##### Table of Contents









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 1-14180

LORAL SPACE & COMMUNICATIONS
LTD.

c/o Loral SpaceCom Corporation

600 Third Avenue


New York, New York 10016


Telephone: (212) 697-1105


Jurisdiction of incorporation:
Bermuda

IRS identification number:
13-3867424

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

|                             |  |                        
|---------------------------- |  | -----------------------
|                             |  | Name of each exchange  
|Title of each class          |  | on which registered    
|                             |  |                        
|Common stock, $.01 par value |  | New York Stock Exchange

The registrant has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and has been
subject to such filing requirements for the past 90 days.

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

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

The aggregate market value of the common shares
held by non-affiliates of the registrant, based upon the closing
sale price of the common shares on June 30, 2002, as
reported on the New York Stock Exchange was approximately
$360 million.

At February 28, 2003, 433,333,702 common
shares were outstanding.

Documents Incorporated by Reference

Portions of the registrants 2003 definitive
proxy statement (to be filed not later than 120 days after
the end of the registrants fiscal year) are incorporated
by reference into Part III.



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TABLE OF CONTENTS



|                                                                                                                       |                                                                                                         |  |  |  |  |  |  | 
|---------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                                                                                
|                                                                                                                       | Item 1. Business                                                                                       
|THE COMPANY                                                                                                           
|REGULATION                                                                                                            
|PATENTS AND PROPRIETARY RIGHTS                                                                                        
|FOREIGN OPERATIONS                                                                                                    
|EMPLOYEES                                                                                                             
|AVAILABLE INFORMATION                                                                                                 
|                                                                                                                       | Item 2. Properties                                                                                     
|                                                                                                                       | Item 3. Legal Proceedings                                                                              
|PART II                                                                                                               
|                                                                                                                       | Item 4. Submission of Matters to a Vote of Security Holders                                            
|                                                                                                                       | Item 5. Market for the Registrants Common Equity and Related Stockholder Matters                      
|                                                                                                                       | Item 6. Selected Financial Data                                                                        
|                                                                                                                       | Item 7. Managements Discussion and Analysis of Results of Operations and Financial Condition          
|                                                                                                                       | Item 8. Financial Statements and Supplementary Data                                                    
|                                                                                                                       | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           
|PART III                                                                                                              
|                                                                                                                       | Item 10. Directors and Executive Officers of the Registrant                                            
|PART IV                                                                                                               
|                                                                                                                       | 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                                              
|                                                                                                                       | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|SIGNATURES                                                                                                            
|INDEPENDENT AUDITORS REPORT                                                                                          
|CONSOLIDATED BALANCE SHEETS                                                                                           
|CONSOLIDATED STATEMENTS OF OPERATIONS                                                                                 
|CONSOLIDATED STATEMENTS OF SHAREHOLDERS (DEFICIT) EQUITY                                                             
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                                 
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                            
|CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
|INDEX TO EXHIBITS                                                                                                     
|1996 AMENDED AND RESTATED STOCK OPTION PLAN                                                                           
|AMENDMENT NO. 1 AMENDED/RESTATED STOCK OPTION PLAN                                                                    
|2000 AMENDED AND RESTATED STOCK OPTION PLAN                                                                           
|AMEND. NO. 1 AMENDED/RESTATED TO STOCK OPTION PLAN                                                                    
|AMENDMENT TO EMPLOYMENT AGREEMENT WITH B. SCHWARTZ                                                                    
|FORM OF SECOND AMENDMENT TO CREDIT AGREEMENT                                                                          
|FORM OF FIRST AMENDMENT TO GUARANTEE                                                                                  
|FORM OF FIRST AMENDMENT TO AMENDED & RESTATED CRED                                                                    
|FORM OF 2ND AMENDMENT & RESTATED PLEDGE AGREEMENT                                                                     
|FORM OF SECOND INTERCREDITOR & SUBORDINATION AGRMT                                                                    
|APSTAR V CONDOSAT AGREEMENT                                                                                           
|STATEMENT RE: COMPUTATION OF RATIOS                                                                                   
|LIST OF SUBSIDIARIES                                                                                                  
|CONSENT OF DELOITTE & TOUCHE LLP                                                                                      
|CONSENT OF DELOITTE & TOUCHE LLP                                                                                      



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PART I






|        |         
|------- | --------
|Item 1. | Business






THE COMPANY


Overview

Loral Space & Communications Ltd. together
with its subsidiaries (we, us,
Loral or the Company) is one of the
worlds leading satellite communications companies with
substantial activities in satellite-based communications
services and satellite manufacturing. In the fourth quarter of
2002, Loral reorganized into two operating businesses in
connection with Lorals integration of the operation and
management of its data business (conducted by Loral CyberStar,
Inc. and CyberStar, L.P.) into its FSS business, managed and
operated by Loral Skynet:

Fixed Satellite Services (FSS):Loral leases transponder capacity to
customers for various applications, including television and
cable broadcasting, news gathering, Internet access and
transmission, private voice and data networks, business
television, distance learning and direct-to-home television
(DTH) and provides satellite telemetry, tracking and
control services (TT&C). Loral also provides
network services such as managed communications networks,
Internet and intranet services, business television and business
media services to its customers.

Satellite Manufacturing and Technology:Loral designs and manufactures
satellites and space systems and develops satellite technology
for a broad variety of customers and applications through Space
Systems/ Loral (SS/ L).

Loral intends to capitalize on its innovative
capabilities, market position and advanced technologies to offer
value-added, satellite-based services as part of the evolving
worldwide communications networks. Loral regularly engages in
discussions with telecommunications service providers, equipment
manufacturers and others regarding possible strategic
transactions and alliances. These include joint ventures;
strategic relationships involving its fixed satellite services
operations and satellite manufacturing operations, which could
involve business combinations; participation in the Loral Global
Alliance; and dispositions of assets.

Loral was incorporated on January 12, 1996
as a Bermuda exempt company and has its registered and principal
executive offices at Cedar House, 41 Cedar Avenue, Hamilton, HM
12, Bermuda.

Fixed Satellite Services

Following its acquisition of the Loral Skynet
business from AT&T in March 1997, Loral has rapidly
established itself through internal growth and a series of
acquisitions and joint venture transactions as one of the
worlds leading providers of fixed satellite services.
These satellites, which are known as GEO satellites, fly in
geosynchronous earth orbit approximately 22,000 miles above the
equator. In this orbit, the satellites remain in a fixed
position relative to points on the earths surface. GEO
satellites provide reliable, high bandwidth services anywhere in
their coverage areas and therefore serve as the backbone for
many forms of telecommunications. Lorals fixed satellite
service business is managed and operated by Loral Skynet, a
division of its Loral SpaceCom Corporation subsidiary.

In the United States and other developed
countries, customers lease transponder capacity primarily for
distribution of network and cable television programming, for
direct-to-home, or DTH, video transmission and for live video
feeds from breaking news and sporting events. In the developing
world, a substantial portion of such capacity is dedicated to
long-distance telephone service as well as television services.
GEO satellites are increasingly used throughout the world for
international Internet communications, high-speed data services
for businesses through very small aperture terminal, or VSAT,
networks, and for distance learning and educational television.
In providing fixed satellite services Loral faces competition
from other fixed satellite services providers as well as 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.

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About 200 commercial geosynchronous satellites
currently offer fixed satellite services. Loral 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. With seven satellites in
orbit, Loral currently operates the fifth largest fleet in the
world and currently plans to expand the fleet to 11 satellites.
The addition of these new satellites will substantially increase
Lorals capacity within the United States and will further
extend its coverage of Canada, portions of Latin America and
Asia, subject to obtaining landing rights from regulatory
authorities in those regions.

|                                                    |  |                         |  |                   |  |           |  |                                                                                                                                   
|--------------------------------------------------- |  | ----------------------- |  | ----------------- |  | --------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|                                                   
|                                                   
|                                                    |  | Satellite(1)            |  | Location          |  | Frequency |  | Coverage                                                                                                                          
|                                                   
|                                                   
|Satellites in operation:                            |  | Telstar 4(2)            |  | 89(degrees)W.L.   |  | C/Ku-band |  | U.S., Northern Mexico, Southern Canada                                                                                            
|                                                   
|                                                    |  | Telstar 5               |  | 97(degrees)W.L.   |  | C/Ku-band |  | U.S., Mexico, Canada, Northern and Central America                                                                                
|                                                   
|                                                    |  | Telstar 6               |  | 93(degrees)W.L.   |  | C/Ku-band |  | U.S., Mexico, Southern Canada, Central America                                                                                    
|                                                   
|                                                    |  | Telstar 7               |  | 129(degrees)W.L.  |  | C/Ku-band |  | U.S., Mexico, Southern Canada, Northern and
    Central America                                                                   
|                                                   
|                                                    |  | 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
|                                                   
|                                                    |  | Brazil 1T(3)            |  | 63(degrees)W.L.   |  | Ku-band   |  | Brazil, North America and North Atlantic                                                                                          
|                                                   
|Satellites expected to be launched in 2003
    (5): |  | Estrela do Sul (3)      |  | 63(degrees)W.L.   |  | Ku-band   |  | Brazil and portions of Latin America, North
    America, Atlantic Ocean                                                           
|                                                   
|                                                    |  | Telstar 13(4)           |  | 121(degrees)W.L.  |  | C-band    |  | North America, Central America, Puerto Rico and
    Hawaii                                                                        
|                                                   
|                                                    |  | Telstar 18/ Apstar V(4) |  | 138(degrees)E.L.  |  | C/Ku-band |  | India, South East Asia, China, Australia and
    Hawaii                                                                           
|                                                   




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | While Lorals FSS business is managed and
    operated by Loral Skynet, the satellites set forth in this table
    are owned by various Loral subsidiaries  Loral Skynet,
    Loral Orion, Loral Satellite, Inc. and Loral Skynet do Brasil.                                                                                                                                                                                                                                                                                        
|   
|(2) | Loral has asked the FCC to modify its
    authorizations for these satellites to relocate Telstar 4 to
    77(degrees) W.L. when Telstar 8 is launched to 89(degrees) W.L.                                                                                                                                                                                                                                                                                                                                                           
|   
|(3) | Brazil 1T is operating in inclined orbit and is
    not currently generating revenues. Estrela do Sul, the
    replacement satellite for this slot, is currently under
    construction at SS/ L.                                                                                                                                                                                                                                                                                                                                    
|   
|(4) | Telstar 13 and Telstar 18/ Apstar V are
    satellites subject to a condosat arrangement between Loral and a
    third party. In the case of Telstar 13, Loral owns the C-band
    payload on the satellite, consisting of 24 transponders, while a
    direct-to-home television company owns the Ku-band payload.
    Loral 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.
|   
|(5) | Lorals bank facilities impose restrictions
    on its ability to incur capital expenditures.                                                                                                                                                                                                                                                                                                                                                                                                                                        

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Broadcast
Neighborhood

Loral provides satellite capacity to support
distribution of U.S. television network programming. The ABC,
CBS and Fox television networks are its major customers. All
ABC, CBS and Fox stations and network affiliates have their
antennae pointed at Lorals satellites, creating a
configuration known as a neighborhood that is
attractive to other users requiring similar distribution
channels.

Telstar 4 was placed in service in November 1995
and has 24 C-band and 24 Ku-band transponders. Telstar 4
provides coverage over the continental United States, Hawaii,
Alaska, Puerto Rico, U.S. Virgin Islands and into Canada.

Telstar 5, with 24 C-band and 24 Ku-band
transponders, was built by SS/ L and was placed into service on
July 1, 1997. Telstar 5 provides coverage over the
continental United States, Hawaii, Puerto Rico, the Caribbean
and into Canada and portions of Latin America.

Telstar 6, built by SS/ L, was launched in
February 1999 and commenced commercial operations in March 1999.
Telstar 6 is a broadcast video and data communications satellite
with 24 C-band and 24 Ku-band transponders. It provides coverage
over the continental United States, Hawaii, Puerto Rico, the
Caribbean and into Canada and Latin America.

Cable
Neighborhood

Telstar 7, built by SS/ L, was launched in
September 1999 and commenced commercial operations in November
1999. Telstar 7, located in the cable arc, is a broadcast video
and data communications satellite with 24 C-band and 24 Ku-band
transponders. It provides coverage over the continental United
States, Hawaii, Puerto Rico, the Caribbean, and into Canada and
Latin America. Lorals cable customers include companies
like HBO, Disney and Time Warner.

International

Loral satellites also provide satellite capacity
for video distribution, satellite newsgathering and other
satellite services to international broadcasters, news
organizations, telecommunications service providers and Internet
service providers. Cable & Wireless, Singapore Tel, Fuji TV,
Univision, Telecom Italia and China Central TV are some of the
international customers that use Lorals satellites.

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,
expanding Lorals European coverage and extending coverage
to portions of Russia, Latin America, the Middle East and South
Africa.

Telstar 10/ 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 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.

Other
Services

In order to meet customers evolving needs
and to increase the usage of Lorals satellites, Loral
provides end-to-end network solutions and value-added services
through its product offerings, Skynet Network Services and
Skynet Professional Services.

Skynet Network Services provides delivery
movement and platforms for bandwidth-on-demand, broadband
transport, broadcast transport and digital transport teleport
services. In 2002, Loral integrated the operation and management
of its data business (conducted by Loral CyberStar, Inc. and
CyberStar, L.P.) into its FSS business. As a result of this
integration, Skynet Network Services has expanded its service

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offerings to include VSAT service, business
television and business media services and IP-based services
such as video and streaming media. These services are currently
provided through an integrated satellite and fiber network that
interconnects with customer networks through points of presence
(POPs) in San Jose, California; Ashburn, Virginia;
New York and London, and interconnects with satellite and VSAT
services via teleports in Mount Jackson, Virginia, Hawaii and
London.


Skynet Professional Services assists customers
with the needs of satellite ownership, such as TT&C and with
the design, construction and integration of satellite-based
networks.

Fixed
Satellite Services Results

|                                             |  |                      |       |      |  |      |       |   |  |   |       |  
|-------------------------------------------- |  | -------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                             |  |                     
|                                             |  | For the years ending
|                                             |  | December 31,        
|                                             |  |                     
|                                             |  | 2002                 |       | 2001 |  | 2000
|                                             |  |                      |       |      |  |     
|                                             |  |                     
|                                             |  | (in millions)       
|Total segment revenues                       |  | $                    | 395.4 |      |  | $    | 464.2 |   |  | $ | 421.2 |  
|Eliminations                                 |  |                      | (4.2  | )    |  |      | (6.8  | ) |  |   | (4.5  | )
|                                             |  |                      |       |      |  |      |       |   |  |   |       |  
|Revenues from satellite services as reported |  | $                    | 391.2 |      |  | $    | 457.4 |   |  | $ | 416.7 |  
|                                             |  |                      |       |      |  |      |       |   |  |   |       |  
|Segment EBITDA(1)                            |  | $                    | 219.9 |      |  | $    | 263.4 |   |  | $ | 153.4 |  
|                                             |  |                      |       |      |  |      |       |   |  |   |       |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | EBITDA (which is equivalent to operating
    income/loss before depreciation and amortization, including
    amortization of unearned stock compensation) 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 Lorals operating results. EBITDA is not
    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.

