herewith, by and among Skynet, Skynet Satellite Corporation and Parent relating to the purchase of the Sale Assets by Skynet Satellite Corporation from Skynet;

“Assignment and Assumption Agreement” means an Assignment and Assumption Agreement, substantially in the form attached as Exhibit A hereto;

“Assumed Liabilities” means (a) any and all Obligations arising out of or relating to the Business, including the Contracts, and (b) any and all Obligations arising out of or relating to either (i) the Senior Note Indenture, the Senior Note Guarantees and the Collateral Documents, if the Early Note Redemption shall not have occurred, and the Senior Notes are still outstanding immediately prior to Closing or (ii) the Redemption Facility, if the Early Note Redemption shall have occurred, and the Senior Notes are not outstanding immediately prior to the Closing; provided that Assumed Liabilities shall not include any Excluded Liabilities;

“Balance Sheet” means the consolidated balance sheet of Skynet as of December 31, 2006 included in the Financial Statements;

“Bankruptcy Cases” means the cases commenced in the United States Bankruptcy Court for the Southern District of New York, captioned “In re Loral Space & Communications Ltd., et al., Debtors,” Chapter 11 Case Nos. 03-41710 (RDD), 03-41709 (RDD) through 03-41728 (RDD) (Jointly Administered);

“Bankruptcy Plan” means the Fourth Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated June 3, 2005, as modified on August 1, 2005, of Debtors, confirmed under 11 U.S.C. §1129 in the Bankruptcy Cases;

“Basis Swap” is defined in Section 4.20(a);

“Basket Amount” is defined in Section 7.7(a);

“BCE” is defined in the recitals;

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“Benefit Plans” means all bonus, profit sharing, deferred or incentive compensation, stock compensation, stock purchase, stock option, retirement, pension, supplemental pension, savings, benefit, hospitalization insurance, medical, dental, legal, disability, death benefit, insurance, termination, severance or similar plan, arrangement, agreement, trust, fund, policy or practice, formal or informal, written or oral, with respect to any current or former employees of Skynet or any of its Subsidiaries relating to the Business, including the Pension Plans;

“Bill of Sale” means a Bill of Sale, substantially in the form attached as Exhibit B hereto;

“BIS” means the United States Department of Commerce’s Bureau of Industry and Security;

“Business” means the business of Skynet and its Subsidiaries (but excluding the Excluded Property);

“Business Day” means any day of the year other than: (a) Saturday or Sunday, and (b) any other day on which banks located in any of Montréal, Québec, Toronto, Ontario or New York, New York generally are closed for business;

“Business Material Adverse Effect” means one or more events, changes, effects or circumstances that is material and adverse to the business, operations, assets, properties, results of operation or financial condition of the Business taken as a whole, except to the extent (and only to the extent) that any such effect is attributable to (a) changes in prevailing interest rates, (b) changes in general political, economic or financial conditions (including any fluctuation in foreign currency exchange rates) or regulatory environments affecting the industries in which the Business operates, (c) changes in rules or principles of accounting, (d) changes affecting the telecommunication or satellite transmission industries generally, (e) a downturn in the economy of any country in which the Business or any of its material customers operate, (f) increased competition, in any form, whether from a single competitor or from competitors generally, (g) any loss or damage to the Leased Satellite or any Owned Satellite or (h) the announcement or other public disclosure or the implementation or consummation of the transactions contemplated by the Transaction Agreements or the Share Purchase Agreement (except with respect to each of (b), (d), (e) and (f) above, such exclusions shall only apply to the extent that such change, downturn or increase, as the case may be, does not have a disproportionate effect on the Business as compared to similar lines of businesses); provided, however, that a Total Loss of either (i) Telstar 12 alone or (ii) all of the Other Skynet Satellites together shall be deemed to constitute a Business Material Adverse Effect notwithstanding (g) above;

“Business Radio Licenses” is defined in Section 3.1(f);

“Buyer” means Skynet Satellite Corporation, a Delaware corporation;

“Cap” is defined in Section 7.7;

“Cash Assets” means all cash, cash equivalents and marketable securities of Skynet relating to the Business as of the Closing Date (for the avoidance of doubt, other than Excluded Property and any proceeds therefrom or thereof);

“Claim” is defined in Section 7.4(a);

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“Code” means the Internal Revenue Code of 1986, as amended;

“Collateral Documents” has the meaning ascribed thereto in the Senior Note Indenture;

“Closing” is defined in Section 2.1;

“Closing Date” is defined in Section 2.1;

“Closing Date Breach Threshold” is defined in Section 7.7(a);

“Closing Date Exchange Rate” is defined in Section 2.6(c);

“Collective Bargaining Agreement” means that certain agreement between Skynet (as successor to Loral Skynet, a division of Loral SpaceCom Corporation) and Communications Workers of America covering the period of August 1, 2004 through August 1, 2007;

“Communications Act” means the Communications Act of 1934, as amended;

“Confirmation Order” means the Order Confirming Debtors’ Fourth Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, as modified, entered in the Bankruptcy Cases on August 1, 2005;

“Consolidated Tax Return” means a United States income Tax Return filed on a consolidated basis pursuant to Section 1501 of the Code and the Treasury Regulations prescribed under Section 1502 of the Code and any state or local consolidated combined or unitary income or franchise Tax Return, which Tax Return includes one or more of the Transferred Subsidiaries, for any taxable period ending on or prior to the Closing Date;

“Consulting Agreement” means a Consulting Agreement between Telesat and Parent, substantially in the form attached as Exhibit C hereto;

“Contract” means any legally binding indenture, Lease, license, loan agreement, mortgage, note, joint venture agreement, outsourcing agreement, collective bargaining agreement, partnership agreement, restriction, trust, commitment, obligation or other legally binding contract, agreement or instrument, whether written or oral, in each case, relating to the Business, excluding the Terminated Contracts;

“Contract Rights” means any and all rights of Skynet under the Contracts to which it is a party;

“DDTC” means the United States Department of State’s Directorate of Defense Trade Controls;

“Debtors” means Skynet, its Affiliates, and each of their respective predecessors, as the case may be, as debtors and debtors in possession in the Bankruptcy Cases;

“EAR” means the Export Administration Regulations promulgated by BIS;

“EAR Applications” means the notifications, amendments, and any applications required to be submitted to BIS pursuant to the EAR in relation to the transactions set forth in the Transaction Agreements;

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“EAR Approval” means all approvals of the EAR Applications shall have been received from BIS or the relevant staff thereof pursuant to delegated authority without the imposition of any condition or conditions that would reasonably be expected to have a Business Material Adverse Effect after the Closing;

“Early Note Redemption” means the redemption prior to the Closing of all outstanding Senior Notes;

“Eligible Property” has the meaning set forth in Section 85(1.1) of the ITA;

“Environmental Laws” means any and all laws (including civil and common laws), rules, orders, regulations, statutes, ordinances, codes, decrees, or other legally enforceable requirements of any Governmental Entity regulating, relating to or imposing liability or standards of conduct concerning pollution, protection of the environment and natural resources or of human health and safety;

“Equipment and Machinery” shall mean (a) all the equipment, machinery, furniture, fixtures and improvements, tooling, spare parts, supplies and vehicles used by Skynet in or with respect to the operations of the Business as of the Closing Date (including all such items as set forth on the Balance Sheet, with additions thereto (net of dispositions) in the ordinary course of the Business), (b) all the replacements for any of the foregoing owned or leased by Skynet, (c) any rights of Skynet to the warranties and licenses received from manufacturers and sellers of the aforesaid items and (d) any related claims, credits, rights of recovery and set-off with respect thereto;

“Estimated Adjustment Amount” is defined in Section 2.7(a);

“Estimated Adjustment Schedule” is defined in Section 2.7(a);

“Estimated Interim Taxes Due” is defined in Section 2.7(a);

“Excluded Liabilities” means: (a) any and all Redemption Costs; (b) any and all Obligations with respect to Pre-Closing Taxes; (c) any unpaid reorganization fees, costs or expenses incurred in connection with the Bankruptcy Cases or Bankruptcy Plan; (d) any and all claims against, and other Obligations of, any of the Debtors incurred prior to the commencement date of the Bankruptcy Cases, except for any Obligations related to the Business that were assumed by Skynet or any of the Transferred Subsidiaries (in each case either directly or as a successor); (e) the Note Repayment Costs; (f) any and all Obligations with respect to any environmental remediation arising from activities conducted on the Transferred Property prior to January 1, 2007; (g) any and all Obligations of Parent (including without limitation all Obligations of Parent under and pursuant to any Contract referred to in Section 3.1(t) of the Skynet Disclosure Schedule); (h) any and all Obligations with respect to Taxes resulting solely from Skynet or any of its Subsidiaries being a member of a consolidated group with Parent for Tax purposes; (i) any and all Obligations resulting from, or in connection with, lawsuits by stockholders or other security holders of Parent or Skynet that are related to the transactions contemplated by this Agreement or the other Transaction Agreements or that are not related in any way to the Business; (j) solely to the extent in excess of $126,000,000, the principal amount of the Redemption Facility, if any, outstanding at the time of the Closing; (k) any and all

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Obligations of Skynet and its Subsidiaries in connection with or relating to the Excluded Property, including the Pension Plan; (l) any and all Obligations of Skynet or its Subsidiaries that are not related in any way to the Business; and (m) any and all Obligations of Skynet or its Subsidiaries under any Contract referred to in Section 3.1(t) of the Skynet Disclosure Letter that is footnoted with the designation “Excluded Liability”;

“Excluded Property” means: (a) any and all outstanding shares of capital stock or other equity interests of (i) Globalstar, Inc., a Delaware corporation, (ii) XTAR, (iii) Enlaces Integra S. de R.L. de C.V., a company organized under the laws of Mexico, (iv) Satelites Mexicanos S.A. de C.V., a company organized under the laws of Mexico, and (v) Loral SatMex Ltd., a company organized under the laws of the Commonwealth of Bermuda; (b) any and all assets and properties of the Persons referred to in the immediately preceding clause (a) (it being understood that no accounts receivables of Skynet that are payable thereto by XTAR, including any such accounts receivable that are deferred, shall be deemed Excluded Property); (c) any and all rights, including Contracts, relating to Skynet’s or its Subsidiary’s equity interests in the Persons referred to in clause (a), including that certain XTAR Management Agreement dated as of June 28, 2002 between XTAR and Loral SpaceCom Corporation and that certain Shareholders Agreement dated November 30, 2006 between Loral Skynet Corporation and Principia, S.A. de C.V. relating to Satelites Mexicanos, S.A. de C.V.; (d) all losses, loss carryforwards and rights of Parent, Skynet or the Transferred Subsidiaries to receive refunds, credits or other benefits with respect to any and all Taxes (other than Interim Taxes) that constitute Excluded Liabilities; (e) any and all assets and Contract Rights relating to the Benefit Plans that are identified in Section 3.1(k) of Skynet Disclosure Letter as Excluded Property, including the Pension Plan; and (f) any and all proceeds from the sale or other disposition of any of the foregoing;

“Execution Date Breach Threshold” is defined in Section 7.7(a);

“Export Control Applications” means the EAR Applications, the ITAR Applications and the OFAC Applications;

“Export Control Approvals” means the EAR Approval, the ITAR Approval and the OFAC Approval;

“Export Control Laws” means (a) the Export Administration Act of 1979 (including the rules, regulations and policies promulgated thereunder by BIS), (b) the Arms Export Control Act (including the rules, regulations and policies promulgated thereunder by the DDTC), and (c) the International Emergency Economic Powers Act, the Trading with the Enemy Act and any other Laws administered by OFAC (including the Executive Orders issued thereunder and the rules, regulations and policies promulgated thereunder by OFAC);

“FCC” means the United States Federal Communications Commission;

“FCC Applications” means the applications to the FCC in relation to the transfer of the FCC Licenses on the completion of the transactions set out in the Transaction Agreements;

“FCC Approval” means all approvals of the FCC of the FCC Applications shall have been received from the FCC or relevant FCC staff pursuant to delegated authority without the

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imposition of any condition or conditions that would reasonably be expected to have a Business Material Adverse Effect after the Closing;

“FCC Licenses” means the authorizations, licenses and declaratory and “Permitted List” rulings issued by the FCC to Skynet or a Subsidiary thereof for the use of spectrum or the provision of service in the United States or between the United States and foreign points, as set forth in Section 1.1-B of Skynet Disclosure Letter;

“Files and Records” means all files and records, whether in hard copy, computer or magnetic format or any other form, of Skynet relating to the Business or the Transferred Property, including the following types of files and records specifically relating to the Business: customer and supplier files, equipment maintenance records, equipment warranty information, plant plans, specifications and drawings, equipment drawings, trade secrets and customer specifications and all files relating to employees of the Business employed by Holdco following the Closing, correspondence with national, state and local governmental agencies relating to the operation of the Business and related files and records of Skynet;

“Final Adjustment Amount” is defined in Section 2.6(a);

“Financial Statements” means the audited consolidated balance sheets of Skynet as of December 31, 2005 and December 31, 2006, and the audited consolidated statements of operations and consolidated statements of cash flows of Skynet for the year ended December 31, 2006 and for the periods October 2, 2005 to December 31, 2005 and January 1, 2005 to October 1, 2005, and in each case together with the notes thereto;

“Financing” shall have the meaning set forth in the Share Purchase Agreement;

“GAAP” means generally accepted accounting principles in the United States;

“Governmental Entity” means any nation or government, any, foreign, state, regional, provincial, territorial, local or other political subdivision thereof, and any entity or official exercising executive, legislative, judicial, quasi-judicial, regulatory or administrative functions of or pertaining to government;

“GRA” shall mean a gain recognition agreement (as defined in Treasury Regulation Section 1.367(a)-8);

“Gross Transfer Consideration” is defined in Section 4.10(d);

“Hazardous Substance” means (a) any material, substance or waste that requires removal, remediation or reporting under any Environmental Law, or is listed, classified or regulated as a “hazardous waste” or “hazardous substance” (or any other similar term) pursuant to any Environmental Law and (b) any petroleum product or by-product, petroleum-derived substances, asbestos, polychlorinated biphenyls, mold, or urea formaldehyde;

“Health Status Reports” is defined in Section 3.1(p)(ii);

“Holdco” is defined in the preamble;

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“Holdco Common Shares” shall have the meaning set forth in the Parent Subscription Agreement;

“Holdco Material Adverse Effect” means, with respect to Holdco, one or more events, changes, effects or circumstances that is material and adverse to the ability of Holdco to consummate the transactions contemplated by this Agreement or of Holdco to perform its obligations under this Agreement;

“Holdco Non-Voting Preferred Shares” shall have the meaning set forth in the Parent Subscription Agreement;

“Holdco Preferred Shares” means the Holdco Non-Voting Preferred Shares and the Holdco Voting Preferred Shares, collectively;

“Holdco Redeemable Common Shares” shall have the meaning set forth in the Parent Subscription Agreement;

“Holdco Redeemable Preferred Shares” shall have the meaning set forth in the Parent Subscription Agreement;

“Holdco Voting Preferred Shares” shall have the meaning set forth in the Parent Subscription Agreement;

“Indemnified Person” is defined in Section 7.4(a);

“Indemnifying Person” is defined in Section 7.4(a);

“Industry Canada” means the Canadian Minister of Industry acting in accordance with the powers and discretion accorded to the Minister under the Radiocommunication Act and related regulations;

“Industry Canada Applications” means applications to Industry Canada for any licenses, authorizations or approvals of which Industry Canada has notified the parties prior to the completion of the transactions set out in the Transaction Agreements, as being required by Industry Canada before completion of such transactions;

“Industry Canada Approval” means approval by Industry Canada of the Industry Canada Applications without the imposition of any condition or conditions that would reasonably be expected to have a Business Material Adverse Effect after the Closing;

“Insurance Policies” is defined in Section 3.1(u);

“Intangible Assets” means all intangible personal property rights of Skynet, including the Intellectual Property and all rights on the part of Skynet to proceeds of any insurance policies and all claims on the part of Skynet for recoupment, reimbursement and coverage under any insurance policies, and all goodwill of Skynet, in each case in connection with or relating to the Business;

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“Intellectual Property” means anything that is protected by any Intellectual Property Right;

“Intellectual Property Right” means any right that is or is capable of being granted or recognized under any United States or foreign Laws regarding patents, copyrights, neighboring rights, moral rights, trademarks, trade names, service marks, industrial designs, trade secrets, know-how, slogans, computer programs, inventions, developments, software, software development tools, methodologies, processes, algorithms, discoveries, concepts, ideas, techniques, formulae, drawings, customer data, marketing plans, market studies, summaries, reports, mailing lists, plans, confidential information, mask work, integrated circuit topography and any other statutory provision or common or civil law principle regarding intellectual and industrial property, whether registered or unregistered, and including rights in any application for any of the foregoing;

“Interim Taxes” means any and all Taxes (whether paid or unpaid) with respect to Skynet and the Transferred Subsidiaries relating to the period (or any portion thereof) that commenced on January 1, 2007 and ending on, and including, the Closing Date, but excluding any Taxes relating to the Excluded Property; provided that, with respect to a Transferred Subsidiary that is a member of a combined, consolidated or unitary group of corporations for any income Tax purpose, the Interim Taxes shall be calculated on a separate return basis taking into account any losses and other Tax attributes relating to such Transferred Subsidiary; and provided further that Interim Taxes shall not include (a) any Taxes attributable to or arising from the Restructuring or any transaction hereunder or pursuant to the Asset Purchase Agreement, or (b) any Taxes arising on the Closing Date attributable to any of Skynet’s or Transferred Subsidiaries’ “intercompany gain” (within the meaning of United States Treasury Regulations Section 1.1502-13) or “excess loss account” (within the meaning of United States Treasury Regulations Section 1.1502-19);

“Investors Letter Agreement” means that certain letter agreement, dated December 14, 2006, between Parent, Skynet, PSP, Holdco and Acquisition Sub;

“IRS” means the United States Internal Revenue Service;

“ITA” means the Income Tax Act (Canada), as amended;

“ITAR” means the International Traffic in Arms Regulations promulgated by the DDTC;

“ITAR Applications” means the notifications, registrations, amendments, and any applications required to be submitted to DDTC pursuant to the ITAR in relation to the transactions set forth the Transaction Agreements;

“ITAR Approval” means all approvals of the ITAR Applications shall have been received from DDTC or the relevant staff thereof pursuant to delegated authority without the imposition of any condition or conditions that would reasonably be expected to have a Business Material Adverse Effect after the Closing;

“ITU” is defined in Section 3.1(p)(iii);

“Law” means any law (including civil and common law), statute, regulation, ordinance, rule, order, order-in-council, by-law, permit, judgment, consent, decree, settlement agreement or

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governmental requirement enacted, promulgated, issued, entered into, agreed or imposed by any Governmental Entity having jurisdiction;

“Leased Real Property” is defined in Section 3.1(o)(i);

“Leased Satellite” is defined in Section 3.1(p)(i);

“Leases” means all leases, subleases, licenses, concessions and other agreements, including all amendments, extensions, renewals, guaranties and other agreements with respect thereto, relating to the Business to which Skynet or any of its Subsidiaries is a party and (a) pursuant to which Skynet or any of its Subsidiaries uses or occupies or has the right to use or occupy any real property and (b) with respect to leased transponders, pursuant to which Skynet or any of its Subsidiaries uses or has the right to use any leased transponder;

“Lien” means any mortgage, lien, charge, restriction, pledge, security interest, hypothecation, easement, encroachment, encumbrance or title retention agreement of any nature or kind;

“Loss” or “Losses” means, in respect of a matter, any and all liabilities, losses, costs, claims, damages, penalties and expenses, including reasonable out-of-pocket attorneys’ fees and disbursements actually incurred or sustained by any Indemnified Party, but specifically excluding any punitive, exemplary or consequential damages;

“MAE Adjustment Amount” is defined in Section 2.8;

“Major Regulatory Approvals” means the FCC Approval and, if required by applicable Law or if Skynet and Holdco shall so mutually agree, the Industry Canada Approval, collectively;

“Major Stations” is defined in Section 3.1(p)(iv);

“Management Agreements” means, collectively, (a) that certain Management Agreement, dated as of November 21, 2005, by and among Parent, Skynet and SS/L and (b) that certain Shared Services Agreement, dated as of November 21, 2005, by and among Parent, Skynet and SS/L;

“Management Fees” means, collectively, any and all fees and other amounts payable to Parent by Skynet and its Subsidiaries pursuant to the Management Agreements;

“material”, when used with respect to Skynet, the Business or the Transferred Property, means material to Skynet and its Subsidiaries or to the Business or to the Transferred Property, respectively, in any such case taken as a whole; and when used with respect to Holdco, means material to Holdco;

“Material Contracts” means, with respect to the Business:

(a) any indentures, credit agreements, security agreements, mortgages, guarantees, promissory notes and Contracts relating to or evidencing indebtedness for borrowed money of Skynet or any of its Subsidiaries in excess of $2,500,000;

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(b)	any non-competition agreement or any other like agreement or obligation which limits or purports to limit in any material respect the manner in which, or the localities in which, the business of Skynet or any of its Subsidiaries may be conducted;
(c)	any partnership agreement, limited liability company agreement or joint venture agreement to which Skynet or any of its Subsidiaries is a party;
(d)	any Contract to which Skynet or any of its Subsidiaries is a party for the acquisition or disposition, directly or indirectly (by merger or otherwise) of assets or capital stock or other equity interests of another Person for aggregate consideration in excess of $2,500,000;
(e)	any Contract with any present director (or Person in a similar position) or officer of Skynet or any of its Subsidiaries that is material to the Business;
(f)	any Contract between Skynet or any of its Subsidiaries, on the one hand, and Parent or any of its Affiliates (other than Skynet and its Subsidiaries), on the other hand, involving payments or other obligations in excess of $250,000 in the aggregate;
(g)	any Contract to construct, acquire or launch any satellite (a “Construction/Launch Contract”) to which Skynet or any of its Subsidiaries is a party;
(h)	any Contract to which Skynet or any of its Subsidiaries is a party for the provision of transponder capacity with any customer thereof involving receipts subsequent to the date hereof of $2,500,000 or more (each such Contract, a “Material Customer Contract”);
(i)	any Contract (other than a Construction/Launch Contract or a Material Customer Contract) to which Skynet or any of its Subsidiaries is a party that involves payment or other obligations or receipts, in either case, subsequent to the date hereof of $2,500,000 or more;
(j)	any launch and in-orbit satellite insurance policies with respect to any Skynet Satellite;
(k)	any Contract (other than a Construction/Launch Contract or Material Customer Contract) to which Skynet or any of its Subsidiaries is a party that is outside of the ordinary course of the Business; and
(l)	any Contract that, if terminated (other than by expiration of the term thereof), would have a Business Material Adverse Effect;

“Minimum Indemnification Threshold” is defined in Section 7.7;

“Minor Regulatory Approvals” means the Export Control Approvals and those sanctions, rulings, consents, orders, exemptions, permits and other approvals (including the lapse, without

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objection, of a prescribed time under a statute or regulation that states that a transaction may be implemented if a prescribed time lapses following the giving of notice without an objection being made) that may be required from Governmental Entities in Brazil, Colombia, Honduras, Peru and Uruguay;

“Note Repayment Costs” means any and all obligations of Skynet or any of its Affiliates to pay interest on the Senior Notes or the Redemption Facility and/or any prepayment or redemption premiums, penalties or other Obligations associated with the Senior Notes or the Redemption Facility at any given time, provided that, for the avoidance of doubt, Note Repayment Costs shall not include the obligation of Skynet or any of its Affiliates (other than Holdco as provided herein) to pay (i) any principal amount outstanding under the Senior Notes or (ii) up to $126,000,000 of the aggregate principal amount outstanding under the Redemption Facility;

“Obligations” means any debt, obligation, liability of any kind, character or description, whether known or unknown, accrued or unaccrued, absolute or contingent, vested or unvested, liquidated or unliquidated, secured or unsecured, joint or several, due or to become due, determined, determinable or otherwise, whether presently in existence or arising hereafter, whether arising under contract or at Law and whether or not the same is required to be accrued on any financial statements;

“OFAC” means the United States Department of the Treasury’s Office of Foreign Assets Control;

“OFAC Applications” means the notifications, amendments, and any applications required to be submitted to OFAC in relation to the transactions set out in the Transaction Agreements;

“OFAC Approval” means all approvals of the OFAC Applications shall have been received from OFAC or the relevant staff thereof pursuant to delegated authority without the imposition of any condition or conditions that would reasonably be expected to have a Business Material Adverse Effect after the Closing;

“Operating Transponder” means a transponder that has not experienced a Transponder Unit Failure;

“Ordinary Course of Business” means the ordinary and usual course of operations of the Business, as conducted by Skynet and its Subsidiaries consistent with past practice.

“Other Skynet Satellites” means the three (3) Skynet Satellites referred to as “Telstar 10,” “Telstar 14” and “Telstar 18” as of the date hereof;

“Outside Date” means the date that is the first anniversary of the Telesat Closing;

“Owned Real Property” is defined in Section 3.1(o)(i);

“Owned Satellites” is defined in Section 3.1(p)(i);

“Parent” is defined in the preamble;

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“Parent Commitment Letter” is defined in the recitals;

“Parent Subscription Agreement” means that certain Alternative Subscription Agreement, dated of even date herewith, among Parent, Skynet and Holdco;

“Pension Adjustment Amount” means $8,240,000;

“Pension Plan” means the Retirement Plan of Space Systems/Loral, Inc., a tax qualified defined benefit plan adopted by Skynet as a participating employer;

“Permits” is defined in Section 3.1(f);

“Permitted Liens” means (a) Liens for Taxes not yet due or payable or that are being contested in good faith by appropriate proceedings and for which adequate reserves are maintained by Skynet or any of its Subsidiaries, (b) Liens in favor of vendors, carriers, warehousemen, repairmen, mechanics, workers, materialmen and construction or other Liens arising by operation of Law or in the Ordinary Course of Business in respect of obligations that are not yet due or that are being contested in good faith by appropriate proceedings and for which adequate reserves are maintained by Skynet or any of its Subsidiaries, (c) easements, servitudes, reservations, rights of way, restrictions, covenants, conditions, imperfections of title and other similar encumbrances whether of record or apparent on the Real Property, including road, highway, pipeline, railroad and utility easements and servitudes, and municipal, zoning and building by-laws which do not, individually or in the aggregate, materially interfere with the use, occupancy or operation of the Real Property as currently used, occupied and operated or as intended to be used, occupied and operated in the Ordinary Course of Business, (d) statutory Liens incurred or deposits made in the Ordinary Course of Business in connection with workers’ compensation, employment insurance and other social security legislation, (e) any Liens (i) granted or permitted to be granted under the terms of the indebtedness set forth on Section 3.1(w) of Skynet Disclosure Letter or (ii) granted pursuant to the Redemption Facility, (f) Liens securing obligations (other than indebtedness) not exceeding $1,500,000 in the aggregate, and (g) Liens granted pursuant to that certain Security Agreement dated October 8, 2004 among Skynet, APT Satellite Company Limited and Bank of China (Hong Kong) Limited;

“Permitted Payments” is defined in Section 4.13(a);

“Person” means an individual, legal person, partnership, limited partnership, limited liability company, joint venture, syndicate, sole proprietorship, company or corporation with or without share capital, unincorporated association, trust, trustee, executor, administrator or other legal personal representative or Governmental Entity, or any other entity;

“Pre Closing Tax Period” shall mean any taxable period ending on or before the Closing Date and the portion ending on and including the Closing Date of any Straddle Period;

“Pre-Closing Taxes” means (a) any Taxes of Skynet and any of the Transferred Subsidiaries (or any predecessor thereof) for any Pre-Closing Tax Period, (b) any Obligation of the Transferred Subsidiaries for Taxes of any other person by reason of (i) a combined, unitary or consolidated Tax obligation such as Treasury Regulation Section 1.1502-6 (or any predecessor or successor thereof or any similar provision of state, local, or foreign law) by reason of any of the

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Transferred Subsidiaries having been a member of any combined, unitary or consolidated group on or prior to the Closing Date, or (ii) contract, assumption or transferee or successor liability, in each case relating to periods prior to the Closing Date, (c) all Taxes attributable to or arising from the Restructuring, including, without limitation, any Taxes with respect to any Skynet’s or the Transferred Subsidiaries’ “intercompany gain” (within the meaning of United States Treasury Regulations Section 1.1502-13 or similar provision of state, local or foreign Law) or “excess loss account” (within the meaning of United States Treasury Regulation Section 1.1502-19 or similar provision of state, local or foreign Law), in each case attributable to or arising from the Restructuring, (d) any Obligations for Taxes resulting from any action undertaken by Holdco or any Transferred Subsidiary that triggers any of Skynet’s or the Transferred Subsidiaries’ “intercompany gain” (within the meaning of United States Treasury Regulations Section 1.1502-13 or similar provision of state, local or foreign Law) or “excess loss account” (within the meaning of United States Treasury Regulation Section 1.1502-19 or similar provision of state, local or foreign Law) which gain or account occurred in a Pre-Closing Tax period, (e) any Obligation for Taxes with respect to the sale of the Sale Assets and any other transactions undertaken pursuant to the Asset Purchase Agreement, and (f) any Obligations for Taxes with respect to the Early Note Redemption or any other redemption of the Senior Notes, the redemption of any Redemption Facility and the redemption of the Redeemable Holdco Shares; provided, however, that Pre-Closing Taxes shall not include any Obligations for Taxes (i) with respect to the Sale Assets or any transactions undertaken pursuant to the Asset Purchase Agreement, for any period other than a Pre-Closing Tax Period or (ii) set forth in Section 4.10(a) hereof or Section 6.1 of the Asset Purchase Agreement;

“Proposed Final Adjustment Amount” is defined in Section 2.7(b);

“Proposed Final Adjustment Schedule” is defined in Section 2.7(b);

“Proposed Transaction” shall mean a transaction involving the exchange, disposition, reorganization or liquidation of one or more of the Transferred Properties, that may require Skynet to recognize gain, for United States federal income tax purposes, pursuant to a GRA entered into by Parent with respect to any transfer of Transferred Property;

“Provisional Exchange Rate” is defined in Section 2.6(d);

“PSP” is defined in the recitals;

“PSP Common Equity Amount” is defined in Section 2.6(e);

“PSP Subscription Agreement” means that certain subscription agreement, dated of even date herewith, between PSP and Holdco;

“Purchased Shares” shall have the meaning set forth in the Share Purchase Agreement;

“Radiocommunication Act” means the Radiocommunication Act (Canada), as the same may be amended from time to time and any successor legislation thereto, and includes the regulations thereunder;

“Real Property” is defined in Section 3.1(o)(i);

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“Redeemable Holdco Shares” means the Holdco Redeemable Preferred Shares and the Holdco Redeemable Common Shares issuable to Parent or its Subsidiary pursuant to the Parent Subscription Agreement;

“Redemption Costs” means (a) the aggregate amount of the applicable redemption price payable to the holders of the outstanding shares of Skynet Preferred Stock in connection with any redemption of the Skynet Preferred Stock, and (b) any and all expenses, fees and other Obligations arising with respect to the Skynet Preferred Stock.

“Redemption Facility” means the indebtedness incurred by Skynet to effect the Early Note Redemption;

“Representatives” is defined in Section 4.7;

“Restructuring” means the series of actions to be undertaken by Skynet, its Subsidiaries and any of its Affiliates as described in the Memorandum attached as Exhibit D hereto, as amended from time to time by Skynet with Holdco’s consent (which consent shall not be unreasonably withheld, delayed or conditioned);

“Restructuring Decision” shall refer to the decision to restructure a Proposed Transaction, which shall be at the sole and absolute discretion of Holdco or its relevant Affiliate, subject to the terms of Section 4.10(i) of this Agreement;

“Safe Income Notes” shall have the meaning set forth in the Share Purchase Agreement;

“Sale Assets” means the Purchased Property (as defined in the Asset Purchase Agreement);

“Sale Assets Purchase Price” means the Purchase Price (as defined in the Asset Purchase Agreement);

“Securities Act” means the Securities Act of 1933, as amended;

“Securities Commission” means any Governmental Entity having jurisdiction over the regulation of securities (including the purchase, sale or trading thereof), any Securities Market and any Self-Regulatory Organization;

“Securities Market” means any domestic or foreign securities exchange or securities market, whether in the United States, Canada or any other jurisdiction (whether local, state, provincial, regional, territorial, federal or otherwise);

“Self-Regulatory Organization” mean the National Association of Securities Dealers, any domestic or foreign securities exchange, commodities exchange, registered securities association, clearing organization, the Municipal Securities Rulemaking Board, National Futures Association, and any other board or body, whether in the United States, Canada or any other jurisdiction (whether local, state, provincial, regional, territorial, federal or otherwise), that is charged with the supervision or regulation of exchanges, clearing organizations or clearing houses, brokers, dealers, commodity pool operators, commodity trading advisors or future commission merchants;

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“Senior Note Documents” means, collectively, the Senior Notes, the Senior Note Indenture and the Senior Note Guarantees’

“Senior Note Guarantees” means any and all guarantees provided by subsidiaries of Skynet in respect of the Senior Notes;

“Senior Note Indenture” means that certain indenture, dated as of November 21, 2005, in respect of the Senior Notes;

“Senior Notes” means all outstanding 14% Senior Secured Notes due 2015 of Skynet;

“Shareholders Agreement” means a Shareholders Agreement, substantially in the form attached as Exhibit E hereto;

“Share Purchase Agreement” is defined in the recitals;

“Skynet” is defined in the preamble;

“Skynet Charter” means the Restated Certificate of Incorporation of Skynet, as amended and in effect;

“Skynet Disclosure Letter” means that certain letter, dated as of the date hereof, executed and delivered by Skynet to Holdco simultaneously with the execution and delivery of this Agreement, which letter contains exceptions to the representations and warranties of Skynet set forth in this Agreement and disclosures and responses relating to certain covenants and agreements contained in this Agreement;

“Skynet Material Adverse Effect” means, with respect to Skynet, one or more events, changes, effects or circumstances that is material and adverse to the ability of Skynet to consummate the transactions contemplated by this Agreement or of Skynet to perform its obligations under this Agreement;

“Skynet Preferred Stock” means the Series A 12% Non-Convertible Preferred Stock, par value $0.01 per share, of Skynet;

“Skynet Preferred Stock Terms” means the terms and conditions of the Skynet Preferred Stock set forth in Exhibit A to the Skynet Charter, as amended and in effect;

“Skynet Satellites” is defined in Section 3.1(p)(i);

“Specified Satellite Capacity” means either (a) Telstar 12 alone or (b) the Other Skynet Satellites collectively;

“SS/L” means Space Systems/Loral, Inc., a Delaware corporation;

“Stated Satellite Operational Capability” means, for any Specified Satellite Capacity, as measured from September 30, 2006, (a) in the case of Telstar 12, the product of (i) the number of Operating Transponders on such satellite and (ii) the number of remaining 30-day periods from

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such date until the end of the expected life of such satellite, and (b) in the case of the Other Skynet Satellites, the sum of each of the following products: (i) the product of (A) the number of Operating Transponders on Telstar 10 and (B) the number of remaining 30-day periods from such date until the end of the expected life of such satellite; (ii) the product of (A) the number of Operating Transponders on Telstar 14 and (B) the number of remaining 30-day periods from such date until the end of the expected life of such satellite; and (iii) the product of (A) the number of Operating Transponders on Telstar 18 and (B) the number of remaining 30-day periods from such date until the end of the expected life of such satellite;

“Straddle Period” shall mean any taxable period that begins before and ends on or after the Closing Date;

“Straddle Tax Return” shall mean any Tax Return required to be filed by the Transferred Subsidiaries with respect to any Straddle Period;

“Subsidiary” means, with respect to any Person, any other Person that directly or indirectly is controlled by such Person; provided that, any Person the capital stock or other equity interests of which comprise Excluded Property shall not be deemed a Subsidiary of Skynet or any of its Subsidiaries. For purposes of this definition, “control” shall mean the ownership of stock or other ownership interests of a Person constituting more than 50% of the total combined voting power of all classes of shares or other ownership interests of such Person entitled to vote;

“Successive Transfers” is defined in the recitals;

“T-11N” means the Skynet Satellite currently being constructed by Skynet referred to as “T-11N” as of the date hereof;

“T-11N Adjustment Amount” is defined in Section 2.6(f);

“Taxes” means all federal, state, county, provincial, national , local, foreign and other taxes, charges, fees, duties (including customs duties), levies or other assessments, including income, gross receipts, net proceeds, ad valorem, turnover, real and personal property (tangible and intangible), sales, use, goods and services, franchise, excise, value added, stamp, leasing, lease, user, transfer, fuel, occupational, interest equalization, license, payroll, environmental, capital stock, disability, severance, employee’s income withholding, other withholding, employment insurance and social security taxes, premiums or levies, which are imposed by any Governmental Entity, whether disputed or not, and such term shall include any interest, penalties or additions to tax attributable thereto and any Obligation to indemnify or otherwise assume or succeed to the Tax liability of any other Person;

“Tax Return” means all returns, declarations, reports, estimates, information returns, statements and other documents, required to be filed in respect of Taxes (including any elections, declarations, schedules or attachments thereto, and any amendment thereof) including any claim for refund, amended return or declaration of estimated Tax, and including, where permitted or required, combined, consolidated or unitary returns for any group of entities that includes any of the Transferred Subsidiaries;

“Telesat” is defined in the recitals;

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“Telesat Closing” means the Closing (as defined in the Share Purchase Agreement);

“Telstar 12” means the Skynet Satellite referred to as “Telstar 12” as of the date hereof;

“Terminated Contracts” means the Management Agreements and the Contracts set forth in Section 1.1-A of Skynet Disclosure Letter;

“Third Party Claim” is defined in Section 7.4(c);

“Third Party Consents” means the consents, approvals, orders, authorizations, notifications and filings which may need to be obtained in connection with the execution, delivery and performance of this Agreement and/or the Asset Purchase Agreement, or any of the other documents and agreements to be delivered hereunder, by Skynet, as disclosed by Skynet in the Skynet Disclosure Letter, excluding, for greater certainty, the Transaction Approvals;

“Total Hedging Differential” means the number, which may be positive or negative, determined as set forth in Section 2.7;

“Total Loss” means, with respect to any Specified Satellite Capacity, (a) the loss or complete destruction of such Specified Satellite Capacity after the date of this Agreement, or (b) an occurrence or a series of occurrences arising after the date of this Agreement as a result of which the Actual Satellite Operational Capability of such Specified Satellite Capacity, as measured on a certain date, is reduced to less than 50% of Stated Satellite Operational Capability of such Specified Satellite Capacity;

“Tranche” is defined in Section 4.20(a);

“Tranche Differential” is defined in Section 2.6(h);

“Tranche Differential Rate” is defined in Section 2.6(i);

“Transaction Agreements” means this Agreement, the Asset Purchase Agreement and the Parent Subscription Agreement;

“Transaction Approvals” means, collectively: (a) Major Regulatory Approvals; and (b) Minor Regulatory Approvals;

“Transfer Shares” is defined in Section 2.6(j);

“Transferred Property” means (a) the Accounts Receivable and Cash Assets, (b) the Contract Rights, (c) the Equipment and Machinery, (d) the Files and Records, (e) the Intangible Assets, (f) the Business Radio Licenses of Skynet, (g) the Leased Real Property of Skynet, (h) the Owned Real Property of Skynet, and (i) any other assets of Skynet, including prepaid expenses relating to or used in the operation of the Business as of the Closing Date, wherever situated and of whatever kind and nature, real or personal, tangible or intangible, whether or not reflected on the books and records of Skynet (including all such items as are set forth on the Balance Sheet, with additions thereto (net of dispositions) in the Ordinary Course of Business) and the equity, ownership and other securities of any Subsidiary of Skynet that are held by Skynet and, for the

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avoidance of doubt, the Skynet Satellites referred to as “Telstar 12,” “Telstar 14” and “Telstar 18”; provided, however, that, notwithstanding anything to the contrary contained in this Agreement, Transferred Property shall not include any Excluded Property or Sale Assets;

“Transferred Subsidiary” means a Subsidiary of Skynet the equity interests of which are to be transferred (or sold) and conveyed to Holdco or Buyer pursuant to this Agreement or the Asset Purchase Agreement;

“Transponder Unit Failure” means the permanent failure to meet applicable performance specifications as determined in accordance with normal industry practice such that, after use of all available redundancy, spare components, it is demonstrated that the transponder cannot or will not be able to be used for commercial communications; and

“XTAR” means XTAR, LLC, a Delaware limited liability company.

     1.2. Expanded Meanings.

          In this Agreement, unless the context otherwise requires:

          (a) words used herein importing the singular number only shall include the plural and vice versa, and words importing the use of any gender shall include all genders;

          (b) the term “including” means “including, without limitation”;

          (c) references to the “parties” means the parties to this Agreement; and

          (d) references herein to any agreement or instrument, including this Agreement, shall be deemed to be references to the agreement or instrument as varied, amended, modified, supplemented or replaced from time to time, in accordance with the terms of such agreement or instrument, and any specific references herein to any legislation or enactment shall be deemed to be references to such legislation or enactment as the same may be amended or replaced from time to time up to the Closing Date unless specifically otherwise provided.

1.3. Interpretation not Affected by Headings, etc.

          The division of this Agreement into articles, sections, subsections, paragraphs and clauses and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. The terms “this Agreement”, “hereof”, “herein”, “hereunder” and similar expressions refer to this Agreement and not to any particular article, section, subsection, paragraph, clause or other portion hereof and include any agreement or instrument supplementary or ancillary hereto.

1.4. Currency.

          Unless otherwise specified herein, all dollar amounts expressed in this Agreement as (a) “$” are to United States dollars and (b) “C$” are to Canadian dollars.

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1.5. Knowledge.

          In this Agreement, the phrase “to the knowledge of” or other similar phrases mean, with respect to Skynet, to the actual knowledge, after reasonable inquiry, of Michael B. Targoff, Richard J. Townsend, Laurence D. Atlas, Avi Katz, Richard Currier, Michael Santoro and Jeffrey Stine; and in respect of Holdco, to the actual knowledge, after reasonable inquiry, of Derek Murphy or James Pittman.

ARTICLE II.

ACQUISITION AND TRANSFER OF THE TRANSFERRED PROPERTY;
ASSUMPTION OF LIABILITIES

     2.1. Closing.

          (a) The closing of the acquisition and transfer of the Transferred Property and the assumption of the Assumed Liabilities (the “Closing”) shall take place at the offices of Willkie Farr & Gallagher LLP, 787 Seventh Avenue, New York, New York 10019 on the date (the “Closing Date”) occurring upon the later of:

               (i) the date on which the Telesat Closing occurs, provided that all of the conditions set forth in Article V are satisfied or waived; and

               (ii) the third (3^rd) Business Day following the date on which all of the conditions set forth in Article V are satisfied or waived.

          (b) At the Closing:

               (i) Holdco shall deliver, or cause to be delivered, to Skynet:

                    (A) duly executed and issued certificates representing the Transfer Shares;

                    (B) any cash payments required to be made by Holdco and/or PSP at the Closing pursuant to Section 2.5(a)(iii) and Section 1.1(a) of the Ancillary Agreement, by wire transfer of immediately available funds to the bank account or accounts designated by Skynet in writing not less than three (3) Business Day prior to the Closing Date;

                    (C) certificates signed by a duly authorized officer of Holdco certifying to the effect that each of the conditions specified in Sections 5.3(a) and 5.3(b) have been satisfied in all respects;

                    (D) the Assignment and Assumption Agreement, duly executed by Holdco;

                    (E) the Bill of Sale, duly executed by Holdco.

               (ii) Skynet shall deliver, or cause to be delivered, to Holdco:

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                    (A) any cash payments required to be made by Parent at the Closing pursuant to Sections 2.5(b) and Section 1.1(b) of the Ancillary Agreement, by wire transfer of immediately available funds to the bank account or accounts designated by Holdco in writing not less than three (3) Business Day prior to the Closing Date;

                    (B) certificates signed by a duly authorized officer of Skynet certifying to the effect that each of the conditions specified in Sections 5.2(a) and 5.2(b) have been satisfied in all respects;

                    (C) the Assignment and Assumption Agreement, duly executed by Skynet; and

                    (D) the Bill of Sale, duly executed by Skynet,

                    (E) copies of resolutions, certified by the Secretary of each of the Parent and Skynet as to the authorization (as applicable) of the Transaction Agreements and all of the transactions contemplated thereby;

                    (F) affidavit of non-foreign status of Skynet that complies with section 1445 of the Code;

                    (G) evidence of the termination of each Terminated Contract;

                    (H) evidence of the release of all Liens described in clause (e) of the definition of Permitted Liens on the Transferred Property; and

                    (I) evidence that the “Telstar-11 Loan” identified in Section 3.1(w) of the Skynet Disclosure Letter has been capitalized to equity of Skynet.

2.2. Transfer of Transferred Property.

          Subject to the terms and conditions herein set forth, Skynet shall convey, transfer, assign and deliver to Holdco, and Holdco shall acquire and accept from Skynet, on the Closing Date, all right, title and interest of Skynet in, to and under the Transferred Property, wherever located, free and clear of all Liens other than Permitted Liens (but excluding the Liens described in clause (e) of the definition of Permitted Liens).

2.3. Subsequent Actions.

          (a) Skynet shall, at any time and from time to time after the Closing Date, upon the request of Holdco, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, all such further deeds, assignments, transfers and conveyances as may be reasonably required for the better assigning, transferring, granting, conveying and confirming to Holdco or its successors and assigns, or for aiding and assisting in collecting and reducing to possession, any or all of the Transferred Property. Effective as of the Closing Date, Skynet hereby constitutes and appoints Holdco and any of its successors and assigns as the true and lawful attorney-in-fact of Skynet with full power of substitution in the name of Holdco or in the name of Skynet but for the benefit of Holdco (i) to collect for the account of Holdco all

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Accounts Receivable constituting Transferred Property and any other item of Transferred Property and (ii) to institute and prosecute all proceedings which Holdco may in its sole discretion deem proper in order to collect such Accounts Receivable or to assert or enforce any right, title or interest in, to or under the Transferred Property and to defend or compromise any and all actions, suits or proceedings in respect of any of the Transferred Property. Holdco shall be entitled to retain for its own account any amounts collected pursuant to the foregoing powers, including any amounts payable as interest in respect thereof.

          (b) Notwithstanding anything to the contrary contained in this Agreement, no Contract or Contract Right shall be assigned to Holdco hereunder contrary to applicable Law or the terms of such Contract or Contract Right and, with respect to Contracts and Contract Rights that cannot be assigned to Holdco at the Closing as contemplated hereby, the performance obligations of Skynet thereunder shall, unless not permitted by the terms of such Contract or Contract Right, be deemed to be subleased or subcontracted to Holdco until such Contract or Contract Right has been assigned as contemplated by this Agreement. Holdco shall reasonably assist Skynet in obtaining any necessary approvals to such subleases and subcontracts. Skynet shall use its commercially reasonable efforts to obtain all necessary consents and Holdco shall take all necessary actions to perform and complete all Contracts and Contract Rights intended to be assigned under this Agreement in accordance with their terms if neither assignment, subleasing nor subcontracting is permitted by any relevant other party thereto. Following the Closing, with regard to any Contract or Contract Right with respect to which any necessary approvals to the assignment, subleasing or subcontracting thereof as contemplated by this Section 2.3(b) shall have not been obtained, effective as of the Closing, Skynet hereby constitutes and appoints Holdco and any of its successors and assigns as the true and lawful attorney-in-fact of Skynet with full power of substitution in the name of Skynet or Holdco, but on behalf and for the benefit of Holdco, solely to act for Skynet in performing its obligations and exercising its rights under such Contracts and Contract Rights, but only to the extent that such delegation of duties and exercise of rights may be made without violation thereof or applicable Law. In such capacity, Holdco shall retain all benefits resulting from such performance of obligations and exercise of rights and it shall pay all amounts due from Skynet under such Contracts and Contract Rights from and after the Closing and shall perform all of Skynet’s obligations thereunder or in respect thereof from and after the Closing.

     2.4. Assumption of Liabilities.

          From and after the Closing, Holdco shall assume and Holdco hereby agrees to pay, perform and discharge when due, the Assumed Liabilities. Holdco shall not assume or be liable hereunder for any Excluded Liabilities.

     2.5. Transfer Consideration.

          (a) In consideration for the transfer and conveyance at the Closing (or thereafter pursuant to Section 2.3) of the Transferred Property (which shall be deemed to have a value for purposes of determining the amount of transfer consideration under this Agreement (the “Transferred Property Value”) equal to $839,057,500 minus the Sale Assets Purchase Price, which amounts shall be translated into Canadian dollars, at the Agreed Exchange Rate) and the Final Adjustment Amount, Holdco shall:

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               (i) issue to Skynet:

                    (A) such number of Holdco Common Shares as shall equal 33¹/₃% of all Holdco Common Shares and Holdco Preferred Shares that are outstanding immediately after the Closing;

                    (B) such number of Holdco Non-Voting Preferred Shares as shall, when aggregated with the Holdco Common Shares to be acquired by Skynet, equal 64% of all Holdco Common Shares and Holdco Preferred Shares that are outstanding immediately after the Closing;

               (ii) assume the obligation to pay $126,000,000 of the principal amount of the Senior Notes or Redemption Facility, whichever is then outstanding as of the Closing; and

               (iii) pay or cause to be paid to Skynet any positive Estimated Adjustment Amount set forth in the Estimated Adjustment Schedule as contemplated by Section 1.1(a) of the Ancillary Agreement.

          (b) If the Estimated Adjustment Amount set forth in the Estimated Adjustment Schedule is a negative number, Parent will pay such amount, or cause such amount to be paid, to Holdco and/or PSP as contemplated by Section 1.1(b) of the Ancillary Agreement.

2.6. Final Adjustment Amount.

          (a) The “Final Adjustment Amount” is the amount, positive or negative, equal to the difference (expressed and payable in C$) obtained by subtracting from the sum of the Transferred Property Value, the Total Hedging Differential, the Pension Adjustment Amount (which amount shall be expressed in Canadian dollars at the Agreed Exchange Rate) and the amount of the Interim Taxes (which amount shall be expressed in Canadian dollars at the Agreed Exchange Rate), the sum of:

               (i) the product of 1.88767 and the PSP Common Equity Amount;

               (ii) C$146,607,300 (being $126,000,000 translated into US$ at the Agreed Exchange Rate), but only if either the Senior Notes or the Redemption Facility is outstanding immediately prior to the Closing; and

               (iii) any T-11N Adjustment Amount, translated into C$ at the Agreed Exchange Rate.

          (b) “Agreed Exchange Rate” means the rate of 1.16355 Canadian dollars per U.S. dollar.

          (c) “Closing Date Exchange Rate” means the rate at which $1 is exchangeable for C$1, quoted as the mid-point price by Bloomberg, as of the close of business in Toronto and New York on the Closing Date.

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          (d) “Provisional Exchange Rate” means the rate at which $1 is exchangeable for C$1, quoted as the mid-point price by Bloomberg, as of the close of business in Toronto and New York on the fifth Business Day prior to the Closing Date.

          (e) “PSP Common Equity Amount” means the excess of (i) the total amount funded by PSP under the PSP Subscription Agreement as of the Telesat Closing (expressed in Canadian dollars) over (ii) $150,000,000 translated into Canadian dollars at the Closing Date Exchange Rate.

          (f) “T-11N Adjustment Amount” means the excess, if any, of $130,000,000 over the aggregate costs incurred by Skynet in connection with the construction, launch and insurance of T-11N through the Closing Date, as set forth in Skynet’s financial statements for the month immediately preceding the month in which the Closing Date occurs and as adjusted for all such costs incurred by Skynet through the Closing Date.

          (g) “Total Hedging Differential” means the sum of the Tranche Differentials. For purposes of clarity, an example of the calculation of the Total Hedging Differential is attached hereto as Exhibit 2.6(g).

          (h) “Tranche Differential” means for each Tranche, Parent’s proportionate share of such Tranche, multiplied by the Tranche Differential Rate.

          (i) “Tranche Differential Rate” means, as to any Tranche, the difference between the exchange rate obtained by Parent and the exchange rate obtained by PSP in respect of such Tranche, as determined in accordance with Section 4.20 hereof, and which amount shall be (i) positive, if the exchange rate obtained by Parent in respect of the applicable Tranche is greater than the exchange rate obtained by PSP in respect of the same Tranche, (ii) negative, if the exchange rate obtained by Parent in respect of the applicable Tranche is less than the exchange rate obtained by PSP in respect of the same Tranche, or (iii) zero, if the exchange rate obtained by Parent in respect of the applicable Tranche is the same as the exchange rate obtained by PSP.

          (j) “Transfer Shares” means shares of Holdco Common Shares and Holdco Non-Voting Preferred Shares issued pursuant to Section 2.5(a)(i).

     2.7. Determination of Estimated Adjustment Amount, Final Adjustment Amount and Actual Interim Taxes Due.

          (a) Not less than two (2) Business Days prior to the Closing Date, Skynet shall deliver to Holdco a schedule (the “Estimated Adjustment Schedule”) setting forth Skynet’s calculation of its good faith estimate (made using the best information reasonably available to Skynet and/or Parent at such time) of: (i) the Final Adjustment Amount, calculated using the Provisional Exchange Rate in place of the Closing Date Exchange Rate (“Estimated Adjustment Amount”); and (ii) the Interim Taxes other than such Taxes that Holdco causes the Subsidiaries of Skynet to pay pursuant to Section 4.10(c) (the “Estimated Interim Taxes Due”). For the avoidance of doubt, the Estimated Adjustment Amount and the Estimated Interim Taxes Due set forth in the Estimated Adjustment Schedule shall be deemed to be the Final Adjustment

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Amount and the Actual Interim Taxes Due, respectively, for the purposes of the Closing, subject to the post-Closing adjustments set forth in this Section 2.7.

          (b) As soon as practicable, but in no event later than 30 Business Days after the Closing Date, Holdco shall deliver to Skynet a schedule (the “Proposed Final Adjustment Schedule”) setting forth Holdco’s good faith calculation (made using the best information reasonably available to Holdco at such time) of: (i) the Final Adjustment Amount (calculated excluding the Actual Interim Taxes Due), calculated using Closing Date Exchange Rate (“Proposed Final Adjustment Amount”); and (ii) the Actual Interim Taxes Due. For the avoidance of doubt, in the event that Holdco fails for any reason whatsoever to deliver the Proposed Final Adjustment Schedule to Skynet within 30 Business Days after the Closing Date, the Estimated Adjustment Amount and the Estimated Interim Taxes Due set forth in the Estimated Adjustment Schedule shall be deemed to be the Final Adjustment Amount and the Actual Interim Taxes Due, respectively, for all purposes under this Agreement.

          (c) Skynet shall have a period of 30 Business Days following its receipt of the Proposed Final Adjustment Schedule to notify Holdco of any disagreements that Skynet may have with respect to Holdco’s calculations of the Final Adjustment Amount (calculated excluding the Actual Interim Taxes Due) and/or the Actual Interim Taxes Due set forth in the Proposed Final Adjustment Schedule (it being understood that, in the event that Skynet fails for any reason whatsoever to so notify Holdco of any such disagreement within 30 Business Days after Skynet’s receipt of the Proposed Final Adjustment Schedule, the Final Adjustment Amount (calculated excluding the Actual Interim Taxes Due) and the Actual Interim Taxes Due set forth in the Proposed Final Adjustment Schedule shall be deemed to be the Final Adjustment Amount (calculated excluding the Actual Interim Taxes Due) and the Actual Interim Taxes Due, respectively, for all purposes under this Agreement). During such 30-Business Day period, Skynet may request, and Holdco shall provide to Skynet and its accountants and other representatives, upon reasonable notice, reasonable access during normal business hours to, or copies of, as Skynet or such accountants and other representatives shall reasonably request, the information (including the books and records of Holdco and its Subsidiaries), data and work papers used in connection with the preparation of the Proposed Final Adjustment Schedule and/or the calculations set forth therein, and will make Holdco’s and its Subsidiaries’ personnel and accountants available to Skynet and its accountants and other representative to discuss any such information, data or work papers. In the event that Skynet timely notifies Holdco of any disagreement with the Proposed Final Adjustment Schedule or any of the calculations set forth therein, Holdco and Skynet shall negotiate in good faith to resolve such disagreement. If within 15 Business Days after the commencement of such good faith negotiations, Holdco and Skynet are unable to resolve such disagreement, either Holdco or Skynet shall have the right to submit the determination for resolution pursuant to Section 1.2(a) of the Ancillary Agreement.

          (d) Upon the final determination of the Final Adjustment Amount, the amount payable in respect of such finally determined Final Adjustment Amount shall be paid as provided in Section 1.2(b) of the Ancillary Agreement.

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     2.8. MAE Adjustment.

          (a) In the event that the Business shall have experienced or suffered a Business Material Adverse Effect between September 30, 2006 and the Closing Date, following the Closing Parent shall pay to Holdco a cash amount equal to diminution in the value (if any) of the Business constituting such Business Material Adverse Effect, after taking into account any insurance proceeds paid or payable to Holdco or any of its respective Subsidiaries in respect thereof (such diminution in value, as agreed by the parties or determined pursuant to Section 2.8(c), if any, expressed in Canadian dollars at the Agreed Exchange Rate, the “MAE Adjustment Amount”); provided, however, that Parent shall only be obligated to pay the MAE Adjustment Amount in cash if it has or could reasonably acquire the financial resources to do so through the use of its commercially reasonable efforts, but for the avoidance of doubt, without any obligation to (i) sell any of its assets, (ii) incur any Lien on its direct or indirect equity interests in SS/L or any of its Subsidiaries or (iii) cause SS/L or any of its Subsidiaries to borrow, give any security for or guarantee any Obligation.

          (b) To the extent the MAE Adjustment Amount is not settled in cash pursuant to Section 2.8(a) and, if applicable, Section 2.1 of the Ancillary Agreement, it shall be settled: (i) first, by reduction of the number of the Holdco Non-Voting Preferred Shares issued to Skynet by an amount equal to (A) C$10, divided into (B) the MAE Adjustment Amount, until such number of Holdco Non-Voting Preferred Shares is reduced to zero; and (ii) second, after the number of Holdco Non-Voting Preferred Shares is reduced to zero per the immediately preceding clause (i), and to the extent that, after giving effect to such adjustment, any portion of the MAE Adjustment Amount shall have not been satisfied, then by reduction of the number of Holdco Common Shares by an amount equal to (A) C$10, divided into (B) such unsatisfied portion of the MAE Adjustment Amount, provided that in no case shall the number of Holdco Common Shares be reduced hereby to less than one.

          (c) If Holdco notifies Skynet that a Business Material Adverse Effect has occurred, Skynet and Holdco shall negotiate in good faith to agree upon whether or not such event has occurred, and, if so, the amount of the MAE Adjustment Amount in respect thereof. If Skynet and Holdco are unable or otherwise fail to so agree within 30 days after the commencement of such negotiations, Skynet or Holdco may, upon written notice to the other, refer the determination for resolution pursuant to Section 2 of the Ancillary Agreement.

          (d) For the avoidance of doubt, it is understood and agreed that the occurrence of a Business Material Adverse Effect shall not relieve the parties of their respective obligations to consummate the transactions contemplated hereby. Without limiting, and in furtherance of, the foregoing, if at the time that all the conditions to the Closing shall have been satisfied or waived, Skynet and Holdco shall have not yet reached agreement as to the MAE Adjustment Amount under this Section 2.8 or, if the determination has been referred to an arbitrator pursuant to Section 2 of the Ancillary Agreement, such arbitrator has not yet rendered its decision, the parties agree that the Closing shall nevertheless proceed and Holdco shall pay and deliver (as applicable) to Skynet the consideration in the respect of the Transferred Property set forth in Section 2.5 without any reduction or setoff in respect of such Business Material Adverse Effect, it being understood that such consideration shall remain subject to adjustment after the Closing as set forth in this Section 2.8.

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ARTICLE III.

REPRESENTATIONS AND WARRANTIES

     3.1. Representations and Warranties of Skynet.

          Except as disclosed in the Skynet Disclosure Letter, Skynet hereby represents and warrants to Holdco as of the date hereof and, except as disclosed in the Skynet Disclosure Letter and/or as affected by the execution or performance of the Transaction Agreements or the Share Purchase Agreement, Skynet hereby represents and warrants to Holdco as of the Closing Date as follows, and acknowledges that Holdco is relying upon such representations and warranties in entering into this Agreement and the Asset Purchase Agreement and the transactions contemplated hereby:

          (a) Corporate Organization and Qualification. Skynet is a corporation validly existing and in good standing under the laws of Delaware. Each Subsidiary of Skynet is validly existing under the laws of its jurisdiction of incorporation or organization, and (i) each such Subsidiary that is set forth in Section 3.1(a) of the Skynet Disclosure Letter and designated as an operating Subsidiary is in good standing under the laws of its jurisdiction of incorporation or organization, and (ii) each such other Subsidiary is in good standing under the laws of its jurisdiction of incorporation or organization, except where the failure of such Subsidiary to be in good standing under the laws of its jurisdiction of incorporation or organization would not reasonably be expected to have a Business Material Adverse Effect. Each of Skynet and its Subsidiaries is in good standing and duly registered, licensed or qualified as a foreign corporation or other entity in each jurisdiction where the properties owned, leased or operated, or the business conducted, by it requires such registration, license or qualification, except where the failure to so be in good standing and duly registered, licensed or qualified would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect or a Skynet Material Adverse Effect. Each of Skynet and its material Subsidiaries has the corporate power and capacity to own its properties and assets and to carry on its business as currently conducted.

          (b) Subsidiaries. Section 3.1(b) of the Skynet Disclosure Letter sets forth a true, correct and complete list of the Subsidiaries of Skynet, the percentage of each class of shares or other ownership interests in the capital of Subsidiaries owned directly or indirectly by Skynet, and the jurisdiction of incorporation, formation or organization of each such Subsidiary. Other than as set forth in Section 3.1(b) of the Skynet Disclosure Letter or as contemplated by the Transaction Agreements, Skynet does not own and does not have any agreements of any nature pursuant to which Skynet is obligated to acquire, directly or indirectly, any shares in the capital of or other equity or proprietary interest in any other Person.

          (c) Corporate Authority. Each of Parent and Skynet has the requisite corporate power and authority and has taken all corporate action necessary in order to execute and deliver the Transaction Agreements to which it is a party and to consummate the transactions contemplated thereby. This Agreement and the Asset Purchase Agreement have each been duly executed and delivered by each of Parent and Skynet and, assuming the due authorization, execution and delivery hereof by Holdco, constitute a legal, valid and binding obligation of the

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Parent and Skynet, enforceable against the Parent and Skynet in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency and other laws affecting the rights of creditors generally and the availability of equitable remedies (provided that such exception shall not apply to any limitation of such enforcement resulting from the Bankruptcy Cases). Without limiting, and in furtherance of, the foregoing, the approval of the stockholders of Parent is not required in order for Skynet to consummate the transactions contemplated by the Transaction Agreements. The stockholder of Skynet has approved and consented to, in accordance with applicable Delaware law, the transactions contemplated by this Agreement and the Asset Purchase Agreement.

          (d) Filings and Approvals. Other than the Transaction Approvals and the Third Party Consents, no notices, reports or other filings, and no consents, registrations, approvals, permits or authorizations, are required to be made or obtained by Parent, Skynet or Buyer with or from any Governmental Entity or any other Person in connection with the execution and delivery of this Agreement or the Asset Purchase Agreement or the consummation of the transactions contemplated by this Agreement or the Asset Purchase Agreement, except where the failure to make or obtain any or all of which would not reasonably be expected to have a Business Material Adverse Effect or a Skynet Material Adverse Effect.

          (e) No Violation. The execution and delivery by each of Parent and Skynet of the Transaction Agreements to which it is a party do not, and, subject to the Transaction Approvals and the Third Party Consents being obtained, the consummation by Parent, Skynet and Buyer of the transactions contemplated by the Transaction Agreements will not, constitute or result in (i) a breach or violation of, or a default under, the articles, by-laws or the comparable governing instruments of any of Parent, Skynet or Buyer or any of their respective Subsidiaries, (ii) a breach or violation of, a default under, the triggering of any payment or other material obligation pursuant to, the acceleration of (with or without the giving of notice or the lapse of time) any provision of any Material Contract or any material Contract to which either Buyer or Parent is a party, (iii) a breach or violation of any Law to which Parent or Skynet or any Subsidiary of Skynet is subject, (iv) any change in the rights or obligations of Skynet or Buyer or any of their respective Subsidiaries under any Material Contract, or under any Permit that is material to Skynet, Buyer or the Business or (v) the creation of any Lien or the forfeiture of any asset of Skynet or any of its Subsidiaries, except in the case of the immediately preceding clauses (ii) through (v) for such breaches, violations, defaults, accelerations or changes that would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect or a Skynet Material Adverse Effect.

          (f) Compliance with Laws. The Business has been, and is being, conducted, in all material respects, in compliance with all Laws applicable to the Business. Other than Tax audits in the ordinary course, no investigation or review by any Governmental Entity with respect to the Business, Skynet or any Subsidiary of Skynet is pending or, to the knowledge of Skynet, threatened. Skynet and/or one or more of its Subsidiaries hold or have the right to use, or other access to, all orbital slot authorizations for each of the Skynet Satellites required to operate the Business as currently conducted in all material respects. Each of Skynet and its Subsidiaries has and is in compliance with all permits, licenses, franchises, variances, exemptions, registrations, regulatory decisions, mandatory policies, procedures and standards, orders and other governmental authorizations, consents and approvals (collectively, “Permits”),

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including ITU regulations and other international treaties or agreements, necessary to operate the Skynet Satellites and to conduct the Business as currently conducted, except for those the absence of or non-compliance with which would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect or Skynet Material Adverse Effect. To the knowledge of Skynet, there has occurred no material violation of, material default under, or event giving to any Person any right of termination, amendment or cancellation of any Permit material to the Business. Neither Skynet nor any of its Subsidiaries nor Parent has received notice of any revocation or modification of any Permit, except for revocations or modifications which have not had, and would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect or a Skynet Material Adverse Effect. Skynet is eligible to hold, and is in material compliance with the terms of, the earth station licenses which relate to the Major Stations and the space station authorizations set forth in Section 3.1(f) of the Skynet Disclosure Letter (the “Business Radio Licenses”).

          (g) Financial Statements. The consolidated balance sheets included in the Financial Statements fairly present, in all material respects, the consolidated financial position of Skynet and its Subsidiaries as of their respective dates, and the consolidated statements of operations and cash flows included in the Financial Statements fairly present, in all material respects, the consolidated results of operations and cash flows, as the case may be, of Skynet and its Subsidiaries for the periods set forth therein, in each case in accordance with GAAP as in effect for such periods.

          (h) No Undisclosed Liabilities. Skynet and its Subsidiaries have no liabilities or obligations of any nature, whether or not accrued, absolute, contingent, liquidated or unliquidated or otherwise, whether due or to become due and whether or not required to be recorded or reflected on a balance sheet under GAAP, arising out or relating to the Business, except for (i) liabilities identified in the Financial Statements, (ii) liabilities related to the transactions contemplated by the Transaction Agreements and the Share Purchase Agreement, and (iii) liabilities incurred since September 30, 2006, which have not had and would not reasonably be expected to have, individually or in the aggregate, a Business Material Adverse Effect.

          (i) Absence of Certain Changes. Except in connection with the consummation of the transactions contemplated by the Share Purchase Agreement and the Transaction Agreements, since September 30, 2006, each of Skynet and its Subsidiaries has conducted the Business only in, and has not engaged in any material transaction in connection with the Business other than according to, the Ordinary Course of Business and there has not been (i) any event or change in the conduct of the Business which has had or would reasonably be expected to have a Business Material Adverse Effect or a Skynet Material Adverse Effect; or (ii) any action taken of the type described in Section 4.1 that, had such action occurred following the date hereof, would constitute a material breach of such Section 4.1.

          (j) Litigation. There are no civil, criminal, administrative or regulatory actions, suits, claims, hearings, investigations, or occupational health and safety or other proceedings (collectively, “Actions”) pending or, to the knowledge of Skynet, threatened against the Business or Skynet or any of its Subsidiaries that, individually or in the aggregate, if determined or resolved adversely to Business or Skynet or any of its Subsidiaries in accordance

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with the demands of plaintiffs, would reasonably be expected to have a Business Material Adverse Effect or a Skynet Material Adverse Effect.

          (k) Employee Benefits. Section 3.1(k) of the Skynet Disclosure Letter sets forth a complete and accurate list of each Benefit Plan and Skynet has made available to Holdco a complete and accurate copy of each such Benefit Plan. With respect to each Benefit Plan listed on Section 3.1(k) of the Skynet Disclosure Letter and that is not identified as an Excluded Property, adequate provision has been made in the Financial Statements for all material accrued liabilities of Skynet and its Subsidiaries in respect of such Benefit Plan. Each Benefit Plan has been established, registered and has been funded (if required), invested, maintained and administered in all material respects in compliance with its terms and all applicable Laws. In respect of the Pension Plan, no event has occurred which would reasonably be expected to entitle or authorize any Person to terminate or require the termination of the Pension Plan, in whole or in part, or which would reasonably be expected to materially and adversely affect the tax status of the Pension Plan. All material contributions or premium payments required to have been made under the terms of the Benefit Plans or by applicable Law have been timely made or reflected in the Financial Statements.

          (l) Brokers and Finders. Neither Skynet nor any of its Affiliates nor any of its or their respective officers or employees has incurred any liability for any brokerage fees, commissions or finders fees to any broker or finder employed or engaged thereby in connection with the transactions contemplated by the Transaction Agreements for which Holdco or any of its Affiliates (excluding Skynet and, prior to the Closing, the Subsidiaries of Skynet) would be liable other than as contemplated by the Investors Letter Agreement.

          (m) Tax Matters.

               (i) Solely with respect to any taxable period (or a portion thereof) that commenced before January 1, 2007, each of the Transferred Subsidiaries has filed (or joined in the filing of) all material Tax Returns required to have been filed by it or on behalf of it in all applicable jurisdictions, and has paid all material Taxes due and payable by it (whether or not shown on any Tax Return) and has paid all material assessments and reassessments received in respect of Taxes. There are no material assessments, reassessments, audits, actions, suits or other proceedings or investigations or claims in progress, pending or, to the knowledge of Skynet, threatened against the Business or any of the Transferred Subsidiaries in respect of any Taxes.

               (ii) To the knowledge of Skynet, Skynet, with respect to the Business and each of the Transferred Subsidiaries, has complied in all material respects with all applicable Laws relating to the payment and withholding of Taxes and has timely withheld and paid over to the appropriate Governmental Entity all material amounts required to be so withheld and paid under all applicable Laws, including any material Taxes in connection with any amounts paid or owing to any present or former employee, officer, director, independent contractor, creditor, stockholder or any other third party.

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               (iii) No Transferred Subsidiary has ever been a member of any consolidated, combined, affiliated or unitary group of corporations for any Tax purposes, other than a group of which Parent or its Subsidiary is the common parent.

               (iv) None of the Transferred Subsidiaries has any material liability for Taxes of any other person (other than any of the Parent and its Subsidiaries) by reason of (a) a combined, unitary or consolidated Tax obligation such as Treasury Regulation Section 1.1502-6 (or any predecessor or successor thereof or any similar provision of state, local, or foreign law), or (b) contract, assumption, transferee or successor liability, or otherwise.

               (v) None of the Transferred Subsidiaries or anyone on its behalf has participated in a “listed transaction” within the meaning of Treasury Regulation Section 1.6011-4(b)(2).

               (vi) Skynet has made available to PSP and Holdco (1) all income Tax Returns with respect to the Business and all Tax Returns of the Transferred Subsidiaries for all taxable periods ending on or after December 31, 2005, (2) any audit report issued within the last two years (or otherwise with respect to any audit or proceeding in progress) relating to income and franchise Taxes of any of the Transferred Subsidiaries or of Skynet with respect to the Business, and (3) all material ruling requests, private letter rulings, closing agreements and settlement agreements sent to or received by Skynet with respect to the Business or any of the Transferred Subsidiaries relating to Taxes that are currently in effect.

               (vii) Each of the Transferred Subsidiaries has the entity classification, for U.S. federal Tax purposes, as set forth in this Section 3.1(m)(vii) of the Skynet Disclosure Letter.

               (viii) Solely with respect to any taxable period (or a portion thereof) that commenced on or after January 1, 2007:

                    (A) Skynet and each of its Transferred Subsidiaries has timely (including pursuant to a valid extension) filed (or joined in the filing of) all Tax Returns required to have been filed by it or on behalf of it in all applicable jurisdictions, and has timely (including pursuant to a valid extension) paid all material Taxes due and payable by it (whether or not shown on any Tax Return) and has timely paid all material assessments and reassessments received in respect of Taxes.

                    (B) None of the Transferred Subsidiaries or any Person on their behalf (1) has requested, executed or filed with any Governmental Entity (x) any agreement extending the period for payment, assessment, reassessment or collection of any material Taxes or (y) any extension of time within which to file any material Tax Return or have been granted such extension of time which is currently in effect with respect to which material Tax Returns have not yet been filed, or (2) is party to any written agreement providing for sharing, allocation or material indemnity obligations with respect to Taxes, Tax losses or Tax refunds..

                    (C) To the knowledge of Skynet, no event, transaction, act or omission has occurred that would reasonably be expected to result in any of the Transferred

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Subsidiaries being liable to pay any material Tax, as transferees, successors or otherwise, that is attributable to any other Person.

                    (D) Except to the extent that the Tax impact has been reflected in the Financial Statements (and subject to the effects of any transactions occurring in the Ordinary Course of Business after the dates thereof), none of the Transferred Subsidiaries will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any: (1) prepaid amounts received on or prior to the Closing Date unless such amounts are reflected as deferred revenue, customer deposits, prepayments or other credit accounts (or as reductions in debit accounts) on such Financial Statements (subject to the effects of any transactions occurring in the Ordinary Course of Business after the dates thereof); (2) agreement with a taxing authority executed on or prior to the Closing Date; (3) installment sale or any transaction the book income from which is realized on or prior to the date hereof; or (4) change in method of accounting for a Pre-Closing Tax Period, except where such change is made by Holdco or any such Transferred Subsidiary after the Closing Date.

                    (E) No issue has been raised in writing by any Governmental Entity in any current or prior examination of any of the Transferred Subsidiaries that, by application of the same or similar principles, would reasonably be expected to result in a material proposed deficiency of Holdco or of a Transferred Subsidiary for any subsequent taxable period.

                    (F) None of the Transferred Subsidiaries is subject to any private letter ruling of the IRS or comparable written rulings of any other Governmental Entity.

                    (G) To the knowledge of Skynet, no Transferred Subsidiary has a permanent establishment in any country other than the country in which it was organized or incorporated.

                    (H) None of the Transferred Subsidiaries is currently a party to any contract, agreement, plan or other arrangement that, individually or collectively, could give rise to the payment of any material amount, which would not be deductible by such Transferred Subsidiary, by reason of Section 162(m) or Section 280G of the Code or would be subject to withholding under Section 4999 of the Code.

                    (I) None of the Transferred Subsidiaries will be required to include any item in its taxable income for any taxable period (or portion thereof) ending after the Closing Date, as a result of any intercompany transaction or “excess loss account”, within the meaning of United States Treasury Regulation Sections 1.1502-13 and 1.1502-19, respectively (or any corresponding or similar provision of state or local Law) that occurred or existed prior to the Closing Date.

                    (J) None of the Transferred Property or the Sale Assets, including any assets of the Transferred Subsidiaries, is a “taxable Canadian property” within the meaning of subsection 248(1) of the ITA.

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               (ix) Notwithstanding any other representation or warranty herein, the representations and warranties contained in this Section 3.1(m) constitute the sole representations and warranties of Skynet relating to any Tax, Tax Return or Tax matter.

          (n) Title to Assets; Sufficiency of Assets.

               (i) Other than the Leased Satellite, Skynet and/or one or more of its Subsidiaries is the owner of all of its respective assets (and interests in assets) which are of material importance to the operation of the Business, with good and valid title thereto, free and clear of any Liens other than Permitted Liens. No Affiliate of Skynet other than one or more of its Subsidiaries owns any operational assets that are used in the Business.

               (ii) The Transferred Property and the Sale Assets, collectively, are sufficient to operate the Business in all material respects in the manner that it is currently conducted.

          (o) Real Property.

               (i) Section 3.1(o)(i) of the Skynet Disclosure Letter sets forth a complete and accurate list of (A) all real property owned by Skynet and its Subsidiaries (the “Owned Real Property”) and (B) all real property leased or subleased by Skynet and its Subsidiaries, as tenant (the “Leased Real Property” and, together with the Owned Real Property, the “Real Property”), in each case that is material to the operation of the Business as currently conducted or that is material to Skynet. The Real Property constitutes all of the real property owned, leased or occupied by Skynet and its Subsidiaries which is material to the operation of the Business and none of the Owned Real Property is leased to any Person.

               (ii) With respect to the Leased Real Property:

                    (A) there are no Leases granting to any Person other than Skynet or its Subsidiaries, as applicable, any rights to use a material portion of the Leased Real Property;

                    (B) each Lease that is material to the operations of the Business is legal, valid, binding, enforceable and in full force and effect against Skynet or its Subsidiary party thereto, and to the knowledge of Skynet, against the other party thereto, except as enforcement may be limited by bankruptcy, insolvency and other laws affecting the rights of creditors generally and the availability of equitable remedies (provided that such exception shall not apply to any limitation of such enforcement resulting from the Bankruptcy Cases); and

                    (C) all rent and other sums and charges payable by Skynet or any of its Subsidiaries, as the case may be, as tenant under each Lease are current, no material notice of default or termination under any such Lease is outstanding, no termination event or condition or uncured default on the part of Skynet or any of its Subsidiaries, as the case may be, or to the knowledge of Skynet, the landlord, exists under any Lease, and no event has occurred and no condition exists which, with the giving of notice or the lapse of time or both, would constitute such a default or termination event or condition, in each case except as would not reasonably be expected to have a Business Material Adverse Effect.

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          (p) Skynet Satellites.

               (i) Subject to applicable Law (including the Export Control Laws), Section 3.1(p)(i) of the Skynet Disclosure Letter sets forth a complete and accurate list of the single satellite leased by Skynet and its Subsidiaries (the “Leased Satellite”) and the satellites owned by Skynet and its Subsidiaries (the “Owned Satellites” and, collectively with the Leased Satellite, the “Skynet Satellites”), by orbital location, listing the number and type of transponders thereon.

               (ii) Subject to applicable Law (including the Export Control Laws), Skynet has made available to Holdco true and correct copies of the “Health Status Reports” relating to the Skynet Satellites, each as prepared by or on behalf of Skynet (collectively, the “Health Status Reports”). Skynet has no knowledge of any spacecraft-related incidents or anomalies that have been experienced by any of the Skynet Satellites that are not disclosed in the Health Status Reports.

               (iii) Subject to applicable Law (including the Export Control Laws), Section 3.1(p)(iii) of the Skynet Disclosure Letter contains (A) a true and complete summary as of the date hereof (and as of the Closing Date, with respect to the updated Section 3.1(p)(iii) of the Skynet Disclosure Letter provided to Holdco pursuant to Section 4.27(a)), by orbital location, of the status of frequency registration at the International Telecommunication Union (“ITU”), made on behalf of Skynet or any Subsidiary, including the status with respect to each orbital location hosting a Skynet Satellite, including ITU advance publication information, ITU coordination request, ITU notification requests and ITU Resolution 49 information, reference numbers and publication dates, and the identity of the sponsoring administration, (B) the dates Skynet’s and each Subsidiary’s (as applicable) ITU rights at each orbital location for which corresponding frequency assignments have not been brought into use would expire, and (C) a true and complete list, as of the date hereof (and as of the Closing Date, with respect to the updated Section 3.1(p)(iii) of the Skynet Disclosure Letter provided to Holdco pursuant to Section 4.27(a)), of all material satellite intersystem coordination agreements to which Skynet or any of its Subsidiaries is a party. Skynet has no knowledge of any material and significant conflicting claim(s) with respect to its rights to use frequency assignment(s) described in its ITU filings at any such orbital location(s) that reasonably would be expected to restrict or otherwise adversely affect Holdco’s ability to operate the Skynet Satellite(s) on such frequency assignment(s) at such location(s), in each case except as would not reasonably be expected to have a Business Material Adverse Effect. For purposes of this subsection, the mere existence of superior ITU filings at or adjacent to the orbital locations of the Skynet Satellites shall not be deemed material and significant conflicting claims with respect to Skynet’s right to use the frequency assignment(s) described in its ITU filings.

               (iv) Subject to applicable Law (including the Export Control Laws), Section 3.1(p)(iv) of the Skynet Disclosure Letter sets forth a complete and accurate list as of the date hereof (and as of the Closing Date, with respect to the updated Section 3.1(p)(iv) of the Skynet Disclosure Letter provided to Holdco pursuant to Section 4.27(a)) of all (A) telemetry, tracking and control stations and (B) receive and transmit stations that provide multiple broadcast and/or business network services (collectively, the “Major Stations”). As of date hereof (and as of the Closing Date, with respect to the updated Section 3.1(p)(iv) of the Skynet

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Disclosure Letter provided to Holdco pursuant to Section 4.27(a)), no ground station or other facility provides telemetry, tracking and control for a Skynet Satellite other than those Major Stations specifically identified as providing such services. The improvements to each Major Station and all components used in connection therewith are (1) operational and are suitable for their intended purposes and (2) supported by a back-up generator capable of generating power sufficient to meet the requirements of the operations conducted at the Major Station, in each case, in all material respects.

               (v) To the knowledge of Skynet, no other radio communications facility is causing ongoing or chronic material harmful interference to the transmissions from or the receipt of signals by any Skynet Satellite, thereby materially impairing the ability of Skynet or a Subsidiary to provide service in the ordinary course of the Business.

               (vi) With respect to the Leased Satellite:

                    (A) the Lease therefor is legal, valid, binding and enforceable and in full force and effect, except as enforcement may be limited by bankruptcy, insolvency and other laws affecting the rights of creditors generally and the availability of equitable remedies (provided that such exception shall not apply to any limitation of such enforcement resulting from the Bankruptcy Cases); and

                    (B) all fees and other sums payable by Skynet or any of its Subsidiaries as lessee under such Lease are current, no material notice of default or termination under such Lease is outstanding, no termination event or condition or uncured default on the part of Skynet or any of its Subsidiaries or, to the knowledge of Skynet, the lessor, exists under such Lease, and no event has occurred and no condition exists which, with the giving of notice of the lapse of time or both, would constitute such default or termination event or condition, in each case except as would not reasonably be expected to have a Business Material Adverse Effect.

          (q) Intellectual Property. Except as would not, individually or in the aggregate, reasonably be expected to have a Business Material Adverse Effect, (i) each of Skynet and its Subsidiaries owns or has adequate rights to use all Intellectual Property required for or used in the Business as now conducted and all such Intellectual Property is valid and subsisting and has not been adjudged invalid or unenforceable, in whole or in part, and (ii) each of Skynet and its Subsidiaries has performed all acts and has paid all renewal, maintenance, and other fees required to maintain each and every registration and application of Intellectual Property required for or used in the Business as now conducted in full force and effect. The use of any Intellectual Property by Skynet and its Subsidiaries does not, to the knowledge of Skynet, infringe on or otherwise violate the rights of any Person and is in accordance with any applicable license pursuant to which Skynet or any Subsidiary acquired the right to use any such Intellectual Property. Neither Parent nor Skynet or any of its Subsidiaries has received written notice of any claim or threatened claim alleging the infringement of the Intellectual Property Rights of any other Person with respect to any Intellectual Property used or owned by Skynet or a Subsidiary in the operation of the Business, the loss of which claim (if determined in favor of the claimants) would reasonably be expected to have a Business Material Adverse Effect. To Skynet’s knowledge, no Person is challenging or infringing on or otherwise violating any Intellectual Property Right of Skynet or the Subsidiaries.

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          (r) Labor. Neither Skynet nor any of its Subsidiaries is a party to, and no employees employed in the Business are subject to, any labor or collective bargaining agreement other than the Collective Bargaining Agreement or any replacement or successor agreement. There are no (i) strikes, work stoppages, slowdowns, lockouts or arbitrations or (ii) grievances or other labor disputes pending or, to the knowledge of Skynet, threatened against Skynet or any of its Subsidiaries, or which otherwise involve employees employed in the Business, which, individually or in the aggregate, would reasonably be expected to have a Business Material Adverse Effect. Except for the Communications Workers of America, no labor union has been certified by a relevant labor relations authority, to the extent applicable, as bargaining agent for any of the employees employed in the Business and, to the knowledge of Skynet, no union organizing or certification activities are underway or threatened with respect to employees employed in the Business.

          (s) Employment Matters. There are no written or oral Contracts of employment entered into with any employees of Skynet or any Subsidiary or consulting Contracts entered into with any Person by Skynet or any Subsidiary earning in excess of $250,000 per year other than Contracts which are terminable on the giving of reasonable notice in accordance with applicable Laws. Except with respect to the Benefit Plans identified on Section 3.1(k) of the Skynet Disclosure Letter, neither Skynet nor any of its Subsidiaries is required to make any material bonus, severance, termination or similar payments or to provide any other material enhanced or accelerated benefits or compensation to any employee as a result of the transactions contemplated by the Transaction Agreements.

          (t) Material Contracts. Section 3.1(t) of the Skynet Disclosure Letter sets forth a complete and accurate list of the Material Contracts as of the date hereof (and as of the Closing Date, with respect to the Material Contracts set forth in the updated Section 3.1(t) of the Skynet Disclosure Letter provided to Holdco pursuant to Section 4.27(b)), all of which are (or with respect to the Material Contracts set forth in the updated Section 3.1(t) of the Skynet Disclosure Letter provided to Holdco pursuant to Section 4.27(b), as of the Closing Date, except as otherwise provided in such updated Section 3.1(t) of the Skynet Disclosure Letter with respect to breaches or defaults by any third party, will be) in full force and effect, except where the failure to be in full force and effect would not reasonably be expected to have a Business Material Adverse Effect. No default exists (or, but for the passage of time or the giving of notice, would exist) under any Material Contract set forth in Section 3.1(t) of the Skynet Disclosure Letter as of the date hereof (and as of the Closing Date, under any Material Contract set forth in the updated Section 3.1(t) of the Skynet Disclosure Letter provided to Holdco pursuant to Section 4.27(b), except as otherwise provided in such updated Section 3.1(t) of the Skynet Disclosure Letter with respect to breaches or defaults by any third party) on the part of Skynet or any of its Subsidiaries or, to the knowledge of Skynet, on the part of any other party to said Material Contracts other than, (i) with respect to Material Contracts other than of the type described in clause (f) of the definition thereof, defaults that would not reasonably be expected to have a Business Material Adverse Effect, and (ii) with respect to Material Contracts of the type described in clause (f) of the definition thereof, defaults that would not reasonably be expected to be material and adverse to the Business.

