10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

Commission file number 0-22085

LORAL ORION, INC.

Delaware
(State or other jurisdiction of
incorporation or organization) 52-1564318
(I.R.S. Employer
Identification No.)

500 Hills Drive, Bedminster, NJ 07921

Telephone: (908) 470-2300

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

11 1/4% Senior Notes Due 2007

12 1/2% Senior Discount Notes Due 2007

10% Senior Notes Due 2006

      Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ          No o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12 b-20. Yes o          No x

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [Not Applicable]

      The number of shares of common stock, par value $.01 per share of the registrant outstanding as of December 31, 2002 was 100, all of which were owned, directly or indirectly, by Loral Space & Communications Ltd. The aggregate market value of the common shares held by affiliates was zero.

      THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND (b) OF FORM 10-K AND IS THEREFORE FILING WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION I(2) OF FORM 10-K.

Documents Incorporated by Reference

None

________________________________________________________________________________

TABLE OF CONTENTS

PART I
	Item 1. Business
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
	Item 6. Selected Financial Data
	Item 7. Management’s Narrative Analysis of Results of Operations
	Item 7a. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS’ REPORT
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF STOCKHOLDER’S (DEFICIT) EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
CONDENSED CONSOLIDATING BALANCE SHEET
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
	Item 9. Changes In and Disagreements With Accountants and Accounting and Financial Disclosures
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 13. Certain Relationships and Related Transactions
	Item 14. Evaluation of Disclosure Controls and Procedures
PART IV
	Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
INDEX TO EXHIBITS
SIGNATURES
APSTAR V CONDOSAT AGREEMENT

PART I

Item 1.     Business

General

      Loral Orion, Inc. (“we”, “us”, “Loral Orion” or the “Company”), is a provider of satellite-based communications services, providing fixed satellite services, including video distribution and other satellite transmission services.

Business Segment

      The Company operates in one business segment, Fixed Satellite Services. On December 21, 2001, the Company, in connection with completing exchange offers for its outstanding senior notes and senior discount notes, transferred its data services business to a subsidiary of Loral Space & Communications Ltd. (“Loral”) and has accounted for the former data business as a discontinued operation.

      Loral Orion, through its ownership of three high power geostationary satellites, and with agreements with Loral Skynet, a division of Loral SpaceCom Corporation, a wholly owned subsidiary of Loral, provides transmission capacity to cable and television programmers, news and information networks, telecommunications companies, Internet service providers, ISPs and other carriers for a variety of applications. The Company’s customers include HBO, Disney, Cable & Wireless and United Pan Europe Communications. A majority of the Company’s transmission capacity services consist of video services. The Company generally offers transmission capacity services under long-term contracts and also offers occasional use services for periods of up to a few hundred hours. Unless otherwise indicated, all transponder references for the Company’s satellites are in 36 MHz equivalents.

      About 200 commercial geosynchronous satellites currently offer fixed satellite services. The Company competes primarily with large fleet operators, including PanAmSat Corporation, SES Global, Intelsat and Eutelsat. Large fleets offer customers global or near-global coverage and in-orbit backup in case of a satellite failure. The Company is a member of the Loral Global Alliance, whose other members include Loral Skynet, Skynet do Brasil, Satelites Mexicanos, S.A de C.V. and Europe*Star Limited. The Loral Global Alliance, with ten satellites currently and 15 expected, enhances the geographic reach, market presence and offerings of Loral Orion.

      In providing fixed satellite services, the Company faces competition from fiber optic cable and other terrestrial delivery systems. In some applications, such as broadcast or point-to-multipoint transmission of video, satellites are usually considerably more efficient. In other applications, fiber may cost less, so that satellites compete on the basis of superior reliability, or as a back-up service.

      Telstar 11, a high power satellite with 48 Ku-band transponders, commenced operations in January 1995, and provides coverage in North America as far west as Phoenix, Arizona and in Europe as far east as Istanbul, Turkey.

      Telstar 12, a high power satellite with 57 Ku-band transponders, commenced operations in January 2000 and expands Loral Orion’s European coverage and extends coverage to portions of Russia, Latin America, the Middle East and South Africa. Telstar 12 was launched in October 1999 into 15 degrees W.L.

      Telstar 10/ Apstar IIR, formerly known as Apstar IIR, a high power satellite with 28 C-Band and 24 Ku-Band transponders, commenced operations in December 1997 and covers portions of Asia, Europe, Africa and Australia, accounting for more than 75% of the world’s population. Loral Orion purchased all of Telstar 10/ Apstar IIR’s transponder capacity (other than a single, reserved C-Band transponder) from APT Satellite Company in September 1999.

      On September 20, 2002, Loral Orion entered into an agreement with APT Satellite Company Limited (“APT”) pursuant to which Loral Orion will purchase a 50% interest in the Telstar 18/ Apstar V satellite, a satellite under construction by Space Systems/ Loral (“SS/ L”) for APT. Loral Orion’s aggregate purchase price for its 50% interest in the satellite is $115.1 million, representing 50% of the current estimated project

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cost of constructing, launching and insuring the Telstar 18/ Apstar V satellite, which purchase price will be adjusted if the actual project cost should be greater or less than $230.2 million. In addition, Loral Orion has agreed to bear the cost of modifying the footprint of one of the Ku-band beams on the satellite. Telstar 18/ Apstar V will have a total of 54 transponders, comprised of 24 standard C-band transponders, 14 extended C-band transponders and 16 Ku-band transponders. Under this transaction, Loral Orion has agreed to purchase 12 standard C-band, 7 extended C-band and 8 Ku-band transponders on Telstar 18/Apstar V, which capacity will be designated Telstar 18. Loral Orion will also have the option to enter into similar arrangements with APT on replacement satellites upon the end of life of Telstar 18/ Apstar V. To be located at 138 degrees East Longitude, Telstar 18/ Apstar V is currently scheduled to be launched in the third quarter of 2003 and will be capable of providing Ku-band voice, video and data services to China, India and East Asia, and broadbeam C-band services throughout the Asia-Pacific region, including Australia and Hawaii. To ensure a timely launch of Telstar 18/ Apstar V, Loral Orion, APT and SS/ L have agreed that a non-Chinese launch provider will be used.

      Pursuant to Loral Orion’s agreement with APT, Loral Orion will pay one-half the purchase price prior to launch for 13.5 transponders on the satellite. The corresponding cumulative costs relating to these transponders have been reflected as satellites under construction on Loral Orion’s condensed consolidated balance sheet as of December 31, 2002. Subject to certain acceleration rights on the part of Loral Orion, the remainder of the purchase price for the second 13.5 transponders will be paid by Loral Orion as follows: on the second anniversary of the satellite’s in-service date, $10.66 million for 2.5 additional transponders; on the third anniversary of the satellite’s in-service date, $12.79 million for three additional transponders; and on each of the fourth and fifth anniversaries of the satellite’s in-service date, $17.05 million for four additional transponders. Title to these transponders will pass to Loral Orion upon its payments thereon. As a result of finalizing the Telstar 18/ Apstar V launch arrangements in March 2003, Loral Orion agreed to take two fewer transponders without any corresponding change to the transponder cost borne by each of the parties. Loral SpaceCom has agreed to purchase from Loral Orion 4.75 transponders on Telstar 18/Apstar V, together with a lease of an additional transponder for an approximate two year period from the Telstar 18/Apstar V in-service date.

Agreements with Loral Skynet and Loral

      Loral Orion and Loral Skynet, entered into agreements (the “Loral Skynet Agreements”) effective January 1, 1999, whereby Loral Skynet provides to Loral Orion (i) marketing and sales of satellite capacity services on the Loral Orion satellite network and related billing and administration of customer contracts for those services (the “Sales Services”) and (ii) telemetry, tracking and control services for the Loral Orion satellite network (the “Technical Services”, and together with the Sales Services, the “Services”). The Company is charged Loral Skynet’s costs for providing these services plus a 5 percent administrative fee. Loral Orion believes it has achieved cost efficiencies in connection with the Loral Skynet Agreements.

      Beginning in 2002, Loral initiated the allocation of corporate management expenses to its individual subsidiaries and divisions, including $3.1 million to Loral Orion. The allocation of these expenses is computed with respect to Loral Orion in a manner consistent with Loral’s other subsidiaries and divisions, using a fixed formula based on three factors: employee payroll, revenues and assets.

Exchange Offers and Transfer of Data Business

      In December 2001, the Company successfully completed exchange offers for $841 million aggregate principal amount of 11.25% senior notes due 2007 and 12.50% senior discount notes due 2007 in exchange for $613 million principal amount of the Company’s 10% senior notes due July 15, 2006, which 10% senior notes are guaranteed by Loral, together with five-year warrants to purchase 6,042,986 shares of Loral’s common stock at a purchase price of $2.37 per share and $59,753 in cash paid to certain holders of new senior notes in lieu of receipt of a principal amount of new senior notes in a denomination other than an integral multiple of $1,000. The exchange offers were part of a plan to reduce and refinance the Company’s indebtedness and to create a capital structure that is intended to permit the Company to finance anticipated obligations with respect to its fixed satellite services business. Approximately $37 million principal amount of the original

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senior notes and $49 million principal amount of the senior discount notes remain outstanding after consummation of the exchange offers.

      In connection with the consummation of the exchange offers, Loral SpaceCom Corporation agreed to cancel its $79.7 million intercompany note issued to it by the Company which ranked pari passu to the senior debt in exchange for the transfer of the Company’s data services business to a newly formed Loral subsidiary, and the issuance of a new note to Loral SpaceCom Corporation in the principal amount of $29.7 million due 2006, having an interest rate of 10% per annum payable in kind, subordinated to the Company’s new senior notes and guaranteed by Loral.

Summary Satellite Data

      The following table presents a brief description of the Company’s satellite network. The Company is subject to regulation and licensing by the U.S. Federal Communications Commission and other national telecommunications regulatory bodies, and to the frequency coordination process of the International Telecommunications Union, or ITU.

      All satellite systems are subject to ITU frequency coordination requirements and must obtain appropriate authority to provide service in a given territory. The result of the required international coordination process may limit the extent to which all or some portion of a particular authorized orbital slot may be used for commercial operations. In addition, the result of the process by which satellite systems must seek authorization to provide service in a given territory may limit the extent to which such service may be provided from a given orbital location.

      The Company’s ability to provide satellite service in the geographic regions noted below will be subject to technical constraints, international coordination, local regulatory approval and any limitations on the scope of the approval so obtained.

	Satellite	Location	Frequency	Coverage
Satellites in operation:	Telstar 10/ Apstar IIR	76.5(degrees)E.L.	C/ Ku-band	Asia and portions of Europe, portions of Africa and Australia
	Telstar 11	37.5(degrees)W.L.	Ku-band	Europe, SE Canada, U.S. East of the Rockies and portions of Mexico
	Telstar 12	15(degrees)W.L.	Ku-band	Eastern U.S., SE Canada, Europe, Russia, Middle East, North Africa, portions of South America, portions of Central America
Satellite nearing completion of construction:	Telstar 18/ Apstar V (1)	138(degrees)E.L.	C/ Ku-band	India, South East Asia, China, Australia and Hawaii

⁽¹⁾ Telstar 18/ Apstar V is a satellite subject to a condosat arrangement between the Company and a third party. The Company will own 18 C-band and 7 Ku-band transponders on the Telstar 18/ Apstar V satellite with the remaining 29 transponders on the satellite to be owned by an Asian satellite services company. Loral SpaceCom has agreed to purchase from Loral Orion 4.75 transponders on Telstar 18/Apstar V, together with a lease of an additional transponder for an approximate two year period from the Telstar 18/Apstar V in-service date.

Employees

      As of December 31, 2002, Loral Orion and its subsidiaries had no full time employees. See Loral Skynet Agreements.

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CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

      This annual report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition, from time to time, we, Loral or our representatives have made or may make forward-looking statements, orally or in writing. They can be identified by the use of forward-looking words such as “believes”, “expects”, “plans”, “may”, “will”, “would”, “could”, “should”, “anticipates”, “estimates”, “project”, “intend”, or “outlook” or their negatives or other variations of these words or other comparable words, or by discussions of strategy that involve risks and uncertainties. Such forward-looking statements may be included in, but are not limited to, various filings made by us with the Securities and Exchange Commission, press releases or oral statements made by or with the approval of an authorized executive officer. We warn you that forward-looking statements are only predictions. Actual events or results may differ materially as a result of risks that we face, including those presented below. We undertake no obligation to update any forward-looking statements. The following are representative of factors that could affect the outcome of the forward-looking statements.

Financial Structure

We have substantial debt.

      As of December 31, 2002, we had $960 million of senior debt. Our 10% senior notes mature in 2006 and are guaranteed by Loral. In addition, our 11.25% senior notes and 12.50% senior discount notes mature in 2007. Our ability to meet our debt service obligations will be dependent upon our future performance, including our ability to sustain our revenues, which will be subject to financial, business, competitive and other factors, including factors beyond our control. There can be no assurance that we will be able to generate sufficient cash flow to meet our debt service obligations with respect to all of our outstanding indebtedness, if there was an uninsured loss of one of our satellites or as a result of other factors beyond our control.

If our business plan does not succeed, our operations might not generate enough cash to pay our obligations.

      For the year ended December 31, 2002, we had a deficiency of earnings to cover fixed charges of approximately $5.4 million. In addition to our debt service requirements, our business are capital intensive and need substantial investment before returns can be realized. At December 31, 2002, the Company had incurred costs of approximately $18 million (of which we had paid $3 million) related to the construction of Telstar 18/Apstar V it intends to launch in 2003. The Company will need to incur approximately $11 million of additional costs to complete the construction, launch and insure Telstar 18/Apstar V and an additional $58 million to acquire additional transponders on Telstar 18/Apstar V to be paid in installments over the second through fifth anniversaries of the launch. We are subject to substantial financial risks from possible delays or reductions in revenue, unforeseen capital needs or unforeseen expenses. If this were to occur, our ability to meet our obligations and execute our business plan could depend upon our ability, and that of our operating subsidiaries and affiliates, to raise cash in the capital markets. We are uncertain whether this source of cash will be available in the future on favorable terms if at all. Moreover, in connection with amendments to certain of its bank facilities entered in March 2003, Loral’s ability to make investments in or otherwise make payment to any of its subsidiaries, including us, has been limited to a maximum amount of $5 million.

Our debt imposes restrictions and otherwise affects our ability to undertake certain actions.

      The indentures relating to our 10% senior notes contain restrictions, which among other things, limit our ability to incur other indebtedness, create liens, make investments, sell assets, pay dividends and engage in mergers and acquisitions. In addition, the level of our indebtedness adversely affects:

•  our ability to pay expenses and fund expenditures, which will be affected by our need to use a substantial amount of our cash flow to service existing indebtedness;

•  our ability to raise additional debt; and

•  our flexibility in planning for, or reacting to, changes to our business and market conditions.

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Operational Risks

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

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

After launch, our satellites remain vulnerable to in-orbit failures, which may result in uninsured losses.

      Failure of satellite components in space may result in damage to or loss of a satellite before the end of its expected life. In-orbit failure may result from various causes, some random, including component failure, loss of power or fuel, inability to maintain positioning of the satellite, solar and other astronomical events, and space debris. Satellites are carefully built and tested and have some redundant components to permit the continued operation of a satellite in case of a component failure. Due to the failure of a primary component, one of our satellites is currently operating using a back-up component. If this back-up component fails and the primary component cannot be restored, this satellite could lose a significant amount of capacity or be a total loss, which, until a replacement satellite is placed in-orbit, would result in lost revenue and lost profits to the Company. Repair of satellites in space is not feasible. Many factors affect the useful life of our satellites including fuel consumption, the quality of construction, degradation of solar panels and the durability of components.

Telstar 10/ Apstar IIR has experienced operational problems with its solar arrays.

      Telstar 10/ Apstar IIR has experienced minor losses of power from its solar arrays. Although, to date, Telstar 10/ Apstar IIR has not experienced any degradation in performance, there can be no assurance that Telstar 10/ Apstar IIR will not experience additional power loss that could result in performance degradation, including loss of transponder capacity. 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, when in the life of Telstar 10/ Apstar IIR the loss occurred, and the number and type of use being made of transponders then in service. It is also possible that one or more transponders on a satellite may need to be removed from service to accommodate the power loss and to preserve full performance capabilities of the remaining transponders. A complete or partial loss of Telstar 10/ Apstar IIR 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 results of operations.

It may be difficult to obtain full insurance coverage for satellites that have experienced problems in the past.

      While we have in the past, consistent with industry practice and the requirements of our indenture, typically obtained in-orbit insurance for our satellites, we cannot guarantee that, upon a policy’s expiration, we will be able to renew the insurance on terms acceptable to us, especially on satellites that have, or that are part of a family of satellites that have, experienced problems in the past. Telstar 10/ Apstar IIR was manufactured by SS/ L and has the same solar array configuration as two other 1300-class satellites manufactured by SS/ L that have experienced solar array failures. SS/ L believes that these failures are isolated events and does not reflect a systemic problem in either the satellite design or manufacturing process. Accordingly, SS/ L believes that these anomalies will not affect Telstar 10/ Apstar IIR. The insurance coverage for Telstar 10/ Apstar IIR provides for coverage of losses due to solar array failures only in the event of a capacity loss of 75% or more. One other satellite owned by Loral Orion has the same solar array configuration as Telstar 10/ Apstar IIR. There can be no assurance that the insurers will not require either exclusions of, or similar limitations on,

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coverage due to solar array failures in connection with the renewal of insurance for this satellite in 2004. An uninsured loss of a satellite would have a material adverse effect on our consolidated financial position and results of operations. Some of our bondholders have questioned whether this limitation is in compliance with the insurance covenant in our indenture. We believe that we are in compliance with the covenant as properly interpreted. If, however, our bondholders were to give notice of a default under the indenture because of such limitations, and a court ruled against us on this matter, the maturity of our 10% senior notes could be accelerated.

We are faced with increased costs due to the recent trend in the insurance industry towards higher insurance premiums and shorter terms.

      We, like others in the satellite industry, are faced with significantly higher premiums on launch and in-orbit insurance, increasing thresholds in determining total losses for satellites in orbit and significantly shorter coverage periods than those that have been available in the past, which was due in part to the events of September 11, 2001. This development in the insurance industry has increased our cost of doing business. We intend to pass on some of the increased cost to our customers. There can be no assurance, however, that we will be able to do so. Insurance market conditions have historically been cyclical in nature. While we anticipate that these conditions will improve in the future, there can be no assurance that they will.

We compete for market share and customers; technological developments from competitors or others may reduce demand for our services.

      We face heavy competition in fixed satellite services from companies such as PanAmSat Corporation, SES Global and newly privatized organizations such as Intelsat and Eutelsat. Competition in this market may lower prices or result in reduced satellite fleet utilization, which may have an adverse effect on our consolidated financial position and our results of operations. We also face competition from fiber optic cable and other terrestrial delivery systems, which have a cost advantage in point-to-point applications. In addition, there is currently heightened competition among fixed satellite services providers as a result of an excess supply of transponders in the market, declining utilization by existing customers and lack of new customers entering the market. Moreover, we have recently experienced a higher rate of customer defaults than in previous years which trend, if it continues, will further increase the overcapacity in the market.

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

Our business is regulated, causing uncertainty and additional costs.

      Our business is regulated by authorities in multiple jurisdictions, including the Federal Communications Commission, the International Telecommunication Union, or ITU, and the European Union. The following are some strategically important activities which are regulated and could be adversely affected by regulatory policies:

•  the operation of our business in the U.S. and foreign markets;

•  the launch of satellites; and

•  the international service offered by our business operations.

      Regulatory authorities in the various jurisdictions in which we operate can modify, withdraw or impose charges or conditions upon, or deny or delay action on applications for, the licenses which we need, and so increase our costs. The regulatory process also requires potentially costly negotiations with third parties operating or intending to operate satellites at or near orbital locations where we place our satellites so that the frequencies of those other satellites do not interfere with our own. For example, as part of our coordination effort on Telstar 12, we agreed to provide four 54 MHz transponders on Telstar 12 to Eutelsat for the life of

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the satellite and have retained risk of loss with respect to those transponders. We also granted Eutelsat the right to acquire, at cost, four transponders on the next replacement satellite for Telstar 12. Moreover, as part of this international coordination process, we continue to conduct discussions with various administrations regarding Telstar 12’s operations at 15 degrees W.L. If these discussions are not successful, Telstar 12’s useable capacity may be reduced. We cannot guarantee successful frequency coordination for our satellites.

      Failure to successfully coordinate our satellites’ frequencies or to resolve other required regulatory approvals could have an adverse effect on our consolidated financial position and our results of operations.

We face risks in conducting business internationally.

      For the year ended December 31, 2002, approximately 43% of our revenue was generated from customers located outside of the United States. We could be harmed financially and operationally by changes in foreign regulations and telecommunications standards, tariffs or taxes and other trade barriers. Almost all of our contracts with foreign customers require payment in U.S. dollars, and customers in developing countries could have difficulty obtaining U.S. dollars to pay us due to currency exchange controls and other factors. Exchange rate fluctuations may adversely affect the ability of our customers to pay us in U.S. dollars. If we need to pursue legal remedies against our foreign business partners or customers, we may have to sue them abroad where it could be difficult for us to enforce our rights.

Other Matters

The rights of holders of our 11.25% senior notes and 12.50% senior discount notes under their indentures have been substantially reduced.

      In December 2001, as part of our exchange offers, the indentures for our 11.25% senior notes and 12.50% senior discount notes were amended so as to remove substantially all of their operating restrictions and events of default.

The market for our 11.25% senior notes and 12.50% senior discount notes is limited.

      Because the exchange offers that we conducted in December 2001 resulted in the tender and exchange of substantially all of our 11.25% senior notes and 12.50% senior discount notes then outstanding, the market for the remaining notes is quite limited. Moreover, we cannot guarantee that these notes will continue to be rated in the future.

Item 2. Properties

      Loral Orion does not own or lease office space. See Loral Skynet Agreements.

Item 3. Legal Proceedings

      The Company is party to legal and regulatory proceedings incident to its business. The Company does not believe that there are any material legal proceedings pending or, to the knowledge of its management, threatened against, the Company or its subsidiaries that would have a material effect on its consolidated financial position or its results of operations.

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

      Omitted pursuant to General Instruction I of Form 10-K.

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PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

      All of the Company’s outstanding common stock is owned, directly or indirectly, by Loral Space & Communications Corporation, a wholly owned subsidiary of Loral Space & Communications Ltd. (“Loral”). Therefore, there is no public trading market for the Company’s common stock. The Company has never paid dividends on its common stock. The Company’s indenture relating to its 10% senior notes obligations includes certain restrictions on the Company’s ability to pay dividends or make loans to its parent.

Item 6. Selected Financial Data

      Omitted pursuant to General Instruction I of Form 10-K.