Total assets for the segment were
$1.9 billion and $2.8 billion as of December 31,
2002 and 2001, respectively. As of December 31, 2002 and
2001, funded backlog for the segment was $1.4 billion and
$1.5 billion, respectively, including intercompany backlog
of $41 million in 2002 and $46 million in 2001.
Approximately $267 million of the segments
December 31, 2002 funded backlog is expected to be realized
in 2003, including approximately $4 million of intercompany
backlog. Results for Lorals FSS affiliates are disclosed
below.

Loral
Global Alliance

Through the Loral Global Alliance, Loral seeks to
offer its customers an integrated portfolio of satellite
capacity that provides one stop shopping for local,
regional and global GEO satellite services. This Loral
Skynet-led alliance, with ten satellites currently in orbit and
15 planned, further enhances the geographic reach, market
presence and offerings of its members. The Loral Global Alliance
provides for cross-selling arrangements among the alliance
members respective sales forces and for cooperative
marketing and promotional activities. Loral believes that such
arrangements enable the members of the alliance to compete more
effectively in sales of communications satellite services
worldwide. In addition, the alliance offers in-orbit backup
capabilities for its members in regions where members
fleets have overlapping coverage.

In addition to Loral subsidiaries, the following
affiliates of Loral also participate in the alliance:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Satelites Mexicanos, S.A. de C.V.
    (Satmex), a 49% owned affiliate, is the leading
    satellite communications company providing fixed satellite
    services in Mexico. Satmex has two satellites in operations and
    a third satellite, Satmex 6, under construction at SS/ L. Satmex
    is currently pursuing loans supported by export credit agencies
    to raise additional financing for its Satmex 6 satellite
    project. On March 6, the Export Import Bank of the United
    States (Eximbank), pursuant to a meeting of its
    Board of Directors, referred the Satmex loan guaranty
    application to the United States Congress.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | Pending a mandatory 35-day review period, Satmex
    expects the application to return to the Eximbank board for
    formal approval. There can be no assurance that Satmex will be
    able to obtain such approval. These export loans, and certain
    additional financings, will be needed by Satmex to fund the
    Satmex 6 project and repay existing secured debt. If Satmex
    is unable to successfully obtain the export loans and this
    additional financing, our investment in Satmex of
    $51 million and receivables of $4 million at
    December 31, 2002 may be adversely affected.                                                                                                                                                                                                                                                                                                                                                
|
| |  | Europe*Star Limited (Europe*Star), a
    joint venture between Loral and Alcatel, commenced commercial
    service in January 2001 with its Europe*Star 1 satellite. Loral
    currently owns 47% of Europe*Star, and pursuant to the terms of
    the shareholders agreement, has permitted its joint venture
    partner Alcatel, to fund additional expenditures to develop
    Europe*Stars business and infrastructure through
    $181 million in loans to the venture, which Alcatel claims
    are payable on demand. In the fourth quarter of 2002, the
    Companys investment in Europe*Star was reduced to zero, as
    the Company recorded valuation allowances of $38 million on
    the vendor financing and the receivables advanced and recorded
    an impairment charge relating to its investment in Europe*Star
    of $7 million. As a result, any future losses attributable
    to Europe*Star will not be recognized by Loral.

Other
Affiliate

Loral also owns a 56% interest in XTAR, L.L.C.
(XTAR), a joint venture between Loral and Hisdesat
Servicios Estrategicos, S.A. (Hisdesat), a
consortium comprised of leading Spanish telecommunications
companies, including Hispasat, S.A., and agencies of the Spanish
government. XTAR plans to construct and launch an X-band
satellite to provide X-band services to government users in the
United States and Spain, as well as other allied nations. Loral
accounts for its investment in XTAR under the equity method
since Loral does not control certain significant operating
decisions at XTAR. As of December 31, 2002, the partners in
proportion to their respective ownership interests have
contributed $55 million to XTAR. XTAR is seeking to raise
the remaining amount of the funds it needs to construct and
launch its satellite through vendor and other third-party
financings. If XTAR is unable to raise the remaining funds it
needs to construct, launch and operate its satellite, it would
adversely affect the Companys investment in XTAR. Loral
has no further obligations with respect to XTAR.

FSS
Affiliate Results

Total affiliate revenues for Satmex, Europe*Star
and XTAR were $101 million, $142 million and
$136 million in 2002, 2001 and 2000, respectively. EBITDA
on the same basis was $43 million, $70 million and
$77 million, respectively.

Satellite Manufacturing and
Technology  SS/L

Loral, through SS/ L, is a worldwide leader in
the design, manufacture and integration of satellites and space
systems. SS/ L draws on its 40-year history, during which
satellites manufactured by SS/ L have achieved 1000 years,
an entire millennium, of cumulative on-orbit experience marking
a new milestone in experience and reliability. SS/ L also
provides Loral with visibility into emerging and new
satellite-based technologies and applications. SS/ L
manufactures satellites that provide telecommunications, weather
forecasting and broadcast services. SS/ L is the second largest
supplier of commercial satellites worldwide, and is the leading
supplier of satellites to Intelsat, currently one of the
worlds largest operators of commercial communications
satellites. SS/ L is also the leading supplier of: high-powered
direct-to-home (DTH) broadcast satellites to
EchoStar and DirecTV, commercial weather satellites, digital
audio radio satellites (DARS) to Sirius Satellite
Radio, and innovative spot-beam satellites for data networking
applications. Other significant customers include Loral Skynet,
PanAmSat, Optus, Singapore Tel and APT Satellite.

As one of the premier providers of satellites and
other space systems, SS/ L competes principally on the basis of
technical excellence, a long record of reliable performance, and
competitive pricing with several of the worlds largest
satellite manufacturers, such as The Boeing Company, Lockheed
Martin, Alcatel Space and Astrium. SS/ Ls continued
success depends on its ability to perform on a cost-effective
and timely basis.

6



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##### Table of Contents



Competitive pressure in this segment has become
more acute in recent times as a result of weak economic
conditions, combined with over-capacity in the marketplace.


SS/L has a history of technical innovation that
includes the first three-axis stabilized satellites,
bipropellant propulsion systems for commercial satellites that
permit significant increases in the satellites payload and
extend the satellites on-orbit lifetime, rechargeable
nickel-hydrogen batteries with a life span of 10 years or
more, the use of advanced composites to significantly enhance
satellite performance at lighter weights and the first
communications satellite with more than ten kilowatts of power.
SS/L was also the first satellite manufacturer to employ heat
pipes to control heat transfer in commercial satellites, thereby
providing a more benign temperature environment and increased
reliability. SS/L also created the first multi-mission
geostationary satellite and was one of the first U.S. companies
to acquire space technology from Russias space industry,
obtaining exclusive rights outside the former Eastern bloc to an
electric propulsion subsystem that is five times more efficient
than bipropellant propulsion systems.

SS/L offers a line of three products that provide
customers with a great span of power and capability: the
space-proven 1300, the advanced 1300E, and the 20.20, one of the
most powerful commercial spacecraft offered today. The power
offered on SS/L-designed satellites reaches from five kilowatts
to in excess of 20 kilowatts, and the number of
transponders from as few as one to as many as 150.

Satellite
Manufacturing and Technology Results

|                                          |  |                                   |        |      |  |      |        |   |  |   |         |  
|----------------------------------------- |  | --------------------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------- | -
|                                          |  |                                  
|                                          |  | For the years ending December 31,
|                                          |  |                                  
|                                          |  | 2002                              |        | 2001 |  | 2000
|                                          |  |                                   |        |      |  |     
|                                          |  |                                  
|                                          |  | (in millions)                    
|Total segment revenues                    |  | $                                 | 853.1  |      |  | $    | 814.8  |   |  | $ | 1,002.3 |  
|Eliminations                              |  |                                   | (144.6 | )    |  |      | (200.9 | ) |  |   | (192.5  | )
|                                          |  |                                   |        |      |  |      |        |   |  |   |         |  
|Revenues from satellite sales as reported |  | $                                 | 708.5  |      |  | $    | 613.9  |   |  | $ | 809.8   |  
|                                          |  |                                   |        |      |  |      |        |   |  |   |         |  

Segment EBITDA was a loss of $19 million in
2002 primarily due to valuation allowances recorded on
SS/L-provided vendor financings of $69 million (in
connection with advances related to Europe*Star and an agreement
reached with a customer, Sirius Satellite Radio, to convert
vendor financing receivables into Sirius equity). Segment
EBITDA earnings were $24 million in 2001 after a charge of
$12 million for obligations to the U.S. government to
settle a case relating to export controls and $36 million
in 2000 after charges of $77 million relating to increased
costs for manufacturing delays and customer contract issues.
Total assets for the segment were $690 million and
$1.2 billion as of December 31, 2002 and 2001,
respectively. As of December 31, 2002 and 2001, funded
backlog for the segment was $763 million and
$1.6 billion, respectively, including intercompany backlog
of $275 million in 2002 and $265 million in 2001.
Approximately $626 million of the 2002 funded backlog is
expected to be realized in 2003, including approximately
$142 million of intercompany backlog. Revenues recorded
under contracts with Globalstar were $5 million,
$18 million and $134 million in 2002, 2001 and 2000,
respectively. In addition, sales to two customers represented
12% and 10% of the Companys consolidated revenues in 2002,
sales to one customer represented 14% of the Companys
consolidated revenues in 2001 and sales to two other customers
represented 13% and 12% of the Companys consolidated
revenues in 2000. For 2002, 2001 and 2000, the segment expended
$16 million, $31 million and $26 million for
research and development projects, respectively.

Investment in Globalstar

Globalstar, L.P. (Globalstar) owns
and operates a satellite constellation that forms the backbone
of a global telecommunications network designed to serve
virtually every populated area of the world. On
February 15, 2002, Globalstar and certain of its direct
subsidiaries filed voluntary petitions under Chapter 11 of
Title 11, United States Code in the United States
Bankruptcy Court for the District of Delaware (the
Court). In connection therewith, Loral/Qualcomm
Satellite Services, L.P., the managing general partner of
Globalstar, its general partner, Loral/Qualcomm Partnership,
L.P. (LQP), and certain of Lorals subsidiaries
that serve as general partners of LQP also filed voluntary
petitions with the Court. As of December 31,

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2002, Lorals direct and indirect investment
in connection with Globalstar-related activities as set forth on
its balance sheet was $20 million. This investment balance
represents the fair value of Lorals investment in
Globalstars $500 million credit facility, which was based
on the trading values of Globalstars public debt at
December 31, 2002 (see Notes 3 and 12 to the consolidated
financial statements). If Globalstar were unable to effectuate a
successful restructuring, the Companys remaining
investment in Globalstars $500 million credit
facility would be impaired, which would have no effect on the
Companys results of operations. As a result of
Globalstars bankruptcy petition, several of
Globalstars debt facilities and other debt obligations
have been accelerated and are immediately due and payable.
Subcontractors have assumed $74 million of vendor financing
that SS/ L has provided to Globalstar at December 31, 2002,
which includes $47 million which is non-recourse to SS/ L
in the event of non-payment by Globalstar due to bankruptcy and
is included in long-term liabilities in the consolidated balance
sheets.


On February 25, 2003, Globalstar entered
into, and on March 6, 2003, the Court approved, a
debtor-in-possession credit agreement (the DIP
Agreement) with Blue River Capital LLC, Columbia Ventures
Corporation, ICO Investment Corp., Iridium Investors, LLC and
Loeb Partners Corp. Pursuant to the DIP Agreement, these five
lenders, of whom three are members of Globalstars official
unsecured creditors committee, will make up to
$10 million available to Globalstar on the terms and
subject to the conditions set forth in the DIP Agreement. The
Court also granted Globalstars motion to establish, and
Globalstar has commenced, a process to find potential outside
investors to help the company emerge from bankruptcy. There can
be no assurance that Globalstar will be successful in finding
such additional investors, that Globalstar and its creditors
will be able to reach an agreement with any interested
investors, that any proposed plan of reorganization for
Globalstar will be approved by the Court or that Globalstar will
be successfully reorganized.

On March 14, 2003, Loral signed a term sheet
with Globalstar and Globalstars official creditors
committee to resolve certain issues related to Globalstar and
Globalstars restructuring. Among other things, the
settlement incorporated in the term sheet, which is subject to
definitive documentation and approval by the Court (as to which
there can be no assurance), Globalstar would grant to Loral,
subject to certain conditions, a general release of all claims
Globalstar might have against Loral; the parties would seek to
provide Loral with one seat on the board of directors of
reorganized Globalstar; approximately 50% of Lorals
unsecured claims against Globalstar would be allowed, or
approximately $438 million; and the debt owed to Globalstar
by three foreign service providers in which Loral has a
substantial equity interest (Globalstar do Brasil, Globalstar de
Mexico and GlobalTel), of an aggregate of $7.2 million
would be eliminated. In consideration, Loral would transfer to
Globalstar eight spare satellites ordered by Globalstar but not
fully paid for; certain agreements that provided a joint venture
in which Loral is a participant with exclusivity in marketing
certain Globalstar services in the U.S. would be terminated,
with a new joint venture being formed among Globalstar and Loral
to exclusively market Globalstar services to certain
governmental agencies in the U.S.; the FCC license authorizing
the Globalstar service, which in any event was being held by a
joint venture in which Loral is a participant for the exclusive
benefit of Globalstar, would be transferred to Globalstar;
Lorals equity interest in the Globalstar Canadian service
provider would be transferred to Globalstar; a $10 million
obligation of the Canadian service provider owed to Loral at
December 31, 2002 would be reduced by $7.2 million and
the remaining debt obligation would be converted from a demand
note into a five-year term note; Lorals unsecured claims
against Globalstar would be reduced by approximately 50% or
approximately $438 million; the unused prepayment
($2,260,000) on a Globalstar contract under which there is a
stop work order would be returned to Globalstar by Loral; a
$250,000 termination fee that may come due under that contract
would be waived; Loral would cooperate toward a reorganization
of Globalstar; and the Loral employees on Globalstars
management committee would resign. Loral does not expect any
material impact on its results of operations or financial
position as a result of this settlement.