          (u) Insurance. Section 3.1(u) of the Skynet Disclosure Letter sets forth a complete and accurate list as of the date hereof, and Skynet has made available to Holdco a copy,

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of all insurance policies (specifying the insurer, the amount of coverage, the type of insurance, the policy number and any pending claims thereunder) maintained by Skynet and its Subsidiaries on its property or assets that are material to the operation of the Business (the “Insurance Policies”). All premiums due and payable in respect of each of the Insurance Policies have been paid in full and neither Skynet nor any Subsidiary has given or received written notice to or from any insurer or agent of any intent to cancel any of the Insurance Policies. Neither Skynet nor any Subsidiary is in material default with respect to any of the provisions contained in any of the Insurance Policies and has not failed to give any notice or present any claim under any such insurance policy in a due and timely fashion. Neither Skynet nor any Subsidiary has received written notice from any insurance company or Governmental Entity of any defects or inadequacies that is reasonably likely to adversely affect the insurability of, or to cause a material increase in the premiums for, insurance covering any of Skynet and the Subsidiaries or any of their respective properties or assets that are material to the operation of the Business.

          (v) Environment. The operations of the Business are and have been in material compliance with all applicable Environmental Laws and each of Skynet and its Subsidiaries possess and maintain all material environmental permits required to operate the Business and complies with and has not violated in any material respect any such environmental permit. There are no pending or, to Skynet’s knowledge, threatened Actions under or pursuant to Environmental Laws against Skynet or its Subsidiaries relating to the Business or involving any real property currently or formerly owned, operated or leased by Skynet or its Subsidiaries and used in the operation of the Business or any property to which Skynet with respect to the Business has arranged for the disposal or treatment of Hazardous Substances. To the knowledge of Skynet, no Hazardous Substance has been released or disposed into, onto or upon the air, soil, surface water or groundwater at, on, to or from any property currently or formerly owned, operated or used by Skynet or any of its Subsidiaries, including any property to which Skynet has arranged for the disposal or treatment of Hazardous Substances, and used in the operation of the Business for which Skynet or any such Subsidiary would have any liability in excess of $1,000,000 individually or $10,000,000 in the aggregate. Skynet has provided Holdco with copies of all material environmental assessments, audits, investigations or other reports, in each case to the extent in the possession of Parent or Holdco, relating to the Business or any real property currently or formerly owned, operated or leased by Parent or Skynet or any of its Subsidiaries with respect to the operations of the Business. There is no material actual or proposed removal, remedial or corrective action relating to any Hazardous Substance located in, under, on or above any real property currently or, to the knowledge of Skynet, formerly owned or operated by Skynet or any of its Subsidiaries in connection with the operations of the Business, whether or not such material action is voluntary or required pursuant to Environmental Laws.

          (w) Indebtedness. Section 3.1(w) of the Skynet Disclosure Letter sets forth a complete and accurate list (including each related Contract (as amended and in effect as of the date hereof), the principal amount, the maturity date and the collateral or security thereunder) of all indebtedness of Skynet and its Subsidiaries to third parties for borrowed money outstanding as of the date hereof. Skynet has made available to Holdco true, accurate and complete copies of each such Contract related to such indebtedness and, neither Skynet nor any of its Subsidiaries is in material breach or default with respect to any such Contract and, to the knowledge of Skynet, no other party thereto is in material breach or default with respect to any such Contract (except

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for such breaches or defaults that would not reasonably be expected to be material to Skynet or any of its Subsidiaries or the Business), and no event has occurred which, with due notice or lapse of time or both, would constitute any such default. Neither Skynet nor any of its Subsidiaries has received any written notice of any material breach or default with respect to any such Contract which remains uncured.

          (x) Skynet Investor Matters. Skynet: (i) is acquiring Holdco Preferred Shares and Holdco Common Shares that constitute the Transfer Shares and any additional Holdco Preferred Shares and Holdco Common Shares issued to Skynet pursuant to this Agreement for investment, and without any present intention of transferring such securities to any other Person, and acknowledges that neither Skynet nor any other Person acquiring such securities directly or indirectly from Skynet may sell or otherwise transfer such securities in a manner that would constitute a “distribution” as such term is used in the Securities Act; (ii) has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment decision with respect to such securities; (iii) acknowledges that such securities have not been registered under the Securities Act or any state securities laws and may not be transferred unless subsequently registered thereunder or pursuant to a valid exemption from registration; (iv) acknowledges that such securities have not been distributed pursuant to a prospectus for which a receipt has been obtained under the securities laws of any province of Canada and may not be transferred unless a receipt for such prospectus has subsequently been obtained or pursuant to a valid exemption from such receipt requirement; and (v) is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act and Section 1.1 of National Instrument 45-106 promulgated under Canadian securities laws.

          (y) Affiliate Matters. During the period commenced on September 30, 2006 and ended on the date hereof, the only payments or transfers of assets made by Skynet and its Subsidiaries to Parent or any of its Affiliates (other than to Skynet or its Subsidiaries) are set forth in Section 3.1(y) of the Skynet Disclosure Letter. Section 3.1(y) of the Skynet Disclosure Letter sets forth all intercompany arrangements in effect as of the date hereof between Skynet and its Subsidiaries, on the one hand, and Parent and its Affiliates, on the other (other than Skynet and its Subsidiaries), which arrangement, has a value in excess of $250,000 individually or $2,000,000 in the aggregate with all such arrangements and which is not pursuant to a written Contract. Neither Parent nor any of its Affiliates have any material claims against Skynet or any of its Subsidiaries other than for the performance of obligations under the Contracts between such parties.

          (z) Applicability of Representations and Warranties. Skynet hereby acknowledges that the representations and warranties contained in this Section 3.1, to the extent relating to the Business by their respective terms, are not intended to exclude any relevant Sale Assets therefrom.

          (aa) Disclaimer. NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT OR THE ASSET PURCHASE AGREEMENT TO THE CONTRARY, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY MADE BY SKYNET IN THIS SECTION 3.1, SKYNET DOES NOT MAKE ANY REPRESENTATION OR WARRANTY WHATSOEVER TO HOLDCO OR ANY OF ITS AFFILIATES, EXPRESS

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OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OR REPRESENTATION OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

     3.2. Representations and Warranties of Holdco.

          Holdco represents and warrants to Skynet as of the date hereof and, except as affected by the Share Purchase Agreement, as of the Closing Date as follows, and acknowledges that Parent and Skynet are relying upon such representations and warranties in entering into this Agreement and the Asset Purchase Agreement and the transactions contemplated hereby:

          (a) Corporate Organization and Qualification. Holdco is a corporation validly existing under the laws of Canada and is in good standing and duly registered or licensed in each jurisdiction where properties owned, leased or operated, or the business conducted, by it requires such registration, license or qualification, except for such failure which, when taken together with all other such failures, would not reasonably be expected to have a Holdco Material Adverse Effect. Holdco has the corporate power and capacity to carry on its business as it is currently conducted.

          (b) Corporate Authority. Holdco has the requisite corporate power and authority and has taken all corporate action necessary in order to execute and deliver each Transaction Agreement to which it is a party and to consummate the transactions contemplated thereby. This Agreement has been duly executed and delivered by Holdco and, assuming the due authorization, execution and delivery hereof by Skynet, constitutes a legal, valid and binding obligation of Holdco, enforceable against Holdco in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency and other laws affecting the rights of creditors generally and the availability of equitable remedies.

          (c) Filings and Approvals. Other than the Transaction Approvals, no notices, reports or other filings, and no consents, registrations, approvals, permits or authorizations, are required to be made or obtained by Holdco with or from any Governmental Entity or any other Person (including the shareholders of Holdco) in connection with the execution and delivery of the Transaction Agreements to which Holdco is a party or the consummation of the transactions contemplated thereby, except where the failure to make or obtain any or all of which would not prevent, materially delay or materially impair the consummation of the transactions contemplated by this Agreement. To the knowledge of Holdco, no fact or circumstances exists relating to the qualifications of Holdco that would reasonably be expected to prevent or delay beyond the Outside Date the granting by the relevant Governmental Entity of the Major Regulatory Approvals.

          (d) No Violation. The execution and delivery of this Agreement by Holdco does not, and the consummation by Holdco of the transactions contemplated by this Agreement will not, constitute or result in (i) a breach or violation of, or a default under, the articles, by-laws or other comparable governing instruments of Holdco; (ii) a breach or violation of, a default under, the triggering of any payment or other material obligation pursuant to any provision of any material contract, commitment or undertaking of Holdco; or (iii) a breach or violation of any Law to which Holdco is subject, except in each case for such breaches, violations, defaults or

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accelerations that, individually or in the aggregate, would not prevent or materially delay or materially impair the consummation of the transactions contemplated by this Agreement.

          (e) Brokers and Finders. Neither Holdco nor any of its officers, directors or employees has incurred any liability for any brokerage fees, commissions or finders fees to any broker or finder employed or engaged thereby in connection with the transactions contemplated by this Agreement for which Skynet or any of its Affiliates (excluding the Subsidiaries after the Closing Date) would be liable other than as contemplated by the Investors Letter Agreement.

          (f) Holdco Investor Matters. Holdco: (i) is acquiring the capital stock and other equity interests of the Subsidiaries constituting Transferred Property for investment, and without any present intention of transferring such securities to any other Person, and acknowledges that neither Holdco nor any other Person acquiring such securities directly or indirectly from Holdco may sell or otherwise transfer such securities in a manner that would constitute a “distribution” as such term is used in the Securities Act; (ii) has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment decision with respect to such securities; (iii) acknowledges that such securities have not been registered under the Securities Act or any state securities laws and may not be transferred unless subsequently registered thereunder or pursuant to a valid exemption from registration; (iv) acknowledges that such securities have not been distributed pursuant to a prospectus for which a receipt has been obtained under the securities laws of any province of Canada and may not be transferred unless a receipt for such prospectus has subsequently been obtained or pursuant to a valid exemption from such receipt requirement; and (v) is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act and Section 1.1 of National Instrument 45-106 promulgated under Canadian securities laws.

          (g) Holdco Shares. The issuance and delivery by Holdco of Holdco Preferred Shares and Holdco Common Shares that constitute the Transfer Shares and any additional Holdco Preferred Shares and Holdco Common Shares issued to Skynet pursuant to this Agreement have been duly authorized by all requisite corporate or other action on the part of Holdco and, as of the Closing, such Holdco Preferred Shares and Holdco Common Shares, upon the issuance and delivery thereof by Holdco to Skynet as contemplated by this Agreement, will be (i) validly issued and outstanding, (ii) fully paid and nonassessable and (iii) other than as expressly provided in the Shareholders Agreement, free and clear of any and all Liens or restrictions on the voting rights thereof or other incidents of record or beneficial ownership pertaining thereto.

          (h) No Reliance.

               (i) There are no representations, warranties, covenants, conditions or other agreements, express or implied, between any of the parties in connection with the subject matter of this Agreement except as specifically set forth in the Transaction Agreements. Holdco agrees that no reliance may be placed on any representation, warranty, opinion, advice or assertion of fact made by Parent, Skynet, any Subsidiary or any of their respective directors (or Persons in similar positions), officers, employees, stockholders, equity holders and agents to Holdco or any of its directors, officers, employees, shareholders, agents or representatives,

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except to the extent that any such representation, warranty, opinion, advice or assertion of fact has been reduced to writing and is expressly included as a term of the Transaction Agreements. Any claims Holdco may have for breach of representation or warranty shall be based solely on the representations and warranties of Skynet or other Persons expressly set forth in the Transaction Agreements. Without limiting the generality of the foregoing, Holdco agrees that no reliance may be placed on any representation, warranty, opinion, advice or assertion contained in any prospectus or registration statement relating to the public offering of securities of Parent, Skynet or any of their respective Affiliates or shareholders, in any document or material provided or made available to Holdco in connection with its due diligence review of Parent, Skynet, its Subsidiaries and/or the Business or for any other reason in connection with the conclusion of this Agreement, or in any quarterly, annual or current report (including any report on Form 10-Q, Form 10-K or Form 8-K), interim or annual financial statement, management presentation, discussion and analysis, material change report (including any report on Form 8-11) or other similar continuous disclosure documents required to be filed with any Securities Commission pertaining to Parent, Skynet or any of their respective Affiliates or shareholders or to the Business. Nothing contained in the Transaction Agreements is intended to relieve Parent or Skynet from liability for fraud.

               (ii) Holdco acknowledges and agrees that it has made its own inquiry and investigation into, and, based thereon, has formed an independent judgment concerning, Skynet and its Subsidiaries and the Business. In furtherance of, but without limiting, the foregoing, Holdco acknowledges and agrees that no representation or warranty is being made by Parent, Skynet or any of their respective Affiliates or shareholders with respect to the future prospects or operating or financial performance of Skynet or any of its Subsidiaries or of the Business. In connection with its investigation of Skynet and its Subsidiaries and/or the Business, Holdco may have received certain estimates, projections, forecasts, plans, budgets and similar materials and information regarding or relating to the future operating and financial performance of Skynet and its Subsidiaries and/or the Business. Holdco hereby acknowledges and agrees that there are important risks, uncertainties and assumptions relating to such estimates, projections, forecasts, plans, budgets and similar materials and information and that actual results could be materially different if known or unknown risks affect Skynet or any of its Subsidiaries or the Business, or if estimates or assumptions turn out to be inaccurate. Other factors that could cause results or events to differ materially from current expectations include, among other things: general economic conditions; the state of capital markets; the impact of adverse changes in Laws or of adverse regulatory initiatives or proceedings; the level of demand for products and services in the satellite market; the inability to manage costs and generate productivity improvements; the intensity of competitive activity, from both traditional and new competitors, and its resulting impact on the ability to retain existing, and attract new, customers, and the consequent impact on pricing strategies, revenues and net income; the risk of satellite failures at launch and in-orbit; delay in delivery of satellites; the risk of lower returns on pension plan assets requiring increased pension expenses and potentially pension plan funding; the financial condition and credit risk of customers and uncertainties regarding the ability to collect receivables; the availability and cost of capital required to implement financing plans and fund capital and other expenditures; the ability of planned or implemented strategies to produce expected benefits and growth prospects; the availability of, and ability to retain, key personnel; the impact of foreign exchange gains and losses; the outcome of any future litigation; and the ability of Holdco or any of its Affiliates to integrate the Transferred Property, the Sale Assets, the Business or Telesat into its or any of its

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Affiliates’ respective business or corporate structure (including the ability to implement the “Synergy Plan” referred to in the “Contribution Term Sheet” attached as Schedule C to the Investors Letter Agreement). Holdco further acknowledges that it is familiar with such risks and uncertainties and that it is not relying on any such estimates, projections, forecasts, plans, budgets and similar materials and information regarding or relating to the future operating and financial performance of Skynet and its Subsidiaries or the Business but rather on its own estimates, projections, forecasts, plans, or budgets. Holdco shall not (and shall cause all of its Subsidiaries and other affiliates and all other Persons and representatives acting on its behalf not to) assert any claim or cause of action against Parent, Skynet, its Subsidiaries or any of their respective direct or indirect directors (or Persons in similar positions), officers, employees, agents, shareholders, equity holders, Affiliates, consultants, counsel, accountants, investment bankers or representatives with respect to any such estimates, projections, forecasts, plans, budgets and similar materials and information regarding or relating to the future operating and financial performance of Skynet and its Subsidiaries or the Business, or hold any such other Person liable with respect thereto.

               (iii) Holdco acknowledges and agrees that it has not received or been provided with any offering memorandum within the meaning of any applicable securities Laws so as to assist it in making an investment decision in respect of any securities of Skynet or its Subsidiaries. Holdco hereby irrevocably waives and agrees not to make any claim against Parent, Skynet, its Subsidiaries or any of their respective direct or indirect directors (or Persons in similar positions), officers, employees, agents, shareholders, equity holders, Affiliates, consultants, counsel, accountants, investment bankers or representatives on the basis that it failed to receive any such offering memorandum.

               (iv) Holdco has not been induced to enter into this Agreement by reason of any representation, warranty, opinion, advice or assertion of fact that has not been reduced to writing and expressly included as a term of the Transaction Agreements or any document delivered pursuant to the Transaction Agreements.

               (v) HOLDCO HEREBY ACKNOWLEDGES AND AGREES THAT SKYNET MAKES NO EXPRESS OR IMPLIED WARRANTY OR REPRESENTATION OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

               (vi) Nothing in this Section 3.2(h) is intended to limit or affect the representations and warranties made under this Agreement and the other Transaction Agreements, or to limit the recourse of Holdco under Article VII hereof.

ARTICLE IV.

COVENANTS

     4.1. Interim Operations of Skynet.

          For the period commencing on the date hereof and ending on the Closing Date, Skynet shall, and shall cause its Subsidiaries to, and Parent shall cause Skynet and its Subsidiaries to, except (i) as expressly required under applicable Law or any existing Contract,

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(ii) as provided for in the Share Purchase Agreement or any of the Transaction Agreements, (iii) as set forth in Section 4.1 of the Skynet Disclosure Letter, or (iv) as otherwise consented to in advance in writing by Holdco, which consent shall not be unreasonably withheld, delayed or conditioned (it being understood that, in the event that Skynet seeks such consent of Holdco, Holdco shall expressly grant or withhold such consent within, (x) in the case of Section 4.1(i), the same Business Day if reasonably so requested (in the case of exigent circumstances) by Skynet with respect to any such consent sought thereunder, (y) in all other cases under this Section 4.1, ten Business Days after the receipt of notice from Skynet with respect thereto, or (z) if indicated by Skynet in order to comply with any shorter deadline imposed by any Law, third party or Governmental Entity, such shorter period, after the date on which such consent is sought by Skynet, and if Holdco fails for any reason to expressly grant or withhold such consent within such same Business Day, ten Business Day period, or such indicated shorter period, such consent shall be deemed to have been granted by Holdco):

          (a) conduct the Business in all material respects in the Ordinary Course of Business;

          (b) use commercially reasonable efforts to maintain good relations with key employees and material customers and suppliers of Skynet and the Transferred Subsidiaries;

          (c) comply in all material respects with all Laws affecting the operation of the Business;

          (d) not amend or modify the articles, by-laws or corporate governing documents of any Subsidiary of Skynet;

          (e) other than issuances to Skynet and/or any Transferred Subsidiary, not authorize for issuance or grant, or issue or grant, any additional shares of the capital stock of (or other ownership interest in) any of the Transferred Subsidiaries, or securities convertible into or exchangeable for shares of the capital stock of or other ownership interests in any of the Transferred Subsidiaries, or any right, option or other commitment for the issuance of shares of the capital stock of (or other ownership interest in) any of the Transferred Subsidiaries;

          (f) not declare any dividend or other distribution, pay or set aside for payment any dividend or other distribution to or for any shareholder or any Affiliate thereof other than (i) dividends and distributions by any Subsidiary of Skynet to any other Subsidiary of Skynet or to Skynet, and (ii) dividends by Skynet on the Skynet Preferred Stock pursuant to the terms thereof;

          (g) not transfer, sell, assign or otherwise dispose of any assets of Skynet or any of its Subsidiaries that are material to the Business other than in the Ordinary Course of Business (it being understood that, without limiting, and in furtherance of, the foregoing, any sale, transfer or other disposition of (i) orbital slots that are not occupied by any of the Skynet Satellites or (ii) transponders on commercial terms, as determined by Skynet in good faith, shall in each case be deemed to be transactions made in the Ordinary Course of Business)

          (h) not incur or assume any material obligation or liability (fixed or contingent) to, make any loan, advance or capital contribution to, or investment in, any other

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Person (other than Skynet or any of the Transferred Subsidiaries), except in the Ordinary Course of Business or in connection with the Redemption Facility;

          (i) not establish any new Benefit Plan or change in any material respects the term of any bonus, commission or existing Benefit Plan as it affects any employees of the Business, grant any bonus, whether monetary or otherwise, make any wage or salary increases in respect of any employees, increase the benefits of or change in any material respect the terms of employment for any employee or enter into any severance or termination agreement with any such employee, except (i) pursuant to the Benefit Plans disclosed in Section 3.1(k) of the Skynet Disclosure Letter, (ii) (A) increases in compensation based on merit, cost of living adjustments, to bring such employee to market terms or to counter competing offers to such employee or (B) resulting from promotions and discretionary bonuses, in each case awarded in the Ordinary Course of Business, (iii) involving no more than $250,000, in the aggregate to all employees, provided that, in the event that Holdco consents (including any consent obtained after the fact) to any of the foregoing actions that are subject to such $250,000 limitation, such $250,000 limitation shall not apply to such action, or (iv) resulting from or in connection with the execution or performance under any successor or extension agreement to the Collective Bargaining Agreement;

          (j) not incur any indebtedness or obligation for borrowed money, or enter into any indentures, credit agreements, security agreements, mortgages or guarantees for borrowed money, in excess of $2,500,000 in the aggregate, other than the Redemption Facility or any transactions related thereto;

          (k) not enter into or amend in any material respect any partnership agreement, limited liability company agreement or joint venture agreement to which Skynet or any of its Subsidiaries is a party;

          (l) not enter into, amend in any material respect or terminate (other than upon expiration of the initial term) any Contracts with any present director (or Person in a similar position) or officer of Skynet or any of its Subsidiaries, in each case in their respective capacities as such, that is material to the Business;

          (m) not enter into, amend in any material respect or terminate (other than upon expiration of the initial term or as to the Terminated Contracts) any Contract between Skynet or any of its Subsidiaries, on the one hand, and Parent or any of its Affiliates (other than Skynet and its Subsidiaries), on the other hand, involving, in each case, payments or other obligations of (i) more than $250,000 in the aggregate or (ii) more than $50,000 but less than $250,000 in the aggregate outside of the Ordinary Course of Business, other than Contracts entered into in connection with the Early Note Redemption;

          (n) other than the acquisition of equity interests in customers or its Affiliates in the Ordinary Course of Business, not acquire any assets or equity securities, other than (i) assets utilized for or useful to the Business that are acquired on commercial terms, as determined by Skynet in good faith, and are otherwise acquired in the Ordinary Course of Business or (ii) assets or equity securities having a value of less than $5,000,000 in the aggregate;

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          (o) not grant, create, incur or suffer to exist any Lien on any asset of the Business that did not exist on the date hereof, other than Liens that (i) would constitute Permitted Liens, (ii) would not adversely affect the Financing or (iii) are incurred in the Ordinary Course of Business;

          (p) except as may be required as a result of a change in Law or in GAAP, not change any of the accounting principles or practices used by Skynet or any of its Subsidiaries which would materially affect its respective reported consolidated assets, liabilities or results of operations;

          (q) not change the orbital location of or de-orbit any Skynet Satellite except (i) in the case of a catastrophic failure where the Skynet Satellite must be de-orbited or placed in a “graveyard orbit” to avoid future damage to other spacecraft, or (ii) an orbital location change or de-orbit of the Skynet Satellite referred to as “Telstar 11” in the event that Skynet reasonably determines that such action is necessary;

          (r) not acquire any additional satellites or spacecraft;

          (s) not make, change or revoke any material Tax election, settle or compromise (or enter into a settlement or compromise of) any material Tax claim or material Tax liability, in each case of any of the Transferred Subsidiaries; or

          (t) not authorize, agree or otherwise become committed to do any of the foregoing;

provided, however, that nothing in this Section 4.1 shall limit or restrict Skynet or its Subsidiaries from taking any action relating to Excluded Property or Excluded Liabilities.

     4.2. FCC Matters.

          (a) Each of Holdco and Skynet will use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, and to assist and cooperate with each of the other parties in doing, all things necessary, proper or advisable under applicable Law to obtain the FCC Approval. In furtherance and not in limitation of the foregoing, each party agrees to make or cause to be made any appropriate filing or filings that are required by or advisable under the Communications Act (including the rules, regulations and policies promulgated there under by the FCC) as promptly as practicable, and to supply as promptly as practicable any additional information and documentary material that may be requested pursuant to the Communications Act or by any Governmental Entity of the United States participating in a review of such filing or filings pursuant to the Communications Act.

          (b) Each of Holdco and Skynet, in connection with the efforts referenced in Section 4.2(a) to obtain the FCC Approval, shall use its reasonable best efforts to: (i) cooperate to prosecute the FCC Applications with reasonable diligence and otherwise use its reasonable best efforts to obtain the FCC Approval as expeditiously as practicable, including the exercise of reasonable diligence to comply with any request from the FCC or any other Governmental Entity of the United States for additional documents, information or materials; (ii) cooperate in all respects with each other party in connection with any filing or submission; (iii) notify each other

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party promptly following any communication received by such party from, or given by such party to, the FCC or any other Governmental Entity of the United States and of any communication received or given in connection with any proceeding by a private party and, in each case, provide the other party with a copy of any written communication promptly after the receipt thereof; and (iv) oppose any petitions to deny or other objections filed with respect the FCC Applications, including any administrative or judicial review and any request for reconsideration or review of any FCC Approval. Each of Holdco and Skynet shall take or cause to be taken all actions necessary, appropriate or desirable to permit the FCC to approve in a timely fashion the FCC Applications including using its reasonable best efforts to resolve such objections, if any, as may be asserted by any Governmental Entity of the United States participating in a review of such FCC Applications under the Communications Act.

          (c) The parties shall request that the FCC Applications be processed by the FCC on an expedited basis.

          (d) Representatives of each of the parties shall have the right, subject to applicable Law, to attend all meetings and to participate in all material conference calls that are attended by or participated in by representatives of any other party, on the one hand, and of the FCC or any Governmental Entity of the United States participating in a review of such FCC Applications under the Communications Act, on the other hand. To the extent practicable, each party shall provide the other parties with prompt prior notice of each such meeting and material conference call (it being understood that such notice shall be provided immediately after such notifying party becomes aware of any such meeting or conference call). For clarity, “material conference call” means any telephonic communication with the FCC or any Governmental Entity of the United States that is not solely directed to ascertaining the processing status of the FCC Applications or pending filings with other Governmental Entities of the United States.

          (e) None of the parties shall take any action that will have the effect of materially delaying, impairing or impeding the approval of the FCC Applications.

          (f) It is understood and agreed that the obligation of a party to exercise its reasonable best efforts hereunder shall not require such party to take any action that adversely impacts, or would reasonably be expected to adversely impact, such party or its business or operations.

     4.3. Export Control Matters.

          (a) Each of Skynet and Holdco will use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, and to assist and cooperate with each of the other parties in doing, all things necessary, proper or advisable under applicable Law to obtain the Export Control Approvals. In furtherance and not in limitation of the foregoing, each party agrees to make or cause to be made any appropriate filing or filings that are required by or advisable under the Export Control Laws as promptly as practicable, and to supply as promptly as practicable any additional information and documentary material that may be requested pursuant to the Export Control Laws or by any Governmental Entity of the United States participating in a review of such filing or filings pursuant to the Export Control Laws.

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          (b) Each of Skynet and Holdco, in connection with the efforts referenced in Section 4.3(a) to obtain the Export Control Approvals, shall use its reasonable best efforts to (i) cooperate to prosecute the Export Control Applications with reasonable diligence and otherwise use its reasonable best efforts to obtain the Export Control Approvals as expeditiously as practicable, including the exercise of reasonable diligence to comply with any request from DDTC, BIS, OFAC or any other Governmental Entity of the United States for additional documents, information or materials; (ii) cooperate in all respects with each other party in connection with any filing or submission; (iii) notify each other party promptly following any communication received by such party from, or given by such party to, DDTC, BIS, OFAC or any other Governmental Entity of the United States and, in each case, provide the other party with a copy of any written communication promptly after the receipt thereof. Each of Skynet and Holdco shall take or cause to be taken all actions necessary, appropriate or desirable to permit DDTC, BIS and OFAC to respectively approve in a timely fashion the Export Control Applications including using its reasonable best efforts to resolve such objections, if any, as may be asserted by any Governmental Entity of the United States participating in a review of such Export Control Applications under the Export Control Laws.

          (c) The parties shall request that the Export Control Applications be processed by DDTC, BIS and OFAC on an expedited basis.

          (d) Representatives of each of the parties shall have the right, subject to applicable Law, to attend all material meetings and to participate in all material conference calls that are attended by or participated in by representatives of any other party, on the one hand, and of DDTC, BIS, OFAC or any Governmental Entity of the United States participating in a review of such Export Control Applications under the Export Control Laws, on the other hand. To the extent practicable, each party shall provide the other parties with prompt prior notice of each such material meeting and material conference call (it being understood that such notice shall be provided immediately after such notifying party becomes aware of any such meeting or conference call).

          (e) None of the parties shall take any action that will have the effect of materially delaying, impairing or impeding the approval of the Export Control Applications.

          (f) It is understood and agreed that the obligation of a party to exercise its reasonable best efforts hereunder shall not require such party to take any action that adversely impacts, or would reasonably be expected to adversely impact, such party or its business or operations.

     4.4. Industry Canada Matters.

          (a) Each of Holdco and Skynet will use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, and to assist and cooperate with each of the other parties in doing, all things necessary, proper or advisable under applicable Law to obtain the Industry Canada Approval. In furtherance and not in limitation of the foregoing, each party agrees to make or cause to be made any appropriate filing or filings that are required by or advisable under the Radiocommunication Act as promptly as practicable, and to supply as promptly as practicable any additional information and documentary material that may be

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requested pursuant to the Radiocommunication Act or by any Governmental Entity of Canada participating in a review of such filing or filings pursuant to the Radiocommunication Act.

          (b) Each of Holdco and Skynet, in connection with the efforts referenced in Section 4.4(a) to obtain the Industry Canada Approval, shall use its reasonable best efforts to: (i) cooperate to prosecute the Industry Canada Applications with reasonable diligence and otherwise use its reasonable best efforts to obtain the Industry Canada Approval as expeditiously as practicable, including the exercise of reasonable diligence to comply with any request from Industry Canada or any other Governmental Entity of Canada for additional documents, information or materials; (ii) cooperate in all respects with each other party in connection with any filing or submission; (iii) notify each other party promptly following any communication received by such party from, or given by such party to, Industry Canada or any other Governmental Entity of Canada and of any communication received or given in connection with any proceeding by a private party and, in each case, provide the other party with a copy of any written communication promptly after the receipt thereof; and (iv) oppose any requests to deny or other objections filed with respect the Industry Canada Applications, including any administrative or judicial review and any request for reconsideration or review of any Industry Canada Approval. Each of Holdco and Skynet shall take or cause to be taken all actions necessary, appropriate or desirable to permit Industry Canada to approve in a timely fashion the Industry Canada Applications including using its reasonable best efforts to resolve such objections, if any, as may be asserted by any Governmental Entity of Canada participating in a review of such Industry Canada Applications under the Radiocommunication Act.

          (c) The parties shall request that the Industry Canada Applications be processed by Industry Canada and any Governmental Entity of Canada participating in a review of such Industry Canada Applications on an expedited basis.

          (d) Representatives of each of the parties shall have the right, subject to applicable Law, to attend all meetings and to participate in all material conference calls that are attended by or participated in by representatives of any other party, on the one hand, and of Industry Canada or any Governmental Entity of Canada participating in a review of such Industry Canada Applications under the Radiocommunication Act (Canada), on the other hand. To the extent practicable, each party shall provide the other parties with prompt prior notice of each such material meeting and material conference call (it being understood that such notice shall be provided immediately after such notifying party becomes aware of any such meeting or conference call). For clarity, “material conference call” means any telephonic communication with Industry Canada or any Governmental Entity of Canada that is not solely directed to ascertaining the processing status of the Industry Canada Applications or pending filings with other Governmental Entities of Canada.

          (e) None of the parties shall take any action that will have the effect of materially delaying, impairing or impeding the approval of the Industry Canada Applications.

          (f) It is understood and agreed that the obligation of a party to exercise its reasonable best efforts hereunder shall not require such party to take any action that adversely impacts, or would reasonably be expected to adversely impact, such party or its business or operations.

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     4.5. Minor Regulatory Matters.

          (a) Subject to the provisions of this Section 4.5, Skynet shall, as soon as reasonably practicable, prepare and file such material as is required to obtain the Minor Regulatory Approvals. Each of the parties shall at all times reasonably cooperate with each other party with respect to obtaining the Minor Regulatory Approvals, provided that Skynet shall prepare and administer the process for obtaining the Minor Regulatory Approvals, including the presenting at any public hearing held as part of the Minor Regulatory Approvals process, subject to the participation of and consultation with Holdco.

          (b) Skynet shall consult with, and consider in good faith any suggestions or comments made by, Holdco with respect to the documentation relating to the Minor Regulatory Approvals process; provided that, to the extent any such document contains any information or disclosure relating to Holdco or any Affiliate of Holdco (including PSP, but excluding Skynet or any of its Affiliates), Holdco shall have approved such information or disclosure prior to the submission or filing of any such document (which approval shall not be unreasonably withheld or delayed); provided however, that once such information or disclosure has been approved by Holdco, Skynet shall not be required to again obtain Holdco’s approval if it shall use such information or disclosure in any subsequent submission or filing. Each other party shall promptly furnish to Skynet or its counsel such information and assistance as Skynet may reasonably request in order to prepare the documentation relating to the Minor Regulatory Approvals process.

          (c) Skynet shall diligently pursue the Minor Regulatory Approvals on terms consistent with the terms of this Agreement. Skynet shall request that the Minor Regulatory Approvals be processed by the applicable Governmental Entities on an expedited basis and, to the extent that a public hearing is held, Skynet shall request the earliest possible hearing date for the consideration of the Minor Regulatory Approvals.

          (d) Skynet shall inform the other parties or their respective counsel on a regular basis as to the status of the Minor Regulatory Approvals process and shall immediately provide each of the other parties or their respective counsel with copies of any correspondence from or to any Governmental Entities involved in the Minor Regulatory Approvals process.

          (e) Holdco, following consultation with Skynet, shall diligently file any information, documentation, corporate by-laws, unanimous shareholders agreements or any other such information that any Governmental Entity requires in its determination of the Minor Regulatory Approvals and shall consider in good faith any suggestions made by other parties to this Agreement. In particular, Holdco shall provide Skynet with copies of any correspondence from such Governmental Entities related to the Minor Regulatory Approvals and a complete or redacted copy of any response provided to such Governmental Entities as soon as practicable after it is sent.

          (f) Representatives of Holdco designated by Holdco from time to time shall have the right to attend all material meetings and to participate in all material conference telephone calls that are attended by or participated in by representatives of Skynet, on the one hand, and of any Governmental Entity involved in the Minor Regulatory Approvals process, on

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the other hand. To the extent practicable, Skynet, as the case may be, shall provide Holdco with prior notice of each such meeting and conference telephone conference call (it being understood that such notice shall be provided to Holdco immediately after Skynet becomes aware of any such meeting or conference telephone call).

          (g) None of the parties shall take any action that will have the effect of materially delaying, impairing or impeding the approval of the Minor Regulatory Approvals.

     4.6. Third Party Consents and Other Actions.

          (a) Skynet shall diligently pursue all of the Third Party Consents and the parties shall use their respective commercially reasonable efforts to support Skynet’s pursuit of the Third Party Consents and shall provide such assistance as is commercially reasonable to provide in order to obtain the Third Party Consents, including providing to Skynet all necessary information.

          (b) Skynet and Holdco shall take, or cause to be taken, all other action and do, or cause to be done, all other things necessary, proper or appropriate under applicable Laws to consummate and make effective the transactions contemplated by the Transaction Agreements. Skynet and Holdco shall use all reasonable commercial efforts to fulfill the conditions set forth in Article V.

     4.7. Access.

          To the extent reasonably requested by Holdco and subject to applicable Law (including the Export Control Laws), Parent and Skynet shall afford the officers, employees, lenders, accountants, attorneys and other authorized representatives (for the avoidance of doubt, including PSP and its authorized representatives) of Holdco (collectively, “Representatives”) full and complete access, during normal business hours throughout the period commencing on the date hereof and ending on the Closing Date, to the Representatives of Skynet or any of its Subsidiaries and the properties, books, Contracts and records of Skynet and its Subsidiaries and, during such period, Parent and Skynet shall, and shall cause its Subsidiaries to, furnish promptly to Holdco all information concerning the business, properties, operations and personnel of Skynet and its Subsidiaries as Holdco or its Representatives may reasonably request, including true copies of all Tax Returns prepared and filed with respect to the Subsidiaries of Skynet for all years that remain open to assessment or reassessment by any governmental agency, and at minimum the past five years, provided that no investigation pursuant to this Section 4.7 shall affect or be deemed to modify any representation or warranty made herein by Skynet. Skynet shall not be required to permit any inspection of, or to disclose any information relating to, the Excluded Property or the Excluded Liabilities or which would violate, in any material respect, any Law or would reasonably be expected to violate any Contract in such a manner as would result in material liability on the part of Skynet or any of its Affiliates (other than Holdco), which in the reasonable judgment of Skynet or any of its Affiliates (other than Holdco) would result in the disclosure of any trade secrets of third parties, disclosure of any competitively sensitive information, disclosure of attorney-client privileged information or violate any obligation of Skynet or any of its Affiliates (other than Holdco) with respect to confidentiality (provided that, to the extent that Skynet or any of its Affiliates is so restricted or prohibited from providing such

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access, Parent and Skynet shall, and shall cause each of its Subsidiaries to, use its commercially reasonable efforts to obtain any consent, waiver or approval with respect to such restriction or prohibition necessary to provide such access to Holdco, provided further that, for the avoidance of doubt, neither Parent, Skynet nor any of their respective Subsidiaries shall be obligated hereby or otherwise to pay any amounts or make any concessions in connection with obtaining any such consent, waiver or approval). All requests for information made pursuant to this Section 4.7 shall be directed to such Person or Persons as may be designated by Skynet from time to time.

     4.8. Notification of Certain Matters.

          Prior to Closing, Holdco and Skynet shall give each other prompt notice of: (a) the occurrence or failure to occur of any event, which occurrence or failure would cause or may cause any representation or warranty on its part contained in the Transaction Agreements to be untrue or inaccurate in any material respect when made; (b) any failure of any party to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under the Transaction Agreements; and (c) the occurrence of any event which, to the extent reasonably foreseeable at the time of its occurrence, would reasonably be expected to result in a Business Material Adverse Effect or to prevent, materially delay or materially impair the consummation of the transactions contemplated by the Transaction Agreements. Without limiting, and in furtherance of, the foregoing, Skynet shall promptly notify Holdco of any partial loss or Total Loss of any Skynet Satellite and, to the extent reasonably practicable, of the technical requirements for the restoration of service by such Skynet Satellite.

     4.9. Publicity and Confidentiality.

          Unless otherwise required by applicable Law or by obligations of the parties or their Affiliates pursuant to any listing agreement with or rules of any Securities Commission, without the prior written consent of each other party hereto (such consent not to be unreasonably withheld, delayed or conditioned), each party hereto shall consult with the other party hereto before issuing any press release or otherwise making any public statement with respect to the Transaction Agreements, the transactions contemplated hereby or the activities and operations of any other party hereto. Neither Parent nor Skynet shall issue any press release or otherwise make any public statement that mentions PSP without the prior written consent of PSP, unless such mentioning of PSP is required by applicable Law or by obligations of the parties or their Affiliates pursuant to any listing agreement with or rules of any Securities Commission.

     4.10. Tax Matters.

          (a) All transfer, documentary, sales, use, stamp, registration and other such Taxes, and all conveyance fees, recording charges and other fees and charges (including any penalties and interest) incurred in connection with consummation of the transactions contemplated by this Agreement and the Asset Purchase Agreement shall be paid by Holdco when due, and Holdco will, at its own expense, file all necessary Tax Returns and other documentation with respect to all such Taxes, fees and charges, and, if required by applicable law, Skynet will, and will cause its Affiliates to, join in the execution of any such Tax Returns and other documentation.

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          (b) Real, personal and intangible property Taxes and assessments on the Transferred Property and the assets and property of the Transferred Subsidiaries for any taxable period commencing prior to January 1, 2007 and ending after January 1, 2007 shall be prorated on a per diem basis between Holdco and Skynet as of January 1, 2007. All such prorations shall be allocated so that items relating to time periods (or portions thereof) ending prior to January 1, 2007 shall be allocated to Skynet and items relating to time periods (or portions thereof) beginning on or after January 1, 2007 shall be allocated to Holdco. The amount of all such prorations shall be settled and paid on the Closing Date, provided that final payments with respect to prorations that are not able to be calculated as of the Closing Date shall be calculated and paid as soon as practicable thereafter.

          (c) With respect to Tax Returns:

                    (i) Skynet shall timely prepare and file, or cause to be timely prepared and filed, (A) all Tax Returns (other than Consolidated Tax Returns) required to be filed by or on behalf of the Transferred Subsidiaries on or before the Closing Date on a basis consistent with past practice (except as otherwise required by Law or a determination within the meaning of Section 1313(a) of the Code), and (B) all Consolidated Tax Returns; and in all cases Skynet shall timely and duly remit or cause to be timely and duly remitted any Taxes shown as due in respect of such Tax Returns; provided that Skynet shall provide, or cause the Transferred Subsidiaries to provide, Holdco with copies of all such Tax Returns (other than payroll Tax Returns), for its review promptly after filing thereof except that Skynet shall so provide, or cause the Transferred Subsidiaries to so provide copies of any such Tax Returns (other than Consolidated Tax Returns) for periods that also include any period in 2007, for Holdco review and approval (which approval shall not be unreasonably withheld, delayed or conditioned), at least (to the extent reasonably practicable) thirty (30) days prior to the due date for filing thereof, along with supporting workpapers; provided, however, that Skynet shall prepare or cause to be prepared, and shall promptly deliver to Holdco for its review and approval as set forth in this Section 4.10(c)(i), the Tax Returns set forth in Section 4.10(c)(i) of the Skynet Disclosure Letter, which Tax Returns Skynet shall file, or cause to be filed, as soon as reasonably practicable after the respective due dates thereof.

                    (ii) Holdco shall timely prepare and file, or cause to be timely prepared and filed, all Straddle Tax Returns and other Tax Returns (other than the Consolidated Tax Returns) required to be filed following the Closing Date with respect to the Transferred Subsidiaries and shall cause each of such Transferred Subsidiaries to pay the Taxes shown to be due thereon; provided, however, that Skynet shall pay to Holdco or to the relevant Transferred Subsidiary, at least five (5) Business Days prior to the due date of filing such Tax Return, the portion of such Taxes for which Skynet is liable pursuant to Section 7.2 hereof; provided, further, that Holdco shall provide, or cause the Transferred Subsidiaries to provide, Parent with copies of all Tax Returns (other than payroll Tax Returns) for any taxable period that begins before December 31, 2006, for Parent’s review and approval (which approval shall not be unreasonably withheld, delayed or conditioned), at least (to the extent reasonably practicable) thirty (30) days prior to the due date for filing thereof, along with supporting workpapers. Skynet and Holdco agree to cause such Transferred Subsidiaries to file all Tax Returns (other than Consolidated Tax Returns) for any Straddle Period on the basis consistent with past practice

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(except as required by Law or a determination within the meaning of Section 1313(a) of the Code).

                    (iii) Between the date hereof and the Closing Date, and without obtaining the prior written consent of Holdco (which consent shall not be unreasonably withheld, delayed or conditioned), Skynet shall not, and shall not allow any of the Transferred Subsidiaries to, file any amended Tax Returns other than Consolidated Tax Returns, carry-back claim, or other adjustment, in each case relating to Taxes of the Transferred Subsidiaries, except as required by Law or by a determination within the meaning of Section 1313(a) of the Code.

          (d) Subject to Sections 4.10(e) and (f), the consideration received by Skynet pursuant to Article II, including the amount of Assumed Liabilities (collectively, “Gross Transfer Consideration”) shall be allocated to each item of Transferred Property in an amount equal to the fair market value of such item of Transferred Property, as agreed by Holdco and Skynet. Holdco and Skynet will, subject to applicable laws, use such allocations in filing their respective any Tax Returns or similar filings.

          (e) Except to the extent that a different allocation is required for United States tax purposes, the parties hereto shall allocate the Assumed Liabilities as follows:

                    (i) first, to each item of Transferred Property which is not an Eligible Property, pro rata based on the fair market value of each such property but in no event shall the amount so allocated to a particular property exceed the fair market value of the property; and

                    (ii) second, to each item of Transferred Property which is an Eligible Property in such amount as agreed by Holdco and Skynet.

          (f) Except to the extent that a different allocation is required for United States tax purposes, the parties hereto shall allocate Holdco Common Shares and Holdco Preferred Shares constituting Transfer Shares to each item of the Transferred Property to the extent that the fair market value of the particular property (as agreed by Holdco and Skynet) exceeds the amount of the Assumed Liabilities of the particular property as set out in Section 4.10(e).

          (g) Skynet and Holdco will jointly elect under subsection 85(1) of the ITA, in prescribed form and within the time provided, with respect to the transfer of each item of Transferred Property which is an Eligible Property in respect of which Skynet and Holdco agree to make such election, and the agreed amount for the purposes of paragraph 85(1)(a) of the ITA in respect of each such property will be the respective amount as agreed by Skynet and Holdco. In addition, Skynet and Holdco agree, with respect to such Transferred Property, to jointly make, execute and file, in prescribed form and within the time provided, with the appropriate taxation authorities any similar elections required under the provisions of any applicable provincial legislation.

          (h) The parties hereto shall, and shall cause their Affiliates to, each treat on all Tax returns the transfer of the Transferred Property hereunder and the Successive Transfers as 351 Transfers, and not take any position in any Tax Return inconsistent herewith unless compelled to do so pursuant to a determination as defined in Section 1313(a) of the Code.

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          (i) Until after the fifth anniversary of the last day of the calendar year that includes the Closing Date, without the prior written consent of both (i) Parent and (ii) PSP (in their respective sole and absolute discretion), neither Holdco nor any of its Affiliates shall engage in, effect or permit any transaction or series of related or unrelated transactions (other than the Successive Transfers) involving the exchange, disposition, reorganization or liquidation thereby of (i) any or all Transferred Property having a value (individually or in the aggregate) in excess of $50,000,000 or (ii) any equity interests in any Transferred Subsidiary or any Subsidiary of Holdco or of any successor of any of them, including any distribution with respect to such equity interests that is treated as an “exchange” for U.S. federal income tax purposes; provided that this Section 4.10(i) shall only apply if, as reasonably determined by Parent, such transaction would or is likely to trigger gain pursuant to any GRA entered into by the Parent with respect to the transfer of the Transferred Property.

          (j) The Interim Taxes (other than property Taxes) shall be computed for the portion commencing on January 1, 2007 and/or ending on, and including, the Closing Date of any taxable period by opening the books of Skynet and its Transferred Subsidiaries on January 1, 2007 and/or closing such books on the Closing Date; provided that for such purpose, the taxable period of any Transferred Property that is a partnership or other pass-through entity in which Skynet holds a direct beneficial interest shall be deemed to begin on January 1, 2007 and end on the Closing Date; and provided further that exemptions, allowances or deductions that are calculated on an annual basis (including depreciation and amortization deductions) shall be allocated between the period ending on December 31, 2006 and the Interim Period, in proportion to the number of days in each such period. For the avoidance of doubt, any Taxes of Skynet or the Transferred Subsidiaries (including real, personal, and intangible property Taxes) attributable to or arising from the Restructuring shall be for the account of Skynet, whether such Taxes arose prior to or following January 1, 2007. Each of Holdco and Skynet shall be responsible for and shall pay all Taxes allocated to it pursuant to this Section 4.10.

          (k) Each of Holdco and Parent shall have fifteen (15) days to review and approve (which approval shall not be unreasonably withheld, delayed or conditioned) the Tax Returns referred to in Sections 4.10(c)(i) and 4.10(c)(ii), respectively. The failure to propose any changes to any such Tax Return within fifteen (15) days shall be deemed to be an indication of its approval thereof. If a dispute arises following such review and such dispute is not resolved by Holdco and Parent within seven (7) days, such dispute shall be resolved pursuant to the procedures, as applicable, of Section 1.2 of the Ancillary Agreement.

          (l) No payment pursuant to this Section 4.10 shall excuse Skynet and Parent from their indemnification obligations pursuant to Section 7.2 if the amount of Taxes as ultimately determined (on audit or otherwise) for which Skynet is liable under Section 7.2 exceeds the amount paid by Skynet under this Section 4.10.

          (m) If the amount of Interim Taxes, as ultimately determined on audit or otherwise, exceeds the amount of the Interim Taxes used in determining the Final Adjustment Amount and the Actual Interim Taxes Due under Section 2.7, Holdco will indemnify the Parent and Skynet for all Losses relating to such determination. Skynet and Parent shall promptly forward to Holdco any refunds of Interim Taxes (net of all reasonable costs relating to such

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refunds) received by Skynet or Parent that were not taken into account in determining the Final Adjustment Amount and the Actual Interim Taxes Due under Section 2.7.

          (n) Prior to the Closing, notwithstanding anything to the contrary contained in this Agreement, Skynet and Parent shall have the right transfer, or cause their Subsidiaries to transfer, at Skynet and Parent’s cost and expense, such portions of the Transferred Property and Sale Assets located in the United States to a location outside the United States as they deem appropriate in their sole discretion, provided that such transfers shall not disrupt or adversely affect the Business in any material respect or have any material adverse effect upon any transactions contemplated hereby or by the Asset Purchase Agreement. Immediately after the Closing, Holdco will use commercially reasonable efforts to transfer, or cause its subsidiaries to make any such transfers as Skynet or Parent shall reasonably request. In each case, Skynet and Parent will indemnify Holdco and its Subsidiaries for any costs and Losses relating to such transfers.

          (o) If a dispute arises regarding an allocation pursuant to Sections 4.10(d) to 4.10(g) and such dispute is not resolved by Holdco and Skynet within twenty (20) days, such dispute shall be resolved pursuant to the procedures, as applicable, of Section 1.2 of the Ancillary Agreement.

     4.11. Release of Certain Obligations of Parent.

          In the event that the Closing shall occur simultaneously with or immediately after the Telesat Closing, at the Closing, Holdco shall irrevocably and unconditionally waive and discharge any and all obligations of Parent under, and shall agree to terminate and be of no further force or effect, the Parent Commitment Letter and the related provisions of the Parent Subscription Agreement, which waiver, discharge and termination shall be effective as of the Telesat Closing.

     4.12. Redemption of Redeemable Holdco Shares.

          In the event that the Closing shall occur at any time other than simultaneously with or immediately after the Telesat Closing, at the Closing, Holdco shall redeem for cash any and all Redeemable Holdco Shares then held by Parent or any of it Subsidiaries in accordance with the terms of the Parent Subscription Agreement.

     4.13. Affiliate Payments; Excess Management Fees.

          (a) Notwithstanding anything to the contrary contained in this Agreement, Skynet and its Subsidiaries may continue their deferral of receivables due from XTAR and may make the following payments (the “Permitted Payments”):

                    (i) any amounts payable under or in respect of the Senior Notes when due, upon redemption or otherwise, at or prior to the Closing;

                    (ii) any amounts payable as dividends on the Skynet Preferred Stock pursuant to the terms thereof or upon redemption or otherwise, at or prior to the Closing;

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                    (iii) reimbursement to Parent for any out-of-pocket expenses incurred by Parent or any of its Affiliates (other than Skynet or any of its Subsidiaries) in connection with or on behalf of Skynet or any of its Subsidiaries or the operation of the Business;

                    (iv) any and all Management Fees due to Parent, not to exceed $2,000,000 in the aggregate per calendar quarter (excluding for the avoidance of doubt any amounts permitted to be reimbursed to Parent pursuant to Section 4.13(a)(iii)) and subject to Section 4.13(c);

                    (v) any amounts necessary to pay Taxes with respect to Skynet and/or its Subsidiaries, calculated on a separate return basis taking into account any Losses and other Tax attributes relating Skynet and its Subsidiaries; and

                    (vi) any other amounts permitted to be paid pursuant to this Section 4.13.

          (b) Neither Skynet nor any of its Subsidiaries shall make payments to Parent or any of its Affiliates (other than Skynet or any of its Subsidiaries) from the date of this Agreement through the Closing Date other than Permitted Payments and the payments referred to in Section 4.13(b) of the Skynet Disclosure Letter and any additional payments as shall have been consented to by Holdco in writing. At the Closing, Parent or Skynet shall pay to Holdco an amount in cash equal to the Affiliate Cash Amount, if any.

          (c) To the extent that the Management Fees (excluding for the avoidance of doubt any amounts permitted to be reimbursed to Parent pursuant to Section 4.13(a)(iii)) paid in cash to Parent in 2007 exceed $1,250,000 per quarter (which quarterly limit shall be prorated in the event that the Closing occurs prior to the expiration of any such quarter), Parent will pay to Holdco at the Closing an amount equal to such excess (as so prorated, if applicable); provided, however, that, to the extent that any amounts payable to Parent under the Consulting Agreement are paid in the form of notes or accounts receivable, Parent shall not be obligated to make any such payment to Holdco pursuant to this Section 4.13(c) unless all amounts payable to Parent under such notes or accounts payable shall have been paid in full, and then only to the extent of the amount of any such payments received by Parent.

          (d) It is understood and agreed that the cash to be included in the Transferred Property will be computed after giving effect to the payments permitted by this Section 4.13 and net of all interest (excluding default interest) and dividends accruing in respect of the Senior Notes and the Skynet Preferred Stock through the Closing Date (regardless of the actual date of redemption thereof), provided that the portion of the redemption price thereof attributable to the payment of liquidation value on the Skynet Preferred Stock and any premium payable in respect of such redemption or the redemption of the Senior Notes shall be for the account of Parent.

     4.14. Failure of T-11N.

          In the event of any “total loss,” “constructive total loss” or “partial loss” (as each such terms is defined in any applicable insurance policy of Skynet) of T-11N that occurs prior to the Closing Date, including due to a failure of T-11N to be launched into its proper orbit, (i) Skynet shall pay to Holdco on the Closing Date $10,000,000, if the loss is a “total loss”, or

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$5,000,000, if the loss is a “partial loss” or $7,500,000 if the loss is a “constructive total loss” and (ii) on the Closing Date, Skynet shall assign to Holdco any and all insurance proceeds payable or paid to Skynet in respect of any such total loss or partial loss or constructive total loss, as applicable. The parties agree that, notwithstanding anything to the contrary contained in this Agreement (including Section 3.1 or Article VII), such payment and assignment by Skynet shall constitute Holdco’s sole and exclusive remedy for any loss (whether a “total loss” or a “partial loss” or “constructive total loss” or otherwise) of T-11N.

     4.15. Redemption of Senior Notes.

          If the Senior Notes are outstanding immediately prior to the Closing, Skynet and Holdco shall reasonably cooperate with each other to cause all outstanding Senior Notes to be either (i) redeemed and no longer outstanding as of the Closing as provided in the Senior Note Documents or (ii) called for redemption, and such Senior Notes and the Senior Note Indenture to be satisfied and discharged, as of the Closing pursuant to and in accordance with Section 8.01(a) of the Senior Note Indenture, in either case including by jointly issuing written notice of such redemption to the holders of the Senior Notes and any other Person entitled to receipt of such notice under the Senior Note Documents; provided that, in the event that the immediately preceding clause (ii) shall be applicable, Skynet shall use its commercially reasonable efforts to cause all outstanding Senior Notes to be redeemed and no longer outstanding as soon as reasonably practicable after the Closing. If the Redemption Facility is outstanding immediately prior to the Closing, Skynet and Holdco shall reasonably cooperate with each other to cause the Redemption Facility to be prepaid in full as of the Closing, including by jointly issuing written notice of such prepayment to the lenders under such facility.

     4.16. Trustee Notice.

          If the Senior Notes are outstanding immediately prior to the Closing, on the Closing Date, Holdco shall notify the trustee under the Senior Note Indenture in writing of Holdco’s assumption of obligations under and in respect of the Senior Note Documents and the Collateral Documents pursuant to this Agreement.

     4.17. Parent Guaranty.

          Parent hereby irrevocably and unconditionally guarantees all of the obligations of Skynet under this Agreement (including obligations under Article VII).

     4.18. Exclusive Dealings.

          During the period from the date of this Agreement through the Closing Date or the earlier termination of this Agreement pursuant to the terms hereof, except as contemplated by this Agreement, neither Parent nor Skynet shall, and nor shall Parent or Skynet permit any of its Subsidiaries, directors, officers, employees, agents, representatives or advisors to, directly or indirectly, encourage, initiate or engage in discussions or negotiations with, or provide any information to, participate in or facilitate in any manner any effort or attempt by, or enter into any agreement with, any Person (other than Holdco and its Affiliates or Holdco’s representatives) concerning: (a) any acquisition of a material portion of the outstanding common equity interests of Holdco or any of its Subsidiaries; or (b) any merger, share exchange, sale of a

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material portion of the assets or similar transaction or any business combination or change of control of Skynet or any of its Subsidiaries or sale of the Business (other than sales of assets in compliance with Section 4.1) or otherwise seek to do any of the foregoing.

     4.19. Release of Liens.

          Skynet shall use its commercially reasonable efforts to take such actions as may be necessary to cause the Transferred Property and the Sale Assets to not be subject to any Liens (other than Permitted Liens) as of immediately after the Closing.

     4.20. Currency Hedging.

          (a) The parties acknowledge and agree that (i) Parent and PSP are responsible for converting their proportionate share of each tranche (“Tranche”) of United States dollar denominated debt that constitutes the Financing to be funded at the Telesat Closing (i.e., term loans, bridge notes, senior notes), into Canadian dollars to pay the purchase price in respect of the Purchased Shares at the Telesat Closing, and (ii) Parent’s and PSP’s proportionate share shall equal 65.37% and 34.63%, respectively. The parties further acknowledge and agree that subject to PSP’s compliance with Section 3.6(a) of the Ancillary Agreement, the basis swap transaction (the “Basis Swap”) entered into on December 27, 2006 between Morgan Stanley Capital Services Inc. and Skynet shall be deemed for purposes of this Section 4.20 to be a transaction entered into by Parent and PSP to hedge their proportionate share of the Term Loan B Tranche of the Financing.

          (b) The parties further acknowledge and agree that Parent and PSP may choose to hedge the foregoing amounts or leave them unhedged, in which case, for purposes of determining the Tranche Differential Rate, the exchange rate of any unhedged Tranche or unhedged portion of any Tranche shall be the actual exchange rate at which Canadian dollars are purchased to fund that portion of the purchase price at the Telesat Closing or as to any portion of such Tranche for which there was no purchase of Canadian dollars, the Closing Date Exchange Rate. Hedges procured by an Affiliate of Parent shall be deemed to be hedges procured by Parent for the purposes of this Agreement.

     4.21. Redemption of Skynet Preferred Stock.

          Within two Business Days following the satisfaction or waiver (to the extent permitted by applicable Law) of the conditions set forth in Section 5.1 of the Share Purchase Agreement (other than those conditions that, by their nature, are to be satisfied at the Telesat Closing, but subject to the satisfaction or waiver of such conditions), Skynet shall call for redemption all issued and outstanding shares of Skynet Preferred Stock.

     4.22. Financial Information.

          From and after the date hereof and until the Closing Date, Skynet shall provide or make available to Holdco each calendar month such financial statements as Skynet regularly prepares with respect to the immediately preceding calendar month promptly after such financial statements become available; provided that, for the avoidance of doubt, Skynet shall not be obligated pursuant to this Section 4.22 to prepare, or to provide or make available to Holdco, any

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financial statements other than those monthly financial statements that are regularly prepared by Skynet in the Ordinary Course of Business.

     4.23. Insurance.

          Skynet shall, and shall cause its Subsidiaries to, and the Parent shall cause Skynet and its Subsidiaries to, maintain such insurance with such coverage and in such amounts, with such deductibles and against such risks and losses as Skynet deems reasonable in respect of the business and operations of Skynet and its Subsidiaries.

     4.24. Transfer of Certain Skynet Satellites.

          Skynet shall transfer the Skynet Satellites owned by it to Skynet Satellite L.P., a Delaware limited partnership, immediately prior to the Closing.

     4.25. Termination of Terminated Contracts.

          On and as of the Closing, Parent and Skynet shall cause the Terminated Contracts to be terminated without any further obligation or liability thereunder on the part of any party thereto.

     4.26. Waiver Relating to Certain Proposed Transactions.

          Skynet and Parent hereby irrevocably waive any and all claims or demands they may have at any time against Holdco and its Affiliates as a result of or arising directly or indirectly out of or in connection with (i) any Restructuring Decision, (ii) any restructuring of a Proposed Transaction, and (iii) any gain recognized by Skynet or its Affiliates as a result of consummation of a Proposed Transaction (other than any gain recognized by reason of breach of the covenant set forth in Section 4.10(i)), it being understood that nothing contained in this Section 4.26 shall relieve Holdco of any of its obligations, or shall otherwise affect any of Parent’s rights, under Section 4.10(i) of this Agreement.

     4.27. Certain Updated Disclosures.

          (a) On the Closing Date, Skynet shall deliver to Holdco revised versions of Sections 3.1(p)(iii) and 3.1(p)(iv) of the Skynet Disclosure Letter updated through the Closing Date.

          (b) On the Closing Date, Skynet shall deliver to Holdco a revised version of Section 3.1(t) of the Skynet Disclosure Letter updated through the Closing Date.

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ARTICLE V.

CONDITIONS

     5.1. Conditions to Obligations of the Parties.

          The obligations of Holdco and Skynet to consummate the transactions contemplated by this Agreement are subject to the fulfillment of each of the following conditions, any or all of which may be waived in whole or in part by either party hereto (as to itself only and not with respect to or on behalf of the other party) to the extent permitted by applicable Law:

          (a) the Major Regulatory Approvals shall have been obtained;

          (b) (i) no Canadian or United States court or other Governmental Entity in Canada or the United States shall have enacted, issued, promulgated, enforced or entered any Law, judgment, decree, ruling, injunction or other order (whether temporary, preliminary or permanent) which is in effect and (A) prohibits the consummation of the transactions contemplated hereby or (B) impairs the consummation of the transactions contemplated by this Agreement, and (ii) no court or other Governmental Entity outside of Canada or the United States shall have enacted, issued, promulgated, enforced or entered any Law, judgment, decree, ruling, injunction or other order (whether temporary, preliminary or permanent) which is in effect and prohibits the consummation of the transactions contemplated by this Agreement, provided that, with respect to each of clause (i)(B) and (ii), as applicable, the consummation of the transactions contemplated by this Agreement in violation of such prohibition, or notwithstanding such impairment, would reasonably be expected to result in a Business Material Adverse Effect;

          (c) the Telesat Closing shall have been consummated; and

          (d) prior to or simultaneously with the Closing, either (i) all outstanding amounts under or in respect of the Senior Notes or the Redemption Facility shall have been paid in full and neither the Senior Notes nor the Redemption Facility shall be outstanding or (ii) in the event that Senior Notes are outstanding and no Redemption Facility is in place, the Senior Notes shall have been called for redemption, and the Senior Notes and the Senior Note Indenture shall have been satisfied and discharged, pursuant to and in accordance with Section 8.01(a) of the Senior Note Indenture.

     5.2. Conditions to Obligations of Holdco.

          The obligations of Holdco to acquire the Transferred Property and consummate the other transactions contemplated by this Agreement are subject to the fulfillment of each of the following conditions, any or all of which may be waived in whole or in part by Holdco to the extent permitted by applicable Law:

          (a) the representations and warranties of Skynet contained in Section 3.1, read as though they did not contain any qualification as to materiality, Business Material Adverse Effect or Skynet Material Adverse Effect, shall have been true and correct as of the date hereof,

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except where the failure of such representations or warranties to be so true and correct, in the aggregate, has not had or would not reasonably be expected to have, a Business Material Adverse Effect (it being understood that, for the avoidance of doubt, the failure of any such representation or warranty to be true and correct on or as of the Closing Date shall not be a condition to the effectuation of the Closing);

          (b) the covenants contained in this Agreement to be complied with or performed by Skynet shall have been complied with or performed; provided that the matters set forth in this Section 5.2(b) shall not be a condition to the obligation of Holdco to consummate the acquisition of the Transferred Property and the other transactions hereunder unless and until such matters, in the aggregate, shall have had a Business Material Adverse Effect;

          (c) the Confirmation Order shall be in full force and effect and shall not have been reversed, vacated or stayed or amended or otherwise modified in a manner that is material and adverse to the Business or which otherwise materially and adversely impairs the consummation of the transactions contemplated by this Agreement and the Asst Purchase Agreement;

          (d) the Shareholders Agreement shall have been executed and delivered by each party thereto other than Holdco and PSP;

          (e) the Third Party Consents shall have been obtained, except for those Third Party Consents the failure of which to be obtained would not, individually or in aggregate, reasonably be expected to result in a Business Material Adverse Effect;

          (f) prior to or simultaneously with the Closing, (i) all issued and outstanding shares of Skynet Preferred Stock shall have been called for redemption by Skynet and (ii) pursuant to and in accordance with Article V.D of the Skynet Preferred Stock Terms, Skynet shall have deposited with its transfer agent or other redemption agent, as a trust fund for the benefit of the holders of the shares of Skynet Preferred Stock to be redeemed, cash that is sufficient in amount to redeem all such shares to be redeemed, with irrevocable instructions and authority to such transfer agent or other redemption agent to pay to the respective holders of such shares the Redemption Price (as defined in the Skynet Preferred Stock Terms) upon surrender of their respective share certificates for the shares to be redeemed;

          (g) there shall not have been instituted or be pending any Action before any court or other Governmental Entity by any Governmental Entity seeking to prohibit the consummation of the transactions contemplated by this Agreement or the Asset Purchase Agreement, provided that, with respect to any such Action by any Governmental Entity outside of the United States or Canada, such Governmental Entity is reasonably expected to prevail in such Action, and such Action would, if such Governmental Entity were to so prevail in such Action, reasonably be expected to have a Business Material Adverse Effect; and

          (h) Holdco shall have received the items set forth in Section 2.1(b)(ii).

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     5.3. Conditions to Obligations of Skynet.

          The obligations of Skynet to transfer the Transferred Property and to consummate the other transactions contemplated by this Agreement are subject to the fulfillment of each of the following conditions, any or all of which may be waived in whole or in part by Skynet to the extent permitted by applicable Law:

          (a) the representations and warranties of Holdco contained in Section 3.2 shall have been true and correct as of the date hereof and as of the Closing Date, except where the failure of such representations or warranties to be so true and correct would, individually or in the aggregate, not reasonably be expected to materially and adversely affect the ability of Skynet or Holdco to consummate the transactions contemplated by this Agreement;

          (b) the covenants contained in this Agreement to be complied with or performed by Holdco shall have been complied with or performed in all material respects;

          (c) in the event that the Closing shall occur at any time other than simultaneously with the Telesat Closing, Holdco shall have redeemed for cash any and all Redeemable Holdco Shares then held by Parent or any of its Subsidiaries in accordance with the terms of the Parent Subscription Agreement; and

          (d) the Shareholders Agreement shall have been executed and delivered by each party thereto other than Parent and Skynet;

          (e) the Consulting Agreement shall have been executed and delivered by each party thereto other than Parent; and

          (f) Skynet shall have received the items set forth in Section 2.1(b)(i);

provided, however, that Skynet may not refuse to effect the Closing as a result of the failure of any condition contained in this Section 5.3 failing to be satisfied to the extent that Parent is responsible for such failure.

ARTICLE VI.

TERMINATION

     6.1. Termination Upon Termination of the Share Purchase Agreement.

          This Agreement shall terminate and the transactions contemplated hereby shall be abandoned simultaneously with any termination of the Share Purchase Agreement for any reason whatsoever.

     6.2. Termination by Mutual Consent.

          This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing Date by the mutual consent of Skynet, on the one hand, and Holdco, on the other hand.

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     6.3. Termination by Holdco.

          This Agreement may be terminated and the transactions contemplated hereby may be abandoned by Holdco at any time after the Outside Date if the Closing has not occurred before 5:00 pm (Toronto time) on the Outside Date, by delivery of a notice thereof to Skynet, provided that, Holdco shall not have such right to terminate if: (a) it is in material default or breach of this Agreement at such time; or (b) the failure of the Closing to have occurred on or before the Outside Date is the result of any material default or breach of this Agreement or any willful act or failure to act on the part of Holdco designed to impede the consummation of any transaction contemplated hereby.

     6.4. Termination by Skynet.

          This Agreement may be terminated and the transactions contemplated hereby may be abandoned by Skynet at any time after the Outside Date if the Closing has not occurred before 5:00 pm (Toronto time) on the Outside Date, by delivery of a notice thereof to Holdco, provided that, Skynet shall not have such right to terminate if: (a) it or Parent is in material default or breach of this Agreement at such time; or (b) the failure of the Closing to have occurred on or before the Outside Date is the result of any material default or breach of this Agreement or any willful act or failure to act on the part of Skynet or Parent designed to impede the consummation of any transaction contemplated hereby.

     6.5. Effect of Termination.

          In the event of the termination of this Agreement pursuant to this Article VI, this Agreement shall become null and void and no party hereto (or any of its directors (or Persons in similar positions), officers, Affiliates, shareholders, equity holder, agents or representatives) shall have any liability or further obligation to the other party hereto pursuant to this Agreement, except that nothing herein will relieve any party hereto from liability for any breach by it of the provisions of this Agreement occurring prior to the date of such termination.

ARTICLE VII.

INDEMNIFICATION

     7.1. Survival of Covenants, Representations and Warranties.

          All representations and warranties set forth in Article III hereof shall survive the Closing; provided, however, that neither party shall be entitled to recover any Losses pursuant to Section 7.2 or Section 7.3 hereof unless written notice of a Claim is delivered to the other party prior to the Applicable Limitation Date. For purposes of this Agreement, the term “Applicable Limitation Date” shall mean the first (1^st) anniversary of the Closing Date; provided, however, that the Applicable Limitation Date with respect to the following Losses shall be as follows:

          (a) with respect to any Loss arising from or related to a breach of the representations and warranties of Skynet set forth in Section 3.1(m) (Tax Matters), the Applicable Limitation Date shall be the 90^th day following the expiration of the applicable statute of limitations;

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          (b) with respect to any Loss arising from or related to a breach of the representations and warranties of Skynet set forth in Sections 3.1(a) (Corporate Organization and Qualification), 3.1(c) (Corporate Authority), 3.1(n)(i) (Title to Assets), 3.1(x) (Skynet Investor Matters) or fraud on the part of Skynet, the Applicable Limitation Date shall be the date on which all claims relating to such breach shall have been barred by the statute of limitations applicable thereto;

          (c) with respect to any Loss arising from or related to a breach of the representations and warranties of Holdco set forth in Sections 3.2(a) (Corporate Organization and Qualification), 3.2(b) (Corporate Authority), 3.2(f) (Holdco Investor Matters) and 3.2(g) (Holdco Shares) or fraud on the part of Holdco, the Applicable Limitation Date shall be the date on which all claims relating to such breach shall have been barred by the statute of limitations applicable thereto;

          (d) all covenants and agreements contained herein or in the Asset Purchase Agreement that by their terms are to be performed in whole or in part, or which prohibit actions, subsequent to the Closing Date, shall survive the Closing in accordance with their terms, all other covenants and agreements contained herein or in the Asset Purchase Agreement shall not survive the Closing and shall thereupon terminate; provided that any breach of Section 4.13 or any covenant contained elsewhere in this Agreement that, by its terms, is to be performed before the Closing shall survive the Closing until the first (1^st) anniversary of the Closing Date.

     7.2. Indemnification by Skynet.

          Subject to Sections 4.14 and 7.7, Skynet agrees to indemnify and save harmless Holdco and its Affiliates (other than Parent, Skynet or any of their Subsidiaries) from, and to pay the applicable indemnified person the amount of, all Losses (whether or not involving a third party claim) suffered or incurred by Holdco or any of such Affiliates as a result of or arising directly or indirectly out of or in connection with:

          (a) any breach by Skynet of, or any inaccuracy of any representation or warranty of Skynet contained in Section 3.1 hereof as of the date hereof and/or as of the Closing Date (provided that Skynet shall not be required to indemnify or save harmless Holdco in respect of any such breach or inaccuracy of representation or warranty unless Holdco shall have provided written notice of a Claim to Skynet on or prior to the Applicable Limitation Date related to such representation and warranty as set out in Section 7.1 hereof, and provided further that Skynet shall have no indemnification obligation under this Article VII in respect of any breach as of the Closing Date of the representations and warranties set forth in Section 3.1(p)(ii) hereof);

          (b) any breach or non-performance by Parent or Skynet of any covenant or agreement to be performed by it which is contained in this Agreement or the Asset Purchase Agreement;

          (c) the ownership, possession, operation and use of the Excluded Property;

          (d) the Excluded Liabilities (other than any Interim Taxes);

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          (e) any breach or non-performance by the Buyer of any covenant or agreement to be performed by it which is contained in the Asset Purchase Agreement, which breach shall have occurred prior to the Closing (as defined in the Asset Purchase Agreement); and

          (f) any fees, commissions, or other payments, including indemnity payments, payable to any Person who acted or claims to have acted as a broker, finder or financial advisor for Parent, Skynet or any of their respective Subsidiaries in connection with the transactions contemplated by this Agreement, provided that such Person shall have not been disclosed in Section 7.2(f) of the Skynet Disclosure Letter;

provided that nothing in Section 7.2(c) or 7.2(d) is intended to limit in any respect the indemnification rights of Skynet and its Affiliates under Section 7.3(a) or 7.3(b).

     7.3. Indemnification by Holdco.

          Subject to Section 7.7, Holdco agrees to indemnify and save harmless Skynet and its Affiliates (other than Holdco or any of its Subsidiaries) from all Losses (whether or not involving a third party claim) suffered or incurred by Skynet or any of such Affiliates as a result of or arising directly or indirectly out of or in connection with:

          (a) any breach by Holdco of, or any inaccuracy of, any representation or warranty contained in Section 3.2 hereof as of the date hereof and/or as of the Closing Date (provided that Holdco shall not be required to indemnify or save harmless Skynet or any of its Affiliates in respect of any such breach or inaccuracy of representation or warranty (i) unless Skynet shall have provided notice to Holdco on or prior to the Applicable Limitation Date related to such representation and warranty as set out in Section 7.1 hereof or (ii) to the extent that Parent is responsible for such breach by Holdco);

          (b) any breach or non-performance by Holdco of any covenant or agreement to be performed by it which is contained in this Agreement or, on or after the Closing Date, by the Buyer under the Asset Purchase Agreement (provided that Holdco shall not be required to indemnify or save harmless Skynet or any of its Affiliates in respect of any such breach or non-performance of covenant or agreement to the extent that Parent is responsible for such breach by Holdco);

          (c) the ownership, possession and use of the Transferred Property and the Sale Asset and the operation of the Business from and after the Closing; and

          (d) the Assumed Liabilities hereunder and the “Assumed Liabilities” under the Asset Purchase Agreement;

provided that nothing in Section 7.3(c) or 7.3(d) is intended to limit in any regard the indemnification rights of Holdco and its Affiliates under Section 7.2(a), 7.2(b) or 7.2(f).

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     7.4. Claims.

          (a) As soon as is reasonably practicable after becoming aware of any event or circumstances that could give rise to a claim for indemnification or payment under this Agreement (a “Claim”), the party claiming indemnification or payment (the “Indemnified Person”) from any other party shall promptly give notice to the party from whom indemnification or payment is requested (the “Indemnifying Person”) of the factual basis of the Claim briefly describing the facts giving rise to the claim and the amount of the Claim, or, if an amount is not then determinable, an approximate and reasonable estimate of the likely amount of the Claim; provided that the failure of the Indemnified Person to give notice shall not relieve the Indemnifying Person of its obligations under this Article VII, except to the extent (if any) that the Indemnifying Person shall have been prejudiced thereby.

          (b) Following receipt of notice from the Indemnified Person of the Claim, the Indemnifying Person shall have sixty (60) days to make such investigation of the Claim as it considers necessary or desirable. For the purpose of such investigation, the Indemnified Person shall make available to the Indemnifying Person the information relied upon by the Indemnified Person to substantiate the Claim and shall provide the Indemnifying Person with access, upon reasonable notice and during normal business hours, to its books and records, properties and personnel relating to the Claim.

          (c) If the Claim involves an Action that is instituted against an Indemnified Party by a Person other than an Indemnifying Person (a “Third Party Claim”), the provisions set forth in Section 7.5 shall be applicable.

     7.5. Third Party Claims.

          The obligations and liabilities of the parties hereunder with respect to a Third Party Claim for which an Indemnified Person is entitled to indemnification pursuant to this Article VII shall be subject to the following additional terms and conditions:

          (a) The Indemnifying Person shall have the right, but not the obligation, to defend against and to direct the defense of any such Third Party Claim and any related Actions, in its name or in the name of the Indemnified Person at the Indemnifying Person’s expense and with counsel of the Indemnifying Person’s own choosing, and the Indemnified Person shall cooperate in the defense thereof; provided, however, that an Indemnifying Person may only exercise such right after acknowledging its obligations hereunder to indemnify the Indemnified Person. The Indemnified Person may participate in such defense with counsel of its own choosing, at its own expense; provided, however, that such Indemnified Person shall be entitled to participate in any such defense with separate counsel at the expense of the Indemnifying Person if in the reasonable opinion of outside counsel to the Indemnified Person, a conflict of interests exists or is reasonably likely to exist between the Indemnified Person and the Indemnifying Person that would make such separate representation advisable. The Indemnifying Person shall not, as long as it conducts the defense of any Third Party Claim on behalf of the Indemnified Person, be liable to the Indemnified Person under this Article VII for any fees of other counsel or any other expenses with respect to the defense of such Third Party Claim incurred by the Indemnified Person in connection with the defense of such Third Party Claim.

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          (b) If, however, the Indemnifying Person fails or refuses to undertake the defense of such Third Party Claim within fourteen (14) days after the notice of such Third Party Claim has been given to the Indemnifying Person by the Indemnified Person (or, if later, fourteen (14) days after an Action is brought by the third party making the Third Party Claim) or if the Indemnifying Person later withdraws from such defense, the Indemnified Person shall have the right (subject to the right of the Indemnifying Person to assume the defense of such claim at any time prior to the settlement, compromise or final determination thereof) to undertake the defense of such claim with counsel of its own choosing, with the Indemnifying Person responsible for the reasonable costs and expenses of such defense. No settlement of, or payment in respect of, any Third Party Claim involving potential liability of the Indemnifying Person under this Article VII shall be made by or on behalf of the Indemnified Person without the prior written consent of the Indemnifying Person, which consent shall not be unreasonably withheld or delayed.

          (c) Notwithstanding anything in this Section 7.5 to the contrary, an Indemnifying Person shall not be entitled to assume the defense of any Third Party Claim (and the Indemnifying Person shall be liable for the reasonable fees and expenses of counsel incurred by the Indemnified Person in defending such Third Party Claim) if (i) the Third Party Claim seeks an order, injunction or other equitable relief or relief for other than money damages against the Indemnified Person that the Indemnified Person reasonably determines, after conferring with its outside counsel, cannot be separated from any related claim for money damages and which could reasonably be expected to have a material impact on the business of the Indemnified Person and its Subsidiaries, taken as a whole, or (ii) the Third Party Claim involves a criminal claim.

          (d) Notwithstanding anything in this Section 7.5 to the contrary, the Indemnifying Person shall not, without the written consent of the Indemnified Person, settle or compromise any Third Party Claim or consent to entry of any judgment against the Indemnified Party unless the claimant or claimants under such Third Party Claim provide to the Indemnified Persons a release from all liability in respect of the Third Party Claim.

     7.6. Subrogation.

          Upon payment in full of any Claim or the payment of any judgment or settlement with respect to a Third Party Claim, the Indemnifying Person shall be subrogated to the extent of such payment to the rights of the Indemnified Person against any Person with respect to the subject matter of such Claim or Third Party Claim. The Indemnified Person shall assign or otherwise cooperate with the Indemnifying Person, at the cost and expense of the Indemnifying Person, to pursue any claims against, or otherwise recover amounts from, any Person liable or responsible for any Losses for which indemnification has been received pursuant to this Agreement.

     7.7. Minimum Indemnification Threshold and Limits.

          (a) Skynet shall not be obligated to indemnify or pay Holdco or any of it Affiliates pursuant to Section 7.2(a) hereof unless and until the aggregate amount of the Losses incurred or sustained by Holdco and its Affiliates relating to, or arising out of or in connection

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with, the matters set forth in Section 7.2(a) exceeds an amount equal to, with respect to such representations and warranties that are made on the date hereof, $8,390,575 (the “Execution Date Breach Threshold”) and, with respect to such representations and warranties that are made on the Closing Date, $41,952,875 (the “Closing Date Breach Threshold,” it being understood that each of the Execution Date Breach Threshold and the Closing Date Breach Threshold, as applicable, shall be referred to herein as the “Minimum Indemnification Threshold”), in which case Skynet shall have an indemnification and payment obligation for all such amounts that exceed the applicable Minimum Indemnification Threshold; provided, however, that Skynet shall not be liable to Holdco and its Affiliates for any Losses relating to a single claim (or group of claims relating to the same matter) under Section 7.2(a) not exceeding $250,000 (the “Basket Amount”) (and, for greater certainty, any single claim or group of claims not exceeding the Basket Amount shall not be considered in determining whether the Minimum Indemnification Threshold has been attained); provided, further, that in no event shall Skynet’s maximum aggregate indemnification and payment liability for all Losses under Section 7.2(a), together with claims, if any, against Skynet under or in respect of the Asset Purchase Agreement, exceed $83,905,750 (the “Cap”); provided, further, however, that each of the Minimum Indemnification Threshold and the Cap shall be subject to reduction as follows:

                    (i) the Execution Date Breach Threshold shall be reduced by an amount equal to 1% of the sum of (A) the MAE Adjustment Amount (if any) paid by Skynet or any of its Affiliates (other than Holdco or any of its Subsidiaries), expressed in US dollars at the Agreed Exchange Rate, and (B) the Final Adjustment Amount (if negative), expressed in United States dollars at the Closing Date Exchange Rate;

                    (ii) the Closing Date Breach Threshold shall be reduced by an amount equal to 5% of the sum of (A) the MAE Adjustment Amount (if any) paid by Skynet or any of its Affiliates (other than Holdco or any of its Subsidiaries), expressed in US dollars at the Agreed Exchange Rate, and (C) the Final Adjustment Amount (if negative), expressed in United States dollars at the Closing Date Exchange Rate; and

                    (iii) the Cap shall be reduced by an amount equal to 10% of the sum of (A) the MAE Adjustment Amount (if any) paid by Skynet or any of its Affiliates (other than Holdco or any of its Subsidiaries), expressed in US dollars at the Agreed Exchange Rate, and (B) the Final Adjustment Amount (if negative), expressed in United States dollars at the Closing Date Exchange Rate.

          (b) Neither any Minimum Indemnification Threshold, the Basket Amount nor the Cap set forth in Section 7.7(a) shall apply to indemnification of, or payment to, Holdco or any of its Affiliates for or with respect to Losses related to (i) the failure to be true and correct of any of the representations and warranties set forth in Sections 3.1(a) (Corporate Organization and Qualification), 3.1(c) (Corporate Authority), 3.1(m) (Tax Matters), 3.1(n) (Title to Assets; Sufficiency of Assets), 3.1(x) (Skynet Investor Matters) or 3.1(y) (Affiliate Payments), or (ii) willful breaches of the representations and warranties of Skynet contained in this Agreement.

          (c) Holdco shall not be obligated to indemnify or pay Skynet or any of it Affiliates pursuant to Section 7.3(a) hereof unless and until the aggregate amount of the Losses incurred or sustained by Skynet and its Affiliates relating to, or arising out of or in connection

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with, the matters set forth in Section 7.3(a) exceeds an amount equal to, with respect to such representations and warranties that are made on the date hereof, the Execution Date Breach Threshold and, with respect to such representations and warranties that are made on the Closing Date, the Closing Date Breach Threshold, in which case Skynet shall have an indemnification and payment obligation for all such amounts that exceed the applicable Minimum Indemnification Threshold; provided, however, that Holdco shall not be liable to Skynet and its Affiliates for any Losses relating to a single claim (or group of claims relating to the same matter) under Section 7.3(a) not exceeding the Basket Amount (and, for greater certainty, any single claim or group of claims not exceeding the Basket Amount shall not be considered in determining whether the Minimum Indemnification Threshold has been attained); provided, further, that in no event shall Holdco’s maximum aggregate indemnification and payment liability for all Losses under Section 7.3(a) exceed the Cap.

          (d) Neither any Minimum Indemnification Threshold, the Basket Amount nor the Cap set forth in Section 7.7(c) shall apply to indemnification of, or payment to, Skynet or any of its Affiliates for or with respect to Losses related to (i) the failure to be true and correct of any of the representations and warranties set forth in Sections 3.2(a) (Corporate Organization and Qualification), 3.2(b) (Corporate Authority), 3.2(f) (Holdco Investor Matters) or 3.2(g) (Holdco Shares) or (ii) any willful breach of the representations and warranties of Holdco contained in this Agreement except to the extent that Parent is responsible for such breach by Holdco.

     7.8. Net Losses.

          Any indemnification pursuant to this Article VII shall be net of:

          (a) any actual federal, provincial or state income tax benefit, specifically arising from the facts and circumstances giving rise to the Loss and actually realized by the Indemnified Person (or any of its Affiliates) (i) by a reduction in Taxes payable, or (ii) by the receipt of a refund of Taxes, by the Indemnified Person (or such Affiliates) (which, in the case of Holdco shall include Skynet’s Subsidiaries acquired by Holdco hereunder) but also taking into account any Taxes payable by the Indemnified Person or withheld with respect to the indemnification payment so that the Indemnified Person, on an after-tax basis, shall be placed in the same position as though the facts and circumstances giving rise to the Loss had never occurred or existed;

          (b) any insurance proceeds received by the Indemnified Person (or its Affiliates) (which, in the case of Holdco shall include Skynet’s Subsidiaries acquired by Holdco hereunder), with respect to the Loss, net of any increase in insurance premiums incurred by the Indemnified Person as a result of such Loss. The Indemnified Person shall treat the Loss in a good faith manner that causes any federal, provincial, state or other income tax benefit to apply in the earliest year reasonably permissible; and

          (c) in the case of any claim for indemnification by Holdco or any of its Affiliates, any MAE Adjustment Amount (or portion thereof) that is paid and which relates to any Loss in respect of which such claim is made.

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     7.9. Miscellaneous.

          (a) Skynet and Holdco shall each be responsible, as an Indemnified Person, for taking or causing to be taken all reasonable steps to mitigate its Losses upon and after becoming aware of any event that could reasonably be expected to give rise to Losses that may be indemnifiable under this Article VII.

          (b) No breach of any representation, warranty, covenant or agreement contained herein shall give rise to any right on the part of either party hereto, after the consummation of the transactions contemplated hereby, to rescind this Agreement or any of the transactions contemplated hereby.

     7.10. Tax Treatment of Indemnity Payments.

          The parties agree to treat any indemnity payment made pursuant to this Article VII as an adjustment to the consideration in respect of the Transferred Property, as finally determined pursuant to Sections 2.5, 2.6 and 2.7, for all income Tax purposes in a manner agreeable to the parties. If, notwithstanding the treatment required by the preceding sentence, any indemnification payment under Article VII is determined to be taxable to the Indemnified Person by any Governmental Entity, the Indemnifying Person shall also indemnify the Indemnified Person for any additional Taxes incurred by reason of the receipt of such payment except to the extent such Taxes were taken into account under Section 7.8(a).

     7.11. Investigations.

          The right to indemnification or any other remedy based on representations, warranties or covenants of Parent or Skynet (as applicable) under this Agreement shall not be affected by (a) any investigation conducted by Holdco or PSP or (b) any knowledge acquired (or capable of being acquired) by any such Person at any time, whether before or after the date hereof or the Closing, with respect to the accuracy or inaccuracy of, or compliance with, any such representation, warranty or covenant.