Item 7. Management’s Narrative Analysis of Results of Operations

      Except for the historical information contained herein, the matters discussed in the following Management’s Narrative Analysis of Results of Operations of Loral Orion, Inc. (“Loral Orion” or the “Company”) are not historical facts, but are “forward-looking statements,” as that term is defined in the Private Securities Litigation Reform Act of 1995. In addition, the Company or its representatives have made and may continue to make forward-looking statements, orally or in writing, in other contexts, such as in reports filed with the SEC, press releases or statements made with the approval of an authorized executive officer of the Company. These forward-looking statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “plans,” “may,” “will,” “would,” “could,” “should,” “anticipates,” “estimates,” “project,” “intend,” or “outlook” or the negative of these words or other variations of these words or other comparable words, or by discussion of strategy that involves risks and uncertainties. These forward-looking statements are only predictions, and actual events or results may differ materially as a result of a wide variety of factors and conditions, many of which are beyond the Company’s control. Some of the factors and conditions that could affect the outcome of forward-looking statements relate to (i) the Company’s financial structure, (ii) operational risks and (iii) other matters. For a detailed discussion of these factors and conditions, please refer to the section of this Annual Report on Form 10-K titled “Certain Factors that May Affect Future Results” beginning on page 4 and to the other periodic reports filed with the SEC by Loral Orion. In addition, the Company cautions you that the Company operates in an industry sector where securities values may be volatile and may be influenced by economic and other factors beyond the Company’s control. The Company undertakes no obligation to update any forward-looking statements.

General

      The principal business of Loral Orion is leasing transponder capacity on its satellites to its customers for various applications, including broadcasting, news gathering, Internet access and transmission, private voice and data networks, business television, distance learning and direct-to-home television (“DTH”). Loral Skynet, a division of Loral SpaceCom Corporation, which is a subsidiary of Loral Space & Communications Corporation, which is in turn a subsidiary of Loral, manages the Company’s continuing operations.

      The Company operates in one segment, Fixed Satellite Services. On December 21, 2001, the Company, in connection with the exchange offers for its outstanding senior notes and senior discount notes, transferred its data services business to a subsidiary of Loral and has accounted for the former data business as a discontinued operation.

      The Company’s revenues from continuing operations are principally generated from long-term contracts or occasional use services for transmission capacity services.

      No restrictions exist on the ability of any of the subsidiaries of Loral Orion (“Subsidiary Guarantors”) other than inconsequential subsidiaries, to pay dividends or make other distributions to the Company, except to the extent provided by law generally (e.g., adequate capital to pay dividends under state corporate laws).

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Critical accounting matters

      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.

Depreciation

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

Receivables and Vendor Financing

      The Company is required to estimate the collectibility of its receivables. A considerable amount of judgment is required in assessing the realization of these receivables, including the current creditworthiness of each customer and related aging of the past due balances. The Company evaluates specific accounts when it becomes aware of a situation where a customer may not be able to meet its financial obligations due to a deterioration of its financial condition, credit ratings or bankruptcy. The reserve requirements are based on the best facts available to the Company and re-evaluated periodically.

Taxation

      The Company is included in the U.S. federal income tax return of its parent company, Loral Space & Communications Corporation. Pursuant to annual tax sharing agreements with its parent, the Company is entitled to reimbursement for the parent’s use of the Company’s net operating losses. The Company has been credited with cumulative reimbursements of $48.6 million through December 31, 2002

      The Company uses the liability method in accounting for taxes whereby income taxes are recognized during the year in which transactions enter into the determination of financial statement income or loss. Deferred taxes reflect the future tax effect of temporary differences between the carrying amount of assets and liabilities for financial and income tax reporting and are measured by applying statutory tax rates in effect for the year during which the differences are expected to reverse.

      Realization of the net deferred tax assets is dependent on the Company’s ability to generate future taxable income and its utilization of tax planning strategies. The Company assesses the recoverability of its loss carryforwards and other deferred tax assets on a quarterly basis and, based upon this analysis, records a valuation allowance to the extent recoverability does not satisfy the “more likely than not” recognition criteria in SFAS No. 109. The Company will maintain the valuation allowance until sufficient positive evidence exists to support reversal of the reserve. When the Company determines that it will be able to realize all or part of the benefit from its deferred tax assets, reversal of the valuation allowance will increase income in the period such determination is made.

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. The most important contingencies affecting our financial statements are detailed below under Operational Matters.

     Results of Operations

      In evaluating financial performance, management uses revenues and operating income (loss) before depreciation and amortization (“EBITDA”) as a measure of a segment’s profit or loss. The following discusses the results of Loral Orion for 2002, 2001 and 2000.

9

Operating Revenues from Continuing Operations (in millions):

	Years ended December 31,
	2002		2001			2000
Fixed Satellite Services	$	109.7	$	128.1		$	108.7
Eliminations(1)		—		(19.2	)		(25.3	)
Operating revenues	$	109.7	$	108.9		$	83.4

EBITDA⁽²⁾ (in millions):

	Years ended December 31,
	2002		2001			2000
Fixed Satellite Services	$	82.6	$	104.6		$	81.2
Eliminations(1)		—		(19.2	)		(25.3	)
EBITDA	$	82.6	$	85.4		$	55.9

(1)

Represents sales to the Company’s discontinued operation (formerly the data business).

(2)

EBITDA (which is equivalent to operating income (loss) before depreciation and amortization) is provided because it is a measure commonly used in the communications industry to analyze companies on the basis of operating performance, leverage and liquidity and is presented to enhance the understanding of the Company’s operating results. However, EBITDA should not be construed as an alternative to net income as an indicator of a company’s operating performance, or cash flow from operations as a measure of a company’s liquidity. EBITDA may be calculated differently and, therefore, may not be comparable to similarly titled measures reported by other companies.

     Revenues from continuing operations for 2002, 2001 and 2000, were $109.7 million, $108.9 million and $83.4 million, respectively. The increase resulted from the inclusion of revenues from the Company’s former data services business in 2002, which were eliminated in 2001 and 2000 (see Exchange Offers), offset by reduced prices and volume resulting from the global economic downturn in 2002, which has caused a delay in the demand for new telecommunications applications and services. The increase for the prior year resulted from an increase in the number of transponders leased and higher revenue per transponder in 2001 as compared to the respective prior year, primarily resulting from the addition of two satellites to our fleet in the latter part of 1999 (see below).

      Cost of satellite services for continuing operations for 2002, 2001 and 2000, were $91.4 million, $107.2 million and $104.6 million, respectively. The decrease in 2002 as compared to 2001 and 2000 is primarily due to reduced goodwill amortization resulting from the Company’s adoption of SFAS No. 142 (see Accounting Pronouncements), slightly offset by increased insurance costs as a result of the Company renewing the insurance on one of its satellites after September 11, 2001.

      Selling, general and administrative expenses for continuing operations for 2002, 2001 and 2000, were $11.1 million, $10.8 million and $12.8 million, respectively. The increase in 2002 as compared to 2001 was primarily due to corporate management expenses allocated by Loral in 2002 (see Operational Matters), offset by a decrease in marketing, general and administrative expenses. The decrease in 2001 as compared to 2000 was primarily due to a reduction in marketing expenses.

      Interest income for continuing operations for 2002, 2001 and 2000, was $0.6 million, $0.7 million and $3.0 million, respectively. The decrease in 2001 as compared to 2000 was primarily due to a reduction in the balances held for investment.

      Interest expense for 2002, 2001 and 2000 was $13.0 million, $98.3 million and $97.2 million, respectively. The decrease in 2002 as compared to 2001 and 2000 was primarily due to the Company not recognizing any interest expense on it’s 10% senior notes since interest expense is fully offset by amortization of the deferred gain on the exchange offers and lower interest expense on the Company’s senior notes and senior discount notes that were exchanged for 10% senior notes in connection with the exchange offers completed in December 2001 (see Exchange Offers).

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      During December 2001, the Company recognized a gain of $34.5 million, related to the Company’s debt exchanges (See Exchange Offers).

      The provision for income taxes from continuing operations for 2002, 2001 and 2000 was $16.0 million, $4.0 million and $0.9 million on a pre-tax loss of $5.1 million, $72.2 million and $128.2 million, respectively. The increase in 2002 as compared to 2001 and 2000 was primarily due to the additional tax expense, recorded during the fourth quarter of 2002, to provide a full reserve against the Company’s deferred tax asset.

      The financial data presented for the Company’s former data business has been presented as a discontinued operation and reflects the historical sales and expenses of the data services segment after elimination of intercompany transactions with FSS. Discontinued operations include revenue for the data services segment of $80.2 million and $103.8 million for the period January 1, 2001 to December 21, 2001 and the year ended December 31, 2000, respectively. See Note 5 to the consolidated financial statements.

Results by Operating Business

Fixed Satellite Services

      Segment revenues for 2002 were $109.7 million as compared to $128.1 million in 2001 and $108.7 in 2000. EBITDA on the same basis was $82.6 million in 2002, $104.6 million in 2001 and $81.2 million in 2000. The decreases in revenue and EBITDA in 2002 as compared to 2001 were primarily due to reduced prices and volume resulting from the global economic downturn in 2002, which has caused a delay in the demand for new telecommunications applications and services, offset by the inclusion of revenues from the Company’s former data services division in 2002, which were eliminated in 2001 and 2000 (see Exchange Offers). The increases in revenue and EBITDA in 2001 as compared to 2000 resulted from an increase in the number of transponders leased and higher revenue per transponder in 2001 as compared to 2000, primarily resulting from the addition of two satellites to our fleet in the latter part of 1999 (see below).

      At December 31, 2002, the Company had an external contracted backlog of approximately $453 million, as compared to $576 million at December 31, 2001. At December 31, 2002 contracted backlog was equivalent to approximately 4.25 times its 2002 revenues. The reduction in total contracted backlog resulted from contract terminations in the third and fourth quarters of 2001, as well as de-bookings arising largely from the restructuring of one customer contract in the second quarter of 2001, which reduced the length of the lease agreement from 13 years to eight. In this instance the Company received appropriate compensation in exchange for meeting its customer’s requirements and, accordingly, this de-booking did not have an adverse impact on results of operations in 2001, nor is it expected to have an adverse impact on near-term results of operations.

Operational Matters

      The Company had total long-term debt of $960 million, including current portion of $65 million, outstanding at December 31, 2002, most of which matures in 2006. In addition to its debt service requirements, the Company’s business is capital intensive and requires substantial investment. Much of this investment has already been incurred primarily to launch the Company’s three satellites. At December 31, 2002, the Company had incurred costs of approximately $18 million (of which it has paid $3 million) related to the construction of Telstar 18/Apstar V which it intends to launch in 2003. The Company will need to incur approximately $11 million of additional costs to complete the construction, launch and insure Telstar 18/Apstar V and an additional $58 million to acquire additional transponders in the future on Telstar 18/Apstar V over the second through fifth anniversaries of the launch.

      At December 31, 2002 the Company had a retained deficit of $1 billion and stockholder’s deficit of $399 million. The Company has generated (used) cash from operating activities of $90 million, $24 million and $(48) million for the years ended December 31, 2002, 2001 and 2000, respectively. The Company believes its cash and net cash provided by operating activities will be adequate to meet its expected cash requirements through at least December 31, 2003. If the Company does not generate sufficient cash to satisfy its debt service and operating requirements, the Company may be required to seek alternative financing or

11

postpone its planned satellite construction and launch plans. Current market conditions present uncertainty as to the ability of the Company to secure additional financing, if needed, and there can be no assurances as to the availability of additional financing or whether the terms of such financing, if it is available, would be acceptable to the Company. In addition, a delay in the Company’s planned satellite construction and launch plans could impact the Company’s ability to achieve profitability.

      In November 1995, a component on Telstar 11 malfunctioned, resulting in a 2-hour service interruption. The malfunctioning component supported nine transponders serving the European portion of Telstar 11’s footprint. Full service was restored using a back-up component. If that back-up component fails, Telstar 11 would lose a significant amount of usable capacity. In such event, while the Company would be entitled to insurance proceeds of approximately $195 million as of December 31, 2002, and could lease replacement capacity and function as a reseller with respect to such capacity, the loss of capacity would have a material adverse effect on the Company.

      Telstar 12, originally intended to operate at 12 degrees W.L., was launched aboard an Ariane launch vehicle in October 1999 into the orbital slot located at 15 degrees W.L., and commenced operations in January 2000. Under an agreement reached with Eutelsat, Loral Orion agreed to operate Telstar 12 at 15 degrees W.L. while Eutelsat continues to develop its services at 12.5 degrees W.L. Eutelsat has in turn agreed not to use its 14.8 degrees W.L. orbital slot and to assert its priority rights at such location on Loral Orion’s behalf. As part of this coordination effort, Loral Orion agreed to provide to Eutelsat four 54 MHz transponders on Telstar 12 for the life of the satellite and has retained risk of loss with respect to those transponders. Eutelsat also has the right to acquire, at cost, four transponders on the next replacement satellite for Telstar 12. As part of the international coordination process, Loral continues to conduct discussions with various administrations regarding Telstar 12’s operations at 15 degrees W.L. If these discussions are not successful, Telstar 12’s useable capacity may be reduced.

      Telstar 10/ Apstar IIR has experienced minor losses of power from its solar arrays. Although, to date, Telstar 10/ Apstar IIR has not experienced any degradation in performance, there can be no assurance that Telstar 10/ Apstar IIR will not experience additional power loss that could result in performance degradation, including loss of transponder capacity. 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, when in the life of Telstar 10/ Apstar IIR the loss occurred, and the number and type of uses being made of transponders then in service. It is also possible that one or more transponders on a satellite may need to be removed from service to accommodate the power loss and to preserve full performance capabilities of the remaining transponders. A complete or partial loss of Telstar 10/ Apstar IIR could result in a loss of revenues and profits. Based upon information currently available, including design redundancies to accommodate small power losses and the fact that no pattern has been identified as to the timing or specific location within the solar arrays of the failures, the Company believes that this matter will not have a material adverse effect on our consolidated financial position or our results of operations.

      While the Company has in the past, consistent with industry practice, typically obtained in-orbit insurance for our satellites, the Company cannot guarantee that, upon a policy’s expiration, the Company will be able to renew the insurance on terms acceptable to us, especially on satellites that have, or that are part of a family of satellites that have, experienced problems in the past. Telstar 10/ Apstar IIR, manufactured by SS/ L has the same solar array configuration as two other 1300-class satellites manufactured by SS/ L that have experienced solar array failures. SS/ L believes that these failures are isolated events and do not reflect a systemic problem in either the satellite design or manufacturing process. Accordingly, we do not believe that these anomalies will affect Telstar 10/ Apstar IIR. The insurance coverage for Telstar 10/ Apstar IIR provides for coverage of losses due to solar array failures only in the event of a capacity loss of 75% or more. One other satellite owned by Loral Orion has the same solar array configuration as Telstar 10/ Apstar IIR. There can be no assurance that the insurers will not require either exclusions of, or similar limitations on, coverage due to solar array failures in connection with the renewal of insurance for this satellite in 2004. An uninsured loss of a satellite would have a material adverse effect on our consolidated financial position and results of operations. Some of Loral Orion’s bondholders have questioned whether this limitation is in compliance with the insurance covenant in the Loral Orion indenture. Loral Orion believes that it is in compliance with the

12

covenant as properly interpreted. If, however, Loral Orion’s bondholders were to give notice of a default under the indenture because of such limitations, and a court ruled against Loral Orion on this matter, the maturity of Loral Orion’s 10% senior notes could be accelerated.

      On September 20, 2002, Loral Orion entered into an agreement with APT Satellite Company Limited (“APT”) pursuant to which Loral Orion will purchase a 50% interest in the Telstar 18/ Apstar V satellite, a satellite under construction by SS/ L for APT. Loral Orion’s aggregate purchase price for its 50% interest in the satellite is $115.1 million, representing 50% of the current estimated project cost of constructing, launching and insuring the Telstar 18/ Apstar V satellite, which purchase price will be adjusted if the actual project cost is greater or less than $230.2 million. In addition, Loral Orion has agreed to bear the cost of modifying the footprint of one of the Ku-band beams on the satellite. Telstar 18/ Apstar V will have a total of 54 transponders, comprised of 24 standard C-band transponders, 14 extended C-band transponders and 16 Ku-band transponders. Under this transaction, Loral Orion has agreed to purchase 12 standard C-band, 7 extended C-band and 8 Ku-band transponders on Telstar 18/ Apstar V, which capacity will be designated Telstar 18. Loral Orion will also have the option to enter into similar arrangements with APT on replacement satellites upon the end of life of Telstar 18/ Apstar V. To be located at 138 degrees East Longitude, Telstar 18/ Apstar V is currently scheduled to be launched in the third quarter of 2003 and will be capable of providing Ku-band voice, video and data services to China, India and East Asia, and broadbeam C-band services throughout the Asia-Pacific region, including Australia and Hawaii. To ensure a timely launch of Telstar 18/ Apstar V, Loral Orion, APT and SS/ L have agreed that a non-Chinese launch provider will be used.

      Pursuant to Loral Orion’s agreement with APT, Loral Orion will pay one-half the purchase price prior to launch for 13.5 transponders on the satellite. The corresponding cumulative costs relating to these transponders have been reflected as satellites under construction on Loral Orion’s condensed consolidated balance sheet as of December 31, 2002. Subject to certain acceleration rights on the part of Loral Orion, the remainder of the purchase price for the second 13.5 transponders will be paid by Loral Orion as follows: on the second anniversary of the satellite’s in-service date, $10.66 million for 2.5 additional transponders; on the third anniversary of the satellite’s in-service date, $12.79 million for three additional transponders; and on each of the fourth and fifth anniversaries of the satellite’s in-service date, $17.05 million for four additional transponders. Title to these transponders will pass to Loral Orion upon its payments thereon. As a result of finalizing the Telstar 18/ Apstar V launch arrangements in March 2003, the Company agreed to take two fewer transponders without any corresponding change to the transponder cost borne by each of the parties. Loral SpaceCom has agreed to purchase from Loral Orion 4.75 transponders on Telstar 18/Apstar V, together with a lease of an additional transponder for an approximate two year period from the Telstar 18/Apstar V in-service date.

      The Company, like others in the satellite industry, are faced with significantly higher premiums on launch and in-orbit insurance, increasing thresholds in determining total losses for satellites in orbit and significantly shorter coverage periods than those that have been available in the past, which was due in part to the events of September 11, 2001. This development in the insurance industry has increased our cost of doing business. The Company intends to pass on some of the increased cost to our customers. There can be no assurance, however, that the Company will be able to do so. Insurance market conditions have historically been cyclical in nature. While the Company anticipates that these conditions will improve in the future, there can be no assurance that they will.

      Beginning in 2002, Loral initiated the allocation of corporate management expenses to its individual subsidiaries and divisions, including $3.1 million to Loral Orion. The allocation of these expenses is computed with respect to Loral Orion in a manner consistent with Loral’s other subsidiaries and divisions, using a fixed formula based on three factors: employee payroll, revenues and assets.

Exchange Offers

      On December 21, 2001, Loral Orion completed exchange offers by issuing $613 million principal amount of new senior notes due 2006 guaranteed by Loral, in exchange for the extinguishment of $841 million principal amount of Loral Orion senior notes due in 2007 and senior discount notes due 2007 as discussed

13

below. As part of the exchange, Loral issued to the new note holders 6.04 million five-year warrants to purchase Loral common stock at a price of $2.37 per share. The warrants were valued at $6.7 million using the Black Scholes option pricing model with the following assumptions: stock volatility, 75%, risk free interest rate, 4.36%, and no dividends during the expected term, and is reflected in capital in excess of par value on the consolidated balance sheet. After the exchange offers, principal amount of $37 million of the existing senior notes and principal amount of $49 million of the existing senior discount notes remain outstanding at their original maturities and interest rates.

      The interest rate on the senior notes is 10%, a reduction from the 11.25% interest rate on the existing senior notes and the 12.5% rate on the existing senior discount notes. Interest is payable semi-annually on July 15 and January 15, beginning July 15, 2002. As a result of the lower interest rate and the $229 million reduction in principal amount of debt, Loral Orion’s annual cash interest payments will be reduced by approximately $39 million. Under accounting principles generally accepted in the United States dealing with debt restructurings, the Company recorded a gain of $34.5 million on the exchange, after expenses of $5 million. The carrying value of the 10% senior notes on the balance sheet is $858 million, although the actual principal amount of the 10% senior notes is $613 million. The difference between this carrying value and the actual principal amount of the 10% senior notes is being amortized over the life of the 10% senior notes, fully offsetting interest expense through maturity of the 10% senior notes. The indenture relating to the 10% senior notes contains limitations on Loral Orion and its subsidiaries, including, without limitation, restrictions on Loral Orion’s ability to pay dividends or make loans to Loral.

      In connection with the completion of the Company’s debt exchange offers in December 2001, LSC canceled its $79.7 million intercompany note issued to it by Loral Orion which ranked pari passu to the senior debt in exchange for the transfer of Loral Orion’s data services business (see Note 9 to the consolidated financial statements) and the issuance of a new note to LSC in the principal amount of $29.7 million due 2006, having an interest rate of 10% per annum payable in kind, subordinated to Loral Orion’s new 10% senior notes. Loral Orion’s data services business was transferred to a newly-formed subsidiary of Loral, which assumed the name Loral Cyberstar, Inc. As of December 31, 2002, the balance of the note was $31.5 million, including accrued interest.

Accounting Pronouncements

SFAS 142

      On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), which addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives not be amortized, but rather be tested at least annually for impairment. SFAS 142 also changed the evaluation criteria for testing goodwill for impairment from an undiscounted cash flow approach, which was previously utilized under the guidance in Accounting Principles Board Opinion No. 17, Intangible Assets, to a test based on fair value. Fair value is determined by the amount at which an asset or liability could be bought or sold in a current transaction between willing parties, that is, other than in a forced or liquidation sale. Quoted market prices in active markets are the best evidence of fair value and must be used as the basis for the measurement, if available. If quoted market prices are not available, the estimate of fair value must be based on the best information available, including prices for similar assets and liabilities and the results of using other valuation techniques, such as public company trading multiples and future discounted cash flows.

      In accordance with SFAS 142, the Company’s previously recognized cost in excess of net assets acquired (“goodwill”) of $562 million (at December 31, 2001) from the acquisition of the Company by Loral in 1998 was reviewed under the new transitional guidance as of January 1, 2002. The Company hired professionals in the valuation consulting business to determine the fair value of the Company. Since there were no quoted market prices in active markets for the Company, the measurement of fair value was based on the best information available in the circumstances, including reasonable and supportable assumptions and projections,

14

to determine that the most appropriate method of fair value was public company trading multiples. Based on the fair values concluded on by those professionals, management determined that the Company’s goodwill under the new guidance in SFAS 142 was fully impaired. Accordingly, as of January 1, 2002, the Company recorded a non-cash charge for the cumulative effect of the change in accounting principle of $562 million.

      The charge is the result of a change in the evaluation criteria for goodwill from an undiscounted cash flow approach which was previously utilized under the guidance in Accounting Principles Board Opinion No. 17 to the fair value approach which is stipulated in SFAS 142.

      The following table presents the actual financial results and as adjusted financial results without the amortization of goodwill for the Company for the years ended December 31, 2001 and 2000 (in thousands):

	2001						2000
	Actual			As Adjusted			Actual			As Adjusted
Reported loss from continuing operations	$	(76,170	)	$	(76,170	)	$	(129,117	)	$	(129,117	)
Add back amortization of goodwill		—			15,508			—			15,509
Loss from continuing operations		(76,170	)		(60,662	)		(129,117	)		(113,608	)
Loss from operations of discontinued operations, net of taxes		(12,087	)		(12,087	)		(8,301	)		(8,301	)
Net loss	$	(88,257	)	$	(72,749	)	$	(137,418	)	$	(121,909	)

SFAS 143

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

SFAS 144

      In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”). SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. It supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of APB 30, Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. The Company has determined that there was no effect on the Company’s consolidated financial position or results of operations relating to the adoption of SFAS 144 on January 1, 2002.