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REGULATION

Telecommunications Regulation

As an operator of a privately owned global
satellite system, Loral is subject to: (i) the regulatory
authority of the U.S. government; (ii) the regulatory
authority of other countries in which Loral operates; and
(iii) the frequency coordination process of the
International Telecommunications Union (ITU).
Lorals ability to provide satellite service in a
particular country or region is subject to the technical
constraints of its satellites, international coordination, local
regulatory approval and any limitation as to the scope of the
approval so obtained.



| |                
| | ---------------
| | U.S. Regulation

The ownership and operation of Lorals
satellite systems in the U.S. is regulated by the Federal
Communications Commission (the FCC). Loral is
subject to the FCCs jurisdiction primarily for:
(i) the licensing of satellites and earth stations;
(ii) avoidance of interference with other radio stations;
and (iii) compliance with FCC rules governing U.S.-licensed
satellite systems. Violations of the FCCs rules can result
in various sanctions including fines, loss of authorizations, or
the denial of new authorizations or renewal authorizations.
Loral is not regulated as a common carrier and, therefore, is
not subject to rate regulation or the obligation not to
discriminate among customers. Loral must pay FCC filing fees in
connection with its space station and earth station
applications; must pay annual regulatory fees that are intended
to defray the FCCs regulatory expenses; must file annual
status reports with the FCC; and, to the extent Loral is deemed
to be providing interstate/ international telecommunications,
must contribute to funds used to support universal service.



| |                                                   
| | --------------------------------------------------
| | Authorization to Launch and Operate
    Satellites

The FCC grants satellite authorizations to
satellite operators that meet its legal, technical and financial
qualification requirements. The FCC often receives applications
from multiple operators to operate a satellite at a given
orbital slot. There can be no assurance that in the process of
resolving such mutually exclusive applications, Lorals
application will be granted. Under the FCCs financial
qualification rules, an applicant must demonstrate that it has
sufficient funds to construct, launch, and operate each
requested satellite for one year. Most satellite authorizations
also include specific construction and launch milestones which
must be met. Failure to meet such FCC milestones may result in
license revocations. Licenses are usually issued for an initial
ten-year term and FCC policy provides licensees with an
expectancy with respect to the replacement of their
authorized satellites. At the end of a ten-year license term, a
satellite that has not been replaced, or that has been relocated
to another orbital location following its replacement, may be
allowed to continue operations for a limited period of time
pursuant to a grant of special temporary authority from the FCC.
Such operations, however, are subject to certain restrictions.

Loral has final FCC authorization for the
following existing or planned satellites which operate or will
operate in the C-band, the Ku-band, or both bands:
Telstar 4 at 89(degrees) W.L., Telstar 5 at
97(degrees) W.L., Telstar 6 at 93(degrees) W.L.,
Telstar 7 at 129(degrees) W.L., Telstar 8 at
77(degrees) W.L., Telstar 9 at 69(degrees) W.L.,
Telstar 11 at 37.5(degrees) W.L., Telstar 12 at
15(degrees) W.L. and Orion A at 47(degrees) W.L. Certain of
these authorizations are subject to pending petitions for
reconsideration submitted to the FCC by third parties. The final
FCC authorizations for certain of the satellites that are not
yet in-orbit also do not cover certain design changes or
milestone extension requests that are the subject of pending
modification applications. Certain of these modification
applications have been opposed by other satellite operators.
There can be no assurance that such design changes or milestone
extensions will be granted by the FCC. The failure to obtain a
milestone extension could result in the loss of the related FCC
authorization. If Loral is unable to obtain FCC approval to
implement its requested technical modifications for any
particular authorization, it will be obligated to operate the
related satellite in accordance with the original authorization.

Loral also has applications pending before the
FCC at 58(degrees) W.L., 95(degrees) W.L., 115(degrees) W.L. and
135(degrees) W.L. for use of the V-band frequency and at
126(degrees) E.L. for use of the Ku/extended Ku/ C and extended
C-band frequencies. Loral also has an application pending for
authorization to use C-band at 121(degrees) W.L. in the U.S.
(Telstar 13) using a non-U.S. ITU filing. There can be no
assurance that the FCC will grant this or any of the other
pending Loral applications.

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In addition, Loral has final authorization to
operate at the following orbital slots: Ka-band at 15(degrees)
W.L., 67(degrees) W.L., 81(degrees) W.L., 89(degrees) W.L.,
93(degrees) W.L., 115(degrees) W.L., 139(degrees) E.L.,
126.5(degrees) E.L. and 78(degrees) E.L. and hybrid Ka/Ku-band
at 47(degrees) W.L. Loral has requests for technical
modifications and requests for milestone extensions pending
before the FCC. There can be no assurance that the FCC will
grant such modifications or milestone extensions.

Under the FCCs rules, an applicant may
commence satellite construction prior to receiving an
authorization to launch and operate, although it must notify the
FCC that it intends to commence construction. Any construction
engaged in is at the applicants own risk. While Loral
therefore may proceed with the construction of planned
satellites without prior FCC approval, it must accept the risk
that the FCC may not grant the application, may not assign the
satellite to its proposed orbital location, or otherwise may act
in a manner that limits or eliminates some or all of the value
of the construction previously done on the satellite.



| |                             
| | ----------------------------
| | Scope of Services Authorized

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



| |                          
| | -------------------------
| | Coordination Requirements

The FCC requires applicants to demonstrate that
their proposed satellites would be compatible with the
operations of adjacent satellites. The FCC requires adjacent
satellite operators to coordinate with one another to minimize
frequency conflicts. The FCC reserves the right to require that
an FCC-licensed satellite be relocated to a different orbital
location if it determines that such a change is in the public
interest. The FCC might exercise this authority in instances
where operators are unable to coordinate with each other.



| |                                                                   
| | ------------------------------------------------------------------
| | Regulation by Non-U.S. National
    Telecommunications Authorities

Foreign laws and regulatory practices governing
the provision of satellite services to licensed entities and
directly to end users vary substantially from country to
country. Some countries may require Loral to confirm that it has
successfully completed technical consultation with other
satellite service providers before providing services on a given
satellite. In addition, Loral may be subject to communications
and/or broadcasting laws with respect to its provision of
international satellite services, which vary from country to
country.

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

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

In addition to the orbital slots licensed by the
FCC, Loral has been assigned orbital slots by certain other
countries. For example, Loral has been authorized to use
numerous Ku- and Ka-band orbital slots by the Papua New Guinea
government. In March 1999, the Brazilian telecommunications
authority announced that Loral had won Brazils auction for
its 63(degrees) W.L. Ku-band orbital slot. Loral operates
capacity on the Telstar

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10/ Apstar IIR C/ Ku-band satellite licensed by
China and located at 76.5(degrees) E.L. Satmex, of which Loral
owns 49%, is licensed by Mexico to operate the C/ Ku-band
satellites at 109.2(degrees) W.L., 113.0(degrees) W.L., and
116.8(degrees) W.L. Europe*Star, of which Loral owns 47%, is
licensed by Germany to operate Ku-band satellites at 45(degrees)
E.L. and 47.5(degrees) E.L. Loral plans to operate the C-band
payload on Telstar 13 at 121° W.L. and the
extended C- and Ku-band payload on Telstar 18/Apstar V
at 138° E.L. using licenses provided by Papua New
Guinea and Tonga, respectively.




| |                                           
| | ------------------------------------------
| | The ITU Frequency Coordination
    Process

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, with a
corresponding impact on the useable capacity of a satellite at
that location. 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.

All of the registrations for Lorals
satellites are or will be subject to the ITU coordination
process. Only national governments file required coordination
documents at the ITU. These documents are used by Loral and
other satellite operators as a basis for coordination of
satellite systems. There may be more than one ITU filing
submitted for any particular orbital slot, or an orbital slot
adjacent thereto, thus requiring coordination between or among
the affected operators. The results of this coordination process
may impose technical constraints on Lorals ability to
operate its satellites at a given orbital location, if at all.
Loral cannot guarantee successful frequency coordination for its
satellites.

Additional
ITU Filings

In addition to the ITU filings associated with
Lorals satellite authorizations and applications noted
above, Loral has ITU filings on its behalf at 98(degrees) E.L.,
122(degrees) E.L., 130(degrees) E.L., 167.45(degrees) E.L.,
175(degrees) W.L., 121(degrees) W.L. and 115(degrees) W.L. for
use of the C- and Ku-band frequencies. Loral also has ITU
filings at 9.9(degrees) E.L., 16.1(degrees) E.L., 22.3(degrees)
E.L., 115.5(degrees) E.L., 161(degrees) E.L., and 97(degrees)
W.L. for the use of C-, Ku-, and Ka-band frequencies and at
37.5(degrees) W.L. for the use of C-and Ka-band frequencies.
Loral has a filing at 96.5(degrees) W.L. for Broadcast Satellite
Service. Loral also has ITU filings at 1(degrees) E.L.,
3.5(degrees) E.L., 8(degrees) E.L., 10(degrees) E.L.,
11(degrees) E.L., 30(degrees) E.L., 81(degrees) E.L.,
105.5(degrees) E.L., 135(degrees) E.L., 135(degrees) W.L.,
115(degrees) W.L., 95(degrees) W.L., 58(degrees) W.L. for use of
the V-band frequency.

Export Regulation

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

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

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PATENTS AND PROPRIETARY RIGHTS

SS/L relies, in part, on patents, trade secrets
and know-how to develop and maintain its competitive position.
It holds 254 patents in the United States and 367 patents abroad
and has applications for 78 patents pending in the United States
and 210 patents pending abroad. SS/L patents include those
relating to communications, station keeping, power control
systems, antennae, filters and oscillators, phased arrays and
thermal control as well as assembly and inspections technology.
The SS/L patents that are currently in force expire between 2003
and 2021.

Loral CyberStar, CyberStar LP and Loral SpaceCom
Corporation have four, seven and one patents in the United
States, respectively. Loral SpaceCom Corporation holds one
patent abroad. In addition, Loral CyberStar, CyberStar LP and
Loral SpaceCom Corporation have two, one and six patents pending
in the United States, respectively, and one, zero and 10 patents
pending abroad, respectively. The Loral CyberStar, CyberStar LP
and Loral SpaceCom patents that are currently in force expire
between 2016 and 2020.

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




FOREIGN OPERATIONS

Sales to foreign customers, primarily in Asia,
Europe and Mexico, represented 46%, 35%, 23% of the
Companys consolidated revenues for 2002, 2001 and 2000,
respectively. As of December 31, 2002 and 2001, the Company
had substantially all of its long-lived assets located in the
United States with the exception of the in-orbit satellites. See
Certain Factors that May Affect Future Results  We
face risks in conducting business internationally for a
discussion of the risks related to operating internationally.




EMPLOYEES

As of December 31, 2002, the Company had
approximately 2,800 full-time employees, approximately 3% of
whom are subject to collective bargaining agreements. We
consider our employee relations to be good.




AVAILABLE INFORMATION

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

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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 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 and guaranty
obligations.

We and our subsidiaries and operating affiliates
have a significant amount of outstanding debt and guaranty
obligations. As of December 31, 2002, the total amount of
our outstanding consolidated total debt was approximately
$2.2 billion.

The indentures and credit agreements relating to
this indebtedness impose restrictions on our and our
subsidiaries and affiliates ability to take various
actions, which may limit our and their ability to plan for, or
react to, changes in their business and market conditions. These
limitations include restrictions on the ability to pay
dividends, or to make loans, capital expenditures or
investments. As part of the bank amendments that were entered
into in March 2003, additional restrictions were imposed on us
and our subsidiaries. For example, Loral Skynet requires the
consent of its lenders in order to make further expenditures for
the launch and insurance of Telstar 8. These amendments also
provide that if Loral SpaceCom is not successful in effecting
certain asset sales by June 30, 2003, Loral SpaceCom may
not, subject to certain limited exceptions, incur further
capital expenditures. Our ability to make investments in or
otherwise make payment to any of our subsidiaries has been
limited to a maximum amount of $5 million as a result of
these amendments, which may hamper our ability to take various
actions. Moreover, substantially all of the assets of Loral
SpaceCom and Loral Satellite, our principal operating
subsidiaries, have been pledged in favor of the bank lenders,
which further reduces our flexibility to take certain actions.

We intend to use our cash and available credit of
$132 million at December 31, 2002 (including
$66 million of available credit) to help fund the growth
and operation of our businesses. During the first quarter of
2003, we drew down all of the $66 million of available
credit at December 31, 2002. If any of our subsidiaries or
affiliates finds itself faced with default, we may be faced with
a choice between providing additional support to that company or
accepting the loss of some or all of its investment. In certain
cases we have also guaranteed the debt of our subsidiaries. For
example, the $613 million principal amount of Loral
Orions 10% Senior Notes due 2006 and issued in December
2001 in connection with its exchange offer, are guaranteed by
us. None of Globalstar, L.P.s debt is guaranteed by us and
we do not intend to provide any further funding to Globalstar.

Satmex, our 49%-owned Mexican affiliate, had
total debt of $524 million as of December 31, 2002. In
addition, Servicios Corporativos Satelitales, S.A. de C.V.
(Servicios), the parent company of Satmex, in which
we have a 65% economic interest, has an obligation to the
government of Mexico with an initial face amount of
$125 million which accretes at 6.03% over a seven-year
period, expiring in December 2004. The debt of Satmex and
Servicios is non-recourse to us and Principia, S.A. de C.V., our
Mexican partner in Satmex; however, we and Principia have agreed
to maintain assets in a collateral trust in an amount equal to
1.2 times the value of this government obligation until
maturity. As of December 31, 2002, we and Principia have
pledged our respective shares in the parent company of Servicios
in this trust.

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Satmex is currently pursuing loans supported by
export credit agencies to raise additional financing for its
Satmex 6 satellite project. On March 6, 2003,
Eximbank, pursuant to a meeting of its Board of Directors,
referred the Satmex loan guaranty application to the United
States Congress. Pending a mandatory 35-day review period,
Satmex expects the application to return to the Eximbank board
for formal approval. There can be no assurance that Satmex will
be able to obtain such approval. These export loans, and certain
additional financings, will be needed by Satmex to fund the
Satmex 6 project and repay existing secured debt. If Satmex
is unable to successfully obtain the export loans and this
additional financing, our investment in Satmex of
$51 million and receivables of $4 million at
December 31, 2002 may be adversely affected.