     7.12. Exclusive Remedy After Closing Date.

          All claims after the Closing for breaches of any representations or warranties in this Agreement or any breach of covenant or other provision of this Agreement (other than a claim for specific performance or injunctive relief), or with respect to which indemnification rights are vested in any party pursuant to Section 7.2 or 7.3 (as applicable), shall be made exclusively under and in accordance with this Article VII.

ARTICLE VIII.

MISCELLANEOUS AND GENERAL

     8.1. Payment of Expenses.

          Notwithstanding anything to the contrary contained in the Transaction Agreements, the Share Purchase Agreement or the Investors Letter Agreement (including

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Section 10 of the Investors Letter Agreement), whether or not the transactions contemplated by this Agreement shall have been consummated, Holdco shall pay, and shall be solely responsible for the payment of, any and all costs and expenses (including all costs and expenses with respect to pursuing Third Party Consents and of any advisors, including legal counsel) incurred by Holdco and Skynet incident to preparing, entering into and carrying out this Agreement and the consummation of the transactions contemplated hereby.

     8.2. Modification or Amendment.

          Skynet and Holdco may modify or amend this Agreement by written agreement executed and delivered by duly authorized officers of such parties. No amendment or waiver of any provision of this Agreement shall be binding on any party unless consented to in writing by Skynet and Holdco. No waiver of any provision of this Agreement shall constitute a waiver of any other provision, nor shall any waiver constitute a continuing waiver unless otherwise expressly provided.

     8.3. Further Assurances.

          Each party to this Agreement covenants and agrees that, from time to time subsequent to the Closing, it will execute and deliver all such documents including all such additional conveyances, transfers, consents and other assurances, and do all such other acts and things as any other party hereto, acting reasonably, may from time to time request be executed or done in order to better evidence or perfect or effectuate any provision of this Agreement or any of the respective obligations intended to be created hereby or thereby.

     8.4. Counterparts.

          For the convenience of the parties hereto, this Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.

     8.5. Governing Law and Waiver of Jury Trial.

          This Agreement, and all matters arising out of or relating to this Agreement and the transactions contemplated hereby, including (a) its negotiation, execution, and validity, and (b) any claim or cause of action, whether in contract, tort or otherwise (including any representation or warranty made in or in connection with this Agreement or as an inducement to enter into this Agreement), shall be governed by, construed and interpreted in accordance with the laws of the State of New York, without regard to the conflicts of law rules and principles thereof. Any suit, action or proceeding against any party or any of its assets arising out of or relating to this Agreement shall be brought in the federal or state courts located in New York, New York, and each party hereby irrevocably and unconditionally attorns and submits to the exclusive jurisdiction of such courts over the subject matter of any such suit, action or proceeding. Each party irrevocably waives and agrees not to raise any objection it might now or hereafter have to any such suit, action or proceeding in any such court including any objection that the place where such court is located is an inconvenient forum or that there is any other suit, action or proceeding in any other place relating in whole or in part to the same subject matter. EACH PARTY HEREBY ACKNOWLEDGES AND AGREES THAT ANY DISPUTE OR

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CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Each party irrevocably consents to process being served by any party to this Agreement in any legal proceeding by delivery of a copy thereof in accordance with the provisions of Section 8.7.

     8.6. Time of Essence.

          Time shall be of the essence in this Agreement.

     8.7. Notices.

     Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be given by hand, courier (with a copy sent by facsimile), by facsimile or other means of electronic communication (with a copy sent by courier) or by delivery as hereafter provided. Any such notice or other communication, if sent by courier or if sent by facsimile or other means of electronic communication, shall be deemed to have been received on the Business Day following the confirmation of receipt, or if delivered by hand shall be deemed to have been received at the time it is delivered to the applicable address noted below. Notice of change of address shall also be governed by this Section 8.7. Notices and other communications shall be addressed as follows or to such other address as the parties shall notify each other in writing from time to time:

          if to Holdco:

4363205 Canada Inc.
c/o McCarthy Tétrault LLP
66 Wellington Street
Toronto, M5K 1E6

Attention:       Secretary (c/o Robert Forbes)

Facsimile:       (416) 868-0673

          with a copies to:

Public Sector Pension Investments Board
c/o PSP Investments
1250 René-Lévesque Blvd West
Suite 2030
Montréal (Québec) H3B 4W8

Attention:       First Vice President and General Counsel

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Telephone:       (514) 939-5376
Facsimile:       (514) 937-0403

and

Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153

Attention:       Douglas P. Warner

Telephone:       (212) 310-8751
Facsimile:       (212) 310-8007

          if to Skynet:

Loral Skynet Corporation
c/o Loral Space & Communications Inc.
600 Third Avenue
New York, NY 10016

Attention:       Avi Katz

Telephone:       (212) 338-5340
Facsimile:       (212) 338-5320

          with copies to:

Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, NY 10019

Attention:       Bruce R. Kraus

Telephone:       (212) 728-8237
Facsimile:       (212) 728-9237

and

McCarthy Tétrault LLP
66 Wellington Street
Toronto, M5K 1E6

Attention:       Robert Forbes

Telephone:       (416) 601-8267
Facsimile:       (416) 868-0673

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     8.8. Severability.

          If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible.

     8.9. Entire Agreement.

          Except as agreed to in writing on or after the date hereof, this Agreement and the other Transaction Agreements constitute the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties (both written and oral), among the parties with respect to the subject matter hereof, including Sections 7, 11, 13 and 20(b) of, and the schedules to, the Investors Letter Agreement.

     8.10. Assignment.

          No party may transfer or assign any of its rights or obligations hereunder without the express written consent of each other party hereto, and any such attempted transfer in violation of this Section 8.10 shall be null and void ab initio, provided, however, that a party hereto may, without the prior written consent of any other party hereto, (a) assign (in whole or in part) this Agreement and all of its rights hereunder to its lenders and debt providers (or any administrative or collateral agent therefor) for collateral security purposes, and (b) following the Closing, assign (in whole or in part) this Agreement and its rights and obligations hereunder to any of its Subsidiaries; provided, further, that, notwithstanding any such assignment described in the immediately preceding clauses (a) and (b), the assigning party shall remain liable to perform all of its obligations hereunder.

     8.11. Parties in Interest and Rights of PSP and Senior Notes Trustee.

          This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement, other than Article VII (which is intended to be for the benefit of the Indemnified Persons covered thereby and may be enforced by such Persons as third party beneficiaries); provided, however, that, from the date hereof through the date of the Telesat Closing, PSP shall have the right to take any action on behalf of Holdco, and to exercise all remedies and rights on behalf of and for the benefit of Holdco, under this Agreement, and shall be entitled to full indemnity from Holdco in respect of, and Holdco shall pay to PSP an amount equal to, any Losses incurred by PSP in doing so (including any costs and expenses incurred by PSP incident to exercising any such remedies or rights) unless PSP shall have acted in bad faith or shall have been grossly negligent, provided that nothing contained in this Section 8.11 shall be deemed to create any liability on PSP’s part to any of the parties hereto in connection with, and no party

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hereto shall have any recourse against PSP for, any action so taken, or any exercise of such remedies or rights made, by PSP on behalf of or for the benefit of Holdco prior to the Telesat Closing pursuant to this Section 8.11; provided, further, that the trustee under the Senior Note Indenture shall be deemed a third party beneficiary hereof with respect to any amounts under or in respect of the Senior Notes constituting Assumed Liabilities. PSP shall be a third party beneficiary of the provisions of Sections 4.9, 4.10(f), 4.10(i) and 4.10(k), Article VII (as an Indemnified Person) and this Section 8.11.

     8.12. Successors.

          This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors.

[signatures on following page]

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          IN WITNESS WHEREOF, this Asset Transfer Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto on the date first hereinabove written.

4363205 CANADA INC.
By:	/s/ Michael B. Targoff
	Name:	Michael B. Targoff
	Title:	Vice Chairman
By:	/s/ Jim Pittman
	Name:	Jim Pittman
	Title:	Vice President

LORAL SKYNET CORPORATION
By:	/s/ Michael B. Targoff
	Name:	Michael B. Targoff
	Title:	Chief Executive Officer

LORAL SPACE & COMMUNICATIONS INC.
By:	/s/ Michael B. Targoff
	Name:	Michael B. Targoff
	Title:	Chief Executive Officer

EXHIBIT C

CONSULTING SERVICES AGREEMENT

THIS AGREEMENT is made as of the • day of •, 2007,

B E T W E E N:

LORAL SPACE & COMMUNICATIONS INC., a corporation incorporated under the laws of Delaware

(hereinafter referred to as “Loral”)

– and –

TELESAT CANADA, a corporation incorporated under the laws of Canada

(hereinafter referred to as “Telesat”)

WHEREAS, Loral is engaged in the satellite communications business through its wholly-owned subsidiary, Loral Skynet Corporation (“Skynet”);

AND WHEREAS, Telesat is also engaged in the satellite communications business;

AND WHEREAS, Loral has many years experience and significant expertise in the operations of satellite communications businesses, and in particular outside of Canada;

AND WHEREAS, Loral currently provides certain consulting services to Skynet;

AND WHEREAS, it is intended that Loral will transfer, or cause to be transferred, to Telesat all of the assets of Skynet;

AND WHEREAS, it is intended that Loral will provide to Telesat certain consulting services on the terms and conditions set forth herein, both in relation to the Skynet business and otherwise related to the satellite communication business of Telesat;

AND WHEREAS, Telesat wishes to retain Loral to act as its consultant, on a non-exclusive basis, in connection with its business, on the terms and conditions set forth herein;

AND WHEREAS, Loral is willing to act as a consultant to Telesat on that basis;

NOW, THEREFORE, in consideration of the covenants contained herein and for other consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties (as defined herein) agree as follows:

ARTICLE 1 – INTERPRETATION

1.01 Definitions

In this Agreement, unless the subject matter or context is inconsistent with such meaning:

“Affiliate” means any Person which, directly or indirectly, Controls, is Controlled by or is under common Control of another.

“Alternative Subscription Agreement” means that certain Alternative Subscription Agreement dated August 7, 2007 by and among Loral Space & Communications Inc., Loral Skynet Corporation and 4363205 Canada Inc. in respect of the transfer of certain assets to 4363205 Canada Inc. and the subscription of shares of 4363205 Canada Inc.

“Agreement” means this agreement, including any recitals, as amended, supplemented or restated from time to time and “hereof” and “hereto” shall have corresponding meanings.

“Board” means the board of directors of Telesat.

“Business Day” means any day other than a Saturday, Sunday or a day on which (1) the principal Canadian bank of Telesat is required or authorized to close in the City of Ottawa; or (2) the principal bank of Loral in New York City is required or authorized to be closed, in either case whether in accordance with established banking practice or by reason of unanticipated events, including adverse weather conditions.

“Business Plan” means the five-year business plan of Telesat as prepared, updated and amended from time to time in accordance with the Unanimous Shareholders Agreement.

“Control” (including, with correlative meanings, the terms “Controlled by” and “under common Control with”) means the possession of the power, in law or in fact, to direct or cause the direction of the management and policies of a corporation whether through legal and beneficial ownership of a majority of voting securities of the corporation, by agreement or otherwise.

“including” and “includes” shall be deemed to be followed by the statement “without limitation” and neither of such terms shall be construed to limit any word or statement which it follows to the specific or similar items or matters immediately following it.

“Parties” means Loral and Telesat and “Party” means any one of them.

“Person” means any natural person, sole proprietorship, partnership, corporation, trust, joint venture, any Regulatory Authority or any incorporated or unincorporated entity or association of any nature or any other entity recognized by applicable law.

“Regulatory Authority” means any domestic or foreign government, including any federal, provincial, state, territorial or municipal government, and any governmental, administrative or regulatory entity, authority, commission, tribunal, ministry, official or agency.

“Skynet Asset Transfer Agreement” means that certain Asset Transfer Agreement dated August 7, 2007 by and among 4363205 Canada Inc., Loral Skynet Corporation and Loral Space & Communications Inc. in respect of the transfer to 4363205 Canada Inc. of certain assets of Loral Skynet Corporation.

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“Unanimous Shareholders Agreement” means the Unanimous Shareholders Agreement of and in respect of 4363205 Canada Inc., 4363213 Canada Inc. and Telesat dated •, 2007, as the same may be amended, restated or supplemented from time to time.

1.02 Statutory References

Unless otherwise provided herein, each reference to an enactment is deemed to be a reference to that enactment, and to the regulations made under that enactment, as amended or re-enacted from time to time.

1.03 Headings

The division of this Agreement into articles, sections, subsections and schedules and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement.

1.04 References

Unless otherwise specified, references in this Agreement to Sections and Schedules are to sections of, and schedules to, this Agreement.

1.05 Number, Gender and Section References

Unless otherwise specified, words importing the singular include the plural and vice versa and words importing gender include all genders.

1.06 Calculation of Time

In this Agreement, a period of days which commences with an event shall be deemed to begin on the first day after the event and to end at 6:00 p.m. on the last day of the period and a period of days which commences on a date shall be deemed to begin on that date and to end at 6:00 p.m. on the last day of the period. If, however, the last day of a period does not fall on a Business Day, the period shall terminate at 6:00 p.m. on the next Business Day. References to dates and times in this Agreement are to local dates and times in Ottawa, Ontario, unless otherwise stated.

1.07 Currency

Unless specified otherwise, all statements of or references to dollar amounts in this Agreement are to currency of the United States of America.

ARTICLE 2 – APPOINTMENT

2.01 Terms and Conditions

Subject to the terms and conditions of this Agreement, Telesat hereby retains Loral as its consultant respecting its business and operations and Loral accepts such retainer.

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2.02 Performance

The performance by Loral of the services contemplated by this Agreement shall be solely on behalf of and for the account of Telesat. Notwithstanding anything contained herein to the contrary, Loral does not by this Agreement assume, and shall not be liable for, any obligation of Telesat, financial or otherwise, to any Person.

ARTICLE 3 – ADVICE AND SERVICES

3.01 Advice to be Provided by Loral

At the request of the Board, acting reasonably, Loral shall provide, in reasonable amounts, and within a reasonable amount of time after being requested, the following advice, in each case applying its expertise and business judgment:

(a)	advice related to Telesat’s business objectives and direction to meet the competitive demands of the satellite communications business;
(b)	advice related to the review and development of business strategies and opportunities, in particular outside of Canada;
(c)	advice related to Telesat’s progress in meeting its business objectives and direction and Business Plan so as to enable Telesat to identify the type, extent and timing of Telesat’s support needs in any and all aspects of its business;
(d)	advice related to the development and implementation of an appropriate synergy plan for the integration of the Skynet business into Telesat;
(e)	advice related to the Skynet assets, operations and business development, including the development of business opportunities and strategies for growth and expansion outside of Canada;
(f)	advice related to satellite orbital slots for outside of Canada;
(g)	advice related to capital structure and financing, in particular with respect to the United States financial markets; and
(h)	advice related to satellite expert personnel and general personnel matters, in particular in respect of non-Canadian personnel.

3.02 Services to be Agreed

Telesat may request the assistance of Loral in any of the following areas: personnel benefits administration; insurance and risk management; human resources; treasury operations related to cash management and hedging; auditing; U.S. public relations; U.S. satellite regulatory; U.S. securities regulatory, including Sarbanes Oxley compliance; U.S. tax; and U.S. legal. Such request may be made by Telesat at any time during the term of this Agreement. Loral shall consider such request, and whether it has sufficient resources to provide the services requested,

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and if it is prepared to provide such services, shall propose a fee for the provision of such services, based on the cost to Loral of providing such services (including allocated overhead costs) plus a reasonable profit margin and shall advise Telesat of its decision, and its proposed fee (including separately the proposed profit margin) within six weeks of any such request. If such fee as proposed is acceptable to Telesat, or if a different fee is subsequently proposed and agreed (in either case with the approval of Telesat being given as an “Interested Matter” pursuant 3.04(4) of the Unanimous Shareholders Agreement), Loral and Telesat shall enter into a letter agreement which describes the services to be performed and the fee as agreed.

3.03 Advice and Services: Non-Exclusive and Advisory

The advice and services to be provided by Loral to Telesat pursuant to Section 3.01 and Section 3.02 are being provided on a non-exclusive basis, at the request of Telesat. Any advice given to Telesat pursuant to Section 3.01 is advisory only, and may be accepted or rejected, at the sole discretion of management or the Board of Telesat. It is understood and agreed that the advice and services to be provided pursuant to Sections 3.01 and 3.02 are exclusive of the duties of Loral officers and directors in their capacities as directors of Telesat, and of actions taken by Loral in its capacity as a shareholder of the indirect parent company of Telesat.

ARTICLE 4 – COMPENSATION

4.01 Annual Fee

As compensation for the advice to be provided by Loral pursuant to Section 3.01, Telesat shall pay to Loral, during the term of this Agreement, an annual fee of $5,000,000, payable in an amount equal to $1,250,000 per quarter in arrears on the last day of March, June, September and December in each year, commencing on •, 2007.

4.02 Reimbursement of Direct Expenses

If either (i) Loral outsources any services from third parties at Telesat’s request, including without limitation, legal, accounting, insurance and benefits services, (ii) Loral incurs any out-of-pocket fees or expenses at the request of Telesat, (iii) Loral pays any fees or expenses incurred by Telesat, or (iv) Loral incurs any reasonable out-of-pocket fees or expenses on behalf of Telesat in connection with the provision by Loral of advice under Section 3.01 hereof or otherwise, Telesat shall reimburse Loral for the cost of all such services, fees or expenses, within 30 days of delivery by Loral to Telesat of invoices or other proof of payment by Loral.

4.03 Payment

The amounts payable pursuant to Section 4.01, 4.02 and 4.04 shall be payable by wire transfer in immediately available funds to such bank account or accounts as Loral shall designate by written notice to Telesat, subject, in the case of amounts payable pursuant to Section 4.01, to the provisions of Section 4.04. Any such direction shall remain in effect until such time as Loral provides to Telesat a change of direction. Loral shall separately bill, in respect of advice and services provided pursuant to Section 4.01 and 4.02, those portions of the advice and services provided in Canada in respect of each billing period and service (“Canadian Services”). Telesat shall deduct and withhold from any payment made to Loral pursuant to Section 4.01, 4.02 and

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4.04 such amounts as may be required to be deducted and withheld by applicable law in respect of the provision of Canadian Services, or in respect of interest payable pursuant to Section 4.04. If Telesat determines that it is required by law to withhold any amounts in respect of services not designated by Loral as being provided in Canada, or that there is a substantial risk of assessment or reassessment of taxes related to any such payment to Loral if no amount is withheld, it shall give notice of such determination to Loral not less than 20 days before the date of the next quarterly payment to be made pursuant to Section 4.01. In such event, Loral and Telesat shall attempt to agree in good faith whether any additional amount shall be withheld by Telesat from payments to be made to Loral under Section 4.01 and/or Section 4.02. If Telesat and Loral are unable to agree, then no later than 15 days prior to the due date of such payment such dispute or difference shall be referred for final determination to a mutually agreed independent counsel (“Independent Counsel”) . The Independent Counsel shall be instructed to render a written opinion within 7 days of his or her appointment. The Independent Counsel’s decision shall be final and binding on all parties. The cost and fees of the Independent Counsel shall be borne and paid equally by Telesat and Loral. Notwithstanding the foregoing in the event the Independent Counsel shall not render his or her written opinion 2 days prior to such payment due date, Telesat shall be entitled to deduct and withhold from such payment any amount it determines in good faith and acting reasonably, and taking into account the deliberations to date, is required to be deducted and withheld by applicable law (and with respect to any future payments until such time as such written opinion is delivered, following which Telesat shall act in accordance with such opinion, as applicable), and neither Telesat nor its Affiliates or officers shall be liable for any excess taxes deducted or withheld in respect of any payment to Loral in such circumstances, and, in the event of over-withholding, Loral’s sole recourse shall be to apply for a refund from the appropriate governmental authority. Loral shall indemnify and save harmless Telesat from any amounts which may become payable by Telesat as a result of its failure to deduct and withhold in respect of any advice or services provided by Loral that is not separately billed by Loral as Canadian Services, including without limitation, any penalty, interest or other amounts, and the cost of counsel incurred in respect of any demand for payment related thereto. To the extent amounts are so withheld and paid over to the appropriate taxing authority, the withheld amounts shall be treated for all purposes of this Agreement as having been paid to Loral in respect of the payment from which such deduction and withholding was made.

4.04 Payment in Kind

If and for so long as the terms of any bank indebtedness or publicly issued debt obligations of Telesat incurred in connection with the acquisition by Loral and others of a shareholding interest in Telesat, or any refinancing thereof, (the “Acquisition Financing”) prevent the payment of the fees set out in Section 4.01 in cash, Telesat shall be entitled to issue to Loral, on each payment date provided in Section 4.01, a promissory note of Telesat for the amount of such payment. Such promissory notes shall be payable in full, or to the extent then permitted, 10 days after a determination being made, by way of the certification provided in this Section 4.04, that such promissory notes, or a portion of such promissory notes, may be paid pursuant to the terms of the Acquisition Financing, or if not then paid in full, all such promissory notes shall be paid in full on •, 2018. Any such payment shall be made in the manner provided in Section 4.03 without necessity of delivery to Telesat of any promissory notes for cancellation. Telesat shall provide Loral with a quarterly certificate to be delivered by not later than 60 days after each fiscal quarter-end of Telesat certifying whether any such promissory notes, or a portion thereof, may be

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paid pursuant to the terms of the Acquisition Financing, and shall specify in such certificate the amount of such promissory notes that may then be paid, and shall provide to Loral details in support of such certificate. Interest on all such promissory notes shall be payable on the outstanding principal balance of each promissory note at the rate of 7% per annum, compounded quarterly, from the date of issue of any such promissory note to the date of payment thereof. Promissory notes, including all accrued interest thereon, shall be repaid in order of issuance. Loral shall deliver to Telesat all promissory notes that have been paid in full as soon as practicable after payment in full thereof.

ARTICLE 5 – TERM AND TERMINATION

5.01 Term

This Agreement shall have an initial term commencing on the date hereof and expiring on the seventh anniversary of the date hereof and at the expiry of the initial term, this Agreement shall be automatically renewed for a further seven year term if Loral is not then in material default under the Unanimous Shareholders Agreement or this Agreement; provided, however, that this Agreement shall terminate upon the earlier of (i) a sale by Loral of more than 50% of the aggregate participating equity of 4363205 Canada Inc. received by Loral and/or its subsidiaries pursuant to the Skynet Asset Transfer Agreement or the Alternative Subscription Agreement, or (ii) a Change of Control of 4363205 Canada Inc. (as defined in the conditions attaching to the Senior Preferred Shares of 4363205 Canada Inc.). In each case, the annual fee described in Section 4.01 shall be prorated and paid only for that portion of the period of the then current year for which this Agreement is in existence.

5.02 Other Remedies

Nothing in Section 5.01 is intended to replace or derogate from any other remedy that a Party may have at law or in equity in consequence of any breach of, or failure to observe and perform, any covenant in this Agreement by the other Party.

ARTICLE 6 – LIMITATION OF LIABILITY

6.01 Limitation of Liability

     In no event shall either Party have any liability for punitive, exemplary or aggravated damages, loss of profits or revenue, failure to realize expected savings or other commercial or economic loss of any kind whatsoever, or for any indirect, special, incidental or consequential damages, even if advised of the possibility of such loss or damages.

ARTICLE 7 – INDEMNIFICATION OF LORAL

7.01 Indemnification of Loral

Telesat covenants and agrees to defend, indemnify and hold harmless Loral, its Affiliates and shareholders and their respective authorized representatives, directors, officers, employees and agents (collectively, the “Indemnified Party”) from and against all losses, claims, suits, proceedings, costs, damages, liabilities and judgments (including reasonable attorney’s fees)

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sustained by the Indemnified Party related to or arising out of this Agreement, provided that the Indemnified Party has not committed any fraud, wilful misfeasance or wilful misconduct in relation to the matter or matters in respect of which such indemnification is claimed. Telesat agrees that Loral has received and is holding the benefit of this indemnity in trust for each of the Indemnified Parties other than Loral, with the intent that any such Indemnified Party shall be entitled to enforce the provision of such indemnity in its favour directly against Telesat.

7.02 Notification of Claim

In the event that a third party asserts a claim against an Indemnified Party with respect to which the Indemnified Party intends to seek indemnification from Telesat under Section 7.01, the Indemnified Party will forthwith give notice of such claim (a “Claim”) in writing to Telesat, together with a statement of such information respecting the Claim as it shall then have, copies of any demand, assertion, claim, action or proceeding received by the Indemnified Party and the basis on which the Indemnified Party is seeking indemnification.

7.03 Right to Contest and Defend

     (1) Telesat is entitled, at its cost and expense, to contest and defend by all appropriate legal proceedings any Claim; provided, however, that notice of the intention so to contest shall be delivered by Telesat to the Indemnified Party within a reasonable time in light of the circumstances then existing, but in no event more than 30 days after receipt of notice of the Claim from the Indemnified Party. Any such contest may be conducted in the name and on behalf of Telesat or the Indemnified Party, as may be appropriate. Such contest shall be conducted by counsel chosen by Telesat, but the Indemnified Party shall have the right to participate in such proceedings and to be represented by counsel of its choosing at its cost and expense unless the interests of Indemnified Parties and Telesat differ in the Claim, in which case, Telesat shall also pay all reasonable cost and expense of counsel of the Indemnified Party. If the Indemnified Party joins in any such contest, Telesat shall have full authority to determine all action to be taken with respect thereto.

     (2) If after such opportunity, Telesat does not elect to contest any such Claim, subject to paragraph (5) below, Telesat shall be bound by the result obtained with respect thereto by the Indemnified Party and the Indemnified Party shall be entitled to abandon the contesting of the Claim or to settle or compromise the Claim, and Telesat shall be bound by all actions of the Indemnified Party with respect to such contest and/or Claim.

     (3) At any time after the commencement of defence of any Claim by Telesat, Telesat shall notify the Indemnified Party in writing promptly upon the abandonment of such contest or failure of Telesat (in which event the provisions of paragraph (2) above shall be applicable) or of the payment, compromise or settlement by Telesat of the Claim.

     (4) If requested by Telesat, the Indemnified Party will cooperate with Telesat and its counsel in contesting any Claim which Telesat elects to contest or, if appropriate and not inconsistent with the reasonable commercial interests of the Indemnified Party, in making any counterclaim against the person asserting the Claim, or any cross-complaint against any Person and will take such other action as reasonably may be requested by Telesat to reduce or eliminate

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any loss or expense for which Telesat would have responsibility, but Telesat will reimburse the Indemnified Party for any and all reasonable expenses incurred by it in so cooperating or acting at the request of Telesat.

     (5) Notwithstanding anything herein to the contrary, neither Telesat nor any Indemnified Party shall pay, compromise or settle any Claim or seek or agree to any equitable relief without the consent of the other party, such consent not to be unreasonably withheld. Telesat shall provide reasonable information to the Indemnified Party on an ongoing basis regarding the contest and the Claim and any proposed payment, compromise or settlement of the Claim and the basis for any equitable relief sought. Unless Telesat shall have abandoned the contesting of a Claim, the Indemnified Party agrees to afford Telesat and its counsel the opportunity to be present at, and to participate in, conferences with all persons, including Regulatory Authorities, asserting such Claim against the Indemnified Party or conferences with representatives of or counsel for such persons.

ARTICLE 8 – GENERAL

8.01 Notice

Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be given by hand, courier (with a copy sent by facsimile), by facsimile or other means of electronic communication (with a copy sent by courier) or by delivery as hereafter provided. Any such notice or other communication, if sent by courier or if sent by facsimile or other means of electronic communication, shall be deemed to have been received on the Business Day following the confirmation of receipt, or if delivered by hand shall be deemed to have been received at the time it is delivered to the applicable address noted below. Notice of change of address shall also be governed by this Section 8.01. Notices and other communications shall be addressed as follows or to such other address as the parties shall notify each other in writing from time to time:

     If to Loral:

Loral Space & Communications Inc.
600 Third Avenue
New York, N.Y. 10016

Attention:       General Counsel
Fax No.:       (212) 338-5320

     If to Telesat:

Telesat Canada
1601 Telesat Court
Gloucester, Ontario
K1P 5P4

Attention:     Vice President Law
Fax No.:      (613) 748-8784

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8.02 Performance on Holidays

If any action is required to be taken pursuant to this Agreement on or by a specified date which is not a Business Day, then such action shall be sufficiently taken if taken on or by the next succeeding Business Day.

8.03 Governing Law

This Agreement shall be governed by, and interpreted and enforced in accordance with, the laws in force in the Province of Ontario (excluding any conflict of laws rule or principle which might refer such construction to the laws of another jurisdiction). Each Party irrevocably submits to the non-exclusive jurisdiction of the courts of Ontario with respect to any matter arising hereunder or related hereto.

8.04 Entire Agreement

This Agreement and all documents contemplated by or delivered under or in connection with this Agreement, constitute the entire agreement among the Parties with respect to the subject matter hereof and supersede all prior agreements, negotiations, discussions, undertakings, representations, warranties and understandings, whether written or oral, among any of the Parties.

8.05 Further Assurances

Each Party shall from time to time promptly execute and deliver such further documents, and take such further action, as may be reasonably necessary or appropriate to give effect to the provisions and intent of this Agreement and to complete the transactions contemplated by this Agreement.

8.06 Expenses

Each Party shall pay all expenses it incurs in authorizing, preparing, executing and performing this Agreement including all fees and expenses of its respective legal counsel, investment bankers, brokers, accountants or other representatives or consultants.

8.07 Amendments

Except as expressly provided in this Agreement, no amendment, supplement, restatement, replacement or termination of any provision of this Agreement is binding unless it is in writing and signed by all the Parties, at the time of the amendment, supplement, restatement, replacement or termination, and such writing shall be binding on all parties to this Agreement.

8.08 Waiver of Rights

No waiver of any provision of or consent to depart from this Agreement is binding unless it is in writing and signed by all the Parties. No failure to exercise, and no delay in exercising, any right or remedy unless this Agreement will be deemed to be a waiver of that right or remedy. No

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waiver of any breach of any provision of this Agreement will be deemed to be a waiver of any subsequent breach of that provision.

8.09 Remedies Cumulative

The rights and remedies under this Agreement are cumulative and in addition to, and not in substitution for, any other rights and remedies, available at law or in equity or otherwise. No single or partial exercise by a party of any right or remedy precludes or otherwise affects the exercise of any other right or remedy to which that party may be entitled.

8.10 Assignment

Neither Party may assign this Agreement or any rights or benefits hereunder to any Person without the other Party’s consent, such consent not to be unreasonably withheld.

8.11 Successors and Assigns

This Agreement shall enure to the benefit of and be binding upon the Parties and their respective successors (including any successor by reason of amalgamation or statutory arrangement) and permitted assigns.

8.12 Counterparts

This Agreement and any amendment, supplement, restatement or termination of any provision of this Agreement may be executed and delivered in any number of counterparts, each of which when executed and delivered is an original but all of which taken together shall constitute one agreement.

8.13 Survival

The provisions of Article 6 and Article 7 shall remain in effect after the expiry or termination of this Agreement, until such time as the Parties mutually agree to the release of the obligations contained therein. No termination of this Agreement by a Party shall affect the rights and obligations of the other Party which have accrued as of the date of such termination.

8.14 No Agency, Partnership or Joint Venture

In giving effect to this Agreement, no Party shall be or be deemed an agent or employee of the other Party for any purpose and their relationship to each other shall be that of independent contractors. Nothing in this Agreement shall constitute a partnership or a joint venture between the Parties. No Party shall have the right to enter into contracts on behalf of, pledge the credit of, or incur liabilities on behalf of, the other Party.

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     IN WITNESS WHEREOF the Parties have executed this Agreement as of the day and year first above written.

LORAL SPACE & COMMUNICATIONS INC.
 

By:  

By:  

TELESAT CANADA
 

By:  

By:  

SHAREHOLDERS AGREEMENT

This Agreement is made as of •, 2007, between

PUBLIC SECTOR PENSION INVESTMENT BOARD, a Special Act Corporation formed under the laws of Canada (“PSP Parent”)

and

RED ISLE PRIVATE INVESTMENTS INC., a corporation incorporated under the laws of Canada (“PSP”)

and

LORAL SPACE & COMMUNICATIONS INC., a corporation incorporated under the laws of the State of Delaware (“Loral Space”)

and

LORAL SPACE & COMMUNICATIONS HOLDINGS CORPORATION, a corporation incorporated under the laws of the State of Delaware (“Loral Parent”)

and

LORAL HOLDINGS CORPORATION, a corporation incorporated under the laws of the State of Delaware (“Loral”)

and

LORAL SKYNET CORPORATION, a corporation incorporated under the laws of the State of Delaware (“Loral Skynet”)

and

JOHN P. CASHMAN, of the City of Toronto, in the Province of Ontario (“TPI #1”, and together with TPI #2, the “Third Party Investors”)

and

COLIN D. WATSON, of the City of Toronto, in the Province of Ontario (“TPI #2”, and together with TPI #1, the “Third Party Investors”)

and

4363205 CANADA INC., a corporation incorporated under the laws of Canada (the “Company”)

and

4363213 CANADA INC., a corporation incorporated under the laws of Canada (“Interco”)

and

TELESAT CANADA, a corporation amalgamated under the laws of Canada (“Telesat”)

and

MHR FUND MANAGEMENT LLC, a limited liability company formed under the laws of the State of Delaware

RECITALS

A.	The authorized capital of the Company will consist of (i) an unlimited number of common shares, convertible on a one-to-one basis at the option of the holder into Voting Participating Preferred Shares or Non-Voting Participating Preferred Shares (each as defined below) (“Common Shares”), (ii) an unlimited number of redeemable common shares, convertible on a one-to-one basis at the option of the holder into Redeemable Non-Voting Participating Preferred Shares (the “Redeemable Common Shares”), (iii) an unlimited number of participating preferred shares, voting on all matters other than the election of directors and convertible at the option of the holder on a one-to-one basis into Common Shares or Non-Voting Participating Preferred Shares (the “Voting Participating Preferred Shares”), (iv) an unlimited number of non-voting participating preferred shares, convertible at the option of the holder on a one-to-one basis into Common Shares or Voting Participating Preferred Shares (the “Non-Voting Participating Preferred Shares”), (v) an unlimited number of redeemable non-voting participating preferred shares, convertible on a one-to-one basis at the option of the holder into Redeemable Common Shares (the “Redeemable Non-Voting Participating Preferred Shares”), (vi) 1000 fixed rate, non-participating preferred shares, voting only for the election of directors (the “Director Voting Preferred Shares”) and (vii) 300,000 non-voting, non-participating senior preferred shares (the “Fixed Rate Preferred Shares”), each class of shares as identified above having the rights, restrictions, conditions and limitations set out in the Articles of Amendment of the Company, a copy of which is attached hereto as Schedule A.
B.	All the issued and outstanding shares of the Company are owned beneficially and of record by the Shareholders as set out in Schedule B.
C.	The Company now owns beneficially and of record all the issued and outstanding shares in the capital of Interco.
D.	Interco now owns beneficially and of record all of the issued and outstanding shares in the capital of Telesat.

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E.	4363230 Canada Inc., all of the shares of which were owned beneficially and of record by Interco, was amalgamated with Telesat Canada on •, 2007, to form Telesat.
F.	Loral Skynet has entered into this Agreement conditionally and only upon it becoming a holder of Equity Shares which may be transferred to it pursuant to the Skynet Asset Transfer Agreement and pending a transfer of such Equity Shares to Loral pursuant to Section 7.04.
G.	The Shareholders wish to enter into this Agreement to record their agreement as to the manner in which the affairs of the Company, Interco and Telesat shall be conducted.
H.	The parties intend this Agreement to be a unanimous shareholder agreement of the Company within the meaning of Section 146 of the CBCA.

FOR VALUE RECEIVED, the parties agree as follows:

ARTICLE 1 — INTERPRETATION

1.01 Definitions

In this Agreement:

(a)	“Accepting Shareholder” has the meaning given to it in Section 7.08(3)(c).
(b)	“Affiliate” means a Person which, directly or indirectly, Controls, is Controlled by, or is under common Control with, another. For the purposes of this Agreement, neither (i) MHR Fund nor any of its Affiliates shall be considered to be an Affiliate of Loral Space or any of its Affiliates, nor (ii) Loral Space nor any of its Affiliates shall be considered to be an Affiliate of MHR Fund or any of its Affiliates, provided that nothing in this definition shall be construed to imply that either Loral Space is not an Affiliate of any of its Subsidiaries, or that any Subsidiaries of Loral Space are not Affiliates of Loral Space.
(c)	“Agreement” means this agreement, including any recitals and schedules to this agreement, as amended, supplemented or restated from time to time.
(d)	“Ancillary Agreement” means an agreement dated August 7, 2007 pursuant to which certain adjustments related to, among other things, the Skynet Asset Transfer Agreement may become payable, in the form attached as Schedule K.
(e)	“Annual Budget” has the meaning given to it in Section 4.01(3).
(f)	“Applicable Law” in respect of any Person, property, transaction or event, means all present and future laws, statutes, regulations, treaties, judgments and decrees applicable to that Person, property, transaction or event and, whether or not having the force of law, all applicable official directives, rules, consents, approvals, authorizations, guidelines, orders and policies of any Governmental Authority having or purporting to have authority over that Person, property, transaction or event.

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(g)	“Arbitration Act” means the Arbitration Act 1991 (Ontario).
(h)	“Arbitrator” has the meaning given to it in Schedule E.
(i)	“Arm’s Length” has the meaning given to it in the Income Tax Act (Canada) as in effect on the date hereof.
(j)	“Articles” means the articles of incorporation of the Company, as amended, restated or replaced from time to time in accordance with this Agreement.
(k)	“Associate” has the meaning given to that term in the CBCA as in effect on the date hereof. For the purposes of this Agreement, neither (i) MHR Fund, any of its Affiliates, nor any of their respective Affiliates or Associates shall be considered to be an Associate of Loral Space or any of its Associates, nor (ii) Loral Space, any of its Affiliates, nor any of their respective Affiliates or Associates shall be considered to be an Associate of MHR Fund or any of its Associates, provided that nothing in this definition shall be construed to imply that either Loral Space is not an Associate of any of its Subsidiaries, or that any Subsidiaries of Loral Space are not Associates of Loral Space.
(l)	“Auditor” means the auditor of the Company appointed by the Shareholders from time to time in accordance with this Agreement.
(m)	“Board” means the board of directors of the Company.
(n)	“Business Day” means any day other than a Saturday, a Sunday or a day on which (1) the principal Canadian bank of the Company is required or authorized to close in the City of Toronto or banks are closed for business in New York City; or (2) the principal offices of any party to this Agreement as to whom the definition of Business Day is being applied in any specific case are closed or become closed prior to 2:00 p.m. local time, whether in accordance with established company practice or by reason of unanticipated events, including adverse weather conditions.
(o)	“Business Plan” means the five-year business plan of Telesat as prepared, updated and amended in accordance with Sections 4.01 and 4.02 and includes the Initial Business Plan.
(p)	“Business Plan Update Date” has the meaning given to it in Section 4.02.
(q)	“By-laws” means the by-laws of the Company attached to this Agreement as Schedule C, as amended, restated or replaced from time to time in accordance with this Agreement.
(r)	“Capital Lease” means, for any Person, a lease of any interest in any kind of property (whether real, personal or mixed) or asset by such Person as lessee that is, should be, or should have been, recorded as a “capital lease” on the balance sheet of such Person in accordance with GAAP.
(s)	“CBCA” means the Canada Business Corporations Act, R.S.C. 1985, c. C.44.

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(t)	“CEO” means the chief executive officer of the Company, Interco and Telesat.
(u)	“Change in Law” has the meaning given to it in Section 7.12.
(v)	“Chairperson” has the meaning given to it in Section 3.02(3).
(w)	“Common Shares” has the meaning given to it in Recital A.
(x)	“Company Sale Notice” has the meaning given to it in Section 7.08(3)(b).
(y)	“Confidential Information” has the meaning given to it in Section 2.04(1)(a).
(z)	“Consulting Services Agreement” means the agreement of that name made as of the Effective Date, entered into between Loral Space and Telesat as attached hereto as Schedule D, as amended, restated or replaced from time to time in accordance with this Agreement.
(aa)	“Control” (including, with correlative meanings, the terms Controlled by and under common Control with) means the possession of the power, in law or in fact, to direct or cause the direction of the management and policies of a corporation whether through legal and beneficial ownership of a majority of voting securities of such corporation, by agreement or otherwise.
(bb)	“Costs and Expenses” means all costs, expenses and charges of any kind including interest charges on borrowed funds, legal fees and disbursements.
(cc)	“Designee” has the meaning given to it in Section 7.07(1).
(dd)	“Director” means a director of the Company.
(ee)	“Director Voting Preferred Shares” has the meaning given to it in Recital A.
(ff)	“Director Voting Preferred Share Transfer Notice” has the meaning given to it in Section 7.11.
(gg)	“Drag-along Shareholder” has the meaning given to it in Section 7.08(2).
(hh)	“Effective Date” means •, 2007.
(ii)	“Equity Shareholder” means any Shareholder holding Equity Shares.
(jj)	“Equity Shares” means the Common Shares, the Redeemable Common Shares, the Voting Participating Preferred Shares, the Non-Voting Participating Preferred Shares and the Redeemable Non-Voting Participating Preferred Shares.
(kk)	“Excess Shares” has the meaning given to it in Section 7.12.
(ll)	“Executive Officer” means the CEO, Chief Financial Officer or Chief Operating Officer of the Company and any other position of officer specifically referred to in the By-laws as being elected or appointed by the Board.

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(mm)	“Extraordinary Resolution” means a resolution of the Shareholders approved by each of Loral and PSP.
(nn)	“Fair Market Value” of any Shares means the fair market value per Share of Shares of any class as relevant to such determination on any particular date determined in accordance with Section 8.03, and for the purposes of this determination “Fair Market Value” means the highest cash price available in an open and unrestricted market between informed and willing parties acting at Arm’s Length and under no compulsion to act, with no discount for minority interests or illiquidity and no premium for a control block of Equity Shares.
(oo)	“Fixed Rate Preferred Shares” has the meaning given to it in Recital A.
(pp)	“GAAP” means generally accepted accounting principles in effect in Canada including the accounting recommendations published in the Handbook of the Canadian Institute of Chartered Accountants.
(qq)	“Governmental Authority” means any domestic or foreign government, including any federal, provincial, state, territorial or municipal government, and any court and any government agency, board, commission, tribunal or other authority exercising or purporting to exercise executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, government.
(rr)	“Hedge Agreement” means any and all transactions, agreements or documents now existing or hereafter entered into by any Person which provide for an interest rate, credit, commodity or equity swap, cap, floor, collar, forward foreign exchange transaction, currency swap, cross currency rate swap, currency option, or any combination of, or option with respect to, these or similar transactions, for the purpose of hedging exposure to fluctuations in interest or exchange rates, loan, credit exchange, security or currency valuations or commodity prices.
(ss)	“Indebtedness” of any Person means, without duplication, (i) all obligations of such Person, however incurred, including obligations for borrowed money; (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments and all reimbursement or other obligations in respect of letters of credit, bankers acceptances, derivatives or other financial products; (iii) all obligations of such Person as a lessee under Capital Leases; (iv) all obligations or liabilities of others secured by a Lien on any asset of such Person, irrespective of whether such obligation or liability is assumed; (v) all obligations of such Person to pay the deferred purchase price of assets; (vi) all obligations of such Person owing under Hedge Agreements; and (vii) all obligations of such Person guaranteeing or intended to guarantee (whether directly or indirectly guaranteed, indemnified, endorsed, co-made, discounted, or sold with recourse) any obligation of any other Person that constitutes Indebtedness of such other Person under any of clauses (i) through (vi) above.
(tt)	“Independent Director” has the meaning given to it in Section 3.03(1).
(uu)	“Initial Business Plan” has the meaning given to it in Section 4.01(1).

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(vv) “Insolvency Proceedings” by or against a Person means any voluntary or involuntary case or proceeding (including the filing of any notice) under Applicable Law in any jurisdiction, or any action taken pursuant to any contractual right of a secured party under any instrument by which such Person is bound, in respect of the:

(i)	bankruptcy, liquidation, winding-up, dissolution or other permanent suspension of general operations of such Person;
(ii)	composition, rescheduling, reorganization, arrangement or readjustment of, or other relief from, or stay of proceedings to enforce, all or a material part of the debts or obligations of such Person;
(iii)	appointment of a trustee, receiver, receiver and manager, sequestrator, liquidator, administrator, custodian or other official for all or a material part of the assets of such Person; or
(iv)	possession, foreclosure or retention, sale or other disposition of, or other proceedings to realize on the security of, all or a substantial part of the assets of such Person in the course of the enforcement of security over such assets.

(ww)	“Intellectual Property” means all patents and patent rights, industrial designs, trade-marks and trade-mark rights, trade names and trade name rights, service marks and service mark rights, service names and service name rights, brand names, inventions, copyrights and copyright rights, computer software (other than off-the-shelf application software purchased in the ordinary course of business), processes, formulae, trade dress, business and product names, logos, slogans, trade secrets, industrial models, processes, designs, methodologies and related documentation, technical information, manufacturing, engineering and technical drawings, know-how and any pending applications for and registrations of patents, industrial designs, trade-marks, service marks and copyrights, including any goodwill connected with or symbolized by the foregoing.
(xx)	“Interested Party” means (1) any Shareholder or any Affiliate or Associate of a Shareholder, (2) any director, officer or employee of a Shareholder or any of its Affiliates or Associates or any Associate of such director, officer or employee or (3) any Person who has, or whose Affiliate or Associate has, any relationship with a Shareholder that might be considered to be material to such Person, provided that (i) a Third Party Investor, or an assignee of a Third Party Investor, shall not be considered to be an Interested Party, and (ii) subject to Section 3.03(1), neither MHR Fund, any of its Affiliates or Associates nor any of their respective Affiliates or Associates shall be considered to be an Interested Party except in its capacity as a Shareholder, if and when it becomes a Shareholder (and then only through direct ownership of Shares by MHR Fund or any such Affiliate or Associate, but not through any other Person).
(yy)	“Lien” means any lien, mortgage, charge, hypothec, encumbrance, security interest, pledge, hypothecation, deposit arrangement, priority, conditional sale

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	agreement, other title retention agreement, lease intended as security or which secures payment or performance of an obligation, or other security agreement or instrument.
(zz)	“Loral Alternative Subscription Agreement” means an agreement dated August 7, 2007 pursuant to which Loral Space has agreed to transfer cash and assets to the Company in the event that the transactions contemplated by the Skynet Asset Transfer Agreement and the Skynet Sale Agreement shall not have been consummated by •, 2008, in the form attached hereto as Schedule I.
(aaa)	“Loral Approval” means approval by Loral (or any successor thereof), so long as it holds any Equity Shares of the Company, or by a Permitted Transferee of Loral’s Equity Shares if Loral no longer holds any Equity Shares, in any case subject to Section 5.02(3).
(bbb)	“Loral Change of Control” means the occurrence of any of the following events:

(i)	Mark Rachesky ceases to own, manage or Control, either directly or through entities managed or Controlled by him, more than 18% of the aggregate voting power of all outstanding securities of Loral Space for the election of directors (including for such purpose any voting power that would attach to shares issuable upon exercise of rights of conversion into voting             shares whether exercisable currently or contingently), other than in connection with or as a result of a transfer, in one or more transactions, of securities to a Strategic Competitor;
(ii)	a Person or group of Persons who are acting jointly or in concert pursuant to the provisions of the Securities Act (Ontario) acquires, directly or indirectly, ownership of securities having the aggregate voting power for the election of directors of Loral Space that is greater than the aggregate voting power for the election of directors of Loral Space then owned by Mark Rachesky, either directly or through entities managed or Controlled by him (including for such purpose any voting power that would attach to shares issuable upon exercise of rights of conversion into voting shares whether exercisable currently or contingently), other than in connection with or as a result of a transfer, in one or more transactions, of securities to a Strategic Competitor; or
(iii)	during any period of two consecutive years, individuals who at the beginning of such period constituted the board of directors of Loral Space, together with any new directors whose election or appointment by such board of directors, or whose nomination for election by the shareholders of Loral Space was approved by a vote of at least a majority of the directors of Loral Space then still in office who were entitled to vote and who were either directors of Loral Space at the beginning of such period or whose election or appointment, or whose nomination for election, was previously approved, ceases for any reason (other than as a result of action of Mark

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Rachesky, either directly or through entities managed or Controlled by him) to constitute a majority of the board of directors of Loral Space;

provided that in any event (i) a Loral Change of Control shall be deemed to have occurred only once, and not on any subsequent date which may be otherwise considered to be a Loral Change of Control, and (ii) a Loral Change of Control (as defined in clauses (i) and (ii) above) shall be deemed not to have occurred as a result of the voting power (including for such purposes any voting power that would attach to shares issuable upon exercise of right of conversion into voting shares whether exercisable currently or contingently) of Mark Rachesky, whether directly or through entities managed or Controlled by him, in Loral Space being reduced for any reason other than (x) to effect a decision made by him personally, whether directly or indirectly through entities managed or Controlled by him, to reduce such voting power or (y) as a result of an agreement or arrangement entered into by him personally whether directly or through entities managed or Controlled by him; provided that, in the event of a Loral Change of Control, Loral shall notify the Company and PSP promptly upon the occurrence thereof, but in no event more than 10 days after the occurrence of such Loral Change of Control, and if such notification is not made within such 10 day period, the time periods for the exercise of rights by PSP set forth in this Agreement that are triggered from the date of a Loral Change of Control shall be extended by one day for each day (commencing from the end of such 10 day period) that the Company and PSP have not received such notice; provided that, for additional clarity, all rights of PSP that arise from a Loral Change of Control, and all rights of Loral that are modified or cease as a result of a Loral Change of Control, shall arise (in the case of PSP) or be modified or cease (in the case of Loral) as of the date of such Loral Change of Control, with the effect that only the time periods which PSP has to exercise its rights shall be affected by the notice requirements in this proviso.

(ccc)

“Loral Cost” means an amount per Equity Share equal to the aggregate of (i) the cash contribution made by Loral and/or its Affiliates to the Company in consideration of the issuance to Loral and/or its Affiliates of all Equity Shares purchased by Loral for cash, (ii) the amount paid by Loral and/or its Affiliates for any Equity Shares purchased by Loral and/or its Affiliates upon exercise of all rights of first offer pursuant to Section 7.07 or pre-emptive rights pursuant to Section 6.01, (iii) if the T-11N Contribution shall have occurred, the T-11N Valuation, and (iv) if the closing shall have occurred under the Skynet Asset Transfer Agreement, an amount equal to the product of (X) the Transferred Property Value less the Sale Asset Purchase Price less any MAE Adjustment Amount and (Y) the Agreed Exchange Rate (all as defined in the Skynet Asset Transfer Agreement), divided by the number of Equity Shares acquired by Loral or any of its Affiliates as a result of any of the events described in (i), (ii), (iii) and (iv).

(ddd)

“Loral Default” means (i) if the transactions contemplated by the Skynet Asset Transfer Agreement shall have been consummated, the failure of Loral Space and its Affiliates to pay or cause to be paid to Holdco the MAE Adjustment Amount

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	(as defined in the Skynet Asset Transfer Agreement) pursuant to and in accordance with Section 2.08(a) of the Skynet Asset Transfer Agreement and, if applicable, Section 2.1(b) of the Ancillary Agreement, or (ii) if the transactions contemplated by the Skynet Asset Transfer Agreement shall not have been consummated prior to the Alternative Subscription Date (as defined in the Loral Alternative Subscription Agreement), the failure of Loral Space and its Affiliates to transfer or deliver, or cause to be transferred or delivered, the Required Loral Alternative Subscription (as defined in the Loral Alternative Subscription Agreement) pursuant to and in accordance with Section 4.1 of the Loral Alternative Subscription Agreement, or to pay the Closing Amount (as defined in the Loral Alternative Subscription Agreement) pursuant to and in accordance with Section 4.3(a) of the Loral Alternative Subscription Agreement; provided, that for the purposes of this definition only, the provisos in Section 2.8(a) of the Skynet Asset Transfer Agreement, Section 2.1(b) of the Ancillary Agreement and Section 4.3(b) of the Loral Alternative Subscription Agreement shall be disregarded; provided further, that if Loral and/or its Affiliates shall have acquired at least 51.2% of the Equity Shares on or prior to the later of the first anniversary after the acquisition by Interco of all of the shares of Telesat and the Alternative Subscription Date (as defined in the Loral Alternative Subscription Agreement), a Loral Default shall only exist if Loral Space or its Affiliates have failed to pay or cause to be paid to Holdco the MAE Adjustment Amount, or alternatively have failed to transfer or deliver, or cause to be transferred or delivered, the Required Loral Alternative Subscription (as defined in the Loral Alternative Subscription Agreement) or to pay the Closing Amount (as defined in the Loral Alternative Subscription Agreement), as the case may be, prior to the date which is eighteen calendar months after the acquisition by Interco of all of the shares of Telesat.
(eee)	“Loral Nominee” has the meaning given to it in Section 3.02(5)(a).
(fff)	“Material Agreement” means a contract or other legally binding commitment, or series of related contracts or legally binding commitments, written or oral, entered into or renewed after the date hereof involving payments by the Company, Interco or Telesat, or any combination thereof, in excess of $3,000,000 in the aggregate over its term.
(ggg)	“MHR Fund” means MHR Fund Management LLC, or any successor thereto, and any of its Subsidiaries, or any Person that Controls, is Controlled by, or is under common Control with MHR Fund Management LLC, or any successor thereto.
(hhh)	“Nominating Committee” has the meaning given to it in Section 3.03(3).
(iii)	“Non-Resident” means a person who is not a “resident Canadian” within the meaning of the CBCA or a “Canadian” within the meaning of the regulations promulgated under the Telecommunications Act (Canada).
(jjj)	“Non-Voting Participating Preferred Shares” has the meaning given to it in Recital A.

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(kkk)	“Notice” means any notice, approval, demand, direction, consent, designation, request, document, instrument, certificate or other communication required or permitted to be given under this Agreement.
(lll)	“Notice to Arbitrate” has the meaning given to it in Schedule E.
(mmm)	“Observer” has the meaning given to it in Section 3.08.
(nnn)	“Parent” has the meaning given to it in Section 2.03(2)(a).
(ooo)	“Permitted Purchaser” means at the time that any offer to sell Shares is made (the “Relevant Time”), any Person:

(i) who at the Relevant Time is:

(A)	a Shareholder;
(B)	MHR Fund;
(C)	a Permitted Transferee; or
(D)	not a Strategic Competitor of Telesat, or an Affiliate of such a Strategic Competitor;

(ii)	in the case of the sale of Equity Shares by any Shareholder other than Loral to a Person not named in clauses (i) (A), (B) and (C) of this definition, and other than a sale made pursuant to Sections 7.08(1), 7.08(3), 7.09 or 7.11, in respect of whom Loral shall have consented to the sale of such Shares by such Shareholder, which consent shall not be unreasonably withheld;
(iii)	in the case of the sale of Equity Shares by any Shareholder other than PSP to a Person not named in clauses (i) (A), (B) and (C) of this definition, and other than a sale made pursuant to Section 7.08(2) or 7.10, in respect of whom PSP shall have consented to the sale of such Shares by such Shareholder which consent shall not be unreasonably withheld;
(iv)	in the case of a purchaser of Director Voting Preferred Shares, who at the relevant time is an “accredited investor” as defined in Section 1.1 of OSC Rule 45-501 issued pursuant to the Securities Act (Ontario); and
(v)	in the case of each of (i), (ii), (iii) and (iv) of this definition, to whom the sale of the applicable Shares would not be prohibited by Applicable Law and in respect of which sale any required Regulatory Approval, if any, has been obtained or could reasonably be expected to be obtained on terms and conditions reasonably acceptable to the purchaser, the vendor and Telesat;

provided that where Shares are to be purchased by one Person (an “Agent”) (whether as agent, nominee, trustee, broker or otherwise), for the benefit of or on

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	behalf of another Person (the “Principal”), for the purpose of determining whether the Person purchasing such Shares is a Permitted Transferee, regard shall be had to both the Agent and the Principal.
(ppp)	“Permitted Transferee” has the meaning given to it in Section 7.04(1).
(qqq)	“Person” means any natural person, sole proprietorship, partnership, body corporate, corporation, company, trust, joint venture, any Governmental Authority or any incorporated or unincorporated entity or association of any nature.
(rrr)	“Plan Period” has the meaning given to it in Section 4.01(2)(b).
(sss)	“Pro Rata Proportion” of any Shareholder at any time means the percentage that the number of Equity Shares that the Shareholder owns at that time is of the total number of issued and outstanding Equity Shares.
(ttt)	“Proposed Purchaser” has the meaning given to it in Section 7.08(3)(c).
(uuu)	“PSP Call Notice” has the meaning given to it in 7.09(a).
(vvv)	“PSP Designee” has the meaning given to it in Section 7.09(a).
(www)	“PSP Nominee” has the meaning given to it in Section 3.02(5)(a).
(xxx)	“PSP Sell-Down” means the right of PSP to transfer (i) up to 26.667% of the Fixed Rate Preferred Shares owned by PSP on the Effective Date, (ii) any additional amount of Fixed Rate Preferred Shares owned by PSP from time to time as long as (a) the Board resolves in writing prior to such transfer that such transfer of such additional amount will not cause material adverse tax consequences to the Company or (b) such transfer is being made contemporaneously with or following the transfer of all Equity Shares then owned by PSP and its Affiliates, and (iii) up to .5601% of the Equity Shares owned by PSP on the Effective Date.
(yyy)	“Recipient” means, with respect to Confidential Information, a Person identified in Section 2.04(1)(b).
(zzz)	“Redeemable Common Shares” has the meaning given to it in Recital A.
(aaaa)	“Redeemable Non-Voting Participating Preferred Shares” has the meaning given to it in Recital A.
(bbbb)	“Regulatory Approval” in respect of any transaction or proposed transaction means all material approvals, rulings, authorizations, permissions, filings, consents, orders and sanctions (including the lapse without objection of a prescribed time under a statute, regulation, by-law, rule or other legislative or regulatory requirement that states that a transaction may be implemented if a prescribed time elapses following the giving or filing of notice without an objection being made) required to be obtained from or made to any Governmental Authority having jurisdiction or authority over any of the parties to such

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	transaction to permit the completion of such transaction, including those required under the Competition Act (Canada), the Investment Canada Act (Canada) and the Telecommunications Act (Canada).
(cccc)	“ROFO Notice” has the meaning given to it in Section 7.07(1).
(dddd)	“Sale Closing Date” means the date on which any sale of Shares permitted under this Agreement is to be completed in accordance with the relevant provision of this Agreement or as otherwise agreed between the parties.
(eeee)	“Satellite Communications Business” means the business of leasing, selling or otherwise furnishing fixed satellite service, broadcast satellite service (“BSS”) or audio and video broadcast direct to home service (“DTH”) using transponder capacity in the C-band, Ku-band and Ka-band (including in each case extended band) frequencies and the business of providing end-to-end data solutions on networks comprised of earth terminals, space segment, and where appropriate, networking hubs.
(ffff)	“Share” means any of the shares in the capital of the Company.
(gggg)	“Shareholder” means a Person who owns Shares.
(hhhh)	“Shareholder Nominee” means any of the PSP Nominees and the Loral Nominees.
(iiii)	“Skynet Asset Transfer Agreement” means an agreement dated August 7, 2007 pursuant to which Loral Skynet will transfer certain assets of Loral Skynet to the Company in exchange for Equity Shares, in the form attached as Schedule F.
(jjjj)	“Skynet Sale Agreement” means an agreement dated August 7, 2007 pursuant to which Loral Skynet will sell to Skynet Satellite Corporation for cash certain assets of Loral Skynet, in the form attached as Schedule J.
(kkkk)	“Special Shareholder Approval” means the approval of each of PSP and Loral, evidenced by a written instrument executed on behalf of each of PSP and Loral; provided that if Loral sells more than 75% of the Equity Shares owned by Loral and identified in Schedule B (or if the transactions contemplated in the Skynet Asset Transfer Agreement shall have been consummated, more than 75% of the Equity Shares issued to Loral pursuant to such Agreement), after adding thereto (i) any Equity Shares acquired by Loral pursuant to the Loral Alternative Subscription Agreement and (ii) any Equity Shares acquired by Loral at any time including upon exercise of pre-emptive rights pursuant to Section 6.01 and upon exercise of rights of first offer pursuant to Section 7.07, then from the date of the sale through which such aggregate percentage of Equity Shares is sold, the approval of Loral shall not be required; and further provided that if PSP sells more than 50% of the Equity Shares owned by PSP and identified in Schedule B, after adding thereto any Equity Shares acquired by PSP at any time including upon exercise of pre-emptive rights pursuant to Section 6.01 and upon exercise of rights of first offer pursuant to Section 7.07, then from the date of sale

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	through which such aggregate percentage of Equity Shares is sold, the approval of PSP shall not be required.
(llll)	“Strategic Competitor”, with reference to the Company or Telesat, means a Person who is a provider of satellite communications services (which shall include, without limitation, direct to home services) where the sale of such services equals at least 10% of the total annual revenue of such Person and its Affiliates for the most recently completed fiscal year determined on a consolidated basis.
(mmmm)	“Subscription Date” has the meaning given to it in Section 6.01(2)(c).
(nnnn)	“Subscription Period” has the meaning given to it in Section 6.01(3).
(oooo)	“Subsidiary” means a subsidiary body corporate within the meaning of the CBCA but as if the term “control” as used in the CBCA for the purposes of the definition of “subsidiary body corporate” had the meaning given to “Control” in Section 1.01(aa) hereof. For the purposes of this Agreement, Loral shall not be considered to be a Subsidiary of MHR Fund.
(pppp)	“transfer”, when applied to Shares, has the meaning given to it in Section 7.01.
(qqqq)	“T-11N Contribution” has the meaning given to it in Section 4.1 of the Loral Alternative Subscription Agreement.
(rrrr)	“T-11N Valuation” has the meaning given to it in Section 1.1 of the Loral Alternative Subscription Agreement.
(ssss)	“Valuer” has the meaning given to it in Section 8.03(2)(a).
(tttt)	“Vendor’s Valuer” has the meaning given to it in Section 8.03(2)(b).
(uuuu)	“Voting Participating Preferred Shares” has the meaning given to it in Recital A.
(vvvv)	“Wholly-Owned Subsidiary” means a Subsidiary of another body corporate, all of the voting securities of which are owned by such other body corporate.

1.02 Headings and Table of Contents

The division of this Agreement into sections, the insertion of headings and the provision of a table of contents are for convenience of reference only and are not to affect the construction or interpretation of this Agreement.

1.03 References

Unless otherwise specified, references in this Agreement to Sections and Schedules are to sections of, and schedules to, this Agreement.

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1.04 Number and Gender; extended meanings

Unless otherwise specified, words importing the singular include the plural and vice versa and words importing gender include all genders. The term “including” shall be interpreted to mean “including without limitation”.

1.05 Time of Day

Unless otherwise specified, references to time of day or date mean the local time or date in the City of Toronto, Ontario.

1.06 Business Day

If under this Agreement any payment or calculation is to be made or any other action is to be taken, on or as of a day which is not a Business Day, that payment or calculation is to be made, and that other action is to be taken, as applicable, on or as of the next day that is a Business Day. Any extension of time will be included for the purposes of computation of interest.

1.07 Governing Law

This Agreement is governed by, and is to be construed and interpreted in accordance with, the laws of the Province of Ontario and the laws of Canada applicable in the Province of Ontario.

1.08 Conflict

If there is a conflict between the provisions of this Agreement and the Articles or By-laws, the provisions of this Agreement shall prevail to the extent permitted by the CBCA and other Applicable Law. If there is a conflict between any provision of this Agreement and any other document contemplated by or delivered under or in connection with this Agreement (except an instrument delivered under Section 10.08 or changes to the shareholding set out in Schedule B as a result of consummation of the transactions contemplated by the Skynet Asset Transfer Agreement or the Loral Alternative Subscription Agreement), the relevant provision of this Agreement shall prevail.

1.09 Severability

If any provision of this Agreement is or becomes illegal, invalid or unenforceable in any jurisdiction, the illegality, invalidity or unenforceability of that provision will not affect

(a)	the legality, validity or enforceability of the remaining provisions of this Agreement; or
(b)	the legality, validity or enforceability of that provision in any other jurisdiction.

1.10 Time of Essence

For every provision of this Agreement, time is of the essence.

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1.11 Statutory References

Unless otherwise provided herein, each reference to an enactment is deemed to be a reference to that enactment, and to the regulations made under that enactment, as amended or re-enacted from time to time.

1.12 Schedules

The following Schedules are attached to and form part of this Agreement:

Schedule A	-	Articles of Amendment of the Company
Schedule B	-	Shareholdings
Schedule C	-	By-laws of the Company
Schedule D	-	Consulting Services Agreement
Schedule E	-	Arbitration Procedures
Schedule F	-	Skynet Asset Transfer Agreement
Schedule G	-	PSP Parent Investment Policies
Schedule H	-	Acknowledgement of Transferees of Shares
Schedule I	-	Loral Alternative Subscription Agreement
Schedule J	-	Skynet Sale Agreement
Schedule K	-	Ancillary Agreement

1.13 Entire Agreement

This Agreement, and all documents contemplated by or delivered under or in connection with this Agreement, constitute the entire agreement between the parties with respect to the subject matter thereof and supersede all prior agreements, negotiations, discussions, undertakings, representations, warranties and understandings, whether written or oral, with respect to the subject matter thereof, including the letter agreement between Loral Space and PSP Parent dated December 14, 2006, and any memoranda or statements prepared by any of the parties or their respective counsel, including any document prepared for submission, or submitted, to BCE Inc., its advisors, or any other party, in connection with the acquisition by Interco of Telesat Canada, concerning the proposed terms and conditions of this Agreement.

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1.14 GAAP

Unless otherwise specified, all financial statements to be prepared in respect of any accounting period are to be prepared in accordance with GAAP applied on a basis consistent with that of the prior accounting period.

1.15 Unanimous Shareholder Agreement

This Agreement is intended to be a unanimous shareholder agreement of the Company within the meaning of Section 146 of the CBCA. To the extent that this Agreement specifies that any matter may only be, or shall be, dealt with or approved by or requires action by a Shareholder or the Shareholders, the powers of the directors of the Company to manage the business and affairs of the Company with respect to those matters are correspondingly restricted.

ARTICLE 2 — REPRESENTATIONS, WARRANTIES AND COVENANTS

2.01 Shareholders

Each Shareholder severally represents and warrants to the other parties that:

(a)	except for the Third Party Investors, it has been duly incorporated and is validly subsisting as a corporation under the laws of its jurisdiction of incorporation;
(b)	it has the corporate power, or in the case of a Third Party Investor, he has the power, to own the Shares owned by it or him and to enter into and to perform its or his obligations under this Agreement;
(c)	it or he owns beneficially and of record the Shares set out opposite its or his name in Schedule B;
(d)	the Shares set out opposite its or his name in Schedule B are held by it or him free and clear of all Liens or adverse claims of any other Person and no Person, other than the parties pursuant to the provisions of this Agreement, has any agreement or any option or right capable of becoming an agreement for the acquisition of any such Shares;
(e)	this Agreement has been duly authorized, executed and delivered by it or him and constitutes a legal, valid and binding obligation enforceable against it or him in accordance with its terms subject, as to enforcement, to Applicable Law affecting the rights of creditors generally and to general principles of equity and the availability of equitable remedies which are in the discretion of the court;
(f)	the execution, delivery and performance of this Agreement will not violate any material provision of any indenture, agreement or other instrument to which it or he is a party or by which it or he is bound or conflict with, result in or constitute a material breach of, or constitute a material default under, any such indenture, agreement or other instrument or result in the creation or imposition of any Lien on any of its or his property or assets; and

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(g) in the case of each Third Party Investor, such Person qualifies as an Independent Director pursuant to Section 3.03 and is a “resident Canadian” within the meaning of the CBCA and a “Canadian” within the meaning of the regulations passed under the Telecommunications Act (Canada).

2.02 Telesat

     (1) Shareholdings in Telesat. The Company represents and warrants to the other parties hereto that it owns, beneficially and of record, all the issued and outstanding shares in the capital of Interco. Interco represents and warrants to the other parties hereto that it owns, beneficially and of record, all of the issued and outstanding shares of Telesat. The Company and Interco each acknowledge that under Section 5.01(1)(c), any sale, lease, exchange, transfer, encumbrance or other disposition of such shares of Interco owned by the Company, or of Telesat owned by Interco, must be authorized by Special Shareholder Approval.

     (2) Control Over Interco and Telesat. The Company shall cause Interco to take or cause to be taken all such actions as may reasonably be required to give effect to the intent of this Agreement. Interco shall cause Telesat to take or cause to be taken all such action as may be reasonably required to give effect to the intent of this Agreement.

     (3) Unanimous Shareholder Declaration. Without limiting Section 2.02(2), immediately after the execution and delivery of this Agreement, the Company, in its capacity as sole shareholder of Interco, and Interco, in its capacity as sole shareholder of Telesat, shall each make a written declaration in accordance with subsection 146(2) of the CBCA in form and substance satisfactory to the Shareholders. Such written declarations shall (x) restrict the powers of the directors of Interco, or Telesat, as the case may be, to manage its business and affairs in the same manner as this Agreement restricts the powers of the Directors to manage the business and affairs of the Company, (y) provide that the directors and executive officers of Interco and Telesat shall be the same as the Directors and Executive Officers, and (z) apply to Interco and Telesat terms and conditions of substantially the same tenor and effect as those contained in Article 3 and Article 5. The Company shall not amend waive, vary, rescind or terminate such written declaration, and the Company shall not permit Interco or Telesat to, and Interco and Telesat shall not, amend, waive, vary, rescind or terminate such written declaration, unless so authorized by Extraordinary Resolution.

2.03 Covenants of the Shareholders

     (1) Voting. Each of the Shareholders agrees that (1) it will vote or cause to be voted all the Shares owned by it and otherwise act, and in all other respects use its reasonable best efforts and take all such steps as may be within its power, so as to comply with, and to cause its Controlled Affiliates and the Company to comply with, and act in a manner consistent with, the provisions of this Agreement and so as to implement this Agreement; and (2) if any Shareholder Nominee nominated by it refuses or fails to exercise his or her discretion in a manner consistent with this Agreement, notwithstanding anything to the contrary in this Agreement, such Shareholder shall take all necessary actions to remove such Shareholder Nominee as a Director and as a director of Interco and Telesat and the other Shareholders shall co–operate in such action.

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     (2) Subsidiaries.

(a)

Each party to this Agreement, except MHR Fund until it shall become, and only so long as it continues to be, a Shareholder (each, a “Parent”), covenants and agrees with each other party to this Agreement that it shall cause, directly or through its Affiliates, each of its Subsidiaries and Controlled Affiliates (whether now or hereafter existing) that may or at any time own Shares (each a “Subsidiary Shareholder”), to perform the Subsidiary Shareholder’s obligations under and otherwise act in accordance with this Agreement. A Parent shall be jointly and severally liable, as principal obligor and not as a guarantor, with any such Subsidiary Shareholder for the due performance by the Subsidiary Shareholder of its obligations under this Agreement. The obligation of each Parent hereunder is unconditional and any party hereto may obtain the enforcement of the obligations of such Parent without any requirement that such party first proceed against the Parent’s Subsidiary Shareholder; and each Parent hereby waives the benefit of any defences available to a guarantor or other surety in respect of such obligation.

(b)

Each Parent covenants and agrees with the other parties that:

(i)	it shall retain direct or indirect Control of any Subsidiary Shareholder so long as the Subsidiary Shareholder holds Shares; and
(ii)	it shall not agree to be or be the subject of or a party to any transaction whereby or as a consequence of which Equity Shares or voting interests therein would be or are acquired, directly or indirectly through a chain of ownership, by a Strategic Competitor of the Company or Telesat.

(c)	Without limiting Section 2.03(2)(b), neither the Board nor the Company shall recognize any direction, instruction or notice from any Person or group of Persons who acquires, directly or indirectly, Control of a Subsidiary Shareholder as a result of a transfer or acquisition of securities of such Subsidiary Shareholder or securities or other voting interests of any other Person resulting in a breach of this Section 2.03(2).
(d)	For greater certainty, nothing in this Section 2.03(2) shall prevent, restrict, impede or in any manner affect any transaction or series of related transactions through which Loral Space may be merged, combined or amalgamated with or into any other Person, or any securities or assets of Loral Space or any of its Affiliates (other than Loral, the Company or any of its Subsidiaries) may be sold to, transferred to or exchanged for securities or property of any other Person.
(e)	For the purposes of this Section 2.03(2), MHR Fund shall be deemed not to be a party to this Agreement and this Section 2.03(2) shall not apply to MHR Fund, nor shall it create any obligation on MHR Fund, until MHR Fund shall become, and only so long as it continues to be, a Shareholder.

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2.04 Confidentiality.

     (1) Defined Terms. For the purposes of this Section 2.04:

(a) “Confidential Information” means all oral, written and/or tangible information, documentation, knowledge, data or know-how that is owned, acquired or controlled by, or relating to:

(i) the Company, Interco or Telesat, or any of their Subsidiaries, or acquired or developed for the benefit of the Company, Interco, Telesat, or any of their Subsidiaries, or

(ii) a Shareholder and disclosed to another Shareholder in connection with the business and affairs of the Company, Interco or Telesat or the exercise of any rights of a Shareholder under this Agreement,

(each of the Company, Interco, Telesat and such Shareholder, being an “Owner”), regardless of its form, that is confidential, proprietary and/or not generally available to the public, including information relating in whole or in part to present and future products, services, business plans and strategies, marketing ideas and concepts (including those with respect to unannounced products and services), unpatented inventions, software, present and future product plans, pricing, financial data, product enhancement information, business plans, marketing plans, sales strategies, customer information or technical and business information, supplier and customer lists, marketing information, product information, trade secrets and computer software, but excluding any information:

(A)	that is already known to the Recipient other than as a result of disclosure made to such Recipient related to the acquisition of a shareholding interest in the Company or the acquisition by Interco of Telesat;
(B)	that is or becomes part of the public domain by publication or otherwise without any breach of this Agreement;
(C)	that has been published or is otherwise in the public knowledge or is generally known to the public at the time of its disclosure to the Recipient or that is obtained after the date of this Agreement from another source without any breach of this Agreement; or
(D)	that was not obtained from another source and that can be demonstrated by the Recipient to have been known or available to or independently developed by the Recipient before disclosure to the Recipient.

For greater certainty, this Agreement and the unanimous shareholder declaration of Interco and Telesat referred to in Section 2.02(3) constitute Confidential Information.

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(b) “Recipient” of Confidential Information means any Person that is a party to or bound by this Agreement and that acquires, receives or otherwise becomes aware of Confidential Information.

     (2) Prohibited Disclosure. From and after the date hereof, each Recipient shall, and shall cause its Affiliates and Associates to, keep confidential and not disclose to any Person any Confidential Information except as permitted under Section 2.04(3).

     (3) Permitted Disclosure. A Recipient may disclose Confidential Information:

(i)	for the purpose of advancing the business or interests of the Company, Interco or Telesat including for the purposes of obtaining all approvals for the acquisition of Telesat by Interco;
(ii)	to those of its, or its Associates’ or Affiliates’, directors, employees, agents or advisors who either are bound by the duties of their employment or engagement to maintain the confidentiality of the Confidential Information or enter into a confidentiality agreement in a form reasonably acceptable to the Owner;
(iii)	to MHR Fund;
(iv)	as may be required of the Recipient under Applicable Laws, subject to use of reasonable best efforts to prevent or withhold, or minimize, disclosure pursuant to such Applicable Laws, and subject to providing the Company, to the extent not prohibited under Applicable Law, with prompt notice prior to the time of such disclosure in order to permit the Company to seek an appropriate protective order;
(v)	as may be necessary to describe the basis of the transaction for the acquisition of Telesat, the transaction size and the names of the parties involved, as part of the promotional materials of a Shareholder or MHR Fund;
(vi)	to any Person authorized by the applicable Owner to receive Confidential Information;
(vii)	to any Person to whom such disclosure is required in order for the Recipient to defend or prosecute successfully an action, claim or proceeding to which the Recipient is a party;
(viii)	to any Person to whom disclosure is required or requested to be made as contemplated by Section 2.04(6); and
(ix)	to any Person to whom a Shareholder wishes or has offered to sell all or part of such Shareholder’s Shares provided that such Person has executed and delivered to the Owner a confidentiality agreement in form and substance satisfactory to the Owner, acting reasonably, relating to

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Confidential Information that may be disclosed to such Person in the course of negotiations.

     (4) Notwithstanding anything to the contrary contained in this Agreement, no press release or public statement that mentions PSP or Red Isle shall be made by any party to this Agreement without the prior consent of PSP, unless such mentioning is required by Applicable Law or the obligation of a party or its Affiliate pursuant to any listing agreement with or rules of any stock exchange or securities commission.

     (5) Treatment of Confidential Information. Each Recipient shall use at least the same degree of care in maintaining the confidentiality of any Confidential Information in its possession or under its control as it uses in maintaining the confidentiality of its own confidential information of comparable nature and importance, but in no event with less care than is reasonable given the nature of the Confidential Information.

     (6) Legal Compulsion. A Recipient (and its Affiliates and Associates) may disclose Confidential Information if so requested or required by any Governmental Authority of competent jurisdiction (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) and if at the time of such request or requirement the Recipient is reasonably satisfied (whether on the basis of express or implied undertakings or other reliable assurances, established administrative practice or requirements imposed by Applicable law) that the recipient of such Confidential Information will be required to maintain such Confidential Information in confidence.

     (7) Remedies for Breach. Each party acknowledges that a breach or threatened breach of its obligations under this Section 2.04 to any Owner would result in irreparable harm to such Owner which could not be calculated or adequately compensated by recovery of damages alone. Each party therefore agrees that any Owner whose Confidential Information a Recipient discloses or threatens to disclose in breach of this Agreement shall be entitled to interim or permanent injunctive relief, specific performance and such other equitable remedies against such Recipient (or its Affiliates or Associates) to restrain or remedy such breach.

2.05 Covenants of the Company, Interco and Telesat

Each of the Company, Interco and Telesat, by the execution of this Agreement, hereby acknowledges that it has actual notice of the terms hereof and hereby covenants with each of the other parties that it will at all times prior to the termination of this Agreement be governed by this Agreement in conducting its business and affairs and shall do or cause to be done all such acts, matters and things as may from time to time be necessary or appropriate to the carrying out of the terms and intent hereof.

ARTICLE 3 — CORPORATE GOVERNANCE

3.01 Board of Directors: General.

     (1) Authority and Independence. The Board shall have overall responsibility for managing and supervising the management of the business and affairs of the Company; and the power and authority of the Directors shall be subject only to such restrictions as are imposed by Applicable Law and by this Agreement. Except as expressly restricted herein, as far as possible,

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the power, authority and discretion of the Board shall be exercised independently and at Arm’s Length from the Shareholders as if it were a board of directors of a publicly held corporation, with a view to the best interests of the Company as a whole, notwithstanding the fact that certain of the Directors are Shareholder Nominees.

     (2) Information and Access: Business Conflicts. In order to resolve as expeditiously as possible, and in a manner that will promote the best interests of the Company, any conflicts of business objectives or interests between the Company, Interco or Telesat and any Shareholder (a “Conflicted Shareholder”), the Board may retain, at the expense of the Company, Interco or Telesat, technical and other advisors to assist in such resolution, and the Chairperson of the Board or the Board as a whole shall have the right to consult with the Executive Officers concerning the matters giving rise to the conflict in the absence of any Shareholder Nominee that is an Interested Party of the Conflicted Shareholder and, if Loral or any of its Affiliates is the Conflicted Shareholder, any Loral Nominee. Any such conflict shall be resolved by the Board in the manner required by the CBCA and in accordance with Section 3.01(1).

3.02 Number and Election of Directors

     (1) Composition and Term. The Board shall consist of not less than four and not more than ten Directors, with the number of Directors being initially set at ten Directors. If the number of Directors is reduced below ten, such reduction shall be made proportionately and as applicable at the relevant time between directors nominated by Loral and by PSP, and the number of Independent Directors, but there shall not be any reduction in the number of Directors except with the prior written consent of each of Loral and PSP. Each Director shall hold office until the next annual meeting of the Shareholders after his or her election.

     (2) Identical Boards. The members of the board of directors of each of Interco and Telesat shall at all times be the same as the members of the Board. To accomplish this end, the resignation, removal or election of a Director of the Company shall be deemed to effect at the same time the resignation, removal or election, as the case may be, of the same director of Interco and Telesat, without further formality; however, as soon as practicable after any change in the composition of the Board, the Company with respect to Interco, and Interco with respect to Telesat, shall take or cause to be taken such steps as may be necessary to confirm, ratify and evidence such change in the board of directors of each of Interco and Telesat.

     (3) Chairperson. The Board shall have a chairperson (“Chairperson”) who shall be elected annually by the affirmative vote of a majority of the Directors. The Chairperson may not be an employee or officer of either the Company, Interco or Telesat. The Chairperson shall be responsible for such matters as:

(a)	introducing proposals to the Board on matters that require Board approval;
(b)	setting the agenda for Board meetings;
(c)	convening and presiding at Board meetings;
(d)	presiding at meetings of Shareholders; and
(e)	circulating minutes for approval by the Directors.

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The Chairperson shall not have a tie-breaking or casting vote and, except as may be conferred upon him or her by resolution of the Directors related to the execution of contracts approved by the Board, or in respect of the negotiation and execution of contracts within parameters set by the Board, or except as conferred by him or her in the By-laws, shall not have the authority to bind the Company.

     (4) Compensation. No Shareholder Nominee shall receive compensation for his or her services as a Director.

     (5) Election and Qualification of Directors.

(a)

Elections. All Directors shall be elected or confirmed in office at an annual general meeting or special meeting of Shareholders. Loral shall have the right to nominate and have elected three nominees to the Board (each, a “Loral Nominee”), and PSP shall have the right to nominate and have elected three nominees to the Board (each, a “PSP Nominee”). The remaining four Directors, which will include the two Third Party Investors, and the remaining four directors of Interco and Telesat, which will also include the two Third Party Investors, shall be Independent Directors. All Shareholders shall vote their Shares at meetings of the Shareholders and act in all other respects in connection with the corporate proceedings of the Company to ensure that the nominees of Loral and PSP are elected and maintained in office from time to time as Directors.

(b)

Residency. Unless otherwise permitted by Applicable Law, no more than 20% of the Directors and no more than 20% of the directors of Interco and Telesat may be individuals who are Non-Residents. Loral shall have the exclusive right to nominate the maximum number of Non-Residents as Loral Nominees unless it expressly waives such right, which it may do with respect to each or both of such Loral Nominees, in whole or in part.

     (6) Committees of Directors. The Board may appoint from among its members and maintain an audit committee, pension committee and compensation committee and, subject to the following sentence, such other committees as the Board may approve from time to time and shall delegate to each such committee appropriate powers within its terms of reference to the extent permitted by this Agreement and by Applicable Law. The Board shall not appoint an executive committee, it being the intention of the Shareholders and the Company that such matters as would be customarily delegated to an executive committee shall be the responsibility of the full Board. Each such committee shall have three members and shall be chaired either by the Chairperson of the Company or by an Independent Director. The members of each committee shall be one of the four Independent Directors, one Loral Nominee and one PSP Nominee. No business shall be conducted, or shall continue, at any meeting of any committee unless a majority of the members present, and continuing to be present, are individual Canadians (within the meaning of section 2 of the Canadian Telecommunications Common Carrier Ownership and Control Regulations promulgated pursuant to the Telecommunications Act (Canada) who are not persons who are or have been Interested Parties in relation to any Shareholder who is a Non-Resident.

     (7) Vacancies of Shareholder Nominees. If any vacancy on the Board occurs from the retirement, resignation, death or removal of a Loral Nominee, a PSP Nominee or an

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Independent Director, as the case may be, a replacement for such Loral Nominee or PSP Nominee may be nominated by Loral or PSP, respectively, or the Nominating Committee shall nominate a replacement Independent Director. Upon the occurrence of such a vacancy, the Directors shall call a special meeting of Shareholders, or each Shareholder shall sign a unanimous shareholders resolution, and each Shareholder agrees to exercise its voting rights at any such meeting, or sign any such unanimous shareholders resolution, in such manner as may be required to elect a replacement for the Loral Nominee, PSP Nominee or Independent Director in the manner aforesaid. The newly elected Loral Nominee, PSP Nominee or Independent Director shall serve the balance of the term of his or her predecessor.

     (8) Removal of Shareholder Nominees.

(a)

Loral may requisition a meeting of Shareholders, or the execution of a unanimous shareholders resolution, to remove any Loral Nominee from the Board. PSP may requisition a meeting of Shareholders, or the execution of a unanimous shareholders resolution, to remove any PSP Nominee from the Board.

(b)

No Loral Nominee may be removed from the Board unless such removal is first approved at a meeting of Shareholders at which Loral votes in favour, or unless Loral signs a unanimous shareholders resolution in favour of such removal, and no PSP Nominee may be removed unless such removal is first approved at a meeting of Shareholders at which PSP votes in favour or unless PSP signs a unanimous shareholder resolution in favour of such removal.

3.03 Independent Directors.

     (1) Qualifications. “Independent Director” means any Director who is not a Shareholder Nominee, who has been designated as a candidate for the office of Independent Director in accordance with this Section 3.03(3), who is qualified to act as a director under Applicable Law, and who at the time of his or her nomination:

(a)	is an individual in good standing in the business community with experience as a company director;
(b)	is not, and has not been within the last three years prior to being nominated, employed (other than as a Director or a director or officer of Telesat or as a Third Party Investor) by an Interested Party;
(c)	is not an Interested Party, provided that in applying the term “Interested Party” solely in and for the purposes of this Section, but not in or for the purposes of any other Section, or cross reference to this Section, in this Agreement, MHR Fund shall be deemed to be a Shareholder; and
(d)	has no other relationship (other than as a Director or as a director of Interco or Telesat) or characteristics that could reasonably be expected to compromise his or her independence in fact from all Interested Parties.

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Notwithstanding the foregoing, no action by a Director designated as an Independent Director shall be invalid by reason only that such Director did not meet the foregoing qualifications at the time such action was taken.

     (2) Organizational Meeting. As soon as practicable following the Closing, the Shareholders will convene a special Shareholders’ meeting to elect the Directors.