SFAS 145

      In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS 145 generally requires that any gains or losses on extinguishment of debt in current or prior periods be classified as other income (expense), beginning in fiscal 2003, with early adoption encouraged. In the fourth quarter of 2002, the Company adopted the provisions of SFAS 145 and reclassified the previously recorded extraordinary gain on its exchanges in 2001 to gain on debt exchanges in its consolidated statement of operations (see Exchange Offers).

SFAS 146

      In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS 146”). SFAS 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples

15

of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Previous accounting guidance was provided by EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146 replaces EITF Issue No. 94-3. SFAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002.

FIN 45

      In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”),Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others. FIN 45 elaborates on the disclosures to be made by the guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002; while the provisions of the disclosure requirements are effective for financial statements of interim or annual reports ending after December 15, 2002. The Company adopted the disclosure provisions of FIN 45 during the fourth quarter of 2002. The Company is currently evaluating the recognition provisions of FIN 45.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk

Interest

      As of December 31, 2002, all of the Company’s outstanding debt had fixed interest rates.

      As of December 31, 2002, the carrying value of the Company’s long-term debt was $960 million and the fair value of such debt was $273 million. The fair value of the Company’s long-term debt is primarily based on quoted market prices. Approximately $245 million of the difference between the carrying amount and the fair value of the Company’s long-term debt as of December 31, 2002 is attributable to the accounting for the Company’s exchange offers completed in 2001. The table below provides information about the carrying amount of the Company’s long-term debt obligations by fiscal year of maturity (in thousands).

	For the Years Ended December 31,
	2003			2004			2005			2006			2007			Thereafter
Fixed rate debt	$	64,727		$	64,899		$	65,296		$	678,443		$	86,191		$	—
Weighted average fixed interest rate		1.28	%		1.32	%		1.37	%		1.42	%		11.97	%

Item 8. Financial Statements and Supplementary Data

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INDEPENDENT AUDITORS’ REPORT

To the Stockholder of Loral Orion, Inc.:

      We have audited the accompanying consolidated balance sheets of Loral Orion, Inc. (formerly Loral CyberStar, Inc.) and its subsidiaries a wholly owned subsidiary of Loral Space & Communications Corporation, as of December 31, 2002 and 2001 and the related consolidated statements of operations, stockholder’s (deficit) equity and cash flows for each of the three years in the period ended December 31, 2002. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, such consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Loral Orion, Inc. and its subsidiaries as of December 31, 2002, and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.

      As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for goodwill and other intangible assets to adopt the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective January 1, 2002. As discussed in Note 2 to the consolidated financial statements, effective December 31, 2002, the Company changed its method of accounting for gains on extinguishment of debt to adopt the provisions of Statement of Financial Accounting Standards No. 145, Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.

DELOITTE & TOUCHE LLP

San Jose, California

March 31, 2003

17

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

CONSOLIDATED BALANCE SHEETS

(in thousands, except par amounts)

				December 31,
				2002			2001
ASSETS
Current assets:
	Cash and cash equivalents			$	42,964		$	19,399
	Accounts receivable, net				7,615			13,568
	Prepaid expenses and other current assets				13,213			11,204
	Due from Loral companies				57,477			39,469
			Total current assets		121,269			83,640
Satellites and related equipment, net					524,699			579,910
Cost in excess of net assets acquired, net					—			562,201
Deferred tax assets					—			32,130
Other assets, net					17,318			21,668
		Total assets		$	663,286		$	1,279,549
LIABILITIES AND STOCKHOLDER’S (DEFICIT) EQUITY
Current liabilities:
	Current portion of long-term debt			$	64,727		$	49,449
	Accounts payable				2,387			3,390
	Customer advances				3,731			7,034
	Due to Loral companies				51,623			34,664
	Interest payable				4,700			1,889
			Total current liabilities		127,168			96,426
Customer advances					8,765			9,521
Long-term debt					894,829			959,555
Note payable to Loral SpaceCom					31,540			29,700
Commitments and contingencies (Note 4)
Stockholder’s (deficit) equity:
	Common stock, $.01 par value; 1,000 shares authorized; 100 shares outstanding at December 31, 2002 and 2001				—			—
	Paid-in capital				604,166			604,166
	Retained deficit				(1,003,182	)		(419,819	)
			Total stockholder’s (deficit) equity		(399,016	)		184,347
			Total liabilities and stockholder’s (deficit) equity	$	663,286		$	1,279,549

See notes to consolidated financial statements

18

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

		Years ended December 31,
		2002			2001			2000
Revenues from satellite services		$	109,739		$	108,945		$	83,384
Operating expenses:
	Cost of satellite services		91,415			107,185			104,641
	Selling, general and administrative expenses		11,053			10,796			12,827
Income (loss) from operations			7,271			(9,036	)		(34,084	)
	Interest income		631			653			3,041
	Interest expense		(13,013	)		(98,339	)		(97,164	)
	Gain on debt exchanges		—			34,541			—
Loss before income taxes, cumulative effect of change in accounting principle and discontinued operations			(5,111	)		(72,181	)		(128,207	)
Income tax expense			(16,051	)		(3,989	)		(910	)
Loss before cumulative effect of change in accounting principle and discontinued operations			(21,162	)		(76,170	)		(129,117	)
Cumulative effect of change in accounting principle (Note 3)			(562,201	)		—			—
Loss from continuing operations			(583,363	)		(76,170	)		(129,117	)
Loss from operations of discontinued operations, net of tax provision (Note 2)			—			(12,087	)		(8,301	)
Net loss		$	(583,363	)	$	(88,257	)	$	(137,418	)

See notes to consolidated financial statements

19

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S (DEFICIT) EQUITY

(in thousands)

													Total
		Common		Paid-in			Retained			Unearned			Stockholder’s
		Stock		Capital			Deficit			Compensation			(Deficit) Equity
Balance at January 1, 2000		$	—	$	544,176		$	(194,144	)	$	(1,804	)	$	348,228
	Amortization of unearned compensation				—			—			815			815
	Stock option forfeitures				(989	)		—			989			—
	Loral Space and Communications capital contribution				45,010			—			—			45,010
	Net loss				—			(137,418	)		—			—
	Comprehensive loss				—			—			—			(137,418	)
Balance at December 31, 2000					588,197			(331,562	)		—			256,635
	Loral Space and Communications capital contributions				9,249			—			—			9,249
	Loral warrants issued in connection with debt exchanges, net of expenses				6,720			—			—			6,720
	Net loss				—			(88,257	)		—			—
	Comprehensive loss				—			—			—			(88,257	)
Balance at December 31, 2001					604,166			(419,819	)		—			184,347
	Net loss				—			(583,363	)		—			—
	Comprehensive loss				—			—			—			(583,363	)
Balance at December 31, 2002		$	—	$	604,166		$	(1,003,182	)	$	—		$	(399,016	)

See notes to consolidated financial statements

20

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

		Years ended December 31,
		2002			2001			2000
Operating Activities
Loss from continuing operations		$	(583,363	)	$	(76,170	)	$	(129,117	)
Non-cash items:
	Gain on debt exchanges		—			(34,541	)		—
	Cumulative effect of change in accounting principle		562,201			—			—
	Deferred income tax provision		32,130			12,852			4,241
	Depreciation and amortization		75,292			94,005			89,976
	Non-cash interest expense, net		503			39,609			37,074
	Interest earned on restricted cash		—			—			(3,518	)
Changes in operating assets and liabilities:
	Accounts receivable, net		5,953			(11	)		(4,362	)
	Prepaid expenses and other current assets		(4,057	)		(5,634	)		2,835
	Other assets		4,350			(3,217	)		1,062
	Accounts payable and interest payable		1,808			(8,011	)		2,786
	Customer advances		(4,059	)		7,039			2,485
	Due (to) from Loral companies		(1,049	)		(1,667	)		(51,690	)
Net cash provided by (used in) operating activities			89,709			24,254			(48,228	)
Net cash provided by (used in) discontinued operations			—			24,183			(43,482	)
Investing Activities
	Capital expenditures		(18,033	)		(579	)		(182,095	)
	Increase in restricted and segregated assets		—			—			(64	)
	Use and transfers from restricted and segregated cash		—			—			190,898
Net cash (used in) provided by investing activities			(18,033	)		(579	)		8,739
Financing Activities
	Interest payments on 10% senior notes		(45,952	)		—			—
	Payment of satellite incentive obligation		(2,159	)		(2,331	)		(280	)
	Increase (decrease) in note payable to Loral SpaceCom		—			(28,166	)		35,752
	Proceeds from sale of orbital slots to Loral, net		—			—			34,260
	Equity contributed by Loral		—			2,700			10,750
	Repayment of notes payable		—			(664	)		(1,398	)
Net cash (used in) provided by financing activities			(48,111	)		(28,461	)		79,084
Net increase (decrease) in cash and cash equivalents			23,565			19,397			(3,887	)
Cash and cash equivalents at beginning of period			19,399			2			3,889
Cash and cash equivalents at end of period		$	42,964		$	19,399		$	2
Non-cash activities:
	Exchange of senior notes and senior discount notes for new 10% senior notes and 6.04 million Loral warrants				$	910,600
	Exchange of data services business for reduction in note payable to Loral SpaceCom				$	50,000
Supplemental information:
	Interest paid, net of capitalized interest	$	51,256		$	57,602		$	51,879
	Taxes paid	$	206		$	43		$	134

See notes to consolidated financial statements

21

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Business

      The principal business of Loral Orion, Inc. (the “Company” or “Loral Orion”), is providing fixed satellite services, including video distribution and other satellite transmission services by leasing transponder capacity on its satellites to its customers for various applications, including broadcasting, news gathering, Internet access and transmission, private voice and data networks, business television, distance learning and direct-to-home television (“DTH”). Loral Skynet, a division of Loral SpaceCom Corporation, which is a subsidiary of Loral Space & Communications Corporation, which is in turn a subsidiary of Loral Space & Communications Ltd. (“Loral”), manages the Company’s business. The Company operates in one business segment, Fixed Satellite Services (“FSS”). On December 21, 2001, the Company, in connection with an exchange offer for its outstanding senior notes and senior discount notes (notes 5 and 9), transferred its data services business to a subsidiary of Loral.

2. Summary of Significant Accounting Policies

Consolidation Policy

      The consolidated financial statements include the accounts of Loral Orion and its wholly-owned subsidiaries. All intercompany transactions have been eliminated.

     Risks and Uncertainties

      The Company had total long-term debt of $960 million, including current portion of $65 million, outstanding at December 31, 2002, most of which matures in 2006. In addition to its debt service requirements, the Company’s business is capital intensive and requires substantial investment. Much of this investment has already been incurred primarily to launch the Company’s three satellites. At December 31, 2002, the Company had incurred costs of approximately $18 million (of which it has paid $3 million) related to the construction of Telstar 18/Apstar V which it intends to launch in 2003. The Company will need to incur approximately $11 million of additional costs to complete the construction, launch and insure Telstar 18/Apstar V and an additional $58 million to acquire additional transponders in the future on Telstar 18/Apstar V over the second through fifth anniversaries of the launch.

      At December 31, 2002 the Company had a retained deficit of $1 billion and stockholder’s deficit of $399 million. The Company has generated (used) cash from operating activities of $90 million, $24 million and $(48) million for the years ended December 31, 2002, 2001 and 2000, respectively. The Company believes its cash and net cash provided by operating activities will be adequate to meet its expected cash requirements through at least December 31, 2003. If the Company does not generate sufficient cash to satisfy its debt service and operating requirements, the Company may be required to seek alternative financing or postpone its planned satellite construction and launch plans. Current market conditions present uncertainty as to the ability of the Company to secure additional financing, if needed, and there can be no assurances as to the availability of additional financing or whether the terms of such financing, if it is available, would be acceptable to the Company. In addition, a delay in the Company’s planned satellite construction and launch plans could impact the Company’s ability to achieve profitability.

     Cash and Cash Equivalents

      Loral Orion considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

22

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Summary of Significant Accounting Policies — (Continued)

     Concentration of Credit Risk

      Financial instruments which potentially subject Loral Orion to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company’s cash and cash equivalents are maintained with high-credit-quality financial institutions. The company does not require collateral against its receivables; however, management believes that its credit evaluation, approval and monitoring processes combined with negotiated billing arrangements mitigate potential credit risks with regard to the Company’s current customer base.

      As of December 31, 2002 and 2001, accounts receivable was reduced by an allowance for doubtful accounts of $1.0 million and $1.3 million, respectively.

     Satellites and Related Equipment

      Satellites and related equipment consist of the following (in thousands):

	December 31,
	2002			2001
Satellites and related equipment, including satellite transponder rights of $273 million	$	796,118		$	796,118
Satellite under construction		18,057			—
Total satellite and related equipment		814,175			796,118
Less accumulated depreciation and amortization		(289,476	)		(216,208	)
Total satellite and related equipment, net	$	524,699		$	579,910

      Satellites and related equipment is recorded at cost. Depreciation and amortization expense for the years ended December 31, 2002, 2001 and 2000 was $73.3 million, $76.2 million, and $71.4 million, respectively. Accumulated depreciation and amortization at December 31, 2002 and 2001 includes $68.5 million and $47.5 million, respectively, related to the Company’s rights to transponders for the remaining life of Telstar 10/ Apstar IIR. Depreciation expense is calculated using the straight-line method over the estimated original useful lives of 10.5 to 16.5 years.

      Costs incurred in connection with the construction and successful deployment of satellites and related equipment are capitalized. Such costs include direct contract costs, allocated indirect costs, launch costs, launch insurance, construction period interest and the present value of satellite incentive payments. Loral Orion began depreciating the Telstar 11 and Telstar 12 satellites over their estimated useful life commencing on the date of operational delivery in orbit, January 1995 and December 1999, respectively. Satellite lives are re-evaluated periodically.

      In September, 1999, Loral Orion purchased from APT Satellite Company Limited (“APT”) for approximately $273 million, the rights to all transponder capacity and existing customer leases on the Apstar IIR satellite (except for one C-band transponder retained by APT), and renamed the satellite the Telstar 10/ Apstar IIR satellite. Loral Orion has full use of the transponders for the remaining life of Telstar 10/ Apstar IIR.

      On September 20, 2002, Loral Orion entered into an agreement with APT Satellite Company Limited (“APT”) pursuant to which Loral Orion will purchase a 50% interest in the Telstar 18/ Apstar V satellite, a satellite under construction by Space Systems/Loral (“SS/L”) for APT. Loral Orion’s aggregate purchase price for its 50% interest in the satellite is $115.1 million, representing 50% of the current estimated project

23

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Summary of Significant Accounting Policies — (Continued)

cost of constructing, launching and insuring the Telstar 18/ Apstar V satellite, which purchase price will be adjusted if the actual project cost should be greater or less than $230.2 million. In addition, Loral Orion has agreed to bear the cost of modifying the footprint of one of the Ku-band beams on the satellite. Pursuant to Loral Orion’s agreement with APT, Loral Orion will pay one-half the purchase price prior to launch for 13.5 transponders on the satellite. The corresponding cumulative costs relating to these transponders have been reflected as satellites under construction on Loral Orion’s condensed consolidated balance sheet as of December 31, 2002. Subject to certain acceleration rights on the part of Loral Orion, the remainder of the purchase price for the second 13.5 transponders will be paid by Loral Orion as follows: on the second anniversary of the satellite’s in-service date, $10.66 million for 2.5 additional transponders; on the third anniversary of the satellite’s in-service date, $12.79 million for three additional transponders; and on each of the fourth and fifth anniversaries of the satellite’s in-service date, $17.05 million for four additional transponders. Title to these transponders will pass to Loral Orion upon its payment thereon. As a result of finalizing the Telstar 18/ Apstar V launch arrangements in March 2003, Loral Orion agreed to take two fewer transponders without any corresponding change to the transponder cost borne by each of the parties. Loral SpaceCom has agreed to purchase from Loral Orion 4.75 transponders on Telstar 18/Apstar V, together with a lease of an additional transponder for an approximate two year period from the Telstar 18/Apstar V in-service date.

      Satellites in-orbit are either leased by customers or held for lease by the Company. Future minimum lease receipts due from customers under long-term operating leases for transponder capacity on satellites in-orbit as of December 31, 2002 are as follows (in thousands):

2003	$	71,476
2004		57,747
2005		52,952
2006		47,650
2007		44,585
Thereafter		178,405
	$	452,815

     Revenue Recognition

      The Company provides satellite capacity under lease agreements that generally provide for the use of satellite transponders and, in certain cases, earth stations 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 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.

24

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Summary of Significant Accounting Policies — (Continued)

     Income Taxes

      The benefit (provision) for income taxes on the loss before income taxes and discontinued operations 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):

	Year ended December 31,
	2002			2001			2000
Tax benefit at U.S. Statutory Rate of 35%	$	1,789		$	25,263		$	44,872
Interest on senior notes		(117	)		(1,061	)		(938	)
Non-U.S. income taxed at lower rates		(205	)		—			—
Permanent adjustments which change statutory amounts:
Non-deductible amortization of cost in excess of net assets acquired		—			(5,428	)		(5,428	)
Change in valuation allowance		(17,518	)		(22,763	)		(39,416	)
Net income tax benefit (provision)	$	(16,051	)	$	(3,989	)	$	(910	)

      At December 31, 2002, the Company had approximately $419 million in net operating loss carryforwards which expire at varying dates from 2011 through 2022. The Company is included in the U.S. federal income tax return of its parent company, Loral Space & Communications Corporation. Pursuant to annual tax sharing agreements with its parent, the Company is entitled to reimbursement for the parent’s use of the Company’s net operating losses. The Company has been credited with cumulative reimbursements of $48.6 million through December 31, 2002.

      The Company assesses the recoverability of its loss carryforwards and other deferred tax assets and based upon this analysis, records a valuation allowance to the extent recoverability does not satisfy the “more likely than not” recognition criteria in SFAS No. 109. During the fourth quarter of 2002, management concluded that, due to insufficient positive evidence substantiating recoverability, the valuation allowance should be increased to a balance of $177.4 million, thereby fully reserving the Company’s deferred tax asset. During the current year, the valuation allowance was increased by $17.5 million, which was charged to the 2002 results, and decreased by $10.2 million, which was applied directly against the deferred tax asset. The valuation allowance was $170 million at December 31, 2001 and $175 million at December 31, 2000.

      The Company will maintain the valuation allowance until sufficient positive evidence exists to support the reversal of the reserve. When the Company determines that it will be able to realize its deferred tax asset, an adjustment to the valuation allowance will increase income in the period such determination is made.

      For the year ended December 31, 2002, the Company recorded a current income tax benefit of $16.3 million related to the tax sharing agreement, a current foreign tax provision of $0.2 million and a deferred tax provision (including valuation allowance) of $32.1 million, resulting in a net tax provision of $16.1 million.

      For the year ended December 31, 2001, the Company recorded a current income tax benefit of $8.9 million related to the tax sharing agreement and a deferred tax provision of $12.9 million, resulting in a net tax provision of $4.0 million. The tax provision for 2001 excluded a current tax benefit of $0.1 million under the tax sharing agreement and a current foreign tax provision of $1.1 million related to discontinued operations.

25

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Summary of Significant Accounting Policies — (Continued)

      For the year ended December 31, 2000, the Company recorded a current income tax benefit of $3.3 million related to the tax sharing agreement and a deferred tax provision of $4.2 million, resulting in a net tax provision of $0.9 million. The net tax provision for 2000 excluded a current foreign tax provision of $0.2 million related to discontinued operations.

      The Company recognizes deferred taxes for the expected future tax effect of temporary differences between the carrying amount of assets and liabilities for financial and income tax reporting using statutory tax rates in effect for the year during which the differences are expected to reverse.

      Following is a summary of the components of the net deferred income tax asset at December 31, 2002 and 2001 (in thousands):

	December 31,
	2002			2001
Net operating loss carryforwards	$	100,784		$	79,096
Premium on Senior Notes		157,042			191,121
Amortization of intangibles		(9,746	)		(1,716	)
Depreciation		(74,258	)		(69,302	)
Other		3,550			3,007
Subtotal		177,372			202,206
Less valuation allowance		(177,372	)		(170,076	)
Net deferred income tax asset	$	—		$	32,130

     Use of Estimates

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 amounts of revenues and expenses reported for the period. Significant estimates include the estimated useful lives of the Company’s satellites and, prior to 2002, the amortization period of costs in excess of net assets acquired. Actual results could differ from those estimates.

Comprehensive Loss

      During the periods presented, comprehensive loss from continuing operations was the same as net loss. Cumulative translation losses attributable to discontinued operations were $0.4 million and $0.6 million in 2001 and 2000 respectively.

New Accounting Pronouncements

SFAS 143

      In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations (“SFAS 143”). SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and the normal operation of a long-lived asset, except for certain obligations of lessees. The Company is

26

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Summary of Significant Accounting Policies — (Continued)

required to adopt SFAS 143 on January 1, 2003. The Company believes that there will be no effect on its consolidated results of operations or its financial position upon the adoption of SFAS 143.

SFAS 144

      In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”). SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. It supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of APB 30, Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. The Company has determined that there was no effect on the Company’s consolidated financial position or results of operations relating to the adoption of SFAS 144 on January 1, 2002.

SFAS 145

      In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statement No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS 145 generally requires that any gains or losses on extinguishment of debt in current or prior periods be classified as other income (expense), beginning in fiscal 2003, with early adoption encouraged. In the fourth quarter of 2002, the Company adopted the provisions of SFAS 145 and reclassified the previously recorded extraordinary gain on its exchanges in 2001 to gain on debt exchanges in its consolidated statement of operations (see Exchange Offers).

          SFAS 146

      In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS 146”). SFAS 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Previous accounting guidance was provided by EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146 replaces EITF Issue No. 94-3. SFAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002.

FIN 45

      In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”),Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others. FIN 45 elaborates on the disclosures to be made by the guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002; while the provisions of the disclosure requirements are effective for financial statements of interim or annual reports ending after December 15, 2002. The Company adopted the disclosure provisions of FIN 45 during the fourth quarter of 2002. The Company is currently evaluating the recognition provisions of FIN 45.

27

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Summary of Significant Accounting Policies — (Continued)

Reclassifications

      Certain prior year amounts have been reclassified to conform to the current year presentation. In addition, the Company’s historical consolidated balance sheets, statements of operations and cash flows have been restated to account for the data services segment as a discontinued operation (see Note 9).

3. Accounting for Goodwill and Other Acquired Intangible Assets

      In June 2001, the FASB issued SFAS No. 141, Business Combinations (“SFAS 141”) and SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). SFAS 141 requires that all business combinations initiated after June 30, 2001, be accounted for under the purchase method and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. SFAS 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives not be amortized, but will rather be tested at least annually for impairment. The Company will adopt SFAS 142 on January 1, 2002. Upon adoption of SFAS 142, the Company will stop the amortization of goodwill with a net carrying value of approximately $562 million at the date of adoption and annual amortization of approximately $16 million that resulted from business combinations completed prior to the adoption of SFAS 141. Based on management’s preliminary evaluation under the new transitional impairment test in SFAS 142, the Company expects to record a non-cash charge in the first quarter of 2002 to write-off a portion or all of its goodwill. Any transitional impairment loss will be recognized as a change in accounting principle.

      On January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), which addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives not be amortized, but rather be tested at least annually for impairment. SFAS 142 also changed the evaluation criteria for testing goodwill for impairment from an undiscounted cash flow approach, which was previously utilized under the guidance in Accounting Principles Board Opinion No. 17, Intangible Assets, to a test based on fair value. Fair value is determined by the amount at which an asset or liability could be bought or sold in a current transaction between willing parties, that is, other than in a forced or liquidation sale. Quoted market prices in active markets are the best evidence of fair value and must be used as the basis for the measurement, if available. If quoted market prices are not available, the estimate of fair value must be based on the best information available, including prices for similar assets and liabilities and the results of using other valuation techniques, such as public company trading multiples and future discounted cash flows.