We have the right to make the mandatory
redemption payments due on our preferred stock in cash, common
stock, or a combination of the two. However, to the extent that
we have insufficient authorized common stock on the mandatory
redemption dates in 2006 and 2007 to effect payment in full of
the related preferred stock in common stock, we will have to
cover any such shortfall with cash. The exact number of shares
of our common stock that may be issued on a mandatory redemption
date cannot be determined at this time. That number will depend
on a number of factors not known today, such as the price of our
common stock and the number of shares of our preferred stock
outstanding at that time. Based upon the price of our common
stock at December 31, 2002, we did not have available a
sufficient number of authorized shares of common stock to effect
payment of the total mandatory redemptions in common stock in
2006 and 2007. We could, however, subject to shareholder
approval, increase the authorized number of shares of our common
stock, which would enable us to effect payment of the total
mandatory redemptions in common stock.

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

Our business plan assumes the receipt of
approximately $60 million from the successful monetization of
certain customer long-term receivables in 2003. While we have
reached an agreement in principle with a third party to effect
such monetization, there is no assurance that this transaction
will be consummated. If we are unable to consummate this
transaction on a timely basis, or the proceeds from such
transaction are less than those assumed in the business plan,
our ability to fund our operations would be adversely affected.
A substantial reduction in our fixed satellite services revenues
or the inability of SS/L to replace existing backlog with new
contracts would also adversely impact our ability to achieve our
business plan. In addition, our ability to fund the 2004
interest payments on our 9.5% senior notes will depend on our
ability to successfully execute our business plan, which
includes further asset sales. There is no assurance that we will
be able to do so. If we fail to pay interest on the 9.5% senior
notes when due, this will, upon expiration of a 30-day cure
period, constitute an event of default under our senior note
indenture, which in turn would result in an event of default
under our bank agreements. If the holders of the 9.5% senior
notes, the lenders under the Loral SpaceCom credit facility or
the lenders under the Loral Satellite credit facility were to
accelerate their related debt following such event of default,
an event of default would also occur with respect to Loral
Orions 10% senior notes, which are guaranteed by us.

In addition to our debt service requirements, our
businesses are capital intensive and need substantial investment
before returns can be realized. For example, as of
December 31, 2002, we have already incurred
$283 million and will need to incur approximately
$108 million more in order to construct, launch and insure
three new satellites, excluding Telstar 8, currently under
construction for our fixed satellite services business. 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 or to effect a
restructuring of the terms of our debt arrangements. We are
uncertain whether these alternatives will be available in the
future on favorable terms if at all.

We will likely require and intend to seek
further amendments to our credit facilities in the
future.

On March 31, 2003, we entered into
amendments to our bank facilities to, among other things, adjust
our financial performance covenants. We are likely to require
and intend to seek further amendments to the Loral SpaceCom and
Loral Satellite facilities to ensure compliance with financial
performance covenants for periods

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after March 31, 2004. There can be no
assurance that the lenders will consent to any such amendment.
Because of the cross-default provisions set forth in such credit
facilities, a failure by us to meet any financial performance
covenant set forth in either credit facility will result in an
event of default under both the Loral SpaceCom and the Loral
Satellite credit facilities. Moreover, if the lenders under
either credit facility were to accelerate their outstanding
loans, this would constitute an event of default under our 9.5%
senior notes and Loral Orions 10% senior notes, which are
guaranteed by us.


The ability of our subsidiaries to pay
dividends to us or otherwise support our obligations is limited
by the terms of their debt instruments.

Loral SpaceComs credit facility allows
dividend payments to us if cumulative dividend payments do not
exceed 50% of its cumulative consolidated net income and the
ratio of its funded debt to EBITDA is less than 3.0 to 1.0. For
the year ended December 31, 2002, Loral SpaceCom had no
capacity under this covenant to pay us any dividends.

Loral Satellite, Inc., a subsidiary of Loral
Space & Communications Corporation, is a party to a credit
agreement that also imposes restrictions on its ability to pay
dividends to its parent. Loral Satellite may make dividends or
loans to its parent or us only if such dividends or loans are
applied either to effect payments on our 9.5% senior notes or to
effect a maximum of $5 million of payments on an intercompany
note between us and Loral SpaceCom Corporation.

Under the terms of the indenture for Loral
Orions 10% Senior Notes due 2006, Loral Orion is prevented
from paying dividends to us and is unlikely to pay any dividends
in the foreseeable future.

We have suspended the payment of dividends on
our preferred stock.

In August 2002, our board of directors approved a
plan to suspend indefinitely the future payment of dividends on
our two series of preferred stock. Accordingly, we deferred the
payment of quarterly dividends due on our Series C
Preferred Stock on November 1, 2002, and the payment of
quarterly dividends due on our Series D Preferred Stock on
November 15, 2002. Dividends on the two series will
continue to accrue. In the event accrued and unpaid dividends
accumulate to an amount equal to six quarterly dividends on the
Series C Preferred Stock, holders of the majority of the
outstanding Series C Preferred Stock will be entitled to
elect two additional members to our board of directors. In the
event accrued and unpaid dividends accumulate to an amount equal
to six consecutive quarterly dividends on the Series D
Preferred Stock, holders of the majority of the outstanding
Series D Preferred will be entitled to elect two additional
members to our board of directors. As of December 31, 2002,
accrued and unpaid dividends of $3 million represented one
quarterly dividend payment outstanding.

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 primary components,

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certain of our satellites are currently operating
using back-up components. If these back-up components fail and
the primary components cannot be restored, these satellites
could lose a significant amount of capacity or be total losses
which, until replacement satellites are placed in-orbit, would
result in our loss of revenues and profits. 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.


Although some failures may be covered in part by
insurance, they may result in uninsured losses as well. For
example, when Loral Skynet experienced the total loss of two
satellites in 1994 and 1997 while under AT&Ts
ownership, it suffered a substantial drop in its profits due to
the loss of revenues. Moreover, we are required under the terms
of our bank facilities to use the insurance proceeds from any
launch or in-orbit failure of a satellite owned by Loral
SpaceCom or Loral Satellite to prepay the bank loans, and as a
result, these insurance proceeds would not be available to us to
build a replacement for the lost satellite, which would result
in an adverse effect on our future revenue.

A loss of transponders on a satellite may have an
adverse effect on us. Loral Skynet has in the past entered into
prepaid leases, sales contracts and other arrangements relating
to transponders on its satellites. Under the terms of these
agreements, Loral Skynet continues to operate the satellites
which carry the transponders and originally provided a warranty
for a period of 10 to 14 years, in the case of sales
contracts and other arrangements (19 transponders), and the
lease term, in the case of the prepaid leases (six
transponders). Depending on the contract, Loral Skynet may be
required under its prepaid leases and sales contracts to replace
transponders which do not meet operating specifications.
Substantially all customers are entitled to a refund equal to
the reimbursement value if there is no replacement, which is
normally covered by insurance. In the case of the sales
contracts, the reimbursement value is based on the original
purchase price plus an interest factor from the time the payment
was received to acceptance of the transponder by the customer,
reduced on a straight-line basis over the warranty period. In
the case of prepaid leases, the reimbursement value is equal to
the unamortized portion of the lease prepayment made by the
customer. In the case of other arrangements, in the event of
transponder failure where replacement capacity is not available
on the satellite, one customer is not entitled to reimbursement,
and the other customers reimbursement value is based on
contractually prescribed amounts that decline over time.

Some of the satellites built by SS/L,
including six satellites operated by subsidiaries or affiliates
of Loral, have experienced operational problems with their solar
arrays.

Thirteen of the satellites built by SS/L and
launched since 1997, six of which are owned and operated by our
subsidiaries or affiliates, have experienced minor losses of
power from their solar arrays. Although to date, neither we nor
any of the customers using the affected satellites have
experienced any degradation in performance, there can be no
assurance that one or more of the affected satellites will not
experience additional power loss that could result in
performance degradation, including loss of transponder capacity.
In the event of additional power loss, the extent of the
performance degradation, if any, will depend on numerous
factors, including the amount of the additional power loss, the
level of redundancy built into the affected satellites
design, when in the life of the affected satellite the loss
occurred and the number and type of use being made of
transponders then in service. It is also possible that one or
more transponders on a satellite may need to be removed from
service to accommodate the power loss and to preserve full
performance capabilities of the remaining transponders. A
complete or partial loss of satellites could result in a loss of
orbital incentive payments and, in the case of satellites owned
by our subsidiaries and affiliates, a loss of revenues and
profits. With respect to satellites under construction and
construction of new satellites, based on its investigation of
the matter, SS/L has identified and has implemented remedial
measures that SS/L believes will prevent newly launched
satellites from experiencing similar anomalies. SS/L does not
expect that implementation of these measures will cause any
significant delay in the launch of satellites under construction
or construction of new satellites. Based upon information
currently available, including design redundancies to
accommodate small power losses and that no pattern has been
identified as to the timing or specific location within the
solar arrays of the failures, we believe that this matter will
not have a material adverse effect on our consolidated financial
position or results of operations.

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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 in our debt agreements,
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, 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. Four other satellites owned by Loral Skynet and Loral
Orion have 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 renewals of insurance for these satellites in
2003 and 2004. An uninsured loss of a satellite would have a
material adverse effect on our consolidated financial position
and our 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. We believe that
Loral Orion 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, and the bondholders could be able to call
on our guarantee of Loral Orions senior notes.

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 is 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.

Our satellite services businesses 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.

Network services faces competition not only from
other satellite-based providers, but also from providers of
land-based data communications services, such as cable
operators, digital subscriber line, or DSL, providers, wireless
local loop providers and traditional telephone service
providers. Network services will face continued price pressures
from fiber companies competing for its Internet services.

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

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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.


A continued downturn in the satellite
manufacturing market would materially and adversely affect
us.

The market for the satellite manufacturing
business has been extremely weak. In 2002, only one new order
was subject to a competitive bidding process of the seven
satellite orders booked in the industry. This compares to
approximately 25 to 30 awards across the industry in both 2001
and 2000. SS/L has not won an order for a new satellite since
December 2001. As of December 31, 2002, SS/Ls funded
backlog before intercompany eliminations was $763 million.
If SS/L is not successful in obtaining a new satellite award in
the near future, SS/Ls and our financial condition and
results of operations would be materially and adversely affected.

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

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

SS/Ls major contracts are primarily firm
fixed-price contracts. Under firm fixed-price contracts, work
performed and products shipped are paid for at a fixed price
without adjustment for actual costs incurred in connection with
the contract. While cost savings under these fixed-price
contracts would result in gains to SS/L, cost increases would
result in losses borne solely by SS/L. Under such contracts,
SS/L may receive progress payments, or it may receive partial
payments upon the occurrence of certain program milestones.

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

Some of SS/Ls customers are start-up
companies, and there can be no assurance that these companies
will be able to fulfill their payment obligations under their
contracts with SS/L.

SS/L may not be able to monetize the Sirius
Satellite Radio common stock that it received in exchange for
its vendor financing receivable.

As of December 31, 2002, SS/L had
outstanding vendor financing receivables totaling
$74 million, including accrued interest, due from Sirius
Satellite Radio, which is currently in the process of rolling
out its business. On March 7, 2003, Sirius completed its
recapitalization plan. Under this plan, Sirius received
$200 million in cash from third party investors and
exchanged approximately $636 million of its debt and all of
its $525 million of preferred stock into common stock. As
part of this recapitalization, SS/L converted all of its vendor
financing receivables into 58,964,981 shares of common stock of
Sirius. Assuming favorable market conditions, SS/L intends to
dispose of all or substantially all of its Sirius common stock
over time. The value of the shares SS/L received based on the
closing price of Sirius common stock on March 7, 2003
was $28 million. As of March 28, 2003, SS/L had
realized net proceeds of $9 million from the sale of a
portion of its Sirius common stock and the market value of its
remaining Sirius common stock was approximately
$28 million. There can be no assurance, however, that SS/L
will be able to dispose of the remaining shares or what amount
of proceeds SS/L will realize from any sales.

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

Some of SS/Ls satellite manufacturing
contracts provide that some of the total price is payable as
incentive payments earned over the life of the
satellite. SS/L has in the past generally not insured for these
payments and in fact may be prohibited from insuring these
incentive payments under certain circumstances.

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

Some of SS/Ls contracts call for in-orbit
delivery, transferring the launch risk to SS/L. SS/L generally
insures against that exposure. In addition, some of SS/Ls
contracts provide that SS/L may be liable to a customer for
penalty payments under certain circumstances, including upon
late delivery. These payments are not insured by SS/L.

SS/L competes with large satellite
manufacturers that have significant resources.

In the manufacture of our satellites, we compete
with very large well-capitalized companies, including several of
the worlds largest satellite manufacturers, such as The
Boeing Company, Lockheed Martin, Alcatel Space and Astrium.
These companies have considerable financial resources which they
may use to gain advantages in marketing and in technological
innovation. Our and our subsidiaries overall financial
condition and the amount of our and our subsidiaries
outstanding debt, including SS/L, are factors that SS/Ls
potential customers will consider prior to making a satellite
procurement decision. SS/Ls success depends on its ability
to respond to these financial concerns and perform on a
cost-effective and timely basis.

SS/L is still awaiting approval from the State
Department for the launch of Chinasat-8.

On December 23, 1998, the Office of Defense
Trade Controls, or ODTC, of the U.S. Department of State
temporarily suspended a previously approved technical assistance
agreement under which SS/L had been preparing for the launch of
the ChinaSat-8 satellite. In addition, SS/L was required to
re-apply for new export licenses from the State Department to
permit the launch of ChinaSat-8 on a Long March launch vehicle
when the old export licenses issued by the Commerce Department,
the agency that previously had jurisdiction over satellite
licensing, expired in March 2000. On January 4, 2001, the
ODTC, while not rejecting these license applications, notified
SS/L that they were being returned without action. On
January 9, 2002, we, SS/L and the United States Department
of State entered into a consent agreement (the Consent
Agreement) settling and disposing of all civil charges,
penalties and sanctions associated with alleged violations by
SS/L of the Arms Export Control Act and its implementing
regulations. We recorded a $12 million charge in 2001 for
the penalties associated with the Consent Agreement. The Consent
Agreement provides that the State Department agrees, assuming
our and SS/Ls faithful adherence to the terms of the
Consent Agreement, and the Arms Export Control Act and its
implementing regulations, that decisions concerning export
licenses for the ChinaSat-8 spacecraft will be made on the basis
of the security and foreign policy interests of the United
States, including matters relating to U.S. relations with
the Peoples Republic of China, without reference to the
State Departments previously expressed concerns regarding
SS/Ls reliability, which concerns are considered to be
appropriately mitigated through the operation of various
provisions of the Consent Agreement. Discussions between SS/L
and the State Department regarding SS/Ls obtaining the
approvals required for the launch of ChinaSat-8 are continuing.