     (3) Independent Directors: Nominations and Challenges. Not later than 60 days before each meeting of Shareholders at which Independent Directors are to be elected, either of PSP or Loral may request the formation of a nominating committee to propose nominees for the Independent Directors to be elected at such meeting. Such nominating committee, once proposed, shall meet within 10 days of the date of proposal by either PSP or Loral. The members of such nominating committee shall be one director who is a Loral Nominee (designated by Loral), one director who is a PSP Nominee (designated by PSP) and in the case of the first nominating committee, TPI #1, after TPI #1 has been selected by PSP, and thereafter one Independent Director selected by the Independent Directors then in office. The nominating committee as so selected (the “Nominating Committee”) shall meet and shall select, by majority vote, within 10 days of its first meeting, a slate of nominees of Independent Directors to be elected at the next meeting of Shareholders at which Directors are to be elected. Once a Nominating Committee is formed, each member of the Nominating Committee shall take part in, and shall vote on, the selection of each nominee for the position of Independent Director. The Nominating Committee shall report to each of PSP and Loral as to its proposed nominees, providing such information in reasonable detail as to the identity and background of each individual as will enable PSP and Loral to determine whether such individual meets the qualifications referred to in Section 3.03(1). During the 10 days following the date on which such notification is received, either PSP or Loral shall have the right and opportunity to interview each proposed nominee, to examine his or her credentials and to challenge, acting reasonably and in good faith, the proposed nomination on the basis that the proposed nominee does not meet all the qualifications referred to in Section 3.03(1). Upon such challenge being made in a timely manner, reasonably and in good faith, the proposed nomination shall be withdrawn and the Nominating Committee shall propose a new nominee. Any such challenge shall be presumed to be made reasonably and in good faith, but such presumption may be rebutted by satisfactory evidence to the contrary accepted as such, if required, by an Arbitrator in accordance with Article 9 or by a court of competent jurisdiction.

     (4) Voting for Independent Directors. Subject to the right to challenge a nominee as set forth in Section 3.03(3), all Shareholders owning Shares which may be voted for the election of Directors shall vote all such Shares to elect as Independent Directors the nominees selected by the Nominating Committee.

     (5) Removal of Independent Directors. Except as provided in Section 3.03(3), no Independent Director may be removed from office except by Extraordinary Resolution. An Independent Director who fails at any time to meet the requirements of independence set forth in Section 3.03(1) shall forthwith resign from the Board and the board of directors of Interco and Telesat and, if he or she fails to do so, the Shareholders shall cooperate with each other in convening as soon as practicable a meeting of the Nominating Committee to select a new nominee, and a Shareholder meeting to effect, and at such meeting shall vote to effect, the removal of such Director and the election of a new Independent Director.

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3.04 Meetings of Directors

     (1) General. The Board shall hold regular meetings no less frequently than once each quarter. The Shareholders and the Corporation shall endeavour to ensure that a majority of the meetings of the Board in each calendar year shall be held in Canada. Any Director may requisition a directors’ meeting in the manner provided in the By-laws of the Company. At each meeting of the Board, the Executive Officers shall report to the Board as directed by the Board from time to time.

     (2) Quorum. In addition to any requirements under Applicable Law, a quorum for meetings of the Board shall be six of the Directors then in office (reduced in proportion to any reduction in the number of directors made pursuant to Section 3.02(1)), including one PSP Nominee and one Loral Nominee. No business shall be conducted, or shall continue, at any meeting of the Board if and when a quorum ceases to exist or unless a majority of the members present and continuing to be present are individual Canadians (within the meaning of Section 2 of the Canadian Telecommunications Common Carrier Ownership and Control Regulations promulgated pursuant to the Telecommunications Act (Canada)) who are not persons who are or have been Interested Parties in relation to, or nominees of, any Shareholder who is a Non-Resident. Notwithstanding the foregoing, if more than three (reduced in proportion to any reduction in the number of directors made pursuant to Section 3.02(1))of the Directors then in office are Interested Directors (as defined in Section 3.04(4)) in respect of a matter to come before the meeting, a quorum shall exist and shall be deemed to continue to exist during consideration of that matter so long as (a) a majority of the Directors who are not Interested Directors with respect to such matter is present at the meeting and at least two of the Directors present are Independent Directors and (b) if some or all of the Directors who are Interested Directors are not nominees of Non-Residents, a majority of the Directors present must be Canadians (within the meaning of Section 2 of the Canadian Telecommunications Common Carrier Ownership and Control Regulations promulgated pursuant to the Telecommunications Act (Canada)) who are not nominees of Non-Residents (and in order to constitute such quorum for consideration of the interested matter only, it shall be permissible for some or all of the Directors who are nominees of Non-Residents to absent themselves from that portion of the meeting at which the interested matter is being considered pursuant to Section 3.04(4)). If a quorum of directors is not present at a meeting of directors duly called because of the absence at such meeting of any Loral Nominee or any PSP Nominee, a quorum of directors at the next duly called meeting of directors shall not require the presence of a nominee of the Shareholder whose nominees prevented the formation of a quorum of directors at the last duly called meeting.

     (3) Vote. Any matter put before the Directors shall be decided by the affirmative vote of a majority of the Directors present at the meeting who are not Interested Directors in respect of that matter, or a resolution signed by all of the directors.

     (4) Interested Matters. In addition to any requirements under Applicable Law, at any meeting at which the Board considers any matter involving a material agreement or transaction or proposed material agreement or transaction with the Company, Interco or Telesat to which a Shareholder (an “Interested Shareholder”) or any of its Affiliates or Associates is a party, or the transfer or redemption of any Fixed Rate Preferred Shares, (in each case an “Interested Matter”), then any Shareholder Nominee who is an Interested Party of the Interested Shareholder (collectively, the “Interested Directors”), shall be required by the Chairperson to

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leave the meeting (after having an opportunity to make a presentation to the Board regarding the Interested Matter) while such Interested Matter is being considered, unless such requirement is waived by a majority vote of the Directors who are not Interested Directors, and shall abstain from voting thereon. For greater certainty, (x) a matter referred to in Section 3.05(1)(e) or Section 3.05(1)(l) shall be considered an Interested Matter in respect of each Loral Nominee and (y) a matter referred to in Section 3.05(1)(k) shall be considered an Interested Matter in respect of each PSP Nominee.

3.05 Board Vote Required

     (1) The following matters must be brought to a vote of the Board and decisions thereon may not be delegated by the Board to a committee thereof or to officers or employees of the Company:

(a)	amendments to the Business Plan, including each update as provided in Section 4.02;
(b)	approval of the Annual Budget and Capital Budget;
(c)	entering into any Material Agreement;
(d)	entering into any agreement with a Shareholder or with an Affiliate or Associate of a Shareholder involving payments in excess of $100,000 in the aggregate over its term, or any material variation in or amendment to any existing agreement between the Company, Interco or Telesat and a Shareholder or an Affiliate or Associate of a Shareholder,
(e)	amending, waiving or terminating in whole or in part the Consulting Services Agreement;
(f)	initiating, settling or compromising any claim, suit, action or proceeding which is material to the Company, Interco or Telesat;
(g)	any amendments to scope of authority of the CEO as set out in Section 3.07(2)(b);
(h)	entering into any hedge, swap or other derivatives transaction, including interest rate swaps, forward rate transactions, commodity swaps, commodity options, interest rate options, forward foreign exchange transactions and currency options (collectively, “Derivatives”), except for Derivatives entered into for the sole purpose of hedging the Company’s, Interco’s or Telesat’s actual exposure to risks of fluctuations in interest rates or foreign exchange rates in respect of obligations of the Company, Interco or Telesat existing at the time such Derivatives are entered into;
(i)	encumbering, disposing of or transferring by the Company, Interco or Telesat of any assets that constitute Intellectual Property;

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(j)	subject to Section 3.07, the election, appointment or removal of any Executive Officers of the Company and the establishment of and any change in their compensation;
(k)	purchasing for cancellation or exercising any optional redemption feature on any Fixed Rate Preferred Shares or authorizing the transfer by PSP of any Fixed Rate Preferred Shares on the basis that such transfer will not cause material adverse tax consequences to the Company;
(l)	making any determination or exercising any discretion on behalf of the Company or any of its Subsidiaries pursuant to the Skynet Asset Transfer Agreement, the Loral Alternative Subscription Agreement or the Skynet Sale Agreement; and
(m)	any other matters which by the terms of this Agreement or under the CBCA are reserved to the Board and may not be delegated;

3.06 Skynet

The execution and delivery by the Company of the Skynet Asset Transfer Agreement, the Skynet Sale Agreement and the Loral Alternative Subscription Agreement and all documents required for the consummation of the transactions contemplated therein, the redemption of the Redeemable Common Shares and Redeemable Non-Voting Participating Preferred Shares, if any, held by Loral at the time of the closing of the Skynet Asset Transfer Agreement, and the issuance to Loral of Common Shares or Non-Voting Participating Preference Shares, on terms consistent with the Skynet Asset Transfer Agreement and the Loral Alternative Subscription Agreement, is hereby approved by the parties hereto and is not subject to the provisions of Section 3.04(4) or Section 3.05 (other than as specifically referred to in Section 3.05(1)(l)).

3.07 Officers.

     (1) Executive Officers. Each of the Company, Interco and Telesat shall have a CEO, a Chief Financial Officer, a Chief Operating Officer and such other Executive Officers as are provided in the By-laws and the by-laws of Interco or Telesat, as the case may be. The officers of the Company shall be the same persons, and shall have the same designations, as in each of Interco and Telesat. There shall be no change in the titles or duties of the Executive Officers and no appointment of persons with similar powers or authorities except by amendment to the By-laws and the by-laws of Interco or Telesat. At the first meeting of the Board after the occurrence of any vacancy in the office of any Executive Officer, the Board shall appoint executive officers to fill such vacancies.

     (2) CEO.

(a) Identity. The same individual shall be the CEO for each of the Company, Interco and Telesat. To accomplish this end, the Shareholders agree that the resignation, removal or election of the CEO of the Company shall be deemed to effect at the same time the resignation, removal or election, as the case may be, of the CEO of Interco and Telesat without further formality; however, as soon as practicable after any change in the CEO of the Company, the Company shall cause the board of directors of Interco, and Interco shall cause the board of directors of Telesat, to

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take, or cause to be taken, such steps as may be necessary to confirm, ratify and evidence the change in the CEO of Interco and Telesat.

(b)

Authority. The CEO shall have the day-to-day responsibility for managing the business and operations of the Company within the discretion of the CEO as restricted by the scope of the Business Plan. In addition, the CEO shall have the powers and duties set forth in the By-laws and the power and authority normally incident to the office of CEO, including the following authorities and accountabilities:

(i)	accountability to the Board to achieve the milestones, requirements and objectives as set forth in the Business Plan, Annual Budget and Capital Budget or otherwise;
(ii)	day-to-day administration of the Company;
(iii)	representing the Company in dealings with the Shareholders, their Affiliates and third parties;
(iv)	preparing and proposing to the Board updates and amendments to the Business Plan, Annual Budget and Capital Budget including the annual update referred to in Section 4.02; and
(v)	managing the human resources of Telesat in a manner consistent with the Business Plan, including the appointment and removal of managers other than the Executive Officers.

(c) Change in Authority. No change shall be made in the scope of the authority of the CEO unless approved in writing by each of PSP and Loral.

     (3) Term and Appointment of Other Executive Officers. The Board shall have the sole and absolute authority to elect, appoint, hire, remove or dismiss any Executive Officer of the Company. At the first meeting of the Board or after the occurrence of any vacancy among Executive Officers, the Board shall appoint each Executive Officer for which a vacancy then exists.

3.08 Board Observer Rights

For so long as any PSP Nominee or any Loral Nominee, as the case may be, is a Director on the Board, each of the Company, Interco and Telesat shall permit each of PSP or Loral, as the case may be, to designate a person (any such person, an “Observer”) to attend meetings of the Board as an observer, and each such Observer shall be entitled to receive all materials relevant to such meeting as provided to the Directors; provided that each of PSP and Loral may designate a different person to be its Observer from time to time as it wishes; provided, further, that the Shareholder who designates such Observer undertakes that such Observer shall keep all information received or observed in his or her capacity as an Observer confidential to the same extent as such Observer would be obligated to do as a Director; provided, further, that the Company reserves the right to exclude any such Observer from access to any material or meeting or portion thereof if the Company believes upon advice of counsel that such exclusion is

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reasonably necessary to preserve attorney-client privilege, or if the Company, acting through its Board of Directors, believes that access to any such material or meeting, or portion thereof, is inappropriate under the circumstances.

ARTICLE 4 — SCOPE AND OBJECTIVES; BUSINESS PLAN

4.01 Initial Business Plan; Budgets

     (1) Initial Business Plan. Each party acknowledges that it has received a certified copy of the Business Plan initially prepared by management of Telesat, with the assistance of management of Loral in relation to the assumed consummation of the transactions contemplated by the Skynet Asset Transfer Agreement and the Skynet Sale Agreement with effect from September 1, 2007 (the “Initial Business Plan”), and the Initial Business Plan is hereby approved by the parties hereto. The Initial Business Plan shall take effect on the date of this Agreement and for greater certainty shall not require the approval of the Board. The Initial Business Plan sets forth the objectives of Telesat for the period ending on December 31, 2012.

     (2) Scope and Contents of Business Plans

(a)

It is the parties’ intention that the Business Plan and any amendments thereto shall be prepared and updated with a view to furthering their objectives of maximizing the financial performance of the Company, Interco and Telesat.

(b)

The Business Plan, as amended and updated from time to time in accordance with Section 4.02, shall set out the strategic goals of the Company to be met during the period ending on December 31, 2012, in the case of the Initial Business Plan, and commencing on the date of each annual update under Section 4.02, in the case of annual amendments to the Initial Business Plan (each such five year period under the Business Plan, a “Plan Period”) as well as the general operational and marketing approaches toward meeting those goals. It shall set forth the overall service development, market scope, quality standards and commercial policies and practices of the Company, Interco and Telesat for the Plan Period, but shall be drafted with express recognition that the specifics of implementing the strategic goals within the broad guidelines set forth therein are within the province of management discretion. The Business Plan shall incorporate a model that provides a projection for the current year, and projections for the next five years, of the income statement, balance sheet and statement of cash flows, presented on a quarterly basis for the first two years of each such Plan Period and on an annual basis for the next three years of the Plan Period. The statement of cash flows shall include a line item for capital expenditures over $2 million, with a schedule of supporting detail. The level of detail for each subsequent Plan Period shall be consistent with the detail in the Initial Business Plan. In the case of any inconsistency between this Agreement and the Business Plan, this Agreement, insofar as it is applicable, shall govern.

     (3) Budgets

No later than 60 days before the end of each fiscal year, the CEO shall prepare or cause to be prepared and shall present to the Board for approval, a budget for the next fiscal year (each, an

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“Annual Budget”). Each Annual Budget shall consist of an income statement, balance sheet and statement of cash flows in detail at least equivalent to those contained in the Initial Business Plan, together with supporting schedules as would reasonably accompany an annual budget. The statement of cash flows shall include a line item for capital expenditures over $2 million, with a schedule of supporting detail. The Annual Budget shall be presented on a monthly basis showing the actual results for the previous year and the budget year budgeted forecasts.

4.02 Updates to Business Plan

The Business Plan shall be reviewed and updated by management in the event that the transactions contemplated by the Skynet Asset Transfer Agreement and the Skynet Sale Agreement do not occur by •, 2007 and/or in the event that the transactions contemplated by the Loral Alternative Subscription Agreement are consummated. The Business Plan shall also be reviewed and updated by management of the Company each year, and presented to the Board by the CEO, no later than 30 days before the end of each fiscal year (the “Business Plan Update Date”). This Business Plan update shall reflect the actual results for the previous year as well as the budget for the subsequent year. In addition, management will review, and if necessary, update, the Business Plan for presentation by the CEO to the Board no later than seven months after the close of each fiscal year. The Business Plan shall also be reviewed and updated by management of the Company and presented by the CEO to the Board no later than 60 days after there shall have occurred a material change to the business of the Company. Upon presentation of any draft revised Business Plan by the CEO, the Board shall review such plan and shall ratify or amend plan information so that the Business Plan in effect at any time during the term of this Agreement will constitute a rolling five-year business plan for the Company. If the Board is unable to agree by any Business Plan Update Date on the Business Plan for the next fiscal year, then the Business Plan then in effect shall be controlling. The Board may review and amend the Business Plan at any time during the fiscal year upon the recommendation of the CEO.

4.03 Purchases from Loral

Subject to approval by the Board under Section 3.05(1)(d) in accordance with Section 3.04(4), the Company, Interco or Telesat may purchase any equipment, products and services from Loral Space and its Affiliates on commercially reasonable terms. The Company, Interco and Telesat shall provide to Loral and its Affiliates a first right to accept an offer to procure equipment, products or services that is issued by Telesat to more than one bidder or to negotiate, including in the case of a sole source procurement, for the purchase of equipment, products and services in those areas in which Loral and its Affiliates regularly carry on business, subject to the approval of the Board under Section 3.05(1)(d) in accordance with Section 3.04(4) with regard to any contract that results from such first rights of acceptance or negotiation. Such first right of acceptance or negotiation shall not constitute an obligation on the part of the Company or Telesat to deal exclusively with, or purchase from, Loral and its Affiliates.

4.04 Loral Non-Competition Covenant

     (1) Covenant. Loral Space agrees, for the benefit of the Company and its Subsidiaries, including Interco and Telesat, that, after the completion of the transactions contemplated by the Skynet Asset Transfer Agreement and the Loral Sale Agreement, and thereafter for so long as Loral (or any Person who is a Permitted Transferee of Loral within the meaning of clause (a) of the definition of Permitted Transferee) owns any Shares, it shall not,

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directly or indirectly, through any Subsidiary (other than the Company and its Subsidiaries, including Interco and Telesat), engage in, manage, consult with, or invest in securities of any Person having participation rights in excess of 2% of the profits of, a Satellite Communications Business. In addition, until completion of the transactions contemplated by the Skynet Asset Transfer Agreement and the Skynet Sale Agreement, up to but not after the Alternative Subscription Date as defined in the Loral Alternative Subscription Agreement, Loral Space and its Subsidiaries shall hold any rights or interests in any Satellite Communication Business which any of them acquires after the date hereof for the benefit of Loral Skynet and to transfer such rights and interests to the Company, in conjunction with the closing of the transactions contemplated by the Skynet Asset Transfer Agreement and the Skynet Sale Agreement.

     (2) Exceptions. The restrictions set out in Section 4.04(1) shall not apply to restrict Loral from (i) owning equity interests in Globalstar, Inc., Enlaces Integra, S.A. de C.V. and Xtar LLC; (ii) owning its current equity interest in Satèlites Mexicanos, S.A. de C.V. and acquiring any additional equity interest therein pursuant to the exercise of rights (including rights of first offer, rights of first refusal and pre-emptive rights) under existing documents (including charter, by-laws and other organizational documents) related thereto (iii) engaging in, managing, consulting with or investing in Satellite Communications Businesses that utilize the X-band frequency or that provide service to the government of the United States to the extent the Company and its Subsidiaries are unable, whether by operation of law or otherwise, to provide such service; or (iv) owning interests in Satellite Communications Businesses, or acquiring rights to satellite transponders, acquired by Space Systems/Loral, Inc. (“SS/L”) in connection with or related to awards of satellite construction contracts from its customers, provided, that, at the Company’s option, the Company may acquire such interests from SS/L at their fair market value, (v) owning interests in any opportunity which the Board has rejected as an opportunity of the Company or Telesat, or which the Board has approved, but subsequently rejected, or which the Company was unable to pursue due to the failure of PSP to provide funding therefor upon exercise of pre-emptive rights or (vi) owning, acquiring, engaging in, managing, consulting with, or investing in such businesses or Persons as shall be approved by the Board in accordance with Section 3.04(4).

4.05 Non-Solicitation Covenant

     (1) Each of Loral and Loral Space shall not, and shall cause its directors, officers, employees (in their capacity as such) and Subsidiaries not to, directly or indirectly, while Loral (or any Person who is a Permitted Transferee of Loral within the meaning of clause (a) of the definition of Permitted Transferee) is a Shareholder and for a period of one year thereafter, cause, solicit, induce or encourage any employee who is a member of senior management of the Company and any of its Subsidiaries, including Interco and Telesat, to leave such employment or hire, employ or otherwise engage any such individual, provided that the foregoing shall not prohibit any general solicitation of employees that is not targeted at such persons.

     Each of PSP and MHR Fund shall not, and shall cause its directors, officers, employees (in their capacity as such) and Subsidiaries not to, directly or indirectly in the case of PSP, while PSP (or any Person who is a Permitted Transferee of PSP within the meaning of clause (a) of the definition of Permitted Transferee) is a Shareholder, and in the case of MHR Fund while it owns, directly or indirectly, shares of Loral Space or is a Shareholder, and in each case for a period of one year thereafter, cause, solicit, induce or encourage any employee who is a member of senior

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management of the Company and any of its Subsidiaries, including Interco and Telesat, to leave such employment or hire, employ or otherwise engage any such individual, provided that the foregoing shall not (i) apply to Persons in which either PSP or MHR Fund have made investments, or (ii) prohibit any general solicitation of employees that is not targeted at such persons.

4.06 Enforcement of Restrictive Covenants

     (1) The covenants and undertakings contained in Sections 4.04 or 4.05 relate to matters which are of a special, unique and extraordinary character and a violation of any of the terms of Sections 4.04 or 4.05 will cause irreparable injury to the Company, Interco or Telesat, the amount of which will be impossible to estimate or determine and which cannot be adequately compensated. Accordingly, the remedy at law for any breach of Sections 4.04 or 4.05 will be inadequate. Therefore, the Company, Interco or Telesat will be entitled to a temporary and permanent injunction, restraining order or other equitable relief from any court of competent jurisdiction in the event of any breach of Sections 4.04 or 4.05 without the necessity of proving actual damage or posting any bond whatsoever. The rights and remedies provided by this Section 4.06 are cumulative and in addition to any other rights and remedies which the Company, Interco or Telesat may have hereunder or at law or in equity.

ARTICLE 5 – SHAREHOLDER MATTERS

5.01 Restrictions on Management and the Board, Matters Requiring Shareholder Approval

     (1) None of the following actions shall be taken by the Company, or by the Company to authorize any such action to be taken by Interco, or by Interco to authorize any such action to be taken by Telesat, unless, in addition to any shareholder approval required as a mandatory provision of the CBCA, such action is authorized by Special Shareholder Approval:

(a)	any change in the Articles or By-laws or the articles or by-laws of Interco or Telesat;
(b)	the taking of any steps to wind up, dissolve, reorganize or terminate the corporate existence of the Company, Interco or Telesat or the taking of any steps in respect of Insolvency Proceedings by or against the Company, Interco or Telesat;
(c)	the sale, lease, exchange, encumbrance, transfer or other disposition of all or substantially all of the assets of the Company, Interco or Telesat, including the granting of an option for any such transaction (other than pursuant to the exercise of a permitted drag along right pursuant to Article 7 ) or the issuance, sale, lease, exchange, encumbrance, transfer or other disposition of any shares of the Company’s Subsidiaries, including Interco or Telesat; or
(d)	the taking of any steps to amalgamate or merge the Company, Interco or Telesat with another Person (other than the amalgamation of 4363230 Canada Inc. and Telesat) or to consolidate, recapitalize or reorganize the Company, Interco or Telesat (other than pursuant to the exercise of a permitted drag along right

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pursuant to Article 7 ), or to continue the Company, Interco or Telesat under the laws of another jurisdiction.

     (2) None of the following actions shall be taken by the Company, or by the Company to authorize any such action to be taken by Interco, or by Interco to authorize any such action to be taken by Telesat, unless, in addition to any shareholder approval required as a mandatory provision of the CBCA, such action is authorized by a Loral Approval:

(a)	any change in the authorized or issued shares in the capital of the Company, Interco or Telesat, the entering into of any agreement, or the making of any offer or the granting of any right capable of becoming an agreement, to issue any shares in the capital of the Company, Interco or Telesat (other than in circumstances where the Board determines that such change in share capital, entering into of such Agreement or making of such offer or granting of such right is necessary as a result of financial distress of the Company, Interco or Telesat, or to provide for management equity incentive programs of the Company, Interco or Telesat which in the aggregate do not exceed 5% of Equity Shares of the Company from time to time), or a decision to conduct or prepare for an initial public offering of securities of the Company or Telesat either (i) within the first four years from the date of this Agreement or (ii) other than as a result of either PSP or Loral exercising its right to compel the Company to complete an initial public offering pursuant to Section 6.02;
(b)	the entering into of any agreement or series of related agreements that is not in the ordinary course of business of the Company, Interco or Telesat, consistent with past practices, including the entering into of any agreement or series of related agreements, or the adoption of any business strategy or the change in the Business Plan, that, if implemented and aggregated with all other actions taken by the Board during the relevant Plan Period, could reasonably be expected to change the projected revenues, expenses, capital expenditures or cash flows of the Company, Interco or Telesat, as set out in the most recently approved Business Plan, by more than 10% during the then current Plan Period;
(c)	the sale, lease, exchange, transfer or other distribution, or contribution to a partnership, joint venture, trust or other joint ownership entity, of any property, assets (including licences or Intellectual Property) of the Company, Interco or Telesat where the proceeds to the Company, Interco or Telesat from such transaction, or series of related transactions, would be greater than $50,000,000 in cash or the fair value of any property received (determined on a net present value basis in respect of any deferred proceeds);
(d)	the purchase of any assets or the making of any other capital expenditures pursuant to any contract or series of related contracts at a cost in excess of $100,000,000 (provided that for so long as Space Systems/Loral, Inc. or its successors (“SS/L”) is an Affiliate of Loral, Loral Approval shall not be required in respect of the approval of any contract (a “Subject Satellite Contract”) to purchase a satellite of the type then manufactured by SS/L, unless such decision regarding the award of a Subject Satellite Contract involves the choice between or among satellite manufacturers (none of which is SS/L), but only so long as Loral

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	does not exercise such approval right to veto the award of a contract to all of the manufacturers then under consideration), it being understood and agreed that the general decision to approve capital expenditures in excess of $100,000,000 for a new satellite (including whether Indebtedness, if in excess of $100,000,000, shall be incurred in connection with such capital expenditure (a “Cap Ex Indebtedness Decision”), shall require Loral Approval, and if Loral exercises its rights to veto any contract or series of related contracts pursuant to this Section 5.01(2)(d), PSP shall have the right to approve in writing any contract or series of related contracts in replacement thereof made with Loral or any Affiliate of Loral, and no such contract or series of related contracts shall be entered into unless such written approval has been received);
(e)	the making of, directly or indirectly, loans or advances to, or the giving of security for, or the guaranteeing of the Indebtedness of, or otherwise giving financial assistance to, any Person ;
(f)	increases in the compensation to be paid to the senior management of the Company, Interco and Telesat (for such purposes, being the 10 most highly compensated officers and employees of the Company, Interco or Telesat, in the aggregate) by more than 5% from the compensation paid to such senior management in the aggregate in the immediately preceding year, or the establishment of any incentive compensation plan (other than management equity incentive programs which in the aggregate do not exceed 5% of the outstanding Equity Shares of the Company from time to time) for employees;
(g)	the incurring of Indebtedness or the giving of any Lien to any Person in respect of obligations in excess of $100,000,000 or the amendment or modification of material terms of any such Indebtedness, or the granting of a Lien over any material assets of the Company, Interco or Telesat (other than (i) Indebtedness or Liens required to fund the acquisition of Telesat or the consummation of the transactions contemplated by the Skynet Sale Agreement and related revolving credit facilities and (ii) Indebtedness (“Satellite Indebtedness”) to be incurred for the purpose of funding the acquisition of a new satellite procured pursuant to a Subject Satellite Contract, provided that Loral Approval shall be required to approve a Cap Ex Indebtedness Decision or to approve any Satellite Indebtedness in excess of $100,000,000 so long as the decision to incur such Satellite Indebtedness is made following the award and execution of a Subject Satellite Contract); or
(h)	the declaration or payment of any dividend, the redemption, purchase or other acquisition of any Shares by the Company or of any shares in the capital of Interco or Telesat (except for redemptions of Shares required to be made by the Articles) or the repayment of any Indebtedness to any Shareholder or the Affiliate or Associate of any Shareholder; or
(i)	any amendment, waiver or termination of the Consulting Services Agreement.

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5.02 Termination of Rights

     (1) The provision of Section 5.01(2) shall cease to apply upon a Loral Change of Control.

     (2) The provisions of Section 5.01(2) shall not apply in respect of any matter where the Company is proposing to make an investment in any business in which Loral or an Affiliate of Loral is also considering making an investment.

     (3) If a Loral Default shall occur, and as a result thereof and immediately thereafter, Loral shall own less than 45% of the Equity Shares, Section 5.01(2), and the drag-along rights of Loral and any other Selling Loral Shareholder contained in Section 7.08(2), shall cease to apply.

5.03 PSP Investment Policy

     For so long as PSP owns any Shares, any change in the business of the Company, Interco or Telesat that would be in breach of the Investment Policies of PSP (as set forth in Schedule G hereto) shall require the written approval of PSP. PSP acknowledges that the operation of satellites and the provision of satellite services to customers in the ordinary course of business of Telesat does not breach the Investment Policies of PSP. The Company, Interco and Telesat each agree to take into account PSP’s social and environmental responsibility policies in making any changes to the business of the Company, Interco or Telesat.

5.04 Meetings of Shareholders

     (1) Quorum. The quorum for the transaction of business at any meeting of the Shareholders shall be two Persons present in person or by proxy holding at least 51% of the Shares entitled to vote on each matter to be voted upon at the meeting and held by Persons who are not Non-Residents. No meeting of the Shareholders shall continue with the transaction of business if and when a quorum ceases to exist.

     (2) Votes. Except as otherwise provided in this Agreement or in the CBCA, all matters before the Shareholders shall be decided by a majority of the votes cast on the matter. The chairman of a meeting of the Shareholders shall not have a second or casting vote.

     (3) Any Shareholder holding more than 5% of the votes that may be cast at a meeting of shareholders shall have the right to call a meeting of the Shareholders in accordance with the procedures set out in the By-laws of the Company.

ARTICLE 6– FINANCE AND RELATED MATTERS

6.01 Pre-Emptive Rights

(1)	Restrictions on Issue. The Company may not
(a)	offer any Shares, except upon an initial public offering conducted in accordance with Section 6.02, or

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(b) issue any Shares, except (A) Non-Voting Participating Preferred Shares issued as the result of any conversion of Common Shares or Voting Participating Preferred Shares, (B) Voting Participating Preferred Shares issued as a result of any conversion of Common Shares or Non-Voting Participating Preferred Shares, (C) Common Shares issued as a result of any conversion of Voting Participating Preferred Shares or Non-Voting Participating Preferred Shares, (D) Common Shares and Non-Voting Participating Preferred Shares to be issued to Loral as contemplated by Section 3.06; (E) Fixed Right Preferred Shares issued as dividends in kind to holders of Fixed Rate Preferred Shares or (F) Common Shares issued pursuant to management incentive programs of the Company or Telesat which in the aggregate do not exceed 5% of the Equity Shares of the Company from time to time; (G) Redeemable Common Shares issued upon conversion of Redeemable Non-Voting Participating Preferred Shares; (H) Redeemable Non-Voting Participating Preferred Shares issued upon conversion of Redeemable Common Shares; (I) Common Shares issuable upon conversion of Redeemable Common Shares; or (J) Non-Voting Participating Preferred Shares issuable upon conversion of Redeemable Non-Voting Participating Preferred Shares;

otherwise than in accordance with this Section 6.01.

     (2) Notice of Pre-Emptive Right. Except as permitted pursuant to this Section 6.01, every offer of Shares by the Company shall be made by notice (“Notice of Pre-Emptive Right”) to each holder of Equity Shares (each Shareholder for the purposes of this Section 6.01(2) being referred to as a “Pre-Emptive Rights Shareholder”) from the secretary of the Company which shall set forth:

(a)	a description of the shares to be offered or issued (the “Offered Treasury Shares”);
(b)	the subscription price for each Offered Treasury Share; and
(c)	the subscription date (the “Subscription Date”), which shall be a date not earlier than 25 Business Days after the date of the notice.

     (3) Limits on Subscriptions. Each Pre-Emptive Rights Shareholder may subscribe for its Pro Rata Proportion of the Offered Treasury Shares by giving notice of its subscription (“Notice of Subscription”) to the Company within 20 Business Days after receipt of the Notice of Pre-Emptive Right (the “Subscription Period”). A Pre-Emptive Rights Shareholder wishing to subscribe for Offered Treasury Shares in excess of such Pro Rata Proportion shall, in its Notice of Subscription, specify the number or dollar amount, as the case may be, of Offered Treasury Shares in excess of its Pro Rata Proportion that it wishes to purchase, subject to availability and to all necessary Regulatory Approvals being obtained.

     (4) Undersubscribed Issues. If a Pre-Emptive Rights Shareholder does not subscribe for its Pro Rata Proportion of Offered Treasury Shares within the Subscription Period, the unsubscribed Offered Treasury Shares shall be used to satisfy any subscriptions of other Shareholders for Offered Treasury Shares in excess of their Pro Rata Proportions (as set out in such Shareholder’s Notice of Subscription) but no Shareholder shall be bound to take up any

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Offered Treasury Shares in excess of the amount it requested to purchase in its Notice of Subscription.

     (5) Fractional Shares. If the Offered Treasury Shares of any issue are not capable, without division into fractions, of being offered to or being divided between the parties in their Pro Rata Proportions, the Offered Treasury Shares shall be offered to or divided between the parties as nearly as may be in these proportions.

     (6) Issue and Payment. Each Pre-Emptive Rights Shareholder subscribing for Offered Treasury Shares shall pay for, and the Company shall issue, the Offered Treasury Shares on the Subscription Date.

     (7) Sales to Third Parties. If not all of the Offered Treasury Shares of any issue are subscribed for within the Subscription Period, the Company may, during the following period of 60 Business Days, offer and sell to any Permitted Purchaser all or any of the Shares not taken up by the Pre-Emptive Rights Shareholders at a price which is not less than the subscription price offered to the Pre-Emptive Rights Shareholders pursuant to this Section 6.01 and on terms and conditions which are no more favourable to the Permitted Purchaser than those offered to the Pre-Emptive Right Shareholders under this Section 6.01.

     (8) Classes of Shares. Notwithstanding the description of the Offered Treasury Shares set out in the Notice of Pre-Emptive Rights, any Pre-Emptive Rights Shareholder which delivers a Notice of Subscription in respect of Offered Treasury Shares which are Equity Shares, but which would be unable to own the class of Offered Treasury Shares described in the Notice of Pre-Emptive Rights, shall be entitled to specify in its Notice of Subscription that it wishes to purchase an equivalent number of Equity Shares of a class which it is permitted to own under Applicable Laws, and in such event, the Directors shall authorize for issuance, and the Company shall issue, to such Pre-Emptive Rights Shareholder the number of Equity Shares of the class so specified, in lieu of the authorization and issuance of that number of Offered Treasury Shares to that Pre-Emptive Rights Shareholder.

6.02 Initial Public Offering

     If the Company shall not have completed an initial public offering of its Equity Shares by the fourth anniversary of the Effective Date, either PSP or Loral shall have the right at any time thereafter, by notice to the Company and to all other holders of Equity Shares, to cause the Company to conduct an initial public offering of its Equity Shares. Within 90 days after a Loral Change of Control, PSP shall have the right by notice to the Company and all other holders of Equity Shares to cause the Company to conduct an initial public offering (a “Change of Control Offering”). At any time after the Company has completed an initial public offering, each of PSP and Loral (and MHR Fund, upon becoming a direct holder of Shares, from which time it shall be a Shareholder) shall have the right, on not more than two occasions, by notice to the Company and the holders of Equity Shares, to require the Company to qualify a prospectus or registration statement for the distribution of Equity Shares held by such Shareholder or MHR Fund (a “Registration Event”). In addition, at any time after the Company has completed a Change of Control Offering, PSP shall have the right (such right, the “Change of Control Demand Right”), by notice to the Company and the holders of Equity Shares, to require the Company to qualify a prospectus or registration statement for the distribution of Equity Shares held by PSP (a “Change of Control Registration Event”) by the later of (x) six months following the Change

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of Control Offering or (y) one month after the expiration of the lock-up required by the underwriters in connection with the Change of Control Offering, and such right shall not count towards the rights set forth in the immediately preceding sentence. Upon the giving of a notice of initial public offering, the Shareholders will co-operate in good faith to facilitate an initial public offering of Equity Shares of the Company (including either, or a combination of, a primary and secondary distribution) subject to the following conditions:

(a) prior to and as a condition precedent to the completion of any public offering the Shareholders will cooperate to:

(i)

amend this Agreement so that it will no longer be a unanimous shareholder agreement under the CBCA and implement contractual arrangements satisfactory to the parties affected that will afford such parties protections and rights reasonably comparable to those provided under this Agreement to the extent that such protections and rights may under Applicable Law be granted by an agreement that is not a unanimous shareholder agreement under the CBCA, provided that, in connection with an initial public offering, the Shareholders will consider in good faith the termination of all or a portion of the rights set forth in this Agreement (excluding those set forth in Sections 6.02 through 6.05); provided, further that, in the event that the managing underwriter with respect to an initial public offerings notifies each of Loral and PSP that a continuation of any of the rights under this Agreement (excluding those set forth in Sections 6.02 through 6.05) may have a material adverse effect on the valuation of the Equity Shares being offered in such initial public offering, then such contractual rights shall be modified or deleted as necessary to prevent such material adverse effect; and

(ii)

amend the Articles and By-laws to accommodate the public offering and the public ownership of Equity Shares;

(b)	no public offering shall be made nor any steps taken preparatory thereto (including solicitations of interest or preparation and filing of a preliminary prospectus in any jurisdiction) except in conformity with Applicable Law;
(c)	no public offerings of Shares by the Company from treasury shall be made unless issuance of such Shares is approved pursuant to Section 5.01 (except to the extent that PSP or Loral is causing the Company to conduct an initial public offering in accordance with this Section 6.02);
(d)	the right of first offer granted under Section 7.07 shall not apply to any public offerings of Equity Shares by way of secondary distribution; and
(e)	with respect to any public offering which is the result of a Registration Event or Change of Control Registration Event, the Equity Shareholder requiring the qualification of a prospectus or registration statement shall be entitled to recommend for consideration of the Board of Directors (i) the lead underwriter for such offering, (ii) whether such offering shall be made in Canada or the United States of America and (iii) the place of listing of the Equity Shares on a national

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stock exchange or inter-dealer quotation system consistent with the determination made in clause (ii).

6.03 Initial Public Offering and Registration Procedures

In an initial public offering of the Company, and any subsequent offering of Common Shares of the Company, each of PSP and Loral (and MHR Fund, if then a holder of Equity Shares) shall be entitled to request the inclusion in such offering document all or part of such Shareholder’s Equity Shares. If the underwriter managing the offering advises the Shareholders who have requested inclusion of their Shares in the offering, including any Shareholder exercising demand registration rights, pursuant to a Change of Control Demand Right or upon the happening of a Registration Event (collectively, the “Included Holders”) that marketing considerations require a limitation on the number of Shares offered, then the number of Shares to be included in such underwritten public offering shall be reduced to a number, reasonably deemed satisfactory by such managing underwriter, provided that the securities to be included in the offering shall be determined in the following sequence:

(a)	in the event that the offering is initiated by the Company, (i) first, securities sought to be offered by the Company, and (ii) second, securities sought to be offered by all Included Holders, pro rata among the Included Holders (based on the aggregate number of securities which each such Included Holder has requested to be included);
(b)	subject to clauses (c) and (d), below, in the event that the offering is initiated by a Shareholder exercising a demand registration right or by PSP or Loral exercising its rights to cause an initial public offering after the fourth anniversary of the Effective Date, (i) first, securities sought to be offered by such Shareholder and the other Included Holders, pro rata among all such Included Holders (based on the aggregate number of securities which each such Included Holder has requested to be included), and (ii) second, securities sought to be offered by the Company;
(c)	in the event that the offering is the initial public offering initiated by PSP within 90 days after a Loral Change of Control: (i) first, securities sought to be offered by PSP, (ii) second, securities sought to be offered by the Company, and (iii) securities sought to be offered by any other Included Holders other than PSP, pro rata among the Included Holders other than PSP (based on the aggregate number of securities which each such Included Holder has requested to be included); and
(d)	in the event that the offering is initiated by PSP in connection with an exercise of the Change of Control Demand Right, then: (i) first, securities sought to be offered by PSP, (ii) second, securities sought to be offered by any other Included Holders other than PSP, pro rata among the Included Holders other than PSP (based on the aggregate number of securities which each such Included Holder has requested to be included), and (iii) third, securities sought to be offered by the Company.

If the Company is qualifying a prospectus or registration statement as a result of a Registration Event and the Shareholder requiring such qualification has been unable to dispose of more than

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50% of the Shares which such Shareholder has requested to be included in the offering as a result of the application of this Section 6.03, such offering shall not qualify as one of the two occasions in which such Shareholder shall be able to require a Registration Event.

6.04 Assistance with Offerings

Whenever any Shareholder has exercised its right to require the Company to qualify a prospectus or registration statement for the offering of its Equity Shares, the Company will use reasonable commercial efforts to cause the consummation of the offering as soon as reasonably practicable, and will use reasonable commercial efforts and take all steps necessary for the preparation, filing and obtaining of receipts of a preliminary and final prospectus, and any required amendments thereto, from the securities commissions and other securities regulatory authorities of each Province of Canada (including a French language preliminary and final prospectus for use in the Province of Quebec), or all steps necessary for the preparation, filing, amending (including post-effective amendments) and supplementing of a registration statement and the prospectus used in connection therewith with the Securities and Exchange Commission in the United States of America, and compliance with all relevant state laws, and shall make available appropriate members of its management to participate in road shows, marketing efforts and investor meetings in connection with the offering of Equity Shares. Each Shareholder will cooperate in good faith to the extent necessary to facilitate each such offering.

6.05 Expenses

All expenses incident to the Company’s performance of or compliance with Sections 6.02, 6.03 and 6.04, including all prospectus preparation expenses, printing expenses (including expenses of printing certificates for the Equity Shares and of printing prospectuses if the printing of prospectuses is requested by a holder of Equity Shares), the Company’s internal expenses (including all salaries and expenses of its officers and employees performing legal or accounting duties), registration and prospectus filing fees, the fees and expenses incurred in connection with any listing of the equity shares, fees and expenses of counsel for the Company and a single counsel to the Shareholders participating in the offering as selected by the Shareholder requiring the qualification of a prospectus or registration statement pursuant to Section 6.02 and the Company’s independent certified public accountants, the fees and expenses of any special experts retained by the Company in connection with such prospectus or registration statement, and the fees and expenses of other persons retained by the Company (all such expenses being herein called “Registration Expenses”) will be borne by the Company whether or not any final prospectus receipts are issued or the registration statement becomes effective; provided, however, that in no event shall Registration Expenses include any underwriting discounts, commissions or fees attributable to the sale of the Equity Shares.

6.06 Auditor

Until changed by Extraordinary Resolution, the Auditor of the Company and of Interco and Telesat shall be Deloitte & Touche.

6.07 Year End

Until changed by Extraordinary Resolution, the fiscal year of the Company, Interco and Telesat shall end on December 31 in each year.

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6.08 Access to Information

Each of the Company, Interco and Telesat shall provide to each of Loral and PSP (i) all annual and quarterly financial statements at such times as may be reasonably requested by either Loral or PSP in order to support filing obligations of Loral or PSP, and in no event later than the date that such financial statements are provided to the Company’s or Telesat’s bank lenders, and (ii) access to all other information concerning the business and affairs, financial performance and compliance with Applicable Laws of each of the Company, Interco and Telesat as shall be reasonably requested by either Loral or PSP, such access to be given under reasonable circumstances and in normal business hours. To the extent that the Company’s annual financial statements are not audited within 60 days of the Company’s fiscal year-end, the Company shall provide to Loral and PSP drafts of the Company’s unaudited financial statements within such 60 day period, if and when otherwise available.

ARTICLE 7 – RESTRICTIONS ON TRANSFER OF RESTRICTED SHARES

7.01 Meaning of “Transfer”

In this Agreement, unless the context otherwise requires, any reference to a “transfer” of securities or any interest therein of a Person shall be interpreted to include:

(a)	any transfer or other disposition of such securities or any interest therein, including by operation of law, by court order, by judicial process, or by foreclosure, levy or attachment;
(b)	any sale, assignment, gift, donation, redemption, conversion or other disposition of such securities or any interest therein pursuant to an agreement, arrangement, instrument or understanding by which legal title to or beneficial ownership of such securities or any interest therein passes from one Person to another Person or to the same Person in a different legal capacity, whether or not for value, and
(c)	the granting of any Lien on or extending or attaching to such securities or any interest therein.

7.02 Board Approval of Transfers

In addition to the restrictions on transfer contained elsewhere in this Article 7 , no Share may be transferred (other than pursuant to Section 6.02 and Section 6.03)) (i) prior to the second anniversary of the Effective Date, without the prior consent of at least 70% of the Directors (other than pursuant to the PSP Sell-Down or the sale by any Equity Shareholder of up to 10% of such Shareholder’s Equity Shares) and (ii) in the case of the PSP Sell-Down or the sale by any Equity Shareholder of up to 10% of such Shareholder’s Equity Shares, or any sale after the first two years from the Effective Date, without the prior consent of a majority of the Board. No Director shall vote to consent to the transfer of any Share unless all applicable restrictions on such transfer contained in this Article 7 have been complied with and such transfer is not otherwise prohibited by this Agreement and the transferee (other than a transferee pursuant to Section 6.02 or 6.03) has executed and delivered to the Company an acknowledgement of the existence and terms of this Agreement substantially in the form of Schedule H, to be effective immediately following such transfer; provided, however, that notwithstanding the foregoing,

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subject to receipt from each transferee of such an acknowledgement, the Board shall approve any transfer of Shares referred to in clauses (i), (ii)(b) or (iii) of the definition of PSP Sell-Down, and clause (ii)(a) of the definition of PSP Sell-Down so long as the Board resolves in writing prior to such transfer that such transfer of such additional amount of Fixed Rate Preferred Shares will not cause material adverse tax consequences to the Company. Each Director shall vote to consent to any transfer if all such restrictions on such transfer have been complied with and such transfer is not otherwise prohibited by this Agreement. Each Shareholder shall take all such action as may be required to ensure compliance with this Section 7.02 by its Shareholder Nominees. Any dispute as to whether any transfer is permitted under this Agreement shall be subject to arbitration under Article 9.

7.03 Restrictions on Transfers of Shares

No Shareholder may transfer any Shares or any interest therein owned by it to any Person except (i) to a Permitted Transferee pursuant to Section 7.04, (ii) after compliance with a Right of First Offer pursuant to Section 7.07, including in respect of a transfer as described in clause (ii)(b) of the definition of “PSP Sell-Down”, (iii) (x) pursuant to a public offering as contemplated by Section 6.02 and Section 6.03, or (y) following such offering and after compliance with Section 7.07, pursuant to rules permitting the sale of securities in the normal course through a stock exchange in compliance with the rules of such stock exchange, (iv) pursuant to a sale of Shares upon insolvency pursuant to Section 7.06, (v) upon exercise of tag along or drag along rights pursuant to Section 7.08, (vi) pursuant to the PSP call rights as provided in Section 7.09, Loral call rights as provided in Section 7.10 or in respect of a transfer of Director Voting Shares, in compliance with (and only in compliance with) the provisions of Section 7.11, (vii) as part of a transfer of Fixed Rate Preferred Shares and/or Equity Shares pursuant to the PSP Sell-Down, or (viii) pursuant to a redemption of Redeemable Common Shares or Redeemable Non-Voting Participating Preferred Shares as contemplated by Section 3.06, or of Fixed Rate Preferred Shares in accordance with the rights, restrictions, conditions and limitation attaching to the Fixed Rate Preferred Shares. Any attempted transfer of Shares made in breach of this Agreement shall be null and void. Neither the Board nor the Shareholders shall approve or ratify any transfer of Shares made in contravention of the prohibition contained in this Section 7.03, and the Company shall cause any such transfer not to be recorded on the registers of the Company maintained for the Shares.

7.04 Transfers to Permitted Transferees

     (1) Permitted Transferee. A “Permitted Transferee” is, (a) in the case of Shares owned by a specific Shareholder, any Person (1) which is a Wholly-Owned Subsidiary of that Shareholder or (2) of which that Person is a Wholly-Owned Subsidiary or (3) in the case of PSP, any fund which is wholly-managed by PSP, (b) any Shareholder who is an original party to this Agreement, and (c) MHR Fund.

     (2) Transfer. Subject to this Section 7.04, each Shareholder shall be entitled, upon prior written notice to the Company and the other Shareholders, to transfer all or any portion of its Shares to any Permitted Transferee of that Shareholder. No such transfer shall be or become effective, however, until such Permitted Transferee executes and delivers to the Company an acknowledgement of the terms of this Agreement substantially in the form of Schedule H. Following a transfer, the transferring Shareholder and the Permitted Transferee shall be jointly and severally liable for all of the obligations of the transferring Shareholder hereunder, provided

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that if the transferee is MHR Fund, then MHR Fund shall not be jointly and severally liable with any transferring Shareholder. Notwithstanding the foregoing, for the avoidance of doubt, if MHR Fund acquires Equity Shares as a Permitted Transferee, MHR Fund will become subject to Sections 7.08 and 7.09 in its capacity as a Permitted Transferee thereunder. On subsequent transfers under this Section, the determination of whether the transferee is a Permitted Transferee shall be determined by reference to the Shareholder who was an original party to this Agreement, not by reference to the transferring Permitted Transferee in such subsequent transfer.

7.05 Indirect Transfers

     (1) Sole Ownership. Subject to Section 7.05(3), each Shareholder covenants and agrees with the other parties that (i) it shall remain the sole owner of all of the voting securities of any Wholly-Owned Subsidiary of it that hereafter acquires any Shares so long as such Wholly-Owned Subsidiary holds such Shares, (ii) it will remain the sole manager of any fund managed by it into which any Shares are transferred and (iii) it shall not agree to be or be the subject of or a party to any transaction as a consequence of which Equity Shares or voting interests therein would be or are acquired by a Strategic Competitor of Telesat.

     (2) Prohibited Transfers. Without limiting the generality of Section 7.05(1), and subject to Section 7.05(3), the Company shall not recognize or register, and the Shareholders and the Board shall not approve, any direct transfer of Shares made in breach of Section 7.05(1), and neither the Board nor the Company shall recognize any direction, instruction or notice from any Person or group of Persons who acquires, directly or indirectly, control of a Shareholder as a result of a transfer or issuance of securities of such Shareholder or securities or other voting interests of any other Person made in breach of Section 7.05(1)(iii).

     (3) For greater certainty, nothing in this Section 7.05 shall prevent, restrict, impede or in any manner affect any transaction or series of related transactions through which Loral Space or any of its Affiliates (other than Loral, the Company or any of its Subsidiaries) may be merged, combined or amalgamated with or into any other Person, or any securities or assets of Loral Space or any of its Affiliates (other than Loral, the Company or any of its Subsidiaries) may be sold, transferred to or exchanged with the securities or other property of any other Person.

7.06 Sale of Shares on Insolvency

An Equity Shareholder (an “Insolvent Shareholder”) shall be deemed to have irrevocably offered to sell all of the Equity Shares owned by it to the other Equity Shareholders as of the day (the “Date of Withdrawal”) immediately before the day on which Insolvency Proceedings by or against that Insolvent Shareholder are commenced, and each other Shareholder may, in addition to any other rights or remedies it may have, purchase such Shareholder’s Pro Rata Proportion of the Equity Shares deemed to be offered by the Insolvent Shareholder (calculated without reference to the Shares held by the Insolvent Shareholder) at their Fair Market Value per Equity Share as determined under Section 8.03 by giving notice of their elections within 30 Business Days after the Date of Withdrawal, according to their Pro Rata Proportions or any other proportions as they may agree.

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7.07 Right of First Offer

     (1) ROFO Notice. If at any time any Equity Shareholder wishes to sell some or all of the Equity Shares then owned by it (other than a transfer to a Permitted Transferee or the sale of up to the .5601% of Equity Shares that constitute part of the PSP Sell-Down, to which this Section 7.07 shall not apply), or PSP wishes to sell some or all of the Fixed Rate Preferred Shares then owned by it in conjunction with or at any time following a sale of all Equity Shares then owned by PSP and its Affiliates, such Shareholder (the “Offeror”) shall first give notice in writing (such notice, a “ROFO Notice”) to all other Equity Shareholders (the “Offeree Shareholders”) of its desire to sell, the purchase price per Share (and in the case of a ROFO Notice by PSP in respect of both Equity Shares and Fixed Rate Preferred Shares, a separate price per Share in respect of Shares of each such class) at which the Offeror wishes to sell (the “Stipulated Price”), any other terms and conditions of the sale (the “Stipulated Terms”) and the expiry date of the ROFO Notice (the “Expiry Date”). The ROFO Notice shall constitute an irrevocable offer by the Offeror to sell to each Offeree Shareholder or such other Permitted Purchaser as an Offeree Shareholder may designate under Section 8.08 (a “Designee”) the Pro Rata Proportion of the Shares specified in the ROFO Notice (the “Offered Shares”) at the Stipulated Price and on the Stipulated Terms. Subject to Section 7.07(3)(b), the ROFO Notice shall specify a Sale Closing Date that is no earlier than 30 days after the Expiry Date.

     (2) Expiry Date and Notice of Contemplation. The period from the date on which the ROFO Notice is issued and the Expiry Date may be no less than 30 days (the “Exercise Period”). If the Exercise Period for any ROFO Notice is less than 60 days, such ROFO Notice shall not be valid unless (x) before delivering such ROFO Notice, the Offeror shall have first delivered to each Offeree Shareholder a notice (a “Notice of Contemplation”) stating that the Shareholder is contemplating selling the Offered Shares and (y) the period from the date of the delivery of the Notice of Contemplation to the Expiry Date specified in the subsequent ROFO Notice is not less than 60 days and not more than 6 months. The Notice of Contemplation shall not constitute an offer to sell the Offered Shares and need not contain the terms or conditions upon which the Offeror is prepared to sell.

     (3) Acceptance by Offeree Shareholders.

(a)

Each Offeree Shareholder may within the applicable Exercise Period give the Offeror written notice (an “Acceptance”) that such Offeree Shareholder accepts the offer contained in the ROFO Notice at the Stipulated Price and on the Stipulated Terms. Each Offeree Shareholder which delivers an Acceptance for its full Pro Rata Proportion of the Offered Shares shall be entitled to stipulate in its Acceptance that it wishes to purchase additional Offered Shares and the maximum number of additional Offered Shares that it is prepared to purchase, and if other Offeree Shareholders do not deliver Acceptances for their full Pro Rata Proportion of Offered Shares, the Offered Shares not accepted for purchase shall be allocated, in their Pro Rata Proportions, to the Offeree Shareholders which have stipulated a wish to purchase additional Offered Shares, provided that in no event shall an Offeree Shareholder be required to purchase a greater number of Offered Shares than the maximum number specified in its Acceptance.

(b)

If an Offeree Shareholder is unable to accept the offer contained in a ROFO Notice by reason of restrictions of Applicable Law but desires to have the

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opportunity to procure a Designee that would not be so restricted (a “Suitable Designee”), the Offeree Shareholder may accept such offer on behalf of an unnamed Suitable Designee, it being agreed and understood, however, that such acceptance shall create a binding obligation on the part of the Offeree Shareholder to pay or cause to be paid the Stipulated Price to the Offeror on the Sale Closing Date regardless of whether the Offeree Shareholder has procured a Suitable Designee. If the Offeree Shareholder accepts an offer contained in a ROFO Notice under this Section 7.07(3)(b), the Offeror and the Offeree Shareholder shall be deemed to have agreed that the Sale Closing Date is the first Business Day that is more than 90 days after the Expiry Date. If on such Sale Closing Date the Offeree Shareholder is not permitted by Applicable Law to take delivery of the Offered Shares and no Suitable Designee has been procured, the Offeree Shareholder shall nevertheless pay the Stipulated Price to the Offeror. In such event, the Offeror shall reserve and refrain from selling or otherwise dealing with the Offered Shares and the rights of the Offeree Shareholder with respect to the Offered Shares shall be limited to being permitted to acquire the Offered Shares at a later date pursuant to Applicable Laws, or to procure an acceptable Designee, and the Offeree Shareholder shall have no other rights with respect to the Offered Shares. In the event that by reason of a Change in Law the Offeree Shareholder is subsequently permitted to acquire the Offered Shares, or the Offeree Shareholder has procured a Suitable Designee, the Offeree Shareholder shall give notice of such Change in Law or the procurement of a Suitable Designee to the Offeror and to the Company, and, if applicable, upon being satisfied that such transfer does not contravene Applicable Law, the Company shall register the transfer of the Offered Shares to the Offeree Shareholder, or to the Suitable Designee, as the case may be, on the date specified by the Offeree Shareholder which shall be not less than five Business Days after the date of its notice.

(c) If the Offeree Shareholders do not deliver Acceptances to the Offeror during the Exercise Period for all of the Offered Shares, the Offeror may, subject to Section 7.07(3)(b), at any time during the three month period following the expiry of the Exercise Period sell any Offered Shares for which Acceptances were not delivered to any Permitted Purchaser at a purchase price which is not less than the Stipulated Price and on terms and conditions which are not more favourable to the Permitted Purchaser than the Stipulated Terms set forth in the ROFO Notice.

     (4) Continuing Right. If the sale to a Permitted Purchaser is not completed within the three month period referred to in Section 7.07(3)(b), the Offeror may not sell the Offered Shares without first offering them again in accordance with this Section 7.07.

     (5) Termination of Loral Right of First Offer. If a Loral Default shall occur, Loral shall thereafter have no rights as an Offeree Shareholder pursuant to this Section 7.07.

     (6) Following a Public Offering. If at any time after a public offering any Equity Shareholder wishes to sell some or all of the Equity Shares then owned by it pursuant to clause (iii) (y) of Section 7.03 (other than the sale of up to the .5601% of Equity Shares that constitute part of the PSP Sell-Down, to which Section 7.07 shall not apply), the provisions of this Section 7.07 shall apply but with the following modifications:

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(a)	the Exercise Period may be 15 days or longer, but not less than 15 days;
(b)	the requirement set forth in the second sentence of Section 7.07(2) that the Offeror deliver to the Offeree Shareholder a Notice of Contemplation shall not apply;
(c)	Section 7.07(3)(b) shall apply provided however that the second sentence of such section shall be replaced as follows:
	”If the Offeree Shareholder accepts an offer contained in a ROFO Notice under this Section 7.07(3)(b), the Offeror and the Offeree Shareholder shall be deemed to have agreed that the Sale Closing Date is the first Business Day that is more than 30 days after the Expiry Date”; and
(d)	Section 7.07(3)(c) shall be replaced as follows:
	”If the Offeree Shareholders do not deliver Acceptances to the Offeror during the Exercise Period for all of the Offered Shares, the Offeror may, subject to Section 7.07(3)(b), at any time during the 30 day period following the expiry of the Exercise Period sell any Offered Shares for which Acceptances were not delivered to any Person (including any Permitted Purchaser) at a purchase price per Equity Share which is not less than 98% of the price stipulated in the ROFO Notice, and in the event of a private sale, on terms and conditions which are not more favourable to the purchaser than the Stipulated Terms set forth in the ROFO Notice.”

7.08 Tag-Along/Drag-Along Rights

In addition to the restrictions imposed by Section 7.03, the following provisions shall apply whenever Loral or a Permitted Transferee of Loral (a “Selling Loral Shareholder”) wishes to sell Equity Shares then owned by Loral and its Permitted Transferees (the “Offered Loral Equity Shares”) to any Permitted Purchaser other than a Permitted Transferee or a Designee (a “Proposed Loral Purchaser”) and wishes to make to, or has received from, the Proposed Loral Purchaser an offer in respect of the Offered Loral Equity Shares or to enter into a written agreement of purchase and sale relating to the Offered Loral Equity Shares (any such offer or proposed agreement, a “Loral Offer”). As used in this Section 7.08, “Proportionate Fraction” in respect of a particular Loral Offer means a fraction the numerator of which is the number of the Offered Loral Equity Shares and the denominator of which is the total number of Equity Shares held by Loral or its Permitted Transferee at the time of determination.

     (1) Tag-along Right in Favour of Non-Loral Shareholders. No Selling Loral Shareholder shall sell, offer to sell or agree to sell any of the Equity Shares owned by such Selling Loral Shareholder to any Person other than a Permitted Transferee unless the applicable Loral Offer is in writing and provides as a condition precedent to its completion that the Proposed Loral Purchaser will grant each other Equity Shareholder the right to require the Proposed Loral Purchaser to purchase, at the discretion of each such other Equity Shareholder, for cash or in securities that are readily tradeable on a securities exchange or inter-dealer quotation system in Canada or the United States of America, some or all of the Proportionate Fraction of such other Shareholder’s Equity Shares at the same price contained in the Loral Offer

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and on the same terms and conditions as those contained in the Loral Offer. The Selling Loral Shareholder shall give notice of any such proposed sale to each other holder of Equity Shares no less than 30 days before the proposed Sale Closing Date (a “Tag-along Notice”). The Tag-along Notice will constitute an irrevocable offer on behalf of the Proposed Loral Purchaser to purchase from such other holder of Equity Shares the Proportionate Fraction of the Equity Shares then held by the other holders of Equity Shares (or such lesser number as the other holders of Equity Shares may elect) at the same price contained in the Loral Offer and on the same terms and conditions as those contained in the Loral Offer, and each other holder of Equity Shares will have no less than 15 days to accept such offer, specifying in such acceptance the number and class of Equity Shares that the other holder of Equity Shares wishes to sell to the Proposed Loral Purchaser. The completion of the sale of any such Equity Shares by each other holder of Equity Shares will be subject to the completion of the sale of the Offered Loral Equity Shares by the Selling Loral Shareholder and vice versa. The provisions of this Section 7.08(1) shall not apply to the sale by Selling Loral Shareholders of up to 5% (in the aggregate) of the Equity Shares owned by Loral on the Effective Date, provided that if a Selling Loral Shareholder offers Equity Shares in any transaction in which more Equity Shares than those exempted from the application of this Section 7.08(1) are being offered for sale (including a proposed sale of less than 5% of the Equity Shares owned by Loral on the Effective Date but when those shares are combined with prior sales by all Loral Selling Shareholders exempted from the application of this Section 7.08(1), would allow Loral Selling Shareholders to have sold more than 5% (in the aggregate) of the Equity Shares owned by Loral on the Effective Date without application of this Section 7.08(1)), this Section 7.08(1) shall apply to such transaction, and the rights of Selling Loral Shareholders to sell up to 5% (in the aggregate) of the Equity Shares owned by Loral on the Effective Date without compliance with this Section 7.08(1) shall continue after such transaction to the same extent as they existed prior to such transaction.

     (2) Drag-along Right in Favour of Loral. Subject to Section 5.02(3), following consummation of the transactions contemplated by the Skynet Asset Transfer Agreement and the Skynet Sale Agreement, or by the Loral Alternative Subscription Agreement, if (x) the Loral Offer is bona fide and for all of the Equity Shares and the proposed consideration for the Equity Shares is for cash or for equity securities that are readily tradeable on a securities exchange or inter-dealer quotations system in Canada or the United States of America and (y) the Proposed Purchaser deals at Arm’s Length with the Selling Loral Shareholder, such Loral Offer may require as a condition precedent to its completion that each other holder of Equity Shares (each, a “Drag-along Shareholder”) agrees to sell to the Proposed Purchaser all of such Drag-along Shareholder’s Equity Shares at the same price contained in the Loral Offer and on the same terms and conditions as those contained in the Loral Offer. The Selling Loral Shareholder shall give notice of any such proposed sale to each Drag-along Shareholder no less than 60 days before the proposed Sale Closing Date (a “Drag-along Notice”). Receipt of a Drag-along Notice by a Drag-along Shareholder will constitute an irrevocable offer to sell to the Proposed Purchaser (a “Deemed Offer”) of such Drag-along Shareholder’s Equity Shares then held by the Drag-along Shareholder at the same price contained in the Loral Offer and on the same terms and conditions as those contained in the Loral Offer; and each Drag-along Shareholder hereby appoints each Selling Loral Shareholder as its true and lawful attorney for the purpose of transmitting the Deemed Offer to the Proposed Purchaser. The completion of the sale of such Equity Shares by a Drag-along Shareholder will be subject to the completion of the sale of the Offered Loral Equity Shares by the Selling Shareholder and vice versa. Notwithstanding the foregoing, if a Loral Default shall occur and Section 5.02(3) shall not apply, the rights of any

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Selling Loral Shareholder contained in this Section 7.08(2) shall be suspended for a period of six months from the occurrence of such Loral Default and such rights shall be reinstated in full following the expiration of such six-month period if, during such six month period following the occurrence of such Loral Default, PSP has not delivered a PSP Call Notice pursuant to and in accordance with Section 7.09.

(3)	Company Sale Drag-along Right.
(a)	The drag-along rights as provided in this Section 7.08(3) shall apply only if (i) a Loral Default shall have occurred, or (ii) (x) a Loral Change of Control shall have occurred, (y) as a result thereof, PSP shall have given, within 90 days of such Loral Change of Control, notice pursuant to Section 6.02 that it wishes to cause the Company to conduct an initial public offering, and (z) such initial public offering shall not have been consummated within twelve months of the Loral Change of Control as a result of the failure by the Company, Interco or Loral to use commercially reasonable efforts to effect such initial public offering (as determined by arbitration pursuant to Article 9 unless otherwise agreed by PSP and Loral).
(b)	Upon the happening of either event specified in clauses (i) or (ii) of Section 7.08(3), PSP shall have the right to deliver to the Company a notice (a “Company Sale Notice”) requiring the commencement of a procedure for the sale of the Company. Within 30 days of the receipt by the Company of a Company Sale Notice, the Board of Directors shall retain the services of a financial advisor selected by the Board after consultation with PSP to market the Company to third party purchasers, and each of Loral, PSP and the Company shall assist in such process to maximize the value that can be obtained in the sale of all of the Equity Shares of the Company.
(c)	If a bona fide offer is received for all of the Equity Shares for cash or for securities that are readily tradeable on a securities exchange or inter-dealer quotation system in Canada or the United States of America and the offeror (the “Proposed Purchaser”) deals at Arm’s Length with each of Loral and PSP, then if PSP (the “Accepting Shareholder”) wishes to accept such offer, it may require the other holders of Equity Shares to agree to sell to the Proposed Purchaser all of such other Shareholder’s Equity Shares at the same price contained in the Proposed Purchaser’s offer and on the same terms and conditions. The Accepting Shareholder shall give notice of any such proposed sale to each other Shareholder no less than 60 days before the sale closing date. Receipt of such a notice by such other Shareholder will constitute an irrevocable offer to sell by such other Shareholder to the Proposed Purchaser all Equity Shares then held by each such other Shareholder at the same price contained in the Proposed Purchaser’s offer and on the same terms and conditions, and each such other Shareholder hereby appoints the Accepting Shareholder as its true and lawful attorney for the purpose of transmitting such other Shareholder’s offer to the Proposed Purchaser. Completion of the sale of all such Equity Shares by such other Shareholders will be subject to the completion of the sale of the Accepting Shareholder’s Equity Shares and vice versa.

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(4)	Provisions Applicable to Tag-Along and Drag-Along Rights
(a)	After compliance with the rights of first offer provided in Section 7.07, the rights of Equity Shareholders described in Section 7.07 shall not apply to any offer or sale made pursuant to Sections 7.08(2) or (3), but shall apply to any other offer or sale pursuant to Section 7.08(1).
(b)	In lieu of an offer to purchase shares to be made by a Proposed Loral Purchaser or Proposed Purchaser pursuant to this Section 7.08(2) or (3), a proposal of amalgamation, arrangement or consolidation, or a proposal of purchase of all of the assets of the Company, may instead be made, provided that such offer is a bona fide offer that provides identical consideration or treatment to the holders of all Equity Shares, is proposed by a Person who deals at Arm’s Length with each of PSP and Loral, and will result in the direct or indirect receipt by each holder of Equity Shares of cash or securities that are readily tradeable on a securities exchange or inter-dealer quotation system in Canada or the United States of America, and the provisions of Section 7.08(2) and (3) shall apply mutatis mutandis to any such proposal.
(c)	In the case of any drag-along or tag-along right exercised pursuant to Section 7.08, the Company shall pay the out-of-pocket expenses of the Shareholders either initiating or responding to the exercise of such drag-along or tag-along rights, including the fees and expenses of financial advisors, investment advisors and legal advisors.
(d)	If drag-along rights are made available pursuant to Section 7.08(3), Loral agrees to make available to the purchaser of the Equity Shares a covenant of confidentiality, non-competition and non-solicitation in substance equivalent to that provided to the Company pursuant to Sections 2.04, 4.04 and 4.05 provided, that, in the event of a drag-along right exercised pursuant to clause (i) of Section 7.08(3)(a), Loral shall not be required to provide such confidentiality and non-competition covenant, whether pursuant to Section 2.04, Section 4.04, or otherwise, if the transactions contemplated by the Skynet Asset Transfer Agreement and Skynet Sale Agreement shall not have occurred and Loral Skynet is not being transferred to the purchaser of the Equity Shares in conjunction with such purchase.
(e)	In connection with each tag-along or drag-along sale, each Shareholder selling Equity Shares shall, to the extent required by the Shareholder initiating the sale (i) make such representations and warranties with respect to such Shareholder as are customary for transactions of the nature of the proposed transaction, (ii) be required to bear its proportionate share of any escrows, holdbacks or adjustments in respect of the purchase price or indemnification obligations; provided, that no Shareholder shall be obligated (x) to indemnify, other than severally indemnify, any Person in connection with such sale, or (y) to incur liability to any Person in connection with such sale, including, without limitation, under any indemnity, in excess of the lesser of (A) its pro rata share of such liability and (B) the gross proceeds realized by such Shareholder in such sale. Neither PSP nor MHR Fund

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shall be required to agree to a non-compete or non-solicitation obligation or covenant in connection with any such sale.

7.09 PSP Call Rights

(a)

Upon the occurrence of a Loral Default, PSP shall have the right, exercisable for a period of six months following the occurrence of such Loral Default, to deliver to Loral a notice (the “PSP Call Notice”) requiring Loral and its Permitted Transferees to sell to PSP, or to any purchaser as PSP shall designate in such notice (the “PSP Designee”), all of the Equity Shares then owned by Loral or its Permitted Transferees (other than, for greater certainty, any Equity Shares owned by MHR Fund or any of its Affiliates and not acquired from Loral or any of its Affiliates). Such right of PSP shall be exercisable at a price per Equity Share equal to the Fair Market Value thereof, determined as of the date at which the PSP Call Notice is delivered; provided that if Loral Space or an Affiliate breached the terms of Section 2.8(a) of the Skynet Asset Transfer Agreement or, if applicable, Section 2.1(b) of the Ancillary Agreement, or failed to fully perform Section 4.1 of the Loral Alternative Subscription Agreement or Section 4.3 of the Loral Alternative Subscription Agreement, as the case may be, then such right of PSP shall be exercisable at a price per Equity Share equal to the Loral Cost. If PSP shall indicate in the PSP Call Notice that it considers that there has been a breach of Section 2.8(a) of the Skynet Asset Transfer Agreement or, if applicable, Section 2.1(b) of the Ancillary Agreement or Section 4.1 or Section 4.3 of the Loral Alternative Subscription Agreement, and Loral disputes that a breach exists, PSP shall pay to Loral the Loral Cost per Equity Share on the closing date of the exercise of the PSP purchase as provided in this Section 7.09 and PSP shall place into escrow on such closing date with a financial institution satisfactory to Loral and PSP, each acting reasonably, on terms satisfactory to Loral and PSP, each acting reasonably, funds equal to the difference between the aggregate Fair Market Value (determined pursuant to Section 8.03) and the aggregate Loral Cost pending the determination of whether or not such a breach has occurred, and in the event it is determined that such a breach did not occur, such funds held in escrow, together with the accrued interest thereon, shall be paid to Loral, and in the event it is determined that such a breach did occur, such funds held in escrow, together with the accrued interest thereon, shall be paid to PSP. If Loral and PSP are unable to agree upon a financial institution to act as escrow agent, or are unable to agree upon the terms of an escrow agreement in respect of the holding and disbursement of the escrowed funds, such matters shall be determined by arbitration pursuant to the provisions of Article 9 , such arbitration to be based on a standard of commercial reasonableness under the circumstances then existing.

(b)

Upon receipt of a PSP Call Notice, Loral and its Permitted Transferees shall be obligated to sell to PSP or the PSP Designee, and PSP shall be obligated to purchase from Loral and its Permitted Transferees, either directly or through the PSP Designee, all of the Equity Shares owned by Loral and its Permitted Transferees and subject to 7.09(a) at a price per Equity Share determined in accordance with Section 7.09(a) on the day set out in the PSP Call Notice, which

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shall be not earlier than 90 Business Days nor later than 120 Business Days from the date of the PSP Call Notice.

(c)

If PSP designates in the PSP Call Notice a PSP Designee as the purchaser of the Equity Shares owned by Loral and its Permitted Transferees, such designation shall create a binding obligation on PSP to pay or cause to be paid to Loral and its Permitted Transferees the price per Equity Share provided in Section 7.09(a) on the closing date set out in the PSP Call Notice. If on such closing date, PSP or the PSP Designee is not permitted under Applicable Law to own the Equity Shares owned by Loral and its Permitted Transferees , PSP shall nevertheless pay to Loral and its Permitted Transferees the purchase price determined in accordance with Section 7.09(a). In such event, Loral and its Permitted Transferees shall reserve and refrain from selling or otherwise dealing with the Equity Shares then owned by them and the rights of PSP with respect to the Equity Shares owned by Loral and its Permitted Transferees shall be limited to being permitted to acquire the Equity Shares owned by Loral and its Permitted Transferees at a later date pursuant to Applicable Law, or to procure an acceptable designee, and PSP shall have no other rights with respect to the Equity Shares owned by Loral and its Permitted Transferees. In the event that by Change of Law PSP is subsequently permitted to acquire the Loral Equity Shares, or PSP procures a designee that may acquire the Equity Shares owned by Loral and its Permitted Transferees, PSP may give notice of such Change of Law or such designee to the Company, and upon being satisfied that such transfer to PSP or such designee does not contravene Applicable Law, the Company shall then register the transfer of the Equity Shares owned by Loral and its Permitted Transferees to PSP or such designee.

7.10 Loral Call Rights

(a)

If (w) there shall have occurred a Loral Change of Control (x) within 90 days after the Loral Change of Control, PSP delivers to the Company and all other holders of Equity Shares a notice requiring the Company to conduct an initial public offering as permitted by Section 6.02 (y) such initial public offering shall not have been consummated within twelve months of the Loral Change of Control as a result of the failure of the Company, Interco or Loral to use commercially reasonable efforts to effect such initial public offering (as determined by a arbitration pursuant to Article 9 , unless otherwise agreed by PSP and Loral), and (z) PSP shall have delivered to Loral a Company Sale Notice pursuant to Section 7.08(3), Loral shall have the right, exercisable within 75 days of delivery by PSP to Loral of a Company Sale Notice pursuant to Section 7.08(3), to deliver to PSP a notice (the “Loral Call Notice”) requiring PSP to sell to Loral, or to any purchaser as Loral shall designate in such notice (the “Loral Designee”) all of the Equity Shares then owned by PSP at a price per Equity Share equal to Fair Market Value.

(b)

Upon receipt of a Loral Call Notice, PSP shall be obligated to sell to Loral, or to the Loral Designee, and Loral shall be obligated to purchase from PSP, either directly or through the Loral Designee, all of the Equity Shares owned by PSP at a price per Equity Share equal to the Fair Market Value on the day which is 20

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Business Days after the determination of Fair Market Value per Equity Share has been made pursuant to Section 8.03.

(c)

If Loral designates in the Loral Call Notice a Loral Designee as the purchaser of the Equity Shares owned by PSP, such designation shall create a binding obligation on Loral to pay or cause to be paid to PSP the Fair Market Value per Equity Share on the closing date set out in the Loral Call Notice. If on such closing date, Loral or the Loral Designee is not permitted under Applicable Law to own the Loral Equity Shares, Loral shall nevertheless pay to PSP the aggregate Fair Market Value amount. In such event, PSP shall reserve and refrain from selling or otherwise dealing with the Equity Shares then owned by it and the rights of Loral with respect to the PSP Equity Shares shall be limited to being permitted to acquire the PSP Equity Shares at a later date pursuant to Applicable Law, or to procure an acceptable designee, and Loral shall have no other rights with respect to the PSP Equity Shares. In the event that by Change of Law Loral is subsequently permitted to acquire the PSP Equity Shares, or Loral procures a designee that may acquire the PSP Equity Shares, Loral may give notice of such Change of Law or such designee to the Company, and upon being satisfied that such transfer to Loral or such designee does not contravene Applicable Law, the Company shall then register the transfer of the PSP Equity Shares to Loral or such designee.

7.11 Transfers of Director Voting Shares

PSP shall have the right to call, at any time by giving 5 Business Days notice to any holder of Director Voting Preferred Shares, for the transfer of all such Director Voting Preferred Shares owned by such holder to a purchaser designated by PSP in such notice (a “Director Voting Preferred Share Transfer Notice”). Upon delivery of such Directors Voting Preferred Share Transfer Notice, the Shareholder to which such notice is given shall transfer to the Person designated in such Director Voting Preferred Transfer Notice all Director Voting Preferred Shares owned by such Shareholder on the fifth Business Day following delivery of such notice to the Shareholder at a purchase price of $10 per Director Voting Preferred Share, provided that such purchaser is a Permitted Purchaser. In order to expedite the transfer of Director Voting Preferred Shares pursuant to this Section 7.11, each Shareholder shall deliver to PSP, upon the date of acquisition by such Shareholder of any Director Voting Preferred Shares, all certificates representing such Shares, endorsed in blank for transfer. PSP shall be entitled to deliver such certificates to any Permitted Purchaser in order to facilitate a purchase and sale of Director Voting Preferred Shares pursuant to this Section 7.11, but shall not otherwise be entitled to deal with certificates representing the Director Voting Preferred Shares, which certificates shall otherwise be held custodially by PSP at all times.

7.12 Changes in Law Affecting Permissible Levels of Loral’s Shareholdings

Required Reductions in Share Ownership. If the introduction of or any change in Applicable Law or the interpretation thereof by any court of competent jurisdiction or Governmental Authority charged with the administration thereof (any such introduction or change, a “Change in Law”) has the effect of requiring Loral to divest itself of any number of Shares (the “Excess Shares”) that it then holds, or if such Change in Law would render Telesat ineligible to continue to operate its Satellite Communications Business under Applicable Law if Loral continued to

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hold the Excess Shares, then on or before the effective date of such Change in Law or as soon as possible thereafter if such Change of Law is immediate, Loral shall either:

(a)	if the Excess Shares are Common Shares, convert such Excess Shares into an equal number of Non-Voting Participating Preferred Shares; or
(b)	if the Excess Shares are any other class of Shares, or are Common Shares but the conversion of such Common Shares into Non-Voting Participating Preferred Shares would not cause such shares to cease to be Excess Shares, sell the Excess Shares to a Permitted Purchaser (provided that the rights of first offer contained in Section 7.07 shall apply to any such sale).

7.13 Notice of Conversion

Each Shareholder shall give notice to the Corporation and to each holder of Equity Shares of its intention to convert Equity Shares of any class into Equity Shares of any other class, such notice to be given not less than two Business Days prior to the intended conversion date.

7.14 Share Certificates Legend

All Share certificates of the Company shall bear the following legend conspicuously on their face:

“The shares represented by this certificate are subject to the terms and conditions of a unanimous shareholder agreement made as of •, 2007 and are not transferable except in compliance with that agreement.”

ARTICLE 8 — GENERAL SALE PROVISIONS

8.01 Application of Sale Provisions

Except as may otherwise be provided in this Agreement, the provisions of this Article 8 shall apply to any sale of Equity Shares (each a “Sale Transaction”) between or among Shareholders or their designees or between a Shareholder or its designee and the Company, in each case pursuant to this Agreement.

8.02 Defined Terms

For the purposes of this Article 8 :

     (1) “Purchased Shares” means the Equity Shares to be purchased and sold or issued and taken up and paid for in any Sale Transaction; and

     (2) “Purchase Price” means the amount to be paid as the purchase or subscription price for the Purchased Shares.

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8.03 Determination of Fair Market Value

     (1) By Agreement. Where the Fair Market Value of Equity Shares to be purchased and sold under this Agreement is required to be determined, such Fair Market Value shall be the value agreed by the parties to the Sale Transaction within 20 Business Days of the date on which the applicable offer to sell is made or deemed to be made, or in the case of Section 7.09, the date the PSP Call Notice is delivered (the “Determination Date”).

     (2) Valuation. If the parties cannot agree on the Fair Market Value within 20 Business Days of the Determination Date, the Fair Market Value of the Equity Shares to be purchased and sold shall be determined as follows:

(a)	Within 25 Business Days of the Determination Date, the purchaser shall give notice to the vendor proposing the name of the business valuer (the “Valuer”) that the purchaser wishes to determine the Fair Market Value of the Equity Shares to be purchased and sold. Within 10 Business Days after receipt of the notice, the vendor shall give notice to the purchaser advising whether the vendor accepts such Valuer.
(b)	If no notice is given by the vendor within the specified period, the vendor will be deemed to have accepted the Valuer. If notice is given by the vendor within the specified period that it rejects the Valuer proposed by the purchaser, the purchaser may engage the Valuer but the vendor may engage a separate business valuer (the “Vendor’s Valuer”).
(c)	Each individual selected as a Valuer or a Vendor’s Valuer:

(i)	shall be qualified by education and experience to value corporations in the telecommunications industry;
(ii)	shall be at Arm’s Length to both parties and not otherwise an Interested Party; and
(iii)	shall not be an individual who is a member or employee of a Person that has otherwise been retained by either of the parties.

(d)

Except as specified in the last sentence of this Section 8.03(2)(d), the Costs and Expenses of the Valuer shall be paid by the purchaser, or, if there is more than one purchaser, by the purchasers in accordance with their Pro Rata Proportions relative to each other. Except as specified in the last sentence of this Section 8.03(2)(d), the Costs and Expenses of the Vendor’s Valuer shall be paid by the Vendor. In the event that Fair Market Value is being determined for the purposes of Section 7.09, the Costs and Expenses of the Valuer and the Vendor’s Valuer shall each be paid by the Company.

(e)

The Valuer shall be instructed to prepare a written valuation report on the Fair Market Value of the Equity Shares. The valuation report must contain disclosure consistent with that required under OSC Rule 61-501 and Companion Policy 61-501CP issued pursuant to the Securities Act (Ontario) as it may be amended from

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	time to time and Appendix A to Standard #110 “Valuation Report Standards and Recommendations” of the Canadian Institute of Chartered Business Valuators as it was on the date of this Agreement, a copy of which is attached to this Agreement as Schedule 8.3(b). The Company will cooperate fully in providing to the Valuer information and access to management. The Valuer shall provide a draft of its report to the parties within 60 Business Days of the Determination Date. The draft may omit value conclusions but shall set out major assumptions, judgments, pertinent empirical evidence and a detailed framework for valuation calculations. The parties shall provide written comments on the draft to the Valuer within 70 Business Days of the Determination Date. The Valuer shall provide its final valuation report to the parties within 80 Business Days of the Determination Date.
(f)	The Company will provide the Vendor’s Valuer with the same cooperation, information and access as that provided to the Valuer. The Vendor’s Valuer shall be instructed to adhere to the same valuation report timetable, disclosure and process as that described in Section 8.03(2)(e).
(g)	The vendor may provide to the Valuer the draft valuation report of the Vendor’s Valuer and the purchaser may provide to the Vendor’s Valuer the draft valuation report of the Valuer.
(h)	Subject to Section 8.03(2)(i), where the price of the Equity Shares to be purchased and sold is their Fair Market Value, such price shall be the Fair Market Value set out in the Valuer’s valuation report. If in the Valuer’s valuation report Fair Market Value is expressed to be within a range, the mid-point of the range shall be the price of such Equity Shares.
(i)	If the vendor notifies the purchaser within 90 Business Days of the Determination Date that it is not satisfied with the price determined under Section 8.03(2)(h) and if the Vendor’s Valuer has prepared a report as set out in Section 8.03(2)(f) then the final Valuer’s report and the final Vendor’s Valuer’s report shall be submitted to an Arbitrator, who shall determine the price of the Equity Shares to be purchased and sold in accordance with the provisions of Schedule E.
(j)	The Arbitrator shall not be requested to prepare a third valuation but shall be requested to review the two valuation reports and any written comments from the vendor or purchaser provided under Section 8.03(2)(e), and to interview the purchaser, vendor, representatives of the Company, the Valuer and the Vendor’s Valuer and, on the basis of that review, to determine the price of the Equity Shares to be purchased and sold. In conducting its review, the Arbitrator shall give particular emphasis to the qualifications and independence of the Valuer and the Vendor’s Valuer, the scope of their work and analysis and the fullness and clarity of the disclosure of assumptions, judgments, pertinent empirical evidence and calculations in the valuation reports.
(k)	If the determination of Fair Market Value by the Arbitrator is:

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(i)	equal to or less than 5% above the Fair Market Value determined by the Valuer, then all Costs and Expenses of the arbitration shall be paid by the vendor; and
(ii)	more than 5% above the Fair Market Value determined by the Valuer, then all Costs and Expenses of the arbitration shall be paid by the purchaser, or if there is more than one purchaser, by the purchasers in accordance with their Pro Rata Proportions relative to each other.

(l) The determination of Fair Market Value by the Arbitrator shall be final and binding on the vendor and purchaser.

8.04 Payment and Closing Provisions

The following shall apply to each Sale Transaction subject to any express provisions to the contrary:

     (1) Payment of Purchase Price and Delivery of Certificates. The Purchase Price shall be paid in cash, by wire transfer or bank draft or certified cheque drawn on a Canadian chartered bank at the time of closing on the Sale Closing Date at the place of closing against receipt by the purchaser of the share certificate or certificates representing the Purchased Shares, duly endorsed in blank for transfer with signatures guaranteed by a Canadian chartered bank or trust company. All other payments required to be made in connection with a Sale Transaction shall be paid in cash, by wire transfer or bank draft or certified cheque drawn on a Canadian chartered bank at the time payment is required to be made, except that where permitted by the provisions of Article 7, payment may be made in whole or in part in marketable securities.

     (2) Title. The seller of the Purchased Shares (the “Vendor”) shall represent and warrant in writing, such warranty to survive closing, that it has good and marketable title to the Purchased Shares (or in the case of an issuance of Shares from treasury, that the Purchased Shares have been duly issued as fully paid and non-assessable) and clear of any Lien except for the terms and conditions of this Agreement and shall deliver to the purchaser all such documents, instruments and releases and shall take all such steps and do all such acts and things as may be necessary or desirable to vest such title in the purchaser.

     (3) Section 116 of the Income Tax Act. The Vendor (other than the Company) shall either provide the purchaser with evidence reasonably satisfactory to the purchaser that the Vendor is not then a non-resident of Canada within the meaning of the Income Tax Act (Canada) or provide the purchaser with a certificate pursuant to Subsection 116(2) of the Income Tax Act (Canada) with a certificate limit in an amount not less than the Purchase Price for the Purchased Shares; provided that if such evidence or certificate is not forthcoming, the purchaser shall be entitled to make the payment of tax required under Section 116 of the Income Tax Act (Canada) and to deduct such payment from the Purchase Price for the Purchased Shares.