Goodwill

      In accordance with SFAS 142, the Company’s previously recognized cost in excess of net assets acquired (“goodwill”) of $562 million (at December 31, 2001) from the acquisition of the Company by Loral in 1998 was reviewed under the new transitional guidance as of January 1, 2002. The Company hired professionals in the valuation consulting business to determine the fair value of the Company.

      Since there were no quoted market prices in active markets for the Company, the measurement of fair value was based on the best information available in the circumstances, including reasonable and supportable assumptions and projections, to determine that the most appropriate method of fair value was public company

28

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3. Accounting for Goodwill and Other Acquired Intangible Assets — (Continued)

trading multiples. Based on the fair values concluded on by those professionals, management determined that the Company’s goodwill under the new guidance in SFAS 142 was fully impaired. Accordingly, as of January 1, 2002, the Company recorded a non-cash charge for the cumulative effect of the change in accounting principle of $562 million.

      The charge is the result of a change in the evaluation criteria for goodwill from an undiscounted cash flow approach which was previously utilized under the guidance in Accounting Principles Board Opinion No. 17 to the fair value approach which is stipulated in SFAS 142.

      The following table presents the actual financial results and as adjusted financial results without the amortization of goodwill for the Company for the years ended December 31, 2001 and 2000 (in thousands):

	2001						2000
	Actual			As Adjusted			Actual			As Adjusted
Reported loss from continuing operations	$	(76,170	)	$	(76,170	)	$	(129,117	)	$	(129,117	)
Add back amortization of goodwill		—			15,508			—			15,509
Loss from continuing operations		(76,170	)		(60,662	)		(129,117	)		(113,608	)
Loss from operations of discontinued operations, net of taxes		(12,087	)		(12,087	)		(8,301	)		(8,301	)
Net loss	$	(88,257	)	$	(72,749	)	$	(137,418	)	$	(121,909	)

Other Acquired Intangible Assets

      The Company evaluated the useful lives of its other acquired intangible assets in connection with the adoption of SFAS 142 and determined that no changes to the useful lives were necessary. Other acquired intangible assets are included in other assets in the Company’s condensed consolidated balance sheets and were as follows at December 31, 2002 and December 31, 2001 (in millions):

		December 31, 2002					December 31, 2001
		Gross		Accumulated			Gross		Accumulated
		Amount		Amortization			Amount		Amortization
Customer relations		$	7.0	$	(4.5	)	$	7.0	$	(3.6	)
Trademarks			6.0		(3.9	)		6.0		(3.0	)
Regulatory			2.5		(1.4	)		2.5		(1.2	)
	Total	$	15.5	$	(9.8	)	$	15.5	$	(7.8	)

      As of December 31, 2002, the weighted average remaining amortization period for customer relations and trademarks was two and a half years and for regulatory fees was seven and a half years.

      Total amortization expense for other acquired intangible assets for the years ended December 31, 2002, 2001 and 2000 was $2.0 million, $2.2 million and $3.0 million, respectively. Annual amortization expense for other acquired intangible assets for the five years ending December 31, 2007 is estimated to be as follows (in millions):

2003	$	2.0
2004		2.0
2005		1.2
2006		0.5
2007		—

29

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4. Commitments and Contingencies

      In November 1995, a component on Telstar 11 malfunctioned, resulting in a 2-hour service interruption. The malfunctioning component supported nine transponders serving the European portion of Telstar 11’s footprint. Full service was restored using a back-up component. If that back-up component fails, Telstar 11 would lose a significant amount of usable capacity. In such event, while the Company would be entitled to insurance proceeds of approximately $195 million as of December 31, 2002, and could lease replacement capacity and function as a reseller with respect to such capacity, the loss of capacity would have a material adverse effect on the Company.

      Telstar 12 was launched in October 1999 into 15 degrees W.L., and commenced operations in January 2000. Although Telstar 12 was originally intended to operate at 12 degrees W.L., Loral Orion reached an agreement with Eutelsat to operate Telstar 12 at 15 degrees W.L. while Eutelsat continued to develop its services at 12.5 degrees W.L. Eutelsat has in turn agreed not to use its 14.8 degrees W.L. orbital slot and to assert its priority rights at such location on Loral Orion’s behalf. As part of this coordination effort Loral Orion agreed to provide to Eutelsat four transponders on Telstar 12 for the life of the satellite and has retained risk of loss. Eutelsat also has the right to acquire, at cost, four transponders on the next replacement satellite for Telstar 12. As part of the international coordination process, the Company continues to conduct discussions with various administrations regarding Telstar 12’s operations at 15 degrees W.L. If these discussions are not successful, Telstar 12’s useable capacity may be reduced.

      Telstar 10/Apstar IIR has experienced minor losses of power from its solar arrays. Although, to date, Telstar 10/Apstar IIR has not experienced any degradation in performance, there can be no assurance that Telstar 10/Apstar IIR will not experience additional power loss that could result in performance degradation, including loss of transponder capacity. 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, when in the life of Telstar 10/Apstar IIR the loss occurred, and the number and type of use being made of transponders then in service. It is also possible that one or more transponders on a satellite may need to be removed from service to accommodate the power loss and to preserve full performance capabilities of the remaining transponders. A complete or partial loss of Telstar 10/Apstar IIR 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, the Company believes that this matter will not have a material adverse effect on our consolidated financial position or results of operations.

      While the Company has in the past, consistent with industry practice and the requirements of our indenture, typically obtained in-orbit insurance for our satellites, the Company cannot guarantee that, upon a policy’s expiration, the Company will be able to renew the insurance on terms acceptable to us, especially on satellites that have, or that are part of a family of satellites that have, experienced problems in the past. Telstar 10/Apstar IIR, manufactured by SS/L and owned by Loral Orion, has the same solar array configuration as two other 1300-class satellites manufactured by SS/L that have experienced solar array failures. SS/L believes that these failures are isolated events and do not reflect a systemic problem in either the satellite design or manufacturing process. Accordingly, we do not believe that these anomalies will affect Telstar 10/Apstar IIR. The insurance coverage for Telstar 10/Apstar IIR provides for coverage of losses due to solar array failures only in the event of a capacity loss of 75% or more. One other satellite owned by Loral Orion has the same solar array configuration as Telstar 10/Apstar IIR. There can be no assurance that the insurers will not require either exclusions of, or similar limitations on, coverage due to solar array failures in connection with the renewal of insurance for this satellite in 2004. An uninsured loss of a satellite would have a material adverse effect on our consolidated financial position and results of operations. Some of Loral Orion’s bondholders have questioned whether this limitation is in compliance with the insurance covenant in the Loral

30

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4. Commitments and Contingencies — (Continued)

Orion indenture. Loral Orion believes that it is in compliance with the covenant as properly interpreted. If, however, Loral Orion’s bondholders were to give notice of a default under the indenture because of such limitations, and a court ruled against Loral Orion on this matter, the maturity of Loral Orion’s 10% senior notes could be accelerated.

      The Company is party to various litigation arising in the normal course of its operations. In the opinion of management, the ultimate liability for these matters, if any, will not have a material adverse effect on the Company’s financial position or results of operations.

5. Long-Term Debt

      Long-term debt consists of the following (in thousands):

		December 31,		December 31,
		2002		2001
10.00% senior notes due 2006:
	Principal amount	$	612,704	$	612,704
	Accrued interest (deferred gain on debt exchanges)		245,080		291,034
11.25% senior notes due 2007 (principal amount $37 million)			39,762		40,385
12.50% senior discount notes due 2007 (principal amount at maturity and accreted principal amounted to $49 million)			53,982		54,696
Satellite incentive obligations			8,028		10,185
	Total debt		959,556		1,009,004
Less, current portion			64,727		49,449
	Long-term debt	$	894,829	$	959,555

      Aggregate annual maturities of the carrying value of long-term debt, including unamortized deferred amounts on senior notes, consist of the following (in thousands):

2003	$	64,727
2004		64,899
2005		65,296
2006		678,443
2007		86,191
	$	959,556

      On December 21, 2001, Loral Orion completed exchange offers by issuing $613 million principal amount of 10% senior notes due 2006 guaranteed by Loral, in exchange for the extinguishment of $841 million principal amount of Loral Orion senior notes due in 2007 and senior discount notes due 2007 as discussed below. As part of the exchange, Loral issued to the 10% senior note holders 6.04 million five-year warrants to purchase Loral common stock at a price of $2.37 per share. The warrants were valued at $6.7 million using the Black Scholes option pricing model with the following assumptions: stock volatility, 75%, risk free interest rate, 4.36%, and no dividends during the expected term, and is reflected in capital in excess of par value on the consolidated balance sheet. After the exchange offers, principal amount of $37 million of the existing senior notes and principal amount of $49 million of the existing senior discount notes remain outstanding at their original maturities and interest rates.

31

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. Long-Term Debt — (Continued)

      The interest rate on the 10% senior notes is a reduction from the 11.25% interest rate on the existing senior notes and the 12.5% rate on the existing senior discount notes. Interest is payable semi-annually on July 15 and January 15, beginning July 15, 2002. As a result of the lower interest rate and the $229 million reduction in principal amount of debt, Loral Orion’s annual cash interest payments will be reduced by approximately $39 million. Under accounting principles generally accepted in the United States dealing with debt restructurings, the Company recorded a gain of $34.5 million on the exchange, after expenses of $5 million. The carrying value of the 10% senior notes on the balance sheet is $858 million, although the actual principal amount of the 10% senior notes is $613 million. The difference between this carrying value and the actual principal amount of the 10% senior notes is being amortized over the life of the 10% senior notes, fully offsetting interest expense through maturity of the 10% senior notes. The indenture relating to the 10% senior notes contains limitations on Loral Orion and its subsidiaries, including, without limitation, restrictions on Loral Orion’s ability to pay dividends or make loans to Loral.

      In connection with the completion of the Company’s debt exchange offers in December 2001, LSC canceled its $79.7 million intercompany note issued to it by Loral Orion which ranked pari passu to the senior debt in exchange for the transfer of Loral Orion’s data services business (see Note 9) and the issuance of a new note to LSC in the principal amount of $29.7 million due 2006, having an interest rate of 10% per annum payable in kind, subordinated to Loral Orion’s new 10% senior notes. Loral Orion’s data services business was transferred to a newly-formed subsidiary of Loral, which assumed the name Loral Cyberstar, Inc. As of December 31, 2002 and 2001, the balance of the note was $31.5 million, including accrued interest and $29.7 million, respectively.

      The Loral Orion senior notes are due in 2007 and pay interest semi-annually on January 15 and July 15 of each year. The senior discount notes are due in 2007 and pay interest semi-annually commencing on July 15, 2002. Along with the original issuance of each senior note and senior discount note, one warrant was originally issued to purchase shares of common stock. In connection with the Merger, each warrant was converted so that it could purchase shares of Loral common stock. As of December 31, 2002, exercisable warrants for 68,045 shares of Loral common stock at an exercise price of $0.02 per share under the Loral Orion senior notes and 126,359 shares of Loral common stock at an exercise price of $0.03 per share under the Loral Orion senior discount notes are yet to be exercised.

      In connection with the acquisition of the Company by Loral, the carrying value of the senior notes and senior discount notes were increased to reflect a fair value adjustment based on quoted market prices at the date of acquisition. Such adjustment resulted in effective interest rates of 8.69% and 9.69% on the senior notes and senior discount notes, respectively, through maturity.

      Loral and Loral Asia Pacific Satellite (HK) Limited (“Loral HK Sub”) have unconditionally guaranteed, and the Company’s future restricted subsidiaries will unconditionally guarantee, the 10% senior notes, on a joint and several basis. Loral HK Sub continues to provide a guarantee to the senior notes and senior discount notes that remain outstanding. No restrictions exist on the ability of Loral HK Sub and the Company’s future restricted subsidiaries, to pay dividends or make other distributions to Loral Orion, except to the extent provided by law generally (e.g., adequate capital to pay dividends under state corporate laws).

      Satellite Incentive Obligations — The obligations relating to satellite performance have been recorded at the present value (discounted at 12 percent, the Company’s estimated incremental borrowing rate for unsecured financing at the date of the obligations)of the required payments through 2007.

32

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6. Fair Values of Financial Instruments

      Other than amounts due under the New Senior Notes, senior notes and senior discount notes, the Company believes that the carrying amounts reported in the balance sheets of its other financial assets and liabilities approximates their fair value at December 31, 2002 and 2001. The fair value of the Company’s 10% senior notes, senior notes and senior discount notes was estimated based on quoted market prices, and at December 31, 2002 was approximately $273 million and at December 31, 2001 was approximately $452 million.

7. Segment

      The Company operates in one business segment, Fixed Satellite Services (see Note 1). The Company has presented the results of its previously reported data services business as a discontinued operation (see Notes 5 and 9). In evaluating financial performance, management uses revenue and operating income (loss) before depreciation and amortization (“EBITDA”) as the measure of profit or loss. Revenues before elimination of intercompany revenues from its discontinued operations and other eliminations totaled $109.7 million, $128.7 million and $109.4 million for the years ended December 31, 2002, 2001, and 2000, respectively. EBITDA on the same basis totaled $82.6 million; $105.2 million and $81.9 million for the years ended December 31, 2002, 2001 and 2000, respectively. EBITDA (which is equivalent to operating income (loss) before depreciation and amortization) is provided because it is a measure commonly used in the communications industry to analyze companies on the basis of operating performance, leverage and liquidity and is presented to enhance the understanding of the Company’s operating results. However, EBITDA should not be construed as an alternative to net income as an indicator of a company’s operating performance, or cash flow from operations as a measure of a company’s liquidity. EBITDA may be calculated differently and, therefore, may not be comparable to similarly titled measures reported by other companies.

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

      The following summarizes the Company’s domestic and foreign revenues (in thousands):

		Year ended December 31,
		2002		2001		2000
	United States	$	62,291	$	61,216	$	46,157
	Taiwan		10,927		9,537		—
	The Netherlands		9,160		9,239		6,284
	China		6,251		7,511		12,886
	Singapore		4,496		6,139		5,861
	Germany		6,762		5,781		3,660
	United Kingdom		5,024		4,133		3,898
	Other foreign		4,828		5,389		4,638
Total revenue		$	109,739	$	108,945	$	83,384

      U.S. revenues for 2002, include $8.9 million to affiliated companies.

33

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8. Related Party Transactions

      Due (to) from Loral companies consist of the following (in thousands):

	December 31,			December 31,
	2002			2001
Loral Space and Communications Corporation	$	48,672		$	39,016
Loral Cyberstar, Inc.		8,805			374
Loral SpaceCom Corporation		(28,877	)		(33,319	)
Loral Skynet		(7,854	)		(1,336	)
SS/L		(14,892	)		(9	)
CyberStar L.P.		—			79
	$	5,854		$	4,805

      Pursuant to the tax sharing agreements entered into each year between Loral Orion and Loral Space & Communications Corporation, Loral Space & Communications Corporation has agreed to reimburse Loral Orion for the use of its tax losses to the extent such losses provide a tax benefit to Loral Space & Communications Corporation; otherwise, Loral Orion has agreed to pay its separate company tax liability to Loral Space & Communications Corporation. As of December 31, 2002 and 2001, Loral Orion has a receivable from Loral Space & Communications Corporation of $48.6 million and $32.3 million, respectively, relating to the tax sharing agreements.

      Loral Orion and Loral Skynet have entered into agreements (the “Loral Skynet Agreements”) effective January 1, 1999, whereby Loral Skynet provides to Loral Orion (i) marketing and sales of satellite capacity services on the Loral Orion satellite network and related billing and administration of customer contracts for those services (the “Sales Services”) and (ii) telemetry, tracking and control services for the Loral Orion satellite network (the “Technical Services”, and together with the Sales Services, the “Services”). Loral Orion is charged Loral Skynet’s costs for providing these services plus a 5 percent administrative fee, which amounted to $9.5 million in 2002, $9.1 million for 2001 and $21.4 million for 2000.

      Space Systems/Loral (“SS/L”), a subsidiary of Loral SpaceCom, built the Company’s Telstar 12 satellite that was launched in October 1999. The Company made payments to SS/L during 2001 and 2000 totaling approximately $8.1 million and $9.8 million, respectively, for construction, launch and insurance costs. In addition, the Company made payments to SS/L for the construction of the APSTAR-V satellite in the amount of $2.9 million in 2002 (see Note 2).

      In December 1999, in connection with a contractual arrangement between SS/L and one of SS/L’s customers, Loral Orion agreed to lease to SS/L the capacity of three transponders on Telstar 10/ Apstar IIR through the end of its life. Under this arrangement, Loral Orion recorded revenue of $4.2 million in both 2002 and 2001 and $4.4 million in 2000, respectively. Under another arrangement with SS/L, Loral Orion recorded revenue of $2.5 million in 2001 related to transponder capacity for another customer.

      On March 24, 2000, Loral Orion entered into an agreement with a subsidiary of Loral to assign to the Loral subsidiary, pending regulatory approval, its Ka-band orbital slots located at 89 degrees N.L., 81 degrees W.L., 78 degrees E.L. and 47 degrees W.L. In connection this transaction, Loral Orion also agreed to transfer to the Loral subsidiary all agreements, including satellite construction contracts, related to such slots. The total purchase price for the slots and these agreements was $36.5 million, which was applied by Loral Orion toward the last installment payment on Telstar 10/Apstar IIR In connection with the sale, the Company recorded a gain of $34.5 million. Since the sale was to a subsidiary of Loral, the gain was credited directly to equity. This assignment was approved by the Federal Communications Commission on December 11, 2000.

34

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. Discontinued Operations

      The historical consolidated balance sheet, statements of operations and cash flows reflects the data services business as a discontinued operation. The financial data presented for the Company’s data services business reflects the historical sales and expenses of the data services segment after elimination of intercompany transactions with FSS. Discontinued operations include revenue for the data services segment of $80.2 million and $103.8 million for the period January 1, 2001 to December 21, 2001 and the year ended December 31, 2000, respectively. The data services business began leasing transponder capacity from Loral Skynet in 2000. Amounts incurred for transponder capacity leased from Loral Skynet totaled $3.0 million and $4.5 million in 2001 and 2000 respectively, and are included in the results of discontinued operations (see Note 2).

10.     Financial Information for the Issuer’s Parent, Guarantors and Other Subsidiaries

      In December 2001, Loral Orion (the “Parent Company”) issued New Senior Notes in an exchange offer (see Note 5) which are fully and unconditionally guaranteed, on a joint and several basis, by the Parent Company and one of its wholly-owned subsidiaries (the “Guarantor Subsidiary”) and Loral (“Issuer’s Parent”). The Company’s remaining original senior notes and senior discount notes are fully and unconditionally guaranteed on a joint and several basis by the Parent Company, the Guarantor subsidiary and substantially all of the other wholly-owned subsidiaries in existence through December 21, 2001 (the “Other Subsidiaries”).

      Presented below is condensed consolidating financial information for the Parent Company, Issuer’s Parent, the Guarantor Subsidiary and the Other Subsidiaries for the years ended December 31, 2002, 2001 and 2000. The Other Subsidiaries were part of the Company’s data services segment which was transferred on December 21, 2001 to a subsidiary of Loral (see Note 5) and have been accounted for as a discontinued operation. The condensed consolidating financial information has been presented to show the nature of assets held, results of operations and cash flows of the Parent Company, Issuer’s Parent, Guarantor Subsidiary and Other Subsidiaries.

      The supplemental condensed consolidating financial information reflects the investments of the Parent Company in the Guarantor Subsidiary and the Other Subsidiaries using the equity method of accounting. The Company’s significant transactions with its subsidiaries other than the investment account and related equity in net loss of unconsolidated subsidiaries are the intercompany payables and receivables between its subsidiaries. The note payable due to Loral SpaceCom, bears interest at 10% per annum. All principal and interest is due at maturity on July 30, 2006.

35

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10.     Financial Information for the Issuer’s Parent, Guarantors and Other Subsidiaries — (Continued)

LORAL ORION, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2002

(in thousands)

			Parent			Issuer’s			Guarantor			Other
			Company			Parent			Subsidiary			Subsidiaries		Eliminations			Consolidated
Current assets:
	Cash and cash equivalents		$	42,964		$	1,514		$	—		$	—	$	(1,514	)	$	42,964
	Accounts receivable, net			7,477			—			138			—		—			7,615
	Prepaid expenses and other current assets			5,540			823			8,584			—		(1,734	)		13,213
		Total current assets		55,981			2,337			8,722			—		(3,248	)		63,792
Property, plant and equipment, net				319,998			—			204,701			—		—			524,699
Note (payable) receivable from unconsolidated subsidiary				(31,540	)		157,500			—			—		(157,500	)		(31,540	)
Due to (from) unconsolidated subsidiaries				(97,652	)		36,448			107,917			—		(40,859	)		5,854
Investments in unconsolidated subsidiaries				304,590			(20,185	)		(271,698	)		—		(12,707	)		—
Investments in and advances to affiliates				—			21,507			—			—		(21,507	)		—
Deferred tax assets				—			—			—			—		—			—
Other assets, net				16,622			3,191			696			—		(3,191	)		17,318
		Total assets	$	567,999		$	200,798		$	50,338		$	—	$	(239,012	)	$	580,123
Current liabilities:
	Current portion of long-term debt		$	64,727		$	—		$	—		$	—	$	—		$	64,727
	Accounts payable			1,194			2,404			1,193			—		(2,404	)		2,387
	Customer advances			1,208			—			521			—		2,002			3,731
	Accrued interest and preferred dividends			4,700			20,840			—			—		(20,840	)		4,700
	Other current liabilities			1,968						35					(2,003	)		—
	Deferred revenue			—			—			—			—		—			—
	Income taxes payable			—			8,123			—			—		(8,123	)		—
	Deferred tax liabilities			—			—			—			—		—			—
		Total current liabilities		73,797			31,367			1,749			—		(31,368	)		75,545
Deferred tax liabilities				—			48,577			10,365			—		(58,942	)		—
Long-term liabilities				7,743			—			1,022			—		—			8,765
Long-term debt				894,829			350,000			—			—		(350,000	)		894,829
6% Series C convertible redeemable preferred stock				—			104,582			—			—		(104,582	)		—
6% Series D convertible redeemable preferred stock				—			20,499			—			—		(20,499	)		—
Stockholder’s (deficit) equity:
	6% Series C convertible redeemable preferred stock			—			80,171			—			—		(80,171	)		—
	6% Series D convertible redeemable preferred stock			—			15,125			—			—		(15,125	)		—
	Common stock, par value $.01			—			4,293			—			—		(4,293	)		—
	Paid-in capital			604,166			3,389,035			—			—		(3,389,035	)		604,166
	Treasury stock, at cost			—			(3,360	)		—			—		3,360			—
	Unearned compensation			—			(151	)		—			—		151			—
	Retained deficit			(1,012,536	)		(3,782,107	)		37,202			—		3,754,259			(1,003,182	)
	Accumulated other comprehensive income			—			(57,233	)		—			—		57,233			—
		Total stockholder’s (deficit) equity		(408,370	)		(354,227	)		37,202			—		326,379			(399,016	)
		Total liabilities and stockholder’s (deficit) equity	$	567,999		$	200,798		$	50,338		$	—	$	(239,012	)	$	580,123

36

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10.     Financial Information for the Issuer’s Parent, Guarantors and Other Subsidiaries — (Continued)