The launch of ChinaSat-8 has been delayed pending
SS/Ls obtaining the approvals required for the launch. If
ChinaSat were to terminate its contract with SS/L for ChinaSat-8
as a result of these delays, ChinaSat may seek a refund of
$134 million for payments made to SS/L as well as penalties
of up to $11 million. We do not believe that ChinaSat is
entitled to such a refund or penalties and would vigorously
contest any such claims by ChinaSat. A portion of the potential
claim relates to amounts that were paid to a launch vehicle
provider. To the extent that SS/L or ChinaSat is able to recover
some or all of the $52 million deposit payment on the
Chinese launch vehicle, this recovery would reduce the amount of
any claim. SS/L

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believes that ChinaSat bears the risk of loss in
the event that the deposit payments are not refunded by the
launch vehicle provider. SS/L has commenced discussions with the
launch vehicle provider to recover this deposit. There can be no
assurance, however, that SS/L will be able either to obtain a
refund from the launch provider or to find a replacement
customer for the Chinese launch vehicle. If ChinaSat were to
terminate the contract, SS/L estimates that it would incur costs
of approximately $38 million to refurbish and retrofit the
satellite so that it could be sold to another customer, which
resale cannot be guaranteed.


We are subject to export controls, which may
result in delays and additional costs.

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

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

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 expansion of Loral Skynets operations
    in the U.S. and foreign markets;                                                                       
|
| |  | the manufacture, export and launch of satellites;                                                                                                     
|
| |  | the expansion of Satmexs Latin American
    business;                                                                                                
|
| |  | the operation of Europe*Star Limited;                                                                                                                 
|
| |  | the international network services offered by our
    fixed satellite services operations; and                                                        
|
| |  | the implementation of the business plan of XTAR,
    our joint venture with Hisdesat, which proposes to offer X-band
    services to government users.

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. For example, Loral Skynet has an application pending
with the FCC for authorization to use the C-Band frequency at
121 degrees W.L. in the U.S. using a non-U.S. ITU filing.
Telstar 13, which is currently under construction, is scheduled
for launch into this orbital slot in the second quarter of 2003.
New Skies Satellites has asserted that its non-U.S. ITU filing
at 120.8 degrees W.L. has date priority over Loral Skynets
ITU filing and has filed comments with the FCC seeking to impose
conditions on Loral Skynets use of the 121 degrees W.L.
slot. Loral Skynet has opposed New Skies comments. Loral
Skynet is continuing its international coordination of the 121
degrees W.L. slot. There can be no assurance, however, that
coordination discussions will be successful or that the FCC will
grant Loral Skynets application or grant the application
without adding conditions that may constrain Loral Skynets
operations at the 121 degrees W.L. slot. The regulatory process
also requires potentially costly negotiations with third parties
operating or intending to

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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 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 46% 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.

We share control of our affiliates with third
parties.

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



| |   |                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Primary control of Satmex is vested in Mexican
    nationals, as required by Mexican law, subject to certain
    approval rights which we retain.                                                                                                                                                                                            
|
| |  | The Europe*Star Limited joint venture is under
    the control of Alcatel, subject to our right to approve certain
    matters, and any future joint ventures between Alcatel and us
    within the Loral Global Alliance will be controlled by the
    initiating party, subject to certain rights in favor of the
    non-initiating party.
|
| |  | Alcatel is an investor in CyberStar, L.P. and has
    certain minority protection rights in it.                                                                                                                                                                                                                                              
|
| |  | Hisdesat enjoys certain approval rights in XTAR,
    our X-band venture.                                                                                                                                                                                                                                                                     
|
| |  | Globalstar has filed for Chapter 11
    bankruptcy protection, and is subject to the supervision of the
    bankruptcy court.                                                                                                                                                                                                                

We rely on key personnel.

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

Globalstar Matters

We have been sued in a number of purported
class actions brought by our shareholders and security holders
of Globalstar Telecommunications Limited and
Globalstar.

We have been named as a defendant in various
lawsuits brought by securityholders of Globalstar
Telecommunications Limited and Globalstar alleging controlling
person liability in respect of certain statements made by GTL,
Globalstar and their representatives. Our shareholders have also
initiated various

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shareholder lawsuits alleging that material
misstatements or omissions were made about our business and
prospects as they relate to Globalstar. We will vigorously
defend against any such claims or proceedings but may be
responsible for damages awarded against us resulting from these
proceedings and claims. Even if such claims are unsuccessful,
such claims and proceedings could require us to spend money on
litigation, divert managements time, damage our reputation
and depress the value of our equity. In addition, the insurers
under Lorals directors and officers liability insurance
policy have denied coverage for the case filed by our
shareholders under the policy and, on March 24, 2003, filed
a lawsuit in the Supreme Court of New York County seeking a
declaratory judgment upholding their coverage position. Loral
believes that the insurers have wrongfully denied coverage and
intends to defend against the denial vigorously.


Globalstar and certain of its general partner
entities, including two of our subsidiaries, have filed for
bankruptcy protection.

We hold debt obligations in Globalstar. On
February 15, 2002, Globalstar and certain of its direct
subsidiaries filed voluntary bankruptcy petitions under
Chapter 11 of Title 11, United States Code in the United
States Bankruptcy Court for the District of Delaware. In other
situations in the past, challenges have been initiated seeking
subordination or recharacterization of debt held by an affiliate
of an issuer. While we know of no reason why such a claim would
prevail with respect to the debt we hold in Globalstar, there
can be no assurance that such claims will not be made in
Globalstars bankruptcy proceeding. If such claims were to
prove successful, it will jeopardize the amount of equity
interest we will ultimately receive in the new Globalstar
company. Moreover, actions may be initiated in Globalstars
bankruptcy proceeding seeking to characterize payments
previously made by Globalstar to us prior to the filing date as
preferential payments subject to repayment. We may also find
ourselves subject to other claims brought by Globalstar
creditors and securities holders, who may seek to impose
liabilities on us as a result of our relationship with
Globalstar. For instance, Globalstars creditors may seek
to pierce the corporate veil in an attempt to recover
Globalstars obligations owed to them that are recourse to
our subsidiaries, which are general partners in Globalstar and
have filed for bankruptcy protection. Globalstars
cumulative partners deficit at December 31, 2002, was
$3.2 billion. During the second quarter of 2002, we
recovered a claim from a vendor on the Globalstar program.
Globalstar or its creditors may assert a claim to some portion
or all of this recovery. If so, we will vigorously dispute any
such claim.

Globalstar may not be able to effect a
successful reorganization.

On February 25, 2003, Globalstar entered
into, and on March 6, 2003, the Court approved, a
debtor-in-possession credit agreement with Blue River Capital
LLC, Columbia Ventures Corporation, ICO Investment Corp.,
Iridium Investors, LLC and Loeb Partners Corp. Pursuant to this
debtor-in-possession credit agreement, these five lenders, of
whom three are members of Globalstars official unsecured
creditors committee, will make up to $10 million
available to Globalstar on the terms and subject to the
conditions set forth in the debtor-in-possession credit
agreement. The Court also granted Globalstars motion to
establish, and Globalstar has commenced, a process to find
potential outside investors to help the company emerge from
bankruptcy. There can be no assurance that Globalstar will be
successful in finding such additional investors, that Globalstar
and its creditors will be able to reach an agreement with any
interested investors, that any proposed plan of reorganization
for Globalstar will be approved by the bankruptcy court or that
Globalstar will be successfully reorganized.

Litigation and Disputes

We and SS/L are currently involved in an
arbitration proceeding with Alcatel, which may result in the
payment of damages to Alcatel.

SS/L was a party to an Operational Agreement with
Alcatel Space Industries, pursuant to which the parties had
agreed to cooperate on certain satellite programs, and an
Alliance Agreement with Alcatel Space (together with Alcatel
Space Industries, Alcatel), pursuant to which
Alcatel had certain rights with respect to SS/L. The agreements
between Alcatel and SS/L were terminable on one years
notice, and, on February 22, 2001, we gave notice to
Alcatel that they would expire on February 22, 2002. In
April 2001,

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Alcatel commenced an arbitration proceeding
challenging the effectiveness of our notice of termination and
asserting various alleged breaches of the agreements by SS/L
relating to the exchange of information and other procedural or
administrative matters. In February 2002, the arbitral tribunal
issued a partial decision, which upheld the validity of our
termination effective February 22, 2002 and Alcatels
claims as to certain breaches. The partial decision was
confirmed by the District Court for the Southern District of New
York on June 25, 2002. The arbitral tribunal provided both
parties with an opportunity to file any additional claims or
counterclaims they had. In March 2002, Alcatel submitted
additional claims against us and SS/L and is seeking at least
$350 million in damages in respect of all of its claims. On
January 27, 2003, we and SS/L received from the arbitral
tribunal a partial decision on the additional claims and
counterclaims. The arbitral tribunal ruled in favor of Alcatel
on most of its claims alleging breaches of the Operational
Agreement or Alliance Agreement and ruled against us and SS/L on
the counterclaims. The arbitral tribunal set a schedule for
further submissions by the parties and for hearings to be held
in May and August 2003 to determine whether any of the breaches
caused Alcatel to suffer injury and to determine the amount of
damages, if any. If the arbitral tribunal finds that Alcatel has
sustained significant damages, there could be a material adverse
effect on our consolidated financial position and results of
operations.


SS/L is currently involved in disputes with
certain customers regarding satellites built or under
construction by SS/L and with a launch provider, which may
result in the payment of damages or refunds.

In September 2001, the PAS 7 satellite built
by SS/L for PanAmSat experienced an electrical power failure on
its solar arrays that resulted in the loss of use of certain
transponders on the satellite. As a result, PanAmSat has claimed
that under its contract with SS/L it is entitled to be paid
$16 million. SS/L disputes this claim and is in discussions
with PanAmSat to resolve this matter. SS/L believes, however,
that this failure is an isolated event and does not reflect a
systemic problem in either the satellite design or manufacturing
process. Accordingly, SS/L does not believe that this anomaly
will affect other on-orbit satellites built by SS/L. Also, the
PAS 8 satellite has experienced minor losses of power from
its solar arrays, the cause of which is unrelated to the loss of
power on the PAS 7 satellite. PanAmSat has claimed that
under its contract with SS/L it is entitled to be paid
$7.5 million as a result of these minor power losses. SS/L
disputes this claim. SS/L and PanAmSat are in discussions to
resolve this matter.

SS/L has contracted to build a spot beam, Ka-band
satellite for a customer planning to offer broadband data
services directly to the consumer. SS/L had suspended work on
this program since December 2001 while the customer and SS/L
were in discussions to resolve a dispute under the contract. In
March 2003, SS/L and the customer reached an agreement in
principle to restart the satellite construction program. As of
December 31, 2002, SS/L had billed and unbilled accounts
receivable and vendor financing arrangements of $49 million
with this customer. Under the agreement, which is subject to
documentation in definitive amendments to their contract, the
customer will pay, subject to its receipt of a proposed third
party equity investment, the remainder of the purchase price
under the contract of $68.1 million (including
$49 million owed to SS/L at December 31, 2002) in
installments over time, a portion of which will be due
subsequent to completion of the satellite.

SS/L has entered into several long-term launch
services agreements with various launch providers to secure
future launches for its customers, including us and our
affiliates. Through the assignment of satellites to launch
vehicles and refunds, SS/L has reduced its launch deposits by
$87 million for the year ended December 31, 2002.
Nonetheless, SS/L may, as a result of current market conditions,
cancel some of the launchers to which it has committed. SS/L had
launch services agreements with International Launch Services
(ILS) which covered three launches. In November
2002, SS/L terminated one of those future launches, which had a
termination liability equal to SS/Ls deposit of $5
million. Subsequently, SS/L received a letter from ILS alleging
SS/Ls breach of the agreements, purporting to terminate
all three launches and asserting a right to retain
$42.5 million in deposits, without prejudice to any other
legal claims or remedies. Despite ILSs termination of all
three launches, to protect its interest SS/L also terminated a
second launch, which had a termination liability equal to its
deposit of $5 million, and SS/L has recognized a non-cash
charge to earnings of $10 million with respect to the two
terminated launches. SS/L believes that

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ILSs claims are without merit and intends
to defend against them vigorously and to seek recovery of its
deposits and termination liabilities. We do not believe that
this matter will have a material adverse effect on our
consolidated financial position and its results of operations,
although no assurances can be provided.


We are currently involved in a dispute with
National Telecom of India Ltd. which may result in the payment
of damages.

On October 21, 2002, National Telecom of
India Ltd. (Natelco) filed suit against us and Loral
CyberStar in the United States District Court for the Southern
District of New York. The suit relates to a joint venture
agreement entered into in 1998 between Natelco and ONS
Mauritius, Ltd., a subsidiary of Loral CyberStar, the
effectiveness of which was subject to express conditions
precedent. In 1999, ONS Mauritius had notified Natelco that
Natelco had failed to satisfy those conditions precedent. In
Natelcos amended complaint filed in March 2003,
Natelco has alleged wrongful termination of the joint venture
agreement, has asserted claims for breach of contract and fraud
in the inducement and is seeking damages and expenses in the
amount of $97 million. We believe that the claims are
without merit and intend to vigorously defend against them.

Other Matters

Our common stock could be de-listed by the New
York Stock Exchange.

Under the New York Stock Exchange
(NYSE) criteria for continued listing, the NYSE will
normally give consideration to de-listing a companys stock
when the average closing price of the stock is less than $1.00
over a consecutive 30-trading day period. The average closing
price of our common stock was less than $1.00 for 30 consecutive
trading days, and, on August 22, 2002, we received notice
from the NYSE that our stock price was below the NYSEs
price criteria. If we are unable to cure this deficiency, our
common stock could be de-listed from the NYSE. De-listing of our
common stock by the NYSE could result in a material adverse
effect on the liquidity of our shares, have an adverse effect on
the trading value and impair our ability to raise funds in the
capital markets.

The NYSE has informed us that price is the only
criteria for listing that we do not currently meet. We have
notified the NYSE of our intent to cure this deficiency. The
NYSEs rules provide for a six-month period from receipt of
notice from the NYSE to cure this deficiency. In the event the
actions we take to cure the deficiency require shareholder
approval, the six-month cure period will be extended until after
our next annual shareholders meeting currently scheduled
to take place on May 29, 2003. We plan on seeking
shareholder approval to implement a reverse stock split at our
annual meeting, in order to, among other things, restore our
compliance with NYSE share price requirements. We believe
(although there can be no assurance) that we will be able to
cure this deficiency within this time frame.