     (4) Vendor’s Non–Completion

(a) If on the Sale Closing Date, the Vendor shall default in its performance of the Sale Transaction, the purchaser shall have the right upon such default (without prejudice to any other rights which it may have) to pay the Purchase Price to the

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	credit of the Vendor in a special account at the principal branch of the Company’s principal bankers in the City of Toronto, and upon such payment to complete the Sale Transaction as aforesaid.
(b)	If the Purchase Price is so deposited into a special account at the branch of the Company’s bankers in the name of the Vendor, then from and after the date of such deposit, and even though the certificates evidencing the Shares held by the Vendor have not been delivered to the purchaser, the purchase of such Shares shall be deemed to have been fully completed and all right, title, benefit and interest, both at law and in equity, in and to such Shares shall be conclusively deemed to have been transferred and assigned to and become vested in the purchaser and all right, title, benefit and interest, both at law and in equity, of the Vendor or of any transferee, assignee or any other Person having any interest, legal or equitable, therein or thereto, whether as a shareholder or creditor of the Company or otherwise, shall cease; provided, however, that the Vendor shall be entitled to receive the Purchase Price so deposited, without interest.
(c)	The Vendor hereby irrevocably constitutes and appoints the corporate secretary of each purchaser as the Vendor’s true and lawful attorney–in–fact and agent for, in the name and of and on behalf of, the Vendor to execute and deliver in the name of the Vendor, in the event that the Vendor defaults in signing, all such documents or instruments as may be necessary to transfer and assign the Shares, or any part thereof, to the purchaser, or its nominee or nominees, on the books of the Company. The Vendor hereby ratifies and confirms and agrees to ratify and confirm all that any purchaser may lawfully do or cause to be done by virtue of the provisions hereof.
(d)	The Vendor hereby irrevocably consents to any transfer of the Shares or any part thereof made pursuant to the provisions of this Section 8.04(4).
(e)	The Vendor shall be entitled to receive the Purchase Price deposited with the bankers of the Company upon delivery to the purchaser of certificates evidencing the shares so purchased duly endorsed in blank for transfer with signatures guaranteed by a Canadian chartered bank or trust company together with any other documents required to be delivered hereunder which have not been previously delivered.

8.05 Consents

The parties acknowledge that any transfer of Shares, including upon the completion of any Sale Transaction, shall be subject, in any event, to the receipt of all Regulatory Approvals required for the transfer of Shares contemplated thereby and, for the purpose of obtaining such Regulatory Approvals or other such approvals, permits and consents, the Sale Closing Date provided for elsewhere in this Agreement may be extended for such reasonable time as may be required and the parties shall cooperate fully in securing same. Accordingly, the parties agree that any purchase and sale of Shares hereunder shall be completed, if Regulatory Approval is required, on the later of the Sale Closing Date provided for elsewhere in this Agreement and ten Business Days after the date on which Regulatory Approval is obtained, but in any event, no later than the later of (a) 180 days after the Sale Closing Date provided for elsewhere in this Agreement and

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(b) the date of the final determination of an application for such Regulatory Approval where such application has been filed prior to the expiry of such period of 180 days.

8.06 Time and Place of Closing

Unless otherwise agreed by the parties to a Sale Transaction, the closing of the Sale Transaction shall take place at the registered office of the Company at 11:00 a.m. on the Sale Closing Date.

8.07 No Joint and Several Liability

Nothing in this Agreement shall make any purchaser jointly and severally liable for the obligations of any other purchaser.

8.08 Designee Purchases

If a Shareholder is given the right or opportunity to purchase Shares under this Agreement but is prohibited from doing so by Applicable Law (such as, by way of example and not limitation, limitations on foreign ownership of telecommunications companies), such Shareholder may select a designee which is a Permitted Purchaser, which designee shall be entitled to exercise the right or opportunity to purchase the Shares in such Shareholder’s stead to the extent that such Shareholder is prohibited from doing so itself. Each such designee shall execute an acknowledgement of the terms of this Agreement substantially in the form of Schedule H and shall thereafter have the rights and obligations hereunder as a Shareholder. In exercising its rights under this Section 8.08, each Shareholder shall, to the extent practicable, minimize the number of its designees.

ARTICLE 9 – ARBITRATION

9.01 Arbitration

If:

(a)	any objection to the reasonableness or good faith of a challenge made to the independence of a candidate for Independent Director under Section 3.03(3),
(b)	any dispute regarding whether any restrictions on transfers of Shares contained in Section 7 have been complied with,
(c)	any determination of the failure of the Company or Loral to use reasonable commercial efforts to effect an initial public offering pursuant to Section 7.08(3),
(d)	any determination of Fair Market Value under Section 8.03(2)(i),
(e)	any determination of an escrow agent or the terms of an escrow agreement under Section 7.09, or
(f)	any claim for damages based upon a personal cause of action for an alleged breach of this Agreement that but for this Section 9.01 would entitle a party to

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have the matter adjudicated before the court (including whether an issue is arbitratable)

cannot be resolved in a reasonable period of time in the circumstances by negotiation between the parties or otherwise in accordance with this Agreement, such matter shall be submitted to and finally resolved by arbitration in Ontario under the Arbitration Act and in accordance with the rules and procedures set out in Schedule E.

9.02 Rules for Arbitration

The rules and procedures set out in the Arbitration Act shall apply to each arbitration except to the extent they are modified by the rules for arbitration set out in Schedule E.

ARTICLE 10 — GENERAL

10.01 Carrying out of Agreement

The Company confirms its knowledge of this Agreement and shall carry out and be bound by the provisions of this Agreement to the full extent that it has the capacity and power at law to do so.

10.02 Assignment and Enurement

     (1) Except as expressly provided under this Agreement, no party may assign this Agreement except (i) to a Permitted Transferee that has executed and delivered to the Company an acknowledgement of the terms of this Agreement substantially in the form of Schedule H in accordance with and subject to Section 7.04(2), (ii) to a Permitted Purchaser that has executed and delivered to the Company such acknowledgement substantially in the form of Schedule H in accordance with Section 7.02, or (iii) in the case of MHR Fund, to any entity within the definition of MHR Fund that has executed and delivered to the Company such acknowledgement substantially in the form of Schedule H. The rights provided in this Agreement in favour of PSP, Loral and MHR Fund are personal to each of them and their Permitted Transferees and are not assignable to, and do not accrue to, any Permitted Purchaser (other than a Permitted Transferee). The restrictions on transfer of Shares contained in Sections 7.02 and 7.03 apply to all Permitted Purchasers and by executing an acknowledgement of this Agreement in the form of Schedule H, as required by Section 7.02, each Permitted Purchaser shall become bound by such restrictions. Any assignment made in contravention of this Section 10.02 shall be void and of no effect.

     (2) This Agreement enures to the benefit of and binds the parties, their respective heirs, successors, and permitted assigns and all transferees of Shares.

10.03 Notices

Unless otherwise specified, each Notice to a party must be given in writing and delivered personally or by courier, sent by prepaid registered mail or transmitted by fax to the party as follows:

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If to Loral, Loral Parent, Loral Skynet or Loral Space:

Loral Space & Communications Inc.
600 Third Avenue, 36^th Floor
New York, New York, 10016

Attention: General Counsel
Fax No.: (212) 338-5320

If to PSP or PSP Parent:

Public Sector Pension Investments Board
1250 René Lévesque Blvd. West
Suite 2030
Montréal, Québec H3B 4W8

Attention: Vice President and General Counsel
Fax No.: (514) 937-0403

If to TPI #1:

John W. Cashman
c/o Humphrey Management Limited
1235 Bay Street
Suite 1000
Toronto, Ontario
M5R 3K4

Fax No.: (416) 934-9808

If to TPI #2:

Colin D. Watson
72 Chestnut Park Road
Toronto, Ontario
M4W 1W8

If to the Company:

4363205 Canada Inc.
c/o McCarthy Tétrault LLP
Suite 4700
66 Wellington Street West
Toronto, Ontario
M5K 1E6

Attention: Robert E. Forbes
Fax No.: (416) 868-0673

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If to Interco:

4363213 Canada Inc.
c/o McCarthy Tétrault LLP
Suite 4700
66 Wellington Street West
Toronto, Ontario
M5K 1E6

Attention: Robert E. Forbes
Fax No.: (416) 868-0673

If to Telesat:

Telesat Canada Inc.
1601 Telesat Court
Gloucester, ON K1B 5P4
Canada

Attention: Vice-President and Secretary
Fax No.: (613) 742-4124

If to MHR Fund:

MHR Fund Management LLC
40 West 57^th Street
24^th Floor
New York, N.Y. 10019

Attention: President
Fax No.: (212) 262-9356

or to any other address, fax number or Person that the party designates. Any Notice, if delivered personally or by courier or sent by prepaid registered mail, will be deemed to have been given when actually received, if transmitted by fax before 5:00 p.m. on a Business Day, will be deemed to have been given on that Business Day, and if transmitted by fax after 5:00 p.m. on a Business Day, will be deemed to have been given on the Business Day after the date of the transmission.

10.04 Waivers

No waiver of any provision of this Agreement is binding unless it is in writing and signed by all the parties to this Agreement entitled to grant the waiver. No failure to exercise, and no delay in exercising, any right or remedy under this Agreement will be deemed to be a waiver of that right or remedy. No waiver of any breach of any provision of this Agreement will be deemed to be a waiver of any subsequent breach of that provision.

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10.05 Further Assurances

Each party shall from time to time promptly execute and deliver and take all further action as may be reasonably necessary or appropriate to give effect to the provisions and intent of this Agreement and to complete the transactions contemplated by this Agreement.

10.06 Remedies Cumulative

The rights and remedies under this Agreement are cumulative and in addition to, and not in substitution for, any other rights and remedies, available at law or in equity or otherwise. No single or partial exercise by a party of any right or remedy precludes or otherwise affects the exercise of any other right or remedy to which that party may be entitled.

10.07 Counterparts

This Agreement and any amendment, supplement, restatement or termination of any provision of this Agreement may be executed and delivered in any number of counterparts, each of which when executed and delivered is an original but all of which taken together constitute one and the same instrument.

10.08 Amendments

Except as expressly provided in this Agreement, no amendment, supplement, restatement, replacement or termination of any provision of this Agreement is binding unless it is in writing and signed by each of PSP and Loral; provided, that no such amendment, supplement, restatement, replacement or termination to any of the following clauses, sections, terms or provisions of this Agreement shall be effective without the prior written consent of MHR Fund: (a) the second sentence of the definition of “Affiliate”, (b) the second sentence of the definition of “Associate”, (c) clause (ii) in the proviso in the definition of “Interested Party” (d) the definition of “MHR Fund”, (e) clause (i)(B) of the definition of “Permitted Purchaser”, (f) the second sentence of the definition of “Subsidiary”, (g) the first sentence of Section 2.03(2)(a), (h) any term or provision in Section 2.04(3)(iii), (i) any term or provision in Section 2.04(3)(v) relating to or in any way affecting the rights or obligations of MHR Fund, (j) any terms or provisions in Section 3.03(1) relating to or in any way affecting the rights or obligations of MHR Fund, (k) any term or provision set forth in Section 4.05 relating to or in any way affecting the rights or obligations of MHR Fund, (l) any term or provision set forth in Section 6.02 relating to or in any way affecting the rights or obligations of MHR Fund, (m) any term or provision set forth in Section 6.03 relating to or in any way affecting the rights or obligations of MHR Fund, (n) clause (4) of Section 7.04(1), (o) any term or provision of this Section 10.08, (p) any term or provision set forth in Section 10.09, and (q) any other clause, section, term or provision of this Agreement that relates to or in any way affects the rights or obligations of MHR Fund.

10.09 Rights of MHR Fund

Until MHR Fund shall acquire any Shares and shall have become a party to this Agreement in its capacity as Shareholder, MHR Fund has entered into this Agreement solely for the purposes of being designated as a Permitted Transferee pursuant to Section 7.04, being subject to Sections

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2.04 and 4.05, enforcing its rights under Section 10.08 and becoming subject to the agreements contained in Article 10 hereof.

10.10 Rights and Obligations of Loral Skynet

As provided in recital F, Loral Skynet has entered into this Agreement as a temporary holder of Equity Shares which may be transferred to it pursuant to the Skynet Asset Transfer Agreement. It is intended that such Equity Shares will be transferred to Loral Parent and then to Loral pursuant to Section 7.04 immediately upon receipt of such Equity Shares by Loral Skynet, and upon such transfer, this Agreement shall no longer apply to Loral Skynet. While Loral Skynet or Loral Parent is the owner of any Equity Shares, and until such transfer as aforesaid, the term “Loral” when used herein shall include Loral Skynet.

10.11 Governing Law and Submission to Jurisdiction

This Agreement, and all matters arising out of or related to this Agreement, shall be governed by, and construed and interpreted in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable thereto. Any suit, action or proceeding against any of the parties hereto arising out of or related to this Agreement shall be brought in the Province of Ontario, and each of the parties hereto irrevocably and unconditionally attorns and submits to the exclusive jurisdiction of the courts of the Province of Ontario over the subject matter of any such suit, action or proceeding. Each of the parties hereto irrevocably and unconditionally waives any right such party may have to trial by jury in respect of any suit, action or proceeding arising out of or related to this Agreement. Each party irrevocably consents to process being served on such party in any suit, action or proceeding related to this Agreement by delivery of a copy thereof in accordance with the provisions of Section 10.03.

10.12 Termination

Except as otherwise provided, this Agreement shall terminate upon the earlier of:

     (1) the written agreement of all the Shareholders; and

     (2) one Shareholder becoming the owner of all of the Shares.

All obligations of the parties which expressly or by their nature survive termination of this Agreement shall continue in full force and effect subsequent to and notwithstanding termination of this Agreement until they are fully satisfied or by their nature expire. Without restricting the generality of the foregoing, the obligations of the parties under Sections 2.03(2) and 2.04 shall survive termination of this Agreement. No party shall by reason of termination of this Agreement be relieved of any obligation or liability towards any other party accrued under this Agreement before termination, and all those obligations and liabilities shall remain enforceable until they are fully satisfied or by their nature expire.

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The parties have executed this Agreement.

PUBLIC SECTOR PENSION INVESTMENT BOARD
By:
	Name:
	Title:
RED ISLE PRIVATE INVESTMENT INC.
By:
	Name:
	Title:
LORAL SPACE & COMMUNICATIONS INC.
By:
	Name:
	Title:
LORAL SPACE & COMMUNICATIONS HOLDING CORPORATION
By:
	Name:
	Title:
LORAL HOLDINGS CORPORATION
By:
	Name:
	Title:
LORAL SKYNET CORPORATION, for the purposes enunciated in Section 10.10 only
By:
	Name:
	Title:

	)
	)
Witness	)	JOHN P. CASHMAN
	)
	)
Witness	)	COLIN D. WATSON

4363205 CANADA INC.
By:
	Name:
	Title:
4363213 CANADA INC.
By:
	Name:
	Title:
TELESAT CANADA
By:
	Name:
	Title:
MHR FUND MANAGEMENT LLC, for the purposes of Sections 2.04, 4.05, 10.08 and 10.09 only
By:
	Name:
	Title:

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EX-2.2

Exhibit 2.2

ASSET PURCHASE AGREEMENT

          ASSET PURCHASE AGREEMENT, dated as of August 7, 2007 (this “Agreement”), by and between Loral Skynet Corporation, a Delaware corporation (the “Seller”), Skynet Satellite Corporation, a Delaware corporation (the “Buyer”), and Loral Space & Communications Inc., a Delaware corporation that indirectly owns all of the issued and outstanding common stock of the Seller (“Parent”).

R E C I T A L S:

          WHEREAS, on the date hereof, the Seller, Parent and 4363205 Canada Inc., a Canadian corporation (“Transferee”), entered into an Asset Transfer Agreement (as amended from time to time, the “Asset Transfer Agreement”);

          WHEREAS, as of the Asset Transfer Closing (as hereinafter defined), the Buyer will become an indirect Subsidiary of Transferee; and

          WHEREAS, (i) the Seller desires to sell to the Buyer and the Buyer desires to purchase from the Seller, the Purchased Property, and (ii) the Seller desires to assign to the Buyer certain liabilities of the Seller, and the Buyer desires to accept such assignment and to assume such liabilities, in each case upon the terms and subject to the conditions set forth in this Agreement;

          NOW, THEREFORE, in consideration of the foregoing premises, and of the representations, warranties, covenants and agreements contained herein, the parties hereto hereby covenant and agree as follows:

          SECTION 1. DEFINITIONS.

          SECTION 1.1. Defined Terms. As used in this Agreement, the following terms shall have the following meanings:

          “Affiliate” means, with respect to any Person, (a) each Person that, directly or indirectly, owns or controls such Person, and (b) each Person that controls, is controlled by, or is under common control with, such Person or any Affiliate of such Person. For the purpose of this definition, “control” of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise;

          “Asset Transfer Closing” means the Closing (as defined in the Asset Transfer Agreement);

          “Assignment and Assumption Agreement” means an Assignment and Assumption Agreement substantially in the form attached as Exhibit A hereto;

          “Assignment of Lease” means an Assignment and Assumption of Lease substantially in the form attached as Exhibit B hereto;

          “Assumed Liabilities” means any and all debts, obligations or liabilities arising out of or relating to the Purchased Property of any kind, character or description, whether known or unknown, accrued or unaccrued, absolute or contingent, vested or unvested, liquidated or unliquidated, secured or unsecured, joint or several, due or to become due, determined, determinable or otherwise, whether presently in existence or arising hereafter, whether arising under contract (including the Contracts) or at law and whether or not the same is required to be accrued on the financial statements of the Seller, provided that Assumed Liabilities shall not include any Excluded Liabilities (as defined in the Asset Transfer Agreement);

          “Bedminster Lease” means that certain Lease, dated October 1, 1997, between the Seller (as assignee of Loral Space and Communications Corporation) and The Offices at Bedminster, L.L.C. with respect to the Bedminster Real Property;

          “Bedminster Facility” means the Seller’s operations and facilities located on the Bedminster Real Property;

          “Bedminster Real Property” means the real property located at 500 Hills Drive, Bedminster, New Jersey and leased by the Seller pursuant to the Bedminster Lease;

          “Bill of Sale” means a Bill of Sale substantially in the form attached as Exhibit C hereto;

          “Business” has the meaning set forth in the Asset Transfer Agreement;

          “Business Day” has the meaning set forth in the Asset Transfer Agreement;

          “Closing Date” means the date on which the Closing occurs;

          “Code” means the Internal Revenue Code of 1986, as amended;

          “Contract Rights” means any and all rights of the Seller under the Contracts;

          “Contracts” means, collectively, the Bedminster Lease, the Vendor Contracts and the Customer Contracts;

          “Customer Contracts” means any and all contracts of the Seller with any of its customers that are related wholly to the provision of telemetry, tracking and control services to such customers;

          “Excluded Property” has the meaning set forth in the Asset Transfer Agreement;

          “FCC” means the United States Federal Communications Commission;

          “FCC Licenses” means the authorizations, licenses and declaratory and “Permitted List” rulings issued by the FCC to the Seller or a Subsidiary thereof for the use of spectrum or the provision of service in the United States or between the United States and foreign points, in each case with respect to the satellites known as “T-11N,” “Telstar 11” and “Telstar 12;”

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          “Governmental Entity” means any nation or government, any, foreign, state, regional, provincial, territorial, local or other political subdivision thereof, and any entity or official exercising executive, legislative, judicial, quasi-judicial, regulatory or administrative functions of or pertaining to government;

          “Hawley Facility” means the Seller’s operations and facilities located on the Hawley Real Property;

          “Hawley Real Property” means the real property owned by the Seller located on Kimbels Road in Hawley, Pennsylvania, together with all appurtenances, fixtures, equipment and any and all other tangible property located thereon;

          “Law” means any law (including civil and common law), statute, regulation, ordinance, rule, order, order-in-council, by-law, permit, judgment, consent, decree, settlement agreement or governmental requirement enacted, promulgated, issued, entered into, agreed or imposed by any Governmental Entity having jurisdiction;

          “Lien” has the meaning set forth in the Asset Transfer Agreement;

          “Marketable Securities” means: (a) direct obligations of and obligations fully guaranteed by the United States of America, or any agency thereof, the principal and interest of which are guaranteed by the United States of America or its agencies; (b) obligations issued or guaranteed by any state or a political subdivision thereof; provided that such obligations are rated for investment purposes at not less than “A” by Moody’s Investor Services, Inc. or “A2” by Standard & Poor’s Corp.; (c) certificates of deposit issued by commercial banks which are members of the Federal Reserve System; or (d) any money market fund the assets of which are any of those obligations itemized in the foregoing clauses (a) through (c);

          “Permitted Liens” has the meaning set forth in the Asset Transfer Agreement;

          “Person” means an individual, legal person, partnership, limited partnership, limited liability company, joint venture, syndicate, sole proprietorship, company or corporation with or without share capital, unincorporated association, trust, trustee, executor, administrator or other legal personal representative or Governmental Entity;

          “PSP” means the Public Sector Pension Investment Board, a Canadian Crown corporation;

          “Purchased Property” means: (a) any and all outstanding shares of capital stock or other equity interests of Loral Skynet (IOM) Limited, a company organized under the laws of the Isle of Man; (b) the FCC Licenses; (c) the Hawley Real Property; (d) the earth station licenses used in the operation of the Hawley Facility as set forth on Schedule I hereto; (e) the Contract Rights; (f) any and all rights to employ and/or in respect of the employment of any and all employees of the Seller as of the Closing Date (whether by contract, law or otherwise); (g) all appurtenances, fixtures, equipment and any and all other tangible property owned by the Seller and located on the Bedminster Real Property; and (h) any other tangible assets and property of the Seller located within the United States and used in the operation of the Business within the United States; provided that in no event shall Purchased Property include any Excluded Property;

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          “Sale Documents” means, collectively, the Bill of Sale, the Assignment and Assumption Agreement and the Assignment of Lease;

          “Subsidiary” means, with respect to any Person, any other Person that directly or indirectly is controlled by such Person; provided that, any Person the capital stock or other equity interests of which comprise Excluded Property shall not be deemed a Subsidiary of the Seller or any of its Subsidiaries. For purposes of this definition, “control” shall mean the ownership of stock or other ownership interests of a Person constituting more than 50% of the total combined voting power of all classes of shares or other ownership interests of such Person entitled to vote;

          “Taxes” means all taxes, charges, fees, duties (including customs duties), levies or other assessments, including income, gross receipts, net proceeds, ad valorem, turnover, real and personal property (tangible and intangible), sales, use, goods and services, franchise, excise, value added, stamp, leasing, lease, user, transfer, fuel, occupational, interest equalization, license, payroll, environmental, capital stock, disability, severance, employee’s income withholding, other withholding, employment insurance and social security taxes, premiums or levies, which are imposed by any Governmental Entity, whether disputed or not, and such term shall include any interest, penalties or additions to tax attributable thereto;

          “Tax Return” means any report, return or other information required to be supplied to a Governmental Entity in connection with any Taxes;

          “Transaction Agreements” has the meaning set forth in the Asset Transfer Agreement; and

          “Transaction Documents” means, collectively, this Agreement and the Sale Documents;

          “Vendor Contracts” means: (a) all vendor, supply, procurement and other like agreements pursuant to which the Seller procures goods and services for the operation of the Hawley Facility; and (b) all vendor, supply, procurement and other like agreements pursuant to which the Seller procures goods and services used in the administrative, accounting and back-office support services performed by the Seller at the Bedminster Facility.

          SECTION 1.2. Definitions. The following terms have the meanings set forth in the sections hereof set forth below:

Defined Term	Section Location
Agreement	Preamble
Asset Transfer Agreement	Recitals
Buyer	Preamble
Closing	3.2
Parent	Preamble
Seller	Preamble
Transferee	Recitals

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          SECTION 1.3. Expanded Meanings. In this Agreement, unless the context otherwise requires:

          (a) words used herein importing the singular number only shall include the plural and vice versa, and words importing the use of any gender shall include all genders;

          (b) the term “including” means “including, without limitation”;

          (c) references to the “parties” means the parties to this Agreement; and

          (d) references herein to any agreement or instrument, including this Agreement, shall be deemed to be references to the agreement or instrument as varied, amended, modified, supplemented or replaced from time to time, in accordance with the terms of such agreement or instrument, and any specific references herein to any legislation or enactment shall be deemed to be references to such legislation or enactment as the same may be amended or replaced from time to time up to the Closing Date unless specifically otherwise provided.

          SECTION 1.4. Interpretation not Affected by Headings, etc. The division of this Agreement into articles, sections, subsections, paragraphs and clauses and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. The terms “this Agreement”, “hereof”, “herein”, “hereunder” and similar expressions refer to this Agreement and not to any particular article, section, subsection, paragraph, clause or other portion hereof and include any agreement or instrument supplementary or ancillary hereto.

          SECTION 2. PURCHASE AND SALE OF THE PURCHASED PROPERTY.

          SECTION 2.1. Transfer of Purchased Property. Subject to the terms and conditions herein set forth, the Seller shall sell, convey, transfer, assign and deliver to the Buyer, and the Buyer shall purchase and accept from the Seller, at the Closing, all right, title and interest of the Seller in, to and under the Purchased Property, wherever located, free and clear of all Liens other than Permitted Liens (but excluding the Liens described in clause (e) thereof). The sale, conveyance, transfer, assignment and delivery by the Seller of the Purchased Property to the Buyer as herein provided shall be effected at the Closing on the Closing Date by the execution and delivery of the Sale Documents by the Seller and the Buyer.

          SECTION 2.2. Subsequent Actions.

          (a) The Seller shall, at any time and from time to time after the Closing Date, upon the request of the Buyer, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, all such further deeds, assignments, transfers and conveyances as may be reasonably required for the better assigning, transferring, granting, conveying and confirming to the Buyer or its successors and assigns, or for aiding and assisting in collecting and reducing to possession, any or all of the Purchased Property. Effective as of the Closing Date, the Seller hereby constitutes and appoints the Buyer and any of its successors and assigns as the true and lawful attorney-in-fact of the Seller with full power of substitution in the name of the Buyer or in the name of the Seller but for the benefit of the Buyer to institute and prosecute all proceedings which the Buyer may in its sole discretion deem proper in order to assert or

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enforce any right, title or interest in, to or under the Purchased Property and to defend or compromise any and all actions, suits or proceedings in respect of any of the Purchased Property. The Buyer shall be entitled to retain for its own account any amounts collected pursuant to the foregoing powers, including any amounts payable as interest in respect thereof.

          (b) Notwithstanding anything to the contrary contained in this Agreement, no Contract or Contract Right shall be assigned to the Buyer hereunder contrary to applicable law or the terms of such Contract or Contract Right and, with respect to Contracts or Contract Rights that cannot be assigned to the Buyer at the Closing as contemplated hereby, the performance obligations of the Seller thereunder shall, unless not permitted by the terms of such Contract or Contract Right, be deemed to be subleased or subcontracted to the Buyer until such Contract or Contract Right has been assigned as contemplated by this Agreement. The Buyer shall reasonably assist the Seller in obtaining any necessary approvals to such subleases and subcontracts. The Seller shall use its commercially reasonable efforts to obtain all necessary consents and the Buyer shall take all necessary actions to perform and complete all Contracts and Contract Rights intended to be assigned under this Agreement in accordance with their terms if neither assignment, subleasing nor subcontracting is permitted by any relevant other party thereto. Following the Closing, with regard to any Contract or Contract Right with respect to which any necessary approvals to the assignment, subleasing or subcontracting thereof as contemplated by this Section 2.2(b) shall have not been obtained, effective as of the Closing, the Seller hereby constitutes and appoints the Buyer and any of its successors and assigns as the true and lawful attorney-in-fact of the Seller with full power of substitution in the name of the Seller or the Buyer, but on behalf and for the benefit of the Buyer, solely to act for the Seller in performing its obligations and exercising its rights under such Contracts and Contract Rights, but only to the extent that such delegation of duties and exercise of rights may be made without violation thereof or applicable law. In such capacity, the Buyer shall retain all benefits resulting from such performance of obligations and exercise of rights and it shall pay all amounts due from the Seller under such Contracts and Contract Rights from and after the Closing and shall perform all of the Seller’s obligations thereunder or in respect thereof from and after the Closing.

          SECTION 2.3. Assumption of Liabilities. From and after the Closing, the Buyer shall assume, and shall pay, perform and discharge when due, the Assumed Liabilities. The assumption of the Assumed Liabilities by the Buyer as provided herein shall be effected at the Closing on the Closing Date by the execution and delivery of the Assignment and Assumption Agreement and the Assignment of Lease by the Seller and the Buyer.

          SECTION 3. CONSIDERATION AND CLOSING.

          SECTION 3.1. Consideration.

          (a) The purchase price (the “Purchase Price”) hereunder shall be $25,472,000, which shall be paid by the Buyer to the Seller on the Closing Date by delivery to the Seller of Marketable Securities having an aggregate fair market value on the Closing Date equal to the Purchase Price. Such payment of the Purchase Price by the Buyer, together with the Buyer’s assumption of the Assumed Liabilities as provided herein, shall constitute the total consideration payable to the Seller for the Purchased Property.

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          (b) The parties shall allocate the Purchase Price, as adjusted for federal income tax purposes to take into account the Assumed Liabilities, among the Purchased Property and the assets of the Transferred Subsidiaries (the “Allocation”) as set forth on Schedule 3.1(b) attached hereto. Each of the Seller, Buyer and each of their respective Affiliates shall (i) be bound by the Allocation for purposes of determining any Taxes, and (ii) prepare and file, and cause its Affiliates to prepare and file, its Tax Returns on a basis consistent with the Allocation. None of Seller, Buyer or their respective Affiliates shall take any position inconsistent with the Allocation in any Tax Return, in any refund claim, in any Tax litigation or administrative proceeding, or otherwise unless required by final determination by an applicable Governmental Entity. In the event that the Allocation is disputed by any Governmental Entity, the party receiving notice of the dispute shall promptly notify each other party hereto, and Buyer and Seller shall cooperate in defending such Allocation in any audit or similar proceeding.

          SECTION 3.2. Closing. The closing (the “Closing”) of the purchase and sale of the Purchased Property and the assignment and assumption of the Assumed Liabilities hereunder shall take place at the same location and at the same time as the Asset Transfer Closing.

          SECTION 4. CERTAIN ACKNOWLEDGEMENTS.

          SECTION 4.1. Disclaimer. NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT OR THE ASSET TRANSFER AGREEMENT TO THE CONTRARY, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY MADE BY THE SELLER IN SECTION 3.1 OF THE ASSET TRANSFER AGREEMENT, THE SELLER DOES NOT MAKE ANY REPRESENTATION OR WARRANTY WHATSOEVER TO THE BUYER OR ANY OF ITS AFFILIATES, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OR REPRESENTATION OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

          SECTION 4.2. Non-Reliance by the Buyer. THE BUYER HEREBY ACKNOWLEDGES AND AGREES THAT, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY MADE BY THE SELLER IN SECTION 3.1 OF THE ASSET TRANSFER AGREEMENT, IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY, THE BUYER IS NOT RELYING UPON ANY REPRESENTATION OR WARRANTY BY THE SELLER WHATSOEVER, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OR REPRESENTATION OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

          SECTION 5. COVENANTS AND AGREEMENTS.

          SECTION 5.1. Consents and Approvals. Each of the Seller and the Buyer shall (a) use its commercially reasonable efforts to obtain all necessary consents, waivers, authorizations and approvals of all Governmental Entities, domestic and foreign, and of all other Persons required in connection with the execution, delivery and performance by it of this Agreement, and (b) diligently assist and cooperate with the other party hereto in preparing and filing all documents required to be submitted by such other party hereto to any Governmental Entity, domestic or foreign, in connection with such transactions and in obtaining any governmental consents, waivers, authorizations or approvals which may be required to be

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obtained by such other party hereto in connection with such transactions (which assistance and cooperation shall include the timely furnishing to such other party hereto all information concerning the Seller or the Buyer, as the case may be, that counsel to such other party hereto determines is required to be included in such documents or would be helpful in obtaining any such required consent, waiver, authorization or approval).

          SECTION 5.2. Commercially Reasonable Efforts. Upon the terms and subject to the conditions of this Agreement, each of the Seller and the Buyer will use its commercially reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable consistent with applicable law to consummate and make effective in the most expeditious manner practicable the transactions contemplated hereby.

          SECTION 5.3. Parent Guaranty. Parent hereby irrevocably and unconditionally guarantees all of the obligations of the Seller under this Agreement.

          SECTION 6. TAXES.

          SECTION 6.1. Transfer Taxes. All transfer, documentary, sales, use, value added, goods and service, stamp, registration and other such Taxes, and all conveyance fees, recording charges and other fees and charges (including any penalties and interest) incurred in connection with consummation of the transactions contemplated by this Agreement shall be borne and paid by the Buyer when due, and the Buyer will, at its own expense, file all necessary Tax Returns and other documentation with respect to all such Taxes, fees and charges, and, if required by applicable law, the Seller will, and will cause its Affiliates to, join in the execution of or file any such Tax Returns and other documentation. Seller and Buyer shall cooperate in obtaining any applicable certificate or exemption with respect to the transfer of the Purchased Property and each party hereto agrees to timely sign and deliver such certificates or forms as may be reasonably requested by the other party to establish an exemption from (or otherwise reduce), or to file Tax returns with respect to, such Taxes.

          SECTION 6.2. Payment of Taxes. Real, personal and intangible property Taxes and assessments on the Purchased Property for any taxable period commencing prior to January 1, 2007 and ending after January 1, 2007 shall be prorated on a per diem basis between the Buyer and the Seller as of January 1, 2007. All such prorations shall be allocated so that items relating to time periods ending prior to January 1, 2007 shall be allocated to the Seller and items relating to time periods beginning on or after January 1, 2007 shall be allocated to the Buyer. The amount of all such prorations shall be settled and paid on the Closing Date, provided that final payments with respect to prorations that are not able to be calculated as of the Closing Date shall be calculated and paid as soon as practicable thereafter.

          SECTION 6.3. Treatment of Transaction. The parties hereto shall, and shall cause their respective Affiliates to, each treat the sale of the Purchased Property hereunder as a taxable sale, except as otherwise required by a determination within the meaning of Section 1313(a) of the Code.

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          SECTION 7. CONDITIONS PRECEDENT TO PERFORMANCE BY THE PARTIES.

          SECTION 7.1. Mutual Conditions. The obligations of the Seller and the Buyer to consummate the transactions contemplated by this Agreement are subject to the fulfillment, at or before the Closing Date, of the following conditions, any one or more of which may be waived by the Seller or the Buyer (with respect to itself only and not the other party) in its sole discretion:

          (a) (i) no Canadian or United States court or other Governmental Entity in Canada or the United States shall have enacted, issued, promulgated, enforced or entered any Law, judgment, decree, ruling, injunction or other order (whether temporary, preliminary or permanent) which is in effect and (A) prohibits the consummation of the transactions contemplated hereby or (B) impairs the consummation of the transactions contemplated by this Agreement, and (ii) no court or other Governmental Entity outside of Canada or the United States shall have enacted, issued, promulgated, enforced or entered any Law, judgment, decree, ruling, injunction or other order (whether temporary, preliminary or permanent) which is in effect and prohibits the consummation of the transactions contemplated by this Agreement, provided that, with respect to each of clause (i)(B) and (ii), as applicable the consummation of the transactions contemplated by this Agreement in violation of such prohibition, or notwithstanding such impairment, would reasonably be expected to result in a Business Material Adverse Effect; and

          (b) the Asset Transfer Closing shall have been consummated.

          SECTION 7.2. Conditions to the Seller’s Performance. In addition to the conditions set forth in Section 7.1 hereof, the obligation of the Seller to consummate the transactions contemplated by this Agreement is subject to the fulfillment, at or before the Closing Date, of the following conditions, any one or more of which may be waived by the Seller in its sole discretion:

          (a) the Buyer shall have executed and delivered to the Seller each Sale Document;

          (b) each Sale Document shall be in full force and effect; and

          (c) the Buyer shall not be in breach of any of the Sale Documents.

          SECTION 7.3. Conditions to the Buyer’s Performance. In addition to the conditions set forth in Section 7.1 hereof, the obligation of the Buyer to consummate the transactions contemplated by this Agreement is subject to the fulfillment, at or before the Closing Date, of the following conditions, any one or more of which may be waived by the Buyer in its sole discretion:

          (a) the Seller shall have executed and delivered to the Buyer each Sale Document;

          (b) each Sale Document shall be in full force and effect; and

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          (c) the Seller shall not be in breach of any of the Sale Documents; and

          (d) the Seller shall have delivered to the Buyer an affidavit of non-foreign status of the Seller that complies with Section 1445 of the Code.

          SECTION 8. TERMINATION.

          SECTION 8.1. Mutual Termination. Notwithstanding anything to the contrary contained herein, this Agreement may be terminated at any time before the Closing by the mutual written consent of the Seller, the Buyer and PSP.

          SECTION 8.2. Automatic Termination. In the event of any termination of the Asset Transfer Agreement, this Agreement shall simultaneously and automatically terminate without any further act or deed on the part of any party hereto.

          SECTION 8.3. Effect of Termination. In the event of any termination of this Agreement pursuant to Section 8.1, or Section 8.2, this Agreement shall become null and void and have no further force or effect, with no liability on the part of any party hereto or its or its Affiliates’ respective directors (or Persons in similar positions), officers, agents, partners or stockholders, with respect to this Agreement, except (a) for the liability of the Buyer to pay expenses pursuant to Section 9.4 and (b) that nothing herein will relieve any party hereto from liability for any breach by it of the provisions of this Agreement occurring prior to the date of such termination.

          SECTION 9. MISCELLANEOUS.

          SECTION 9.1. Subject to Asset Transfer Agreement; Relationship of Parties.

          (a) The parties hereto acknowledge that (i) breaches of their respective covenants under this Agreement are subject to provisions in the Asset Transfer Agreement, including indemnification under Article VII thereof and (ii) from and after the Closing, the provisions of Article VII of the Asset Transfer Agreement shall provide the sole and exclusive remedy of any party hereto for any breach by any other party hereto of the provisions of this Agreement.

          (b) Parent and the Seller acknowledge and agree that Buyer is, and will be until the Closing, a Subsidiary thereof, and neither Parent nor any of its Affiliates shall have any recourse against the Buyer for any breaches of the representations, warranties and covenants hereunder that occur prior to the Closing.

          SECTION 9.2. Successors and Assigns. No party may transfer or assign any of its rights or obligations hereunder without the express written consent of the other party hereto, and any such attempted transfer or assignment in violation of this Section 9.2 shall be null and void ab initio; provided, however, that a party hereto may, without the prior written consent of any other party hereto, (a) assign (in whole or in part) this Agreement and all of its rights hereunder to its lenders and debt providers (or any administrative or collateral agent therefor) for collateral security purposes, and (b) following the Closing, assign (in whole or in part) this Agreement and its rights and obligations hereunder to any of its Subsidiaries; provided, further,

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that, notwithstanding any such assignment described in the immediately preceding clauses (a) and (b), the assigning party shall remain liable to perform all of its obligations hereunder.

          SECTION 9.3. Governing Law and Waiver of Jury Trial. This Agreement, and all matters arising out of or relating to this Agreement and the transactions contemplated hereby, including (a) its negotiation, execution, and validity, and (b) any claim or cause of action, whether in contract, tort or otherwise (including any representation or warranty made in or in connection with this Agreement or as an inducement to enter into this Agreement), shall be governed by, construed and interpreted in accordance with the laws of the State of New York, without regard to the conflicts of law rules and principles thereof. Any suit, action or proceeding against any party or any of its assets arising out of or relating to this Agreement shall be brought in the federal or state courts located in New York, New York, and each party hereby irrevocably and unconditionally attorns and submits to the exclusive jurisdiction of such courts over the subject matter of any such suit, action or proceeding. Each party irrevocably waives and agrees not to raise any objection it might now or hereafter have to any such suit, action or proceeding in any such court including any objection that the place where such court is located is an inconvenient forum or that there is any other suit, action or proceeding in any other place relating in whole or in part to the same subject matter. EACH PARTY HEREBY ACKNOWLEDGES AND AGREES THAT ANY DISPUTE OR CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Each party irrevocably consents to process being served by any party to this Agreement in any legal proceeding by delivery of a copy thereof in accordance with the provisions of Section 9.6.

          SECTION 9.4. Expenses. Whether or not the transactions contemplated by this Agreement shall have been consummated, the Buyer shall pay, and shall be solely responsible for the payment of, any and all costs and expenses (including all costs and expenses with respect to pursuing any consents and approvals of third parties or Governmental Entities and of any advisors, including legal counsel) incurred by the Buyer and the Seller incident to preparing, entering into and carrying out this Agreement and the consummation of the transactions contemplated hereby.

          SECTION 9.5. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible.

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          SECTION 9.6. Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be given by hand, courier (with a copy sent by facsimile), by facsimile or other means of electronic communication (with a copy sent by courier) or by delivery as hereafter provided. Any such notice or other communication, if sent by courier or if sent by facsimile or other means of electronic communication, shall be deemed to have been received on the Business Day following the confirmation of receipt, or if delivered by hand shall be deemed to have been received at the time it is delivered to the applicable address noted below. Notice of change of address shall also be governed by this Section 9.6. Notices and other communications shall be addressed as follows or to such other address as the parties shall notify each other in writing from time to time:

          If to the Seller:

Loral Skynet Corporation
c/o Loral Space & Communications Inc.
600 Third Avenue
New York, NY 10016

Attention:       Avi Katz

Telephone:       (212) 338-5340

Facsimile:       (212) 338-5320

          with copies to:

Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, NY 10019

Attention:       Bruce R. Kraus

Telephone:       (212) 728-8237
Facsimile:       (212) 728-9237

and

McCarthy Tétrault LLP
66 Wellington Street
Toronto, M5K 1E6

Attention:       Robert Forbes

Telephone:       (416) 601-8267
Facsimile:       (416) 868-0673

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          If to the Buyer:

Skynet Satellite Corporation
c/o 4363205 Canada Inc.
c/o McCarthy Tétrault
66 Wellington Street
Toronto, M5K 1E6

Attention:       Secretary (c/o Robert Forbes)

Facsimile:       (416) 868-0673

          with copies to:

Public Sector Pension Investments Board
c/o PSP Investments
1250 René-Lévesque Blvd West
Suite 2030
Montréal (Québec) H3B 4W8

Attention:       First Vice President and General Counsel

Telephone:       (514) 939-5376
Facsimile:       (514) 937-0403

and

Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153

Attention:       Douglas P. Warner

Telephone:       (212) 310-8751
Facsimile:       (212) 310-8007

          SECTION 9.7. Amendments; Waivers. The Seller and the Buyer may modify or amend this Agreement only by written agreement executed and delivered by duly authorized officers of such parties and of PSP. No amendment or waiver of any provision of this Agreement shall be binding on any party unless consented to in writing by the Seller, the Buyer and, prior to the Closing, PSP. No waiver of any provision of this Agreement shall constitute a waiver of any other provision, nor shall any waiver constitute a continuing waiver unless otherwise expressly provided.

          SECTION 9.8. Entire Agreement. Except as agreed to in writing on or after the date hereof, this Agreement, the other Transaction Documents and the Transaction Agreements constitute the entire agreement, and supersedes all other prior agreements, understandings,

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representations and warranties (both written and oral), among the parties with respect to the subject matter hereof.

          SECTION 9.9. Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement; provided, however, that PSP shall be a third party beneficiary of the provisions of Sections 8.1 and 9.7 hereof.

          SECTION 9.10. Section and Paragraph Headings. The section and paragraph headings in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

          SECTION 9.11. Counterparts. For the convenience of the parties hereto, this Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.

          SECTION 9.12. Time of Essence. Time shall be of the essence in this Agreement.

          SECTION 9.13. Successors. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors.

[remainder of page intentionally left blank]

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          IN WITNESS WHEREOF, the parties hereto have duly executed this Asset Purchase Agreement as of the date first above written.

LORAL SKYNET CORPORATION
By:	/s/ Michael B. Targoff Name: Michael B. Targoff
	Title: Chief Executive Officer
SKYNET SATELLITE CORPORATION
By:	/s/ Michael B. Targoff Name: Michael B. Targoff
	Title: Chief Executive Officer
LORAL SPACE & COMMUNICATIONS INC.
By:	/s/ Michael B. Targoff Name: Michael B. Targoff Title: Chief Executive Officer

EX-10.1

Exhibit 10.1

ALTERNATIVE SUBSCRIPTION AGREEMENT

     ALTERNATIVE SUBSCRIPTION AGREEMENT, dated as of August 7, 2007 by and between LORAL SPACE & COMMUNICATIONS INC., a corporation existing under the laws of Delaware (together with any successor thereto, “Loral”), LORAL SKYNET CORPORATION, a corporation existing under the laws of Delaware and an indirect wholly-owned subsidiary of Loral (together with any successors thereto, “Skynet”) and 4363205 CANADA INC., a corporation existing under the laws of Canada (together with any successor thereto “Holdco”).

R E C I T A L S

     WHEREAS, on December 16, 2006, 4363213 Canada Inc., a Canadian corporation and a wholly-owned subsidiary of Holdco (“Acquireco”), BCE Inc., a Canadian corporation (“BCE”), and Telesat Canada, a Canadian corporation (“Telesat”), entered into a Share Purchase Agreement pursuant to which Acquireco has agreed to purchase from BCE, and BCE has agreed to sell to Acquireco, all of the issued shares of Telesat and certain safe income notes (the “Share Purchase Agreement”);

     WHEREAS, on December 16, 2006, Loral executed and delivered to Holdco a letter (as amended from time to time, the “Commitment Letter”), pursuant to which Loral committed to acquire shares of Holdco simultaneously with the consummation of the Telesat Closing (as hereinafter defined) under the Share Purchase Agreement;

     WHEREAS, in connection with the Share Purchase Agreement, on December 14, 2006, Loral entered into an Investors Letter Agreement with the Public Sector Pension Investment Board, a Canadian Crown corporation (“PSP”), and others, to which is attached as Schedule C thereto a “Contribution Term Sheet” relating to a “Skynet Contribution Agreement” contemplating the transfer by Skynet of certain of its assets and related liabilities to Holdco in connection with Skynet’s acquisition of shares of Holdco (the “Investor Letter Agreement”);

     WHEREAS, Loral, Skynet and Holdco have entered into an Asset Transfer Agreement dated the date hereof, pursuant to which Skynet has agreed, subject to, among other things, receipt of the Major Regulatory Approvals (as defined therein) to transfer to Holdco certain assets of Skynet in exchange for the issuance by Holdco to Skynet of shares of Holdco (the “Skynet Asset Transfer Agreement”);

     WHEREAS, the Contribution Term Sheet contemplated that if the transactions contemplated by the Skynet Asset Transfer Agreement did not occur simultaneously with the Telesat Closing, Loral would be required to make certain contributions to Holdco and would receive in exchange therefor shares of Holdco;

     WHEREAS, in connection with the contributions contemplated by the immediately preceding paragraph, Loral desires to commit to the acquisition by Loral Space & Communications Holdings Corporation, a Delaware corporation and a wholly-owned subsidiary of Loral, or such other direct or indirect wholly-owned subsidiary of Loral as Loral shall

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designate (“LSCC”), of redeemable shares of Holdco, and Holdco desires to commit to issue to LSCC certain redeemable shares of Holdco, in each case as provided herein;

     WHEREAS, the Investor Letter Agreement and the Contribution Term Sheet also contemplated that if the transactions contemplated by the Skynet Asset Transfer Agreement did not occur by the first anniversary of the Telesat Closing, Loral would be required to make certain alternative contributions to Holdco, including the T-11N as herein defined, and would receive in exchange therefor shares of Holdco;

     WHEREAS, in connection with the transactions contemplated by the Investor Letter Agreement, Loral and Skynet desire to commit to make such alternative contributions to Holdco, and Holdco desires to commit to issue to Loral Holdings Corporation, a Delaware corporation and an indirect wholly-owned subsidiary of Loral (“Loral Holdings”) and to the T-11N Transferor certain shares of Holdco in exchange therefor, in each case as provided herein;

     WHEREAS, the parties intend that, for United States federal income tax purposes, such alternative contributions and the transfer of the T-11N hereunder, when taken together with the acquisition of shares of Holdco hereunder and with the purchase of additional shares of Holdco by other investors, including PSP, to qualify as an “exchange” under the provisions of Section 351 of the Code, as hereinafter defined;

     WHEREAS, Holdco desires to transfer T-11N to a Subsidiary of Holdco (the “Successive Transfer”);

     NOW THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements contained herein, the parties hereto hereby covenant and agree as follows:

ARTICLE 1
DEFINITIONS AND INTERPRETATION

1.1 Definitions

     For the purpose of this Agreement, unless the context otherwise requires, capitalized terms shall have the respective meanings set out below and grammatical variations of such terms shall have corresponding meanings:

“Acquireco” is defined in the recitals;

“Affiliate” means, with respect to any Person, (a) each Person that, directly or indirectly, owns or controls such Person, and (b) each Person that controls, is controlled by, or is under common control with such Person or any Affiliate of such Person. For the purpose of this definition, “control” of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise;

“Agreed Exchange Rate” means the rate of 1.16355 Canadian dollars per U.S. dollar;

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“Agreement” means, collectively, this Agreement including all instruments supplementing or amending or confirming this Agreement;

“Alternative Subscription Date” is defined in Section 4.1;

“Asset Purchase Agreement” means that certain Asset Purchase Agreement, dated of even date herewith, between Skynet and Skynet Satellite Corporation relating to the purchase of certain assets by Skynet Satellite Corporation from Skynet;

“BCE” is defined in the recitals;

“Business Day” means any day of the year other than: (a) Saturday or Sunday, and (b) any other day on which banks located in any of Montréal, Québec, Toronto, Ontario or New York, New York generally are closed for business;

“Closing Amount” is defined in Section 4.3;

“Code” means the Internal Revenue Code of 1986, as amended;

“Contribution Term Sheet” is defined in the recitals;

“Equity Shares” means the Holdco Common Shares, the Holdco Redeemable Common Shares, the Holdco Voting Preferred Shares, the Holdco Redeemable Preferred Shares and the Holdco Non-Voting Preferred Shares;

“Financing Amount” is defined in Section 4.1;

“Governmental Entity” means any nation or government, any state, regional, provincial, territorial, local, foreign or other political subdivision thereof, and any entity or official exercising executive, legislative, judicial, quasi-judicial, regulatory or administrative functions of or pertaining to government;

“GRA” shall mean a gain recognition agreement (as defined in Treasury Regulation Section 1.367(a)-8);

“Holdco Common Shares” means shares of Holdco designated as Common Shares;

“Holdco Non-Voting Preferred Shares” means shares of Holdco designated as Non-Voting Participating Preferred Shares and convertible on a one-to-one basis into Holdco Common Shares;

“Holdco Redeemable Common Shares” means shares of Holdco designated as Redeemable Common Shares and being shares having identical rights, restrictions, conditions and limitations to the Holdco Common Shares, except that such shares are redeemable by Holdco;

“Holdco Redeemable Preferred Shares” means shares of Holdco designated as Redeemable Non-Voting Participating Preferred Shares and being shares having identical rights, restrictions,

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conditions and limitations to the Holdco Non-Voting Preferred Shares, except that such shares are redeemable by Holdco;

“Holdco Voting Preferred Shares” means shares of Holdco designated as Voting Participating Preferred Shares and convertible on a one-to-one basis into Holdco Common Shares;

“Holdco Unanimous Shareholders Agreement” means an agreement to be entered into between Holdco, Acquireco, Telesat, each of the holders of shares of Holdco and others with respect to the ownership and transfer of shares of Holdco and the governance of Holdco, substantially in the form attached as Exhibit D to the Skynet Asset Transfer Agreement;

“Interco” means 4363230 Canada Inc., a corporation incorporated under the laws of Canada and a wholly-owned subsidiary of Acquireco;

“Investor Letter Agreement” is defined in the recitals;

“ITA” means the Income Tax Act (Canada), as amended;

“LSCC” is defined in the recitals;

“Law” means any law (including civil and common law), statute, regulation, ordinance, rule, order, order-in-council, by-law, permit, judgment, consent, decree, settlement agreement or governmental requirement enacted, promulgated, issued, entered into, agreed or imposed by any Governmental Entity having jurisdiction;

“Lien” means any mortgage, lien, charge, pledge, security interest, hypothecation, easement, encroachment, encumbrance or title retention agreement of any nature or kind;

“Loral” is defined in the recitals;

“Loral Alternative Subscription” means the transfer to Holdco of all or part of the Required Loral Alternative Subscription as provided in Section 4.1, adjusted as provided in Section 4.3, and the issuance to Loral Holdings and the T-11N Transferor of Holdco Non-Voting Preferred Shares as provided in Section 4.4;

“Loral Alternative Subscription Amount” means, (X) in the case where there is a Closing Amount, (i) the sum of the T-11N Valuation and the Financing Amount (each expressed in Canadian dollars as provided in Section 4.2) plus the Closing Amount and (Y) in the case where there is a Refund Amount, (i) the sum of the T-11N Valuation and the Financing Amount (each expressed in Canadian dollars as provided in Section 4.2) less the Refund Amount, or if the Financing Amount is reduced by the Refund Amount as permitted by Section 4.3(a), the sum of the T-11N Valuation and the Financing Amount (each expressed in Canadian dollars as provided in Section 4.2);

“Loral Holdings” is defined in the recitals;

“Loss” or “Losses” has the meaning set forth in the Skynet Asset Transfer Agreement;

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“Person” means an individual, legal person, partnership, limited partnership, limited liability company, joint venture, syndicate, sole proprietorship, company or corporation with or without share capital, unincorporated association, trust, trustee, executor, administrator or other legal personal representative or Governmental Entity, or any other entity;

“Proposed Transaction” shall mean a transaction involving the exchange, disposition, reorganization or liquidation of or involving the T-11N (including of any equity interest in a subsidiary of Holdco or any successor which owns, directly or indirectly, the T-11N or any material interest therein), that may require the T-11N Transferor to recognize gain, for United States federal income tax purposes, pursuant to a GRA entered into by Loral with respect to any transfer of T-11N;

“PSP” is defined in the recitals;

“Red Isle” means Red Isle Investments Limited, a Canadian corporation and a wholly-owned Subsidiary of PSP;

“Refund Amount” is defined in Section 4.3;

“Remaining Equity Contribution Amount” means the Required Equity Contribution Amount less the Stage One Purchase Price;

“Required Equity Contribution Amount” means an amount, expressed in Canadian dollars, equal to 1.88767 multiplied by the cash amount contributed by Red Isle to Holdco as the subscription price for Equity Shares on or prior to the Telesat Closing, less the Total Hedging Differential;

“Required Loral Alternative Subscription” is defined in Section 4.1;

“Restructuring Decision” refers to the decision to restructure a Proposed Transaction, which shall be at the sole and absolute discretion of Holdco or its relevant Affiliate, subject to the terms of Section 6.3(f) of this Agreement;

“Securities Act” means the Securities Act of 1933, as amended;

“Share Purchase Agreement” is defined in the recitals;

“Skynet” is defined in the recitals;

“Skynet Asset Transfer Agreement” is defined in the recitals;

“Skynet Closing” means the Closing as defined in the Skynet Asset Transfer Agreement;

“SS/L” means Space Systems/Loral, Inc., a Delaware corporation and an indirect wholly-owned Subsidiary of Loral;

“Stage One Closing Date” means the date on which the Stage One Purchased Shares are to be acquired by LSCC pursuant to Section 2.1, and also being the date of the Telesat Closing;

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“Stage One Purchase Price” is defined in Section 2.1;

“Stage One Purchased Shares” is defined in Section 2.1;

“Subsidiary” means, with respect to any Person, any other Person that directly or indirectly is controlled by such Person. For purposes of this definition, “control” shall mean the ownership of stock or other ownership interests of a Person constituting more than 50% of the total combined voting power of all classes of shares or other ownership interests of such Person entitled to vote;

“T-11N” means all rights of the “Purchaser” pursuant to the T-11N Construction Contract, and if but only if title to the satellite known as “T-11N” has been transferred to the T-11N Transferor on or prior to the Alternative Subscription Date pursuant to the T-11N Construction Contract, then such satellite, in each case together with all rights of the T-11N Transferor, pursuant to any contract of launch/in orbit insurance or launch contract related to such satellite;

“T-11N Construction Contract” means that certain Amended and Restated Satellite Construction Contract, effective December 22, 2006, between Skynet and SS/L in respect of the construction of a satellite designated as T-11N;

“T-11N Transferor” shall mean the Loral entity that delivers to Holdco the T-11N pursuant to Section 4.1 hereof, it being understood that such entity shall be Skynet, unless Skynet assigns or transfers its rights to the T-11N to Loral or to another Subsidiary of Loral in compliance with Section 6.5;

“T-11N Valuation” means, at any time, the sum of (i) $80,000,000 and (ii) the aggregate of the total costs incurred by Skynet in connection with the construction, launch and launch/in orbit insurance of the T-11N satellite as set forth in Skynet’s financial statements for the month immediately preceding the month in which the Alternative Subscription Date occurs, as adjusted for all such costs incurred by Skynet through the Alternative Subscription Date;

“Taxes” means all taxes, charges, fees, duties (including customs duties), levies or other assessments, including income, gross receipts, net proceeds, ad valorem, turnover, real and personal property (tangible and intangible), sales, use, goods and services, franchise, excise, value added, stamp, leasing, lease, user, transfer, fuel, occupational, interest equalization, license, payroll, environmental, capital stock, disability, severance, employee’s income withholding, other withholding, employment insurance and social security taxes, premiums or levies, which are imposed by any Governmental Entity, whether disputed or not, and such term shall include any interest, penalties or additions to tax attributable thereto;

“Telesat” is defined in the recitals;

“Telesat Closing” means the Closing (as defined in the Share Purchase Agreement);

“Total Hedging Differential”, which may be a positive or negative number, has the meaning set forth in the Skynet Asset Transfer Agreement;

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“Transaction Agreements” means this Agreement, the Skynet Asset Transfer Agreement and the Asset Purchase agreement; and

“351 Transfer” means a transfer of property which, in conjunction with the issuance of shares of the transferee, will qualify as an exchange under the provisions of Section 351 of the Code.

1.2	Expanded Meanings
	In this Agreement, unless the context otherwise requires:

(a)	words used herein importing the singular number only shall include the plural and vice versa, and words importing the use of any gender shall include all genders;
(b)	the term “including” means “including, without limitation”;
(c)	references to the “parties” means the parties to this Agreement; and
(d)	references herein to any agreement or instrument, including this Agreement, shall be deemed to be references to the agreement or instrument as varied, amended, modified, supplemented or replaced from time to time, in accordance with the terms of such agreement or instrument, and any specific references herein to any legislation or enactment shall be deemed to be references to such legislation or enactment as the same may be amended or replaced from time to time up to the Alternative Subscription Date unless specifically otherwise provided.

1.3 Interpretation not Affected by Headings, etc.

     The division of this Agreement into articles, sections, subsections, paragraphs and clauses and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. The terms “this Agreement”, “hereof”, “herein”, “hereunder” and similar expressions refer to this Agreement and not to any particular article, section, subsection, paragraph, clause or other portion hereof and include any agreement or instrument supplementary or ancillary hereto.

1.4 Currency

     Unless otherwise specified herein, all dollar amounts expressed in this Agreement as (a) “$” are to United States dollars and (b) “C$” are to Canadian dollars.

ARTICLE 2
SUBSCRIPTION FOR SHARES

2.1 Conditional Subscription for Shares

     In the event that the Skynet Closing shall not occur simultaneously with the Telesat Closing, Loral shall cause LSCC to subscribe for and purchase, and Holdco shall issue to LSCC, at an issue price of C$10 per share, on the Stage One Closing Date, Holdco Redeemable Common Shares and Holdco Redeemable Preferred Shares having an aggregate acquisition cost

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of C$270,900,000 (the “Stage One Purchase Price”). The number of Holdco Redeemable Common Shares to be issued to LSCC shall be equal to 33¹/₃% of the aggregate number of Holdco Common Shares, Holdco Redeemable Common Shares, Holdco Voting Preferred Shares and Holdco Redeemable Preferred Shares to be issued to Red Isle and LSCC on the day of the Telesat Closing, and the number of Holdco Redeemable Preferred Shares to be issued to LSCC pursuant to this Section 2.1 shall be equal to the quotient of (A) the result obtained by subtracting from the Stage One Purchase Price the product of the number of Holdco Redeemable Common Shares to be issued to LSCC pursuant to this Section 2.1, multiplied by C$10, divided by (B) C$10. The Holdco Redeemable Common Shares and the Holdco Redeemable Preferred Shares to be issued to LSCC are together referred to as the “Stage One Purchased Shares”. Holdco agrees that the payment by LSCC of the Stage One Purchase Price to Holdco shall constitute complete performance by Loral of its obligations to Holdco under, and shall irrevocably and unconditionally discharge the obligations of Loral to Holdco pursuant to, the Commitment Letter.

2.2 Payment of Purchase Price – Issuance of Shares

     On the Stage One Closing Date, Loral shall cause LSCC to pay by wire transfer of immediately available funds, to such bank account or accounts as Holdco shall designate not later than three (3) Business Days prior to the Stage One Closing Date, the Stage One Purchase Price against delivery by Holdco to LSCC of certificates in the name of LSCC representing the Stage One Purchased Shares.

ARTICLE 3
REDEMPTION OF STAGE ONE PURCHASED SHARES

3.1 Redemption of Stage One Purchased Shares

     In the event that the Skynet Closing does not occur simultaneously with the Telesat Closing, and LSCC has subscribed and purchased the Stage One Purchased Shares as described in Article 2, simultaneously with the Skynet Closing (if the Skynet Closing shall subsequently occur), Holdco shall call for redemption, with effect on the date of the Skynet Closing, and Holdco shall redeem on such date, at a redemption price of C$10 per share, all of the Holdco Redeemable Common Shares and the Holdco Redeemable Preferred Shares issued pursuant to Article 2. Holdco covenants not to call for redemption any Holdco Redeemable Common Shares or Holdco Redeemable Preferred Shares in any other circumstances, without the prior written consent of Loral and LSCC.

3.2 Payment in Lieu of Dividends

     In the event that the Skynet Closing does not occur simultaneously with the Telesat Closing, and LSCC has subscribed for the Stage One Purchased Shares as described in Article 2, at the Skynet Closing (if the Skynet Closing shall subsequently occur), Holdco shall pay to Skynet by wire transfer in immediately available funds to such bank account or accounts as Skynet shall designate not later than three (3) Business Days prior to the Skynet Closing an amount equal to any dividends that would have been paid to Skynet if the shares issuable to Skynet pursuant to the Skynet Closing had been issued to Skynet on the date of the Telesat

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Closing and had been outstanding from the date of the Telesat Closing, less the aggregate amount of all dividends declared and paid on the Stage One Purchased Shares from their date of issuance to the Skynet Closing.

ARTICLE 4
LORAL ALTERNATIVE SUBSCRIPTION

4.1 Required Loral Subscription

     If the Skynet Closing shall not have occurred by the first anniversary date of the Telesat Closing (or such later date as the parties hereto shall agree) (the “Alternative Subscription Date”), Loral shall, subject to performance by Holdco of Section 4.4, transfer or deliver, or cause to be transferred or delivered, to Holdco on the Alternative Subscription Date:

(a)	the T-11N, free and clear of all Liens (the “T-11N Contribution”); and
(b)	the sum of $175,000,000 (the “Financing Amount”).

(collectively, the “Required Loral Alternative Subscription”); provided however, that Skynet agrees that if Loral shall not have delivered the T-11N as required by this Section 4.1, then Skynet shall effect the T-11N Contribution, and in such circumstances, Loral agrees to cause Skynet to effect the T-11N Contribution.

4.2	Value of Required Loral Alternative Subscription
	The Required Loral Alternative Subscription shall be valued at:

(a)	in respect of the T-11N Contribution, the T-11N Valuation, translated into Canadian dollars at the Agreed Exchange Rate;
(b)	in respect of the Financing Amount, the amount thereof translated into Canadian dollars at the Agreed Exchange Rate.

4.3 Determination of Closing Amount or Refund Amount

(a) If the value of the Required Loral Alternative Subscription, determined in accordance with Section 4.2, shall be less than the Remaining Equity Contribution Amount, then, subject to the provisions of Section 4.3(b), Loral shall pay to Holdco on the Alternative Subscription Date, an amount in Canadian dollars equal to such difference (the “Closing Amount”). If, however, the value of the Required Loral Alternative Subscription, determined in accordance with Section 4.2, shall be greater than the Remaining Equity Contribution Amount, Holdco shall pay to Loral on the Alternative Subscription Date an amount in Canadian dollars equal to such excess (the “Refund Amount”). Alternatively, at Loral’s option, the Financing Amount to be paid by Loral on the Alternative Subscription Date shall be reduced by the Refund Amount. Loral and Holdco shall determine the Closing Amount or the Refund Amount, as the case may be, and whether any

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Refund Amount shall reduce the Financing Amount, by the close of business in New York on the second Business Day prior to the Alternative Subscription Date.

(b)

Notwithstanding the provisions of Section 4.3(a), Loral shall only be obligated to pay the Closing Amount if it has or could reasonably acquire the financial resources to do so through the use of its commercially reasonable efforts, and for the avoidance of doubt, Loral shall not be required (i) to sell any of its assets, (ii) to grant or incur any Lien on its direct or indirect equity interest in SS/L, or (iii) to cause SS/L or any of its subsidiaries to borrow, give security or guarantee any obligation.

4.4 Issuance of Holdco Non-Voting Preferred Shares

     In consideration of the receipt by Holdco of all or part of the Loral Alternative Subscription Amount, Holdco shall issue (i) to Loral Holdings on behalf of Loral in respect of the Financing Amount and the Closing Amount (if any) and (ii) to the T-11N Transferor in respect of the T-11N Valuation, Holdco Non-Voting Preferred Shares at the rate of one Non-Voting Preferred Share for each C$10 of Loral Alternative Subscription Amount received by Holdco. In the case where the Loral Alternative Subscription Amount has been delivered in full, the Non-Voting Preferred Shares of Holdco issued and delivered to Loral Holdings and the T-11N Transferor under this Section 4.4, when added to the Stage One Purchased Shares, shall constitute 64% of the Equity Shares of Holdco then outstanding (assuming that no Equity Shares have been issued since the Telesat Closing, other than the Stage One Purchased Shares).

4.5 Partial Contribution

     In the event that Loral shall be unable, for any reason, to pay the full amount of the Loral Alternative Subscription Amount, Holdco shall issue to Loral Holdings on behalf of Loral, and to T-11N Transferor (if applicable in respect of the T-11N Contribution), Holdco Non-Voting Preferred Shares for such portion thereof actually paid or transferred to Holdco, determined pursuant to Section 4.4, it being agreed that the payment of the full amount of the Loral Alternative Subscription Amount shall not be a condition in favour of any party to the closing of the Loral Alternative Subscription.

4.6 Payment in Lieu of Dividends

     On the Alternative Subscription Date, Holdco shall pay to Loral Holdings and the T-11N Transferor, an amount equal to any dividends that would have been paid to Loral Holdings and the T-11N Transferor if the shares issuable to Loral Holdings and the T-11N Transferor pursuant to Section 4.4 had been issued to Loral Holdings and the T-11N Transferor on the date of the Telesat Closing and had been outstanding from the date of the Telesat Closing.

4.7 Closing of Loral Alternative Subscription

     The closing of the transactions constituting the Loral Alternative Subscription shall take place on the Alternative Subscription Date at the offices of Loral at 600 Third Avenue, New York, New York 10016. At the Closing: (i) Holdco shall deliver to Loral Holdings (A) duly executed certificates representing the Holdco Non-Voting Preferred Shares as provided

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in Section 4.4 and (B) the Refund Amount to the extent required by Section 4.3 by wire transfer of immediately available funds to the bank account or accounts designated by Loral Holdings in writing not less than three (3) Business Day prior to the Alternative Subscription Date; and (ii) (A) Loral or Loral Holdings shall deliver to Holdco the Financing Amount and Closing Amount, to the extent required by Section 4.3, by wire transfer of immediately available funds to the bank account or accounts designated by Holdco in writing not less than three (3) Business Day prior to the Alternative Subscription Date and (B) the T-11N Transferor shall deliver to Holdco an assignment of the T-11N Construction Contract and all rights of Skynet to the T-11N, including an assignment of any launch/in orbit insurance and launch contracts related to the T-11N, all free and clear of any Liens.

4.8 Liability under T-11N Construction Contract

     From and after the transfer of the T-11N to Holdco on the Alternative Subscription Date or such other date on which the T-11N is transferred to Holdco, Holdco shall assume all of the obligations of Skynet pursuant to the T-11N Construction Contract and any launch/in orbit insurance or launch contracts associated with the T-11N, provided that Loral shall continue to be liable for any damages and costs related to any breach of the T-11N Construction Contract and any launch/in orbit insurance or launch contract by Skynet prior to the date of the transfer of the T-11N to Holdco and Loral shall indemnify and hold harmless Holdco from and against breaches of any such contracts prior to such transfer to Holdco.

4.9 No Further Liability

     On and after the Skynet Closing, Loral shall have no obligation or liability to Holdco under this Article 4 and this Article 4 shall be of no further force or effect.

ARTICLE 5
REPRESENTATIONS AND WARRANTIES

5.1 Representations and Warranties of Loral

     Loral hereby represents and warrants to Holdco as of the date hereof and as of the Alternative Subscription Date as follows, and acknowledges that Holdco is relying upon such representations and warranties in entering into this Agreement and the transactions contemplated hereby:

(a)

Corporate Organization and Qualification. Loral and Skynet are corporations validly existing under the laws of Delaware.

(b)

Corporate Authority. Loral and Skynet have the requisite corporate power and authority and have taken all corporate action necessary in order to execute and deliver this Agreement and to consummate the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by each of Loral and Skynet and, assuming the due authorization, execution and delivery hereof by Holdco, constitutes a legal, valid and binding obligation of Loral and Skynet, enforceable against each of them in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency and other laws affecting

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	the rights of creditors generally and the availability of equitable remedies (provided that such exception shall not apply to any limitation of such enforcement resulting from the Bankruptcy Cases (as defined in the Skynet Asset Transfer Agreement)). Without limiting and in furtherance of the foregoing, the approval of the shareholders of Loral is not required in order for Loral or Skynet to consummate the transactions contemplated by this Agreement.
(c)	Filings and Approvals. No notices, reports or other filings, and no consents, registrations, approvals, permits or authorizations, are required to be made or obtained by Loral or Skynet with or from any Governmental Entity or any other Person in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated by this Agreement, except where the failure to make or obtain any or all of which would not reasonably be expected to materially delay or materially impair the consummation of the transactions contemplated by this Agreement.
(d)	No Violation. The execution and delivery of this Agreement, and consummation of the transactions contemplated thereby, by Loral and Skynet does not, and will not, constitute or result in (i) a breach or violation of, or a default under, the articles, by-laws or the comparable governing instruments of Loral or Skynet, (ii) a breach or violation of any Law to which Loral or Skynet is subject, (iii) the creation of any Lien or the forfeiture of any asset of Loral or Skynet, (iv) a breach or violation of, a default under, the triggering of any payment or other material obligation pursuant to, the acceleration of (with or without notice or lapse of time or both) any provision of, (A) the T-11N Construction Contract or (B) any other contract to which Loral is a party, except, in the case of clauses (ii), (iii) or (iv)(B), for such breaches, violations or defaults that, individually or in the aggregate, would not prevent, materially delay or materially impair the consummation of the transactions contemplated by this Agreement.
(e)	T-11N Construction Contract. The T-11N Construction Contract has been duly authorized, executed and delivered by each of Skynet and SS/L and constitutes a legal, valid and binding obligation of SS/L, enforceable by Skynet in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency and other laws affecting the rights of creditors generally and the availability of equitable remedies. Skynet is not in material breach of any of its obligations under the T-11N Construction Contract, and Skynet has (or the T-11N Transferor will have) all the rights of the “Purchaser” under the T-11N Construction Contract.
(f)	Investor Matters. (i) LSCC is acquiring the Stage One Purchased Shares pursuant to Section 2.1, and Loral Holdings and the T-11N Transferor are acquiring the Holdco Non-Voting Preferred Shares to be issued to Loral Holdings and the T-11N Transferor pursuant to Section 4.4, for investment, and without any present intention of transferring such securities to any other Person, and Loral acknowledges that LSCC, Loral Holdings and the T-11N Transferor and any other Person acquiring such securities directly or indirectly from LSCC , Loral

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Holdings or the T-11N Transferor may not sell or otherwise transfer such securities in a manner that would constitute a “distribution” as such term is used in the Securities Act; (ii) each of LSCC, Loral Holdings and the T-11N Transferor has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment decision with respect to such securities; (iii) Loral and Skynet acknowledge that such securities have not been registered under the Securities Act or any state securities laws and may not be transferred unless subsequently registered thereunder or pursuant to a valid exemption from registration; (iv) Loral and Skynet acknowledge that such securities have not been distributed pursuant to a prospectus for which a receipt has been obtained under the securities laws of any province of Canada and may not be transferred in Canada unless a receipt for such prospectus has subsequently been obtained or pursuant to a valid exemption from such receipt requirement; and (v) each of LSCC, Loral Holdings and the T-11N Transferor is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act, and an “accredited investor” as such term is defined in Section 1.1 of National Instrument 45-106 promulgated under Canadian securities laws, or is a corporation described in Section 2.4(2)(i) of such National Policy.

5.2 Representations and Warranties of Holdco

     Holdco represents and warrants to Loral and Skynet as of the date hereof and as of the Alternative Subscription Date as follows, and acknowledges that Loral and Skynet are relying upon such representations and warranties in entering into this Agreement and the transactions contemplated hereby:

(a)	Corporate Organization. Holdco is a corporation validly existing under the laws of Canada.
(b)	Corporate Authority. Holdco has the requisite corporate power and authority and has taken all corporate action necessary in order to execute and deliver this Agreement and to consummate the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by Holdco and constitutes a legal, valid and binding obligation of Holdco, enforceable against Holdco in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency and other laws affecting the rights of creditors generally and the availability of equitable remedies.
(c)	Filings and Approvals. No notices, reports or other filings, and no consents, registrations, approvals, permits or authorizations, are required to be made or obtained by Holdco with or from any Governmental Entity or any other Person (including the shareholders of Holdco) in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated by this Agreement, except where the failure to make or obtain any or all of which would not prevent, materially delay or materially impair the consummation of the transactions contemplated by this Agreement.

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(d)	No Violation. The execution and delivery of this Agreement by Holdco does not, and the consummation by Holdco of the transactions contemplated by this Agreement will not, constitute or result in (i) a breach or violation of, or a default under, the articles, by-laws or other comparable governing instruments of Holdco; or (ii) a breach or violation of any Law to which Holdco is subject, except in each case for such breaches, violations or defaults that, individually or in the aggregate, would not prevent or materially delay or materially impair the consummation of the transactions contemplated by this Agreement.
(e)	Brokers and Finders. Neither Holdco nor any of its officers, directors or employees has incurred any liability for any brokerage fees, commissions or finders fees to any broker or finder employed or engaged thereby in connection with the transactions contemplated by this Agreement for which Holdco or any of its Affiliates would be liable other than as contemplated by the Investors Letter Agreement.
(f)	Holdco Shares. The issuance and delivery by Holdco of (i) Holdco Redeemable Common Shares and Holdco Redeemable Preferred Shares to LSCC as contemplated by Section 2.2, and (ii)Holdco Non-Voting Preferred Shares to Loral Holdings and the T-11N Transferor as contemplated by Section 4.4 have been duly authorized by all requisite corporate or other action on the part of Holdco and, as of the Stage One Closing Date in respect of (i), and as of the Alternative Subscription Date in respect of (ii), such shares, upon the issuance and delivery thereof by Holdco as contemplated by this Agreement, will be (a) validly issued and outstanding, (b) fully paid and non-assessable and (c) other than as expressly provided in the Holdco Unanimous Shareholders Agreement, free and clear of any and all Liens or restrictions on the voting rights thereof or other incidents of record or beneficial ownership pertaining thereto.
(g)	No Reliance.
	There are no representations, warranties, covenants, conditions or other agreements, express or implied, between any of the parties in connection with the subject matter of this Agreement except as specifically set forth in this Agreement. Holdco agrees that no reliance may be placed on any representation, warranty, opinion, advice or assertion of fact made by Loral or Skynet or any of their directors (or Persons in similar positions), officers, employees, stockholders, equity holders and agents to Holdco or any of its directors, officers, employees, shareholders, agents or representatives, except to the extent that any such representation, warranty, opinion, advice or assertion of fact has been reduced to writing and is expressly included as a term of this Agreement. Any claims Holdco may have for breach of representation or warranty shall be based solely on the representations and warranties of Loral expressly set forth in this Agreement. Without limiting the generality of the foregoing, Holdco agrees that no reliance may be placed on any representation, warranty, opinion, advice or assertion contained in any prospectus or registration statement relating to the public offering of securities of Loral or any of its Affiliates or shareholders, in

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any document or material provided or made available to Holdco in connection with its due diligence review or for any other reason in connection with the conclusion of this Agreement, or in any quarterly, annual or current report (including any report on Form 10-Q, Form 10-K or Form 8-K), interim or annual financial statement, management presentation, discussion and analysis, material change report (including any report on Form 8-11) or other similar continuous disclosure documents required to be filed with any Securities Commission pertaining to Loral or any of its Affiliates or shareholders. Nothing contained in this Agreement is intended to relieve Loral or Skynet from liability for fraud. Nothing in this Section 5.2(g) is intended to limit or affect the representations and warranties made under this Agreement.

ARTICLE 6
COVENANTS

6.1 Further Action

     Loral, Skynet and Holdco shall take, or cause to be taken, all other action and do, or cause to be done, all other things necessary, proper or appropriate under applicable Laws to consummate and make effective the transactions contemplated by this Agreement. Loral, Skynet and Holdco shall use all reasonable commercial efforts to fulfill the conditions set forth in Article 7.

6.2 Publicity and Confidentiality

     Unless otherwise required by applicable Law or by obligations of the parties or their Affiliates pursuant to any listing agreement with or rules of any Securities Commission, (a) without the prior written consent of the other party hereto (such consent not to be unreasonably withheld, delayed or conditioned), each party hereto shall consult with the other party hereto before issuing any press release or otherwise making any public statement with respect to this Agreement, the transactions contemplated hereby or the activities and operations of any other party hereunder. Neither Loral nor Skynet shall issue any press release or otherwise make any public statement that mentions PSP or Red Isle without the prior written consent of PSP, unless such mentioning of PSP is required by applicable Law or by obligations of the parties or their Affiliates pursuant to any listing agreement with or rules of any stock exchange or securities regulatory authority.

6.3 Tax Matters

(a) All transfer, documentary, sales, use, stamp, registration and other such taxes, and all conveyance fees, recording charges and other fees and charges (including any penalties and interest) incurred in connection with consummation of the transactions contemplated by this Agreement shall be paid by Holdco when due, and Holdco will, at its own expense, file all necessary tax returns and other documentation with respect to all such taxes, fees and charges, and, if required by applicable law, Loral will, and will cause its Affiliates to, join in the execution of any such tax returns and other documentation.

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(b)	The values of the items forming the Required Loral Alternative Subscription shall be determined by the parties as provided in Section 4.2. Holdco and Loral will, subject to applicable laws, use such allocations in filing their respective tax returns or similar filings.
(c)	Except to the extent that a different allocation is required for United States tax purposes, the parties hereto shall allocate the Non-Voting Preferred Shares to be issued to Loral Holdings and the T-11N Transferor on the Alternative Subscription Date to each item of the Required Loral Alternative Subscription in a manner consistent with the value stipulated in Section 4.2.
(d)	The T-11N Transferor and Holdco will jointly elect under subsection 85(1) of the ITA, in prescribed form and within the time provided, with respect to the transfer of the T-11N, and the agreed amount for the purposes of paragraph 85(1)(a) of the ITA in respect of such property will be the amount specified by the T-11N Transferor and approved by PSP. In addition, the T-11N Transferor and Holdco agree to jointly make, execute and file, in prescribed form and within the time provided, with the appropriate taxation authorities any similar elections required under the provisions of any applicable provincial legislation.
(e)	The parties hereto shall, and shall cause their Affiliates to, each treat on all tax returns the transfer of the T-11N hereunder and the successive transfers as 351 Transfers, and not take any position in any tax return inconsistent herewith unless compelled to do so pursuant to a determination as defined in Section 1313(a) of the Code.
(f)	Until the fifth anniversary of the last day of the calendar year in which the T-11N Contribution occurs, without the prior written consent of Loral and PSP (each in its sole and absolute discretion), neither Holdco nor any of its Affiliates shall engage in or effect any transaction or series of related transactions (other than the Successive Transfer) involving an exchange, disposition, reorganization or liquidation thereby of (i) the T-11N or any material interest therein or (ii) any equity interest in a subsidiary of Holdco or any successor which owns directly or indirectly the T-11N or any material interest therein, including any distribution with respect to such equity interest that is treated as an “exchange” for U.S. federal income tax purposes; provided that this Section 6.3(f) shall only apply if, as reasonably determined by Loral, such transaction would or is likely to trigger gain pursuant to any GRA entered into by Loral with respect to the transfer of the T-11N.

6.4 Waiver Relating to Certain Proposed Transactions.

     Skynet and Loral hereby irrevocably waive any and all claims or demands they may have at any time against Holdco and its Affiliates as a result of or arising directly or indirectly out of or in connection with (i) any Restructuring Decision, (ii) any restructuring of a Proposed Transaction, and (iii) any gain recognized by Skynet or its Affiliates as a result of consummation of a Proposed Transaction (other than any gain recognized by reason of breach of

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the covenant set forth in Section 6.3(f)), it being understood that nothing contained in this Section shall relieve Holdco of any of its obligations, or shall otherwise affect any of Loral’s rights, under Section 6.3(f).

6.5 T-11N

     Skynet shall not, and Loral shall cause Skynet not to, assign or transfer any of its rights under the T-11N Construction Contract, or to T-11N, to any person other than Loral, without the prior written consent of Holdco. Any attempted assignment or transfer of the T-11N Construction Contract, the T-11N or any rights thereto in violation of this Section 6.5 shall be null and void ab initio, and of no effect.

ARTICLE 7
CONDITIONS

7.1 Conditions to Obligations of the Parties.

     The obligations of Holdco and of Loral and of Skynet to consummate the transactions contemplated by this Agreement are subject to the fulfillment of each of the following conditions, any or all of which may be waived in whole or in part by either party hereto (as to itself only and not with respect to or on behalf of the other party) to the extent permitted by applicable Law:

(a)	no court or other Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Law, judgment, decree, ruling, injunction or other order (whether temporary, preliminary or permanent) which is in effect and prohibits the consummation of the transactions contemplated by this Agreement;
(b)	the Telesat Closing shall have been consummated;
(c)	with respect to the Loral Alternative Subscription, the Skynet Asset Transfer Agreement and Asset Purchase Agreement shall have been terminated; and
(d)	the Holdco Unanimous Shareholders Agreement shall have been executed and delivered by all parties thereto.

7.2 Conditions to Obligations of Holdco

     The obligations of Holdco to consummate the transactions contemplated by this Agreement are subject to the fulfillment of each of the following conditions, any or all of which may be waived in whole or in part by Holdco to the extent permitted by applicable Law:

(a) the representations and warranties of Loral contained in Section 5.1 shall have been true and correct in all material respects as of the date hereof and as of the relevant date upon which performance is being made, except to the extent that such failure of the representations are warranties to be true and correct does not

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affect the ability of Loral and Skynet to consummate the transactions contemplated by this Agreement; and

(b)

the covenants contained in this Agreement to be complied with or performed by Loral, the T-11N Transferor and Skynet shall have been complied with or performed in all material respects through the relevant date upon which performance is being made, except to the extent that the failure to comply with such covenants does not affect the ability of Loral or Skynet to consummate the transactions contemplated by this Agreement;

provided that Holdco may not refuse to consummate the transactions contemplated by this Agreement as a result of the failure of any condition contained in this Section 7.2 to the extent that Holdco is responsible for such failure.

7.3 Conditions to Obligations of Loral and the T 11N Transferor

     The obligations of Loral and the T-11N Transferor to consummate the transactions contemplated by this Agreement are subject to the fulfillment of each of the following conditions, any or all of which may be waived in whole or in part by Loral and the T-11N Transferor to the extent permitted by applicable Law:

(a)

the representations and warranties of Holdco contained in Section 5.2 shall have been true and correct in all material respects as of the date hereof and as of the relevant date upon which performance is being made, except to the extent that such failure of the representations and warranties to be true and correct does not affect the ability of Holdco to consummate the transactions contemplated by this Agreement; and

(b)

the covenants contained in this Agreement to be complied with or performed by Holdco shall have been complied with or performed in all material respects through the relevant date upon which performance is being made, except to the extent that the failure to comply with such covenants does not affect the ability of Holdco to consummate the transactions contemplated by this Agreement;

provided that Loral or the T-11N Transferor may not refuse to consummate the transactions contemplated by this Agreement as a result of the failure of any condition contained in this Section 7.3 to the extent that Loral or the T-11N Transferor is responsible for such failure.

ARTICLE 8
TERMINATION

8.1 Termination Upon Termination of the Share Purchase Agreement

     This Agreement shall terminate and the transactions contemplated hereby shall be abandoned simultaneously with any termination of the Share Purchase Agreement for any reason whatsoever.

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8.2 Termination Upon Simultaneous Occurrence of the Telesat Closing and the Skynet Closing

     This Agreement shall terminate and the transactions contemplated hereby shall be abandoned upon the simultaneous occurrence of the Telesat Closing and the Skynet Closing.

8.3 Termination by Mutual Consent

     This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time by the mutual consent of Loral and Holdco.

8.4 Effect of Termination.

     In the event of the termination of this Agreement pursuant to this Article 8, this Agreement shall become null and void and no party hereto (or any of its directors (or Persons in similar positions), officers, Affiliates, shareholders, equity holder, agents or representatives) shall have any liability or further obligation to the other party hereto pursuant to this Agreement, except that nothing herein will relieve any party hereto from liability for any breach by it of the provisions of this Agreement occurring prior to the date of such termination.

ARTICLE 9
REMEDIES

9.1 No Consequential Damages

     NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, SPECIAL, PUNITIVE, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF THE OTHER PARTY OR ANY THIRD PARTY, WHETHER FORESEEABLE OR NOT, WITH RESPECT TO THE SUBJECT MATTER HEREOF, WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE, INCLUDING WITHOUT LIMITATION FOR LOSS OF REVENUE OR PROFIT, except that if Loral shall fail to pay the Stage One Purchase Price or the Financing Amount, or the T 11N Transferor and Loral shall fail to make the T-11N Contribution or subject to the provisions of Section 4.3(b), Loral shall fail to pay the Closing Amount to the extent payable pursuant to Section 4.3(a), then Loral shall be liable for any additional financing costs that may be incurred by Holdco or its Subsidiaries under the Financing (as defined in the Share Purchase Agreement).

9.2 Specific Performance for T-11N Contribution

     Skynet agrees that in the event of a breach of the obligation of Skynet to make the T-11N Contribution pursuant to Section 4.1, irrevocable damage would occur to Holdco and that Holdco would not have an adequate remedy in law in the event of such breach. Accordingly, Holdco shall be entitled to injunction or injunctions to prevent such breach and to specific performance as a remedy for such breach without bond or other security being required. Neither Skynet nor Loral shall assert, as a defense against a claim for specific performance or injunction, that Holdco has an adequate remedy at law. Such remedies are, however, cumulative and not exclusive and are in addition to any other remedies which Holdco may have under this Agreement or otherwise.