LORAL ORION, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Year Ended December 31, 2002

(in thousands)

	Parent			Issuer’s			Guarantor			Other
	Company			Parent			Subsidiary			Subsidiaries		Eliminations			Consolidated
Revenues from satellite services	$	99,717		$	—		$	48,198		$	—	$	(38,176	)	$	109,739
Costs of satellite services		100,360			—			29,231			—		(38,176	)		91,415
Selling, general and administrative expenses		10,089			7,198			964			—		(7,198	)		11,053
Management fee expense		—			18			—			—		(18	)		—
Operating income (loss)		(10,732	)		(7,216	)		18,003			—		7,216			7,271
Interest and investment income		631			21,514			—			—		(21,514	)		631
Interest expense		(13,016	)		(39,327	)		3			—		39,327			(13,013	)
Loss on investment		—			(1,189	)		—			—		1,189			—
(Loss) income before income taxes, equity in net losses of unconsolidated subsidiaries and affiliates, minority interest and cumulative effect of change in accounting principle		(23,117	)		(26,218	)		18,006			—		26,218			(5,111	)
Income tax benefit (provision)		(14,739	)		(6,398	)		(6,455	)		—		11,541			(16,051	)
(Loss) income before equity in net losses of unconsolidated subsidiaries and affiliates, minority interest and cumulative effect of change in accounting principle		(37,856	)		(32,616	)		11,551			—		37,759			(21,162	)
Equity in net income (losses) of unconsolidated subsidiaries, net of taxes		11,551			(1,360,150	)		—			—		1,348,599			—
Equity in net income (losses) of affiliates, net of taxes		—			(76,445	)		—			—		76,445			—
(Loss) income before cumulative effect of change in accounting principle		(26,305	)		(1,469,211	)		11,551			—		1,462,803			(21,162	)
Cumulative effect of change in accounting principle, net of taxes		(562,201	)		—			—			—		—			(562,201	)
Net (loss) income	$	(588,506	)	$	(1,469,211	)	$	11,551		$	—	$	1,462,803		$	(583,363	)

37

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10.     Financial Information for the Issuer’s Parent, Guarantors and Other Subsidiaries — (Continued)

LORAL ORION, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Year Ended December 31, 2002

(in thousands)

			Parent			Issuer’s			Guarantor			Other
			Company			Parent			Subsidiary			Subsidiaries		Eliminations			Consolidated
Operating activities:
	(Loss) income from continuing operations		$	(588,506	)	$	(1,469,211	)	$	11,551		$	—	$	1,462,803		$	(583,363	)
	Non-cash items:
		Equity in net losses of affiliates, net of taxes		—			76,445			—			—		(76,445	)		—
		Cumulative effect of change in accounting principle, net of taxes		562,201			—			—			—		—			562,201
		Equity in net losses of unconsolidated subsidiaries, net of taxes		(11,551	)		1,360,150			—			—		(1,348,599	)		—
		Deferred taxes		32,130			6,214			5,143			—		(11,357	)		32,130
		Depreciation and amortization		54,279			(47	)		21,013			—		47			75,292
		Loss on investments		—			1,189			—			—		(1,189	)		—
		Interest expense		503			—			—			—		—			503
	Changes in operating assets and liabilities:
		Accounts receivable, net		5,594			—			359			—		—			5,953
		Due to (from) unconsolidated subsidiaries		33,882			(17,135	)		(34,931	)		—		17,135			(1,049	)
		Other current assets and other assets		3,589			2,260			(3,296	)		—		(2,260	)		293
		Accounts payable		(1,484	)		(1,357	)		481			—		1,357			(1,003	)
		Accrued expenses and other current liabilities		2,811			715			—			—		(715	)		2,811
		Customer advances		(3,739	)		—			(320	)		—		—			(4,059	)
		Income taxes payable		—			184			—			—		(184	)		—
		Other		—			(2	)		—			—		2			—
Net cash provided by (used in) operating activities				89,709			(40,595	)		—			—		40,595			89,709
Investing activities:
	Capital expenditures			(18,033	)		—			—			—		—			(18,033	)
	Investments in and advances to unconsolidated subsidiaries			—			(2,243	)		—			—		2,243			—
	Investments in and advances to affiliates			—			(11,479	)		—			—		11,479			—
Net cash (used in) provided by in investing activities				(18,033	)		(13,722	)		—			—		13,722			(18,033	)
Financing activities:
	Interest payments on 10% senior notes			(45,952	)		—			—			—		—			(45,952	)
	Repayments of other long-term obligations			(2,159	)		—			—			—		—			(2,159	)
	Note payable to Loral subsidiary			—			42,500			—			—		(42,500	)		—
	Preferred dividends			—			(29,678	)		—			—		29,678			—
	Preferred dividends on exchange offers and related expenses			—			(15,583	)		—			—		15,583			—
	Proceeds from stock issuances			—			12,524			—			—		(12,524	)		—
Net cash used in financing activities				(48,111	)		9,763			—			—		(9,763	)		(48,111	)
Increase (decrease) in cash and cash equivalents				23,565			(44,554	)		—			—		44,554			23,565
Cash and cash equivalents — beginning of period				19,399			46,068			—			—		(46,068	)		19,399
Cash and cash equivalents — end of period			$	42,964		$	1,514		$	—		$	—	$	(1,514	)	$	42,964

38

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10.     Financial Information for the Issuer’s Parent, Guarantors and Other Subsidiaries — (Continued)

LORAL ORION, INC.

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2001

(in thousands)

			Parent			Issuer’s			Guarantor			Other
			Company			Parent			Subsidiary			Subsidiaries		Eliminations			Consolidated
Current assets:
	Cash and cash equivalents		$	19,399		$	46,068		$	—		$	—	$	(46,068	)	$	19,399
	Accounts receivable, net			13,071			—			497			—		—			13,568
	Prepaid expenses and other current assets			6,053			265			5,151			—		(265	)		11,204
		Total current assets		38,523			46,333			5,648			—		(46,333	)		44,171
Property, plant and equipment, net				354,196			—			225,714			—		—			579,910
Costs in excess of net assets acquired, net				562,201			—			—			—		—			562,201
Notes (payable) receivable from unconsolidated subsidiaries				(29,700	)		200,000			—			—		(200,000	)		(29,700	)
Due to (from) unconsolidated subsidiaries				(62,961	)		12,430			72,978			—		(17,642	)		4,805
Investments in unconsolidated subsidiaries				293,039			1,432,614			(271,698	)		—		(1,453,955	)		—
Investments in and advances to affiliates				—			77,061			—			—		(77,061	)		—
Deferred tax assets				32,130			—			—			—		—			32,130
Other assets, net				20,836			6,632			832			—		(6,632	)		21,668
		Total assets	$	1,208,264		$	1,775,070		$	33,474		$	—	$	(1,801,623	)	$	1,215,185
Current liabilities:
	Current portion of long-term debt		$	49,449		$	—		$	—		$	—	$	—		$	49,449
	Accounts payable			2,677			1,357			713			—		(1,357	)		3,390
	Customer advances			952			—			128			—		—			1,080
	Accrued interest and preferred dividends			1,889			22,543			—			—		(22,543	)		1,889
	Deferred revenue			5,719			—			235			—		—			5,954
	Income taxes payable			—			7,939			—			—		(7,939	)		—
	Deferred tax liabilities			—			20,737			—			—		(20,737	)		—
		Total current liabilities		60,686			52,576			1,076			—		(52,576	)		61,762
Deferred tax liabilities				—			21,626			5,214			—		(26,840	)		—
Long-term liabilities				7,986			—			1,533			—		2			9,521
Long-term debt				959,555			350,000			—			—		(350,000	)		959,555
Stockholder’s equity:
	6% Series C convertible redeemable preferred stock			—			485,371			—			—		(485,371	)		—
	6% Series D convertible redeemable preferred stock			—			296,529			—			—		(296,529	)		—
	Common stock, par value $.01.			—			3,368			—			—		(3,368	)		—
	Paid-in capital			604,166			2,771,964			—			—		(2,771,964	)		604,166
	Treasury stock, at cost			—			(3,360	)		—			—		3,360			—
	Unearned compensation			—			(81	)		—			—		81			—
	Retained deficit			(424,129	)		(2,223,710	)		25,651			—		2,202,369			(419,819	)
	Accumulated other comprehensive income			—			20,787			—			—		(20,787	)		—
		Total stockholder’s equity		180,037			1,350,868			25,651			—		(1,372,209	)		184,347
		Total liabilities and stockholder’s equity	$	1,208,264		$	1,775,070		$	33,474		$	—	$	(1,801,623	)	$	1,215,185

39

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10.     Financial Information for the Issuer’s Parent, Guarantors and Other Subsidiaries — (Continued)

LORAL ORION, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Year ended December 31, 2001

(in thousands)

	Parent			Issuer’s			Guarantor			Other
	Company			Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Revenues from satellite services	$	96,623		$	—		$	51,461		$	—		$	(39,139	)	$	108,945
Costs of satellite services		119,917			—			26,407			—			(39,139	)		107,185
Selling, general and administrative expenses		10,796			1,243			—			—			(1,243	)		10,796
Management fee expense		—			36,730			—			—			(36,730	)		—
Operating income (loss)		(34,090	)		(37,973	)		25,054			—			37,973			(9,036	)
Interest and investment income		644			23,238			9			—			(23,238	)		653
Interest expense		(98,310	)		(37,629	)		(29	)		—			37,629			(98,339	)
Gain on debt exchanges		34,541			—			—			—			—			34,541
(Loss) income before income taxes, equity in net loss of unconsolidated subsidiaries and affiliates and discontinued operations		(97,215	)		(52,364	)		25,034			—			52,364			(72,181	)
Income tax benefit (provision)		(1,744	)		(6,315	)		(8,762	)		—			12,832			(3,989	)
(Loss) income before equity in net loss of unconsolidated subsidiaries and affiliates and discontinued operations		(98,959	)		(58,679	)		16,272			—			65,196			(76,170	)
Equity in net loss of unconsolidated subsidiaries, net of tax benefit		11,950			(66,128	)		—			—			54,178			—
Equity in net loss of affiliates, net of taxes		—			(71,653	)		—			—			71,653			—
(Loss) income from continuing operations		(87,009	)		(196,460	)		16,272			—			191,027			(76,170	)
Loss from operations of discontinued operations, net of taxes		(7,765	)		—			—			(4,322	)		—			(12,087	)
Net (loss) income	$	(94,774	)	$	(196,460	)	$	16,272		$	(4,322	)	$	191,027		$	(88,257	)

40

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10.     Financial Information for the Issuer’s Parent, Guarantors and Other Subsidiaries — (Continued)

LORAL ORION, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

for the year ended December 31, 2001

(in thousands)

			Parent			Issuer’s			Guarantor			Other
			Company			Parent			Subsidiary			Subsidiaries		Eliminations			Consolidated
Operating activities:
	Loss income from continuing operations		$	(87,009	)	$	(196,460	)	$	16,272		$	—	$	191,027		$	(76,170	)
	Non-cash items:
		Gain on debt exchanges		(34,541	)		—			—			—		—			(34,541	)
		Equity in net loss of affiliates, net of taxes		—			71,653			—			—		(71,653	)		—
		Equity in net loss of unconsolidated subsidiaries, net of taxes		(11,950	)		66,128			—			—		(54,178	)		—
		Deferred taxes		12,852			5,905			6,517			—		(12,422	)		12,852
		Depreciation and amortization		72,992			—			21,013			—					94,005
		Interest expense		39,609			—			—			—		—			39,609
		Provision for bad debt		3,460			—			—			—		—			3,460
Changes in operating assets and liabilities, net of acquisitions:
	Accounts receivable, net			(4,676	)		—			1,205			—		—			(3,471	)
	Other current assets			(2,083	)		—			(2,756	)		—		(795	)		(5,634	)
	Deposits			863			—			(863	)		—		—			—
	Due to (from) unconsolidated subsidiaries			58,281			6,075			(38,795	)		—		(27,228	)		(1,667	)
	Other assets			(2,889	)		—			(329	)		—		1			(3,217	)
	Accounts payable			(8,011	)		96			—			—		(96	)		(8,011	)
	Accrued expenses and other current liabilities			2,166			(2,538	)		(2,166	)		—		2,538			—
	Customer advances			(724	)		—			(98	)		—		—			(822	)
	Income taxes payable			—			402			—			—		(402	)		—
	Long-term liabilities			7,861			—			—			—		—			7,861
	Other			—			918			—			—		(918	)		—
Net cash provided by (used in) operating activities				46,201			(47,821	)		—			—		25,874			24,254
Net cash provided by (used in) discontinued operations				2,236			—			—			—		21,947			24,183
Investing activities:
	Capital expenditures			(579	)		—			—			—		—			(579	)
	Investments in and advances to affiliates			—			(19,668	)		—			—		19,668			—
	Investments in and advances to unconsolidated subsidiaries			—			(2,102	)		—			—		2,102			—
Net cash (used in) provided by investing activities				(579	)		(21,770	)		—			—		21,770			(579	)
Financing activities:
	Repayments of other long-term obligations			(2,995	)		—			—			—		—			(2,995	)
	Preferred dividends			—			(52,218	)		—			—		52,218			—
	Proceeds from other stock issuances			—			16,472			—			—		(16,472	)		—
	Repayment of note due to Loral SpaceCom			(28,166	)		—			—			—		—			(28,166	)
	Equity contributed by Loral			2,700			—			—			—		—			2,700
Net cash (used in) provided by financing activities				(28,461	)		(35,746	)		—			—		35,746			(28,461	)
Increase (decrease) in cash and cash equivalents				19,397			(105,337	)		—			—		105,337			19,397
Cash and cash equivalents — beginning of Period				2			151,405			—			—		(151,405	)		2
Cash and cash equivalents — end of period			$	19,399		$	46,068		$	—		$		$	(46,068	)	$	19,399

41

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10.     Financial Information for the Issuer’s Parent, Guarantors and Other Subsidiaries — (Continued)

LORAL ORION, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Year ended December 31, 2000

(in thousands)

	Parent			Issuer’s			Guarantor			Other
	Company			Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Revenues from satellite services	$	66,609		$	—		$	42,084		$	—		$	(25,309	)	$	83,384
Costs of satellite services		103,961			—			25,989			—			(25,309	)		104,641
Selling, general and administrative expenses		12,437			1,197			390			—			(1,197	)		12,827
Management fee expense		—			64,601			—			—			(64,601	)		—
Operating income (loss)		(49,789	)		(65,798	)		15,705			—			65,798			(34,804	)
Interest and investment income		2,961			74,977			80			—			(74,977	)		3,041
Interest expense		(97,155	)		(29,435	)		(9	)		—			29,435			(97,164	)
Gain on investments, net		—			69,706			—			—			(69,706	)		—
(Loss) income before income taxes, equity in net loss of unconsolidated subsidiaries and affiliates, Globalstar related impairment charges and discontinued operations		(143,983	)		49,450			15,776			—			(49,450	)		(128,207	)
Income tax benefit (provision)		4,250			(15,949	)		(5,524	)		—			16,313			(910	)
(Loss) income before equity in net loss of unconsolidated subsidiaries and affiliates, Globalstar related impairment charges and discontinued operations		(139,733	)		33,501			10,252			—			(33,137	)		(129,117	)
Equity in net income (loss) of unconsolidated subsidiaries, net of tax benefit		3,970			(700,187	)		—			—			696,217			—
Equity in net loss of affiliates, net of taxes		—			(723,763	)		—			—			723,763			—
Globalstar related impairment charges, net of tax benefit		—			(79,229	)		—			—			79,229			—
(Loss) income from continuing operations		(135,763	)		(1,469,678	)		10,252			—			1,466,072			(129,117	)
Loss from operations of discontinued operations, net of taxes		(2,019	)		—			—			(6,282	)		—			(8,301	)
Net (loss) income	$	(137,782	)	$	(1,469,678	)	$	10,252		$	(6,282	)	$	1,466,072		$	(137,418	)

42

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10.     Financial Information for the Issuer’s Parent, Guarantors and Other Subsidiaries — (Continued)

LORAL ORION, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the year ended December 31, 2000

(in thousands)

			Parent			Issuer’s			Guarantor			Other
			Company			Parent			Subsidiary			Subsidiaries			Eliminations			Consolidated
Operating activities:
	(Loss) income from continuing operations		$	(135,763	)	$	(1,469,678	)	$	10,252		$	—		$	1,466,072		$	(129,117	)
	Non-cash items:
		Equity in net loss of affiliates, net of Taxes		—			723,763			—			—			(723,763	)		—
		Equity in net loss of unconsolidated subsidiaries, net of taxes		(3,970	)		700,187			—			—			(696,217	)		—
		Deferred taxes		4,241			13,604			364			—			(13,968	)		4,241
		Depreciation and amortization		68,963			—			21,013			—			—			89,976
		Interest expense		37,074			—			—			—			—			37,074
		Interest and investment income		(3,518	)		(25,821	)		—			—			25,821			(3,518	)
		Gain on investments, net		—			(70,842	)		—			—			70,842			—
		Globalstar related impairment charges, net of taxes		—			79,229			—			—			(79,229	)		—
		Satellite purchase price payable		180,755			—			(180,755	)		—			—			—
		Provision for bad debt		1,070			—			—			—			—			1,070
	Accounts receivable, net			(5,403	)		—			(29	)		—			—			(5,432	)
	Prepaid Expenses and other current Assets			2,344			—			491			—			—			2,835
	Deposits			(110	)		—			110			—			—			—
	Due to (from) unconsolidated subsidiaries			9,571			11,850			(36,629	)		2,792			(39,274	)		(51,690	)
	Other assets			1,467			—			(405	)		—			—			1,062
	Accounts payable			2,786			(699	)		—			—			699			2,786
	Accounts payable, accrued expenses and other current liabilities			(1,885	)		2,294			1,885			—			(2,294	)		—
	Customer advances			2,127			—			(907	)		—			—			1,220
	Income taxes payable			—			2,518			—			—			(2,518	)
	Deferred revenue			1,265			—			—			—			—			1,265
	Other			—			4,794			—			—			(4,794	)
Net cash provided by (used in) operating activities				161,014			(28,801	)		(184,610	)		2,792			1,377			(48,228	)
Net cash used in discontinued operations				(68,114	)		—			—			(2,792	)		27,424			(43,482	)
Investing activities:
	Capital expenditures			(182,095	)		—			—			—			—			(182,095	)
	Investments in and advances to affiliates			—			(181,430	)		—			—			181,430			—
	Investments in and advances to unconsolidated affiliates			—			(187,252	)		—			—			187,252			—
	Proceeds from the sales of investments			—			97,137			—			—			(97,137	)		—
	(Increase) decrease in restricted and segregated cash			(64	)		—			—			—			—			(64	)
	Use and transfer of restricted and segregated cash			190,898			—			—			—			—			190,898
Net cash (used in) provided by investing activities				8,739			(271,545	)		—			—			271,545			8,739
Financing activities:
	Repayments of other long-term obligations			(1,678	)		—			—			—			—			(1,678	)
	Preferred dividends			—			(61,646	)		—			—			61,646			—
	Proceeds from other stock issuances			—			25,982			—			—			(25,982	)		—
	Proceeds from the issuance of 6% Series D preferred stock, net			—			388,204			—			—			(388,204	)		—
	Proceeds from sale of orbital slots to Loral, net			34,260			—			—			—			—			34,260
	Equity Contribution from Loral			10,750			—			—			—			—			10,750
	Increase in note payable to SpaceCom			35,752			—			—			—			—			35,752
	Capital contributions from Loral CyberStar			(180,755	)		—			180,755			—			—			—
Net cash (used in) provided by financing activities				(101,671	)		352,540			180,755			—			(352,540	)		79,084
Increase (decrease) in cash and cash equivalents				(32	)		52,194			(3,855	)		—			(52,194	)		(3,887	)
Cash and cash equivalents — beginning of Period				34			99,211			3,855			—			(99,211	)		3,889
Cash and cash equivalents — end of Period			$	2		$	151,405		$	—		$	—		$	(151,405	)	$	2

43

LORAL ORION, INC. AND SUBSIDIARIES

(A wholly owned subsidiary of Loral Space & Communications Corporation)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11.     Selected Quarterly Financial Data (Unaudited)

      The following is a summary of the quarterly results of operations for the years ended December 31, 2002 and 2001 (in thousands):

	March 31,			June 30,			September 30,		December 31,
2002
Revenues	$	29,621		$	27,579		$	25,776	$	26,763
Income from operations		3,747			1,815			333		1,376
Income (loss) before cumulative effect of change in accounting principle and discontinued operations		3,016			2,534			753		(27,465	)
(Loss) income from continuing operations		(559,185	)		(2,534	)		753		(22,397	)
Net (loss) income		(559,185	)		(2,534	)		753		(22,397	)

	March 31,			June 30,			September 30,			December 31,
2001
Revenues	$	26,324		$	27,598		$	27,762		$	27,261
Loss from operations		(2,572	)		(151	)		(578	)		(5,735	)
(Loss) income from continuing operations		(27,386	)		(24,333	)		(26,865	)		2,414
(Loss) income from discontinued operations		(4,875	)		(4,970	)		(3,920	)		1,678
Net (loss) income		(32,261	)		(29,303	)		(30,785	)		4,092

44

Item 9. Changes In and Disagreements With Accountants and Accounting and Financial Disclosures

      None

PART III

Item 10. Directors and Executive Officers of the Registrant

      Omitted pursuant to General Instruction I of Form 10-K.

Item 11. Executive Compensation

      Omitted pursuant to General Instruction I of Form 10-K.

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

      Omitted pursuant to General Instruction I of Form 10-K.

Item 13. Certain Relationships and Related Transactions

      Omitted pursuant to General Instruction I of Form 10-K.

Item 14. Evaluation of Disclosure Controls and Procedures

      (a) Evaluation of disclosure controls and procedures. Loral Orion’s chief executive officer and its chief financial officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities and Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date (the “Evaluation Date”) within 90 days before the filing date of this annual report, have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were adequate and designed to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities.

      (b) Changes in internal controls. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect the Company’s disclosure controls and procedures subsequent to the Evaluation Date.

45

PART IV

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

      (a) (1) and (2) List of Financial Statements and Financial Statement Schedules

      The following consolidated financial statements of Loral Orion are included in Item 8:

Consolidated Balance Sheets — December 31, 2002 and 2001

Consolidated Statements of Operations — Years ended December 31, 2002, 2001 and 2000.