The market for our shares could be adversely
affected by future issuances of significant amounts of our
common stock.

Issuances of significant amounts of our common
stock, or the perception that those issuances could happen,
could adversely affect the market for, and the trading price of,
our common stock.

As of December 31, 2002, 429,086,002 shares
of our common stock were outstanding. As of December 31,
2002, there were options for 42,848,837 shares of common stock
outstanding on such date, of which options for 25,556,056 shares
were immediately exercisable and of which outstanding options
for 33,000 shares of common stock had an exercise price that is
below the current price of our common stock. The foregoing
excludes the effect of our exchange offer for certain of our
outstanding stock options completed on March 7, 2003. In
connection with this exchange offer, we accepted and cancelled
existing stock options to purchase an aggregate of 14,884,403
shares of common stock that were tendered in the exchange offer
and agreed to grant in exchange new stock options to purchase an
aggregate of 6,021,488 shares of common stock. The new options
will be granted, subject to the terms and conditions of the
exchange offer, on September 8, 2003, and will have an
exercise price per share equal to the fair market value of the
common stock on the date of grant.

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In addition, as of December 31, 2002, there
were warrants outstanding that were exercisable for 6,172,255
shares of common stock, 3,745,485 shares of Series C
Preferred Stock that were convertible by their terms into
9,363,713 shares of common stock and 734,135 shares of
Series D Preferred Stock that were convertible by their
terms into 1,851,044 shares of common stock. Additionally, we
have the option to make mandatory redemption payments due on our
shares of preferred stock in cash, shares of common stock, or a
combination of the two. These mandatory redemption payments are
due in 2006 for the Series C Preferred Stock and in 2007
for the Series D Preferred Stock. The exact number of
shares of our common stock that may be issued on a mandatory
redemption date cannot be determined at this time. That number
will depend on a number of factors not known today, such as the
price of our common stock and the number of shares of our
preferred stock outstanding at that time.

The price of our common stock is depressed and
may not recover.

The price of our common stock has declined
significantly in recent years and is currently trading at or
near its all-time low price. There can be no assurance that this
price will recover, nor can there be any assurance that any
measures employed by us to satisfy the NYSEs continued
listing criteria will successfully increase the stock price in
constant dollar terms. Many things that we cannot predict or
control may cause sudden changes in the price of our common
stock. Risks associated with the deployment and operation of
satellite systems, in particular, may cause sudden changes in
the price of our common stock.

The rights of shareholders under Bermuda law
are different from the rights of shareholders under U.S.
law.

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




Item 2.     Properties

The Company leases approximately 51,000 square
feet for its corporate offices in New York and 8,000 square feet
in Washington, D.C. The Company also maintains office space,
manufacturing and telemetry, tracking and control facilities
primarily in the United States.

Fixed Satellite
Services

Loral Skynet owns three telemetry, tracking and
control stations covering approximately 66,000 square feet on
212 acres in Hawley, Pennsylvania and Three Peaks, California
and on three leased acres in Richmond, California. It also
leases two telemetry, tracking and control stations covering
approximately 11,000 square feet in Rio de Janeiro, Brazil and
Utive, Panama. Loral Skynet also leases approximately 68,000
square feet of office space in Bedminster, New Jersey and Tinton
Falls, New Jersey and 5,000 square feet worldwide.

Loral CyberStar owns seven acres of land
including 8,000 square feet of office space in Mt. Jackson,
Virginia and leases approximately 77,000 square feet of office
space and three acres of land worldwide.

Satellite
Manufacturing and Technology

SS/Ls research, production and testing are
carried on in SS/L-owned facilities covering approximately
562,000 square feet on 28 acres in Palo Alto, California. In
addition, SS/L leases approximately 823,000 square feet of space
on 38 acres from various third parties primarily in Palo
Alto, Menlo Park, and Mountain View, California.

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

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Item 3.     Legal
Proceedings


Consent Agreement.On January 9, 2002, The Company,
SS/L and the United States Department of State entered into a
consent agreement (the Consent Agreement) settling
and disposing of all civil charges, penalties and sanctions
associated with alleged violations by SS/L of the Arms Export
Control Act and its implementing regulations. The Company
recorded a $12 million charge in 2001 for the penalties
associated with the Consent Agreement. The Consent Agreement
provides that the State Department agrees, assuming the
Companys and SS/Ls faithful adherence to the terms
of the Consent Agreement, and the Arms Export Control Act and
its implementing regulations, that decisions concerning export
licenses for the ChinaSat-8 spacecraft will be made on the basis
of the security and foreign policy interests of the United
States, including matters relating to U.S. relations with the
Peoples Republic of China, without reference to the State
Departments previously expressed concerns regarding
SS/Ls reliability, which concerns are considered to be
appropriately mitigated through the operation of various
provisions of the Consent Agreement. Discussions between SS/L
and the State Department regarding SS/Ls obtaining the
approvals required for the launch of ChinaSat-8 are continuing.

Alcatel Arbitration.SS/L was a party to an Operational
Agreement with Alcatel Space Industries, pursuant to which the
parties had agreed to cooperate on certain satellite programs,
and an Alliance Agreement with Alcatel Space (together with
Alcatel Space Industries, Alcatel) pursuant to which Alcatel had
certain rights with respect to SS/L. The agreements between
Alcatel and SS/L were terminable on one years notice, and,
on February 22, 2001, Loral gave notice to Alcatel that
they would expire on February 22, 2002. In April 2001,
Alcatel commenced an arbitration proceeding challenging the
effectiveness of Lorals notice of termination and
asserting various alleged breaches of the agreements by SS/L
relating to the exchange of information and other procedural or
administrative matters. In February 2002, the arbitral tribunal
issued a partial decision, which upheld the validity of
Lorals termination effective February 22, 2002 and
Alcatels claims as to certain breaches. The partial
decision was confirmed by the District Court for the Southern
District of New York on June 25, 2002. The arbitral
tribunal provided both parties with an opportunity to file any
additional claims or counterclaims they had. In March 2002,
Alcatel submitted additional claims against Loral and SS/L and
is seeking at least $350 million in damages in respect of
all of its claims. On January 27, 2003, Loral and SS/L received
from the arbitral tribunal a partial decision on the additional
claims and counterclaims. The arbitral tribunal ruled in favor
of Alcatel on most of its claims alleging breaches of the
Operational Agreement or Alliance Agreement and ruled against
Loral and SS/L on the counterclaims. The arbitral tribunal set a
schedule for further submissions by the parties and for hearings
to be held in May and August 2003 to determine whether any of
the breaches caused Alcatel to suffer injury and to determine
the amount of damages, if any. If the arbitral tribunal finds
that Alcatel has sustained significant damages, there could be a
material adverse effect on Lorals consolidated financial
position and results of operations.

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

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Act for GTLs primary violations of
Sections 11 and 12(2)(a) of the Securities Act as alleged
controlling persons of GTL. The class of plaintiffs
on whose behalf the lawsuit has been asserted consists of all
buyers of securities of Globalstar, Globalstar Capital and GTL
during the period from December 6, 1999 through
October 27, 2000, excluding the defendants and certain
persons related or affiliated therewith. Loral and
Mr. Schwartz have filed a motion to dismiss the amended
complaint in its entirety as to Loral and Mr. Schwartz,
which motion is pending before the court. Loral believes that it
has meritorious defenses to this class action lawsuit and
intends to pursue them vigorously.


On March 2, 2002, the seven separate
purported class action lawsuits filed in the United States
District Court for the Southern District of New York by various
holders of common stock of Loral Space & Communications Ltd.
(Loral) against Loral, Bernard L. Schwartz and
Richard Townsend were consolidated into one action titled In
re: Loral Space & Communications Ltd. Securities
Litigation. On May 6, 2002, plaintiffs in the
consolidated action filed a consolidated amended class action
complaint alleging (a) that all defendants violated
Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder by making material misstatements or
failing to state material facts about Lorals financial
condition and its investment in Globalstar and (b) that
Mr. Schwartz is secondarily liable for these alleged
misstatements and omissions under Section 20(a) of the
Exchange Act as an alleged controlling person of
Loral. The class of plaintiffs on whose behalf the lawsuit has
been asserted consists of all buyers of Loral common stock
during the period from November 4, 1999 through
February 1, 2001, excluding the defendants and certain
persons related or affiliated therewith. Loral and
Messrs. Schwartz and Townsend have filed a motion to
dismiss the complaint in its entirety, which motion is pending
before the court. Loral believes that it has meritorious
defenses to this class action lawsuit and intends to pursue them
vigorously. In addition, the insurers under Lorals
directors and officers liability insurance policy have denied
coverage for the case filed by Loral shareholders under the
policy and, on March 24, 2003, filed a lawsuit in the
Supreme Court of New York County seeking a declaratory judgment
upholding their coverage position. Loral believes that the
insurers have wrongfully denied coverage and intends to defend
against the denial vigorously.

Natelco.On
October 21, 2002, National Telecom of India Ltd.
(Natelco) filed suit against Loral and Loral
CyberStar in the United States District Court for the Southern
District of New York. The suit relates to a joint venture
agreement entered into in 1998 between Natelco and ONS
Mauritius, Ltd., a subsidiary of Loral CyberStar, the
effectiveness of which was subject to express conditions
precedent. In 1999, ONS Mauritius had notified Natelco that
Natelco had failed to satisfy those conditions precedent. In
Natelcos amended complaint filed in March 2003, Natelco
has alleged wrongful termination of the joint venture agreement,
has asserted claims for breach of contract and fraud in the
inducement, and is seeking damages and expenses in the amount of
$97 million. Loral believes that the claims are without
merit and intends to vigorously defend against them.

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

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

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PART II




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

None.




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

(a) Market Price and Dividend
Information

The Companys common stock is traded on the
New York Stock Exchange (NYSE) under the symbol LOR.
The following table presents the reported high and low sales
prices of the Companys common stock as reported on the
NYSE:

|                                 |  |      |      |     |  |   |      | 
|-------------------------------- |  | ---- | ---- | --- |  | - | ---- | 
|                                 |  | High |      | Low
|                                 |  |      |      |    
|Year ended December 31, 2002     |  |      |      |     |  |   |      | 
|Quarter ended December 31, 2002  |  | $    | 0.70 |     |  | $ | 0.23 | 
|Quarter ended September 30, 2002 |  |      | 1.08 |     |  |   | 0.22 | 
|Quarter ended June 30, 2002      |  |      | 2.44 |     |  |   | 0.91 | 
|Quarter ended March 31, 2002     |  |      | 3.27 |     |  |   | 1.80 | 
|Year ended December 31, 2001     |  |      |      |     |  |   |      | 
|Quarter ended December 31, 2001  |  |      | 3.10 |     |  |   | 1.10 | 
|Quarter ended September 30, 2001 |  |      | 2.90 |     |  |   | 1.25 | 
|Quarter ended June 30, 2001      |  |      | 3.55 |     |  |   | 1.03 | 
|Quarter ended March 31, 2001     |  |      | 6.34 |     |  |   | 2.10 | 

The Company does not currently anticipate paying
any dividends or distributions on its common stock, on its 6%
Series C Convertible Redeemable Preferred Stock (the
Series C Preferred Stock) or on its 6%
Series D Convertible Redeemable Preferred Stock (the
Series D Preferred Stock). Lorals
indenture relating to its 9.5% senior notes imposes limitations
on Lorals ability to pay dividends to its shareholders.
Moreover, the guarantee provided by Loral in favor of the Loral
Satellite lenders prohibits Loral from making any dividends on
its capital stock, other than in shares of its common stock. The
credit facilities maintained by the Companys two principal
operating subsidiaries, Loral SpaceCom Corporation and Loral
Satellite, Inc., restrict the ability of these companies to
transfer cash or pay dividends to its parent (see Note 8 to
Lorals consolidated financial statements). Loral
Orions indenture relating to its new senior notes also
contains restrictions on Loral Orions ability to make
dividend payments to its parent.

(b) Approximate Number of Holders of
Common Stock

At February 28, 2003, there were 6,505
holders of record of the Companys common stock.




Item 6.Selected
Financial Data

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

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LORAL SPACE & COMMUNICATIONS
LTD.

(in thousands, except per share data)