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9.3 Specific Performance for Share Issuance

     Holdco agrees that in the event of a breach of Holdco’s obligation either to issue to LSCC the Stage One Purchased Shares pursuant to Section 2.1 or to issue to Loral Holdings and the T-11N Transferor the Holdco Non-Voting Preferred Shares pursuant to Section 4.4 irrevocable damage would occur to Loral, LSCC, Loral Holdings and the T-11N Transferor and that they would not have an adequate remedy in law in the event of such breach. Accordingly, Loral, LSCC, Loral Holdings and the T-11N Transferor shall be entitled to injunction or injunctions to prevent such breach and to specific performance as a remedy for such breach without bond or other security being required. Holdco shall not assert, as a defense against a claim for specific performance or injunction, that Loral, LSCC, Loral Holdings or the T-11N Transferor has an adequate remedy at law. Such remedies are, however, cumulative and not exclusive and are in addition to any other remedies which LSCC, Loral Holdings or the T-11N Transferor may have under this Agreement or otherwise.

9.4 Survival of Representations and Warranties

     All representations and warranties set forth in Article 5 shall survive the transactions contemplated hereunder; provided, however, that neither party shall be entitled to recover any Losses pursuant to Section 5.1 or Section 5.2 hereof unless written notice of a claim is delivered to the other party prior to the Applicable Limitation Date. For purposes of this Agreement, the term “Applicable Limitation Date” shall mean the earlier of (i) the Skynet Closing and (ii) the first (1^st) anniversary of the Alternative Subscription Date; provided, however, that the Applicable Limitation Date with respect to the following Losses shall be as follows:

(a)

with respect to any Loss arising from or related to a breach of the representations and warranties of Loral set forth in Sections 5.1(a) (Corporate Organization), 5.1(b) (Corporate Authority) and 5.1(f) (Investor Matters) or fraud on the part of Loral, the Applicable Limitation Date shall be the date on which all claims relating to such breach shall have been barred by the statute of limitations applicable thereto;

(b)

with respect to any Loss arising from or related to a breach of the representations and warranties of Holdco set forth in Section 5.2(a) (Corporate Organization), 5.2(b) (Corporate Authority) and 5.2(f) (Holdco Shares) or fraud on the part of Holdco, the Applicable Limitation Date shall be the date on which all claims relating to such breach shall have been barred by the statute of limitations applicable thereto.

ARTICLE 10
MISCELLANEOUS AND GENERAL

10.1 Payment of Expenses

     Notwithstanding anything to the contrary contained in the Transaction Agreements, the Share Purchase Agreement or the Investors Letter Agreement (including Section 10 of the Investors Letter Agreement), whether or not the transactions contemplated by

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this Agreement shall have been consummated, Holdco shall pay, and shall be solely responsible for the payment of, any and all costs and expenses incurred by Loral, Skynet and Holdco or any of their Affiliates incident to preparing, entering into and carrying out this Agreement and the consummation of the transactions contemplated hereby.

10.2 Modification or Amendment

     Loral, Skynet and Holdco may modify or amend this Agreement by written agreement executed and delivered by duly authorized officers of each such party. No amendment or waiver of any provision of this Agreement shall be binding on any party unless consented to in writing by Loral, Skynet and Holdco. No waiver of any provision of this Agreement shall constitute a waiver of any other provision, nor shall any waiver constitute a continuing waiver unless otherwise expressly provided.

10.3 Further Assurances

     Each party to this Agreement covenants and agrees that, from time to time subsequent to the Stage One Closing Date or the Alternative Subscription Date, in respect of the transaction matters to be consummated by each such provision, it will execute and deliver, or cause to be executed and delivered by its controlled Affiliate, all such documents including all such additional conveyances, transfers, consents and other assurances, and do all such other acts and things as any other party hereto, acting reasonably, may from time to time request be executed or done in order to better evidence or perfect or effectuate any provision of this Agreement or any of the respective obligations intended to be created hereby or thereby.

10.4 Counterparts

     For the convenience of the parties hereto, this Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.

10.5 Governing Law and Waiver of Jury Trial

     This Agreement, and all matters arising out of or related to this Agreement, and the transactions contemplated hereby, including (a) its negotiation and validity, and (b) any claim or cause of action, whether in tort, in contract, or otherwise (including any representation or warranty made in or in connection with this Agreement or as an inducement to enter into this Agreement) shall be governed by, and construed and interpreted in accordance with the laws of the State of New York, without regard to the conflicts of law rules and principles thereof. Any suit, action or proceeding against any party or any of its assets arising out of or relating to this Agreement shall be brought in the federal or state courts located in New York, New York, and each party hereby irrevocably and unconditionally attorns and submits to the exclusive jurisdiction of such courts over the subject matter of any such suit, action or proceeding. Each party irrevocably waives and agrees not to raise any objection it might now or hereafter have to any such suit, action or proceeding in any such court including any objection that the place where such court is located is an inconvenient forum or that there is any other suit, action or proceeding in any other place relating in whole or in part to the same subject matter. EACH PARTY HEREBY ACKNOWLEDGES AND AGREES THAT ANY DISPUTE OR

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CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY IRREVOCABLY CONSENTS TO PROCESS BEING SERVED BY ANY PARTY TO THIS AGREEMENT IN ANY LEGAL PROCEEDING BY DELIVERY OF A COPY THEREOF IN ACCORDANCE WITH THE PROVISIONS OF SECTION 10.7.

10.6	Time of Essence
	Time shall be of the essence in this Agreement.
10.7	Notices

     Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be given by hand, courier (with a copy sent by facsimile), by facsimile or other means of electronic communication (with a copy sent by courier) or by delivery as hereafter provided. Any such notice or other communication, if sent by courier or if sent by facsimile or other means of electronic communication, shall be deemed to have been received on the Business Day following the confirmation of receipt, or if delivered by hand shall be deemed to have been received at the time it is delivered to the applicable address noted below either to the individual designated below or to an individual at such address having apparent authority to accept deliveries on behalf of the addressee. Notice of change of address shall also be governed by this Section 10.7. Notices and other communications shall be addressed as follows or to such other address as the parties shall notify each other in writing from time to time:

     (a) if to Holdco:

4363205 Canada Inc.
c/o McCarthy Tétrault
66 Wellington Street
Toronto, Ontario M5K 1E6

Attention: Secretary (c/o Robert Forbes)
Facsimile: (416) 868-0673

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     with copies to:

Public Sector Pension Investment Board
1250 René Lévesque Blvd. West
Suite 2030
Montréal, Québec H3B 4W8

Attention: Vice President and General Counsel
Telephone: (514) 939-5376
Facsimile: (514) 937-0403

and:

Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153

Attention: Douglas P. Warner
Telephone: (212) 310-8751
Facsimile: (212) 310-8007

     (b) if to Loral or Skynet:

Loral Space & Communications Inc.
600 Third Avenue
New York, NY 10016

Attention: Avi Katz
Telephone: (212) 338-5340
Facsimile: (212) 338-5320

with copies to:

Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, NY 10019

Attention: Bruce R. Kraus
Telephone: (212) 728-8237
Facsimile: (212) 728-9237

and

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McCarthy Tétrault LLP
66 Wellington Street
Toronto, Ontario, M5K 1E6

Attention: Robert Forbes
Telephone: (416) 601-8267
Facsimile: (416) 868-0673

10.8 Severability

     If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible.

10.9 Entire Agreement

     Except as agreed to in writing on or after the date hereof, this Agreement and the other Transaction Agreements constitute the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties (both written and oral), among the parties with respect to the subject matter hereof, including the Investor Letter Agreement.

10.10 Assignment

     No party may transfer or assign any of its rights or obligations hereunder without the express written consent of each other party hereto, and any such attempted transfer in violation of this Section 10.10 shall be null and void ab initio, provided, however, that a party hereto may, without the prior written consent of the other party hereto, (a) assign (in whole or in part) this Agreement and all of its rights hereunder to its lenders and debt providers (or any administrative or collateral agent therefor) for collateral security purposes, and (b) assign, after the Alternative Subscription Date, (in whole or in part), this Agreement and its rights and obligations hereunder to any of its subsidiaries; provided, however, that, notwithstanding any such assignment described in the immediately preceding clauses (a) and (b), the assigning party shall remain liable to perform all of its obligations hereunder

10.11 Parties in Interest and Rights of PSP

     This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement; provided, however, that, from the date hereof through the date of the Telesat Closing, PSP shall have the right to take any action on behalf of Holdco, and to exercise all remedies and rights on behalf of and for the benefit of Holdco, under this Agreement and shall be entitled to full indemnity from Holdco in respect of, and Holdco shall pay to PSP an amount

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equal to, any Losses incurred by PSP in doing so (including any costs and expenses incurred by PSP incidental to exercising any such remedies or rights) unless PSP shall have acted in bad faith or shall have been grossly negligent, provided that nothing contained in this Section 10.11 shall be deemed to create any liability on PSP’s part to any of the parties hereto in connection with, and no party hereto shall have any recourse against PSP for, any action so taken or any exercise of such remedies or rights made by PSP on behalf of or for the benefit of Holdco pursuant to this Section 10.11. PSP shall be a third party beneficiary of this provision and of Sections 6.2, 6.3(d), 6.3(f) and this Section 10.11, and LSCC and Loral Holdings shall be third party beneficiaries of Section 9.3.

10.12 Successors

     This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors.

[signatures on following page]

     IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto on the date first hereinabove written.

LORAL SPACE & COMMUNICATIONS INC.
By:	/s/ Michael B. Targoff
	Name:	Michael B. Targoff
	Title:	Chief Executive Officer
LORAL SKYNET CORPORATION
By:	/s/ Michael B. Targoff
	Name:	Michael B. Targoff
	Title:	Chief Executive Officer
4363205 CANADA INC.
By:	/s/ Michael B. Targoff
	Name:	Michael B. Targoff
	Title:	Vice Chairman
By:	/s/ Jim Pittman
	Name:	Jim Pittman
	Title:	Vice President

EX-10.2

Exhibit 10.2

ANCILLARY AGREEMENT

          ANCILLARY AGREEMENT, dated as of August 7, 2007 (this “Agreement”), by and among Loral Space & Communications Inc., a Delaware corporation (“Parent”), Loral Skynet Corporation, a Delaware corporation and a wholly owned Subsidiary of Parent (“Skynet”), Public Sector Pension Investment Board, a Canadian Crown corporation (“PSP”), 4363205 Canada Inc., a Canadian corporation (“Holdco”), and 4363230 Canada Inc., a Canadian corporation and a wholly owned Subsidiary of Holdco (“Interco”). Capitalized, undefined terms used herein shall have the respective meanings ascribed to them in the Asset Transfer Agreement (as hereinafter defined).

R E C I T A L S:

          WHEREAS, on December 16, 2006, 4363213 Canada Inc., a Canadian corporation and a wholly owned Subsidiary of Holdco (“Acquisition Sub”), BCE Inc., a Canadian corporation (“BCE”), and Telesat Canada, a Canadian corporation (“Telesat”), entered into a Share Purchase Agreement (as amended from time to time, the “Share Purchase Agreement”), pursuant to which Acquisition Sub has agreed to purchase from BCE, and BCE has agreed to sell to Acquisition Sub, all of the outstanding shares of Telesat and certain promissory notes upon the terms and subject to the conditions set forth in the Share Purchase Agreement;

          WHEREAS, in connection with the Share Purchase Agreement, on December 16, 2006, Parent executed and delivered to Holdco a letter (as amended from time to time, the “Parent Commitment Letter”), pursuant to which Parent has committed to acquire shares of Holdco simultaneously with the consummation of the transactions contemplated by the Share Purchase Agreement, the terms of which transaction are set (i) forth in an Alternative Subscription Agreement, dated the date hereof (as amended from to time, the “Alternative Subscription Agreement”), by and among Parent, Skynet and Holdco and (ii) an Asset Transfer Agreement, dated the date hereof (as amended from time to time, the “Asset Transfer Agreement”), by and among Skynet, Holdco and Parent;

          WHEREAS, in connection with the Share Purchase Agreement, on December 16, 2006, PSP executed and delivered to Holdco a letter (as amended from time to time, the “PSP Commitment Letter”), pursuant to which PSP has committed to acquire shares of Holdco simultaneously with the consummation of the transactions contemplated by the Share Purchase Agreement, the terms of which transaction are set forth in a Subscription Agreement, dated the date hereof (as amended from time to time, the “PSP Subscription Agreement”), by and between PSP and Holdco;

          WHEREAS, in connection with the Share Purchase Agreement, on December 14, 2006, Parent, PSP, Holdco, Acquisition Sub and Skynet entered into a letter agreement (the “Investors Letter Agreement”) providing for, among other things, the capitalization and management of Holdco and the actions to be taken by the parties thereto with respect to such capitalization and management;

          WHEREAS, attached as Schedule C to the Investors Letter Agreement is a “Contribution Term Sheet” relating to a “Skynet Contribution Agreement” contemplating the transfer by Skynet of certain of its assets and related liabilities to Holdco in connection with Skynet’s acquisition of shares of Holdco, the terms of which transaction are set forth in: (i) the

Asset Transfer Agreement; and (ii) an Asset Purchase Agreement, dated the date hereof (as amended from time to time, the “Asset Purchase Agreement”), by and among Skynet, Skynet Satellite Corporation, a Delaware corporation that is currently a wholly owned Subsidiary of Skynet and, as of the Closing, will be a wholly owned Subsidiary of Holdco (“Buyer”), and Parent;

          WHEREAS, pursuant to the Investors Letter Agreement, upon the consummation of the transactions contemplated by the Share Purchase Agreement, the Parent Commitment Letter, the Alternative Subscription Agreement, the PSP Commitment Letter, the PSP Subscription Agreement, the Asset Transfer Agreement and the Asset Purchase Agreement (collectively, including the Investors Letter Agreement, this Agreement and the agreements entered into by Holdco and its Subsidiaries with respect to the Financing, the “Transaction Documents”), (i) Parent is to own, directly or indirectly, shares of Holdco representing 64% of the economic equity interests and 33¹/₃ of the non-director voting equity interests of Holdco, and (ii) PSP is to own, directly or indirectly, shares of Holdco representing 36% of the economic equity interests and 66²/₃ of the non-director voting equity interests of Holdco; and

          WHEREAS, the parties hereto desire to provide for (i) the methods by which any disputes relating to the determination of the Final Adjustment Amount and/or the MAE Adjustment Amount will be resolved, (ii) the settlement of payments (if any) by and among the parties hereto in respect of the Final Adjustment Amount and any MAE Adjustment Amount, (iii) the funding by Parent and PSP of amounts payable by Holdco in connection with the Transaction Documents and the transactions contemplated thereby and (iv) certain other matters, all as set forth herein;

          NOW, THEREFORE, in consideration of the foregoing premises, and of the covenants and agreements contained herein, the parties hereto hereby covenant and agree as follows:

          SECTION 1. SETTLEMENT OF ESTIMATED AND FINAL ADJUSTMENT AMOUNTS.

          SECTION 1.1. Estimated Adjustment Amount.

          (a) In the event that the Estimated Adjustment Amount set forth in the Estimated Adjustment Schedule is a positive number:

     (i) Holdco shall pay to Parent at the Closing an amount equal to the Estimated Adjustment Amount, but only to the extent that Holdco and its Subsidiaries have Adequate Cash (as hereinafter defined) therefor (the “Estimated Holdco Payment”);

     (ii) if, and then to the extent that, Holdco and its Subsidiaries do not have Adequate Cash to make such payment, subject to Section 3.3 hereof, PSP shall pay or cause to be paid to Parent at the Closing an amount equal to 0.3463 (the “Factor”) multiplied by such portion of the estimated Adjustment Amount not paid by Holdco (the “Estimated PSP Payment”); and

     (iii) to the extent Section 3.3 applies, Holdco will issue Holdco Notes (as defined below) to Parent in the principal amount contemplated thereby (the “Estimated Payment Notes”).

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     For the purposes of this Agreement, “Adequate Cash” means sufficient cash to make the payment in question (giving effect to available proceeds from the Financing, as well as any use of cash on hand or otherwise available to the fullest extent permitted to be so used without violation of any applicable covenants contained in the documentation of the Financing, other applicable agreements or applicable Law).

          (b) In the event that the Estimated Adjustment Amount set forth in the Estimated Adjustment Schedule is a negative number, Parent shall pay to PSP at the Closing an amount equal to the Factor multiplied by the absolute value of such Estimated Adjustment Amount (the “Estimated Parent Payment”), and for the avoidance of doubt, for purposes of this Agreement, Estimated PSP Payment and Estimated Holdco Payment shall be zero.

          SECTION 1.2. Final Adjustment Amount.

          (a) In the event that Holdco or Skynet exercises its right pursuant to Section 2.7(c) of the Asset Transfer Agreement to submit the determination of any matter(s) in dispute relating to the Proposed Final Adjustment Schedule or any of the calculations set forth therein, such dispute shall be so submitted for resolution to PricewaterhouseCoopers L.L.C. or, if such firm is unable or unwilling to serve in such capacity, another independent accounting or financial dispute resolution firm of national standing that shall be reasonably acceptable to Parent and PSP (such firm or other accounting or financial dispute resolution firm, the “Independent Accountant”). PSP and Holdco, on the one hand, and Parent and Skynet, on the other hand, shall cooperate fully with the Independent Accountant to facilitate its resolution of such dispute, including by providing the information, data and work papers used by each such party (as applicable) to calculate the Final Adjustment Amount and the amount in dispute, making its personnel and accountants available to explain any such information, data or work papers and submitting each of their calculations of the Final Adjustment Amount to the extent relevant to such matter(s) submitted to the Independent Accountant. Based upon such review and other information, the Independent Accountant shall determine the Final Adjustment Amount in accordance with this Agreement. Such determination shall be completed as promptly as practicable but in no event later than 30 Business Days following the submission of such dispute to the Independent Accountant and shall be explained in reasonable detail and confirmed by the Independent Accountant in writing to PSP and Holdco, on the one hand, and Parent and Skynet, on the other hand, and shall be final and binding on the parties hereto, except to correct manifest clerical or mathematical errors. Notwithstanding anything to the contrary contained in any of the Transaction Documents (including, without limitation, Section 10 of the Investors Letter Agreement), the fees and expenses of the Independent Accountant shall be paid by Holdco. The provisions of this Section 1.2(a) shall apply, mutatis mutandis, to matters referred for determination pursuant to Section 4.10(k) of the Asset Transfer Agreement.

          (b) Unless the Final Adjustment Amount, as finally determined pursuant to Section 2.7 of the Asset Transfer Agreement and, if applicable, this Section 1.2, is equal to the Estimated Adjustment Amount set forth in the Estimated Adjustment Schedule, the following shall apply (it being understood and agreed that Sections 4.10(j), 4.10(l) and 4.10(m) of the Asset Transfer Agreement shall apply following the determination and payment of the Final Adjustment Amount as provided below, taking such payment into account):

     (i) if Skynet or Parent received more or Parent paid (or caused to be paid) less pursuant to Section 1.1 hereof than it is ultimately entitled or required to receive or pay in respect thereof under the Asset Transfer Agreement and Section 1.1 of this Agreement,

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then not more than 10 Business Days after the date of such final determination, Parent shall settle (or cause to be settled) the True-Up Amount (as hereinafter defined) as follows: (A) first, Parent shall return to Holdco for cancellation a principal amount of Estimated Payment Notes, if any, equal to the lesser of the True-Up Amount and the principal amount of all Estimated Payment Notes; (B) second, Parent shall pay to PSP an amount, not to exceed the Estimated PSP Payment, equal to any portion of the True-Up Amount that is not settled pursuant to the immediately preceding clause (A) (and any such payment will be deemed to settle a portion of the True-Up Amount equal to the amount of such payment divided by the Factor); (C) third, Parent shall pay Holdco, an amount, not to exceed the Estimated Holdco Payment, equal to any portion of the True-Up Amount that is not settled pursuant to the immediately preceding clauses (A) and (B); and (D) fourth, Parent shall pay to PSP an amount equal to the Factor multiplied by any portion of the True-Up Amount that is not settled pursuant to the immediately preceding clauses (A), (B) and (C); and

     (ii) if PSP or Holdco received more or paid (or caused to be paid) less to Parent pursuant to Section 1.1 hereof than it is ultimately entitled or required to receive or pay in respect thereof under the Asset Transfer Agreement and Section 1.1 of this Agreement, then not more than 10 Business Days after the date of such final determination, Holdco and PSP shall settle (or cause to be settled) the True-Up Amount as follows: (A) first, in the event that PSP received an Estimated Parent Payment, PSP shall pay to Parent an amount, not to exceed the Estimated Parent Payment, equal to the True-Up Amount (and any such payment will be deemed to settle a portion of the True-Up Amount equal to the amount of such payment divided by the Factor); (B) second, Holdco shall pay to Parent, but only to the extent it and its Subsidiaries have Adequate Cash therefor, any portion of the True-Up Amount that is not settled pursuant to the immediately preceding clause (A); (C) third, subject to Section 3.3, PSP shall pay to Parent an amount equal to the Factor multiplied by any portion of the True-Up Amount that is not settled pursuant to the immediately preceding clauses (A) and (B) (and any such payment will be deemed to settle a portion of the True-Up Amount equal to the amount of such payment divided by the Factor); and (D) fourth, to the extent Section 3.3 applies, Holdco will issue Holdco Notes to Parent in the principal amount contemplated thereby.

     For the purposes of this Agreement, the “True-Up Amount” is the absolute value of the difference between the Final Adjustment Amount, as determined pursuant to Section 2.6 of the Asset Transfer Agreement and, if applicable, Section 1.2(a) hereof, and the Estimated Adjustment Amount.

     SECTION 2. SETTLEMENT OF MAE ADJUSTMENT AMOUNT.

     SECTION 2.1. MAE Adjustment Amount.

          (a) In the event that Holdco or Skynet exercises its right pursuant to Section 2.8(c) of the Asset Transfer Agreement to submit the determination of any matter(s) in dispute relating to an MAE Adjustment Amount (if any) to an arbitrator for resolution, such dispute shall be so submitted for resolution to a Person (selected as provided in this Section 2.1(a)) that shall be reasonably acceptable to Parent and Skynet, on the one hand, and PSP and Holdco, on the other hand (such Person that is so selected, the “Arbitrator”). The Arbitrator shall be selected from a list of potential arbitrators, each of whom shall have substantial experience and expertise in the valuation of businesses, such list to be obtained by the

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parties hereto from the American Arbitration Association. The Arbitrator’s function shall be to resolve only such unresolved matters that are relevant to the MAE Adjustment Amount (if any) in accordance with the terms and provisions of the Asset Transfer Agreement and this Agreement. The decision of the Arbitrator shall be conclusive, final and binding upon the parties hereto and shall not be subject to any challenge or appeal by any such party. Notwithstanding anything to the contrary contained in any of the Transaction Documents (including, without limitation, Section 10 of the Investors Letter Agreement), the fees and expenses of the Arbitrator shall be paid by Holdco.

          (b) Subject to the provisions of Sections 2.8(a) and 2.8(b) of the Asset Transfer Agreement, not more than 30 days after the date that the MAE Adjustment Amount (if any) is finally determined pursuant to Section 2.8 of the Asset Transfer Agreement and, if applicable, Section 2.1(a) hereof, Parent shall pay or cause to be paid to Holdco an amount equal to such finally determined MAE Adjustment Amount; provided, however, that Parent shall only be obligated to pay the MAE Adjustment Amount in cash if it has or could reasonably acquire the financial resources to do so through the use of its commercially reasonable efforts, but for the avoidance of doubt, without any obligation to (i) sell any of its assets, (ii) incur any Lien on its direct or indirect equity interests in SS/L or any of its Subsidiaries or (iii) cause SS/L or any of its Subsidiaries to borrow, give any security for or guarantee any Obligation.

          SECTION 3. CERTAIN COVENANTS AND AGREEMENTS.

          SECTION 3.1. Funding Transaction Costs; Excess Funding.

          (a) Immediately prior to the Telesat Closing, subject to Section 3.3 hereof, Parent and PSP will make one or more capital contributions in cash to Holdco, if, and then only to the extent that, Holdco and its Subsidiaries do not have Adequate Cash to (i) fund the respective obligations of Holdco and its Subsidiaries (but excluding any obligation to pay Transaction Expenses, which are addressed in Section 3.1(b) below) under the Transaction Documents as of the Telesat Closing, and if the Closing shall occur simultaneous therewith, as of the Closing (including, without limitation, Holdco’s obligation to repay the principal amount outstanding under the Senior Notes or the Redemption Facility, as applicable) and (ii) redeem Telesat’s indebtedness outstanding as of the Telesat Closing, as set forth in Schedule 3.1(a) to this Agreement (collectively, “Transaction Obligations”); provided that Parent shall fund 65.37% and PSP shall fund 34.63% of each such contribution.

          (b) Immediately prior to the Telesat Closing, subject to Section 3.3 hereof, Parent and PSP will make one or more capital contributions in cash to Holdco if, and then only to the extent that, Holdco and its Subsidiaries do not have Adequate Cash to pay any and all costs and expenses (collectively, “Transaction Expenses") incurred or payable by Holdco or any of its Subsidiaries as of the Telesat Closing, and if the Closing shall occur simultaneously therewith, as of the Closing, in connection with the Transaction Documents and the transactions contemplated thereby (including, without limitation, any and all amounts payable by Holdco pursuant to Section 10 of the Investors Letter Agreement, Section 8.1 of the Asset Transfer Agreement, Section 10.5 of the Asset Purchase Agreement and Section 3.2 of this Agreement); provided that Parent shall fund 64% and PSP shall fund 36% of each such contribution. Parent and PSP further agree that following the Telesat Closing, if the applicable covenants under the Financing shall thereafter restrict the ability of Holdco or its Subsidiaries to make any payment of Transaction Expenses that are payable after the Telesat Closing, then subject to Section 3.3

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hereof, Parent and PSP will be responsible for making such payment, provided that Parent shall fund 64% and PSP shall fund 36% of such payment.

          (c) Immediately following the Telesat Closing, if the cash equity contribution made by PSP under the PSP Subscription Agreement, and Parent’s equity contribution, if any, under the Parent Subscription Agreement, together with the proceeds from the Financing shall exceed the amount of cash necessary to fund the Transaction Obligations and the Transaction Expenses, then Holdco shall pay any such excess to Parent and PSP, with Parent being entitled to 65.37% of such excess amount, and PSP being entitled to 34.63% of such excess amount.

          SECTION 3.2. Reimbursement of Transaction Expenses. Parent, Skynet and PSP may each submit to Holdco invoices for the reimbursement thereto of any Transaction Expenses incurred by such party (whether incurred before or after the Telesat Closing), not paid directly by Holdco as provided in Section 3.1(b) above. Such invoices shall be promptly paid by Holdco upon its review and approval thereof, which approval, in any case, shall not be unreasonably withheld, delayed or conditioned. Holdco shall also repay as of the Telesat Closing any and all promissory notes issued by Holdco to Parent and PSP to fund the payment by Parent and PSP of Transaction Expenses prior to the Telesat Closing.

          SECTION 3.3. PSP Cap. Notwithstanding anything to the contrary contained herein, in no event shall PSP’s obligation (the “PSP Cash Obligations”) to pay the Estimated Adjustment Amount, the Final Adjustment Amount, any portion of the True-Up Amount or any other amounts provided in Section 3.1, when added to the aggregate purchase price paid by PSP under the PSP Subscription Agreement as of the Telesat Closing, exceed C$595.8 million (the “PSP Cap”). In the event that, but for the application of the immediately foregoing sentence, the PSP Cash Obligations would exceed the PSP Cap, and as a result PSP does not make a capital contribution or other payment under Section 3.1(a) or 3.1(b), Parent shall be relieved of the obligations it would otherwise have to fund its proportionate share of such capital contribution or other payment under Section 3.1(a) or 3.1(b). In the event that the PSP Cash Obligations which are relieved are obligations to pay Parent under Section 1, Holdco shall, to the extent it does not have Adequate Cash to make payments to Parent as provided in Section 1, in lieu of such payment issue to Parent a promissory note of the same tenor and terms contemplated by Section 4.04 of the Consulting Agreement in principal amount equal to the amount of such unpaid PSP Cash Obligations divided by the Factor (a “Holdco Note”). To the extent that PSP pays any of the PSP Cash Obligations in U.S. dollars, such payments will be translated into Canadian dollars using the Closing Date Exchange Rate (other than the obligation set forth in the last sentence of Section 3.1(b), which shall be at an exchange rate calculated in the same manner as the Closing Date Exchange Rate, except that the actual date of such payment shall be substituted for the Closing Date).

          SECTION 3.4. Additional Insurance Coverage.

          (a) Without limiting any obligation of Parent or Skynet under the Asset Transfer Agreement to obtain or maintain insurance coverage with respect to the Business, at the request of PSP, Skynet shall use its commercially reasonable efforts to, and Parent shall cause Skynet to use its commercially reasonable efforts to, obtain, at the expense solely of PSP, such additional insurance (“Additional Business Insurance”) with such coverage and in such amounts, with such deductibles and against such risks and losses as PSP may request from time to time prior to the Closing, provided that, in the event that such Additional Business Insurance is terminated, Parent shall pay, or cause to be paid, to PSP any premiums or other amounts

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actually refunded or paid to Parent or Skynet or any of their controlled Subsidiaries in respect of such Additional Business Insurance. For the avoidance of doubt, nothing in this Section 3.4(a) shall obligate Parent or Skynet to take any action that would adversely affect its ability to obtain insurance on its own behalf. In the event of any loss in respect of which Parent, Skynet or any of their controlled Subsidiaries receives proceeds under the Additional Business Insurance, Parent shall assign such proceeds, if any, or cause such proceeds, if any, to be assigned, to PSP.

          (b) The parties hereto acknowledge and agree that Parent has obtained at its expense $150,000,000 of additional top-up insurance coverage (the “Additional Telstar 12 Insurance”) with respect to Telstar 12. Upon the written request of Parent at any time from and after the Closing, Holdco and its Subsidiaries shall terminate, or cause to be terminated, and shall cooperate with Parent to effect the termination of, the Additional Telstar 12 Insurance, and shall pay, or cause to be paid, to Parent any premiums or other amounts actually refunded or paid to Holdco or any of its Subsidiaries in respect of such termination. The parties hereto hereby agree that Parent shall have the right to direct the negotiations with the insurers regarding any such termination.

          SECTION 3.5. Payment Direction. Any amounts payable by or on behalf of Holdco to any other party hereto pursuant to the provisions of this Agreement shall be deemed to be paid to such party at the direction and instruction of Holdco (for Holdco’s account).

          SECTION 3.6. Basis Swap.

          (a) PSP agrees that it shall be responsible for, and shall indemnify Skynet and its Affiliates against, 34.63% of any and all termination liability incurred under the Basis Swap.

          (b) Parent shall transfer the Basis Swap (or cause, on substantially similar terms and conditions, the Basis Swap to be transferred) to Holdco simultaneously with the transfer to Holdco of the hedges procured by Parent and PSP (or any of its respective Affiliates) with respect to their respective Tranches.

          SECTION 3.7. Tax Distributions. Each of Parent and PSP shall, and shall use their reasonable best efforts to cause their respective Affiliates, directors (or Persons in similar positions), officers and employees who at any time have the right (by virtue of share ownership or otherwise) to designate any directors of Holdco to, use their reasonable best efforts to cause their respective designees serving as directors of Holdco to cause Holdco to, subject to applicable covenants under the Financing and applicable Law and to the discretion of Holdco’s board of directors, and to the extent that Holdco has cash resources available to it for such purposes (as reasonably determined by Holdco’s Board of Directors), declare and pay in respect of the Equity Shares (as defined in the Shareholders Agreement) not less than 15 days prior to each April 15, June 15, September 15 and December 15 of each calendar year (each such date, an “Estimated Tax Payment Date”), cash dividends in amounts as determined herein, provided that no such dividend shall be declared or paid in preference over any other dividend that may be declared or paid on any shares of Holdco, including the Fixed Rate Preferred Shares (as defined in the Shareholders Agreement). Each quarterly cash dividend shall be based on the amount reasonably estimated jointly and in good faith by Parent and Holdco not less than 20 days prior to each Estimated Tax Payment Date that is sufficient to enable any shareholder if such shareholder were a US shareholder of the Company, as defined in Section 951(b) of the Code (a “US Shareholder”), to receive an amount at least equal to the excess (if any) of (a) the product of (i) an estimate of the amounts that would be included in gross income under Section 951 of the

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Code by such US Shareholder for the year with respect to the Company and its Subsidiaries, without taking into account any net operating losses or capital losses, as applicable, of such US Shareholder, (ii) the highest marginal combined US federal, New York State and New York City corporate income tax rate applicable to ordinary income in effect for such year, taking into account the deductibility of state and local income taxes for US federal income tax purposes, and (iii) the Proration Percentage (as hereinafter defined) applicable to such Estimated Tax Payment Date, over (b) the sum of (i) the prior distributions made in the same year under Section 5.05 of the Shareholders Agreement with respect to the shares of Holdco held by such US Shareholder, (ii) any other amounts distributed to such US Shareholder as dividends in such year and (iii) if such US Shareholder is treated as a corporation for US federal income tax purpose, non-US taxes of the Company and its Subsidiaries deemed paid during the year and creditable for US federal income tax purposes by such US Shareholder. Any amount of cash dividend paid on the first Estimated Tax Payment Date of any taxable year shall be increased or decreased on account of the shortfall or excess of the estimated over actual amounts so included for the prior taxable year. For the purposes of this Section 3.7, “Proration Percentage” means with respect to: (a) any April 15, 25%; (b) any June 15, 50%; (c) any September 15, 75%; and (d) any December 15, 100%. In the event that, from and after the date hereof, PSP directly or indirectly sells, transfers, assigns or otherwise disposes (by operation of law, merger or otherwise) its right to designate any director of Holdco, as a condition to any such transaction and prior to or simultaneously with the effectiveness thereof, each transferee or successor to such designation right shall have agreed in writing to be bound by, and to assume PSP’s obligations under, the provisions of this Section 3.7 (which written agreement shall promptly be delivered by PSP or such transferee or successor to each other party to this Agreement).

          SECTION 3.8. Authorization or Issuance of Senior Shares. So long as any of PSP, Red Isle Private Investments Inc. or any of the entities that constitute Permitted Transferees under clauses (1) through (3) of the definition thereof contained in the Shareholders Agreement own 10% of the Senior Preferred Shares (as defined in the PSP Subscription Agreement) then outstanding, from and after the Telesat Closing, without the prior written consent of PSP and Parent, Holdco shall not authorize or issue any capital shares of Holdco ranking pari passu or senior to the Senior Preferred Shares in terms of the declaration or payment of, or any other right to receive, dividends or other distributions from Holdco or the right to receive any distributions (including, without limitation, return of capital) upon the liquidation, dissolution or winding up of Holdco or other distribution of assets of Holdco among its shareholders for the purpose of winding up its affairs, in each case, whether voluntary or involuntary.

          SECTION 3.9. Guaranty Indemnity. Each of Holdco and Interco hereby acknowledge that Loral and/or one or more of its Affiliates (other than Holdco or any of its Subsidiaries, including without limitation Interco) (collectively, the “Loral Guarantors”) has granted or is otherwise subject to or obligated under or in respect of one or more guarantees of certain Obligations relating to the Business or otherwise constituting Assumed Liabilities (the “Guaranteed Obligations”). Without limiting, and in furtherance of, the provisions of Article VII of the Asset Transfer Agreement and notwithstanding clause (g) of the definition of Excluded Liabilities set forth in the Asset Transfer Agreement, from and after the Closing, each of Holdco and Interco shall jointly and severally indemnify and save harmless each Loral Guarantor from any and all losses, claims, costs, expenses, damages or liabilities of any nature or kind whatsoever, including without limitation, penalties and legal costs (whether or not involving a third party claim) suffered or incurred by such Loral Guarantor from and after the Closing as a result of or arising directly or indirectly out of or in connection with the payment, satisfaction, collection or performance of any Guaranteed Obligation.

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          SECTION 3.10. Method of Payment. All payments made pursuant to this Agreement shall be by wire transfer of immediately available funds to one or more accounts specified in writing by the Person entitled to such payment; payments to be made to a party hereunder shall be made to any Subsidiary of such party, as such party shall direct.

          SECTION 4. TERMINATION.

          SECTION 4.1. Mutual Termination. Notwithstanding anything to the contrary contained herein, this Agreement may be terminated at any time by the written consent of parties hereto.

          SECTION 4.2. Automatic Termination. In the event of any termination of the Share Purchase Agreement, this Agreement shall simultaneously and automatically terminate without any further act or deed on the part of any party hereto.

          SECTION 4.3. Effect of Termination. In the event of any termination of this Agreement pursuant to Section 4.1 or Section 4.2, this Agreement shall become null and void and have no further force or effect, with no liability on the part of any party hereto or its or its Affiliates’ respective directors (or Persons in similar positions), officers, agents, partners or stockholders, with respect to this Agreement, except that nothing herein will relieve any party hereto from liability for any breach by it of the provisions of this Agreement occurring prior to the date of such termination.

          SECTION 5. MISCELLANEOUS.

          SECTION 5.1. Successors and Assigns. No party may transfer or assign any of its rights or obligations hereunder without the express written consent of the other party hereto, and any such attempted transfer or assignment in violation of this Section 5.1 shall be null and void ab initio; provided, however, that a party hereto may, without the prior written consent of any other party hereto, (a) assign (in whole or in part) this Agreement and all of its rights hereunder to its lenders and debt providers (or any administrative or collateral agent therefor) for collateral security purposes, and (b) assign (in whole or in part) this Agreement and its rights and obligations hereunder to any of its Subsidiaries; provided, further, that, notwithstanding any such assignment described in the immediately preceding clauses (a) and (b), the assigning party shall remain liable to perform all of its obligations hereunder.

          SECTION 5.2. Governing Law and Waiver of Jury Trial. This Agreement, and all matters arising out of or relating to this Agreement and the transactions contemplated hereby, including (a) its negotiation, execution, and validity, and (b) any claim or cause of action, whether in contract, tort or otherwise (including any representation or warranty made in or in connection with this Agreement or as an inducement to enter into this Agreement), shall be governed by, construed and interpreted in accordance with the laws of the State of New York, without regard to the conflicts of law rules and principles thereof. Any suit, action or proceeding against any party or any of its assets arising out of or relating to this Agreement shall be brought in the federal or state courts located in New York, New York, and each party hereby irrevocably and unconditionally attorns and submits to the exclusive jurisdiction of such courts over the subject matter of any such suit, action or proceeding. Each party irrevocably waives and agrees not to raise any objection it might now or hereafter have to any such suit, action or proceeding in any such court including any objection that the place where such court is located is an inconvenient forum or that there is any other suit, action or proceeding in any other place relating

- 9 -

in whole or in part to the same subject matter. EACH PARTY HEREBY ACKNOWLEDGES AND AGREES THAT ANY DISPUTE OR CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Each party irrevocably consents to process being served by any party to this Agreement in any legal proceeding by delivery of a copy thereof in accordance with the provisions of Section 5.4 hereof.

          SECTION 5.3. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible.

          SECTION 5.4. Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be given by hand, courier (with a copy sent by facsimile), by facsimile or other means of electronic communication (with a copy sent by courier) or by delivery as hereafter provided. Any such notice or other communication, if sent by courier or if sent by facsimile or other means of electronic communication, shall be deemed to have been received on the Business Day following the confirmation of receipt, or if delivered by hand shall be deemed to have been received at the time it is delivered to the applicable address noted below. Notice of change of address shall also be governed by this Section 5.4. Notices and other communications shall be addressed as follows or to such other address as the parties shall notify each other in writing from time to time:

          If to Parent or Skynet:

Loral Space & Communications Inc.
600 Third Avenue
New York, NY 10016

Attention:   Avi Katz

Telephone:   (212) 338-5340
Facsimile:    (212) 338-5320

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          with copies to:

Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, NY 10019

Attention:   Bruce R. Kraus

Telephone:   (212) 728-8237
Facsimile:   (212) 728-9237

and

McCarthy Tétrault LLP
66 Wellington Street
Toronto, M5K 1E6

Attention:   Robert Forbes

Telephone:   (416) 601-8267
Facsimile:   (416) 868-0673

          If to PSP:

Public Sector Pension Investments Board
c/o PSP Investments
1250 René-Lévesque Blvd West
Suite 2030
Montréal (Québec) H3B 4W8

Attention:   First Vice President and General Counsel

Telephone:   (514) 939-5376
Facsimile:   (514) 937-0403

          with a copy to:

Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153

Attention:   Douglas P. Warner

Telephone:   (212) 310-8751
Facsimile:   (212) 310-8007

          If to Holdco:

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4363205 Canada Inc.
c/o McCarthy Tétrault LLP
66 Wellington Street
Toronto, M5K 1E6

Attention:   Secretary (c/o Robert Forbes)

Facsimile:   (416) 868-0673

          with copies to:

Public Sector Pension Investments Board
c/o PSP Investments
1250 René-Lévesque Blvd West
Suite 2030
Montréal (Québec) H3B 4W8

Attention:   First Vice President and General Counsel

Telephone:   (514) 939-5376
Facsimile:   (514) 937-0403

and

Weil, Gotshal & Manges LLP
767 Fifth Avenue

New York, NY 10153 Attention: Douglas P. Warner

Telephone:   (212) 310-8751
Facsimile:   (212) 310-8007

          SECTION 5.5. Amendments; Waivers. The parties hereto may modify or amend this Agreement only by written agreement executed and delivered by duly authorized officers of such parties. No amendment or waiver of any provision of this Agreement shall be binding on any party unless consented to in writing by the parties hereto. No waiver of any provision of this Agreement shall constitute a waiver of any other provision, nor shall any waiver constitute a continuing waiver unless otherwise expressly provided.

          SECTION 5.6. Entire Agreement. Except as agreed to in writing on or after the date hereof, this Agreement and the Transaction Documents constitute the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties (both written and oral), among the parties with respect to the subject matter hereof.

          SECTION 5.7. Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person or entity any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement; provided that, from the date hereof through the date of the Telesat Closing, PSP shall have the right to take any action on behalf of

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Holdco, and to exercise all remedies and rights on behalf of and for the benefit of Holdco, under this Agreement, and shall be entitled to full indemnity from Holdco in respect of, and Holdco shall pay to PSP an amount equal to, any Losses incurred by PSP in doing so (including any costs and expenses incurred by PSP incident to exercising any such remedies or rights) unless PSP shall have acted in bad faith or shall have been grossly negligent, provided, further, that nothing contained in this Section 5.7 shall be deemed to create any liability on PSP’s part to any of the other parties hereto in connection with, and no such other party hereto shall have any recourse against PSP for, any action so taken, or any exercise of such remedies or rights made, by PSP on behalf of or for the benefit of Holdco prior to the Telesat Closing pursuant to this Section 5.7.

          SECTION 5.8. Section and Paragraph Headings. The section and paragraph headings in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

          SECTION 5.9. Counterparts. For the convenience of the parties hereto, this Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.

          SECTION 5.10. Successors. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors.

[remainder of page intentionally left blank]

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          IN WITNESS WHEREOF, the parties hereto have duly executed this Ancillary Agreement as of the date first above written.

LORAL SPACE & COMMUNICATIONS INC.
By:	/s/ Michael B. Targoff
	Name: Michael B. Targoff
	Title:   Chief Executive Officer
LORAL SKYNET CORPORATION
By:	/s/ Michael B. Targoff
	Name: Michael B. Targoff
	Title:   Chief Executive Officer
PUBLIC SECTOR PENSION INVESTMENT BOARD
By:	/s/ Derek Murphy
	Name: Derek Murphy
	Title:   First Vice President, Private Equity
By:	/s/ John Valentini
	Name: John Valentini
	Title:   First Vice President, Chief Financial and
Operations Officer

4363205 CANADA INC.
By:	/s/ Michael B. Targoff
	Name: Michael B. Targoff
	Title:   Vice Chairman
By:	/s/ John Valentini
	Name: John Valentini
	Title:   Vice President
4363230 CANADA INC.
By:	/s/ Michael B. Targoff
	Name: Michael B. Targoff
	Title:   Vice Chairman
By:	/s/ John Valentini
	Name: John Valentini Title:   Vice President

EX-99.1

INDEX

Loral Skynet Corporation

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of Loral Space and Communications Inc.

We have audited the accompanying consolidated balance sheets of Loral Skynet Corporation and subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of operations, shareholder’s (deficit) equity, and cash flows for the year ended December 31, 2006, for the period from October 2, 2005 to December 31, 2005 (Successor Business operations), for the period from January 1, 2005 to October 1, 2005 and for the year ended December 31, 2004 (Predecessor Business operations). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, the Successor Business consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the year ended December 31, 2006 and for the period October 2, 2005 to December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. Further, in our opinion, the Predecessor Business consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of the Company’s operations and its cash flows for the period from January 1, 2005 to October 1, 2005 and for the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, the Company emerged from bankruptcy on November 21, 2005. In connection with its emergence, the Company adopted fresh-start reporting pursuant to American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, as of October 1, 2005. As a result, the consolidated financial statements of the Successor Business are presented on a different basis than those of the Predecessor Business and, therefore, are not comparable.

As discussed in Note 3 to the consolidated financial statements, as of December 31, 2006, the Company changed its method of accounting for pensions and other employee benefits to adopt the provisions of Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and other Postretirement Plans.

As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for stock-based compensation to adopt the provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, effective October 1, 2005.

As discussed in Note 5 to the consolidated financial statements, in March 2004 the Company completed the sale of its North American satellites and related assets. The Company has classified the related operations as discontinued operations in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

/s/ DELOITTE & TOUCHE LLP

New York, NY

June 28, 2007

1

LORAL SKYNET CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	December 31,
	2006			2005
ASSETS
Current assets:
Cash and cash equivalents	$	16,032		$	39,715
Accounts receivable, net		11,734			12,028
Inventories		552			1,098
Prepaid insurance		5,636			7,934
Available for sale securities		16,260			—
Other current assets		4,622			8,010
Total current assets		54,836			68,785
Property, plant and equipment, net		451,437			397,489
Investments in affiliates		100,271			107,344
Goodwill		85,933			88,970
Intangible assets, net		57,618			71,076
Other assets		8,147			9,459
Total assets	$	758,242		$	743,123
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Accounts payable	$	6,896		$	12,843
Accrued employment costs		7,058			5,369
Customer advances		8,664			6,277
Income taxes payable		1,331			1,821
Accrued interest and preferred dividends		20,097			4,840
Other current liabilities		6,476			1,100
Due to related parties		32,959			3,915
Total current liabilities		83,481			36,165
Pension and other postretirement liabilities		18,186			21,873
Long-term debt		128,084			128,191
Transponder repurchase obligation		21,285			24,600
Fair value adjustments for customer contracts		15,225			26,640
Long-term liabilities		32,447			33,114
Total liabilities		298,708			270,583
Shareholder’s equity:
Intercompany investment, $.01 par value; 1,000 shares authorized, 140 shares issued and outstanding		289,160			289,279
Series A preferred stock		214,256			200,000
Accumulated deficit		(56,402	)		(16,754	)
Accumulated other comprehensive income		12,520			15
Total shareholder’s equity		459,534			472,540
Total liabilities and shareholder’s equity	$	758,242		$	743,123

See notes to consolidated financial statements

2

LORAL SKYNET CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

	Successor Business						Predecessor Business
				For the Period			For the Period
				October 2,			January 1,
	Year Ended			2005 to			2005 to			Year Ended
	December 31,			December 31,			October 1,			December 31,
	2006			2005			2005			2004
Revenues from satellite services	$	163,707		$	35,988		$	114,213		$	139,758
Revenues from sales-type lease arrangement		—			—			—			87,200
Total revenues		163,707			35,988			114,213			226,958
Cost of satellite services		99,287			25,973			97,266			214,857
Cost of sales-type lease arrangement		—			—			—			87,200
Selling, general and administrative expenses		53,195			16,156			38,013			59,464
Income (loss) from continuing operations before reorganization expenses due to bankruptcy		11,225			(6,141	)		(21,066	)		(134,563	)
Reorganization expenses due to bankruptcy		—			—			(24,591	)		(15,154	)
Operating income (loss) from continuing operations		11,225			(6,141	)		(45,657	)		(149,717	)
Gain on discharge of pre-petition obligations and fresh-start adjustments		—			—			318,153			—
Interest and investment income		8,718			187			153			163
Interest expense (contractual interest was $10,495 for the period ended October 1, 2005 and $13,219 for the year ended December 31, 2004		(17,591	)		(4,239	)		(2,804	)		(2,965	)
Other (expense) income		(4,766	)		(309	)		392			(35	)
(Loss) income from continuing operations before income taxes and equity losses in affiliates		(2,414	)		(10,502	)		270,237			(152,554	)
Income tax provision		(5,367	)		(929	)		(15,032	)		(12,878	)
(Loss) income from continuing operations before equity losses in affiliates		(7,781	)		(11,431	)		255,205			(165,432	)
Equity losses in affiliates		(7,073	)		(2,656	)		—			—
(Loss) income from continuing operations		(14,854	)		(14,087	)		255,205			(165,432	)
Loss from discontinued operations		—			—			—			(3,205	)
Gain (loss) on sale of discontinued operations, net of taxes		—			—			65			(59,931	)
Net (loss) income	$	(14,854	)	$	(14,087	)	$	255,270		$	(228,568	)

See notes to consolidated financial statements.

3

LORAL SKYNET CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDER’S (DEFICIT) EQUITY

(In thousands, except share data)

																	Accumulated
																	Other			Total
	Intercompany Investment						Preferred Stock										Comprehensive			Shareholder’s
	Common Shares						Shares				Paid-In			Accumulated			Income			Equity
	Issued			Amount			Issued		Amount		Capital			Deficit			(Loss)			(Deficit)
Predecessor Business
Balance January 1, 2004		100		$	1,072,050				$	—	$	588,097		$	(1,652,735	)	$	(13,191	)	$	(5,779	)
Net loss															(228,568	)
Other comprehensive income																		9,639
Comprehensive loss																					(218,929	)
Balance, December 31, 2004		100			1,072,050			—		—		588,097			(1,881,303	)		(3,552	)		(224,708	)
Net income															255,270
Other comprehensive loss																		(321	)
Comprehensive income																					254,949
Cancellation of Predecessor Business Intercompany investment		(100	)		(1,072,050	)						(588,097	)								(1,660,147	)
Fresh-start adjustment															1,626,033			3,873			1,629,906
Value ascribed to parent investment		140			289,279																289,279
Issuance of Series A preferred stock								1,000,000		200,000											200,000
Balance, October 1, 2005		140			289,279			1,000,000		200,000		—			—			—			489,279
Successor Business
Net loss															(14,087	)
Other comprehensive income																		15
Comprehensive loss																					(14,072	)
Preferred stock dividends															(2,667	)					(2,667	)
Balance, December 31, 2005		140			289,279			1,000,000		200,000		—			(16,754	)		15			472,540
Net loss															(14,854	)
Other comprehensive income																		10,109
Comprehensive income																					(4,745	)
Adjustment to initially apply SFAS 158, net of taxes																		2,396			2,396
Adjustment to the valuation ascribed to parent investment					(119	)															(119	)
Issuance of Series A preferred stock as payment for dividend								71,281		14,256											14,256
Preferred stock dividends															(24,794	)					(24,794	)
Balance, December 31, 2006		140		$	289,160			1,071,281	$	214,256	$	—		$	(56,402	)	$	12,520		$	459,534

See notes to consolidated financial statements.

4

LORAL SKYNET CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Successor Business						Predecessor Business
	Year Ended			For the Period			For the Period			Year Ended
	December 31,			October 2, 2005 to			January 1, 2005 to			December 31,
	2006			December 31, 2005			October 1,2005			2004
Operating activities:
Net (loss) income	$	(14,854	)	$	(14,087	)	$	255,270		$	(228,568	)
Non-cash items:
Gain on discharge of pre-petition obligations and fresh-start adjustments		—			—			(318,153	)		—
Loss from discontinued operations		—			—			—			3,205
Loss on sale of discontinued operations, net of taxes		—			—			(65	)		59,931
Equity losses in affiliates		7,073			2,656			—			—
Deferred taxes		(370	)		105			13,187			11,434
Adjustment to revenue straightlining assessment		—			46			1,031			1,149
Loss on equipment disposals		—			—			2,625			—
Impairment charge on satellite and related assets		—			—			—			34,454
Provisions for (recoveries of) bad debts		356			953			(2,886	)		(2,167	)
Gain on disposition of orbital slot		(1,149	)		—			—			—
Loss on foreign currency transactions and non-cash interest		5,750			1,460			—			—
Depreciation and amortization		45,608			11,885			52,291			114,341
Gain on disposition of available for sale securities		(7,098	)		—			—			—
Stock option compensation		945			—			—			—
Changes in operating assets and liabilities:
Accounts receivable, net		(62	)		2,946			(300	)		10,585
Inventories		546			(94	)		(798	)		(362	)
Due to (from) related parties		(1,404	)		(114,117	)		4,850			9,681
Prepaid insurance		2,298			(7,154	)		8,017			(1,428	)
Other current assets and other assets		1,981			(785	)		(1,618	)		(2,758	)
Accounts payable		(6,440	)		(2,540	)		(4,214	)		637
Accrued expenses and other current liabilities		7,312			1,545			(3,875	)		604
Customer advances		634			(817	)		(2,080	)		(2,930	)
Income taxes payable		(490	)		(211	)		(94	)		1,570
Pension and other postretirement liabilities		274			445			(1,834	)		904
Long-term liabilities		(5,511	)		(38	)		(933	)		(4,177	)
Other		(107	)		15			—			—
Net cash provided by (used in) operating activities of continuing operations		35,292			(117,787	)		421			6,105
Net cash provided by discontinued operations		—			—			—			22,182
Net cash provided by (used in) operating activities		35,292			(117,787	)		421			28,287
Investing activities:
Proceeds from disposition of orbital slot		5,742			—			—			—
Increase in restricted cash		—			—			—			(3,000	)
Proceeds from sale of available for sale securities		7,098			—			—			—
Capital expenditures for continuing operations		(100,537	)		(1,493	)		(1,964	)		(26,439	)
Net cash used in investing activities of continuing operations		(87,697	)		(1,493	)		(1,964	)		(29,439	)
Proceeds from sale of assets, net of expenses		—			—			—			953,619
Capital expenditures for discontinued operations		—			—			—			(9,858	)
Net cash provided by investing activities of discontinued operations		—			—			—			943,761
Net cash (used in) provided by investing activities		(87,697	)		(1,493	)		(1,964	)		914,322
Financing activities:
Repayments under term loans		—			—			—			(576,500	)
Repayments under revolving credit facilities		—			—			—			(390,387	)
Proceeds from loan from Parent		30,000			—			—			—
Preferred stock dividends		(1,278	)		—			—			—
Proceeds from Skynet Notes		—			120,763			—			—
Net cash (used in) provided by financing activities		28,722			120,763			—			(966,887	)
Increase (decrease) in cash and cash equivalents		(23,683	)		1,483			(1,543	)		(24,278	)
Cash and cash equivalents — beginning of period		39,715			38,232			39,775			64,053
Cash and cash equivalents — end of period	$	16,032		$	39,715		$	38,232		$	39,775

See notes to consolidated financial statements

5

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Organization, Principal Business and Recent Developments

Loral Skynet Corporation (together with its subsidiaries, “Loral Skynet,” or the “Company”) is a leading satellite communications company with substantial activities in satellite-based communications services. The Company is a wholly owned subsidiary of Loral Space & Communications Inc. (“Loral”). Loral was formed to succeed to the business conducted by its predecessor, Loral Space & Communications Ltd. (“Old Loral”). Old Loral, together with its subsidiaries, including Loral Skynet, emerged from chapter 11 of the federal bankruptcy laws on November 21, 2005 (the “Effective Date”).

Prior to the Effective Date, Old Loral’s satellite-based communications services business was conducted by Loral Orion, Inc. (“Loral Orion”) and Loral SpaceCom Corporation (“Loral SpaceCom”) and their subsidiaries (together, “Old Skynet”). On the Effective Date, the assets of this business were all combined into and under Loral Orion, Inc., which on that date changed its name to Loral Skynet Corporation.

The terms, “Loral Skynet,” the “Company,” “we,” “our” and “us,” when used in this report with respect to the period prior to our emergence, are references to Old Skynet, and when used with respect to the period commencing after our emergence, are references to Loral Skynet. These references include the subsidiaries of Old Skynet or Loral Skynet, as the case may be, unless otherwise indicated or the context otherwise requires.

The term, “Loral” when used in this report with respect to the period prior to Loral’s emergence, are references to Old Loral, and when used with respect to the period commencing after Loral’s emergence, are references to Loral. These references include the subsidiaries of Old Loral or Loral, as the case may be, unless otherwise indicated or the context otherwise requires.

We adopted fresh-start accounting as of October 1, 2005, in accordance with Statement of Position No. 90-7, Financial Reporting of Entities in Reorganization Under the Bankruptcy Code (“SOP 90-7”). Accordingly, our financial information disclosed under the heading “Successor Business” for the periods ended and as of December 31, 2006 and 2005, respectively, is presented on a basis different from, and is therefore not comparable to, our financial information disclosed under the heading “Predecessor Business” for the period ended and as of October 1, 2005 (the date we adopted fresh-start accounting), or for prior periods.

Loral Skynet has one reportable segment, Satellite Services, and operates a global fixed satellite services business. Loral Skynet leases transponder capacity to commercial and government customers for video distribution and broadcasting, high-speed data distribution, Internet access and communications, as well as provides managed network services to customers using a hybrid satellite and ground-based system. Loral Skynet has four in-orbit satellites and has one satellite under construction at Space Systems/Loral, Inc. (“SS/L”), a subsidiary of Loral. It also provides professional services to other satellite operators such as fleet operating services.

Recent Developments

Telesat Canada Acquisition

On December 16, 2006, a joint venture company (“Acquireco”) formed by Loral and its Canadian partner, the Public Sector Pension Investment Board (“PSP”), entered into a definitive agreement with BCE Inc. to acquire 100% of the stock of Telesat Canada and certain other assets from BCE Inc. for CAD 3.25 billion (approximately $2.79 billion based on an exchange rate of $1.00/ CAD 1.1652 as of December 31, 2006), which purchase price is not subject to adjustment for Telesat Canada’s performance during the pre-closing period (“Telesat Transaction”). Under the terms of this purchase agreement, Telesat Canada’s business is, subject to certain exceptions, being operated entirely for Acquireco’s benefit beginning December 16, 2006. Telesat Canada is the leading satellite services provider in Canada and earns its revenues principally through the provision of broadcast and business network services over eight in-orbit satellites. This transaction is subject to various closing conditions, including approvals of the relevant Canadian and U.S. government authorities, and is expected to close in the third quarter of 2007. Loral and

6

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

PSP have agreed to guarantee 64% and 36%, respectively, of Acquireco’s obligations under the Telesat share purchase agreement, up to CAD 200 million.

At the time of, or following the Telesat Canada acquisition, substantially all of Loral Skynet’s assets and related liabilities are expected to be transferred to a subsidiary of Acquireco at an agreed upon enterprise valuation, subject to downward adjustment under certain circumstances (the “Skynet Transaction”). This subsidiary will be combined with Telesat Canada and the resulting new entity (“New Telesat”) will be a Canadian company that will be headquartered in Ottawa, Ontario. Following the completion of the Skynet Transaction, New Telesat will be the world’s fourth largest operator of telecommunications satellites, with a combined fleet of twelve in-orbit satellites and three additional satellites to be placed in service over the next four years.

Loral and PSP have arranged for the parent company of Acquireco (“Holdings”) to obtain $3.1 billion of committed debt financing from a group of financial institutions, of which up to approximately $2.8 billion is available to fund the purchase price of the Telesat Canada acquisition. PSP has agreed to contribute up to CAD 595.8 million in cash to Holdings, of which $150 million (or CAD 174.8 million based on an exchange rate of $1.00/CAD 1.1652 as of December 31, 2006) will be for the purchase of fixed rate senior non-convertible mandatorily redeemable preferred stock of Holdings.

2.   Bankruptcy Filings and Reorganization

Bankruptcy Filings

On July 15, 2003, Old Loral and certain of its subsidiaries (the “Debtor Subsidiaries” and collectively with Old Loral, the “Debtors”), including Loral Space & Communications Holdings Corporation (formerly known as Loral Space & Communications Corporation), Loral SpaceCom, SS/L and Loral Skynet, filed voluntary petitions for reorganization under chapter 11 of title 11 (“Chapter 11”) of the United States Code (the “Bankruptcy Code”) in the U.S. 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”). Also on July 15, 2003, Old Loral and one of its Bermuda subsidiaries (the “Bermuda Group”) filed parallel insolvency proceedings in the Supreme Court of Bermuda (the “Bermuda Court”), and, on that date, the Bermuda Court entered an order appointing certain partners of KPMG as Joint Provisional Liquidators (“JPLs”) in respect of the Bermuda Group.

The Debtors emerged from Chapter 11 on November 21, 2005 pursuant to the terms of their fourth amended joint plan of reorganization, as modified (the “Plan of Reorganization”). The Plan of Reorganization had previously been confirmed by order (the “Confirmation Order”) of the Bankruptcy Court entered on August 1, 2005. Pursuant to the Plan of Reorganization, among other things, the business and operations of Old Loral were transferred to Loral, and Loral Skynet emerged intact as a separate subsidiary of the reorganized Loral.

Certain appeals (the “Appeals”) filed by Old Loral shareholders acting on behalf of the self-styled Loral Stockholders Protective Committee (“LSPC”) seeking, among other things, to revoke the Confirmation Order and to rescind the approval of the Federal Communications Commission (“FCC”) of the transfer of our FCC licenses from Old Loral to Loral remain outstanding. We believe that these Appeals are completely without merit and will not have any effect on the completed reorganization (see Note 17).

3.   Basis of Presentation and Significant Accounting Policies

Loral Skynet has a December 31 year end. The consolidated financial statements for the year ended December 31, 2006, for the period October 2, 2005 to December 31, 2005 and January 1, 2005 to October 1, 2005, and for the year ended December 31, 2004, include the results of Loral Skynet 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. References in these consolidated financial statements to the Predecessor Business refer to Loral Skynet until October 1, 2005 and references to the Successor Business refer to Loral Skynet after October 1, 2005 and after giving effect to the adoption of fresh-start accounting.

7

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The accompanying consolidated financial statements for the Predecessor Business have been prepared in accordance with SOP 90-7 and on a going concern basis, which contemplates continuing operations, realization of assets and liquidation of liabilities in the ordinary course of business. In addition, the consolidated statements of operations of the Predecessor Business portray our results of operations during the 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. We did not prepare combining financial statements for Old Skynet and its Debtor Subsidiaries, since the subsidiaries that did not file voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code were immaterial to our consolidated financial statements.

As noted above, we emerged from bankruptcy on November 21, 2005 and pursuant to SOP 90-7, we adopted fresh-start accounting as of October 1, 2005. We engaged an independent appraisal firm to assist us in determining the fair value of our assets and liabilities. Upon emergence, our reorganization enterprise value as determined by the Bankruptcy Court was approximately $589 million, which after reduction for the fair value of the Loral Skynet Notes (see Note 11) and certain other adjustments, resulted in a reorganization equity value of approximately $489 million. This reorganization equity value was allocated to our assets and liabilities. Our assets and liabilities were stated at fair value in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations (“SFAS 141”). In addition, our accumulated deficit was eliminated, and our new debt and equity were recorded in accordance with distributions pursuant to the Plan of Reorganization. (See Note 4).

Loral charges Loral Skynet for expenses incurred for the benefit, or on behalf of Loral Skynet. These expenses include benefits administrative services, tax administration services, audit fees, internal audit and treasury services. Loral also allocates corporate management expenses to Loral Skynet using a fixed formula based on certain factors, including relative revenues, payroll and properties of Loral Skynet to that of total Loral. Management believes such allocations are reasonable. However, the associated expenses recorded by the Company in the accompanying consolidated statements of operations may not be indicative of the actual expenses that would have been incurred had the Company been operating as a separate, stand-alone company for the periods presented. See Note 19 — Related Party Transactions for a detailed description of the Company’s transactions with Loral.

Our investment in XTAR, L.L.C. (“XTAR”), is accounted for using the equity method, due to our inability to control significant operating decisions. Income and losses of affiliates are recorded based on our beneficial interest. 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.

Use of Estimates in Preparation of Financial Statements

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. Significant estimates include the estimated useful lives of our satellites and finite lived intangible assets, the carrying value of indefinite lived intangible assets, the fair value of stock based compensation, the realization of deferred tax assets, gains or losses on derivative instruments and our pension liabilities.

Cash and Cash Equivalents

Cash and Cash Equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less. As of December 31, 2006, the Company had $19.0 million of cash and restricted cash, of which $3.0 million is in the form of restricted cash ($2.2 million included in other current assets and $0.8 million included in other assets on our consolidated balance sheet). As of December 31, 2005, the Company had $42.7 million of

8

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

cash and restricted cash, of which $3.0 million is in the form of restricted cash ($1.5 million included in other current assets and $1.5 million included in other assets on our consolidated balance sheet).

Concentration of Credit Risk

Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, foreign exchange contracts, accounts receivable and advances to affiliates (see Note 8). Our cash and cash equivalents are maintained with high-credit-quality financial institutions. Historically, our customers include large multinational corporations for which the creditworthiness was generally substantial. Management believes that its credit evaluation, approval and monitoring processes combined with contractual billing arrangements provide for effective management of potential credit risks with regard to our current customer base.

Receivables

As of December 31, 2006 and 2005, accounts receivable was reduced by an allowance for doubtful accounts of $3.4 million and $5.4 million, respectively.

Available-for-sale securities

Investment in publicly traded common stock are classified as available-for-sale and are carried at fair value. Unrealized gains or losses, if any, are reported as a component of other comprehensive loss (see Notes 6 and 16). Our investment in Globalstar, L.P.’s $500 million credit facility (which arose as a result of our guarantee of such facility) was accounted for at fair value, with changes in the value (net of tax) recorded as a component of other comprehensive loss. We recorded unrealized net gains after taxes as a component of other comprehensive loss of $8 million in 2004 in connection with this activity. With the dissolution of Globalstar, L.P. on June 29, 2004, we wrote-off the remaining book value of our investment in Globalstar’s $500 million credit facility and reduced to zero the unrealized gains and related deferred tax liabilities previously reflected in accumulated other comprehensive loss.

Property, Plant and Equipment

As of October 1, 2005, we adopted fresh-start accounting and our property, plant and equipment were recorded at their fair values based upon the appraised values of such assets. We used the work of an independent appraisal firm to assist us in determining the fair value of our property, plant and equipment. We and the independent appraiser determined the fair value of our property, plant and equipment using the planned future use of each asset or group of assets, quoted market prices for assets where a market exists for such assets, the expected future revenue and profitability of the business unit utilizing such assets and the expected future life of such assets. In our determination of fair value, we also considered whether an asset would be sold either individually or with other assets and the proceeds we expected to receive from such a sale. Assumptions relating to the expected future use of individual assets could affect the fair value of such assets and the depreciation expense recorded related to such assets in the future. Depreciation is provided on the straight-line method over the estimated useful lives 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 our property, plant and equipment as of December 31, 2006:

	Years
Buildings		25
Leasehold improvements		5 to 25
Satellites-in-orbit		5 to 15
Earth stations		7 to 15
Equipment, furniture and fixtures		3 to 7

9

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Costs incurred in connection with the construction and successful deployment of our satellites and related equipment are capitalized. Such costs include direct contract costs, allocated indirect costs, launch costs, launch and in-orbit test insurance and construction period interest. Capitalized interest related to the construction of satellites for 2006, 2005 and 2004 was $3.9 million, nil, and $0.8 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 our satellites, net of insurance proceeds (so long as such amounts are determinable and receipt is probable), are recorded in the period a loss occurs.

Valuation of Satellites, Long-Lived Assets and Investments in Affiliates

The carrying values of our satellites, long-lived assets and investments in affiliates are reviewed for impairment in accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-lived Assets and Accounting Principles Board (“APB”) Opinion No. 18, Equity Method of Accounting for Investments in Common Stock, respectively. We periodically evaluate potential impairment losses relating to our satellites and other long-lived assets, when a change in circumstances occurs, by assessing whether the carrying amount of these assets can be recovered over their remaining lives through future undiscounted expected cash flows generated by those assets (excluding financing costs). If the expected undiscounted future cash flows were less than the carrying value of the long-lived asset, an impairment charge would be recorded based on such asset’s estimated fair value. Changes in estimates of future cash flows could result in a write-down of the asset in a future period. Estimated future cash flows from our satellites could be impacted by, among other things:

•  Changes in estimates of the useful life of the satellite

•  Changes in estimates of our ability to operate the satellite at expected levels

•  Changes in the manner in which the satellite is to be used; and

•  The loss of one or several significant customer contracts on the satellite

If an impairment loss was indicated for a satellite, such amount would be recognized in the period of occurrence, net of any insurance proceeds to be received so long as such amounts are determinable and receipt is probable. If no impairment loss was indicated in accordance with SFAS 144, and we received insurance proceeds, the proceeds would be recognized in our consolidated statement of operations.

Goodwill and Other Intangible Assets

Goodwill represents the amount by which the Company’s reorganization equity value exceeded the fair value of its tangible assets and identified intangible assets less its liabilities as determined in accordance with the provisions of SFAS 141, as of October 1, 2005. Pursuant to the provisions of SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), goodwill is not amortized and is subject to an annual impairment test which the Company, with the assistance of an independent appraiser, performs in the fourth quarter of each fiscal year. SFAS 142 requires the Company to compare the fair value of the reporting unit to its carrying amount on an annual basis to determine if there is potential impairment. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the goodwill within the reporting unit is less than its carrying value.

Intangible assets consist primarily of backlog, orbital slots, trade names and customer relationships, all of which were recorded in connection with the adoption of fresh-start accounting. We used the work of an independent appraiser to assist us in determining the fair value of our intangible assets. The fair values were calculated using several approaches that encompassed the use of excess earnings, relief from royalty and the build-up methods. The excess earnings, relief from royalty and build-up approaches are variations of the income approach. The income approach, more commonly known as the discounted cash flow approach, estimates fair value based on the cash

10

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

flows that an asset can be expected to generate over its useful life. Identifiable intangible assets with finite useful lives are amortized on a straight-line basis over the estimated useful lives of the assets.

Contingencies

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. We accrue for costs relating to litigation, claims and other contingent matters when such liabilities become probable and reasonably estimable. Such estimates may be based on advice from third parties or on management’s judgment, as appropriate. Actual amounts paid may differ from amounts estimated, and such differences will be charged to operations in the period in which the final determination of the liability is made.

Revenue Recognition

We provide 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.

Lease contracts qualifying for capital lease treatment are accounted for as sales-type leases.

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. Revenues under arrangements that include both services and equipment elements are allocated based on the relative fair values of the elements of the arrangement; otherwise, revenue is recognized as services are provided over the life of the arrangement.

Derivative Instruments

During December 2006, we entered into certain derivative investments to minimize Acquireco’s exposure to currency fluctuations associated with Acquireco’s planned acquisition of Telesat Canada (see Notes 1 and 16). We follow SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”) as amended and interpreted, which among other things requires that all derivative instruments be recorded on the balance sheet at their fair value.

Stock-Based Compensation

Loral has a stock based employee compensation plan in which employees of Loral Skynet participate. Effective October 1, 2005, in connection with our adoption of fresh-start accounting, we adopted the fair value method of accounting for stock based compensation, for all stock options granted to Loral Skynet after October 1, 2005, pursuant to the prospective method provisions of SFAS No. 123(R), Share-Based Payment (“SFAS 123R”). We use the Black-Scholes-Merton option-pricing model to measure fair value of these stock option awards. The Black-Scholes-Merton model requires us to make significant judgments regarding the assumptions used within the model, the most significant of which are the stock price volatility assumption, the expected life of the option award, the risk-free rate of return and dividends during the expected term.

11

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

				For the Period
	Year Ended			October 2 to
	December 31,			December 31,
	2006			2005
Risk — free interest rate		4.3	%		4.4	%
Expected life (years)		4.75			4.75
Estimated volatility		27.4	%		27.4	%
Expected dividends		None			None

Loral emerged from bankruptcy on November 21, 2005, and as a result, it does not have sufficient stock price history upon which to base its volatility assumption. In determining the volatility used in our model, we considered the volatility of the stock prices of selected companies in the satellite industry, the nature of those companies, Loral’s emergence from bankruptcy and other factors in determining Loral’s stock price volatility. We based our estimate of the average life of a stock option of 4.75 years using the midpoint between the vesting and expiration dates as allowed by SEC Staff Accounting Bulletin No. 107, Share-Based Payment, based upon the vesting period of four years and the option term of seven years. Our risk-free rate of return assumption for options was based on the quoted yield for five-year U.S. treasury bonds as of the date of grant (see Note 14). We assumed no dividends during the expected term.

Prior to October 1, 2005, we followed the disclosure-only provisions of SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure (“SFAS 148”), an amendment of SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”). We accounted for stock-based compensation for employees using the intrinsic value method (as defined below) as prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related interpretations. Under APB 25, no compensation expense was recognized for employee share option grants because the exercise price of the options granted equaled the market price of the underlying shares on the date of grant (the “intrinsic value method”). We used the Black-Scholes-Merton option pricing model to determine the pro forma effect. If we had used the fair value method under SFAS 123, our pro forma net loss would not have been materially different than reported on the accompanying consolidated statements of operations for the period January 1, 2005 to October 1, 2005 and the year ended December 31, 2004.

Deferred Compensation

Pursuant to the Plan of Reorganization, we entered into deferred compensation arrangements for certain key employees that vest generally over four years and expire after seven years. The initial deferred compensation awards were calculated by multiplying $9.44 by the number of stock options granted to these key employees (see Note 14). We are accreting the liability by charges to income over the vesting period. The deferred compensation cost charged against income, net of estimated forfeitures, was $0.5 million for the year ended December 31, 2006 and nil for the period from October 2, 2005 to December 31, 2005. As of December 31, 2006, there was $1.3 million of unrecognized deferred compensation that will be charged to income over the remaining vesting period. The value of the deferred compensation fluctuates depending on stock price performance, within a defined range, and vesting will accelerate if there is a change of control as defined.

Income Taxes

Loral Skynet and its subsidiaries are subject to U.S. federal, state and local income taxation on their worldwide income and foreign taxation on certain income from sources outside the United States. The Company and its subsidiaries are included as members of the Loral consolidated federal income tax return and as members of certain Loral consolidated or combined state and local income tax returns. Income taxes are presented in the Company’s consolidated financial statements in accordance with SFAS 109, Accounting for Income Taxes, using the asset and liability approach based on the separate return method for the consolidated group. Under this method, current and

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LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

deferred tax expense or benefit for the period is determined for the Company and its subsidiaries as a separate group on a standalone basis.

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. 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. Under the separate return method, the realization of deferred tax assets shall be based on available evidence as it relates only to the Company and its subsidiaries.

The Company had a formal tax sharing agreement with Loral Space & Communications Holdings Corporation for 2004. No formal agreement existed for 2005 and 2006. Estimated taxes currently payable for consolidated federal and consolidated or combined state and local income tax returns are included in due to related parties at December 31, 2006 and 2005.

In addition, our policy is to establish tax contingency liabilities for potential audit issues. The tax contingency liabilities are based on our estimate of the probable amount of additional taxes that may be due in the future. Any additional taxes due would be determined only upon completion of current and future federal, state and international tax audits. At December 31, 2006 and 2005, we had $3.0 million and $2.8 million, respectively, of tax contingency liabilities included in long-term liabilities.

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For benefits to be recognized in the financial statements, a tax position must be more-likely-than-not to be sustained upon examination by the taxing authorities based on the technical merits of the position. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted FIN 48 effective January 1, 2007. Based upon our analysis, we anticipate that the cumulative effect of adopting FIN 48 as of January 1, 2007, will result in an increase of $1.2 million to accumulated deficit, an increase of $6.5 million to goodwill, an increase of $0.1 million to deferred income tax assets, a decrease of $4.2 million to deferred income tax liabilities and an increase of $12.0 million to long-term liabilities. As of January 1, 2007, the estimated value of our uncertain tax positions was a liability of $13.5 million.

13

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Additional Cash Flow Information

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

	Successor Business						Predecessor Business
				For the Period			For the Period
				October 2,			January 1,
	Year Ended			2005 to			2005 to			Year Ended
	December 31,			December 31,			October 1,			December 31,
	2006			2005			2005			2004
Non-cash financing activities:
Issuance of preferred stock as payment for dividend	$	14,260
Increase in restricted cash related to debt proceeds							$	98,736
Accrual of preferred dividends	$	24,794		$	2,667
Supplemental information:
Capital expenditures incurred but not yet paid	$	488		$	256		$	929		$	825
Interest paid, net of capitalized interest	$	8,863		$	576
Taxes paid, net of refunds	$	6,074		$	984		$	1,642		$	1,122
Cash (paid) received for reorganization items:
Professional fees	$	(3,113	)	$	(2,435	)	$	(12,152	)	$	(11,927	)
Employee retention costs				$	(383	)				$	(738	)
Severance costs										$	(319	)
Interest income							$	815		$	632

New Accounting Pronouncements

SFAS 157

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”), to define fair value, establish a framework for measuring fair value in accordance with U.S. GAAP and expand disclosures about fair value measurements. SFAS 157 requires quantitative disclosures using a tabular format in all periods (interim and annual) and qualitative disclosures about the valuation techniques used to measure fair value in all annual periods. We are required to adopt the provisions of this statement as of January 1, 2008. We are currently evaluating the impact of adopting SFAS 157.

SFAS 158

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pensions and Other Postretirement Plans, (“SFAS 158”). SFAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. SFAS 158 also requires an employer to measure the funded status of a plan as of the date of its year end

14

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

statement of financial position, with limited exceptions. We adopted the provisions of this statement as of December 31, 2006 (See Note 15).

SFAS 159

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for us on January 1, 2008 and we are currently evaluating the impact of adopting SFAS 159.

EITF 06-3

In June 2006, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation) (“EITF 06-3”). ETIF 06-3 addresses the income statement presentation as to recording the various governmental taxes collected from customers during the normal course of doing business and indicates that presentation on a gross basis or net basis is an accounting policy decision. In addition, for any such taxes that are recorded on a gross basis, an entity should disclose the amount of those taxes in each period for which an income statement is presented. The guidance in EITF 06-3 is effective for interim and annual reporting periods beginning after December 15, 2006. The Company currently reflects taxes collected from customers and to be remitted to government authorities on a gross basis and these amounts are not significant to revenues.

SAB 108

In September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. This bulletin summarizes the SEC staff’s views regarding the process of quantifying financial statement misstatements. Implementation of SAB No. 108 did not have any impact on the Company’s financial statements.

4.   Fresh-Start Accounting

On August 1, 2005, the Bankruptcy Court entered its Confirmation Order confirming the Company’s Plan of Reorganization. On September 30, 2005, the FCC approved the transfer of FCC licenses from Old Loral to Loral, which represented the satisfaction of the last material condition precedent to the Debtors’ emergence from bankruptcy. Our emergence from Chapter 11 proceedings on November 21, 2005 resulted in a new reporting entity and adoption of fresh-start accounting in accordance with SOP 90-7 as of October 1, 2005, as reflected in the following financial information. Reorganization adjustments have been made in the financial information to reflect the discharge of certain pre-petition liabilities and the adoption of fresh-start accounting. These adjustments were based upon the work of Loral Skynet and our financial consultants to determine the relative fair values of our assets and liabilities and were finalized during 2006.

15

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

CONDENSED CONSOLIDATED BALANCE SHEET^(a)

	Predecessor			Plan			Fresh-Start			Successor
	October 1,			Reorganization			Valuation			October 1,
	2005			Adjustments			Adjustments(e)			2005
				(in millions)
ASSETS
Current assets:
Cash and cash equivalents	$	38.2		$	—		$	—		$	38.2
Accounts receivable, net		15.9			—			—			15.9
Inventories		1.0			—			—			1.0
Other current assets		7.1			98.7	(b)		(1.7	)		104.1
Total current assets		62.2			98.7			(1.7	)		159.2
Property, plant and equipment, net		480.1			(3.2	)(i)		(69.1	)		407.8
Long-term receivables		0.1			—			—			0.1
Investments in and advances to affiliates		—			56.5	(j)		53.5			110.0
Deposits		0.8			—			—			0.8
Goodwill		—			—			89.0	(g)		89.0
Other assets		18.2			7.0	(b)		57.3			82.5
	$	561.4		$	159.0		$	129.0		$	849.4
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Accounts payable	$	6.8		$	7.2	(c)(h)	$	1.2		$	15.2
Accrued employment costs		4.6			—			—			4.6
Customer advances		7.0			1.0	(c)(h)		(1.0	)		7.0
Interest payable		—			0.8	(c)(h)		—			0.8
Vendor financing payable		—			0.1	(c)(h)		—			0.1
Income taxes payable		1.3			0.7	(c)		—			2.0
Other current liabilities		2.5			0.8	(c)(h)		(1.7	)		1.6
Total current liabilities		22.2			10.6			(1.5	)		31.3
Pension and other postretirement liabilities		0.1			12.2	(c)		9.2			21.5
Long-term liabilities		44.5			2.8	(c)		38.7			86.0
Long-term debt		—			103.4	(b)		—			103.4
Intercompany (receivable) payable		(480.4	)		598.4	(c)		—			118.0
Total liabilities		(413.6	)		727.4			46.4			360.2
Liabilities subject to compromise		1,249.0			(1,249.0	)(c)		—			—
Shareholder’s equity:
Intercompany — Investment		1,072.0			263.0	(c)		(1,045.8	)		289.2
Series A Preferred Stock		—			200.0	(b)		—			200.0
Paid In Capital		588.1			—			(588.1	)(f)		—
Other		(3.9	)		(3.9	)		7.8	(f)		—
Accumulated (deficit) retained earnings		(1,930.2	)		221.5	(c)(d)		1,708.7	(f)		—
Total shareholder’s (deficit) equity		(274.0	)		680.6			82.6			489.2
	$	561.4		$	159.0		$	129.0		$	849.4

16

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(a)	The Condensed Consolidated Balance Sheet reflects a reorganization enterprise value of $589 million based on the Bankruptcy Court’s determination (see Note 3), which, after reduction for the fair value of the Loral Skynet Notes (see Note 11) and certain other adjustments, results in a reorganization equity value of approximately $489 million. This results in goodwill equal to the excess of reorganization equity value over fair value of identifiable net assets.
(b)	Reflects $98.7 million of proceeds from the rights offering of Loral Skynet Notes held in escrow as of October 1, 2005, and the related deferred debt issuance costs of $4.7 million and other intangibles of $0.6 million and $200 million of Loral Skynet Preferred Stock pursuant to the Plan of Reorganization (see Notes 11 and 14).
(c)	Reflects the discharge of prepetition liabilities in accordance with the Plan of Reorganization and the reclassification of the remaining liabilities subject to compromise to the appropriate liability accounts in accordance with the Plan of Reorganization. Discharge of Loral Skynet’s pre-petition liabilities is summarized as follows (in millions):

Exchanged for stock of Loral	$	922.4
Intercompany liabilities cancelled		289.3
External liabilities cancelled		12.9
Reinstated and/or paid in cash		24.4
	$	1,249.0

Additionally, in accordance with the Plan of Reorganization, holders of claims to be paid in cash were paid interest at the rate of 6% per annum for the period from the petition date to the Effective Date of the Plan of Reorganization. This interest of $0.8 million was recorded as interest expense for the period ended October 1, 2005.

(d)	Reflects the gain on the discharge of liabilities subject to compromise in accordance with the Plan of Reorganization.
(e)	Reflects changes to carrying values of assets and liabilities to reflect estimated fair values.
(f)	Reflects the revaluation gain and the elimination of the retained deficit and other equity balances.
(g)	Reflects goodwill equal to the excess of reorganization equity value over the estimated fair value of identifiable net assets.
(h)	Amounts payable upon emergence are included in current liabilities.
(i)	Reflects agreement to return certain fixed assets in settlement of certain pre-petition obligations.

As a result of the above we recognized the following (in millions);

Gain on discharge of pre-petition obligations	$	221.5
Gain on fresh-start valuation adjustments		82.6
Total gain on discharge of pre-petition obligations and fresh-start adjustments		304.1
Add interest expense to holders of claims paid in cash		0.8
Add tax provision on Plan of Reorganization and fresh-start valuation adjustments		13.2
Total gain on discharge of pre-petition obligations and fresh-start adjustments excluding interest expense and income tax benefit	$	318.1

(j) Reflects the transfer of Loral’s interest in XTAR to Loral Skynet in accordance with the Plan of Reorganization.

In connection with the Plan of Reorganization, Loral’s holdings in Globalstar, which had no fair value at the time, were transferred to Loral Skynet. The allocation of the reorganization equity value to individual assets and liabilities was adjusted in 2006 during the completion of the fair valuation process.

5.   Discontinued Operations

On March 17, 2004, Old Loral consummated the sale of Loral Skynet’s North American satellites and related assets to certain affiliates of Intelsat, Ltd. and Intelsat (Bermuda), Ltd. (collectively, “Intelsat”). At closing, Loral received approximately $1.011 billion, consisting of approximately $961 million for the North American satellites and related assets, after adjustments, and $50 million for an advance on a new satellite to be built for Intelsat by SS/L. Loral used a significant portion of the funds received to repay all $967 million of Loral’s outstanding secured bank debt. In addition, after closing, we received an additional $4 million in May 2004 as a purchase price

17

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

adjustment resulting from resolution of a regulatory issue. The operating revenues and expenses of these assets and a portion of interest expense on our secured debt through March 18, 2004 have been classified as discontinued operations under SFAS 144 for all periods presented. We have recognized on our statement of operations the loss on sale of $59.9 million, net of taxes of $0.9 million, during 2004. As a result of the resolution of the contingencies primarily relating to the completion of the Intelsat Americas 8 (Telstar 8) satellite, which was successfully launched on June 23, 2005, we recognized a gain of $0.1 million net of taxes in 2005.

The following table summarizes certain statement of operations data for the discontinued operations. In 2004, the operating results of the discontinued operations are for the period from January 1, 2004 to March 17, 2004, the date of the sale. The 2004 results include the write-off of approximately $11 million of debt issuance costs to interest expense relating to secured bank debt that we repaid in March 2004 and $9 million of operating income due to an insurance claim received with respect to a satellite that was sold. For the purposes of this presentation, in accordance with SFAS 144, continuing operations includes all indirect costs normally associated with these operations, including telemetry, tracking and control, access control, maintenance and engineering, selling and marketing, and general and administrative.