Consolidated Statements of Stockholder’s (Deficit) Equity — Years ended December 31, 2002, 2001 and 2000

Consolidated Statements of Cash Flows — Year ended December 31, 2002, 2001 and 2000

Notes to Consolidated Financial Statements

All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

      (b) Reports on Form 8-K filed in the fourth quarter of 2002

      None

      (c) Exhibits

46

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Annual Report of Loral Orion, Inc. (the “registrant”) on Form 10-K for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Annual Report”), I, Bernard L. Schwartz, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002, that:

      (1) I have reviewed this Annual Report on Form 10-K of Loral Orion, Inc.;

      (2) Based on my knowledge, this Annual Report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report;

      (3) Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this Annual Report;

      (4) The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared;

      b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this Annual Report (the “Evaluation Date”); and

      c) presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

      (5) The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

      a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weakness in internal controls; and

      b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

      (6) The registrant’s other certifying officers and I have indicated in this Annual Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/ BERNARD L. SCHWARTZ

Bernard L. Schwartz

Chief Executive Officer

March 31, 2003

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Annual Report of Loral Orion, Inc. (the “registrant”) on Form 10-K for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Annual Report “), I, Richard J. Townsend, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002, that:

      (1) I have reviewed this Annual Report on Form 10-K of Loral Orion, Inc.;

      (2) Based on my knowledge, this Annual Report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report;

      (3) Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for the periods presented in this Annual Report;

      (4) The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared;

      b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this Annual Report (the “Evaluation Date”); and

      c) presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

      (5) The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

      a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weakness in internal controls; and

      b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

      (6) The registrant’s other certifying officers and I have indicated in this Annual Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

/s/ RICHARD J. TOWNSEND

Richard J. Townsend

Chief Financial Officer

March 31, 2003

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Annual Report of Loral Orion, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bernard L. Schwartz, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

      (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

      (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ BERNARD L. SCHWARTZ

Bernard L. Schwartz

Chief Executive Officer

March 31, 2003

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Annual Report of Loral Orion, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard J. Townsend, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

      (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

      (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ RICHARD J. TOWNSEND

Richard J. Townsend

Chief Financial Officer

March 31, 2003

INDEX TO EXHIBITS

Exhibit
Number		Description
	2.1	Agreement and Plan of Merger, dated as of October 7, 1997, by and among Orion, Loral and Loral Satellite Corporation. (Incorporated by reference to exhibit number 2.1 in Current Report on Form 8-K dated October 9, 1997.)
	2.2	Principal Stockholder Agreement among Orion, Loral, Loral Satellite Corporation and the stockholders that are signatories thereto, dated as of October 7, 1997. (Incorporated by reference to exhibit number 2.2 in Current Report on Form 8-K dated October 9, 1997.)
	2.3	Amendment No. 1 Agreement and Plan of Merger, dated as of February 11, 1998, by and among Orion, Loral and Loral Satellite Corporation. (Incorporated by reference to exhibit number 2.2 in Registration Statement No. 333-46407 on Form S-4.)
	2.4	Amendment No. 1 to Principal Stockholder Agreement among Orion, Loral, Loral Satellite Corporation and the stockholders that are signatories thereto, dated as of December 1, 1997. (Incorporated by reference to exhibit number 2.4 in Annual Report on Form 10-K for fiscal year ended December 31, 1997.)
	3.1	Certificate of Merger of Loral Satellite Corporation into Orion, dated March 20, 1998, and Exhibit A thereto, Restated Certificate of Incorporation of the Company. (Incorporated by reference to exhibit number 3.1 in Annual Report on Form 10-K for the fiscal year ended December 31, 1998.)
	3.2	Certificate of Merger of Loral CyberStar, Inc. into Loral Orion Services, Inc. (Incorporated by reference to exhibit number 3.2 in Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)
	3.3	Merger Agreement between Loral CyberStar, Inc. and Loral Orion Services, Inc. (Incorporated by reference to exhibit number 3.3 in Annual Report on Form 10-K for the fiscal year ended December 31, 2000.)
	3.4	Amended and Restated Certificate of Incorporation of the Company. (Incorporated by reference to exhibit number 3.4 in Annual Report on Form 10-K for the fiscal year ended December 31, 2001.)
	3.5	Amended and Restated Certificate of Incorporation of the Company. (Incorporated by reference to exhibit number 3.5 in Annual Report on Form 10-K for the fiscal year ended December 31, 2001.)
	4.1	Form of Senior Note Indenture and Form of Note included therein. (Incorporated by reference to exhibit number 4.1 to Registration Statement No. 333-19167 on Form S-1.)
	4.1.1	Supplemental Indenture, dated as of December 21, 2001, to the Senior Note Indenture, dated January 31, 1997. (Incorporated by reference to exhibit number 99.7 to Current Report on Form 8-K filed on January 7, 2002.)
	4.2	Form of Senior Discount Note Indenture and Form of Note included therein. (Incorporated by reference to exhibit number 4.2 to Registration Statement No. 333-19167 on Form S-1.)
	4.2.1	Supplemental Indenture, dated as of December 21, 2001, to the Senior Note Indenture, dated January 31, 1997. (Incorporated by reference to exhibit number 99.8 to Current Report on Form 8-K filed on January 7, 2002.)
	4.3	Form of Collateral Pledge and Security Agreement. (Incorporated by reference to exhibit number 4.3 to Registration Statement No. 333-19167 on Form S-1.)
	4.4	Indenture, dated as of December 21, 2001, by and among the Company, certain of its subsidiaries and Bankers Trust Company, as Trustee. (Incorporated by reference to exhibit number 99.5 to Current Report on Form 8-K filed on January 7, 2002.)

Exhibit
Number		Description
	10.1	Second Amended and Restated Purchase Agreement, dated September 26, 1991 (“Satellite Contract”) by and between Loral Orion Services, Inc. (formerly known as Orion Satellite Corporation) and British Aerospace PLC and the First Amendment, dated as of September 15, 1992, Second Amendment, dated as of November 9, 1992, Third Amendment, dated as of March 12, 1993, Fourth Amendment, dated as of April 15, 1993, Fifth Amendment, dated as of September 22, 1993, Sixth Amendment, dated as of April 6, 1994, Seventh Amendment, dated as of August 9, 1994, Eighth Amendment, dated as of December 8, 1994, and Amendment No. 9 dated October 24, 1995, thereto. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THESE DOCUMENTS.] (Incorporated by reference to exhibits number 10.13 and 10.14 in Registration Statement No. 33-80518 on Form S-1).
	10.2	Restated Amendment No. 10, dated December 10, 1996, between Loral Orion Services, Inc. and Matra Marconi Space to the Second Amended and Restated Purchase Agreement, dated September 16, 1991 by and between OrionServ and British Aerospace PLC (which contract and prior exhibits thereto were incorporated by reference as exhibit number 10.1). (Incorporated by reference to exhibit number 10.2 in Registration Statement No. 333-19795 on Form S-4.)
	10.3	Contract for a Satellite Control System, dated December 7, 1992, by and between Loral Orion Services, Inc., Telespazio S.p.A. and Martin Marietta Corporation. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.] (Incorporated by reference to exhibit number 10.31 in Registration Statement No. 33-80518 on Form S-1.)
	10.4	Restated Definitive Agreement, dated October 29, 1998, by and between Orion and Republic of the Marshall Islands. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.](Incorporated by reference to exhibit number 10.12 in Annual Report on Form 10-K for the fiscal year ended December 31, 1998.)
	10.5	Orion 3 Spacecraft Purchase Contract, dated January 15, 1997, by and among Hughes Space and Communications International, Inc., Loral Orion Services, Inc. (by assignment from Loral Orion-Asia Pacific, Inc., formerly known as Orion Asia Pacific Corporation) and Orion. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.]. (Incorporated by reference to exhibit number 10.52 to Registration Statement No. 333-19167 on Form S-1.)
	10.6	Orion-Z Spacecraft Purchase Contract, dated May 15, 1998, by and between Loral Orion Services, Inc. and Space Systems/Loral, Inc. and Amendment No. 1 dated December 29, 1998. [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS DOCUMENT.](Incorporated by reference to exhibit number 10.17 in Annual Report on Form 10-K for the fiscal year ended December 31, 1998.)
	10.7	Agreement, dated January 1, 1999, by and between Loral Orion Services, Inc. and Loral Skynet. (Incorporated by reference to exhibit number 10.18 in Annual Report on Form 10-K for the fiscal year ended December 31, 1998.)
	10.8	Agreement, dated January 1, 1999, by and between Loral Orion Services, Inc. and Loral Skynet. (Incorporated by reference to exhibit number 10.19 in Annual Report on Form 10-K for the fiscal year ended December 31, 1998.)
	10.9	Lease Agreement, dated as of August 18, 1999, by and between Loral Asia Pacific Satellite (HK) Limited and APT Satellite Company Limited. (Incorporated by reference to exhibit number 99.1 to Current Report on Form 8-K filed on August 23, 1999.)

Exhibit
Number		Description
	10.10	Lock-up Agreement, dated as of October 15, 2001, by and among the Company, Loral Space & Communications Ltd., Loral SpaceCom Corporation and certain holders of the Company’s 11 1/4% Senior Notes due 2007 and its 12 1/2% Senior Discount Notes due 2007. (Incorporated by reference to exhibit number 10.1 to Current Report on Form 8-K filed on November 16, 2001.)
	10.11	Asset Purchase Agreement, dated as of December  21, 2001, between the Company and Loral CyberStar Data Services Corporation. (Incorporated by reference to exhibit number 99.1 to Current Report on Form 8-K filed on January 7, 2002.)
	10.12	$29.7 million aggregate principal amount, 10% Subordinated Note due 2006, made by the Company and issued to Loral SpaceCom Corporation. (Incorporated by reference to exhibit number 99.3 to Current Report on Form 8-K filed on January 7, 2002.)
	10.13	Subordinated Guaranty Agreement, dated as of December 21, 2001, between Loral Space & Communications Ltd. and Loral SpaceCom Corporation with respect to the 10% Subordinated Note due 2006. (Incorporated by reference to exhibit number 99.4 to Current Report on Form 8-K filed on January 7, 2002.)
	10.14	Warrant Agreement, dated as of December 21, 2001, between Loral Space & Communications Ltd. and The Bank of New York, as Warrant Agent. (Incorporated by reference to exhibit number 99.6 to Current Report on Form 8-K filed on January 7, 2002.)
	10.15	Guaranty Agreement, dated as of December 21, 2001, between Loral Space & Communications Ltd. and Bankers Trust Company, as Trustee. (Incorporated by reference to exhibit number 99.9 to Current Report on Form 8-K filed on January 7, 2002.)
	10.16	Apstar V Condosat Agreement dated as of December 10, 2002 between APT Satellite Company Limited and Loral Orion, Inc.†

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

LORAL ORION, INC.

By:  /s/TERRY J. HART

Terry J. Hart

Title: President

Dated: March 31, 2003

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/      BERNARD L. SCHWARTZ            Bernard L. Schwartz	Chairman of the Board and Chief Executive Officer	March 31, 2003
/s/      ERIC J. ZAHLER            Eric J. Zahler	Director and Executive Vice President	March 31, 2003
/s/      AVI KATZ            Avi Katz	Director, Vice President and Secretary	March 31, 2003
/s/      GEORGE BAKER            George Baker	Director	March 31, 2003
/s/      DANIEL HIRSCH            Daniel Hirsch	Director	March 31, 2003
/s/      RICHARD J. TOWNSEND            Richard J. Townsend	Senior Vice President and Chief Financial Officer (Principal Financial Officer)	March 31, 2003
/s/      HARVEY B. REIN            Harvey B. Rein	Vice President and Controller (Principal Accounting Officer)	March 31, 2003

EX-10.16

                                                                  EXECUTION COPY

                  --------------------------------------------

                           APSTAR V CONDOSAT AGREEMENT

                  --------------------------------------------

                                     between

                          APT SATELLITE COMPANY LIMITED

                                       and

                                LORAL ORION, INC.



                                                                  EXECUTION COPY

                           APSTAR V CONDOSAT AGREEMENT

                                      INDEX



                                                                                              Page
                                                                                              ----
                                                                                        
ARTICLE 1.                 INTERPRETATION.......................................                 1

ARTICLE 2.                 OWNERSHIP OF THE SATELLITE ..........................                 2

ARTICLE 3.                 PAYMENT PLAN ........................................                 7

ARTICLE 4.                 STATUS OF REMAINING LORAL TRANSPONDERS
                           PENDING TAKE UP .....................................                 8

ARTICLE 5.                 THE SATELLITE .......................................                 8

ARTICLE 6.                 REPRESENTATIONS AND WARRANTIES
                           OF THE PARTIES ......................................                 9

ARTICLE 7.                 LEASE OF ADDITIONAL TRANSPONDERS ....................                10

ARTICLE 8.                 [RESERVED] ..........................................                11

ARTICLE 9.                 ORBITAL SLOT ........................................                11

ARTICLE 10.                LANDING RIGHTS ......................................                14

ARTICLE 11.                SUCCESSOR SATELLITE RENEWAL .........................                14

ARTICLE 12.                EFFECTIVE DATE OF TERM SHEET ........................                15

ARTICLE 13.                PLEDGES .............................................                15

ARTICLE 14.                TRANSFER ............................................                16

ARTICLE 15.                RELATIONSHIP OF PARTIES .............................                16

ARTICLE 16.                TAXES ...............................................                16

ARTICLE 17.                ENTIRE AGREEMENT, TRANSACTION
                           DOCUMENTS ...........................................                16

ARTICLE 18.                TERMINATION .........................................                17




                                                                  EXECUTION COPY

                                                                                        
ARTICLE 19.                FORCE MAJEURE .......................................                18

ARTICLE 20.                DEFAULT .............................................                18

ARTICLE 21.                CONFIDENTIALITY .....................................                19

ARTICLE 22.                ASSIGNMENT ..........................................                20

ARTICLE 23.                GOVERNING LAW .......................................                20

ARTICLE 24.                DISPUTE RESOLUTION ..................................                20

ARTICLE 25.                NOTICES .............................................                21

ARTICLE 26.                MISCELLANEOUS .......................................                22





Schedule 1                 Definitions
                        
Annex A                    Description of Loral Transponders

Annex B                    Take Up Schedule for the Remaining Loral Transponders

Annex C                    The Parties' Respective Ownership of the Transponders and Common Elements

Annex D                    Initial Project Cost

Annex E                    APSTAR V Transponder Performance Validation

Annex F                    Material Restrictions or Agreements that impact the Loral Transponders

Annex G                    Ku-band Beam #2 Modification




                                                                  EXECUTION COPY

                           APSTAR V CONDOSAT AGREEMENT

THIS AGREEMENT is dated as of the 10th day of December, 2002 by and between

         APT SATELLITE COMPANY LIMITED, a company organized and existing under
         the laws of Hong Kong with its registered office at Rooms 3111-3112,
         One Pacific Place, 88 Queensway, Hong Kong ("APT")

         and

         LORAL ORION, INC., a corporation organized and existing under the laws
         of the state of Delaware, U.S.A., with its principal place of business
         at 500 Hills Drive, Bedminster, NJ 07921, U.S.A. ("Loral Orion").

WHEREAS APT and Space Systems/Loral, Inc. ("SS/L") have entered into a satellite
procurement contract dated as of January 8, 2001, as amended through the date
hereof, including Amendment No. 3 entered into contemporaneously with the
execution of this Agreement, for the construction, testing and purchase of the
APSTAR V satellite (the "SS/L Contract");

WHEREAS APT, SS/L and Loral Orion have entered into a Term Sheet (the "Term
Sheet") for the joint acquisition by Loral Orion and APT of the APSTAR V
satellite on a 50-50 basis and the creation of a condosat arrangement between
APT and Loral Orion for such satellite under the terms stated therein, and
relating to certain amendments to the SS/L Contract; and

WHEREAS APT and Loral Orion desire to set forth in this Agreement the detailed
terms and conditions of their agreement with regard to the joint acquisition of
the Satellite and such other matters as set forth herein.

NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements hereinafter contained, the
parties hereto agree as follows:-

                                    ARTICLE 1
                                 INTERPRETATION

1.1      Words and expressions used in this Agreement shall have the meanings
         set out in Schedule 1, unless the context requires otherwise.

1.2      The Schedules and Annexes to this Agreement shall form part of this
         Agreement.

1.3      References to a party giving consent or approval shall be deemed to be
         in such party's sole judgment and discretion, except as specifically
         set forth herein.

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                                    ARTICLE 2
                           OWNERSHIP OF THE SATELLITE

2.1      Loral Transponders

         In consideration of the payments to be made by Loral Orion to SS/L and
         APT as described in Article 4 below, Loral Orion will ultimately
         acquire a fifty percent (50%) interest in the Satellite, including
         complete title to the following transponders on the Satellite:

                  -        12 standard frequency C-band transponders;

                  -        7 extended frequency C-band transponders; and

                  -        all 8 Ku-band transponders on Beam #2,

                  in each case as identified and described on Annex A hereto
                  (collectively and including any replacement capacity allocated
                  to Loral Orion, the "Loral Transponders").

         References to the Loral Transponders herein shall include all
         transponders ultimately identified and agreed to by Loral Orion and APT
         as a "Loral Transponder" as set forth in this Article 2, regardless of
         whether such transponder was identified as such at the time that any
         applicable action was taken or failed to be taken with respect thereto
         that impacts or relates to the Loral Transponders as set forth in this
         Agreement or in the Transaction Documents.

2.2      Identification and Assignment of Loral Transponders

         2.2.1    Six (6) of the twelve (12) standard frequency C-band
                  transponders will not be identified at the time this Agreement
                  is executed but will instead be agreed and identified by Loral
                  Orion and APT no later than March 31, 2003 with respect to the
                  three (3) transponders scheduled to be taken up on the second
                  and third anniversaries of the Satellite's in-service date,
                  and no later than the date of shipment of the Satellite with
                  respect to the remaining three (3) transponders; provided
                  however that assuming all transponders are performing
                  according to specifications, APT shall be entitled, on or
                  before March 31, 2004, to make minor adjustments to the
                  designation of such six (6) transponders, subject to obtaining
                  Loral Orion's consent thereto, which consent shall not be
                  unreasonably withheld.

         2.2.2    APT represents and warrants that the six (6) transponders on
                  APSTAR I corresponding to the six (6) transponders on the
                  Satellite which are finally agreed and identified by Loral
                  Orion and APT as set forth in Paragraph 2.2.1 shall have
                  historically not experienced any unacceptable level of
                  interference from adjacent or nearby satellites and can be
                  fully saturated.

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         2.2.3    APT and Loral Orion agree that in assigning the remaining six
                  (6) Loral Transponders as set forth above, the parties will
                  adopt the principle that the risk of coordination restrictions
                  that may be imposed on the Satellite from the Russian filing
                  submitted to the ITU with respect to the orbital slot at
                  140(degree) E.L. (the "Russian Filing") shall be shared on an
                  equal basis between APT and Loral Orion (in no event, however,
                  shall Loral Orion be allocated more than 7 "at risk" standard
                  C-band transponders). As long as this principle has been fully
                  effected, the parties will assign these transponders to
                  minimize customer migration issues.

         2.2.4    APT and Loral Orion agree that they will not enter into any
                  coordination or other agreement relating to the Russian Filing
                  or the satellite that is the subject of the Russian Filing
                  (the "Russian Satellite") that would result in the other party
                  bearing a disproportionate amount (i.e., more than 50%) of the
                  potential or actual risk of coordination with the Russian
                  Filing or the Russian Satellite.

         2.2.5    APT will use its reasonable best efforts, subject to the
                  principles set forth in this Paragraph 2.2 and the
                  requirements in any coordination agreements affecting the
                  Orbital Slot presently existing or permitted under Paragraph
                  9.1 of this Agreement, so that all Loral Transponders will not
                  suffer unacceptable levels, as reasonably determined by Loral
                  Orion (after consultation with APT), of interference from
                  adjacent satellites.

         2.2.6    APT will support Loral Orion's selection and loading of the
                  Loral Transponders by providing technical information
                  concerning transponder performance, interference
                  considerations and operation.

         2.2.7    APT represents that the interference it has experienced on
                  APSTAR I, on a historical basis, is as set forth in Annex F
                  hereto.

2.3      Take Up Schedule

         2.3.1    Loral Orion will initially acquire thirteen and one-half
                  (13.5) of the Loral Transponders, consisting of: -

                           -        6 standard C-band transponders;

                           -        3.5 extended C-band transponders; and

                           -        4 Ku-band transponders;

                  in each case as identified and described in Annex A hereto.

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         2.3.2    The Remaining Loral Transponders shall, subject to the
                  provisions of Paragraph 2.3.4 below and the relevant payment
                  by Loral Orion pursuant to Paragraph 3.3 below, be acquired as
                  follows:

                           -        2.5 transponders on the second anniversary
                                    of the Satellite's in-service date;

                           -        3 transponders on the third anniversary of
                                    the Satellite's in-service date; and

                           -        4 transponders on each of the fourth and
                                    fifth anniversaries of the Satellite's
                                    in-service date (each such date, including
                                    any accelerated take up date as described in
                                    Paragraph 2.3.3 below, a "Take Up Date").

                  Subject to Loral Orion's acceleration rights set forth in
                  Paragraph 2.3.3 below, the take up schedule for the Remaining
                  Loral Transponders is set forth in Annex B hereof.

         2.3.3    Loral Orion shall have the right at its option to accelerate
                  the take down of up to three (3) of the standard frequency
                  C-band Remaining Loral Transponders and any or all of the
                  extended frequency C-band and Ku-band Remaining Loral
                  Transponders; provided however that Loral Orion may not,
                  without APT's prior written consent, exercise such
                  acceleration right with respect to any Remaining Loral
                  Transponder that is then subject to a lease agreement with a
                  customer or otherwise subject to the contractual rights of a
                  customer, including any contractually provided renewal term,
                  if the expiration date of such lease agreement or other
                  contractual rights shall be later than Loral Orion's proposed
                  accelerated take up date.

         2.3.4    With respect to the Remaining Loral Transponders, APT shall
                  bear the risk of loss with respect to any such transponder
                  until payment is made by Loral Orion for such transponder in
                  accordance with Paragraph 3.3. Accordingly, Loral Orion shall
                  have no obligation to take up or pay for any Remaining Loral
                  Transponder (i) that fails to meet the requirements set forth
                  on Annex E hereto on the relevant Take Up Date, or (ii) for
                  which APT has submitted an insurance claim.

                  Loral Orion shall be obligated to take up and pay for a
                  Remaining Loral Transponder, even if APT shall have previously
                  received a warranty payback or transponder performance-based
                  reduction in the amount of the final milestone payment by APT
                  under the SS/L Contract in respect thereof, if (i) neither of
                  the requirements set forth in the preceding sentence has been
                  met and (ii) Loral Orion's purchase price for such transponder
                  shall be reduced by an amount equal to the amount of such
                  warranty payback and/or the amount of such final milestone
                  payment reduction, as applicable, that relates to such
                  transponder.

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2.4      Ownership of the Common Elements

         2.4.1    The Common Elements shall be owned jointly by APT and Loral
                  Orion, as tenants in common, based on their respective
                  economic interests (as distinct from title, which is discussed
                  in Paragraph 2.5 below) in the transponders on the Satellite,
                  as follows: -

                  (a)      Initially, the economic interest shall be 75% APT and
                  25% Loral Orion.

                  (b)      Thereafter, Loral Orion's economic interest in the
                  Common Elements will be automatically increased on each Take
                  Up Date or the date of payment by Loral Orion for the related
                  transponders in respect of such Take Up Date, whichever is
                  later, until the last such Take Up Date or date of payment, at
                  which time APT and Loral Orion will own a 50/50 economic
                  interest in the Common Elements.

                  (c)      If there is a change in ownership of the transponders
                  as a result of a transfer as described in Article 14 hereof,
                  the respective economic interests of the parties in the Common
                  Elements shall be adjusted proportionately, as appropriate.

2.5      Transfer of Title

         2.5.1    In consideration for the amount paid by Loral Orion as set
                  forth in Paragraph 3.2, Loral Orion will, simultaneously with
                  passage of title from SS/L to APT under the SS/L Contract,
                  automatically and immediately acquire, free and clear of all
                  liens and encumbrances (other than any liens and encumbrances
                  that may be created or incurred by Loral Orion), title to its
                  25% interest in the Satellite (including 50% of the Loral
                  Transponders) and APT shall retain a 75% interest in the
                  Satellite.