|                                                                                                                                                                                       |                                                                |                          |            |       |   |      |           |       |   |         |            |       |   |   |           |       |   |   |           |       |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------- | ------------------------ | ---------- | ----- | - | ---- | --------- | ----- | - | ------- | ---------- | ----- | - | - | --------- | ----- | - | - | --------- | ----- | -
|                                                                                                                                                                                       |                                                                |                         
|                                                                                                                                                                                       |                                                                | Years ended December 31,
|                                                                                                                                                                                       |                                                                |                         
|                                                                                                                                                                                       |                                                                | 2002                     |            | 2001  |   | 2000 |           | 1999  |   | 1998(1)
|                                                                                                                                                                                       |                                                                |                          |            |       |   |      |           |       |   |        
|Statement of operations data:                                                                                                                                                          |                                                                |                          |            |       |   |      |           |       |   |         |            |       |   |   |           |       |   |   |           |      
|Revenues                                                                                                                                                                               |                                                                | $                        | 1,098,425  |       |   | $    | 1,069,575 |       |   | $       | 1,224,111  |       |   | $ | 1,457,720 |       |   | $ | 1,301,702 |      
|Operating loss                                                                                                                                                                         |                                                                |                          | (82,029    | )     |   |      | (5,228    | )     |   |         | (86,086    | )     |   |   | (62,263   | )     |   |   | (33,780   | )    
|Loss before income taxes, equity in net losses of
    affiliates, minority interest, Globalstar related impairment
    charges and cumulative effect of change in accounting principle |                                                                |                          | (147,354   | )     |   |      | (126,333  | )     |   |         | (56,843    | )     |   |   | (62,138   | )     |   |   | (25,628   | )    
|Income tax (provision) benefit                                                                                                                                                         |                                                                |                          | (355,042   | ) (2) |   |      | (2,170    | )     |   |         | (9,375     | )     |   |   | 32,516    |       |   |   | 3,871     |      
|Loss before equity in net losses of affiliates,
    minority interest, Globalstar related impairment charges and
    cumulative effect of change in accounting principle               |                                                                |                          | (502,396   | )     |   |      | (128,503  | )     |   |         | (66,218    | )     |   |   | (29,622   | )     |   |   | (21,757   | )    
|Equity in net losses of affiliates, net of
    taxes(3)                                                                                                                                |                                                                |                          | (76,280    | )     |   |      | (66,677   | )     |   |         | (1,294,910 | ) (4) |   |   | (177,819  | )     |   |   | (120,417  | )    
|Globalstar related impairment charges, net of
    taxes                                                                                                                                |                                                                |                          |           |       |   |      |          |       |   |         | (112,241   | ) (4) |   |   |          |       |   |   |          |      
|Loss before cumulative effect of change in
    accounting principle                                                                                                                    |                                                                |                          | (578,902   | )     |   |      | (194,719  | )     |   |         | (1,469,678 | )     |   |   | (201,916  | )     |   |   | (138,798  | )    
|Cumulative effect of change in accounting
    principle, net of taxes                                                                                                                  |                                                                |                          | (890,309   | )     |   |      | (1,741    | )     |   |         |           |       |   |   |          |       |   |   |          |      
|Net loss                                                                                                                                                                               |                                                                |                          | (1,469,211 | )     |   |      | (196,460  | )     |   |         | (1,469,678 | )     |   |   | (201,916  | )     |   |   | (138,798  | )    
|Preferred dividends and accretion                                                                                                                                                      |                                                                |                          | (89,186    | )     |   |      | (80,743   | )     |   |         | (67,528    | )     |   |   | (44,728   | )     |   |   | (46,425   | )    
|Net loss applicable to common stockholders                                                                                                                                             |                                                                |                          | (1,558,397 | )     |   |      | (277,203  | )     |   |         | (1,537,206 | )     |   |   | (246,644  | )     |   |   | (185,223  | )    
|Basic and diluted loss per share:                                                                                                                                                      |                                                                |                          |            |       |   |      |           |       |   |         |            |       |   |   |           |       |   |   |           |      
|                                                                                                                                                                                       | Before cumulative effect of change in accounting
    principle |                          | $          | (1.79 | ) |      | $         | (0.86 | ) |         | $          | (5.20 | ) |   | $         | (0.85 | ) |   | $         | (0.68 | )
|                                                                                                                                                                                       | Cumulative effect of change in accounting
    principle        |                          |            | (2.39 | ) |      |           |      |   |         |            |      |   |   |           |      |   |   |           |      |  
|                                                                                                                                                                                       |                                                                |                          |            |       |   |      |           |       |   |         |            |       |   |   |           |       |   |   |           |      
|                                                                                                                                                                                       | Loss per share                                                 |                          | $          | (4.18 | ) |      | $         | (0.86 | ) |         | $          | (5.20 | ) |   | $         | (0.85 | ) |   | $         | (0.68 | )
|                                                                                                                                                                                       |                                                                |                          |            |       |   |      |           |       |   |         |            |       |   |   |           |       |   |   |           |      
|Other data:                                                                                                                                                                            |                                                                |                          |            |       |   |      |           |       |   |         |            |       |   |   |           |       |   |   |           |      
|Deficiency of earnings to cover fixed charges                                                                                                                                          |                                                                | $                        | 266,356    |       |   | $    | 230,173   |       |   | $       | 141,453    |       |   | $ | 191,075   |       |   | $ | 132,178   |      
|Cash flow data:                                                                                                                                                                        |                                                                |                          |            |       |   |      |           |       |   |         |            |       |   |   |           |       |   |   |           |      
|Provided by (used in) operating activities                                                                                                                                             |                                                                | $                        | 194,827    |       |   | $    | 170,481   |       |   | $       | 259,096    |       |   | $ | (6,933    | )     |   | $ | 86,795    |      
|Used in investing activities                                                                                                                                                           |                                                                |                          | (138,824   | )     |   |      | (248,672  | )     |   |         | (377,780   | )     |   |   | (679,005  | )     |   |   | (555,613  | )    
|Provided by (used in) equity transactions                                                                                                                                              |                                                                |                          | (32,737    | )     |   |      | (35,687   | )     |   |         | 352,415    |       |   |   | (24,633   | )     |   |   | 589,187   |      
|(Used in) provided by financing transactions                                                                                                                                           |                                                                |                          | (117,279   | )     |   |      | (120,218  | )     |   |         | (79,551    | )     |   |   | 403,664   |       |   |   | 199,856   |      
|Dividends paid per common share                                                                                                                                                        |                                                                |                          |           |       |   |      |          |       |   |         |           |       |   |   |          |       |   |   |          |      

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|                                              |  |              |           |         |  |         |           |      |  |         |           |  |  |   |           |  |  |   |           | 
|--------------------------------------------- |  | ------------ | --------- | ------- |  | ------- | --------- | ---- |  | ------- | --------- |  |  | - | --------- |  |  | - | --------- | 
|                                              |  |             
|                                              |  | December 31,
|                                              |  |             
|                                              |  | 2002(2)      |           | 2001(5) |  | 2000(4) |           | 1999 |  | 1998(1)
|                                              |  |              |           |         |  |         |           |      |  |        
|Balance sheet data:                           |  |              |           |         |  |         |           |      |  |         |           |  |  |   |           |  |  |   |           | 
|Cash and cash equivalents                     |  | $            | 65,936    |         |  | $       | 159,949   |      |  | $       | 394,045   |  |  | $ | 239,865   |  |  | $ | 546,772   | 
|Total assets                                  |  |              | 2,692,802 |         |  |         | 4,426,187 |      |  |         | 4,692,082 |  |  |   | 5,610,421 |  |  |   | 5,229,215 | 
|Debt, including current portion               |  |              | 2,244,525 |         |  |         | 2,363,141 |      |  |         | 2,456,844 |  |  |   | 1,999,322 |  |  |   | 1,555,775 | 
|Non-current liabilities and minority interest |  |              | 348,178   |         |  |         | 264,277   |      |  |         | 251,247   |  |  |   | 252,052   |  |  |   | 231,384   | 
|Convertible redeemable preferred stock        |  |              | 125,081   |         |  |         |          |      |  |         |          |  |  |   |          |  |  |   |          | 
|Shareholders (deficit) equity                |  |              | (354,227  | )       |  |         | 1,350,868 |      |  |         | 1,586,388 |  |  |   | 2,750,664 |  |  |   | 2,935,721 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On March 20, 1998, Loral acquired all of the
    outstanding stock of Loral Orion, formerly Loral CyberStar, in
    exchange for common stock of Loral. The 1998 financial
    information includes Loral Orion commencing from April 1, 1998.                                                                                                                                                                                                                                 
|   
|(2) | Includes the increase in the deferred tax
    valuation allowance based upon managements assessment
    during the fourth quarter of 2002, which concluded that due to
    insufficient positive evidence substantiating recoverability of
    the Companys loss carryforwards and other deferred tax
    assets, the valuation allowance should be increased by
    $390.4 million to a balance of $576.5 million (see
    Note 9 to the consolidated financial statements).
|   
|(3) | The Companys principal affiliates are
    Satmex, Europe*Star since December 1998 and XTAR since July
    2001. Loral also has investments in Globalstar and other
    ventures, which are accounted for under the equity method.                                                                                                                                                                                                                                             
|   
|(4) | The results of operations for 2000 includes
    Lorals share of Globalstars related equity losses
    and after-tax impairment charges of approximately
    $1.29 billion (approximately $1.6 billion on a pre-tax
    basis), which is included in equity in net loss of affiliates
    and after-tax impairment charges of $112 million
    ($125 million pre-tax) relating to Lorals investments
    in and advances to Globalstar service provider partnerships.        
|   
|(5) | On December 21, 2001, Loral Orion completed
    exchange offers and consent solicitations by issuing
    $613 million principal amount of new senior notes
    guaranteed by Loral and 6.04 million five year warrants to
    purchase Loral common stock in exchange for a total of
    $841 million principal amount of Loral Orion senior notes
    due 2007 and senior discount notes due 2007.                                                                            

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

Except for the historical information
contained herein, the matters discussed in the following
Managements Discussion and Analysis of Results of
Operations and Financial Condition of Loral Space &
Communications Ltd. and its subsidiaries (Loral 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) Globalstar matters, (iii) litigation and
disputes, (iv) operational risks and (v) 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 13 and to the other
periodic reports filed with the SEC by Loral, our wholly owned
subsidiary Loral Orion, Inc. (Loral Orion), formerly
known as Loral CyberStar, Inc., and the Companys affiliate
Satelites de Mexico, S.A. de C.V. (Satmex). In
addition, we caution 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.

Loral is one of the worlds leading
satellite communications companies with substantial activities
in satellite-based communications services and satellite
manufacturing. In the fourth quarter of 2002, Loral reorganized
into two operating businesses in connection with Lorals
integration of the operation and management of its data business
(conducted by Loral CyberStar, Inc. and CyberStar, L.P.) into
its FSS business, managed and operated by Loral Skynet:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Fixed Satellite Services (FSS):Loral leases transponder capacity to
    customers for various applications, including television and
    cable broadcasting, news gathering, Internet access and
    transmission, private voice and data networks, business
    television, distance learning and direct-to-home television
    (DTH) and provides satellite telemetry, tracking and
    control services (TT&C). Loral also provides
    network services such as managed communications networks,
    Internet and intranet services, business television and business
    media services to its customers.
|
| | Satellite Manufacturing and Technology:Loral designs and manufactures
    satellites and space systems and develops satellite technology
    for a broad variety of customers and applications through Space
    Systems/ Loral (SS/ L).                                                                                                                                                                                                                                                                                                                                                                          

Consolidated Operating Results

In evaluating financial performance, management
uses revenue and operating income/loss before depreciation and
amortization, including amortization of unearned stock
compensation (EBITDA) as a measure of a
segments profit or loss. The following discussion of
revenues and EBITDA reflects the results of Lorals
operating businesses for 2002, 2001 and 2000. See Note 16 to
Lorals consolidated financial statements for additional
information on segment results. The remainder of the discussion
relates to the consolidated results of Loral, unless otherwise
noted.

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Revenues:

|                                       |  |                          |         |      |  |      |         |   |  |   |         |  
|-------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                       |  |                         
|                                       |  | Years ended December 31,
|                                       |  |                         
|                                       |  | 2002                     |         | 2001 |  | 2000
|                                       |  |                          |         |      |  |     
|                                       |  |                         
|                                       |  | (in millions)           
|Fixed satellite services               |  | $                        | 395.4   |      |  | $    | 464.2   |   |  | $ | 421.2   |  
|Satellite manufacturing and technology |  |                          | 853.1   |      |  |      | 814.8   |   |  |   | 1,002.3 |  
|                                       |  |                          |         |      |  |      |         |   |  |   |         |  
|Segment revenues                       |  |                          | 1,248.5 |      |  |      | 1,279.0 |   |  |   | 1,423.5 |  
|Eliminations(1)                        |  |                          | (150.1  | )    |  |      | (209.4  | ) |  |   | (199.4  | )
|                                       |  |                          |         |      |  |      |         |   |  |   |         |  
|Revenues as reported(2)                |  | $                        | 1,098.4 |      |  | $    | 1,069.6 |   |  | $ | 1,224.1 |  
|                                       |  |                          |         |      |  |      |         |   |  |   |         |  

EBITDA(3):

|                                              |  |                          |       |      |  |      |       |   |  |   |       |  
|--------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                              |  |                         
|                                              |  | Years ended December 31,
|                                              |  |                         
|                                              |  | 2002                     |       | 2001 |  | 2000
|                                              |  |                          |       |      |  |     
|                                              |  |                         
|                                              |  | (in millions)           
|Fixed satellite services(4)                   |  | $                        | 219.9 |      |  | $    | 263.4 |   |  | $ | 153.4 |  
|Satellite manufacturing and
    technology(5) |  |                          | (18.6 | )    |  |      | 24.2  |   |  |   | 35.5  |  
|Corporate expenses(6)                         |  |                          | (36.8 | )    |  |      | (37.5 | ) |  |   | (44.4 | )
|                                              |  |                          |       |      |  |      |       |   |  |   |       |  
|Segment EBITDA before eliminations            |  |                          | 164.5 |      |  |      | 250.1 |   |  |   | 144.5 |  
|Eliminations(1)                               |  |                          | (59.5 | )    |  |      | (27.5 | ) |  |   | (14.3 | )
|                                              |  |                          |       |      |  |      |       |   |  |   |       |  
|EBITDA as reported                            |  |                          | 105.0 |      |  |      | 222.6 |   |  |   | 130.2 |  
|Depreciation and amortization                 |  |                          | 187.0 |      |  |      | 227.8 |   |  |   | 216.3 |  
|                                              |  |                          |       |      |  |      |       |   |  |   |       |  
|Operating loss                                |  | $                        | 82.0  |      |  | $    | 5.2   |   |  | $ | 86.1  |  
|                                              |  |                          |       |      |  |      |       |   |  |   |       |  






| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Represents the elimination of intercompany sales
    and EBITDA, primarily for satellites under construction by SS/L
    for wholly owned subsidiaries; and the adjustment required to
    EBITDA to conform the basis of accounting used by the satellite
    manufacturing and technology segment from that applicable to
    government contracts to U.S. generally accepted accounting
    principles for commercial contracts(see Note 16 to the
    consolidated financial statements).                                                                                                                                                                                                                                                          
|
| | (2) | Includes revenues from affiliates of
    $85.9 million, $100.9 million and $161.7 million
    in 2002, 2001 and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | (3) | EBITDA (which is equivalent to operating
    income/loss before depreciation and amortization, including
    amortization of unearned stock compensation) 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 Lorals operating results. EBITDA is not
    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.
|
| | (4) | The year ended December 31, 2000 includes
    $22 million of investment in broadband activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | (5) | Satellite manufacturing and technology EBITDA
    includes charges of $69 million in 2002 for valuation allowances
    recorded on SS/L-provided vendor financings (in connection with
    advances related to Europe*Star and an agreement reached with a
    customer to convert vendor financing receivables into the
    customers equity), $12 million in 2001 for
    obligations to the U.S. government to settle a case relating to
    export controls and $77 million in 2000 relating to
    increased costs for manufacturing delays and customer contract
    issues.                                                                                                                                                                    
|
| | (6) | Represents corporate expenses incurred in support
    of the Companys operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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.



| |                    
| | -------------------
| | Revenue recognition

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

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




| |             
| | ------------
| | Depreciation

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

Loral is required to estimate the collectibility
of its billed receivables and vendor financing. 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.
Provisions for bad debts and vendor financings during 2002,
2001, and 2000 were $73.5 million, $3.8 million, and
$11.5 million, respectively. At December 31, 2002 and
2001, billed receivables of $92.6 million and
$198.1 million, respectively, were net of allowances for
doubtful accounts of $7.0 million and $4.3 million,
respectively. Vendor financing receivables were
$60.4 million at December 31, 2002, after valuation
allowances of $69 million in 2002 on vendor financings in
connection with advances related to Europe*Star and an agreement
reached with Sirius Satellite Radio, Inc. (Sirius)
to convert vendor financing receivables into Sirius common
stock. Vendor financing receivables were $89.6 million at
December 31, 2001. Additionally, the Company has vendor
financing receivables from Globalstar of $250 million,
which have been fully reserved for. Loral 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 Loral and re-evaluated periodically. A significant
increase in the allowance has been recorded in 2002, and may
occur in the future due to the market environment.



| |            
| | -----------
| | Inventories

Inventory is reviewed for estimated obsolescence
or unusable items and if appropriate, is written down to the net
realizable value based upon assumptions about future demand and
market conditions. If actual future demand or market conditions
are less favorable than those projected by management,
additional inventory write-downs may be required. Such
adjustments are considered permanent adjustments to the cost
basis of the inventory. Provisions for inventory obsolescence
during 2002, 2001, and 2000 were $14.0 million,
$5.9 million, and $4.9 million, respectively. At
December 31, 2002 and 2001, inventory of $95.7 million
and $98.2 million, respectively, was net of provisions for
obsolescence of $31.8 million and $29.9 million,
respectively.



| |         
| | --------
| | Taxation

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

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the U.S. Lorals U.S. subsidiaries
are subject to U.S. taxes on their worldwide income. In
addition, a 30% U.S. withholding tax will be imposed on
dividends and interest paid by such subsidiaries to Loral.