	Predecessor Business
	For the Period
	January 1,
	2005 to		Year Ended
	October 1,		December 31,
	2005		2004
	(in thousands)
Revenues of discontinued operations	$	—	$	29,148
Operating income		—		21,551
Interest expense on secured bank debt (Note 12)		—		(24,756	)
Loss before income taxes		—		(3,205	)
Gain (loss) on sale of discontinued operations, net of tax		65		(59,931	)
Gain (loss) from discontinued operations	$	65	$	(63,136	)

6.   Accumulated Other Comprehensive Income (Loss)

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

	Consolidated Balance Sheet				Consolidated Statement of Shareholder’s Equity
	Successor				Successor				Predecessor
	Business				Business				Business
							For the Period		For the Period
							October 2,		January 1,
					Year Ended		2005 to		2005 to			Year Ended
	December 31,				December 31,		December 31,		October 1,			December 31,
	2006		2005		2006		2005		2005			2004
Cumulative translation adjustment	$	287	$	15	$	272	$	15	$	(222	)	$	140
Unrealized (losses) gains on available-for-sale securities, net of taxes		9,837				9,837				(99	)		8,142
Minimum pension liability													1,357
Adjustment to initially apply SFAS 158, net of taxes		2,396
Accumulated other comprehensive income (loss)	$	12,520	$	15	$	10,109	$	15	$	(321	)	$	9,639

18

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Comprehensive income for the year ended December 31, 2006 excludes the $2.4 million adjustment to initially apply SFAS 158. Such amount was recorded as a direct adjustment to the December 31, 2006 ending balance of accumulated other comprehensive income.

7.   Property, Plant and Equipment

Property, Plant & Equipment consists of (in thousands):

	December 31,
	2006			2005
Land and land improvements	$	734		$	1,034
Buildings		4,040			4,148
Leasehold improvements		599			935
Satellites in-orbit, including satellite transponder rights of $136.7 million and $116.7 million in 2006 and 2005, respectively		393,849			373,849
Satellites under construction		77,396			600
Earth stations		18,140			17,710
Equipment, furniture and fixtures		14,650			9,287
Other construction in progress		873			1,939
		510,281			409,502
Accumulated depreciation and amortization		(58,844	)		(12,013	)
	$	451,437		$	397,489

Depreciation and amortization expense for property, plant and equipment was $47.1 million, $12.0 million and $49.7 million in 2006, for the periods October 2, 2005 to December 31, 2005 and January 1, 2005 to October 1, 2005, respectively, and $110.8 million in 2004. Accumulated depreciation and amortization as of December 31, 2006 and 2005 includes $16.7 million and $3.3 million, respectively, related to satellite transponders where Loral Skynet has the rights to transponders for the remaining life of the related satellite.

In January 2004, the Telstar 14/Estrela do Sul-1 (“EDS”) satellite’s North solar array only partially deployed after launch, diminishing the power and life expectancy of the satellite. SS/L had submitted to its insurers a claim for a total constructive loss of the satellite, seeking recovery for the insured value of $250 million. At the end of March 2004, the satellite began commercial service with substantially reduced available transponder capacity and with an expected life reduced to 2010. During 2004, we recorded an impairment charge of $34 million to reduce the carrying value of the satellite and related assets to the expected proceeds from insurance of $250 million. On May 10, 2005, the Bankruptcy Court approved the terms of a settlement arrangement between Loral and the insurers pursuant to which Loral would be paid 82% of the insured amount and the insurers would waive any rights they may have to obtain title to EDS as a result of payment on the insurance claim. As of October 1, 2005, SS/L had received $205 million in insurance proceeds, representing the full settlement amount, from the insurers. We expect that the net cash flow of EDS over its remaining life will exceed its carrying value.

On September 20, 2002, and as further amended in March 2003, we agreed with APT Satellite Company Limited (“APT”) to jointly acquire the Apstar V satellite (now known as Telstar 18). Under this agreement, we were initially to acquire 23% of the satellite in return for paying 25% of the project cost, and were to pay APT over time an additional 25% of the project cost to acquire an additional 23% interest in the satellite. In August 2003, we amended our various agreements with APT, converting our arrangement from joint ownership to a lease, but leaving unchanged the cost allocation between the parties relating to the project cost of the satellite. Under this arrangement, we retain title to the entire satellite. The number of transponders leased to APT is reduced over time upon repayment by us of the second 25% of the satellite’s project cost, ultimately to 54% of the satellite’s

19

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

transponder capacity. As a result of this conversion from joint ownership to a lease arrangement, in the third quarter of 2003 Loral Skynet recorded an increase to self-constructed assets of $73 million and recorded deferred revenue of $80 million from APT. In November 2003, we agreed with APT to further revise our existing arrangement. Under this revised arrangement, we 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% (or 37 transponders). In addition, we agreed to provide to APT, at no additional cost, certain unused capacity on Telstar 10/Apstar IIR during an interim period (which has since expired).

During September 2004, our Telstar 18 satellite began commercial service and we recognized $87 million of sales and $87 million of cost of sales relating to the sales-type lease element of our agreement with APT. In addition, as of December 31, 2006 and 2005, we have $7.5 million and $7.6 million, respectively, of deferred revenue relating to the operating lease and service elements of the agreement (primarily APT’s lease of four transponders for four years and two additional transponders for five years and our providing APT with telemetry, tracking and control services for the life of the satellite), which is being recognized on a straight-line basis over the life of the related element being provided.

In September 2006, Loral Skynet terminated APT’s leasehold interests with respect to two transponders on Telstar 18 by exercising its option to accelerate the lease termination payment that would otherwise have been payable by Loral Skynet to APT in August 2009. In connection with the early termination, Loral Skynet made a payment to APT of $9.1 million. As a result, our long-term liabilities as of December 31, 2006 include $21.2 million for lease termination obligations to APT, reflecting the reduction of the present value of our lease termination obligation upon our exercise of the acceleration option. Our remaining lease termination obligations to APT consist of a payment of $18.1 million in 2008 for four transponders and a payment of $9.1 million for two transponders in 2009. We recorded a charge to Satellite Services cost of sales of $1.0 million in connection with this transaction, which represents the difference between the payment made and the present value of our lease termination obligation for the two transponders at the date of the transaction.

On August 17, 2006, The Boeing Company (“Boeing”) delivered to us a termination notice pursuant to which all the transponders leased by it on our EDS satellite were to be terminated by December 31, 2006. On September 29, 2006, an affiliate of Boeing signed an agreement with us to lease transponder capacity on EDS for a period of 20 months beginning January 2007 and ending August 2008, with an option to renew the contract for two consecutive one year periods. To exercise the termination option, Boeing paid a termination fee of $14.9 million on September 29, 2006. This termination fee has been recognized as revenue from satellite services in our consolidated statement of operations. In addition, Boeing prepaid $4.0 million for future services under the September 2006 agreement, of which $1.9 million is included in other current liabilities in our consolidated balance sheet as of December 31, 2006.

The transponder capacity on satellites in orbit is either leased by customers or held for lease by us. Future minimum lease receipts due from customers under long-term operating leases for transponder capacity on our satellites in orbit and for service agreements as of December 31, 2006 are as follows (in thousands):

2007	$	100,728
2008		67,607
2009		51,452
2010		36,285
2011		29,725
Thereafter		69,187
	$	354,984

20

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8.   Investments in and Advances to Affiliates

Investments in and advances to affiliates consist of (in thousands):

	December 31,
	2006		2005
XTAR equity investment	$	100,271	$	107,344

Equity (losses) income in affiliates consists of (in thousands):

	Successor Business						Predecessor Business
				For the Period			For the Period
				October 2,			January 1,
	Year Ended			2005 to			2005 to		Year Ended
	December 31,			December 31,			October 1,		December 31,
	2006			2005			2005		2004
XTAR	$	(7,073	)	$	(2,656	)	$	—	$	—

XTAR

Loral’s interest in XTAR, L.L.C. (“XTAR”), was transferred to Loral Skynet in connection with the Plan of Reorganization. We own 56% of XTAR, a joint venture between us and Hisdesat Servicios Estrategicos, S.A. (“Hisdesat”) of Spain. We account for our investment in XTAR under the equity method since we do not control certain of its significant operating decisions. Our interest in XTAR will be retained by Loral and not transferred to New Telesat as part of the Skynet Transaction (see Note 1).

XTAR owns and operates an X-band satellite, XTAR-EUR, located at 29° E.L., which entered service in March 2005. The satellite is designed to provide X-band communications services exclusively to United States, Spanish and allied government users throughout the satellite’s coverage area, including Europe, the Middle East and Asia. The government of Spain granted XTAR rights to an X-band license, normally reserved for government and military use, to develop a commercial business model for supplying X-band capacity in support of military, diplomatic and security communications requirements. XTAR also leases up to eight 72 MHz X-band transponders on the Spainsat satellite located at 30° W.L., owned by Hisdesat, which entered commercial service in April 2006. These transponders, designated as XTAR-LANT, allow XTAR to provide its customers in the U.S. and abroad with additional X-band services and greater flexibility.

In January 2005, Hisdesat provided XTAR with a convertible loan in the amount of $10.8 million due 2011, for which Hisdesat received enhanced governance rights in XTAR. If Hisdesat were to convert the loan into XTAR equity, our equity interest in XTAR would be reduced to 51%.

XTAR and Loral Skynet have entered into agreements whereby Loral Skynet provides to XTAR (i) certain selling, general and administrative services, (ii) telemetry, tracking and control services for the XTAR satellite, (iii) transponder engineering and regulatory support services as needed and (iv) satellite construction oversight services. XTAR is currently not making payments under the agreement. We have agreed to defer amounts due from XTAR until March 31, 2008 and we have not recognized any of the benefit of providing these services to XTAR (see Note 19).

XTAR’s lease obligation to Hisdesat for the XTAR-LANT transponders are $13.2 million in 2007, growing to $23 million per year in 2008 with increases thereafter to a maximum of $28 million per year through the end of the useful life of the satellite. Under this lease agreement, Hisdesat may also be entitled under certain circumstances to a share of the revenues generated on the XTAR-LANT transponders. XTAR is currently not making payments under its lease agreement with Hisdesat. Hisdesat has agreed to defer amounts due from XTAR until March 31, 2008.

In May 2005, XTAR signed a contract with the U.S. Department of State for the lease of transponder capacity for a period of three years with two one-year options. The State Department is authorized pursuant to its

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LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

procurement guidelines to lease up to $137.0 million for a specified capacity under this contract, to the extent that capacity is available. As of December 31, 2006, the U.S. Department of State has committed to lease three transponders under this contract, having a total lease value of $21.9 million, and has the right, at its option, to renew the leases for additional terms, which, if fully exercised, would bring the total value of the leases to $36.6 million. There can be no assurance as to how much, if any, additional capacity the U.S. Department of State may lease from XTAR under this contract. XTAR also has contracts to provide services to the U.S. Department of Defense, the Spanish Ministry of Defense and the Danish armed forces.

XTAR entered into a Launch Services Agreement with Arianespace, S.A. (“Arianespace”) providing for launch of its satellite on Arianespace’s Ariane 5 ECA launch vehicle. Arianespace provided a one-year, $15.8 million, 10% interest paid-in-kind (i.e., paid in additional debt) loan for a portion of the launch price, secured by certain of XTAR’s assets, including the XTAR-EUR 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 by XTAR. If XTAR is unable to repay the Arianespace loan when due, Arianespace may seek to foreclose on the XTAR assets pledged as collateral, which would adversely affect our investment in XTAR. Through a series of amendments to the loan agreement, XTAR and Arianespace agreed to extend the maturity date of the loan to September 30, 2007. As part of these amendments, XTAR agreed to make scheduled and excess cash payments, as well as foregoing the ability to incur secured debt with the Arianespace collateral. As of December 31, 2006, $5.8 million was outstanding under the Arianespace loan.

The following table presents summary financial data for XTAR as of December 31, 2006 and 2005 and for each of the two years in the period ended December 31, 2006 (in millions):

Statement of Operations Data:

	Year Ended
	December 31,
	2006			2005
Revenues	$	15.3		$	9.4
Operating loss		(8.6	)		(5.4	)
Net loss		(12.6	)		(9.6	)

Balance Sheet Data:

	December 31,
	2006		2005
Current assets	$	6.4	$	7.4
Total assets		132.1		142.8
Current liabilities		20.1		21.2
Long-term liabilities		33.1		30.1
Members’ equity		78.9		91.5

Satmex

In November 2006, Satelites Mexicanos, S.A. de C.V. (“Satmex”) successfully reorganized. Our investment in Satmex was written off in 2003 and was reduced from 49% to approximately 1.3% in connection with this reorganization. Our interest in Satmex will be retained by Loral and not transferred to New Telesat as part of the Skynet Transaction (see Note 1).

On June 14, 2005, certain Old Loral entities, including Loral Skynet, and Satmex entered into an agreement to be implemented through various amendments and agreements with respect to various transactions involving the Old Loral entities and Satmex (the “Settlement Agreement”), including but not limited to various transponder agreements between certain of the Old Loral entities and Satmex.

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LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Settlement Agreement was approved by the Bankruptcy Court in our Chapter 11 Cases on July 26, 2005 and became effective on August 5, 2005. Upon receipt of approval from our Bankruptcy Court of the Settlement Agreement and related agreements, Loral Skynet recorded income of $4.6 million in the third quarter of 2005 representing the reversal of reserves and accruals recorded in previous periods. Assumption of the Settlement Agreement and its related agreements have likewise been approved by the conciliador in Satmex’s Concurso Mercantil, as well as the U.S. Bankruptcy Court in Satmex’s Chapter 11 case.

Pursuant to the Settlement Agreement, Satmex has agreed to lease to Loral for the life of the satellite, without any further consideration, two 36 MHz Ku-band transponders and two 36 MHz C-band transponders on Satmex 6 (the “Satmex 6 Lease”). Upon Loral’s emergence from bankruptcy, the rights under this lease agreement were assigned to SS/L. On November 30, 2006, the effective date of the Satmex restructuring plan, the Satmex 6 Lease, as well as a lease agreement between Satmex and Loral Skynet for three transponders on Satmex 5, was converted from a lease arrangement to a usufructo, a property right under Mexican law which grants the holder a right of use to the subject property. The Satmex 6 satellite was launched in May 2006 and commenced operations in July 2006. SS/L assigned the rights to the Satmex 6 usufructo to Loral Skynet in consideration of a cash payment equal to the fair value of the four Satmex 6 transponders of $20 million, which is included in Property, Plant and Equipment.

9.   Goodwill and Other Intangible Assets

Goodwill

Goodwill was established in connection with our adoption of fresh-start accounting (see Notes 3 and 4).

The following table summarizes the changes in the carrying amount of goodwill for the period December 31, 2005 to December 31, 2006 (in thousands):

Goodwill — December 31, 2005	$	88,970
Adjustments due to the completion of the fair valuation process:
Deferred revenues — fair value		6,070
Intangibles — fair value		(1,000	)
Reversal of excess valuation allowance on deferred tax assets		(7,988	)
Other fair value adjustments		(119	)
Goodwill — December 31, 2006	$	85,933

Other Intangible Assets

Other Intangible Assets were established in connection with our adoption of fresh-start accounting (see Notes 3 and 4) and consists of the following (in millions, except years):

	Weighted Average
	Remaining		December 31, 2006					December 31, 2005
	Amortization Period		Gross		Accumulated			Gross		Accumulated
	(Years)		Amount		Amortization			Amount		Amortization
Orbital slots		9	$	10.8	$	(1.8	)	$	15.8	$	(0.8	)
Trade names		19		4.0		(0.3	)		4.0		(0.1	)
Customer relationships		14		20.0		(1.7	)		20.0		(0.3	)
Customer contracts		8		33.0		(8.3	)		32.0		(2.1	)
Other intangibles		3		2.7		(0.8	)		2.7		(0.1	)
Total			$	70.5	$	(12.9	)	$	74.5	$	(3.4	)

The allocation of our reorganization equity value to individual intangible assets was adjusted in 2006, as additional information became available, during the completion of the fair valuation process.

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LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Total amortization for intangible assets of $9.9 million for 2006, and $3.4 million for the period October 2, 2005 to December 31, 2005 primarily reflects the net amortization of the fair value adjustments recorded in connection with our adoption of fresh start accounting (see Note 4). Total amortization expense was $2.6 million for the period January 1, 2005 to October 1, 2005 and $3.3 million for the year ended December 31, 2004. Annual amortization expense for intangible assets for the five years ended December 31, 2011 is estimated to be as follows (in millions):

2007	$	8.6
2008		7.9
2009		7.0
2010		5.4
2011		4.5

In connection with our adoption of fresh-start accounting, we recorded fair value adjustments of $30 million relating to customer contracts that is classified separately on our consolidated balance sheet. Net amortization of these fair value adjustments as a credit to income was $11.4 million and $3.4 million for the year ended December 31, 2006 and the period October 2, 2005 to December 31, 2005, respectively.

10.   Liabilities Subject to Compromise — Predecessor Registrant

Liabilities subject to compromise included debt, accounts payable, accrued expenses and other liabilities that were discharged as part of our emergence from bankruptcy. Creditors received distributions consisting of cash, debt, preferred stock and Loral common stock in settlement of their bankruptcy claims. The ratio of cash, debt, preferred stock and common stock that individual creditors received depended upon the priority of the claim allowed for each creditor. We recorded a gain on the estimated settlement of these liabilities of $221.5 million (including interest expense and tax benefit) in the period January 1, 2005 to October 1, 2005 (see Note 4).

11.   Debt Obligations

Debt consists of (in thousands):

	December 31,
	2006		2005
Loral Skynet 14.0% senior secured notes due 2015 (principal amount $126 million)	$	128,084	$	128,191

Loral Skynet Notes

On November 21, 2005, pursuant to the Plan of Reorganization, Loral Skynet issued $126 million of 14% Senior Secured Notes due 2015 (the “Loral Skynet Notes”) which notes are guaranteed on a senior secured basis by our subsidiary Loral Asia Pacific Satellite (HK) Limited and all of Loral Skynet’s existing domestic, wholly-owned subsidiaries, and will be guaranteed on the same basis by all future domestic wholly-owned, and subject to obtaining all required consents, majority-owned, subsidiaries of Loral Skynet (collectively, the “Subsidiary Guarantees”). The Loral Skynet Notes and the Subsidiary Guarantees are secured by all the assets of the obligors, subject to certain exclusions. The indenture covering the Loral Skynet Notes (the “Indenture”) permits Loral Skynet to obtain additional borrowings on both an unsecured and secured basis, in certain cases utilizing the same assets that secure the Loral Skynet Notes and the Subsidiary Guarantees.

The Loral Skynet Notes have a scheduled maturity date in 2015, subject, in certain instances, to earlier repayment in whole or in part. Prior to November 22, 2009, we may redeem the notes at a redemption price of 110% plus accrued and unpaid interest, but only if we do not receive an objection notice from holders of two-thirds of the principal amount of the notes. After this period, the notes are redeemable at our option at a redemption price of 110%, declining over time to 100% in 2014, plus accrued and unpaid interest (see Notes 17 and 20).

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LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Loral Skynet Notes bear interest at a rate of 14% per annum payable in cash semi-annually, except that interest will be payable in-kind to the extent that the amount of such interest would exceed certain threshold calculations as detailed in the Indenture. The proceeds from the Loral Skynet Notes have been used by Loral Skynet to finance, in part, the consummation of the Plan of Reorganization and the payment of the fees and expenses relating thereto. The Indenture also contains restrictive covenants that limit Loral Skynet’s and its subsidiaries’ ability to take certain actions, including certain restricted payments, incurrence of debt, incurrence of liens, payment of certain dividends or distributions, issuance or sale of capital stock of subsidiaries, sale of assets, affiliate transactions and sale/leaseback and merger transactions.

Certain creditors were offered the right to subscribe to purchase their pro rata share of $120 million of the Loral Skynet Notes, which offering was underwritten by certain other creditors who received a $6 million fee paid in additional Loral Skynet Notes. As of October 1, 2005, there was $98.7 million (including $0.4 million of earned interest) deposited in an escrow account by subscribing creditors. The remaining $21.7 million was received upon issuance of the Loral Skynet Notes. As a result of the interest free period between October 1, 2005 and November 21, 2005, a premium of approximately $2.2 million was imputed. This premium and the total debt issuance costs of $6.2 million are being amortized to interest expense using the effective interest rate method resulting in an effective interest rate of 14.6%.

On July 17, 2006, Loral Skynet paid $11.5 million in cash of accrued interest on the 14% Senior Secured Notes. At December 31, 2006, accrued interest on the 14% senior secured notes was $8.2 million and is included in accrued interest and preferred dividends on our consolidated balance sheet. Interest expense related to the notes was $17.8 million and $3.4 million for the year ended December 31, 2006 and the period October 2, 2005 to December 31, 2005, respectively.

Predecessor Business

As a result of our voluntary petitions for reorganization, all of Old Loral Skynet’s prepetition debt obligations were accelerated. These debt obligations have been discharged pursuant to the Plan of Reorganization (see Note 2).

On March 17, 2004, we repaid all $427 million of our outstanding secured bank debt (see Notes 2 and 5).

Subsequent to our voluntary petitions for reorganization on July 15, 2003, we only recognized and paid interest on our secured bank debt through March 18, 2004 and stopped recognizing and paying interest on all other outstanding debt obligations. While we were in Chapter 11, we only recognized interest expense to the extent paid. For the period ended October 1, 2005 and the year ended December 31, 2004, we did not recognize $7.7 million, and $10.3 million, respectively, of interest expense on our senior notes (excluding our 10% senior notes) and $46.0 million and $61.3 million, respectively, of a reduction to accrued interest on our 10% senior notes, as a result of the suspension of interest payments on our debt obligations.

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LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

12.   Reorganization Expenses Due to Bankruptcy

Reorganization expenses due to bankruptcy including expenses allocated to Skynet from Loral for the period January 1, 2005 to October 1, 2005 and for the year ended December 31, 2004, were as follows ( in thousands):

	Predecessor Business
	For the period
	January 1,
	2005 to			Year Ended
	October 1,			December 31,
	2005			2004
Professional fees	$	22,393		$	14,500
Employee retention costs		(25	)		1,761
Restructuring costs		866			3,088
Lease rejection claims		(316	)		—
Vendor settlement losses (gains)		972			(5,526	)
Interest income		(803	)		(632	)
Other		1,504			1,963
	$	24,591		$	15,154

13.   Income Taxes

The (provision) benefit for income taxes on the (loss) income from continuing operations before income taxes and equity losses in affiliates consists of the following (in thousands):

	Successor Registrant						Predecessor Registrant
				For the Period			For the Period
				October 2,			January 1,
	Year Ended			2005 to			2005 to			Year Ended
	December 31,			December 31,			October 1,			December 31,
	2006			2005			2005			2004
Current:
U.S. Federal	$	(370	)	$	—		$	—		$	—
State and local		(105	)		(33	)		(185	)		(243	)
Foreign		(5,262	)		(791	)		(1,660	)		(1,201	)
Total		(5,737	)		(824	)		(1,845	)		(1,444	)
Deferred:
U.S. Federal		1,450			3,197			(229,444	)		41,622
State and local		6,899			91			(58,792	)		23,353
Foreign		—			—			—			(3,650	)
Valuation allowance		(7,979	)		(3,393	)		275,049			(72,759	)
Total		370			(105	)		(13,187	)		(11,434	)
Total income tax provision	$	(5,367	)	$	(929	)	$	(15,032	)	$	(12,878	)

For the year ended December 31, 2006, we continued to maintain the 100% valuation allowance that had been established at December 31, 2002 against our net deferred tax assets, with the exception of our $2.0 million deferred tax asset relating to AMT credit carryforwards. The provision for foreign income taxes related primarily to Brazil taxes imposed on the income from Estrela do Sul-1.

26

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For 2006, the deferred income tax benefit of $0.4 million related to an increase to our deferred tax asset for additional federal AMT credits.

In connection with our emergence from bankruptcy, Old Skynet realized cancellation of debt income (“COD”) on its federal income tax return of approximately $439 million. COD realized while in bankruptcy is excluded from federal taxable income. We were required to reduce certain of our tax attributes, and to the extent sufficient attributes were not available on a separate company basis, reduce the tax basis in our assets, by an amount equal to the COD excluded by Old Skynet from its taxable income. For the period ended October 1, 2005, this adjustment resulted in a reduction of approximately $160 million to our deferred tax assets and the related valuation allowance. Also, as part of our fresh-start accounting and plan of reorganization adjustments, we recorded a net deferred tax charge of $13.2 million (See Note 4).

For 2004, the deferred income tax provision of $11.4 million related to an additional valuation allowance which was required when we reversed deferred tax liabilities from accumulated other comprehensive income. With the dissolution of Globalstar on June 29, 2004, we wrote off the remaining book value of our investment in Globalstar’s $500 million credit facility and reduced to zero the unrealized gains and related deferred tax liabilities previously reflected in accumulated other comprehensive income. The reversal of this deferred tax liability resulted in a net deferred tax asset of $11.4 million against which we recorded a full valuation allowance.

The provision for income taxes presented above excludes the following items: (i) a deferred tax provision of $6.4 million for 2006 related to the unrealized gain on available-for-sale securities recorded in accumulated other comprehensive income; (ii) a deferred tax provision of $1.6 million for 2006 related to the initial adoption of SFAS 158 recorded in accumulated other comprehensive income; (iii) a current benefit of $0.3 million and a current provision of $0.9 million for the period ended October 1, 2005 and for the year ended December 31, 2004, respectively, related to the gain (loss) on sale of discontinued operations recorded in discontinued operations.

27

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The provision for income taxes on the (loss) income from continuing operations before income taxes and equity losses in affiliates differs from the amount computed by applying the statutory U.S. Federal income tax rate because of the effect of the following items (in thousands):

	Successor Registrant						Predecessor Registrant
				For the Period			For the Period
				October 2,			January 1,
	Year Ended			2005 to			2005 to			Year Ended
	December 31,			December 31,			October 1,			December 31,
	2006			2005			2005			2004
Tax benefit (provision) at U.S. Statutory Rate of 35%	$	845		$	3,676		$	(94,583	)	$	53,394
Permanent adjustments which change statutory amounts:
State and local income taxes, net of federal income tax		4,416			38			(38,335	)		15,022
Additional tax imposed on foreign source income		(3,439	)		(847	)		(1,631	)		(2,838	)
Reorganization expenses due to bankruptcy		—			(55	)		(8,843	)		(5,494	)
Plan of Reorganization and Fresh-Start valuation adjustments		—			—			(146,651	)		—
Equity losses in affiliates		2,585
Interest expense on senior notes		(1,778	)		(208	)
Nondeductible expenses		(71	)		(7	)		(38	)		(62	)
Change in valuation allowance		(7,979	)		(3,393	)		275,049			(72,759	)
Other, net		54			(133	)		—			(141	)
Total income tax provision	$	(5,367	)	$	(929	)	$	(15,032	)	$	(12,878	)

The reorganization of the Company on the Effective Date constituted an ownership change under section 382 of the Internal Revenue Code. Accordingly, use of our tax attributes, such as net operating losses (“NOLs”) and tax credits generated prior to the ownership change, are subject to an annual limitation of approximately $17.7 million, subject to increase or decrease based on certain factors. For example, we anticipate a significant increase to our annual limitation during 2006 and 2007 for the additional benefit from the recognition of our “net unrealized built-in-gains,” i.e., the excess of fair market value over tax basis for our assets as of the Effective Date. We recorded a reduction of $145 million to our deferred tax asset and related valuation allowance for NOL carryforwards that we do not expect to utilize as part of our fresh start and plan of reorganization adjustments due to the expected annual limitations under Section 382 including the potential increases discussed above.

At December 31, 2006, we have unused NOL carryforwards of approximately $738 million (after the reduction described above) representing approximately $274.4 million of deferred tax assets (before reduction for valuation allowance), which expire from 2022 to 2024, as well as AMT credit carryforwards of approximately $2 million that may be carried forward indefinitely.

We assess the recoverability of our NOLs and other deferred tax assets and based upon this analysis, record 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, 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.

As of December 31, 2006, we had valuation allowances totaling $129.8 million, which included a balance of $118.4 million relating to Old Skynet periods preceding our adoption of fresh-start accounting on October 1, 2005.

28

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We will continue to maintain the valuation allowance until sufficient positive evidence exists to support full or partial reversal. If, in the future, we were to determine that we will be able to realize all or a part of the benefit from our deferred tax assets, a reduction to the balance of this valuation allowance at October 1, 2005 will be accounted for first as a reduction in goodwill, then intangible assets, and if these accounts are exhausted, further reductions to the valuation allowance will be recorded as an increase to paid-in-capital during the period such determination is made.

During 2006, our valuation allowance increased by $17.2 million. The net change consisted primarily of a decrease of $8.0 million relating to an excess valuation allowance that was reversed as a reduction to goodwill, an increase of $17.2 million offset by a corresponding increase to the deferred tax asset and an increase of $8.0 million charged to continuing operations.

For the period October 2, 2005 to December 31, 2005, our valuation allowance increased by $3.4 million, which was charged to continuing operations, to a balance of $112.6 million. For the period January 1, 2005 to October 1, 2005, our valuation allowance decreased by $275.1 million to a balance of $109.2 million, primarily as a result of changes to our deferred tax balances upon adoption of fresh-start accounting as described above.

During 2004, our valuation allowance increased by $103.0 million to a balance of $384.3 million. The net change consisted primarily of an increase of $1.5 million applied to the loss from discontinued operations; an increase of $28.7 million applied to the gain (loss) on sale of discontinued operations recorded in discontinued operations; and an increase of $72.8 million charged to continuing operations for 2004.

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

	December 31,
	2006			2005
Deferred tax assets:
Postretirement benefits other than pensions	$	3,646		$	4,873
Net operating loss and tax credit carryforwards		274,386			270,194
Compensation and benefits		1,453			1,649
Income recognition on long-term contracts		8,571			—
Other, net		2,564			2,474
Pension costs		3,169			4,059
Total deferred tax assets before valuation allowance		293,789			283,249
Less valuation allowance		(129,803	)		(112,642	)
Net deferred tax asset	$	163,986		$	170,607
Deferred tax liabilities:
Property, plant and equipment	$	112,105		$	141,618
Intangible assets		19,012			18,481
Investments in and advances to affiliates		39,450			23,801
Available for sale securities		6,341			—
Total deferred tax liability	$	176,908		$	183,900
Net deferred tax liability	$	(12,922	)	$	(13,293	)

The Company had net current deferred tax assets included in other current assets of $0.4 million and $3.4 million and net non-current deferred tax liabilities included in long-term liabilities of $13.4 million and $16.7 million at December 31, 2006 and 2005, respectively.

29

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

14.   Shareholder’s Equity

Successor Business

Common Stock

In accordance with the Plan of Reorganization, New Skynet issued to Loral one hundred and forty of its one thousand authorized shares of common stock, par value $0.01 per share (the “Common Stock”) (see Note 4).

Series A Preferred Stock

On November 21, 2005, Loral Skynet issued 1.0 million of its 2.0 million authorized shares of series A 12% non-convertible preferred stock, $0.01 par value per share (the “Loral Skynet Preferred Stock”), which were distributed in accordance with the Plan of Reorganization (see Note 4). The issued shares were distributed to holders of allowed claims in Orion Class 4, as such term is used in the Plan of Reorganization. Dividends on the Loral Skynet Preferred Stock (if not paid or accrued as permitted under certain circumstances) will be payable in kind (in additional shares of Loral Skynet Preferred Stock) if the amount of any dividend payment would exceed certain thresholds.

Under the terms of the Loral Skynet Preferred Stock, Loral Skynet may, at its option, redeem any or all issued and outstanding shares of the Loral Skynet Preferred Stock by paying, in cash, a redemption price for each share of Loral Skynet Preferred Stock equal to the sum of (i) the liquidation preference and (ii) an amount equal to any unpaid accumulated dividends not reflected in the liquidation preference.

On July 14, 2006 Loral Skynet paid a dividend on its Preferred Stock of $15.53 million, which covered the period from November 21, 2005 through July 13, 2006. The dividend consisted of $1.27 million in cash and $14.26 million through the issuance of 71,281 additional shares of Loral Skynet Preferred Stock. At December 31, 2006, 1,071,281 shares of Loral Skynet Preferred Stock were issued and outstanding, with a liquidation preference of $214.3 million. Accrued but unpaid dividends amounted to $11.9 million and $2.7 million at December 31, 2006 and 2005, respectively.

Stock Plans

The Company’s employees participate in the Loral 2005 stock incentive plan (the “Stock Incentive Plan”) which became effective on November 21, 2005 pursuant to the Plan of Reorganization. The Stock Incentive Plan allows for the grant of several forms of stock-based compensation awards including stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonuses and other stock-based awards (collectively, the “Awards”). Options granted in 2006 to Loral Skynet employees have an exercise price equal to the fair market value of Loral’s stock, as defined, vest over a four year period and have a seven year life. The Awards provide for accelerated vesting if there is a change in control, as defined in the Stock Incentive Plan.

The fair value of the Awards is estimated on the date of grant using the Black-Scholes-Merton model as described in Note 3.

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LORAL SKYNET CORPORATION

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A summary of the status of stock options awarded to Loral Skynet employees under the Stock Incentive Plan as of December 31, 2006 is presented below:

						Weighted
				Weighted		Average		Aggregate
				Average		Remaining		Intrinsic
				Exercise		Contractual		Value
	Shares			Price		Term		(in millions)
Outstanding at December 31, 2005		—
Granted (weighted average grant date fair value $7.66 per share)		271,000		$	28.44		7 years
Exercised		—
Forfeited		(65,000	)	$	28.44
Outstanding at December 31, 2006		206,000		$	28.44		5.7 years	$	2.5
Vested and expected to vest at December 31, 2006		200,850		$	28.44		5.7 years	$	2.4
Exercisable at December 31, 2006		59,000		$	28.44		5.1 years	$	0.7

There were 271,000 options issued on December 21, 2005. However, because communications to Loral Skynet employees were made on January 9, 2006, recognition of the grant of these options had been delayed to such date.

The compensation cost charged against income, net of estimated forfeitures, was $0.9 million in 2006, with a corresponding increase to the intercompany payable to Loral. There was no tax benefit recognized in our statement of operations for this compensation cost. As of December 31, 2006, there was $1.1 million of total unrecognized compensation cost related to non-vested stock options which is expected to be recognized over the next three years or upon accelerated vesting.

Predecessor Business

Common Stock and Old Loral Stock Plans

All shares of Old Loral common stock were cancelled upon our emergence pursuant to the terms of the Plan of Reorganization. Options to purchase 195,276 shares of Old Loral Common Stock, with a weighted average exercise price of $52.83, were forfeited by Loral Skynet employees on November 21, 2005 in accordance with the Plan of Reorganization.

15.   Pensions and Other Employee Benefits

Pensions

Our employees participate in the Loral pension plan and a supplemental retirement plan. These plans are defined benefit pension plans and members may contribute to the pension plan in order to receive enhanced benefits. Eligibility for participation in these plans varies and benefits are based on members’ compensation and/or years of service. Loral funds the pension plan in accordance with the Internal Revenue Code and regulations thereon and funds the supplemental retirement plan on a discretionary basis. Plan assets are generally invested in equity investments and fixed income investments. Plan assets are managed by Russell Investment Corp. (“Russell”), which allocates the assets into specified Russell-designed funds as directed by Loral. Amounts attributed to Loral Skynet are determined by Loral’s actuaries based on specific Loral Skynet employee information and tracking of assets assigned to Loral Skynet.

Effective July 1, 2006, the Loral pension plans were amended to standardize the future benefits earned at all Loral locations. These amendments did not change any benefits earned through June 30, 2006. As a result of the amendments, all Loral locations now have a career average plan that requires a contribution in order to receive the highest level of benefits. All current participants now earn future benefits under the same formula and have the same

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early retirement provisions. The amendments did not apply to certain Loral Skynet employees under a bargaining unit arrangement. Additionally, employees hired after June 30, 2006, do not participate in the defined benefit pension plan, but participate in Loral’s defined contribution savings plan with an enhanced benefit. As a result of these amendments, our ongoing pension expense has been reduced commencing July 1, 2006, and it is expected that our cash funding requirement will be less than previously anticipated commencing in 2007.

Other Benefits

In addition to providing pension benefits, we provide 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 our 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 attributable to Loral Skynet for 2006 and 2005, and a statement of the funded status as of December 31, 2006 and 2005, respectively. We use a December 31 measurement date for the pension plans and other post retirement benefit plans. The plans’ benefit obligations and recorded liabilities were revalued as of October 1, 2005, in connection with our adoption of fresh-start accounting.

	Pension Benefits						Other Benefits
	December 31,			December 31,			December 31,			December 31,
	2006			2005			2006			2005
	(in thousands)			(in thousands)			(in thousands)			(in thousands)
Reconciliation of benefit obligation
Obligation at beginning of period	$	17,316		$	14,167		$	11,811		$	8,419
Service cost		1,333			1,441			218			148
Interest cost		952			904			566			660
Participant contributions		66			—			31			36
Amendments		(941	)		—			(421	)		—
Actuarial (gain) loss		(648	)		1,355			(1,973	)		3,105
Benefit payments		(561	)		(551	)		(187	)		(557	)
Obligation at December 31,	$	17,517		$	17,316		$	10,045		$	11,811
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of period	$	7,212		$	3,676		$	—		$	—
Actual return on plan assets		814			276			—			—
Employer contributions		1,790			3,767			156			521
Participant contributions		66			—			31			36
Benefit payments		(506	)		(507	)		(187	)		(557	)
Fair value of plan assets at December 31,	$	9,376		$	7,212		$	—		$	—
Funded status
Unfunded status at end of period	$	(8,141	)	$	(10,104	)	$	(10,045	)	$	(11,811	)
Unrecognized loss (gain)		—			93			—			(50	)
Net amount recognized	$	(8,141	)	$	(10,011	)	$	(10,045	)	$	(11,861	)

The benefit obligations for pensions and other employee benefits exceeded the fair value of plan assets by $18.2 million at December 31, 2006 (the “unfunded benefit obligations”). In connection with our adoption of

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LORAL SKYNET CORPORATION

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Statement of Financial Accounting Standards No. 158, Employers’ Accounting For Defined Benefit Pension and Other Postretirement Plans, (“SFAS 158”), we are required to recognize the funded status of a benefit plan on our balance sheet. As a result, we reduced our recorded liability for pensions and other benefits by $1.6 million and $2.4 million, respectively, with a corresponding credit to accumulated other comprehensive income, to adjust to our actual unfunded benefit obligations. The unfunded benefit obligations were measured using a discount rate of 6% as of December 31, 2006. Lowering the discount rate by 0.5% would have increased the unfunded benefit obligations by approximately $2.0 million. Market conditions and interest rates will significantly affect future assets and liabilities of Loral’s pension and other employee benefits plans.

The amounts recognized in accumulated other comprehensive income as of December 31, 2006 consist of (in thousands):

	Pension Benefits		Other Benefits
Actuarial gain	$	697	$	1,982
Amendments-prior service credit		902		380
	$	1,599	$	2,362

Amounts recognized in the balance sheet consist of (in thousands):

	Pension Benefits				Other Benefits
	December 31,		December 31,		December 31,		December 31,
	2006		2005		2006		2005
Current Liabilities	$	49	$	—	$	448	$	—
Long-Term liabilities		8,092		10,011		9,597		11,861
	$	8,141	$	10,011	$	10,045	$	11,861

The incremental effect of applying SFAS 158 on individual line items on the balance sheet as of December 31, 2006 is as follows (in thousands):

	Before Application					After Application
	of SFAS 158		Adjustments			of SFAS 158
Goodwill	$	87,498	$	(1,565	)	$	85,933
Total assets		759,807		(1,565	)		758,242
Other current liabilities		5,979		497			6,476
Total current liabilities		82,984		497			83,481
Pension and other postretirement liabilities		22,644		(4,458	)		18,186
Total liabilities		302,669		(3,961	)		298,708
Accumulated other comprehensive income		10,124		2,396			12,520
Total shareholder’s equity		457,138		2,396			459,534

The estimated actuarial gain and prior service credit for the pension benefits that will be amortized from accumulated other comprehensive income as a credit into net periodic cost over the next fiscal year are $0 and $0.1 million, respectively. The estimated actuarial gain and prior service credit for other benefits that will be amortized from accumulated other comprehensive income as a credit into net cost over the next fiscal year is $0.1 million and $0.2 million, respectively.

The accumulated pension benefit obligation was $17.2 million and $16.0 million at December 31, 2006 and 2005, respectively.

In September 2006, Loral made the minimum required contribution of $2.3 million to the pension plan and made an additional voluntary contribution to the pension plan of $25.2 million. Of these amounts, $1.8 million was

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LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

attributed to Loral Skynet. The additional voluntary contribution was made to improve the funded status of the pension plan and to reduce future expected contributions. During 2007, based on current estimates, Loral expects to make no contributions to the qualified pension plan on our behalf and we expect to fund approximately $0.5 million for other employee post-retirement benefit plans

The following table provides the components of net periodic cost for the plans for the year ended December 31, 2006, for the periods October 2, 2005 to December 31, 2005 and January 1, 2005 to October 1, 2005 and for the year ended December 31, 2004 respectively (in thousands):

	Pension Benefits												Other Benefits
	Successor Business						Predecessor Business						Successor Business					Predecessor Business
				For the Period			For the Period									For the Period					For the Period
				October 2,			January 1,									October 2,					January 1,
				2005 to			2005 to									2005 to					2005 to
	December 31,			December 31,			October 1,			December 31,			December 31,			December 31,		October 1,			December 31,
	2006			2005			2005			2004			2006			2005		2005			2004
Service cost	$	1,333		$	390		$	1,051		$	1,842		$	218		$	41	$	107		$	319
Interest cost		952			240			663			804			566			168		492			507
Expected return on plan assets		(673	)		(162	)		(273	)		(203	)		—			—		—			—
Amortization of prior service cost		(39	)		—			(25	)		(34	)		(42	)		—		(212	)		(283	)
Amortization of net loss(gain)		—			—			221			203			(40	)		—		458			468
Net periodic cost	$	1,573		$	468		$	1,637		$	2,612		$	702		$	209	$	845		$	1,011

The principal actuarial assumptions were:

Assumptions used to determine net periodic cost:

	Successor Business						Predecessor Business
				For the Period			For the Period
				October 2,			January 1,
				2005 to			2005 to
	December 31,			December 31,			October 1,			December 31,
	2006			2005			2005			2004
Discount rate		5.75	%		5.75	%		6.00	%		6.25	%
Expected return on plan assets		9.00	%		9.00	%		9.00	%		9.00	%
Rate of compensation increase		4.25	%		4.25	%		4.25	%		4.25	%

Assumptions used to determine the benefit obligation:

							Predecessor
	Successor Business						Business
							For the Period
							Ended
	December 31,			December 31,			October 1,
	2006			2005			2005
Discount rate		6.00	%		5.75	%		5.75	%
Rate of compensation increase		4.25	%		4.25	%		4.25	%

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, which allocates the assets into specified Russell designed funds as per Loral’s directed asset allocation. Each specified Russell fund is then managed by investment managers chosen by Russell. The targeted long-term targeted allocation of the pension plan assets is 60% in equity

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investments and 40% in fixed income investments. Based on this target allocation, the twenty-year historical return of the investment managers has been 10.1%. The expected long-term rate of return on plan assets determined on this basis was 9.0% for the year ended December 31, 2006, the periods October 2, 2005 to December 31, 2005 and January 1, 2005 to October 1, 2005, and the year ended December 31, 2004. For 2007, an expected long-term rate of return of 8.5% will be used.

Our pension and other employee benefits plan asset allocations by asset category as of December 31, 2006 and 2005 are as follows:

	December 31,
	2006			2005
Equity investments		55	%		56	%
Fixed income investments		45	%		44	%
		100	%		100	%

Actuarial assumptions to determine the benefit obligation for other benefits as of December 31, 2006, used a health care cost trend rate of 10.25% decreasing gradually to 4.5% by 2014. Actuarial assumptions to determine the benefit obligation for other benefits as of December 31, 2005, used a health care cost trend rate of 9.0% decreasing gradually to 5.0% by 2009. 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 2006 would have the following effects (in thousands):

	1% Increase		1% Decrease
Effect on total of service and interest cost components of net periodic postretirement health care benefit cost	$	101	$	(79	)
Effect on the health care component of the accumulated postretirement benefit obligation	$	1,138	$	(917	)

The following benefit payments, which reflect future services, as appropriate, are expected to be paid (in thousands):

			Other Benefits
			Gross		Medicare
	Pension		Benefit		Subsidy
	Benefits		Payments		Receipts
2007	$	760	$	474	$	12
2008		775		514		17
2009		786		495		27
2010		835		525		34
2011		880		572		41
2012 to 2016		5,757		3,304		317

Employee Savings Plan

Our employees participate in the Loral employee savings plan, which provides that Loral matches the contributions of participating employees up to a designated level. Under this plan, the matching contributions attributable to Loral Skynet employees were $0.6 million, $0.1 million, $0.5 million, and $1.0 million for the year ended December 31, 2006, for the periods from October 2, 2005 to December 31, 2005 and January 1, 2005 to October 1, 2005, and the year ended December 31, 2004, respectively. Employees participating in the savings plan are able to redirect our matching contributions to any available fund. In addition, employees are able to direct their individual contributions to any available fund.

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16.   Financial Instruments and Foreign Currency

Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate fair value:

The carrying amount of cash and cash equivalents approximates fair value because of the short maturity of those instruments. The fair value of investments in available-for-sale securities is based on market quotations. The fair value of our long-term debt obligations is based on a market value provided by an outside financial institution.

	December 31,
	2006				2005
	Carrying				Carrying
	Amount		Fair Value		Amount		Fair Value
Cash and cash equivalents	$	16,032	$	16,032	$	39,715	$	39,715
Investments in available-for-sale securities		16,260		16,260		—		—
Long-term debt		128,084		143,640		128,191		153,405

Derivatives

As described in Note 1, on December 16, 2006, a joint venture company formed by Loral and PSP entered into a share purchase agreement with BCE Inc. and Telesat Canada for the acquisition of all the shares of Telesat Canada and certain other assets for CAD 3.25 billion. As part of the transaction, the acquisition company received financing commitments from a syndicate of banks for $2.179 billion of senior secured credit facilities and $910 million of a senior unsecured bridge facility. The purchase price of Telesat Canada is in Canadian dollars, while most of the debt financing is in U.S. dollars. Accordingly, Loral and PSP have entered into financial commitments to lock in exchange rates to convert some of the U.S. dollar denominated debt proceeds to Canadian dollars. As such, Loral entered into several transactions through Loral Skynet whereby Loral Skynet guaranteed certain exposures should the Telesat Canada acquisition not close and the transactions are unwound.

In December 2006, Loral Skynet entered into a currency basis swap with a single bank counterparty converting $1.054 billion of U.S. debt into CAD1.224 billion of Canadian debt for a seven year period beginning December 17, 2007. This debt amortizes 1% per year with a final maturity of December 17, 2014. No cash payment was made by Loral Skynet to the counterparty for entering into this transaction. This agreement can be closed at any point prior to December 17, 2007 by simply moving all the terms forward to the closing date of the Telesat Canada acquisition without affecting terms. This agreement is assignable to the Canadian borrowing company on or prior to closing of the credit transaction. Loral Skynet’s liability under this agreement shall not exceed $10 million for the early termination of this agreement resulting from an event of default or termination event. At December 31, 2006, Loral Skynet recorded a $2.4 million charge to other income reflecting a mark-to-market valuation for the swap.

In December 2006, Loral Skynet entered into forward foreign currency contracts with a single bank counterparty selling $497.4 million for CAD 570.1 million ($1.00/CAD 1.1462) with a settlement date of December 17, 2007. No cash payments were made by Loral Skynet to the single bank counterparty for entering into these transactions. These agreements can be rolled forward to the closing date of the Telesat Canada acquisition with an adjustment in the exchange rate. These agreements are assignable to the Canadian borrowing company on or prior to closing of the credit transaction. Loral Skynet’s liability under these agreements shall not exceed $72.5 million for the early termination of these agreements resulting from an event of default or termination event. At December 31, Loral Skynet recorded a $3.3 million charge to other income reflecting a mark-to-market valuation for the forward contracts.

Subsequent to December 31, 2006, Loral Skynet entered into additional forward foreign currency contracts with a single bank counterparty selling $200 million for CAD 232.8 million ($1.00/CAD 1.1640) with a settlement date of December 17,

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LORAL SKYNET CORPORATION

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2007. The terms of these transactions are similar to the terms of the December transactions. Loral Skynet’s liability under these agreements shall not exceed $35 million for the early termination of these agreements resulting from an event of default or termination event.

Loral has agreed to indemnify Loral Skynet against losses and liabilities that may be incurred by Loral Skynet arising out of the hedging transactions described above. In addition, Loral has agreed to pay Loral Skynet a $1.175 million fee for entering into such transaction, which fee may be paid, at Loral’s option, by offset against the intercompany loan owed by Loral Skynet to Loral.

17.   Commitments and Contingencies

Financial Matters

During 2006, Loral Skynet initiated steps to restructure its network services global operations. The plan called for termination of certain operating leases and involuntary termination of certain employees and was completed in 2006. As of December 31, 2006, we incurred $1.3 million of costs associated with this plan, of which $0.9 million was for employee termination costs and the remainder related to the write off of inventory and fixed assets. We do not expect to incur additional costs associated with this plan.

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, as of December 31, 2006, Loral Skynet continues to provide for a warranty for periods of two to eight years for sales contracts and other arrangements (seven transponders), and prepaid leases (two 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. For 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.

Satellite Matters

Satellites are built with redundant components or additional components to provide excess performance margins to permit their continued operation in case of component failure, an event that is not uncommon in complex satellites. Twenty of the satellites built by SS/L and launched since 1997, three of which are owned and operated by us or affiliates, have experienced losses of power from their solar arrays. There can be no assurance that one or more of the affected satellites will not experience additional power loss. 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, how many transponders are then in service and how they are being used. 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 on the remaining transponders. During the third quarter of 2006, due to power loss caused by solar array failures, Loral Skynet removed from service through the end of life certain unutilized transponders on one of its satellites and will remove additional transponders from service on this satellite in order to maintain sufficient power to operate the remaining transponders for its specified life. As of December 31, 2006, Loral Skynet does not believe the carrying value of this satellite has been impaired. Loral Skynet will, however, continue to evaluate the impact of the power loss caused by the solar array failures. A complete or partial loss of a satellite’s capacity owned by us could result in a loss of revenues and profits. 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, we believe that this matter will not have a material adverse effect on our consolidated financial position or our results of operations, although no assurance can be provided.

Certain of our satellites are currently operating using back-up components because of the failure of primary components. If the back-up components fail and we are unable to restore redundancy, these satellites could lose

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LORAL SKYNET CORPORATION

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capacity or be total losses, which would result in a loss of revenues and profits. For example, in July 2005, in the course of conducting our normal operations, we determined that the primary command receivers on two of our satellites had failed. These satellites, which are equipped with redundant command receivers designed to provide full functional capability through the full design life of the satellite, continue to function normally and service to customers has not been affected. Moreover, on one of these satellites, SS/L has successfully completed implementation of a software workaround that fully restores the redundant command receiver functionality. On the other satellite, SS/L has successfully completed implementation of an interim software workaround that partially restores the redundant command receiver functionality, and SS/L expects to implement a permanent software workaround that will fully restore the redundant command receiver functionality, although no assurance can be provided.

Two satellites owned by us 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, we do not believe that this anomaly will affect our two satellites with the same solar array configuration. The insurance coverage for these satellites, however, provides for coverage of losses due to solar array failures only in the event of a capacity loss of 75% or more for one satellite and 80% or more for the other satellite.

We currently insure the on-orbit performance of substantially all of our satellite capacity. Typically such insurance is for a policy period of one year subject to renewal. It has been difficult, however, to obtain full insurance coverage for satellites that have, or are part of a product line of satellites that have experienced problems in the past. Insurers have required either exclusions of certain components or have placed limitations on coverage in connection with insurance renewals for such satellites in the future. We cannot assure, upon the expiration of an insurance policy, that we will be able to renew the policy on terms acceptable to us or that we will not elect to self insure and forego commercial insurance for the satellite. The loss of a satellite would have a material adverse effect on our financial performance and may not be adequately mitigated by insurance. In October 2006, we renewed our on-orbit performance policy under substantially the same terms as the previously expired policy.

Regulatory Matters

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 efforts 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. In the event of an unrestored failure, under Loral Skynet’s related warranty obligation, Eutelsat would be entitled to compensation on contractually prescribed amounts that decline over time. We also granted Eutelsat the right to acquire, at cost, four transponders on the replacement satellite for Telstar 12. We continue to be in discussions with other operators on coordination issues. We may be required to make additional financial concessions in the future in connection with our coordination efforts. The failure to reach an appropriate arrangement with a third party having priority rights at or near one of our orbital slots may result in substantial restrictions on the use and operation of our satellite at that location.

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LORAL SKYNET CORPORATION

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Lease Arrangements

We lease 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 us. We did not earn any sublease income. Rent expense is as follows (in thousands):

	Rent
Year ended December 31, 2006	$	19,199
October 2, 2005 to December 31, 2005	$	5,180
January 1, 2005 to October 1, 2005	$	15,720
Year ended December 31, 2004	$	30,307

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, 2006 (in thousands):

2007	$	12,845
2008		14,061
2009		11,637
2010		10,753
2011		9,407
Thereafter		32,293
	$	90,996

Legal Proceedings

On June 13, 2007, GPC XLI L.L.C., Rockview Trading, Ltd., KS Capital Partners L.P., Murray Capital Management, Inc. Watershed Capital Institutional Partners L.P., Watershed Capital Partners (Offshore), Ltd. and Watershed Capital Partners L.P. (collectively, “Plaintiffs”), all members of an ad-hoc committee (the “Ad-Hoc Committee”) of holders of Loral Skynet Notes, commenced an action in the Court of Chancery of the State of Delaware in and for the County of New Castle against Loral, Loral Skynet and various subsidiaries of Loral Skynet which are obligors under the Indenture (collectively, “Defendants”). The action was commenced after discussions between Loral and the Ad-Hoc Committee did not result in a resolution of the issues raised by the Plaintiffs.

Plaintiffs allege that Defendants have breached the Indenture and the implied covenant of good faith and fair dealing in the Indenture and the Loral Skynet Notes. Specifically, Plaintiffs allege that the Loral Skynet Notes may be redeemed prior to October 15, 2009 (an “Early Redemption”) at a redemption price of 110% of the principal amount plus accrued and unpaid interest only if two-thirds of the holders do not object. Plaintiffs also state that Loral Skynet has announced its intention to redeem the Loral Skynet Notes on September 5, 2007 in connection with the Skynet Transaction. Plaintiffs further allege that the value of the Loral Skynet Notes is at least 126% of par value, that no holder would be expected to consent to redemption at 110% and that the difference between paying approximately 126% versus the proposed Early Redemption amount of 110% is an additional $20.2 million. Plaintiffs assert that, in connection with the Securities Purchase Agreement dated as of October 17, 2006, as amended and restated on February 27, 2007, with MHR, Loral’s largest stockholder, pursuant to which Loral sold $300 million of convertible preferred stock to funds affiliated with MHR, Loral bought the consent of MHR and its affiliated funds which are holders of 44% of the Loral Skynet Notes to the Early Redemption by paying to MHR in excess of $8.25 million in placement and legal and advisory fees resulting in an unequal “exit consent” payment not offered to other holders.

Plaintiffs are seeking (i) a declaratory judgment that Defendants violated the terms of the Indenture by paying MHR for its consent to redemption of the Loral Skynet Notes below the make-whole value and not paying equal consideration to all holders; (ii) a declaratory judgment that Defendants pay equal redemption consideration to all

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LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

holders, in an amount to be determined at trial; (iii) enjoin Defendants from consummating the Early Redemption unless equal consideration is paid to all holders for their non-objection to, and redemption of, the Loral Skynet Notes; (iv) enjoin Defendants from counting the Loral Skynet Notes held by funds affiliated with MHR in its calculation of whether the holders constituting two-thirds of the outstanding principal amount will object to the redemption, absent equal consideration to all holders for such non-objection to, and redemption of, the Loral Skynet Notes; (v) award damages in an amount to be determined at trial; (vi) award pre-judgment interest, attorneys’ fees and costs; and (vii) grant such other relief as the court deems proper.

Plaintiffs have also moved for an order expediting the proceedings by requiring prompt responses to the complaint and to discovery requests and by setting an early date for an injunction hearing. Plaintiffs have since filed a motion for a preliminary injunction.

Loral believes that the proposed Early Redemption is proper in accordance with the terms of the Indenture. The litigation filed by Plaintiffs, however, could delay redemption of the Loral Skynet Notes which may, in turn, have the effect of delaying the closing of the Skynet Transaction beyond the closing of the Telesat Transaction. In order to avoid prolonged delay, Loral is prepared to place into escrow, for the benefit of the Plaintiffs should they ultimately prevail in the litigation, funds equal to the maximum incremental amount claimed by Plaintiffs above the 110% Early Redemption amount plus an allowance for reasonable expenses (see Note 20).

Reorganization Matters

Confirmation of our Plan of Reorganization was opposed by the Equity Committee appointed in the Chapter 11 Cases and by the LSPC. Shortly before the hearing to consider confirmation of the Plan of Reorganization, the Equity Committee also filed a motion seeking authority to prosecute an action on behalf of the estates of Old Loral and its Debtor Subsidiaries seeking to unwind as fraudulent, a guarantee provided by Old Loral in 2001, of certain indebtedness of Loral Orion, Inc. (the “Motion to Prosecute”). By separate Orders dated August 1, 2005, the Bankruptcy Court confirmed the Plan of Reorganization (the “Confirmation Order”) and denied the Motion to Prosecute (the “Denial Order”). On or about August 10, 2005, the LSPC appealed (the “Confirmation Appeal”) to the United States District Court for the Southern District of New York (the “District Court”) the Confirmation Order and the Denial Order. On February 3, 2006, Loral filed with the District Court a motion to dismiss the Confirmation Appeal. On May 26, 2006, the District Court granted Loral’s motion to dismiss the Confirmation Appeal. The LSPC subsequently filed a motion for reconsideration of such dismissal, which the District Court denied on June 14, 2006 (the “Reconsideration Order”). On or about July 12, 2006, a person purportedly affiliated with the LSPC appealed the dismissal of the Confirmation Appeal and the Reconsideration Order to the United States Court of Appeals for the Second Circuit. (the “Second Circuit Confirmation Appeal”). The Second Circuit Confirmation Appeal is currently fully briefed and awaiting decision by the Court of Appeals.

In November 2005, a shareholder of Old Loral on behalf of the LSPC filed with the FCC a petition for reconsideration of the FCC’s approval of the transfer of the FCC licenses held by certain Old Loral subsidiaries, including licenses held by Loral Orion, Loral SpaceCom and Loral Skynet Network Services, Inc., to Loral in connection with the implementation of the Plan of Reorganization of Old Loral and its subsidiaries and a request for investigation by the FCC into the financial matters and actions of Old Loral and its subsidiaries (the “FCC Appeal”). In December 2005, Old Loral filed with the FCC its opposition to the FCC Appeal.

40

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

18.   Geographic Information

The following table presents our revenues by country based on customer location for the year ended December 31, 2006, for the periods from October 2, 2005 to December 31, 2005 and January 1, 2005 to October 1, 2005, and for the year ended December 31, 2004 (in thousands):

	Successor Business				Predecessor Business
			For the Period		For the Period
			October 2,		January 1,
	Year Ended		2005 to		2005 to		Year Ended
	December 31,		December 31,		October 1,		December 31,
	2006		2005		2005		2004
United States	$	99,076	$	21,065	$	64,033	$	83,274
Mexico		126		378		5,142		—
People’s Republic of China (including Hong Kong)		7,113		1,730		4,448		97,561
Other		57,392		12,815		40,590		46,123
	$	163,707	$	35,988	$	114,213	$	226,958

During 2006, one of our customers accounted for approximately 17% of our consolidated revenues. For the period from October 2, 2005 to December 31, 2005 and January 1, 2005 to October 1, 2005, no customers accounted for more than 10% of our consolidated revenues. During 2004, one of our customers accounted for approximately 40% of our consolidated revenues.

With the exception of our satellites in-orbit, our long-lived assets are primarily located in the United States.

19.   Related Party Transactions

MHR Fund Management LLC

As of December 31, 2006, MHR owned 35.9% of Loral’s common stock, 38.3% of Loral Skynet’s preferred stock and 44.6% of Loral Skynet’s senior secured notes.

Pursuant to the Plan of Reorganization, on November 21, 2005, Loral and Loral Skynet entered into a registration rights agreement with funds affiliated with MHR. Pursuant to the Plan of Reorganization, each holder of an Allowed Claim, as that term is used in the Plan of Reorganization, that receives a distribution pursuant to the plan of ten percent (10%) or greater of any of (i) Loral common stock, (ii) Loral Skynet preferred stock or (iii) Loral Skynet notes (collectively, the “Registrable Securities”) is entitled to receive certain registration rights under the registration rights agreement (each such holder, and any future holder of such securities who becomes a party to the registration rights agreement, a “Registration Rights Holder”). Pursuant to the registration rights agreement, in addition to certain piggy-back registration rights granted to the Registration Rights Holders, certain Registration Rights Holders may also demand, under certain circumstances, that the Registrable Securities be registered under the Securities Act of 1933, as amended, in each case subject to the terms and conditions of the registration rights agreement.

Pursuant to the Plan of Reorganization, holders of certain claims at Loral Orion, Inc. were entitled to subscribe for up to $120 million of Loral Skynet notes. MHR and P. Schoenfeld Asset Management LLC agreed to backstop 95% and 5%, respectively, of the rights offering, in consideration of a $6 million fee, paid in additional Loral Skynet notes, as well as reimbursement of certain costs and expenses. In connection with this backstop agreement, MHR received $5.7 million principal amount of Loral Skynet notes.

Dr. Rachesky and Mr. Goldstein are co-founders and managing principals of MHR. Mr. Devabhaktuni is also a managing principal of MHR. Dr. Rachesky, Mr. Goldstein and Mr. Devabhaktuni are directors of Loral.

41

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Due to Related Parties

Due to related parties consists of the following (in thousands):

	December 31,
	2006		2005
Loral	$	2,832	$	4,253
Loral credit facility		30,083		—
SS/L		44		(338	)
	$	32,959	$	3,915

Loral Management and Shared Services Agreements

Loral charges Loral Skynet for expenses it incurs for the benefit or on behalf of Loral Skynet. These expenses include benefits administration services, tax administration services, audit fees, internal audit and treasury services. These costs charged to Loral Skynet amounted to $3.3 million and $1.0 million and $2.7 million and nil for the year ended December 31, 2006, the period October 2, 2005 to December 31, 2005, the period January 1, 2005 to October 1, 2005 and the year ended December 31, 2004, respectively.

Loral allocates corporate management expenses to its subsidiaries, including Loral Skynet. The allocation of these expenses is computed using a fixed formula based on three factors: employee payroll, revenues and properties. Allocated amounts charged to Loral Skynet were $8.9 million, $5.3 million, $7.6 million and $14.4 million for the year ended December 31, 2006, the period October 2, 2005 to December 31, 2005, the period January 1, 2005 to October 2, 2005, and the year ended December 31, 2004, respectively. In addition, commencing November 21, 2005 Loral charges its subsidiaries, including Loral Skynet, a fee for management services it provides. The fee charged to Loral Skynet amounted to $1 million and $0.1 million for the year ended December 31, 2006 and the period October 2, 2005 to December 31, 2005, respectively.

Loral Credit Facility

Loral Skynet entered into a credit arrangement with Loral on December 22, 2006 whereby Loral agreed to extend a credit facility of up to $100 million at 10% per annum to Loral Skynet for use in the construction, insurance or launch of the Telstar 11N satellite. In connection with this credit facility, Loral Skynet has provided a security interest to Loral comprised of all Loral Skynet’s rights, title and interest to the Telstar 11N satellite construction contract, including its rights with respect to the Telstar 11N satellite. Interest expense on the borrowings under the credit arrangement was $0.1 million for the year ended December 31, 2006. The outstanding balance as of December 31 2006, including accrued interest, was $30.08 million.

SS/L

Telstar 11N

Loral Skynet has entered into a contract with SS/L, valued at $176.6 million as amended, for the construction and launch of Telstar 11N. SS/L has also agreed to procure launch and in-orbit insurance on behalf of Loral Skynet. For the year ended December 31, 2006 and the period October 2, 2005 to December 31, 2005, we paid milestone payments to SS/L of $72.7 million and $0.6 million, respectively. As of December 31, 2006 and December 31, 2005 we had no outstanding amounts payable to SS/L related to the construction of the Telstar 11N satellite.

Transponder Lease Arrangement

Loral Skynet and SS/L entered into an agreement in February 2001 whereby SS/L agreed to reimburse us for the transponder capacity leased by Loral Skynet to an SS/L customer. During the year ended December 31, 2006, for the periods from October 2, 2005 to December 31, 2005 and January 1, 2005 to October 1, 2005, and for the year

42

LORAL SKYNET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

ended December 31, 2004 we recognized revenue of $2.7 million, $0.9 million, $3.2 million and $4.2 million, respectively, under this arrangement.

Professional Services

Loral Skynet provides professional services to SS/L on an as needed basis. Services provided by us to SS/L and recognized as revenue for the year ended December 31, 2006, for the periods from October 2, 2005 to December 31, 2005 and January 1, 2005 to October 1, 2005, and for the year ended December 31, 2004 were $364 thousand, nil, $25 thousand and $229 thousand, respectively.

XTAR

Loral Skynet Corporation Service Agreements and Arrangements with XTAR

XTAR signed agreements with Loral Skynet in January 2004, whereby Loral Skynet is to provide telemetry, tracking and control (TT&C) services, access management services through the end of life of the XTAR-EUR satellite and satellite construction oversight services. XTAR and Loral Skynet have also entered into agreements whereby Loral Skynet provides to XTAR (i) certain general and administrative services and (ii) US employee benefits administration. As of December 31, 2006 and 2005, XTAR owed Loral Skynet, including its subsidiaries, $3.5 million and $2.1 million, respectively (“Outstanding Balances”), under these arrangements. Loral Skynet has agreed that XTAR may defer payment of the Outstanding Balances, in addition to any additional amounts incurred and unpaid under these arrangements on or after January 1, 2007, through at least March 31, 2008.

During the period ended December 31, 2006, for the periods from October 2, 2005 to December 31, 2005 and January 1, 2005 to October 1, 2005, and for the year ended December 31, 2004 we recognized revenue of Nil, $196 thousand, $1.3 million, and $1.1 million, respectively. Also, during the year ended December 31, 2006, for the periods from October 2, 2005 to December 31, 2005 and January 1, 2005 to October 1, 2005, and for the year ended December 31, 2004 amounts billed but not recognized as revenue (pending receipt of payment by XTAR) was $1.3 million, $101 thousand, Nil and Nil, respectively.

20.   Subsequent Event

Loral Skynet has initiated the redemption of all of its outstanding Loral Skynet Notes. The redemption date will be September 5, 2007, and the redemption price will be equal to 110% of the principal amount of the Notes, plus accrued and unpaid interest up to, but not including, the redemption date. The aggregate outstanding principal amount of the Notes is $126 million.

Redemption of the Loral Skynet Notes is pursuant to the Indenture, dated as of November 21, 2005, between the Company and The Bank of New York, as Trustee. Pursuant to the terms of the Indenture, the redemption will occur unless holders of at least two-thirds of the principal amount of the Loral Skynet Notes have objected to the redemption within 20 business days following the date the redemption notice is sent to them by the trustee.

The redemption is in connection with the previously announced Telesat Transaction. Redemption is subject to litigation (see “Legal Preceedings” in Note 17).

43

EX-99.2

INDEX

Telesat Canada

2

Report of Independent Registered Chartered Accountants

To the Board of Directors of Telesat Canada

We have audited the consolidated balance sheets of Telesat Canada as at December 31, 2006 and 2005 and the consolidated statements of earnings, retained earnings and cash flows for each of the years in the three-year period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform an audit to obtain reasonable assurance 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, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2006 and 2005 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2006 in accordance with Canadian generally accepted accounting principles.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

On January 29, 2007 we reported to the shareholders on the financial statements of Telesat Canada in accordance with Canadian generally accepted accounting principles excluding the current Note 23 which constitutes a reconciliation to accounting principles generally accepted in the United States.

/s/ Deloitte & Touche LLP
Independent Registered Chartered Accountants

Ottawa, Canada
January 29, 2007, except for notes 23 and 24 which are as of July 9, 2007.

Telesat Canada
Consolidated Statements of Earnings
for the years ended December 31, 2006, 2005 and 2004

(in thousands of Canadian dollars, except number of shares
and per share data)	Notes	2006			2005			2004
Operating revenues
Service revenues			435 123			420 297			339 687
Equipment sales revenues			43 842			54 444			22 479
Total operating revenues	(2), (22)		478 965			474 741			362 166
Operating expenses
Amortization	(2)		120 712			111 809			84 301
Operations and administration			183 388			160 964			117 660
Cost of equipment sales			34 578			45 705			18 918
Total operating expenses			338 678			318 478			220 879
Earnings from operations	(2)		140 287			156 263			141 287
Interest expense			(24 643	)		(29 526	)		(26 486	)
Other income	(4)		10 036			14 742			18 298
Earnings before income taxes			125 680			141 479			133 099
Income taxes	(5)		(21 688	)		(50 782	)		(47 840	)
Net earnings			103 992			90 697			85 259
Dividends on preferred shares			(1 487	)		(1 780	)		(1 840	)
Net earnings applicable to common shares			102 505			88 917			83 419
Basic and diluted net earnings per common share	(24)		1,025,050			889,170			834,190
Weighted average number of shares outstanding	(24)		100			100			100

Consolidated Statements of Retained Earnings

for the years ended December 31, 2006, 2005 and 2004

(in thousands of Canadian dollars)		2006			2005			2004
Balance at beginning of year			283 858			195 051			111 892
Adjustment for change in accounting policies	(1)		—			—			(304	)
Balance at beginning of year, as restated			283 858			195 051			111 588
Net earnings			103 992			90 697			85 259
Dividends on preferred shares			(1 487	)		(1 780	)		(1 840	)
Other			36			(110	)		44
Balance at end of year			386 399			283 858			195 051

4

Telesat Canada

Consolidated Balance Sheets

as at December 31, 2006 and 2005

(in thousands of Canadian dollars)	Notes	2006			2005
Assets
Current assets
Cash and cash equivalents	(17)		38 661			113 505
Short term investments	(24)		2 312			51 304
Accounts and notes receivable	(6)		241 865			59 384
Current future tax asset	(5)		4 476			3 737
Other current assets	(7)		27 548			36 177
Total current assets			314 862			264 107
Capital assets, net	(8)		1 388 319			1 335 442
Investments	(10)		15 131			15 537
Other assets	(11)		25 642			17 063
Finite-life intangible assets, net	(9)		5 475			8 843
Goodwill	(1)(24)		53 280			52 259
Total assets			1 802 709			1 693 251
Liabilities
Current liabilities
Accounts payable and accrued liabilities			41 087			38 930
Other current liabilities	(12)		105 769			111 244
Debt due within one year	(13)		3 134			152 838
Total current liabilities			149 990			303 012
Debt financing	(14)		200 742			132 202
Future tax liability	(5)		195 382			193 742
Other long-term liabilities	(15)		348 041			387 019
Total liabilities			894 155			1 015 975
Commitments and contingent liabilities	(21)
Shareholders’ Equity
Capital stock — common shares	(16)(24)		341 116			341 116
Contributed surplus	(3)(24)		184 416			5 152
Retained earnings	(24)		386 399			283 858
Cumulative translation adjustment			(3 377	)		(2 850	)
Total common equity			908 554			627 276
Capital stock — preferred shares	(16)		—			50 000
Total shareholders’ equity			908 554			677 276
Total liabilities and shareholders’ equity			1 802 709			1 693 251

5

Telesat Canada

Consolidated Statements of Cash Flow

for the years ended December 31, 2006, 2005 and 2004

(in thousands of Canadian dollars)	Notes	2006			2005			2004
Cash flows from operating activities
Net earnings			103 992			90 697			85 259
Adjustments to reconcile net earnings to cash flows from operating activities:
Amortization			120 712			111 809			84 301
Capitalized interest			(12 184	)		(14 974	)		(17 642	)
Future income taxes			1 205			36 756			28 789
Unrealized foreign exchange			(390	)		(1 649	)		(1 878	)
Deferred milestone interest			2 613			5 170			1 104
Customer prepayments on future satellite services			12 322			6 130			127 333
Other items			(151	)		1 167			1 754
Net change in operating assets and liabilities	(17)		(11 014	)		(4 880	)		9 150
Cash flows from operating activities			217 105			230 226			318 170
Cash flows from investing activities
Satellite programs			(177 260	)		(229 675	)		(210 534	)
Property additions			(15 963	)		(15 789	)		(21 121	)
Maturity (purchase) of short term investments	(24)		48 990			79 439			(130 502	)
Business acquisition			(3 942	)		(4 363	)		—
Proceeds on disposal of assets			178			5 353			113
Payments and deposits on transponders			—			—			4 800
Insurance proceeds			—			30 407			179 427
Cash flows used in investing activities			(147 997	)		(134 628	)		(177 817	)
Cash flows from financing activities
Proceeds from bank loans			83 862			—			—
Repayment of debt financing and bank loans			(15 026	)		(2 209	)		(96 130	)
Note repayment			(150 000	)		—			—
Share repurchase			(50 000	)		—			—
Capital lease payments			(4 612	)		(4 461	)		(12 279	)
Satellite performance incentive payments			(6 108	)		(5 351	)		(1 218	)
Preferred dividends paid			(1 936	)		(1 331	)		(1 840	)
Cash flows used in financing activities			(143 820	)		(13 352	)		(111 467	)
Effect of changes in exchange rates on cash and cash equivalents			(132	)		334			(111	)
Increase (decrease) in cash and cash equivalents			(74 844	)		82 580			28 775
Cash and cash equivalents, beginning of year			113 505			30 925			2 150
Cash and cash equivalents, end of year	(17)		38 661			113 505			30 925
Supplemental disclosures of cash flow information
Interest paid			30 661			31 207			26 486
Income taxes paid			34 032			13 056			15 041
			64 693			44 263			41 527

6

Notes to Consolidated Financial Statements

(all amounts in thousands of Canadian dollars, except where otherwise noted)

December 31, 2006, 2005 and 2004

1. Summary of significant accounting policies

Financial statement presentation

The consolidated financial statements of Telesat Canada (Telesat or the Company) have been prepared in accordance with Canadian generally accepted accounting principles (GAAP). Telesat consolidates the financial statements of its wholly owned subsidiaries Infosat Communications Inc. (Infosat), Telesat Brasil Limitada (Telesat Brazil), The SpaceConnection, Inc. (SpaceConnection) and 4387678 Canada Inc. All transactions and balances between these companies have been eliminated on consolidation. Some of the figures for the comparative period have been reclassified in the consolidated financial statements to make them consistent with the current period’s presentation. Certain 2004 short term liquid investments with original maturities of more than 90 days have been reclassified from cash and cash equivalents into short term investments. Customer prepayments for satellite services and promissory note repayments from customers have been reclassified from cash flows from financing activities to cash flows from operating activities.

Significant accounting changes

Certain figures have been restated and represent the consolidated results of Telesat’s parent Alouette Telecommunications Inc. (Alouette). Continuity of interest accounting has been applied to the January 1, 2007 amalgamation of Telesat Canada, Alouette and the Telesat subsidiary 4387678 Canada Inc. (438678). The transaction, which lacks economic substance, represents a rearrangement of legal interests as all three entities were under common control (see note 24).

Regulation

The Company operates Canada’s domestic fixed satellite telecommunication system and is subject to regulation by the Canadian Radio-television and Telecommunications Commission (CRTC). Under the current regulatory regime, Telesat has pricing flexibility subject to a price ceiling on certain Full Period Fixed Satellite Services (FSS) offered in Canada under minimum five-year lease arrangements. Telesat’s Direct Broadcast Services offered within Canada are also subject to CRTC regulation, but have been treated as separate and distinct from Telesat’s FSS and facilities. The Commission has approved the specific customer agreements relating to the sale of the capacity on the Nimiq satellites, including the rates, terms and conditions of service set out therein. Telesat’s ground network services have been forborne from regulation since 1994. The Commission has the right of examination of the Company’s accounting policies.

Use of estimates

When preparing financial statements according to GAAP, management makes estimates and assumptions relating to the reported amounts of revenues and expenses, assets and liabilities and the disclosure of contingent assets and liabilities. We base our estimates on a number of factors, including historical experience, current events and actions that the Company may undertake in the future, and other assumptions that we believe are reasonable under the circumstances. Actual results could differ from those estimates under different assumptions or conditions. We use estimates when accounting for certain items such as revenues, allowance for doubtful accounts, useful lives of capital assets, capitalized interest, assets impairments, inventory reserves, legal and tax contingencies, employee compensation plans, employee benefit plans, evaluation of minimum lease terms for operating leases, income taxes and goodwill impairment. We also use estimates when recording the fair values of assets acquired and liabilities assumed in a business combination.

Revenue recognition

Telesat recognizes operating revenues when earned, as services are rendered or as products are delivered to customers. There must be clear proof that an arrangement exists, the amount of revenue must be fixed or determinable and collectibility must be reasonably assured. In particular, broadcast, carrier and business networks revenues are generally pre-billed to the customers and recognized in the month for which the service is received. Consulting revenues for cost plus contracts are recognized after the work has been completed and accepted by the customer. The percentage of completion method is used for fixed price contracts. Deferred revenues consist of remuneration received in advance of the provision of service and are brought into income over the period to which the prepayment applies. When a transaction involves more than one product or service, revenue is allocated to each based on its relative fair value. Telesat defers upfront fees and recognizes revenue on a straight-line basis over the term of the related service contract. When it is questionable whether or not Telesat is the principal in a transaction,

7

the transaction is evaluated to determine whether it should be recorded on a gross or net basis. Equipment sales revenues are recognized when the equipment is delivered to the customer and accepted. Only equipment sales are subject to warranty or return and there is no general right of return. Historically Telesat has not incurred significant expense for warranties and consequently no provision for warranty is recorded.

Cash and cash equivalents

All highly liquid investments with an original maturity of 90 days or less are classified as cash and cash equivalents. For the purposes of the cash flow statement, bank overdrafts are also classified as cash and cash equivalents.

Capital assets

Property, which is carried at cost less accumulated amortization, includes the contractual cost of equipment, capitalized engineering and, with respect to satellites, the cost of launch services, launch insurance and capitalized interest during construction. Capitalized interest provides a return on capital invested in new assets and is not currently realized in cash, but is expected to be realized over the life of the asset.

The Company shares equally with a developer, the ownership, cost and debt of the Company’s headquarters land and building. The Company has leased the developer’s share of the building which is accounted for as a capital lease.

Amortization is calculated using the straight line method over the respective estimated service lives of the assets based on equal life group procedures. The annualized composite rate of amortization was 7.1% in 2006 (7.5% in 2005, 8.11% in 2004). The expected useful lives of satellites are 11 to 15 years, earth stations are 8 to 15 years, transponders under capital lease are 12 to 15 years, office buildings are 19 to 30 years and all others are 5 to 16 years. The estimates of useful lives are reviewed every year and adjusted if necessary.

Liabilities related to the legal obligation of retiring property, plant and equipment are initially measured at fair value and are adjusted for any changes resulting from the passage of time or to the amount of the current estimate of the undiscounted cash flows.

In the event of an unsuccessful launch or total in-orbit satellite failure, all unamortized costs that are not recoverable under launch or in-orbit insurance are recorded as an operating expense.

Capital assets are assessed for impairment when events or changes in circumstances indicate that the carrying value exceeds the total undiscounted cash flows expected from the use and disposition of the assets. If impairment is indicated, the loss is determined by deducting the asset’s fair value (based on discounted cash flows expected from its use and disposition) from its carrying value and is recorded as an operating expense.

The investment in each satellite will be removed from the property accounts when the satellite has been fully amortized and is no longer in service. When other property is retired from operations at the end of its useful life, the amount of the investment and accumulated amortization are removed from the accounts. Earnings are credited with the amount of any net salvage and charged with any net cost of removal. When an item is sold prior to the end of its useful life, the gain or loss is recognized in earnings immediately.

Translation of foreign currencies

Assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the exchange rates in effect as of the balance sheet dates. Operating revenues and expenses, and interest on debt transacted in foreign currencies are reflected in the financial statements using the average exchange rates during the year. The translation gains and losses are included in Other income in the statement of earnings.

Telesat Brazil and Space Connection (see note 10) are considered to be self-sustaining foreign operations as they are largely independent of Telesat. Assets and liabilities are translated at the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at average exchange rates during the year. The resulting unrealized gains or losses are reflected as a currency translation adjustment in shareholders’ equity.

Accounting for investments

Telesat uses the equity method to account for investments that are not consolidated where it has significant influence on the operating, investing and financing activities. The cost method is used for all other non-consolidated investments.

8

Goodwill

The goodwill includes amounts recorded on the acquisition of Infosat, SpaceConnection and Able Leasing Co. in addition to the goodwill adjustment to restate for continuity of interest accounting (see note 24). An assessment for impairment is undertaken in the fourth quarter of every year and when events or changes in circumstances indicate that the carrying amount of goodwill exceeds the fair value of goodwill. To date, Telesat has not recognized any permanent impairment in value.

Derivative financial instruments

The Company uses derivative financial instruments to hedge against foreign exchange rate risk. The use of derivatives is expected to generate enough cash flows and gains or incur losses to offset this risk. Telesat does not use derivative financial instruments for speculative or trading purposes. The Company documents all relationships between derivatives and the items they hedge, and the risk management objective and strategy for using various hedges. This process includes linking every derivative to a specific asset or liability on the balance sheet, or to a specific firm commitment or to an anticipated transaction.

The effectiveness of the derivative in managing risk is assessed when the hedge is put in place and on an ongoing basis. Hedge accounting is stopped when a hedge is no longer effective.

When accounting for derivatives, Telesat follows these policies:

– deferred gains or losses relating to derivatives that qualify for hedge accounting are recognized in earnings when the hedged item is sold or the anticipated transaction is ended

– gains and losses related to hedges of anticipated transactions are recognized in earnings or are recorded as adjustments of carrying values when the transaction takes place

– any premiums paid for financial instrument contracts are deferred and expensed to earnings over the term of the contract

Telesat recognizes gains and losses on forward contracts the same way as the gains and losses on the hedged item. Unrealized gains or losses are included with the related assets or liabilities.

Employee benefit plans

As of January 1, 2000, the costs of post-employment and post-retirement benefits other than pensions are accrued over the working lives of the employees, whereas previously the costs were generally charged to earnings as incurred. Telesat has made this change on a prospective basis which provides for a gradual recognition of the fair value of the pension surplus while at the same time recognizing the liability for costs of non-pension employee future benefits. Telesat is amortizing the net transitional obligation on a straight-line basis over 14 years (regular plans) and 9 years (designated plans), which was the average remaining service period of employees expected to receive benefits under the benefit plan as of January 1, 2000.

Telesat maintains one contributory and three non-contributory defined benefit pension plans which provide benefits based on length of service and rate of pay. Telesat is responsible for adequately funding these defined benefit pension plans. Contributions are made based on various actuarial cost methods that are permitted by pension regulatory bodies and reflect actuarial assumptions about future investment returns, salary projections and future service benefits. Telesat also provides other post-employment and retirement benefits, including health care and life insurance benefits on retirement and various disability plans, workers compensation and medical benefits to former or inactive employees, their beneficiaries and covered dependents, after employment but before retirement, under certain circumstances. The Company accrues its obligations under employee benefit plans and the related costs, net of plan assets. Actuaries determine pension costs and other retirement benefits using the projected benefit method prorated on service and management’s best estimate of expected investment performance, salary escalation, retirement ages of employees and expected health care costs.

Pension plan assets are valued at fair value which is also the basis used for calculating the expected rate of return on plan assets. The discount rate is based on the market interest rate of high quality long-term bonds. Past service costs arising from plan amendments are amortized on a straight-line basis over the average remaining service period of the employees active at the date of amendment. The Company deducts 10% of the benefit obligation or the fair value of plan assets, whichever is greater, from the net actuarial gain or loss and amortizes the excess over the average remaining service period of active employees. The actuaries perform a valuation at least every three years to determine the actuarial present value of the accrued pension and other retirement benefits. The 2006 pension expense calculation is extrapolated from an actuarial valuation performed as of January 1, 2004. The accrued benefit obligation is extrapolated from an actuarial valuation as of January 1, 2004. The most recent actuarial

9

valuation of the pension plans for funding purposes was as of January 1, 2004, and the next required valuation is as of January 1, 2007.

Stock-based compensation plans

The Company’s stock-based compensation plans consist primarily of an employees’ savings plan (ESP), long-term incentive programs which can include special compensation payments (SCP), deferred share units (DSU) and starting in 2005, a restricted share unit plan (RSU). Stock options that are settled in BCE Inc. (BCE) stock are recorded as contributed surplus. Stock options that are settled in cash are recorded as liabilities. Telesat recognizes a compensation expense or recovery relating to SCPs and a compensation expense for any contributions under the ESP.

For each RSU granted the Company records a compensation expense that equals the market value of a BCE common share at the date of grant prorated over the vesting period. The compensation expense is adjusted for subsequent changes in the market value of BCE common shares until the vesting date and an assessment of the number of RSUs that will vest in the future. The cumulative effect of the change in value is recognized in the period of the change. Vested RSUs will be paid in BCE common shares purchased on the open market or in cash, as the holder chooses, as long as the minimum share ownership requirements are met.

For each DSU granted Telesat records a compensation expense that equals the market value of a BCE common share at the grant date. The compensation expense is adjusted for subsequent changes in the market value of BCE common shares with the effect of this change in value recognized in the period of the change. DSUs are paid in BCE common shares purchased on the open market following the cessation of the participant’s employment.

The Company has adopted the fair-value based method for measuring the compensation cost of employee stock options using the Black-Scholes pricing model. This method has been used for options granted on or after January 1, 2002.

Income taxes

Current income tax expense is the estimated income taxes payable for the current year before any refunds or the use of losses incurred in previous years. The Company uses the asset and liability method to account for future income taxes. Future income taxes reflect:

– the temporary differences between the carrying amounts of assets and liabilities for accounting purposes and the amounts used for tax purposes, on an after-tax basis

– the benefit of losses and non-refundable tax credits that will more likely than not be realized and carried forward to future years to reduce income taxes.

The Company estimates future income taxes using the rates enacted by tax law and those substantively enacted. A tax law is substantively enacted when it has been tabled in the legislature but may not have been passed into law. The effect of a change in tax rates on future income tax assets and liabilities is included in earnings in the period when the change is substantively enacted.

Recent changes to accounting standards

Asset retirement obligations

Effective January 1, 2004 Telesat implemented CICA Handbook section 3110, Asset retirement obligations (ARO). Liabilities related to the legal obligations of retiring property, plant and equipment are initially measured at fair value and are adjusted for any changes resulting from the passage of time or to the amount of the original estimate of the undiscounted cash flows. The cumulative amortization expense for the asset and accretion expense for the liability of $0.3 million for years prior to 2004 were recorded as an adjustment to the opening retained earnings for 2004, with offsets to the ARO liability, ARO asset and to the future tax liability. The impact of the current expense and liability on the consolidated financial statements for the years ended December 31, 2006, 2005 and 2004 was negligible.

Comprehensive income and equity

Section 1530 of the CICA Handbook, Comprehensive Income comes into effect for fiscal years beginning on or after October 1, 2006. Comprehensive income is the change in a company’s net assets that results from transactions, events and circumstances from sources other than the company’s shareholders and includes items that would not normally be included in net earnings.