         2.5.2    Title to the Remaining Loral Transponders and the increased
                  interest in the Common Elements shall automatically and
                  immediately transfer, free and clear of all liens and
                  encumbrances (other than any liens and encumbrances that may
                  be created or incurred by Loral Orion), to Loral Orion on each
                  Take Up Date or the date of payment by Loral Orion for the
                  related transponders in respect of such Take Up Date,
                  whichever is later.

         2.5.3    A table of the parties' respective ownership of the
                  Satellite's transponders and interest in the Common Elements
                  after each scheduled Take Up Date is set forth in Annex C.

         2.5.4    APT shall cooperate with and assist Loral Orion from time to
                  time as required to evidence Loral Orion's title to the
                  Initial Loral Transponders and the Remaining Loral
                  Transponders (and corresponding interest in the Common
                  Elements) that have been taken up and paid for, including but
                  not limited to

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                  executing a certificate of ownership or other documents as may
                  be reasonably requested by Loral Orion to evidence the
                  transfer of title for such transponders to Loral Orion.

2.6      Economic Interest Prior to Title Transfer.

         2.6.1    Notwithstanding that the SS/L Contract calls for performance
                  from SS/L to APT only, APT acknowledges and agrees that, prior
                  to the time that title is transferred pursuant to Paragraph
                  2.5 above, Loral Orion has a vested economic interest in the
                  SS/L Contract, including but not limited to work-in-progress
                  thereunder, to the extent of the following:

                  (i)      the reduction in APT's purchase price for the
                           Satellite and other deliverable items under the SS/L
                           Contract, effected by Amendment No. 3 to the SS/L
                           Contract;

                  (ii)     payments made by Loral Orion to SS/L for the redesign
                           of Ku-band Beam #2 pursuant to Paragraph 5.2 of this
                           Agreement;

                  (iii)    Payments made or launch deposits (or other similar
                           prepayments) applied by Loral Orion toward launch
                           services for the Satellite; and

                  (iv)     To the extent that the SS/L Contract is amended to
                           provide for insurance procurement by SS/L, the amount
                           of any Loral Orion payment made toward such
                           insurance.

         2.6.2 APT represents and warrants to Loral Orion that any pledge or
         assignment of its interest under the SS/L Contract to its lenders shall
         not extend to Loral Orion rights and interests set forth in Paragraph
         2.6.1 above.

2.7      Management Agreement. The Parties acknowledge and agree that
         notwithstanding their respective economic interests and title in the
         Satellite, all decisions regarding all matters concerning the
         construction and operation of the Satellite shall be made in accordance
         with the terms and conditions of the Management Agreement which APT and
         Loral Orion are entering into contemporaneously with this Agreement and
         that they shall exercise their rights with respect to their interests
         in the Satellite in accordance with such Agreement.

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                                    ARTICLE 3
                                  PAYMENT PLAN

3.1      The total amount Loral Orion will pay for a fifty percent (50%)
         interest in the Satellite shall equal US$115.1 million, payable as set
         forth in Paragraphs 3.2 and 3.3 below. Such amount shall be adjusted to
         reflect fifty percent (50%) of the amount of any changes in the cost
         (the "Project Cost") of constructing, insuring and launching the
         Satellite from the initial projected costs set forth in Annex D
         (exclusive of the modification costs described in Paragraph 5.2 below,
         which shall be borne solely by Loral Orion). Except as otherwise
         provided herein, the costs shall include any payment, liability or
         other amount paid or incurred by APT or Loral Orion under the SS/L
         Contract, the Related Orion Agreement, or the Launch Services Agreement
         or to procure launch insurance, whether paid to SS/L, the Launch Agency
         or otherwise, excluding any payment, liability or other amount paid or
         incurred by a party as a result of such party's willful misconduct,
         gross negligence or breach of the relevant agreements or insurance
         arrangement (other than any such breach resulting from joint action or
         decision of APT and Loral Orion) (the "Other Project Costs").

3.2      Subject to adjustment pursuant to Paragraph 3.4 below, Loral Orion
         shall initially pay US$57.55 million (the "Initial Amount") for the
         thirteen and one-half (13.5) Initial Loral Transponders specified on
         Annex B hereto (consisting of 1/2 of the Loral Transponders) and
         twenty-five percent (25%) of the Common Elements, which Initial Amount
         shall be paid by Loral Orion to SS/L in accordance with a payment plan
         to be agreed upon between Loral Orion and SS/L, if the total purchase
         price under the SS/L Contract is US$230.20 million. In such event,
         payments made by APT under the SS/L Contract shall be reduced by
         US$57.55 million. In the case where the price under the SS/L Contract
         is other than US$230.20 million, the Initial Amount shall be paid
         pursuant to a payment plan to be agreed upon among SS/L, Loral Orion,
         and APT.

3.3      Subject to the provisions of Paragraphs 2.3.3 and 2.3.4 above, Loral
         Orion shall pay the remaining balance of US$57.55 million (subject to
         any adjustments as agreed pursuant to Paragraph 3.4 below) to APT as
         follows for the Remaining Loral Transponders:

         (a)      On the second anniversary of the Satellite's in-service date,
         $10.66 million for the 2.5 additional transponders specified on Annex B
         hereto and an additional 5% of the Common Elements.

         (b)      On the third anniversary of the Satellite's in-service date,
         $12.79 million for the 3 additional transponders specified on Annex B
         hereto and an additional 6% of the Common Elements.

         (c)      On the fourth anniversary of the Satellite's in-service date,
         $17.05 million for the 4 additional transponders specified on Annex B
         hereto and an additional 7% of the Common Elements.

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         (d)      On the fifth anniversary of the Satellite's in-service date,
         $17.05 million for the 4 additional transponders specified on Annex B
         hereto and an additional 7% of the Common Elements.

3.4      Payment of any adjustment for increases in costs, or offsets for any
         adjustment for decreases in costs (including as a result of the
         operation of the first paragraph of Article 13.5 of the SS/L Contract
         and the analogous provision in the Related Orion Agreement), in each
         case as contemplated in the second sentence of Paragraph 3.1 above,
         shall be made as agreed by the parties, having regard to the time such
         costs were incurred or reduced, the payments already made by Loral
         Orion in respect of the Loral Transponders, the Other Project Costs
         paid by the parties, and the payment plan for the Remaining Loral
         Transponders set forth in Paragraph 3.3 above.

3.5      APT and Loral Orion hereby agree that in the event any payment (whether
         in the form of a refund, reduction or damages) is made by the Launch
         Agency in respect of the LSA, APT and Loral Orion shall agree in good
         faith upon an allocation of such payment between the two parties
         consistent with the intent of the parties and the principles set forth
         in this Agreement. Each of APT and Loral Orion hereby agrees that to
         the extent that it receives any such payment, whether from the Launch
         Agency or otherwise, that is in excess of its agreed upon allocated
         amount, it shall promptly remit any such excess amount to the other
         party.

3.6      All payments to be made to APT hereunder shall be made by wire transfer
         of immediately available funds in U.S. dollar currency to a bank
         account designated by APT.

3.7      APT and Loral Orion agree that in the event that either of them issues
         an invoice to SS/L where the right to payment depends upon the
         respective ownership interests of APT and Loral Orion, it shall provide
         a copy of such invoice to the other party and that the SS/L Contract
         and the Related Orion Agreement, as the case may be, shall provide that
         SS/L shall not pay any invoice to which the other party has notified
         SS/L of an objection within 15 days after the date of issuance thereof.

                                    ARTICLE 4
                            OPERATION OF TRANSPONDERS

Except as set forth in the Marketing Agreement, each of APT and Loral Orion
shall be entitled to all revenues generated from the APT Transponders and the
Loral Transponders, respectively.

                                    ARTICLE 5
                                  THE SATELLITE

5.1      The Satellite shall generally have such design and other specifications
         as are set forth in the SS/L Contract and in this Agreement.

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5.2      The footprint of Beam #2 Ku-band transponders on the Satellite will be
         modified by SS/L as requested by Loral Orion, which modification costs
         shall be borne by Loral Orion. Such modifications, and the costs
         thereof, are set forth in Annex G hereto, which modifications are
         hereby approved by APT. In the event of any further modification to the
         footprint of Beam #2 Ku-band transponders, such further modifications,
         and the costs thereof, shall be agreed between SS/L and Loral Orion
         provided the modifications do not materially impact the Common Elements
         or the APT Transponders. If such modifications do materially impact the
         Common Elements or the APT Transponders, APT and Loral Orion shall
         jointly approve them pursuant to the Management Agreement.

5.3      Loral Orion acknowledges that it has reviewed the SS/L Contract and
         agrees to all the terms and conditions contained therein and that it
         shall be bound by all actions taken by APT with respect thereto or with
         regard to the selection of the launch services provider or with regard
         to the launch services contract, provided such action is taken in full
         compliance with the obligations of the Management Agreement.

5.4      Loral Orion acknowledges that:

         EXCEPT AND TO THE EXTENT EXPRESSLY PROVIDED IN THIS AGREEMENT, APT HAS
         NOT MADE, NOR DOES IT MAKE, ANY REPRESENTATION OR WARRANTY, WHETHER
         WRITTEN OR ORAL, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY
         WARRANTY OF DESIGN, OPERATION, CONDITION, QUALITY, SUITABILITY OR
         MERCHANTABILITY OR FITNESS FOR USE OR FOR A PARTICULAR PURPOSE, ABSENCE
         OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, WITH REGARD TO
         THE SATELLITE OR ANY OTHER DELIVERABLE ITEM UNDER THE SS/L CONTRACT,
         AND APT HAS NOT MADE ANY WARRANTY WITH RESPECT TO THE PERFORMANCE OF
         ANY LAUNCH VEHICLE.

5.5      Loral Orion agrees to be bound by the no-fault, no-subrogation
         inter-party waiver of liability and related indemnity provisions
         provided in the Launch Services Agreement and to cause its contractors
         and subcontractors at any tier (including suppliers of any kind) that
         are involved in any performance of this Agreement and any other person
         who through Loral Orion has an interest in the Satellite or any
         transponder thereon, as required by the Launch Services Agreement, to
         accede to such waiver. Loral Orion shall execute and deliver any
         instrument that may be reasonably required by the Launch Agency to
         evidence its agreement to be bound by such waiver. In no event shall
         such no-fault, no-subrogation inter-party waiver and related indemnity
         provisions have any effect on the rights, obligations, and liabilities
         of and between Loral Orion and APT under this Agreement or under the
         other Transaction Documents.

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                                    ARTICLE 6
                  REPRESENTATIONS AND WARRANTIES OF THE PARTIES

Each of the parties, as of the date hereof, hereby represents and warrants to
the other, as follows:-

6.1      Organization and Standing. It is a company with limited liability duly
         organized, validly existing and in good standing under the laws of the
         place of its incorporation and has all requisite corporate power and
         authority to own, lease and operate its properties and to carry on its
         businesses as now being conducted, except where the failure to be so
         organized, existing and in good standing or to have such power and
         authority would neither have a material adverse effect on its financial
         condition, business or results of operation nor materially impair or
         delay its ability to consummate the transactions contemplated hereby (a
         "Material Adverse Effect").

6.2      Authority Relative to this Agreement. It has all corporate power and
         authority to execute and deliver this Agreement and the other
         Transaction Documents, and to perform all of its obligations hereunder
         and thereunder. Its execution and delivery of this Agreement and the
         other Transaction Documents, and its performance of its obligations
         hereunder and thereunder have been duly authorized by all necessary and
         proper corporate action. This Agreement and the other Transaction
         Documents have been duly executed and delivered by it and constitute
         the legal, valid and binding obligations, enforceable against it in
         accordance with their terms, subject to applicable bankruptcy,
         insolvency, reorganization, moratorium and similar laws relating to or
         affecting creditors' rights and subject, as to enforceability, to
         general principles of equity (regardless whether enforcement is sought
         in a proceeding in equity or at law).

6.3      Noncontravention. Its execution and delivery of this Agreement and the
         other Transaction Documents, its performance of its obligations to be
         performed hereunder and thereunder and the consummation of the
         transactions contemplated hereby and thereby will not (i) contravene or
         conflict with its memorandum and articles of Association, by-laws or
         other organizational documents; (ii) contravene or conflict with or
         constitute a violation of any provision of any laws or license to which
         it or any of its properties or assets is subject; or (iii) conflict
         with, result in a breach of, constitute a default under, result in the
         acceleration of, cause it to make an offer to purchase under, create in
         any party the right to accelerate, terminate, modify or cancel, require
         any notice or give rise to a loss of any benefit under, any contract,
         lease, lien or other arrangement to which it is a party or by which is
         bound or to which any of its properties or assets is subject or result
         in the creation or imposition of any liens on any of its assets, other
         than any loss of benefit, lien or any other such event which would not
         have a Material Adverse Effect.

6.4      Governmental Proceeding; Litigation. Except for the Consent Agreement
         dated January 9, 2002 entered into by Loral Space & Communications Ltd.
         with the U.S. Department of State and any export control approvals,
         licenses, technical assistance or other similar agreements obtained to
         date or required by applicable law, there is not in

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         effect any judgment, order, writ, decree, stipulation or injunction by
         or with any governmental entity to which it or any of its Affiliates is
         party or by which it or any of its Affiliates or any properties or
         assets of any of the foregoing is bound, and which relates to or
         affects this Agreement or the transactions contemplated hereby, and
         neither it nor any of its Affiliates is party to, engaged in or, to its
         Knowledge, threatened with any Action which relates to or affects this
         Agreement or the transactions contemplated hereby, and, to its
         Knowledge, no event has occurred and no condition exists which could
         reasonably be expected to result in any such Action. Neither it nor any
         of its Affiliates is in default under or with respect to any judgment,
         ruling, order, writ, decree, stipulation or injunction of the type
         described in this Paragraph.

                                    ARTICLE 7
                        LEASE OF ADDITIONAL TRANSPONDERS

7.1      Loral Orion may elect to lease from APT additional standard C-band
         frequency transponders on the Satellite or on APSTAR VI, if available.
         Loral Orion shall give written notice to APT of its desire to lease an
         additional transponder, which notice shall identify the desired number
         of transponders, the proposed lease term, and the desired protection
         level. APT shall respond within fifteen (15) days of receipt of such
         notice, as to whether such transponder is available. If APT responds
         that such transponder is available, it shall propose the terms and
         conditions for such lease. APT agrees that such terms and conditions
         shall reflect the fact that Loral Orion is entitled to "most favored
         customer" status in respect of such lease, subject to all relevant
         terms being equal. The parties agree that they will look to APT's
         leases in the ordinary course of business with wholesale customers (as
         opposed to retail customers) for purposes of determining "most favored
         customer" status and the parties shall negotiate the terms of any such
         lease on an arms length basis. APT may decline to lease additional
         transponder(s) to Loral Orion under this Paragraph 7.1, even if
         available, if Loral Orion's proposed term for such lease is less than
         twelve (12) months. Further, if the term of such lease arrangement is
         to the End of Life of the Satellite or APSTAR VI, as the case may be,
         Loral Orion shall have follow-on rights to continue such lease
         arrangement in respect of the relevant successor satellite on terms and
         conditions substantially similar to those set forth under the original
         lease arrangement, except for price, which shall be agreed upon by the
         parties, based on the "most favored customer" pricing then available on
         such successor satellite.

7.2      Loral Orion may also elect to lease the transponders on APSTAR 1, if
         available, that correspond to the standard C-band Initial Loral
         Transponders on the Satellite, on the most favored customer terms
         described in Paragraph 7.1 above. Loral Orion shall give written notice
         to APT of its desire to lease an additional transponder, which notice
         shall identify the desired number of transponders, the proposed lease
         term, and the desired protection level. APT shall respond within
         fifteen (15) days of receipt of such notice, as to whether such
         transponder is available, and if so, shall propose the terms and
         conditions for such lease.

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                                    ARTICLE 8
                                   [RESERVED]

                                    ARTICLE 9
                                  ORBITAL SLOT

9.1      Coordination Activities.

         9.1.1    APT shall keep Loral Orion fully informed of the status of all
                  coordination activities relating to the Orbital Slot and
                  shall, if so requested by Loral Orion, allow Loral Orion to
                  participate in such activities, subject to the restrictions of
                  OFTA and other relevant governmental authorities and of any
                  license arrangements with regard to the Orbital Slot. APT
                  agrees that it will not, without Loral Orion's prior written
                  consent, take any action or enter into any agreement in
                  relation to the Orbital Slot that materially impacts the Loral
                  Transponders or involves the payment of money or other
                  financial accommodation which will be borne by Loral Orion.
                  APT shall use its reasonable best efforts to fully enforce the
                  terms of coordination agreements entered into for the benefit
                  of the Satellite or any successor satellite.

         9.1.2    APT has taken all actions required of APT to date to
                  coordinate the Satellite in the Orbital Slot. Annex F sets
                  forth (i) all material restrictions on the Satellite resulting
                  from coordination activities as of the date hereof, (ii) all
                  material agreements or commitments relating to coordination
                  proceedings for the Orbital Slot and all Summary Record
                  Documents, true and complete copies of which were previously
                  provided to Loral, (iii) lists of all the countries and
                  operators with which the operator of the Satellite has been or
                  will be required to enter into coordination discussions and
                  the status of those discussions.

         9.1.3    APT will use its reasonable best efforts so that (i) the Loral
                  Transponders will not suffer from any unacceptable
                  restrictions, as reasonably determined by Loral Orion (after
                  consultation with APT), with regard to allowing unencumbered
                  carrier loading on the transponders and (ii) operation of the
                  Loral Transponders will be free of unacceptable interference,
                  as reasonably determined by Loral Orion (after consultation
                  with APT), from adjacent satellite operations, subject however
                  in each case to any regulatory restrictions or restrictions
                  contained in coordination agreements relating to the Orbital
                  Slot presently existing or permitted under Paragraph 9.1.1.
                  APT will use its reasonable best efforts so that Loral Orion
                  may place either analog or digital carriers on the Loral
                  Transponders without restrictions as full transponders, single
                  channel per carrier, or multiple channels per carrier.

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9.2      License Rights.

         APT shall, in consultation with Loral Orion,

         (a)      make all regulatory filings and take such other actions on a
                  timely basis with the MII, the OFTA, TongaSat, the ITU and the
                  applicable governmental entities of those jurisdictions to
                  which the Satellite may provide coverage, as may be necessary
                  or appropriate to secure and maintain its rights to utilize
                  the Orbital Slot, including without limitation, using its best
                  efforts to preserve the unencumbered and unrestricted use of
                  the Orbital Slot and diligently prosecuting renewal of the ITU
                  authorization during a reasonable period prior to its
                  scheduled expiration date;

         (b)      use its best efforts to achieve, maintain and renew
                  notification for the Orbital Slot at the ITU and have the
                  filing entered in the ITU Master Frequency Register; and

         (c)      make such filings as Loral Orion may reasonably request,
                  including filings to expand the frequencies and coverage area
                  of the Orbital Slot.

9.3      APT shall use its best efforts to provide Loral Orion with quiet
         enjoyment of the Orbital Slot.

9.4      APT shall keep Loral Orion fully informed with regard to its license
         agreements and all regulatory filings, correspondence and notices from
         or with MII, OFTA, TongaSat, the ITU and relevant governmental entities
         relating to the authorization to use the Orbital Slot.

9.5      On or before February 1, 2003, APT and Loral Orion shall jointly
         commence negotiations with TongaSat for the renewal of APT's rights to
         use the Orbital Slot, including the extended C and Ku-band frequencies.
         As part of these negotiations, APT and Loral Orion shall offer to help
         TongaSat to improve its filing status in exchange for a lower Orbital
         Slot license fee. At the same time, APT will explore the use of the MII
         and OFTA filings and possible coordination arrangements with other
         networks. After such activities, APT and Loral Orion will evaluate the
         results of such efforts in order to jointly decide on a course of
         action designed to maximize the parties' ability to use the licensed
         frequencies with the fewest constraints, allowing maximum marketability
         of their payloads.

9.6      Loral Orion and APT will share the Orbital Slot license fees as
         follows:

         (a)      if such fee is a fixed one-time fee, then 50/50;

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         (b)      if such fee is a fixed periodic fee, then in a ratio equal to
                  the ratio between the number of transponders held by each
                  party during the period in question (pro rated for any change
                  in relative ownership during such period); and

         (c)      if such fee is revenue-based, then such fee will be borne by
                  the owners of the transponder(s) generating the revenues.

         If the negotiations with TongaSat for the renewal of APT's rights to
         use the Orbital Slot result in any part of the Orbital Slot license
         fees being different from those described in clauses (a), (b) and (c)
         above, the parties shall agree on how to share such fees. Following the
         said negotiations with TongaSat, the parties shall agree on the payment
         method to be adopted for payment of each party's share of the fees with
         the understanding that any revenue-based fees shall be paid by each
         party directly to the Orbital Slot licensor. Neither party shall have
         rights to information regarding the revenue-based payments of the other
         party, and any audit rights required by the Orbital Slot licensor with
         regard to such revenue-based payments shall be solely for the benefit
         of the Orbital Slot licensor. APT and Loral Orion agree that except as
         set forth in this Paragraph 9.6 or in the Services Agreement, no other
         amounts shall be payable by Loral Orion with regard to the Orbital
         Slot, except as may be incurred by Loral Orion with respect to its
         participation in coordination activities as contemplated by Paragraph
         9.1.1 above.

                                   ARTICLE 10
                                 LANDING RIGHTS

10.1     APT and Loral Orion will each cooperate with, and assist the other, on
         a reasonable best efforts basis, in obtaining such consents, and
         otherwise complying with such requirements, as may be required or
         imposed, from time to time, by the governments of the People's Republic
         of China and the United States in connection with the use of
         transponders on the Satellite, in each case to the extent such approval
         or compliance is needed for a party's transponders to be allowed to
         provide service in the People's Republic of China or the United States,
         respectively.

10.2     Each of APT and Loral Orion agrees, and each will require any lessee or
         user of any transponder to agree, to restrict its use of the
         transponders to transmission only for any lawful purpose and agrees to
         comply in all material respects with all applicable laws and government
         regulations.

                                   ARTICLE 11
                           SUCCESSOR SATELLITE RENEWAL

11.1     Loral Orion shall have the right, but not the obligation, to
         participate in the ownership of up to fifty percent (50%) of the
         transponder capacity on the successor satellite, if any, to the
         Satellite or the number of transponders on Loral Orion's Payload at the
         End of Life

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         of the Satellite, whichever is greater; provided it exercises such
         right by giving written notice thereof to APT no later than three (3)
         years before the scheduled End of Life of the Satellite, as notified by
         APT in writing to Loral Orion.

11.2     The terms and conditions of such participation shall be substantially
         similar to the terms hereof (including but not limited to transponder
         types and specific transponder assignments and rights with respect to a
         successor satellite) except for appropriate adjustments based on
         satellite capabilities and cost; provided however that if Loral Orion
         shall participate in less than forty percent (40%) of Adjusted
         Transponder Capacity, the price shall not be at cost, but rather shall
         be calculated using a cost-plus formula based on the percentage of
         Adjusted Transponder Capacity taken up, as follows:



- ------------------------------------------------------------------------------
Percentage of Adjusted Transponder Capacity             Price Calculation
- ------------------------------------------------------------------------------
                                                     
                   1  -   4%                            Cost plus 40%
- ------------------------------------------------------------------------------
                   5  -   9%                            Cost plus 35%
- ------------------------------------------------------------------------------
                  10  -  14%                            Cost plus 30%
- ------------------------------------------------------------------------------
                  15  -  19%                            Cost plus 25%
- ------------------------------------------------------------------------------
                  20  -  24%                            Cost plus 20%
- ------------------------------------------------------------------------------
                  25  -  29%                            Cost plus 15%
- ------------------------------------------------------------------------------
                  30% -  34%                            Cost plus 10%
- ------------------------------------------------------------------------------
                  35  -  39%                            Cost plus  5%
- ------------------------------------------------------------------------------
                  40% - 100%                                 Cost
- ------------------------------------------------------------------------------


11.3     "Adjusted Transponder Capacity" shall equal

         (a)      the amount of the transponder capacity on the Satellite, if
         the transponder capacity on the successor satellite is greater than the
         transponder capacity on APSTAR V; or

         (b)      the transponder capacity on the successor satellite, if the
         transponder capacity on the successor satellite is less than the
         transponder capacity on APSTAR V.

11.4     If APT decides not to launch a replacement satellite having capacity
         and capability that is the same as or better than that of the
         Satellite, Loral Orion shall be offered the first opportunity to
         replace the Satellite, including assignment, subject to any necessary
         consents, of the TongaSat and ChinaSat orbital slot agreements and any
         other relevant licenses so that replacement can occur before the End of
         Life of the Satellite. If such assignment cannot be effected in whole
         or in part, then APT and Loral Orion shall enter into an agreement to
         enable Loral Orion to use the Orbital Slot with respect to such license
         rights which cannot be assigned. If Loral Orion launches a replacement
         satellite, APT shall have the same rights, mutatis mutandis, as Loral
         Orion to participate in the ownership of capacity in the successor
         satellite as set forth in Paragraphs 11.1 through 11.3 above.

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                                   ARTICLE 12
                        EFFECTIVE DATE OF THIS AGREEMENT

This Agreement shall become effective on the date (the "Effective Date") set
forth on the signature page hereof.

                                   ARTICLE 13
                                    PLEDGES

Neither APT nor Loral Orion shall have the right to pledge, mortgage, charge,
grant any security interest in, or otherwise encumber all or part of its
interest in the Satellite, except for the purpose of security relating to
financing (whether new or existing), and then only provided that:

(a)      such party shall remain liable for all obligations hereunder relating
         to such interest;

(b)      the encumbrance shall be subject to any necessary approvals or
         restrictions of any relevant governmental authority or
         telecommunications administration; and

(c)      satisfactory arrangements as agreed between the parties (including a
         party's lenders) shall have been made to recognize and protect the
         rights of the other party under this Agreement and the Transaction
         Documents.

                                   ARTICLE 14
                                    TRANSFER

14.1     In the event APT or Loral Orion desires to transfer (other than sales
         to customers in the ordinary course of business in the form of long
         term leases or otherwise) all or part of its interest in the Satellite
         other than to an Affiliate, such transfer shall be subject to a right
         of first offer in favor of the other party, the terms and procedures of
         which are set forth in the Management Agreement.

14.2     In the event the other party declines to exercise its right of first
         offer, the transferring party may transfer its interests to a third
         party in accordance with the terms set forth in the Management
         Agreement, provided the transferee agrees to be bound by the relevant
         terms of this Agreement and the Transaction Documents and any necessary
         governmental approvals required in connection with maintaining the
         right to use the Orbital Slot have been obtained.

14.3     In the event APT transfers its interest in the Satellite to a third
         party, APT shall remain fully obligated to Loral Orion, regardless of
         such third party's agreement to be bound by the terms of this
         Agreement, with regard to the performance of all obligations set forth
         herein that do not pertain or relate exclusively to the Satellite,
         including but not limited to obligations regarding the Orbital Slot,
         the APSTAR 1 satellite, the APSTAR VI satellite, and any successor
         satellite.

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                                   ARTICLE 15
                           RELATIONSHIP OF THE PARTIES

The rights and obligations of the parties hereunder shall be individual, not
joint or collective. It is not the intention of the parties to create, nor shall
this be deemed or construed to create a partnership, joint venture, association
or trust, or as authorizing any party to act as an agent, servant or employee
for any other party for any purpose except as explicitly set forth herein.

                                   ARTICLE 16
                                      TAXES

Each of APT and Loral Orion shall be responsible for the payment of any and all
taxes assessed on the construction, use and operation of its respective Payload.

                                   ARTICLE 17
                     ENTIRE AGREEMENT, TRANSACTION DOCUMENTS

17.1     APT and Loral Orion are entering into the following agreements
         contemporaneously herewith to implement the terms of the Term Sheet: -

         (a)      Management Agreement

         (b)      Services Agreement

         (c)      Marketing Agreement

         (d)      Confidentiality Agreement

         In addition, APT and SS/L are entering into an Amendment of the SS/L
         Contract to implement the relevant terms of the Term Sheet solely
         relating to the SS/L Contract.

17.2     This Agreement and the other Transaction Documents together constitute
         the entire agreement and understanding between the parties in
         connection with the transactions hereby contemplated. The Transaction
         Documents supersede all previous agreements (including the Term Sheet),
         arrangements and understandings between the parties with regard to such
         transaction which shall cease to have any further force or effect. No
         party is entering into any of the Transaction Documents or any of the
         arrangements hereby contemplated in reliance upon any representation,
         warranty or undertaking which is not expressly set out or referred to
         in any of the Transaction Documents.

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                                   ARTICLE 18
                                   TERMINATION

18.1     This Agreement may be terminated as follows:

         (a)      By mutual written agreement of the parties;

         (b)      By either party by written notice to the other and in
         accordance with Article 20 hereof in the event of a default by the
         other party provided such default meets the requirements stated in said
         Article 20; and

         (c)      By either party by written notice to the other if the other
         party becomes insolvent, enters into a general suspension of payments,
         bankruptcy, makes a general assignment for the benefit of creditors,
         admits in writing its inability to pay debts as they mature, suffers or
         permits the appointment of a receiver for substantially all of its
         business or assets, or avails itself of or becomes subject to any other
         judicial or administrative proceeding that relates to insolvency or
         protection of creditors' rights. In such event the other party shall
         have a right of first refusal or option to purchase the interest in the
         Satellite then owned by such party on the same terms and conditions as
         may be offered to any third party in a sale of such party's assets,
         including any auction or liquidation sale.

         (d)      By the Non-Force Majeure Party, by giving at least thirty (30)
         days' prior written notice to the Force Majeure Party, if an event of
         force majeure as described in Article 19 below prevents the Force
         Majeure Party from performing its fundamental obligations hereunder for
         a period of more than 120 days.

18.2     Termination of this Agreement shall not affect: (i) either Party's
         obligations under any other Transaction Document, (ii) title to the
         Loral Transponders and the Common Elements that transferred to Loral
         Orion pursuant to Article 2 of this Agreement prior to such
         termination, or (iii) either Party's obligations pursuant to Articles
         9, 10, 11, and 13 of this Agreement, which obligations shall expressly
         continue for so long as both Parties possess an economic interest in
         the Satellite.

                                   ARTICLE 19
                                  FORCE MAJEURE

19.1     Neither party shall be liable for nonperformance or delays in
         performance when caused by acts or events which are beyond the
         reasonable control of the delayed party, including but not limited to
         the following: acts of God, acts of the public enemy, acts of civil or
         military authority, governmental priorities, strikes or other labor
         disturbances, hurricanes, earthquakes, fires, floods, epidemics,
         embargoes, war, and riots. In the event of any such delay the date of
         delivery or of performance of the obligation affected by the force
         majeure event shall be extended for a period equal to the effect of
         time lost by reason of the delay.

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19.2     A party claiming delay in delivery or performance due to an event of
         force majeure as set forth herein (the "Force Majeure Party") shall
         send written notice thereof and a statement of particulars to the other
         party (the "Non-Force Majeure Party") within a reasonable time.

19.3     The party affected shall take appropriate measures to minimize or
         remove the effects of the event of force majeure and, within the
         shortest time possible, shall attempt to resume performance of the
         obligations affected by the event of force majeure.

19.4     Each party shall use its best efforts to minimize the losses and
         damages caused and/or to be caused to the other party by an event of
         force majeure. Both parties shall consult as soon as possible to find
         an appropriate solution.

                                   ARTICLE 20
                                    DEFAULT

20.1     Monetary Default. Should either APT or Loral Orion fail to make timely
         payment of any amount required hereunder in accordance with the
         provisions defined herein, and such failure to pay shall have continued
         for a period of three (3) months, the party in breach shall pay
         interest to the other party at the 30-day LIBOR rate plus two percent
         (2%) per annum in respect of the amounts in arrears. Such interest
         shall be calculated on a daily basis from the date payment was due
         until the date payment is received by the non-breaching party. Should
         the party in breach continue to fail to make such payment for a period
         of nine (9) months in the aggregate, then in addition to the interest
         amount due from the breaching party, the other party shall have the
         right to terminate this Agreement and to claim damages from the party
         in breach in accordance with the provisions of Paragraph 20.4 hereof.

20.2     Non-Monetary Default. Should either APT or Loral Orion fail to cure a
         material breach of any provisions of this Agreement (other than
         provisions regarding payment of monies, which are provided for in
         Paragraph 20.1 above) within forty-five (45) days after receipt of
         written notice from the other party outlining such breach, then the
         other, non-breaching party shall have the right to terminate this
         Agreement and to claim damages from the party in breach in accordance
         with the provisions of Paragraph 20.4 hereof.

20.3     In the event Loral Orion fails to make timely payment of any amount due
         on a Take Up Date pursuant to Paragraph 3.3, APT shall retain the title
         to the related Remaining Loral Transponders (and all other Remaining
         Loral Transponders for which payment has not yet been made in full) and
         all proceeds therefrom and shall not be required to obtain Loral
         Orion's consent to enter into commercially reasonable lease agreements
         for such Remaining Loral Transponders, even if such lease or other
         rights would extend beyond the relevant Take Up Date but Loral Orion's
         consent right with respect to future lease agreements which extend
         beyond the relevant Take Up Date shall be reinstated at such

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         time as it shall have cured its payment default. If such delay
         continues for a period of nine (9) months after the scheduled Take Up
         Date, Loral Orion shall no longer be entitled to take up the relevant
         Remaining Loral Transponders.

20.4     If the other party suffers any cost, liability or loss as a direct
         result of a material breach of this Agreement by any party, and such
         breach shall not have been cured by such party within forty-five (45)
         days from receipt of notice of breach, the party in breach shall
         indemnify and hold the non-breaching party harmless in respect of any
         such cost, liability or loss; provided always, however, that in no
         event shall a party be liable under any theory of tort, contract,
         strict liability, or other legal or equitable theory, for any indirect,
         special, incidental, or consequential loss or damage (including without
         limitation, loss of profit or business opportunity).

                                   ARTICLE 21
                                 CONFIDENTIALITY

21.1     No press release, announcement or disclosure to a third party
         concerning the transactions contemplated hereby will be made by any
         party hereto without the prior consent of the other party hereto,
         except as such release, announcement or disclosure may be:-

         (a)      required by law or the rules of any applicable securities
                  exchange;

         (b)      necessary to be made to a party's lenders for financing
                  purposes provided that such lenders agree to maintain the
                  confidentiality of any such disclosed information on customary
                  and reasonable terms; or

         (c)      is or becomes publicly known, otherwise than as a consequence
                  of a breach of this Agreement.

21.2     The parties are entering into a Confidentiality Agreement
         contemporaneously herewith covering disclosure of information that may
         be made in connection with the parties' performance under the
         Transaction Documents. The rights and obligations thereunder shall
         apply to all such proprietary information disclosed in the
         implementation or performance of this Agreement.

                                   ARTICLE 22
                                   ASSIGNMENT

This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns. Neither
this Agreement nor any of the rights or obligations hereunder may be assigned
without the prior written consent of the other party except for (i) assignments,
in whole or in part, to an Affiliate, provided that notwithstanding any such
assignment to an Affiliate, the assigning party shall, unless otherwise
consented to by the other

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party, nevertheless remain responsible for all obligations hereunder; and (ii)
assignments by way of security to any entity for the purpose of security
relating to financing, subject to compliance with the requirements of Article 13
hereof, or otherwise with the written consent of the other Party. In the event
that APT shall wish to assign its rights and obligations hereunder to an
Affiliate, it may do so, provided however that Loral Orion will not be adversely
affected or prejudiced by any assignment or delegation by APT to its Affiliate
of its rights and obligations under the MII and OFTA filings and under the
license agreements with TongaSat and ChinaSat with respect to the Orbital Slot.

                                   ARTICLE 23
                                  GOVERNING LAW

This Agreement and the Transaction Documents will be governed by and construed
in accordance with the laws of the State of New York without giving effect to
the choice of law principles therein.

                                   ARTICLE 24
                               DISPUTE RESOLUTION

In the event that a dispute arises out of or relates to this Agreement, Loral
and APT shall attempt to resolve such dispute through friendly consultation. If
the parties are unable to resolve the matter in dispute through consultation
within thirty (30) days following the date on which one party's request for
consultation is delivered to the other party, the parties shall resolve the
dispute through arbitration. The party shall submit the dispute to arbitration
in Singapore to the Singapore International Arbitration Centre for resolution in
accordance with the arbitration rules of that body, in which case:-

(a)      there should be three (3) arbitrators (one appointed by each party and
         the third arbitrator appointed by the Singapore International
         Arbitration Centre);

(b)      all proceedings in any such arbitration shall be conducted in English;
         and

(c)      any such arbitration award shall be final and binding on the parties.

A dispute arising under this Agreement may be consolidated with any arbitration
proceeding relating to the other Transaction Documents, and vice versa. The
arbitrators may not limit, expand or otherwise modify the terms of this
Agreement or award exemplary or punitive damages or attorney's fees. The
arbitrators shall apply the substantive (not the conflicts) law of the state
specified in the governing law provision set forth in Article 23 above. The
award shall be in U.S. Dollars. Judgment upon the award rendered in the
arbitration may be entered in any court having jurisdiction thereof. Unless
otherwise determined by the arbitration award, each party shall bear its own
expenses (including attorney's fees) and an equal share of the expenses of the
arbitrators and the fees of the Singapore International Arbitration Centre. The
parties shall require that the arbitrators and the arbitral body shall hold the
existence, content and result

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of the arbitration in confidence. Nothing in this clause shall be construed to
preclude any party from seeking injunctive relief in order to protect its rights
pending arbitration. A request by a party to a court for such injunctive relief
shall not be deemed a waiver of the obligation to arbitrate.

                                   ARTICLE 25
                                    NOTICES

Any notice, request, demand, waiver, consent, approval or other communication
required or permitted to be given hereunder shall be in writing and shall be
delivered by hand, by facsimile (with confirmation of receipt), or by DHL or
other comparable international courier service, return receipt required, as
follows:-

      If to Loral, to:
            Loral Orion, Inc.
            600 Third Avenue
            New York, NY 10016
            Facsimile No.: 212-338-5320

            Attention: General Counsel

      If to APT, to:
            APT Satellite Company Limited
            Rooms 3111-3112
            One Pacific Place
            88 Queensway
            Hong Kong
            Facsimile No.: 852-2522-0419

            Attention: Mr. Brian Lo and Mr. Wu Shou Kang

or to such other address as the addressee may have specified in a notice duly
given to the sender as provided herein. Such notice, request, demand, waiver,
consent, approval or other communication will be deemed given when so delivered
by hand or faxed, or two business days after being sent in the case of
international courier service.

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                                   ARTICLE 26
                                  MISCELLANEOUS

26.1     Headings

         The headings in this Agreement and the Annexes are inserted for
         convenience of reference only and shall not constitute a part hereof.

26.2     Severability

         Any provision of this Agreement which is invalid or unenforceable in
         any jurisdiction shall be ineffective to the extent of such invalidity
         or unenforceability without invalidating or rendering unenforceable the
         remaining provisions hereof, and any such invalidity or
         unenforceability in any jurisdiction shall not invalidate or render
         unenforceable such provision in any other jurisdiction.

26.3     Expenses

         Except as specifically provided otherwise in this Agreement, the
         parties hereto shall pay all of their own expenses relating to the
         transactions contemplated by this Agreement, including, without
         limitation, the fees and expenses of their respective counsel,
         accountants and financial advisors.

26.4     Time of the Essence

         Time shall be of the essence of this Agreement, both as regards the
         dates and periods specifically mentioned and as to any dates and
         periods which may be substituted by agreement in writing of the
         parties.

26.5     Amendment

         No variation or amendment of this Agreement shall be valid unless it is
         in writing and signed by or on behalf of both parties to this
         Agreement.

26.6     Waivers

         No failure or delay by any party in exercising any right or remedy
         provided by law under or pursuant to this Agreement shall impair such
         right or remedy or be construed as a waiver or variation of it or
         preclude its exercise at any subsequent time and no single or partial
         exercise of any such right or remedy shall preclude any other or
         further exercise of it or the exercise of any other right or remedy.

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26.7     Counterparts

         This Agreement may be executed in one or more counterparts, each of
         which shall be deemed an original and all of which together shall
         constitute one and the same document.

26.8     Survival of Obligations

         The obligations of the Parties under this Agreement which by their
         nature logically would be expected to survive termination,
         cancellation, or expiration of this Agreement, including without
         limitation those set forth in Paragraphs 9, 10, 11, 13, 15, 17, 18, 20,
         23, 24, 25, and 26, shall survive termination, cancellation, or
         expiration of this Agreement for the applicable time period specified
         in such section or, if no time period is specified, for a reasonable
         period of time under the circumstances.

THIS AGREEMENT HAS BEEN SIGNED THIS 10th DAY OF December, 2002.

APT SATELLITE COMPANY LIMITED          LORAL ORION, INC.

By:  /s/ Brian Lo                      By: /s/ Janet Yeung
     ---------------------------           -----------------------
Name:Brian Lo                          Name: Janet Yeung
Title: Vice President                  Title: Vice President and Ass't Secretary

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                                   SCHEDULE 1
                                   DEFINITIONS

In this Agreement the terms set forth hereinafter shall have the meanings
defined in this Article:

         "Action" means any action, suit or proceeding at law or in equity,
         arbitration, inquiry, investigation or governmental, administrative,
         regulatory or other proceeding by or before any governmental entity.

         "Adjusted Transponder Capacity" shall have the meaning set forth in
         Paragraph 11.3.

         "Affiliate" means, with respect to any Person, any other Person
         directly or indirectly controlling, controlled by or under common
         control with such Person. For purposes of the immediately preceding
         sentence, the term "control" (including, with correlative meanings, the
         terms "controlling", "controlled by" and "under common control with"),
         as used with respect to any Person, means the possession, directly or
         indirectly, of the power to direct or cause the direction of the
         management and policies of such Person, whether through ownership of
         voting securities, by contract or otherwise.

         "Agreement" means this agreement (including the Schedules and Annexes
         hereto), as the same may be amended, modified or supplemented from time
         to time in accordance with its terms.

         "APSTAR I" means the satellite with 24 C-Band transponders located at
         geostationary orbital slot at 138 degrees east longitude.

         "APSTAR VI" means the new satellite based on a SB4000 model satellite
         with 38 C-band and 12 Ku-band transponders to be built and delivered to
         APT by Alcatel Space Industries.

         "APT Transponders" shall mean all transponders on the Satellite that
         are not identified as Loral Transponders.

         "APT" shall have the meaning set forth in the preamble to this
         Agreement.

         "ChinaSat" means China Telecommunications Broadcast Satellite
         Corporation.

         "Common Elements" means the elements on the Satellite that are common
         to and/or shared by the Loral Orion Payload and the APT Payload.

         "Confidentiality Agreement" means the confidentiality agreement entered
         into by APT and Loral Orion with respect to the confidentiality of
         proprietary information relating to the Satellite.

         "Effective Date" shall have the meaning set forth in Article 12 hereof.

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         "End of Life" means the date on which the actual orbital maneuver life
         of a satellite is permanently terminated.

         "Force Majeure Party" shall have the meaning set forth in Paragraph
         19.2 hereof.

         "Hong Kong" means the Hong Kong Special Administrative Region of the
         PRC.

         "Initial Amount" shall have the meaning set forth in Paragraph 3.2
         hereof.

         "Initial Loral Transponders" shall mean the 13.5 Loral Transponders
         which are initially acquired by Loral Orion as described in Paragraph
         2.3.1 hereof.

         "Knowledge" means actual knowledge after reasonable inquiry and
         investigation.

         "Launch Agency" means the provider responsible for conducting the
         launch services for the Satellite pursuant to the Launch Services
         Agreement.

         "Launch Services Agreement" or "LSA" means the contract entered into by
         SS/L (and if the Launch Agency so agrees, APT and Loral Orion as
         additional parties) with a Launch Agency pursuant to Article 6 of the
         SS/L Contract, which contract provides for launch services for the
         Satellite, as such contract may be amended from time to time in
         accordance with its terms.

         "LIBOR" means the rate of interest per annum, at any relevant time, at
         which thirty (30) day U.S. dollar deposits are offered at such time in
         the London interbank market.

         "Loral Orion" shall have the meaning set forth in the preamble to this
         Agreement.

         "Loral Transponders" shall have the meaning set forth in Paragraph 2.1
         hereof.

         "Management Agreement" means the agreement entered into by APT and
         Loral Orion with regard to the management of all matters regarding the
         construction and operation of the Satellite and the decision-making
         authority relative thereto.

         "Marketing Agreement" means the agreement entered into by APT and Loral
         Orion with regard to the marketing of the Remaining Loral Transponders
         prior to their take up by Loral Orion.

         "MII" means the Ministry of Information Industries of the PRC.

         "Non-Force Majeure Party" shall have the meaning set forth in Paragraph
         19.2 hereof.

         "OFTA" means the Office of Telecommunication Authority in Hong Kong.

         "Orbital Slot" means the geostationary orbital slot located at 138
         degrees east longitude.

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         "Payload" of a party means the transponders on the Satellite to which
         such party has title on the date in question.

         "Person" means any individual, partnership, joint venture, trust,
         corporation, limited liability entity, unincorporated organization or
         other entity (including a governmental entity).

         "PRC" means the People's Republic of China, excluding, for purposes of
         this Agreement only, Hong Kong, Macau and Taiwan.

         "Related Orion Agreement" shall mean the agreement dated December __,
         2002 entered into between SS/L and Loral Orion pursuant to which among
         other things, Loral Orion agrees to pay a portion of the purchase price
         of the Satellite under the SS/L Contract.

         "Remaining Loral Transponders" shall mean all the Loral Transponders
         other than those which are identified and designated as Initial Loral
         Transponders.

         "Satellite" means the SS/L FS 1300 satellite designated as APSTAR V and
         to be built and delivered by SS/L to APT pursuant to the SS/L Contract.

         "Services Agreement" means the agreement entered into by APT and Loral
         Orion with regard to the TT&C, Access Management and Coordination
         services to be provided by APT for the Satellite.

         "SS/L" shall have the meaning set forth in the preamble to this
         Agreement.

         "SS/L Contract" means the satellite procurement contract dated as of
         January 8, 2001, between APT and SS/L, including all amendments
         thereto.

         "Subsidiary" of a specified Person means any corporation or other
         entity of which securities or other ownership interests having ordinary
         voting power to elect a majority of the Board of Directors or other
         Persons performing similar functions are directly or indirectly owned
         by such Person.

         "Take Up Date" shall have the meaning set forth in Paragraph 2.3.2
         hereof.

         "Term Sheet" shall have the meaning set forth in the preamble to this
         Agreement.

         "TongaSat" means Friendly Islands Satellite Communication Ltd. of the
         Kingdom of Tonga.

         "Transaction Documents" means this Agreement, the Management Agreement,
         the Services Agreement, the Marketing Agreement and the Confidentiality
         Agreement.

         "TT&C" means telemetry, tracking and command.

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