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The CICA also made changes to section 3250 of the CICA Handbook, Surplus, and reissued it as section 3251, Equity. The section also comes into effect for fiscal years beginning on or after October 1, 2006. The changes in how to report and disclose equity and changes in equity are consistent with the new requirements of section 1530, Comprehensive Income.

Adopting these sections on January 1, 2007 will require the reporting of comprehensive income and its components and accumulated other comprehensive income and its components in the consolidated financial statements.

Financial instruments

Section 3855 of the CICA Handbook, Financial Instruments — Recognition and Measurement comes into effect for fiscal years beginning on or after October 1, 2006. The section requires that all financial assets, with some exceptions, be measured at fair value; that all financial liabilities be measured at fair value if they are derivatives or classified as held for trading purposes while other financial liabilities be measured at their carrying value; and that all derivative financial instruments be measured at fair value, even when they are part of a hedging relationship.

Section 3860 of the CICA Handbook has been reissued as section 3861, Financial Instruments - Disclosure and Presentation, and establishes standards for presentation of financial instruments and non-financial derivatives, and identifies the information that should be disclosed about them. These revisions come into effect for fiscal years beginning on or after October 1, 2006.

The impact on the consolidated financial statements of adopting these sections on January 1, 2007 will result in the recording of significant derivative assets and equity.

Hedges

Section 3865 of the CICA Handbook, Hedges comes into effect for fiscal years beginning on or after October 1, 2006, and describes when and how hedge accounting can be used. Hedge accounting makes sure that all gains, losses, revenues and expenses from the derivative and the item it hedges are recorded in the statement of earnings in the same period. The impact on the consolidated financial statements of adopting this section on January 1, 2007 is that Telesat will recognize the effective portion of gains or losses from cash flow hedges in Other Comprehensive Income until such time as the hedged item is recorded in the statement of earnings.

2. Segmented information

The Company operates in the five reportable business segments described below. This reporting structure reflects how the business is managed and how operations are classified for planning and measuring performance.

– Broadcast — distribution or collection of video and audio signals in the domestic and North American markets which include television transmit and receive services, occasional use, bundled Digital Video Compression and radio services.

– Business Networks — provision of satellite capacity and ground network services for voice, data, and image transmission and internet access in Canada, the United States and South America.

– Carrier — satellite voice and data transmission services sold to other carriers located in Canada, the United States or South America.

– Consulting and Other — all consulting services related to space and earth segments, government studies, satellite control services, R&D projects as well as management services for TMI Communications and Company, Limited Partnership.

– Telesat Canada Subsidiaries — includes the financial results of Infosat, SpaceConnection and Telesat Brazil.

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All transactions between reportable segments are recorded in the normal course of operations and are recorded at the exchange amount, which is the amount of consideration given for the service or the asset.

	December 31,
	2006			2005			2004
Business segments
Operating revenues
Broadcast — external		219 570			207 131			199 983
Broadcast — inter-segment		1 199			22			—
Business Networks — external		104 256			121 555			68 749
Business Networks — inter-segment		14 093			10 965			9 645
Carrier — external		24 482			30 504			28 168
Carrier — inter-segment		1 847			4 580			1 280
Consulting and Other — external		29 644			26 171			23 439
Consulting and Other — inter-segment		12			30			—
		395 103			400 958			331 264
Telesat Canada Subsidiaries		101 640			89 380			41 827
Inter-segment eliminations		(17 778	)		(15 597	)		(10 925	)
Total operating revenues		478 965			474 741			362 166
Amortization expense
Broadcast		51 967			45 598			51 666
Business Networks		42 380			40 580			14 826
Carrier		13 401			11 454			14 030
Consulting and Other		1 525			2 417			1 902
Telesat Canada Subsidiaries		11 439			11 760			1 877
		120 712			111 809			84 301
Earnings from operations
Broadcast		130 958			129 431			106 551
Business Networks		(8 708	)		(5 835	)		18 250
Carrier		627			12 910			4 142
Consulting and Other		10 059			9 439			7 103
Total Telesat Canada		132 936			145 945			136 046
Telesat Canada Subsidiaries		7 351			10 318			5 241
Total earnings from operations		140 287			156 263			141 287
Interest expense		(24 643	)		(29 526	)		(26 486	)
Other income		10 036			14 742			18 298
Income taxes		(21 688	)		(50 782	)		(47 840	)
Net earnings		103 992			90 697			85 259

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Capital assets

The Company’s capital assets are attributable to reportable segments as follows:

	December 31,
	2006			2005
Broadcast		55	%		50	%
Business Networks		34	%		36	%
Carrier		7	%		8	%
Consulting and Other		1	%		1	%
Telesat Canada Subsidiaries		3	%		5	%
		100	%		100	%

	December 31,
	2006		2005		2004
Geographic information
Revenues — Canada		329 838		299 228		287 245
Revenues — United States		114 609		138 824		52 925
Revenues — Brazil		17 096		17 683		9 160
Revenues — all others		17 422		19 006		12 836
		478 965		474 741		362 166
Capital assets — Canada		1 329 042		1 268 570
Capital assets — United States		51 216		57 592
Capital assets — Brazil		2 926		3 596
Capital assets — Other		5 135		5 684
		1 388 319		1 335 442
Goodwill — Canada		45 201		45 201
Goodwill — United States		8 079		7 058
		53 280		52 259

The point of origin of revenues (destination of billing invoice) and the location of capital assets determine the geographic areas. The Anik and Nimiq satellites have been classified as located in Canada for disclosure purposes.

Major customers

For the year ended December 31, 2006, two customers from the Broadcast segment represented $111.2 million and $70.8 million of consolidated revenues. In 2005, the same two customers represented $101.2 million and $62.2 million of consolidated revenues (2004: $98.0 million and $60.2 million).

3. Business acquisitions

On January 4, 2005, Telesat acquired 100% of the outstanding common shares of The SpaceConnection, Inc. (SpaceConnection). SpaceConnection is a provider of programming-related satellite transmission services to all the major US television networks and cable programmers. The purchase price of US $5 million was determined based on the fair value of assets acquired and the liabilities assumed at the date of acquisition.

The purchase price was settled in cash net of cash acquired for a total of CAD $4.4 million. There are two additional contingent payments. In 2006 a cash payment was made for the first contingent payment of US $2.25 million, which was due based on achieving certain performance criteria by December 2005. This additional payment of contingent consideration was accrued in December 2005. The second contingent payment has not been accrued. This contingent payment is based on achieving certain performance criteria by the third quarter of 2007 and if satisfied will result in an expensed payment of US $2.25 million. The acquisition has been accounted for using the purchase method of accounting and results from operations have been included in the consolidated financial statements from the date of acquisition.

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The allocation of the purchase price consists of the following:

	Acquisition			Contingent
	Date			Consideration		Total
Current assets		3 213			—		3 213
Capital assets		59 918			—		59 918
Intangible assets (Note 9)		11 777			—		11 777
Goodwill		4 427			2 631		7 058
Other assets		700			—		700
Total assets acquired		80 035			2 631		82 666
Current liabilities		(2 838	)		—		(2 838	)
Long-term debt		(59 538	)		—		(59 538	)
Future income tax liability		(11 763	)		—		(11 763	)
Total liabilities assumed		(74 139	)		—		(74 139	)
Net assets acquired		5 896			2 631		8 527

On February 16, 2006, Infosat Communications Inc. (USA), a subsidiary of Infosat, acquired 100% of the outstanding common shares of Able Leasing Co (Able). Able provides sales and service of land mobile radio, microwave radio, marine radio, closed circuit television and satellite communications. The purchase price of US $1.3 million was determined based on the fair value of assets acquired and liabilities assumed at the date of acquisition. The acquisition of Able has been accounted for using the purchase method of accounting and the results of operations have been included in the consolidated financial statements from the date of acquisition. Initially net cash of $0.4 million was paid for net assets acquired including goodwill. There are two additional contingent payments of US $0.6 million based on achieving certain performance criteria by December 2006 and 2007. The first contingent payment has been satisfied and accounted for as an incremental cost of the acquisition resulting in an increase to goodwill. If satisfied, the second contingent payment will be expensed.

The allocation of the purchase price consists of the following:

				Contingent
	Acquisition Date			Consideration		Total
Current assets (net of cash acquired)		1 737			—		1 737
Capital assets		381			—		381
Goodwill		405			673		1 078
Total assets acquired		2 523			673		3 196
Current liabilities		(1 932	)		—		(1 932	)
Long-term debt		(179	)		—		(179	)
Future income tax liability		(14	)		—		(14	)
Total liabilities assumed		(2 125	)		—		(2 125	)
Net assets acquired		398			673		1 071

In October 2006, Telesat acquired 100% of 3652041 Canada Inc. from BCE Inc. (BCE), its shareholder, in return for a promissory note payable of $21.2 million. The excess of the $21.2 million cost over BCE’s carrying value (a nominal amount) has been recorded as a reduction of $21.2 million in contributed surplus. Telesat then proceeded to amalgamate its wholly owned subsidiary 3484203 Canada Inc. with 3652041 Canada Inc., creating a new entity: 4387678 Canada Inc.

4387678 Canada Inc. then sold its $0.7 million interest in the limited partnership units of TMI Communications and Company, Limited Partnership (TMI) to BCE and a numbered company owned by BCE in return for promissory notes with a fair market value of $201 million. The excess of the fair market value over the Telesat carrying cost was booked as an increase of $200.3 million in contributed surplus.

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4. Other income

				December 31,
	2006			2005			2004
Capitalized interest		12 184			14 974			17 642
Foreign exchange gains (losses)		( 581	)		1 317			(2 669	)
Interest income		4 511			6 852			3 381
Gain (loss) on disposal of assets		173			123			(196	)
Performance incentive payments and milestone interest expense		(6 018	)		(8 529	)		(3 468	)
Other		( 233	)		5			3 608
		10 036			14 742			18 298

Other in 2004 includes a $2.6 million recovery of a previously written off receivable.

5. Income taxes

A reconciliation of the statutory income tax rate, which is a composite of federal and provincial rates, to the effective income tax rate is as follows:

	December 31,
	2006			2005			2004
Statutory income tax rate		35.4	%		35.3	%		35.3	%
Large corporations tax		—			1.3	%		1.3	%
Permanent differences		2.0	%		(1.2	%)		(0.9	%)
Adjustment for tax rate changes		( 14.5	%)		1.0	%		0.0	%
Other		( 5.7	%)		(0.5	%)		0.2	%
Effective income tax rate		17.2	%		35.9	%		35.9	%

The components of the income tax expense are as follows:

Future	1 205	36 756	28 789
Current	20 483	14 026	19 051
Total income tax expense	21 688	50 782	47 840

The tax effects of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and the amounts used for tax purposes are presented below:

	December 31,
	2006			2005
Future tax assets
Investments		11 694			12 857
Loss carry forwards — (expiring from 2012 to 2025)		6 813			6 202
Reserves		3 990			3 114
Lease obligations		1 169			2 001
Performance incentive payments		15 053			18 861
Other		4 157			3 811
Less: valuation allowance		(2 428	)		(2 669	)
Total future tax assets		40 448			44 177

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	December 31,
	2006		2005
Future tax liabilities
Capital assets		210 608		195 720
Capitalized interest		6 092		2 362
Insurance proceeds		12 116		14 774
Other		2 538		21 326
Total future tax liabilities		231 354		234 182
Total future income taxes		190 906		190 005
Total future income taxes are comprised of:
Net future income tax asset — current portion		4 476		3 737
Net future income tax liability — long-term portion		195 382		193 742
Total future income taxes		190 906		190 005

6. Accounts and notes receivable

	December 31,
	2006			2005
Trade receivables — net of allowance for doubtful accounts		42 807			46 898
Less: long-term portion of trade receivables		(1 942	)		(568	)
Promissory notes receivable (Note 3)		201 000			13 054
		241 865			59 384

The allowance for doubtful accounts was $3.7 in 2006 and $5.4 million in 2005.

The long-term portion of trade receivables includes items that will not be collected during the subsequent year and is included in other assets in note 11. The 2005 promissory note was repaid in 2006. The promissory notes received in return for the interest in TMI are non-interest bearing and due on demand.

7. Other current assets

	December 31,
	2006		2005
Inventories		12 226		19 180
Income taxes recoverable		3 500		7 373
Investment tax credit benefits		290		231
Prepaid expenses and other		11 532		9 393
		27 548		36 177

Inventories are valued at lower of cost or market and consist of $9.8 million (2005 — $17.0 million) of finished goods and $2.4 million (2005 — $2.2 million) of work in process. Cost for substantially all network equipment inventories is determined on an average cost basis. Cost for work in process and some one-of-a kind finished goods is determined using specific identification.

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8. Capital assets

			Accumulated		Net Book
	Cost		Amortization		Value
2006
Satellites		1 223 564		335 675		887 889
Earth stations		275 776		143 180		132 596
Transponders under capital lease		56 992		11 271		45 721
Office buildings and other		87 931		62 655		25 276
Construction in progress		296 837		—		296 837
		1 941 100		552 781		1 388 319
2005
Satellites		1 221 985		250 799		971 186
Earth stations		285 600		146 294		139 306
Transponders under capital lease		57 201		5 523		51 678
Office buildings and other		89 130		60 145		28 985
Construction in progress		144 287		—		144 287
		1 798 203		462 761		1 335 442

The cost of assets under capital lease, including satellite transponders, was $74.5 million at December 31, 2006 and $75.4 million at December 31, 2005. At December 31, 2006 the net book value of these assets was $47.7 million (2005 — $55.0 million).

See note 21 for a description of the insurance proceeds received in 2005 for Anik F1.

9. Finite-life intangible assets

			Accumulated		Net Book
	Cost		Amortization		Value
2006
Non-competition agreement		6 991		2 330		4 661
Long-term contracts and customer lists		5 710		4 896		814
		12 701		7 226		5 475
2005
Non-competition agreement (Note 3)		6 991		1 165		5 826
Long-term contracts and customer lists (Note 3)		5 710		2 693		3 017
		12 701		3 858		8 843

The non-competition agreement is being amortized on a straight-line basis over six years beginning January 1^st, 2005. The long-term contracts are being amortized at variable rates based on the associated revenue until 2009. The customer lists are being amortized on a straight-line basis over 3 to 4 years.

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10. Investments

	December 31,
	2006		2005
WildBlue Communications, Inc. — at cost		14 526		14 526
Hellas-Sat Consortium Limited — at cost		315		315
TMI Communications and Company, Limited Partnership — at cost		—		696
Comstar ISA Ltd.— at equity		290		—
		15 131		15 537

The fair value of all investments recorded at cost has not been estimated as there were no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investments. It is not practicable to estimate the fair value.

Telesat has a portfolio interest in WildBlue Communications, Inc. (WildBlue), a US-based company offering high-speed satellite-based Internet services to the United States using the Anik F2 satellite. The initial investment in preferred shares was acquired in 2000 as partial consideration for the grant of an exclusive license to WildBlue for the use and access of the Ka-band payload on Anik F2.

Telesat has a portfolio interest in Hellas-Sat Consortium Limited. The consortium has one satellite which provides regional coverage to Greece, Cyprus and the Balkans.

Telesat indirectly held 100% of the limited partnership units of TMI Communications and Company, Limited Partnership (TMI) up to October 2006 (see note 3).

Telesat holds 100% of the shares of 4387678 Canada Inc., the result of the October 2006 amalgamation of the Telesat subsidiary 3484203 Canada Inc. and a company acquired in October 2006, 3652041 Canada Inc. See note 23 for a description of the January 2007 amalgamation. In 2005 Telesat held 100% of the shares of 3484203 Canada Inc, which directly held 100% of the limited partner units of TMI (see note 3).

Telesat holds 100% of the shares of Infosat Communications, Inc. (Infosat) and consolidates its results. Infosat is a full service provider of satellite-based voice, fax, paging, and data communications. Infosat holds 100% of the shares of Able Infosat Communications, Inc. (Able). Able provides turn-key communications solutions for the energy industry to be used in special environments, off-shore and overseas. Infosat has a 22% interest in Pakistan’s Comstar ISA Ltd., a satellite service provider.

Telesat holds 100% of the shares of Telesat Brasil Limitada and consolidates their results. The holding company holds 100% of Telesat Serviços de Telecomunicação Limitada, which is being used to provide services in the Brazilian market using Anik F1.

Telesat holds 100% of the shares of The SpaceConnection Inc. (SpaceConnection) and consolidates its results. SpaceConnection is a provider of C-Band and Ku-Band space segment for video, audio, data and internet services (see note 3).

11. Other assets

	December 31,
	2006		2005
Promissory notes receivable from TMI Communications and Company, Limited Partnership (a)		3 840		3 840
Long term portion of trade receivables		1 942		568
Accrued pension benefit (see note 20)		11 592		8 105
Deferred charges (c)		7 543		3 834
Other		725		716
		25 642		17 063

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(a)	During 1998 Telesat renegotiated the repayment terms of the TMI promissory notes (discounted at the time of the original transactions, gross value of $37.8 million) whereby $22.8 million was ranked prior to any indebtedness of the Partnership. TMI has made partial repayments of $10.0 million in 2001, $5.0 million in 2003 and $4.0 million in 2004.
(b)	Deferred charges include cost of equipment sales related to deferred revenues from multiple deliverable arrangements. These deferred charges are amortized to cost of equipment sales over the term of the related revenue contract.

12. Other current liabilities

	December 31,
	2006		2005
Deferred revenues and deposits (see note 15)		37 485		30 314
Deferred milestone payments (see note 15)		25 670		32 276
Capital lease liabilities (see note 15)		4 698		4 748
Income taxes payable		1 009		16 895
Satellite performance incentive payments (see note 15)		11 499		10 569
Dividends payable		—		449
Promissory note payable (see note 3) (a)		21 200		—
Other liabilities (b)		4 208		15 993
		105 769		111 244

(a)	The promissory note is non-interest bearing and payable on demand.
(b)	Other liabilities have been reduced by $2 million due to the reversal of estimated license fees accrued in prior periods.

13. Debt due within one year

	December 31,
	2006		2005
7.4% Notes due June 28, 2006		—		150 000
Other debt financing (see note 14)		3 134		2 838
		3 134		152 838

14. Debt financing

	December 31,
	2006		2005
8.2% Notes due November 7, 2008		125 000		125 000
Bank loans		72 000		—
Other debt financing		3 742		7 202
		200 742		132 202

At December 31, 2006, the Canadian bank loans, which are unsecured, carried an average interest rate of 5.305%. The Telesat Canada revolving credit facility expires on June 3, 2010 and the Infosat bank facilities are uncommitted. The unused bank lines of credit available to Telesat at December 31, 2006 amounted to $92.2 million (2005 — $164.3 million). The unused bank line of credit available to Infosat at December 31, 2006 amounted to $10.2 million (2005 — $8.5 million).

Other debt financing includes the financing for the Company’s headquarters building. With respect to the headquarters building, the Company shares equally with the developer, the ownership, cost and debt of the building. The Company has leased the developer’s share for twenty years beginning January 25, 1989 for an annual rent,

19

excluding operating costs, of $1.8 million. The lease contains 5 options to renew for 5 years. Total headquarters financing of $6.8 million (2005 — $9.5 million) includes the amount owing under this capital lease of $3.3 million at December 31, 2006 (2005 — $4.6 million). The imputed interest rate for the capital lease is 10.69% per annum.

Mortgage financing for the Company’s share of the facility has been arranged by the developer for a twenty-year term coincident with the lease with interest at 11% per annum and with annual payments of principal and interest of $1.8 million.

The outstanding short and long term debt financing at December 31, 2006 of $203.9 million is repayable as follows:

2007		2008		2009		2010
	3 134		128 433		309		72 000

15. Other long-term liabilities

	December 31,
	2006		2005
Deferred revenues and deposits (a)		265 493		261 771
Deferred satellite performance incentive payments (b)		35 003		42 427
Deferred milestone payments (c)		—		21 678
Capital lease liabilities (d)		44 887		49 749
Other liabilities		2 658		11 394
		348 041		387 019

(a)	Deferred revenues represent the Company’s liability for the provision of future services. The prepaid amount is brought into income over the period of service to which the prepayment applies. The net amount outstanding at December 31, 2006 will be reflected in the Statements of Earnings as follows: $37.5 million in 2007, $28.9 million in 2008, $25.6 in 2009, $23.9 in 2010, $23.5 in 2011 and $163.6 million thereafter.
(b)	Deferred satellite performance incentive payments are payable over the lives of the Nimiq 1, Anik F1, Anik F2 and Anik F1R satellites. The present value of the payments is capitalized as part of the cost of the satellite, recorded as a liability, and charged against operations as part of the normal amortization of the satellite. The amounts payable on the successful operation of the transponders are US $9.9 million in 2007, US $3.1 million in 2008, US $2.9 million in 2009, US $3.1 million in 2010, US $2.5 million in 2011 and US $18.4 million thereafter.
(c)	Deferred milestone payments represent the present value of liabilities associated with the Anik F2 satellite. Payments of principal and interest are US $21.1 million in 2007.
(d)	Future minimum lease payments payable under capital leases are $4.7 million in 2007, $4.8 million in 2008, $5.3 million in 2009, $5.8 million in 2010, $6.4 million in 2011 and $22.5 million thereafter.

16. Capital stock

The authorized capital of the Company is comprised of 10,000,000 common shares and 5,000,000 preferred shares. Ownership by non-residents in the common shares of the Company is limited to twenty percent.

At December 31, 2006 and 2005 there were 6,842,547 common shares outstanding with a stated value of $111.9 million. At December 31, 2005 there were 5,000,000 non-voting preferred shares outstanding with a stated value of $50 million. On November 1, 2006, Telesat redeemed the $50 million of preferred shares for cash at a redemption price of $10 per share, together with accrued but unpaid dividends.

For the period March 31, 2004 to the date of redemption the cumulative preferred share dividend rate had been fixed at an annual rate of 3.56%.

20

As a result of the January 1, 2007 amalgamation (see note 24) the common shares of Telesat were cancelled. The 100 common shares of the amalgamated entity were used to calculate earnings per share in 2006 and 2005.

17. Cash flow information

	December 31,
	2006			2005			2004
Cash and cash equivalents is comprised of:
Cash		10 785			28			10 380
Bank overdrafts		—			(4 191	)		—
Short term investments, original maturity 90 days or less		27 876			117 668			20 545
		38 661			113 505			30 925
Net change in operating assets and liabilities is comprised of:
Receivables		12 355			6 406			(53 908	)
Other assets		(3 910	)		(18 294	)		9 177
Accounts payable		(1 326	)		(747	)		1 789
Income taxes payable		(15 238	)		622			11 312
Other liabilities		(15 950	)		(13 370	)		35 371
Promissory notes receivable repayments		13 055			20 503			5 409
		(11 014	)		(4 880	)		9 150

18. Financial instruments

Telesat uses derivative instruments to manage the exposure to foreign currency risk and does not use derivative instruments for speculative purposes. Since there is no active trading in derivative instruments, there is no exposure to any significant liquidity risks relating to them.

Credit risk

Financial instruments that potentially subject the Company to a concentration of credit risk consists of cash and cash equivalents and short term investments. Investment of these funds is done with high quality financial institutions and is governed by the Company’s corporate investment policy, which aims to reduce credit risk by restricting investments to high-grade US dollar and Canadian dollar denominated investments.

Telesat is exposed to credit risk if counterparties to its derivative instruments are unable to meet their obligations. It is expected that these counterparties will be able to meet their obligations as they are institutions with strong credit ratings. Telesat regularly monitors the credit risk and credit exposure. There was no credit risk relating to derivative instruments at December 31, 2006.

Telesat has a number of diverse customers, which limits the concentration of credit risk. The Company has credit evaluation, approval and monitoring processes intended to mitigate potential credit risks. Anticipated bad debt losses have been provided for in the allowance for doubtful accounts.

Currency exposures

Telesat uses forward contracts to hedge foreign currency risk on anticipated transactions. At December 31, 2006, the Company had $228.8 million (2005 — $92.2 million, 2004 — $164.2 million) of outstanding foreign exchange contracts which require the Company to pay Canadian dollars to receive US $197 million (2005 — US $72.2 million, 2004 — US $124.6 million) for future capital expenditures. The fair value of these derivative contract liabilities was $0.8 million (2005 — $8.6 million, 2004 — $14.4 million). The forward contracts are due between January 2007 and July 2008.

21

Fair value

Fair value is the amount that willing parties would accept to exchange a financial instrument based on the current market for instruments with the same risk, principal and remaining maturity. Fair values are based on estimates using present value and other valuation methods.

These estimates are affected significantly by the assumptions for the amount and timing of estimated future cash flows and discount rates, which all reflect varying degrees of risk. Potential income taxes and other expenses that would be incurred on disposition of these financial instruments are not reflected in the fair values. As a result, the fair values are not necessarily the net amounts that would be realized if these instruments were actually settled.

The carrying amounts for cash and cash equivalents, short term investments, trade receivables, other current liabilities, accounts payable and accrued liabilities approximate fair market value due to the short maturity of these instruments. It is not possible to determine the fair value of the non-interest bearing promissory notes receivable as they are the result of a related party transaction. The carrying value of the debt financing is an approximation of the fair market value due to the Company’s intention to hold the debt and pay it out at maturity.

19. Stock-based compensation plans

Employee savings plans (ESPs)

The ESP enables Telesat employees to acquire BCE common shares through payroll deductions of up to 10% of their annual base earnings and target bonus plus employer contributions of up to 2%. The trustee of the ESPs buys BCE common shares for the participants on the open market, by private purchase or from BCE (where shares are issued from Treasury). BCE chooses the method the trustee uses to buy the shares. Compensation expense for ESPs was $0.6 million in 2006 (2005 — $0.6 million, 2004 — $0.6 million).

Stock options

Under the long-term incentive programs, options may be granted to key employees of Telesat to purchase BCE common shares. The subscription price is usually equal to the market value of the shares on the last trading day before the grant comes into effect. For options granted before January 1, 2004, the right to exercise the options generally vests or accrues by 25% a year for four years of continuous employment from the date of grant, except where a special vesting period applies. Options become exercisable when they vest and can be exercised for a period of up to 10 years from the date of grant.

For options granted after January 1, 2004, the right to exercise options vests after two to three years of continuous employment from the date of grant, if specific performance targets are met. Options become exercisable when they vest and can be exercised for a period of up to six years from the date of grant. Subject to achieving specific performance targets, 50% of the options will vest after two years and 100% after three years.

The following tables are a summary of the status of Telesat’s portion of the BCE stock option programs at December 31, 2006.

				Weighted-					Weighted-					Weighted-
				Average					Average					Average
	Number			Exercise		Number			Exercise		Number			Exercise
	of Shares			Price ($)		of Shares			Price ($)		of Shares			Price ($)
	2006			2006		2005			2005		2004			2004
Outstanding, beginning of year		543 884			32		516 598			31		418 457			31
Granted		101 972			29		67 224			29		152 776			30
Exercised		( 17 625	)		17		( 33 050	)		16		( 20 375	)		16
Expired/forfeited		(2 200	)		41		( 6 888	)		41		( 34 260	)		37
Outstanding, end of year		626 031			32		543 884			32		516 598			31
Exercisable, end of year		349 412			33		261 826			34		251 066			32

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At December 31, 2006

			Options Outstanding				Options Exercisable
			Weighted-		Weighted-				Weighted-
	Number		Average		Average		Number		Average
			Remaining		Exercise				Exercise
Range of Exercise Price			Life		Price ($)				Price ($)
Below $20		20 750		2.39		17		20 750		17
$20 to $29		446 087		4.69		29		169 468		29
$30 to $39		10 000		3.52		35		10 000		35
$40 and over		149 194		3.67		41		149 194		41
		626 031		4.35		32		349 412		33

The assumptions used to determine the stock-based compensation expense under the Black-Scholes option pricing model were as follows:

	December 31,
	2006			2005			2004
Compensation cost		170			408			353
Number of stock options granted		101 972			67 224			152 776
Weighted-average fair value per option granted ($)		2.3			3.0			3.7
Assumptions:
Dividend yield		4.4	%		4.6	%		4.0	%
Expected volatility		17	%		24	%		27	%
Risk-free interest rate		4.0	%		3.0	%		3.1	%
Expected life (years)		3.5			3.5			3.5

During 2006, stock options were granted under the stock-based compensation plan and an expense of $0.2 million (2005 — $0.4 million, 2004 — $0.4 million) was charged to contributed surplus.

Restricted share units (RSUs)

In 2005 and 2006, RSUs were granted to Telesat executives. The value of an RSU is always equal to the value of one BCE common share. Dividends in the form of additional RSUs are credited to the participant’s account on each dividend payment date and are equivalent in value to the dividend paid on BCE common shares. Each executive is granted a specific number of RSUs for a given performance period, based on his or her position and level of contribution. At the end of each given performance period, RSUs will vest if performance objectives are met or will be forfeited.

Vested RSUs will be paid in BCE common shares purchased on the open market, in cash or through a combination of both, as the holder chooses, as long as individual share ownership requirements are met.

The table below is a summary of the status of RSUs:

	Number of RSUs
	2006			2005		2004
Outstanding, January 1		76 237			—		—
Granted		136 523			73 777		—
Dividends credited		883			2 460		—
Payments		(77 120	)		—		—
Expired/forfeited		—			—		—
Outstanding, December 31		136 523			76 237		—

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For the year ended December 31, 2006 a compensation expense for RSUs of $0.2 million (2005 — $1.7 million) was recorded.

Special compensation payments (SCPs)

Before 2000, when options were granted to employees, related rights to SCPs were also often granted. SCPs are cash payments representing the amount that the market value of the shares on the date of exercise exceeds the exercise price of these options.

The number of SCPs for BCE common shares outstanding at December 31, 2006 was 20,750 (2005—38,275). All of the outstanding SCPs cover the same number of shares as the options to which they relate. It is Telesat’s responsibility to make the payments under the SCPs. The annual compensation expense for the SCP was a recovery of $0.1 million in 2006 (2005—expense of $0.2 million, 2004—recovery of $0.1 million).

Deferred share units (DSUs)

DSUs are granted to executives when they choose to receive their bonuses in the form of DSU units instead of cash. The value of a DSU is always equal to the value of one BCE common share. Dividends in the form of additional DSUs are credited to the participant’s account on each dividend payment date and are equivalent in value to the dividend paid on BCE common shares. DSUs are paid in cash when the holder chooses to exercise their units.

The table below is a summary of the status of the DSUs:

	Number of DSUs
	2006		2005		2004
Outstanding, January 1		4 399		965		—
Granted		1 846		3 283		934
Dividends credited		267		151		31
Exercised		—		—		—
Outstanding, December 31		6 512		4 399		965

For the year ended December 31, 2006, the company recorded a compensation expense for DSUs of $0.1 million (2005—$0.1 million, 2004 — negligible).

20. Employee benefit plans

The Company’s funding policy is to make contributions to its pension funds based on various actuarial cost methods as permitted by pension regulatory bodies. Contributions reflect actuarial assumptions concerning future investment returns, salary projections and future service benefits. Plan assets are represented primarily by Canadian and foreign equity securities, fixed income instruments and short-term investments.

The changes in the benefit obligations and in the fair value of assets and the funded status of the defined benefit plans were as follows:

	Pension			Other			Pension			Other
	Benefits			Benefits			Benefits			Benefits
	2006			2006			2005			2005
Change in benefit obligations
Benefit obligation, beginning of year		153 610			14 486			125 646			11 189
Current service cost		4 315			465			3 160			394
Interest cost		8 212			767			7 730			684
Actuarial (gains) losses		(2 071	)		(248	)		18 961			2 488
Benefit payments		(9 407	)		(315	)		(3 594	)		(269	)
Employee contributions		1 884			—			1 707			—
Other		900			—			—			—
Benefit obligation, end of year		157 443			15 155			153 610			14 486

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	Pension			Other			Pension			Other
	Benefits			Benefits			Benefits			Benefits
	2006			2006			2005			2005
Change in fair value of plan assets
Fair value of plan assets, beginning of year		150 939			—			136 165			—
Return on plan assets		20 798			—			16 193			—
Benefit payments		(9 407	)		(315	)		(3 594	)		(269	)
Employee contributions		1 884			—			1 707			—
Employer contributions		6 150			315			468			269
Fair value of plan assets, end of year		170 364			—			150 939			—
Funded status
Plan surplus (deficit)		12 921			(15 155	)		(2 671	)		(14 486	)
Unamortized net actuarial (gain) loss		9 607			861			22 985			1 109
Unamortized transitional (asset) obligation		(10 936	)		4 325			(12 209	)		4 943
Accrued benefit asset (liability)		11 592			(9 969	)		8 105			(8 434	)

The fair value of the plan assets consists of the following asset categories:

		December 31,
	2006			2005
Equity securities		62	%		64	%
Fixed income instruments		35	%		34	%
Short-term investments		3	%		2	%
Total		100	%		100	%

Plan assets are valued as at the measurement date of December 31 each year. Equity securities include common shares of a related party in the amounts of nil (0% of total plan assets) and $1.1 million (1% of total plan assets) at December 31, 2006 and 2005 respectively.

The significant weighted-average assumptions adopted in measuring Telesat’s pension and other benefit obligations were as follows:

	Pension			Other			Pension			Other
	Benefits			Benefits			Benefits			Benefits
	2006			2006			2005			2005
Accrued benefit obligation as of December 31:
Discount rate		5.3	%		5.3	%		5.2	%		5.2	%
Rate of compensation increase		3.5	%		3.5	%		3.5	%		3.5	%
Benefit costs for years ended December 31:
Discount rate		5.2	%		5.2	%		6.0	%		6.0	%
Expected long-term rate of return on plan assets		7.5	%		7.5	%		7.5	%		7.5	%
Rate of compensation increase		3.5	%		3.5	%		3.5	%		3.5	%

For measurement purposes, a 10.5% (drugs) / 4.5% (other) annual rate of increase in the per capita cost of covered health care benefits (the health care cost trend) was assumed for 2006. The drug rate is assumed to gradually decrease to 4.5% over 6 years and remain at that level thereafter.

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The net benefit expense included the following components:

	Pension			Other		Pension			Other			Pension			Other
	Benefits			Benefits		Benefits			Benefits			Benefits			Benefits
	2006			2006		2005			2005			2004			2004
Current service cost		4 315			465		3 160			394			3 156			368
Interest cost		8 212			767		7 730			684			7 906			767
Expected return on plan assets		(11 271	)		—		(10 165	)		—			(9 548	)		—
Amortization of past service cost		900			—		—			—			—			—
Amortization of net actuarial (gain)/loss		1 780			—		96			(22	)		—			—
Amortization of transitional obligation		( 1 273	)		618		( 1 454	)		618			( 1 454	)		618
Net benefit expense		2 663			1 850		( 633	)		1 674			60			1 753

21. Commitments and contingent liabilities

Off balance sheet commitments include operating leases, commitments for future capital expenditures and other future purchases.

	2007		2008		2009		2010		2011		Thereafter		Total
Off balance sheet commitments	$	188,053	$	119,335	$	53,424	$	9,451	$	5,470	$	52,407	$	428,140

Certain of the Company’s satellite transponders, offices, warehouses, earth stations, vehicles, and office equipment are leased under various terms. Minimum annual commitments under operating leases determined as at December 31, 2006 are $15.5 million in 2007, $16.9 million in 2008, $12.0 million in 2009, $6.8 million in 2010, $2.4 million in 2011 and $3.3 million thereafter. The annual aggregate lease expense in each of fiscal 2006 and 2005 was $18.0 million and $17.5 million respectively. The expiry terms range from June 2006 to July 2016.

Telesat has non-satellite purchase commitments of CAD $12.1 million, which include commitments of US $10.2 million, with various suppliers at December 31, 2006 (2005—CAD $25.4 million, including commitments of US $20.9 million, 2004—CAD $24.9 million or US $20.3 million).

Telesat has entered into contracts for the construction and launch of Anik F3 (targeted for launch in 2007) and of Nimiq 4 (targeted for launch in 2008), the construction of Nimiq 5 (targeted for launch in 2009) and a capital lease for Nimiq 4ii (in service in 2007). The outstanding commitments at December 31, 2006 on these contracts are CAD $358.5 million, which include commitments of US $303.2 million.

Telesat has agreements with various customers for prepaid revenues on several satellites which take effect on final acceptance of the spacecraft. Telesat is responsible for operating and controlling these satellites. Deposits of $273.7 million (2005 — $272.8 million, 2004 — $287.4 million), refundable under certain circumstances, are reflected in other liabilities, both current and long-term.

In the normal course of business, Telesat has executed agreements that provide for indemnification and guarantees to counterparties in various transactions. These indemnification undertakings and guarantees may require Telesat to compensate the counterparties for costs and losses incurred as a result of certain events including, without limitation, loss or damage to property, change in the interpretation of laws and regulations (including tax legislation), claims that may arise while providing services, or as a result of litigation that may be suffered by the counterparties.

Certain indemnification undertakings can extend for an unlimited period and may not provide for any limit on the maximum potential amount, although certain agreements do contain specified maximum potential exposure representing a cumulative amount of approximately $16.7 million. The nature of substantially all of the indemnification undertakings prevents the Company from making a reasonable estimate of the maximum potential amount Telesat could be required to pay counterparties as the agreements do not specify a maximum amount and the amounts are dependent upon the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. Historically, Telesat has not made any significant payments under such indemnifications.

26

In August 2001, Boeing, the manufacturer of the Anik F1 satellite, advised Telesat of a gradual decrease in available power on-board the satellite. Telesat filed an insurance claim with its insurers on December 19, 2002, and in March 2004 reached a final settlement agreement. The settlement calls for an initial payment in 2004 of US $136.2 million and an additional payment of US $49.1 million in 2007 if the power level on Anik F1 degrades as predicted by the manufacturer. In the event that the power level on Anik F1 is better than predicted, the amount of the payment(s) will be adjusted by applying a formula which is included in the settlement documentation and could result in either a pro-rated payment to Telesat of the additional US $49.1 million or a pro-rated repayment of up to a maximum of US $36.1 million to be made by Telesat to the insurers. The initial payment has been received. During December 2005, a number of insurers elected to pay a discounted amount of the proceeds due in 2007. A total of US $26.2 million was received in December 2005 (pre-discount value of US $29.1 million) leaving US $20.0 million to be paid in 2007. The degradation continues as predicted.

22. Related party transactions

Related parties include BCE, the sole common shareholder, together with its subsidiaries and affiliates.

The following transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

	December 31,
	2006		2005		2004
Operating revenues for services provided		139 335		131 880		129 169
Operating expenses for services received		7 340		9 273		6 778
The balances with related parties are as follows:
Receivables at year end		631		3 566		4 832
Promissory notes receivable (see note 3)		201 000		—		—
Deferred revenues and deposits		13 019		1 040		1 249
Promissory notes payable (see note 3)		21 200		—		—

23. Reconciliation of Canadian GAAP to United States GAAP

Telesat has prepared these consolidated financial statements according to Canadian GAAP. The following tables are a reconciliation of differences relating to the statement of operations and total shareholders’ equity reported according to Canadian GAAP and United States GAAP.

Reconciliation of net earnings

	December 31,
	2006			2005			2004
Canadian GAAP—Net earnings		103 992			90 697			85 259
Gains (losses) on derivatives (a)		(998	)		1 457			19 550
Tax effect of above adjustments (b)		323			(513	)		(6 901	)
Tax effect of rate reduction (b)		1 245
United States GAAP—Net earnings		104 562			91 641			97 908
Dividends on preferred shares		(1 487	)		(1 780	)		(1 840	)
United States GAAP—Net earnings applicable to common shares		103 075			89 861			96 068
Other comprehensive earnings (loss) items
Change in currency translation adjustment		(526	)		337			(325	)
United States GAAP — Comprehensive earnings		102 549			90 198			95 743
United States GAAP — Net earnings per common share		1 030 750			898 610			960 680

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Accumulated other comprehensive income (loss)

	December 31,
	2006			2005			2004
Cumulative translation adjustment		(3 376	)		(2 850	)		(3 187	)
Net benefit plans cost (c)
Net actuarial losses		(7 080	)		—			—
Net transitional assets		4 471			—			—
Accumulated other comprehensive income (loss)		(5 985	)		(2 850	)		(3 187	)

Reconciliation of total shareholders’ equity

	December 31,
	2006			2005			2004
Canadian GAAP		908 554			677 276			587 770
Adjustments
Gains (losses) on derivatives (a)		39 605			40 603			39 146
Net benefit plans cost (c)
Net actuarial losses		(10 468	)		—			—
Net transitional assets		6 611			—			—
Tax effect of above adjustments (b)		(11 572	)		(14 388	)		(13 875	)
United States GAAP		932 730			703 491			613 041

Description of United States GAAP adjustments

(a)	Derivatives and embedded derivatives
	In accordance with U.S. GAAP, all derivative instruments, including those embedded in contracts, are recorded on the balance sheet at fair value with gains or losses recognized in earnings. The Company denominates many of its long-term international purchase contracts in U.S. dollars resulting in embedded derivatives. This exposure to the U.S. dollar is partially offset by revenue that is also denominated in U.S. dollars. At December 31, 2006, the estimated fair value of assets resulting from embedded derivatives is $40.4 million (2005 — $49.2 million, 2004 — $53.6 million).
	The Company hedges a portion of it’s exposure to foreign exchange. For U.S. GAAP purposes the Company has not designated the forward contracts as hedges and has recorded the derivatives at fair value on the balance sheet. At December 31, 2006, the estimated fair value of derivative contract liabilities is $0.8 million (2005—$8.6 million, 2004 — $14.4 million).
	The impact on the statement of operations of changes in the fair value of these derivatives is reflected in the U.S. GAAP reconciliation note in the amount of $1.0 million (2005 — $1.4 million, 2004 — $19.6 million).
(b)	Income taxes
	The income tax adjustment reflects the impact the United States GAAP adjustments described above have on income taxes. The accounting for income taxes under Canadian GAAP and United States GAAP is essentially the same, except that; income tax rates of enacted or substantively enacted tax law are used to calculate future income tax assets and liabilities under Canadian GAAP and only enacted tax rates are used under United States GAAP. There were no differences between substantively enacted and enacted rates to be adjusted.
	In 2006 the tax effect of rate reduction represents the adjustment to future taxes resulting from the application of the 2006 rate reduction to the accumulated gains and losses on derivatives.
(c)	Net benefit plans cost
	Effective December 31, 2006, the Company adopted the recognition requirements of Statement of Accounting Standards (SFAS) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Post Retirement Plans, on a prospective basis.
	This standard requires that the Company recognize the funded status of benefit plans on the balance sheet as well as recognize as a component of other comprehensive income, net of tax, the actuarial losses and transitional asset

28

	and obligation. Amounts recognized in accumulated other comprehensive income are adjusted as they are subsequently recognized as components of net periodic benefit cost.
	At December 31, 2006, the balance sheet was adjusted such that actuarial losses and the transitional asset and obligation that have not yet been included in net benefit plans at December 31, 2006 were recognized as components of accumulated other comprehensive loss, net of tax. The adjustment at December 31, 2006 resulted in an increase of $2.6 million in accumulated other comprehensive loss.
(d)	Accounting for asset retirement obligations
	Effective January 1, 2004 Telesat adopted CICA Handbook section 3110, Asset retirement obligations (ARO). Liabilities related to the legal obligation of retiring property, plant and equipment are initially measured at fair value and are adjusted for any changes resulting from the passage of time or to the amount of the original estimate of the undiscounted cash flows. The cumulative amortization expense for the asset and accretion expense for the liability for years prior to 2004 were recorded as an adjustment to the opening retained earnings for 2004, with offsets to the ARO liability, ARO asset and to the future tax liability. Under United States GAAP the cumulative effect of the change in accounting principle would have been recognized in net income in the period of the change. The impact on the reconciliation and the per share amount of the change in accounting policy is insignificant.
(e)	Accounting for stock-based compensation
	Telesat adopted the fair value-based method of accounting on a prospective basis for Canadian and United States GAAP, effective January 1, 2002. For United States GAAP, Telesat follows Statement of Financial Accounting Standards (SFAS) No. 123 to account for stock based compensation and provides pro forma disclosures of net earnings and earnings per share, assuming that the fair value-based method of accounting had been applied from the date that SFAS No. 123 was adopted. Effective January 1, 2006, Telesat adopted SFAS No. 123(R) to be applied to future grants. Adoption of SFAS No. 123(R) has not had a significant impact on our financial position or results of operation. The table below shows the pro forma compensation expense for stock options and pro forma net earnings using the Black-Scholes option pricing model.

	December 31,
	2005			2004
United States GAAP — Net earnings as reported		91 641			97 908
Canadian GAAP — Compensation cost included in net earnings		408			353
United States GAAP — Total compensation cost		(416	)		(510	)
United States GAAP — Pro forma net earnings		91 633			97 751
Dividends on preferred shares		(1 780	)		(1 840	)
Pro forma net earnings applicable to common shares		89 853			95 911
Pro forma net earnings per common share (basic and diluted)		898 530			959 110

(f)	Investment tax credits and research and development costs
	Under United States GAAP presentation, investment tax credits are recorded as a reduction of income tax expense. Under Canadian GAAP presentation, investment tax credits are reflected as a reduction of the cost of sales, research and development expenses or capital equipment as appropriate.
	Accordingly, under United States GAAP, research and development expense would increase in the years 2006, 2005 and 2004 by $0.5 million, $0.5 million and $0.4 million respectively. Income tax expense would decrease by these same amounts in the respective years, resulting in no change to net earnings.
	Research and development costs charged to expense in 2006, 2005 and 2004 were $2.5 million, $3.1 million and $2.2 million respectively.
(g)	Accounts payable and accrued liabilities
	Included in the accounts payable and accrued liabilities balance for the year ending December, 31, 2006 are bonus accruals in the amount of $7.6 million which are greater than 5% of the total current liabilities. There was no one accrual in the prior period which exceeded this Securities and Exchange Commission (SEC) threshold.
(h)	Presentation and disclosure of guarantees

29

	Under Canadian GAAP, guarantees do not include indemnifications against intellectual property right infringement, whereas under United States GAAP they are included. At December 31, 2006, such indemnifications amounted to $940.9 million. Telesat also has guarantees where no maximum potential amount is specified.
(i)	Presentation and disclosures of cash flow statement
	Under Canadian GAAP, bank account overdrafts that are temporary are included in cash and cash equivalents. Under United States GAAP all changes in bank account overdrafts are disclosed under financing activities.
	Other statement of cash flow disclosure required under United States GAAP is as follows:

	December 31,
	2006		2005		2004
Non-cash payments for capital assets included in accounts payable		1 362		4 612		6 543
Change in bank overdraft		—		—		(1 990	)
Interest paid (net of amounts capitalized)		18 477		16 233		8 844

(j)	Capitalized interest
	Capitalized interest is disclosed as other income in note 4. Interest expense under United States GAAP would have been disclosed net of interest capitalized in other income as follows:

	December 31,
	2006			2005			2004
Total interest expense		24 643			29 526			26 486
Capitalized interest		(12 184	)		(14 974	)		(17 642	)
Interest expense (net of capitalized interest)		12 459			14 552			8 844

(k)	Finite-life intangible assets
	Under United States GAAP actual amortization of intangibles for the current year as well as the expected amortization over the next 5 years would be disclosed as follows:

	2006		2007		2008		2009		2010		2011
Non-competition agreement		1 165		1 165		1 165		1 165		1 165		—
Long-term contracts and customer lists		2 187		756		71		4		—		—
Total		3 352		1 921		1 236		1 169		1 165		—

(l)

Pensions

The investment strategy for the unfunded benefit plans is to maintain a diversified portfolio of assets invested in a prudent manner to maintain the security of funds while maximizing returns within our guidelines. The expected rate of return assumption is based on our target asset allocation policy and the expected future rates of return on these assets. The table below shows the allocation of our pension plan assets at December 31, 2006 and 2005, target allocation for 2006 and the expected long-term rate of return by asset class.

										Weighted average
	Weighted average			Percentage of plan						expected long-term
	target allocation			assets at December 31						rate of return
	2006			2006			2005			2006
Asset category
Equity securities		50%-70	%		62	%		64	%		8.5	%
Debt securities		30%-50	%		38	%		36	%		6.0	%
Total / average					100	%		100	%		7.5	%

30

Pension benefits expected to be paid in each of the next 5 years, and the succeeding 5 years in aggregate are as follows:

	2007		2008		2009		2010		2011		2012 - 2015
Pension		3 782		3 829		3 877		3 925		3 974		20 629
Other benefits		427		450		474		499		525		3 072

Expected pension contributions in 2007 are $0.5 million and expected other benefit contributions for 2007 are $0.4 million.

	Effect of 1% increase in		Effect of 1% decrease in
	assumed trend rates		assumed trend rates
On aggregate of service cost and interest cost		131		(115	)
On obligation		1 229		(1 112	)

(m)	Standby letters of credit
	Telesat had standby letters of credit in the amount of $0.8 million and $0.7 in 2006 and 2005 respectively that reduce the unused bank lines of credit available. Infosat had a standby letter of credit in the amount of $0.1 million and $0.1 million in both 2006 and 2005 that is a separate facility from its bank line of credit and therefore does not reduce the amount available.
(n)	Business combination
	United States GAAP requires pro forma disclosure of a business combination as if it had been completed at the beginning of the most recent period as well as prior period. Pro forma disclosure for the current period is not considered materially different. The following unaudited pro forma combined results under United States GAAP for 2006, 2005 and 2004 are:

	2006		2005		2004
	(Unaudited)		(Unaudited)		(Unaudited)
Pro forma revenue		480 059		487 148		396 117
Pro forma net earnings		103 782		91 139		83 491
Pro forma net earnings applicable to common shares		102 295		89 359		81 651
Pro forma net earnings per common share (basic and diluted)		1 022 950		893 590		816 510

	The 2005 acquisition of SpaceConnection was part of Telesat’s growth strategy throughout the Americas. SpaceConnection is a major provider of C-band and Ku-Band space segment for programming-related satellite transmission services. Its clients include the major U.S. television networks, cable programmers and services to the educational, religious, government, business and entertainment sectors. This coupled with Telesat’s belief that there is much potential in high-definition television and in providing occasional use satellite services to these broadcasters, cable programmers and other businesses are factors that contributed to the purchase price and the goodwill recorded on acquisition.
	On February 16, 2006 Infosat acquired Able Leasing Co. with the intention of strengthening Infosat’s presence in the North American oil and gas industry while opening new business and market opportunities. Able provides sales and service of land mobile radio, microwave radio, marine radio, closed circuit television and satellite communications.
	Pro forma results for 2004 include the results of SpaceConnection as if it were acquired at the beginning of the period. Pro forma results for 2006 and 2005 include the results of Able Leasing Co. as if it were acquired at the beginning of the period.
(o)	Recent changes to accounting standards
	Accounting for uncertainty in income taxes
	In June 2006, the FASB issued FASB Interpretation No. 48 (Fin 48), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FAS 109. The

31

interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Fin 48 also provides accounting guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. Telesat will adopt the provision of FIN 48 on January 1, 2007. Telesat is in the process of assessing the impact of FIN 48 on Telesat’s results of operations and financial condition.

Fair value measurements

In September 2006, the FASB issued FAS 157, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. The statement does not require any new fair value measurements however it may change the methods used to measure fair value. FAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Telesat is currently in the process of assessing the impact of FAS 157 on Telesat’s results of operations and financial condition.

In February 2007, the FASB issued FAS 159, which expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. FAS 159 is effective for fiscal years beginning after November 15, 2007. Telesat is currently in the process of assessing the impact of FAS 159 on Telesat’s results of operations and financial condition.

Considering the effects of prior year misstatements when quantifying misstatements in current year financial statements

In September 2006, the SEC issued SAB 108, which provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a material assessment. The bulletin prescribes a process of quantifying financial statement misstatements by determining the effects of the identified unadjusted error on each financial statement and related financial statement disclosure. The bulletin is effective for annual statements covering the first fiscal year ending after November 15, 2006. SAB 108 had no impact on Telesat’s financial statements.

24. Subsequent events

On January 1, 2007, Telesat, its parent Alouette Telecommunications Inc. (Alouette) and its subsidiary 4387678 Canada Inc. (4387678) were amalgamated. The name of the amalgamated entity is Telesat Canada and its authorized capital is an unlimited number of common shares. The shares of Telesat and 4387678 were cancelled, and the class A, B and C shares of Alouette were converted into 100 common shares of the amalgamated entity.

The 2006 and 2005 figures have been restated and represent the consolidated results of Telesat’s parent Alouette Telecommunications Inc. Continuity of interest accounting has been applied to the amalgamation of Telesat Canada, Alouette and the Telesat subsidiary 4387678 Canada Inc. The transaction, which lacks economic substance, represents a rearrangement of legal interests as all three entities were under common control.

The following significant adjustments are reflected in the 2006 and 2005 financial statements as a result of the continuity of interest accounting:

- Increase of $28.7 million to goodwill and $0.2 million to short term investments

- Increase of $229.2 million to common shares and $4.1 million contributed surplus

- Decrease of $204.4 million to retained earnings

- Increase in Earnings Per Share as a result of only 100 common shares now outstanding

32

EX-99.3

Exhibit 99.3

PRO FORMA COMBINATION OF LORAL SKYNET AND TELESAT CANADA

     Unaudited Pro Forma Condensed Consolidated Financial Information

     On December 16, 2006, a joint venture company (“Acquireco”) formed by Loral Space & Communications Inc. (“Loral”) and its Canadian partner, the Public Sector Pension Investment Board (“PSP”) entered into a definitive agreement with BCE Inc. (“BCE”) to acquire 100% of the stock of Telesat Canada. At the time of, or following the Telesat Canada acquisition, substantially all of Loral Skynet Corporation’s (“Loral Skynet”) assets and related liabilities are expected to be transferred to a subsidiary of Acquireco. This subsidiary will be combined with Telesat Canada. Loral and PSP have arranged for the parent company of Acquireco (“Telesat Holdings” or “Telesat”) to obtain committed debt financing from a group of financial institutions.

     The following unaudited pro forma condensed consolidated statement of operations of Telesat Holdings for the year ended December 31, 2006 and the unaudited pro forma condensed consolidated balance sheet of Telesat Holdings as of December 31, 2006, are based on the historical financial statements of Loral Skynet and Telesat Canada after giving effect to Telesat Holding’s acquisitions of Telesat Canada and Loral Skynet. The unaudited pro forma condensed consolidated statement of operations presents the acquisitions as if they had occurred on January 1, 2006. The unaudited pro forma condensed consolidated balance sheet presents the acquisitions as if they had occurred on December 31, 2006. Where applicable, all information has been translated from US dollars (“$”) to Canadian dollars (“CAD”). Income statement information of Loral Skynet has been translated using the average exchange rate for 2006 of $1.00/CAD 1.1344 and balance sheet information has been translated using the December 31, 2006 exchange rate of $1.00/CAD 1.1652. The unaudited pro forma condensed consolidated financial information is presented in accordance with Canadian GAAP. A reconciliation to United States GAAP is also provided.

     The acquisitions have been reflected by Telesat Holdings using the purchase method of accounting and the assets of Loral Skynet and Telesat Canada are presented at their estimated fair value. The unaudited pro forma condensed consolidated financial information presented, including the allocation of the purchase price, is based on preliminary estimates of the fair values of assets acquired and liabilities assumed. These preliminary estimates are based on available information, certain assumptions and preliminary valuation work performed by independent appraisers. These preliminary estimates will change upon finalization of the fair value of acquired assets and liabilities. The unaudited pro forma condensed consolidated financial information assumes that Telesat Holdings will acquire Telesat Canada and the assets of Loral Skynet simultaneously.

     Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with this unaudited pro forma condensed consolidated financial information. You should read the unaudited pro forma condensed consolidated financial

1

information and the related notes thereto in conjunction with the historical consolidated financial statements and related notes thereto of Loral Skynet and Telesat Canada, included elsewhere herein.

     The unaudited pro forma condensed consolidated financial information does not include any assumptions regarding cost savings synergies which may be achievable subsequent to the close of the transactions or savings as a result of refinancing the Bridge Facility or the benefits expected as a result of the successful launch of Anik F3 in April 2007. Nor does the unaudited pro forma condensed consolidated statement of operations include the effect of certain non-recurring transactions such as payments under retention plans to employees of Telesat Canada or Loral Skynet and redemption premiums relating to the early extinguishment of debt. The unaudited pro forma condensed consolidated financial information is not necessarily indicative of the financial position or results of operations that would actually have occurred had the transactions been consummated as of the dates or at the beginning of the periods presented, nor is it necessarily indicative of future operating results or financial position.

2

Telesat Holdings
Unaudited Pro Forma Condensed Consolidated Statement of Operations (1)
For the Year Ended December 31, 2006
( in thousands)

							Historical
	Historical			Historical			Telesat			Pro Forma Adjustments
	Loral Skynet			Loral Skynet			Canada			Acquisition			Financing			Pro Forma
	(US $)			(CAD)			(CAD)			(CAD)			(CAD)			(CAD)
Service revenues	$	163,707			185,709			435,123			—						620,832
Equipment sales revenues								43,842									43,842
Total operating revenues		163,707			185,709			478,965			—						664,674
Amortization		45,608			51,738			120,712			19,627	(a)					192,077
Operations and administration		96,925			109,952			183,388			(2,025	)(a)					291,315
Cost of equipment sales								34,578									34,578
Corporate allocations and management fees		9,949			11,286						(5,614	)(i)					5,672
Total operating expenses		152,482			172,976			338,678			11,988						523,642
Operating income		11,225			12,733			140,287			(11,988	)					141,032
Interest and investment income		8,718			9,890						(8,052	)(a2)					—
											(1,838	)(j)
Interest expense		(17,591	)		(19,955	)		(24,643	)		(4,078	)(j)		(12,235	)(d)		(306,267	)
														(276,154	)(e)
														(6,873	)(f)
														37,671	(g)
Other (expense) income		(4,766	)		(5,407	)		10,036			5,916	(j)					10,545
(Loss) income before taxes		(2,414	)		(2,739	)		125,680			(20,040	)		(257,591	)		(154,690	)
Income tax (provision) benefit		(5,367	)		(6,088	)		(21,688	)		7,094	(k)		86,856	(k)		66,174
(Loss) income after tax		(7,781	)		(8,827	)		103,992			(12,946	)		(170,735	)		(88,516	)
Equity losses of affiliates		(7,073	)		(8,024	)		—			8,024	(a2)		—			—
Net (loss) income	$	(14,854	)	$	(16,851	)	$	103,992		$	(4,922	)	$	(170,735	)	$	(88,516	)

⁽¹⁾ The Pro Forma column is presented in accordance with accounting principles generally accepted in Canada.

3

Telesat Holdings
Unaudited Pro Forma Condensed Consolidated Balance Sheet (1)
(in thousands)
December 31, 2006

							Historical
	Historical				Historical		Telesat			Pro Forma Adjustments
	Loral Skynet			Loral Skynet			Canada			Acquisition			Financing			Pro Forma
	(US $)			(CAD)			(CAD)			(CAD)			(CAD)			(CAD)
Assets:
Cash and cash equivalents	$	16,032			18,680			38,661			(3,279,680	)(a)		542,820	(d)		93,563
											(31,111	)(a)		3,228,351	(e)		—
											(6,578	)(h)		(64,887	)(f)
														(352,693	)(g)
Short-term investments		—			—			2,312									2,312
Accounts receivable, net		11,734			13,672			241,865			(201,000	)(a)					54,537
Other current assets		27,070			31,542			27,548			(18,946	)(a)					39,618
											(526	)(a)
Deferred tax asset — current		—			—			4,476									4,476
Total current assets		54,836			63,894			314,862			(3,537,841	)		3,353,591			194,506
Property, plant and equipment — net		451,437			526,014			1,388,319			(49,557	)(a)					1,864,776
Investments in and advances to affiliates		100,271			116,836			15,131			(116,836	)(a)					605
											(14,526	)(a)
Goodwill		85,933			100,129			53,280			(153,409	)(a)					2,275,886
											2,275,886	(a)
Other assets		65,765			76,629			31,117			(3,840	)(a)		(6,738	)(g)		1,035,434
											936,937	(a)
											1,329	(a)
Total assets	$	758,242			883,502			1,802,709			(661,857	)		3,346,853			5,371,207
Liabilities and Shareholders’ Equity
Current portion of debt	$	—			—			3,134						12,242	(e)		15,376
Accounts payable		6,896			8,035			41,087									49,122
Accrued employment costs		7,058			8,224			—									8,224
Customer advances		8,664			10,095			37,485									47,580
Income taxes payable		1,331			1,551			—			(1,551	)(a)					—
Accrued interest and preferred dividends		20,097			23,417			—						(23,417	)(b)		—
Other current liabilities		6,476			7,546			68,284			(21,200	)(a)					54,108
											(522	)(a)
Due to related parties		32,959			38,404			—			(35,053	)(a)					3,351
Total current liabilities		83,481			97,272			149,990			(58,326	)		(11,175	)		177,761
Pension and other postretirement liabilities		18,186			21,190			9,969			5,186	(a)					36,345
Long-term debt		128,084			149,243			200,742						3,216,109	(e)		3,154,964
														(346,243	)(g)
														(64,887	)(f)
Long-term liabilities		68,957			80,349			338,072			(19,068	)(a)					399,353
Deferred tax liability — long-term		—			—			195,382			117,623	(a)					313,005
Preferred stock, mandatorily redeemable														174,780	(d)		174,780
Total liabilities		298,708			348,054			894,155			45,415			2,968,584			4,256,208
Shareholders’ equity
Parent company investment		289,160			336,929			—			(586,580	)(c)		249,651	(b)		—
Common stock		—			—			341,116			(341,116	)(c)		38,099	(b)		1,149,447
											743,308	(a)		368,040	(d)
Series A preferred stock		214,256			249,651									(249,651	)(b)		—
Paid-in capital		—			—			184,416			(184,416	)(c)					—
(Accumulated deficit) retained earnings		(56,402	)		(64,719	)		386,399			(321,680	)(c)		(14,682	)(b)		(34,448	)
											(6,578	)(h)		(6,450	)(g)
														(6,738	)(g)
Accumulated other comprehensive income (loss)		12,520			13,587			(3,377	)		(10,210	)(c)					—
Total shareholders’ equity		459,534			535,448			908,554			(707,272	)		378,269			1,114,999
Total liabilities and shareholders’ equity	$	758,242			883,502			1,802,709			(661,857	)		3,346,853			5,371,207

(1) The Pro Forma column is presented in accordance with accounting principles generally accepted in Canada.

4

Telesat Holdings
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information

(a) Reflects the preliminary estimate of the allocation of the purchase price for Telesat Canada and Loral Skynet (CAD in thousands). The fair value of Loral Skynet reflects the negotiated value between Loral and PSP (as adjusted for the spending as of December 31, 2006 on Telstar 11N), of which $25.5 million (CAD 29.7 million) will be paid via the transfer of marketable securities to Loral and the balance in common stock of New Telesat. The historical amounts for Loral Skynet are based on the fair values determined in connection with Loral Skynet’s adoption of fresh-start accounting effective October 1, 2005.

	Loral
	Skynet			Telesat			Total
Purchase price (translated at $1.00/CAD1.1652)		29,680			3,250,000			3,279,680
Balance of fair value of Loral Skynet		743,308						743,308
Estimated acquisition costs (1)		—			31,111			31,111
Total purchase price to be allocated		772,988			3,281,111			4,054,099
Historical net assets		535,448			908,554			1,444,002
Less, historical goodwill		(100,129	)		(53,280	)		(153,409	)
Less excluded assets and liabilities:
Investment in XTAR (2)		(116,836	)					(116,836	)
Globalstar securities (2)		(18,946	)					(18,946	)
Due to related parties		35,053						35,053
Tax liabilities		20,615						20,615
Promissory notes receivable- BCE					(201,000	)		(201,000	)
Promissory notes receivable-TMI					(3,840	)		(3,840	)
Promissory notes payable — BCE					21,200			21,200
Investment in Wildblue					(14,526	)		(14,526	)
Acquired historical net assets		355,205			657,108			1,012,313
										Estimated
										Useful Life		Amortization
										(Years)		Expense
Estimated fair value increments:
Fixed assets		(34,257	)		(15,300	)		(49,557	)		7.2		(6,842	)
Intangible assets:
Orbital slots		17,944			494,100			512,044		Indefinite
Backlog, net		6,758			207,800			214,558			12.8		16,707
Customer relationships		56,046			138,600			194,646			19.9		9,762
Trade names		(4,311	)		20,000			15,689		Indefinite
Total intangible assets		76,437			860,500			936,937					26,469
Total adjustment to amortization													19,627
Pension asset					1,329			1,329					(1,407	)
Other benefits liability					(5,186	)		(5,186	)				(618	)
Total adjustment to operations and administration expenses													(2,025	)
Total estimated fair value increments		42,180			841,343			883,523
Less, related deferred tax impact (3)					(117,623	)		(117,623	)
Identifiable net assets at fair value		397,385			1,380,828			1,778,213
Goodwill		375,603			1,900,283			2,275,886

5

	(1)	Represents estimated merger and acquisition, legal, valuation and accounting fees.
	(2)	Income associated with excluded assets has also been adjusted. Accordingly, equity losses of affiliates of CAD 8,024, relating to XTAR and the gain on sale of Globalstar securities realized during 2006 of CAD 8,052 have also been eliminated.
	(3)	Represents a deferred tax adjustment on the Telesat fair market value increments, other than assets with indefinite lives, at the future tax rate of 32.37% and an additional valuation allowance on the tax benefit from capital losses to be incurred at the acquisition date.
	The unaudited pro forma condensed consolidated financial information reflects our preliminary allocation of the purchase price to goodwill and other assets and liabilities. The final purchase price allocation may result in a different allocation of these other assets and liabilities, including intangible assets, presented in this note. An increase or decrease in the amount of purchase price allocation to amortizable assets would affect the amount of annual amortization expense. Amortizable intangible assets have been amortized on a straight-line basis in the accompanying unaudited pro forma condensed consolidated statement of operations. The fair value reflected for satellites under construction is equal to the amount of costs incurred as of December 31, 2006.
(b)	Reflects the cash payments by Loral, concurrent with the close of the acquisitions, to fund the redemption of the Loral Skynet Series A Preferred Stock, as well as to pay all interest, redemption premium and any other amounts that may be due in respect of Loral Skynet’s senior secured notes (see Note g) (CAD in thousands):

Loral Skynet Series A Preferred Stock		249,651
Accrued dividends on the Loral Skynet Series A Preferred Stock	13,896
Accrued interest on the Loral Skynet senior secured notes	9,521
Total accrued interest and accrued dividends		23,417
Redemption premium on the Loral Skynet senior secured notes		14,682
Total accrued interest, preferred dividends and redemption premium to be paid		38,099
Total cash to be paid by Loral		287,750

	The charge for the redemption premium on the Loral Skynet Senior notes has not been included in the unaudited pro forma condensed consolidated statement of operations because it is a nonrecurring charge directly attributable to the transaction.
(c)	Reflects the elimination of the historical shareholders’ equity as follows (CAD in thousands):

	Loral
	Skynet			Telesat			Total
Parent company investment		586,580						586,580
Common stock					341,116			341,116
Paid-in capital					184,416			184,416
(Accumulated deficit) retained earnings		(64,719	)		386,399			321,680
Accumulated other comprehensive income (loss)		13,587			(3,377	)		10,210
		535,448			908,554			1,444,002

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(d) Reflects the cash equity contributions by PSP and reimbursement to Loral to effect the 64% / 36% economic ownership (CAD in thousands):

Common Equity
PSP	385,150
Loral	(17,110	)
Total common equity	368,040
			Dividends
			@ 7%
PSP Preferred Equity	174,780			12,235
Total cash to Telesat Holdings	542,820

	The PSP Preferred Equity has been reflected as a liability because it is mandatorily redeemable at the option of the holders on or after the twelfth anniversary of its issuance date and the dividends have been reflected as interest expense. The dividends on the preferred equity will be paid in kind (i.e. in additional shares of preferred stock) until certain financial conditions are achieved.
(e)	Reflects the receipt of the debt proceeds by Telesat Holdings to finance the Telesat acquisition price (CAD in thousands):

			Interest
	Principal		Expense
Term loan A (CAD denominated)		500,000		33,879
Term loan B (based on basis swap, forward contracts and December 31, 2006 exchange rate)		1,673,991		126,038
Bridge Facility (based on Loral and PSP forward contracts)		1,054,360		113,397
Commitment fees				2,840
Total debt		3,228,351		276,154
Less, current portion		12,242
Long-term debt		3,216,109

As of December 31, 2006, the weighted average interest rate for the Telesat debt is estimated to be 8.5%. This weighted average interest rate represents our best estimate of such rate based on market conditions as of December 31, 2006 and the anticipated credit rating of Telesat Holdings, and will be finalized at closing. The loans will typically bear interest at a floating rate of the Bankers Acceptance rate or an Alternative Base Rate, as applicable, or LIBOR plus an applicable margin. The annual pretax effect of a 1/8% variance in interest rates would be approximately CAD 4. Based on the committed debt financing and market conditions as of the date of this report, we estimate that the weighted average interest rate for the Telesat debt financing is likely to be approximately 9.0% per year.

	Included in the interest expense for the Bridge Facility is an estimated additional payment of CAD 11,300 to compensate lenders for Canadian withholding tax.
	It is the current intent to issue on the acquisition date senior unsecured notes that will make it unnecessary to draw on the Bridge Facility. If the Bridge Facility is drawn, Telesat Holdings would intend to refinance it promptly through the issuance of replacement senior unsecured notes. It is expected that the senior unsecured notes would have standard market terms and conditions for a financing of this type. Based upon market conditions as of December 31, 2006 and assuming the Bridge Facility is not drawn upon , it is estimated that Telesat Holdings interest expense in the first full year of operations would decrease by approximately CAD 18,000.
(f)	Reflects the estimated fees to be paid to the lenders and estimated expenses in connection with the debt financing of CAD 64.9.

These amounts have been reflected as debt discount on the accompanying unaudited pro forma condensed consolidated balance sheet.

Amortization of these fees was estimated using the effective interest method based on the term of the respective loan. Such amortization in the first year is estimated to be CAD 6,873.

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(g) Reflects the repayment of the existing Loral Skynet senior secured notes and Telesat bank debt (CAD in thousands):

			Redemption				Interest
	Debt		Premium		Total		Expense
Loral Skynet		149,243	(see (b) above)			149,243		20,230
Telesat — long term		197,000		6,450		203,450		17,441
		346,243		6,450		352,693		37,671
Write-off of Loral Skynet’s deferred financing cost relating to the 14% senior secured notes								6,738

	The charges for the redemption premium on the Loral Skynet senior secured notes and the Telesat long-term notes, as well as the write-off of the deferred financing cost relating to the Loral Skynet senior secured notes, have not been included in the unaudited pro forma condensed consolidated statement of operations because they are nonrecurring charges directly attributable to the transaction.
(h)	Reflects the estimated payments under retention plans to Telesat Canada and Loral Skynet employees of CAD 6.5.

The charges for these payments have not been included in the unaudited pro forma condensed consolidated statement of operations because they are nonrecurring charges directly attributable to the transaction. In addition, there are transaction related payments that are due to employees of Telesat Canada that are the responsibility of BCE. BCE may elect to have Telesat Canada make these payments, in which case, there would be a corresponding decrease in the purchase price.

(i) Reflects the provisions of the agreement to be entered into between Loral and Telesat to pay Loral $5 million for consulting services to be provided to Telesat ( in thousands):

Consulting services per agreement to be entered into with Loral		$	5,000
Historical Loral Corporate expenses allocated to Loral Skynet			9,949
Reduction to operating expenses		$	4,949
Reduction to operating expenses (translated at the average period rate of $1.00/CAD1.1344)	CAD		5,614

	We do not believe that Telesat will incur replacement costs as a result of this arrangement.
(j)	The Loral Skynet financial information presented herein is in accordance with Canadian GAAP in all material respects. The following reclassifications have been made to Loral Skynet’s historical financial statements to conform with the presentation used by Telesat Canada:

Reallocate the balance of interest and investment income not eliminated in (a1) above, to other income	CAD	1,838
Reallocate the interest expense capitalized by Loral Skynet to other income		4,078
	CAD	5,916

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(k)	Reflects a tax benefit on the pro forma adjustments, excluding a tax benefit on the preferred dividends described in Note (d) above, utilizing the Telesat Canada historical rate of 35.4%.
(l)	The following summarizes the nonrecurring charges directly attributable to the transaction that have not been included in the accompanying unaudited pro forma condensed consolidated statement of operations as more fully described in the notes above (CAD in thousands):
	Note Reference

(b	)	Redemption premium on the Loral Skynet senior notes	14,682
(g	)	Write-off of deferred financing cost relating to the Loral Skynet senior secured notes	6,738
(g	)	Redemption premium on the Telesat Canada long-term notes	6,450
(h	)	Payments under retention plans to employees of both companies	6,578
		Total nonrecurring charges directly attributable to the transaction not included in the pro forma statement of operations	34,448

(m) The unaudited pro forma condensed consolidated financial information has been presented in accordance with Canadian GAAP. The following reconciles the differences between Canadian GAAP and US GAAP:

Reconciliation of Pro Forma Net Loss
Canadian GAAP — Net Loss	CAD	(88,516	)
Gains (losses) on derivatives		(998	)
Tax effect of above adjustment		323
Tax effect of rate reduction		1,245

US GAAP — Net Loss	CAD	(87,946	)
Reconciliation of Pro Forma Shareholders’ Equity
Canadian GAAP — Shareholders’ Equity	CAD	1,114,999
Gains on derivatives		39,605
Tax effect of above adjustment		(12,820	)
US GAAP — Shareholders’ Equity	CAD	1,141,784

(n)

It is expected that Telesat will use EBITDA, to evaluate operating performance, to allocate resources and capital, to measure performance for incentive compensation programs, and to evaluate future growth opportunities. EBITDA consists of net income (loss) before interest, taxes and depreciation and amortization. EBITDA is a measure commonly used in the Fixed Satellite Services sector, and is presented to enhance the understanding of Telesat’s operating performance. EBITDA is one criterion for evaluating Telesat’s performance relative to that of its peers. It is believed that EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. However, EBITDA is not a measure of financial performance under GAAP, and Telesat’s EBITDA may not be comparable to similarly titled measures of other companies. You should not consider Telesat’s EBITDA as an alternative to operating or net income, determined in accordance with GAAP, as an indicator of Telesat’s operating performance, or as an alternative to cash flows from operating activities, determined in accordance with GAAP, as an indicator of cash flows, or as a measure of liquidity.

The following reconciles pro forma EBITDA to pro forma net loss (CAD in thousands):

Pro Forma Net loss	(88,516	)
Income tax provision (benefit)	(66,174	)
Loss before income taxes	(154,690	)
Interest included in Other income:
Capitalized interest	(16,262	)
Interest income	(6,349	)
Performance incentive payments and milestone interest expense	6,018
Interest expense	306,267
Amortization	192,077
Pro Forma EBITDA	327,061

The pro forma EBITDA does not include any assumptions regarding cost savings synergies which may be achievable subsequent to the close of the transactions or benefits expected as a result of the successful launch of Anik F3 in April 2007. Nor does the pro forma EBITDA include the effect of certain non-recurring transactions such as payments under retention plans to employees of Telesat Canada or Loral Skynet.

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EX-99.4

Exhibit 99.4

PRO FORMA EFFECT ON LORAL OF THE COMBINATION OF LORAL SKYNET
AND TELESAT CANADA

     Unaudited Pro Forma Condensed Consolidated Financial Information

     The following unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2006 and the unaudited pro forma condensed consolidated balance sheet as of December 31, 2006 give effect to Loral Space & Communications Inc.’s (“Loral”) contribution of substantially all of Loral Skynet Corporation’s (“Loral Skynet”) assets to Telesat Holdings, a new company formed by Loral and its Canadian partner in these transactions, the Public Sector Pension Investment Board (“PSP”), to acquire 100% of the shares of Telesat Canada and certain other assets. The unaudited pro forma information also gives effect to the cash payments Loral will be required to make in connection with the redemption of Loral Skynet’s 12% non-convertible preferred stock and certain other payments associated with the transaction. Loral will account for its investment in Telesat Holdings using the equity method of accounting.

     The unaudited Loral pro forma condensed consolidated financial information is based on the unaudited pro forma condensed consolidated financial information of Telesat Holdings, included elsewhere herein. The Loral unaudited pro forma condensed consolidated statement of operations assumes the contribution of Loral Skynet and the acquisition of Telesat Canada occurred on January 1, 2006 and the Loral unaudited condensed consolidated balance sheet assumes the transactions occurred on December 31, 2006. The unaudited pro forma condensed consolidated financial information of Loral reflects its investment in Telesat Holdings based on the historical book value of the contributed assets and liabilities of Loral Skynet to the extent of Loral’s 64% continuing economic interest in those assets and the gain related to PSP’s 36% economic interest in Telesat Holdings. Loral will have a significant continuing interest in Telesat Holdings and, accordingly, will only recognize a gain to the extent of PSP’s economic interest in the contributed assets and liabilities of Loral Skynet through their 36% ownership interest in Telesat Holdings. The unaudited pro forma condensed consolidated financial information is not necessarily indicative of the financial position or results of operations that would actually have occurred had the transactions been consummated as of the dates or as at the beginning of the periods presented, nor is it necessarily indicative of future operating results or financial position.

     Assumptions underlying the pro forma adjustments are described in the accompanying notes which should be read in conjunction with this unaudited pro forma condensed consolidated financial information. You should read the unaudited proforma condensed consolidated

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financial information and the related notes thereto in conjunction with the unaudited pro forma condensed consolidated financial information and the related notes thereto of Telesat Holdings and the historical consolidated financial statements and related notes thereto of Loral Skynet and Telesat Canada included elsewhere herein, and the historical consolidated financial statements and related notes thereto of Loral, included in its Annual Report on Form 10-K for the year ended December 31, 2006.

2

Loral Space & Communications Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
(in thousands)

	Year ended December 31, 2006
	Historical			Historical
	Consolidated			Loral			Pro-forma
	Loral			Skynet (a)			Adjustments			Pro-forma
Revenues from satellite manufacturing	$	636,632		$	—		$	59,894	(d)	$	696,526
Revenues from satellite services		160,701			(163,707	)		3,006	(e)		—
Total revenues		797,333			(163,707	)		62,900			696,526
Cost of satellite manufacturing		550,821			—			56,988	(d)		607,809
Cost of satellite services		98,614			(99,287	)		673	(e)		—
Selling, general and administrative expenses		127,080			(53,195	)		4,949	(f)		78,834
Gain on litigation settlement		(9,000	)		—			—			(9,000	)
Operating income		29,818			(11,225	)		290			18,883
Interest and investment income		31,526			(8,718	)		7,098	(c1)		29,906
Interest expense		(23,449	)		17,591			—			(5,858	)
Other expense		(7,778	)		4,766			—			(3,012	)
Income from operations before income taxes, equity losses in affiliates and minority interest		30,117			2,414			7,388			39,919
Income tax provision		(20,880	)		5,367			(2,918	)(h)		(18,431	)
Income from operations before equity losses in affiliates and minority interest		9,237			7,781			4,470			21,488
Equity losses in affiliates		(7,163	)		7,073			(7,073	)(c1)		(57,992	)
								(1,116	)(d)
								(49,713	)(g)
Minority interest		(24,794	)		24,794			—			—
Net loss	$	(22,720	)	$	39,648		$	(53,432	)	$	(36,504	)
Basic and diluted loss per share	$	(1.14	)							$	(1.83	)
Weighted average shares outstanding:
Basic and diluted		20,000									20,000

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Loral Space & Communications Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
(in thousands)

	As of December 31, 2006
	Historical Consolidated			Historical Loral			Pro-forma
	Loral			Skynet (a)			Adjustments			Pro-forma
ASSETS
Current assets:
Cash and cash equivalents	$	186,542		$	(16,032	)	$	(100,209)	(b)	$	70,301
Short-term investments		106,588			—			(106,588)	(b)		—
Accounts receivable, net		76,420			(11,734	)		—			64,686
Contracts-in-process		40,433			—			—			40,433
Inventories		82,183			(552	)		—			81,631
Other current assets		55,534			(26,518	)		16,260	(c)		45,727
								451	(c)
Due (to) from related parties					32,959			(30,083)	(c)		2,876
Total current assets		547,700			(21,877	)		(220,169	)		305,654
Property, plant and equipment, net		558,879			(451,437	)		—			107,442
Long-term receivables		81,164			—			—			81,164
Investments in and advances to affiliates		97,202			(100,271	)		100,271	(c)		97,202
Investment in New Telesat								206,797	(b)		474,977
								176,523	(c)
								91,657	(c)
Goodwill		305,691			(85,933	)		—			219,758
Other assets		139,275			(65,765	)		—			73,510
Total assets	$	1,729,911		$	(725,283	)	$	355,079		$	1,359,707
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	67,604		$	(6,896	)	$	—		$	60,708
Accrued employment costs		43,797			(7,058	)		—			36,739
Customer advances and billings in excess of costs and profits		242,661			(8,664	)		—			233,997
Income taxes payable		2,567			(1,331	)		1,331	(c)		2,567
Accrued interest and preferred dividends		20,097			(20,097	)		—			—
Other current liabilities		42,828			(6,476	)		448	(c)		36,800
Total current liabilities		419,554			(50,522	)		1,779			370,811
Pension and other postretirement liabilities		167,987			(18,186	)		—			149,801
Long-term debt		128,084			(128,084	)		—			—
Long-term liabilities		153,028			(68,957	)		16,365	(c)		100,436
Total liabilities		868,653			(265,749	)		18,144			621,048
Minority interest		214,256			(214,256	)		—			—
Shareholders’ equity:
Intercompany investment		—			(289,160	)		289,160	(c)		—
Common stock, $.01 par value; 40,000,000 shares authorized, 20,000,000 shares issued and outstanding at December 31, 2006		200			—			—			200
Paid-in capital		644,708			—			—			644,708
(Accumulated deficit) Retained earnings		(37,981	)		56,402			(56,402)	(c)		53,676
								91,657	(c)
Accumulated other comprehensive income (loss)		40,075			(12,520	)		12,520	(c)		40,075
Total shareholders’ equity		647,002			(245,278	)		336,935	(c)		738,659
Total liabilities and shareholders’ equity	$	1,729,911		$	(725,283	)	$	355,079		$	1,359,707

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Loral Space & Communications Inc.
Notes to Unaudited Condensed Consolidated Financial Information

(a)	The Loral Skynet results of operations and financial position have been presented separately on the accompanying unaudited condensed consolidated statement of operations and balance sheet, respectively, to be deducted from the Loral consolidated as the first step in determining the pro forma effect of the transactions.
(b)	Reflects the cash payments by Loral, concurrent with the close of the transactions, to redeem the Loral Skynet Series A Preferred Stock, as well as to pay all interest, redemption premium and any other amounts that may be due in respect of Loral Skynet’s senior secured notes, net of the cash received from Telesat Holdings to effect the 64% / 36% ownership split (US$ in thousands):

Loral Skynet Series A Preferred Stock	$	214,256
Accrued dividends on the Loral Skynet Series A Preferred Stock		11,926
Accrued interest on the Loral Skynet senior secured notes		8,171
Redemption premium on the Loral Skynet senior secured notes		12,600
Cash received from Telesat Holdings to effect 64% / 36% economic ownership		(14,684	)
Net cash paid by Loral for its investment in Telesat Holdings		232,269
Cash proceeds from Telesat Holdings for the contribution of Loral Skynet		(25,472	)
Net cash to be paid by Loral	$	206,797

(c) Reflects the elimination of the historical Loral Skynet equity accounts and the contribution of Loral Skynet to Telesat Holdings at historical book value, as follows (in thousands):

Historical net assets of Loral Skynet	$	245,278
Less, excluded assets and liabilities:
Investment in XTAR (1)		100,271
Globalstar securities (1)		16,260
Due to related parties		(30,083	)
Tax liabilities		(17,693	)
Net assets contributed to Telesat Holdings	$	176,523

(1) Income associated with assets excluded from the contribution of Loral Skynet to Telesat Holdings has also been adjusted. Accordingly, equity losses of affiliates of $7,073, relating to XTAR and the gain on sale of Globalstar securities realized during the year of $7,098 have also been reinstated.

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The unaudited pro forma condensed consolidated statement of operations does not reflect the non-recurring gain Loral will record related to the contribution of Loral Skynet by Loral, as follows (in thousands):

Consideration received for the contribution of Loral Skynet to Telesat Holdings:
Cash	CAD		29,680
Equity value in Telesat Holdings			743,308
Total consideration	CAD		772,988
Adjusted to US $($1.00/CAD1.1652)		$	663,395
Less, net cash paid by Loral for its investment in Telesat Holdings			(232,269	)
Net consideration for the contribution of Loral Skynet to Telesat Holdings			431,126
Book value of net assets contributed per above			(176,523	)
Total gain		$	254,603
Partial gain to be recognized		$	91,657

	The partial gain to be recognized represents the total gain less the portion of that gain represented by the 64% economic interest retained, in accordance with EITF 01-2: Interpretations of APB Opinion NO. 29.
(d)	Reflects the recharacterization of intercompany sales and gross profit from SS/L to Loral Skynet that were fully eliminated in the Loral consolidated results and will now be eliminated in the “Equity (Losses) Income of Affiliates” line to the extent of Loral’s 64% economic interest in Telesat Holdings, as follows ( in thousands):

Revenues	$	59,894
Cost of sales		56,988
Gross profit	$	2,906
Elimination to the extent of Loral’s economic interest (64%)	$	1,860
Elimination, net of 40% tax rate	$	1,116

(e)	Reflects the reinstatement of intercompany sales of $3,006 from Loral Skynet to SS/L and intercompany eliminations of $673 primarily relating to depreciation expense, that were eliminated in Loral’s consolidated results.
(f)	Reflects the provisions of the agreement to be entered into between Loral and Telesat Holdings to pay Loral $5 million for consulting services to be provided to Telesat Holdings (in thousands):

Consulting services per agreement to be entered into with Loral	$	5,000
Historical Loral Corporate expenses allocated to Loral Skynet		9,949
Excess Corporate expenses to be absorbed by Loral	$	(4,949	)

(g) Reflects our share of the earnings of Telesat Holdings, as follows (in thousands):

Pro forma net loss of Telesat Holdings in Canadian Dollars and in accordance with US GAAP	CAD	(88,516	)
Loral’s share - 64%	CAD	(56,650	)

Add 64% of the amortization on the fair value step-ups for Loral Skynet			256	(1)
Pro forma net loss of Telesat Holdings in Canadian Dollars, as adjusted	CAD		(56,394	)
Converted to U.S. dollars at $1.00/CAD 1.1344		$	(49,713	)

(1) The contribution by Loral of the Loral Skynet operations to Telesat Holdings will be recorded by Loral at the historical book value with only partial gain recognition as described in Note (c), above. However, the contribution will be recorded by Telesat Holdings at fair value. Accordingly, the amortization of the fair value step-ups applicable to the Loral Skynet assets and liabilities will be proportionately adjusted in determining Loral’s proportionate share of the earnings of Telesat Holdings.

(h) Reflects a tax provision on the pro forma adjustments using the statutory rate of 39.5%. Assumes a 100% valuation allowance on the tax benefit relating to the equity loss on affiliates described in Note (g) above.

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