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. The Company assesses the recoverability of its deferred
tax assets and, based upon this analysis, records a valuation
allowance against the deferred tax assets to the extent
recoverability does not satisfy the more likely than
not recognition criteria in SFAS No. 109.

Based upon this analysis, management concluded
during the fourth quarter of 2002 that, due to insufficient
positive evidence substantiating recoverability, the valuation
allowance should be increased by $390.4 million to a
balance of $576.5 million. Of this net increase,
$31.9 million represented deferred tax assets applied
directly to shareholders equity for other comprehensive
income items, net, $18.7 million primarily related to the
cumulative effect of a change in accounting principles on the
adoption of SFAS 142 and $55.9 million represented a
reduction to the allowance which was applied directly against
the deferred tax asset. The balance of $395.7 million was
charged to the 2002 results, resulting in a net income tax
provision of $355.0 million. As of December 31, 2002, a
valuation allowance has been established for the entire balance
of the Companys net deferred tax assets.

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



| |                                    
| | -----------------------------------
| | Pension and other employee benefits

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

The discount rate is subject to change each year,
consistent with changes in applicable high-quality long-term
corporate bond indices, such as the Moodys AA Corporate
Bond Index. The discount rate determined on this basis was 6.75%
as of December 31, 2002, a decline of 75 basis points from
December 31, 2001. This had the effect of increasing the
Companys accumulated benefit obligations (ABO)
for pensions by $21.4 million and for other employee
benefits by $6.5 million as of December 31, 2002.

The expected long-term rate of return on pension
plan assets is selected by taking into account the expected
duration of the projected benefit obligation for the plans, the
asset mix of the plans and the fact that the plan assets are
actively managed to mitigate risk. The assumed allocation of the
Companys pension plan assets is 60% in equity investments
and 40% in fixed income investments. Based on this target
allocation, the fifteen year historical return of the
Companys investment managers has been 11.2%. The Company
is currently reviewing its asset allocation, but believes that
its long-term asset allocation will approximate 60% in equity
investments and 40% in fixed income investments. The expected
long-term rate of return on plan assets determined on this basis
was 9.0% as of December 31, 2002, a decline of 50 basis
points from December 31, 2001.

These pension and other employee costs are
expected to increase to approximately $30 million in 2003
from $14 million in 2002 primarily due to the rate
assumption changes and actual asset performance. Although actual
asset performance was below expectations over the past several
years, actual performance of

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the plan since its inception in 1996 has exceeded
the Companys related benchmarks, such as the Standard
& Poors 500 U.S. Large Cap Index. Lowering the discount
rate by 0.5% would have increased these pensions and other
employee benefits costs by approximately $2.3 million in
2002. Lowering the expected long-term rate of return on pension
plan assets by 0.5% would have increased these pensions and
other employee benefits costs by $1.2 million in 2002. The
Company expects to have a cash requirement of approximately
$5 million for these pension and other employee benefit
plans in 2003, consistent with prior years.


The ABO for the pension plan exceeded the fair
value of plan assets at December 31, 2002 (the
unfunded ABO). This was primarily due to the
negative returns on the pension funds as a result of the overall
decline in the equity markets, and a decline in the discount
rate used to estimate the pension liability as a result of
declining interest rates. Therefore, the Company was required to
establish a minimum liability and record a $65 million
charge to equity for the unfunded ABO, to the extent not already
reflected as a liability. The ABO was measured using a discount
rate of 6.75% as of December 31, 2002. Lowering the
discount rate by 0.50% would have increased the ABO and the
resulting minimum liability and charge to equity by
approximately $14 million. Market conditions and interest rates
significantly impact future assets and liabilities of the
Companys pension plans, and this charge to equity will be
revalued in the future based upon plan assets and the
measurement of plan obligations which is completed at the end of
each fiscal year.

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 Commitments and
Contingencies.

2002 Compared with 2001

Revenues as reported for Lorals operating
businesses remained steady at $1.1 billion in 2002 and
2001, after eliminations of $150 million in 2002 and
$209 million in 2001. In 2002, SS/ L revenues were higher
primarily resulting from the timing of work performed and costs
incurred on satellite backlog programs under the percentage of
completion method. This was offset by lower FSS revenues which
was primarily due to a decrease in volume and prices resulting
from the global economic downturn, which has caused a delay in
demand for new telecommunications applications and services. SS/
Ls revenues from Loral Skynet decreased in 2002 as the
satellites under construction neared completion.

EBITDA as reported for Lorals operating
businesses was $105 million in 2002 as compared to
$223 million in 2001, after eliminations of
$60 million in 2002 and $28 million in 2001. The
decrease in 2002 as compared to 2001 was primarily due to lower
FSS revenues offset by reduced costs from streamlining
operations and lower SS/L EBITDA. SS/Ls decline was
primarily due to valuation allowances of $69 million
recorded on SS/L-provided vendor financings (in connection with
advances related to Europe*Star and an agreement reached with
Sirius to convert vendor financing receivables into Sirius
equity), which was mitigated by overall improved satellite
program performance, reduced costs and the effects of the
recovery of a claim from a vendor. Intercompany eliminations
primarily relating to SS/ Ls construction of satellites
for Loral Skynet, increased significantly in 2002 primarily due
to higher amounts of general and administrative costs incurred
on intercompany programs (see Note 16 to the consolidated
financial statements).

Depreciation and amortization was
$187 million in 2002 and $228 million in 2001. In
2002, amortization expense decreased by $27 million as a
result of the Company adopting SFAS No. 142 (see Accounting
Pronouncements). Depreciation and amortization associated with
the FSS business represents approximately 82% and 81% of the
totals in 2002 and 2001, respectively.

As a result of the above, the Companys
operating loss increased to $82 million in 2002, as
compared to $5 million in 2001.

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Interest and investment income was
$13 million in 2002 as compared to $29 million in
2001. This decrease was principally due to lower average cash
balances available for investment and lower interest rates and
lower interest earned relating to satellite programs in 2002 as
compared to 2001.

Interest expense was $77 million in 2002,
net of capitalized interest of $30 million, as compared to
$184 million in 2001, net of capitalized interest of
$23 million. The decrease in 2002 was primarily due to the
Company not recognizing any interest expense on Loral
Orions 10% senior notes issued in connection with the
Loral Orion exchange offers completed in December 2001, since
interest expense on the 10% senior notes is fully offset by
amortization of the deferred gain on the debt exchanges (see
Liquidity and Capital Resources) and lower debt balances and
interest rates in 2002 as compared to 2001.

In 2002, the Company determined that its
investment in Fantastic common stock had an other than temporary
decline in its value and recognized a loss of $1 million.
The Company recorded a $34 million gain in 2001 related to
Loral Orions debt exchanges (see Liquidity and Capital
Resources). In the fourth quarter of 2002, the Company adopted
the provisions of SFAS No. 145 and reclassified the
extraordinary gain on Loral Orions debt exchanges in 2001
to gain on debt exchanges and investments, net in its
consolidated statements of operations (see Other
Matters  Accounting Pronouncements).

In 2002, Loral recorded an income tax provision
of $355 million on a pre-tax loss of $147 million, as
compared to an income tax provision of $2 million on a
pre-tax loss of $126 million in 2001. The increase in tax
expense in 2002 was primarily attributable to an increase in the
deferred tax valuation allowance. As of December 31, 2002,
a valuation allowance has been established for the entire
balance of the Companys net deferred tax asset (see
Critical Accounting Matters).

Equity in net losses of affiliates was
$76 million in 2002 as compared to $67 million in
2001. Lorals share of equity loss attributable to
Globalstar related activities was $3 million in 2002 as
compared to $25 million of equity losses after taxes in
2001. The reduction in 2002 primarily resulted from the recovery
of a claim from a vendor on the Globalstar program of which
$14 million ($8 million after taxes) was recorded as a
benefit to equity in net losses of affiliates and reduced equity
in net losses of Globalstar service provider partnerships
recorded, offset by a $9 million charge relating to
liabilities the Company had guaranteed in connection with a
Globalstar service provider partnership. Lorals share of
equity in net losses of Satmex increased to $25 million in
2002, as compared to $12 million in 2001, which was
primarily due to the global economic downturn. Lorals
share of equity in net losses of Europe*Star, managed by
Alcatel, increased to $42 million in 2002, as compared to
$28 million in 2001, which was primarily due to
Europe*Stars loss on the sale of an equity investment in
2002 and an impairment charge of $7 million recorded by the
Company relating to its investment in Europe*Star in 2002. As a
result of the impairment charge, the net carrying value of
Lorals investment in Europe*Star was reduced to zero. As a
result, Loral will not recognize any future losses attributable
to Europe*Star (see Note 6 to the consolidated financial
statements).

On January 1, 2002 the Company adopted SFAS
No. 142, Goodwill and Other Intangible Assets, which
resulted in the Company recording a charge to write-off all of
its goodwill for the cumulative effect of change in accounting
principle of $890 million (see Accounting Pronouncements).
The cumulative effect of change in accounting principle, net of
taxes, in 2001 related to the Companys adoption of SFAS
No. 133, Accounting for Derivative Instruments and Hedging
Activities.

Preferred dividends were $89 million in 2002
as compared to $81 million in 2001. The increase was
primarily due to dividend charges of $59.5 million (or
$0.16 per share) in 2002, comprised of $13.4 million in
cash and $46.1 million of non-cash dividend charges,
incurred on the conversion of 6.1 million shares of
Lorals 6% Series C convertible redeemable preferred
stock (the Series C Preferred Stock) and
5.4 million shares of Lorals 6% Series D
convertible redeemable preferred stock (the Series D
Preferred Stock) into 76.6 million shares of the
Companys common stock in connection with Lorals
exchange offers and privately negotiated exchange transactions.
This compares to the non-cash dividend charges of
$29 million (or $0.09 per share) incurred on the conversion
in 2001 of 3.7 million shares of Lorals Series C
Preferred Stock and 1.9 million shares of Lorals
Series D Preferred Stock into 30.9 million shares of
the Companys common stock, in connection with the
Companys exchange offers, offset by lower dividends as a
result of the exchanges (see Liquidity and Capital Resources).

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As a result of the above, net loss applicable to
common shareholders before the cumulative effect of the change
in accounting principle relating to cost in excess of net assets
acquired (goodwill) was $668 million or $1.79
per basic and diluted share in 2002, as compared to
$277 million or $0.86 per basic and diluted share in 2001
($250 million or $0.77 per basic and diluted share on an as
adjusted basis to exclude the amortization of goodwill). Basic
and diluted weighted average shares were 373 million in
2002 and 324 million in 2001. The increase in weighted
average shares was primarily due to the conversions of the
Companys preferred stock into common stock in 2002 and
2001 mentioned above.

2001 Compared with 2000

Revenues as reported for Lorals operating
businesses were $1.1 billion in 2001 as compared to
$1.2 billion in 2000, after eliminations of
$209 million in 2001 and $199 million in 2000. The
decrease in revenues was due primarily to lower SS/L revenues
primarily resulting from the slow down in demand in the
satellite manufacturing industry, delays in production of
certain programs, and the substantial completion of the
Globalstar satellite program at the end of 2000, offset by
strong growth in FSS revenues due to the increased number of
transponders leased and higher revenue per transponder in 2001
as compared to 2000.

EBITDA as reported increased to $223 million
in 2001 as compared to $130 million in 2000, after
eliminations of $28 million in 2001 and $14 million in
2000. This increase arose primarily from strong revenue growth
from FSS without a proportionate growth in costs, cost savings
realized from streamlining operations and savings related to the
exit from the direct-to-consumer broadband business in 2000,
offset by lower SS/L EBITDA, which was due to lower revenues and
margins and start-up costs associated with the introduction of
several new technologies and a $12 million charge for
future payments to the U.S. government to settle a case
relating to export controls.

Depreciation and amortization was
$228 million in 2001 and $216 million in 2000. The
increase primarily resulted from the timing of assets placed
into service. Depreciation and amortization associated with the
FSS business represents approximately 81% of the totals in 2001
and 2000, respectively.

As a result of the above, the Companys
operating loss decreased to $5 million in 2001, as compared
to $86 million in 2000.

Interest and investment income was
$29 million in 2001 as compared to $129 million in
2000. This decrease was principally due to non-cash interest
income in 2000 related to warrants received in connection with
the guarantees provided by Loral subsidiaries of
Globalstars $500 million credit facility, dividend
income in 2000 related to the Companys investment in
Globalstar Telecommunications Limited preferred stock, as well
as lower average cash balances for investment and lower
investment rates in 2001.

Interest expense was $184 million in 2001,
net of capitalized interest of $23 million, as compared to
$171 million in 2000, net of capitalized interest of
$17 million. The increase is due primarily to interest
expense incurred in connection with the Companys
$500 million credit facility from November 2000, offset by
increased capitalized interest and lower interest rates in 2001
(see Liquidity and Capital Resources).

The Company recorded a $34 million gain in
2001 related to Loral Orions debt exchanges (see Liquidity
and Capital Resources and Other Matters  Accounting
Pronouncements). The Company realized $71 million of gains
in 2000, primarily from the sale of substantially all of its
investments in available-for-sale securities.

In 2001, Loral recorded an income tax provision
of $2 million on a pre-tax loss of $126 million, as
compared to an income tax provision of $9 million on a
pre-tax loss of $57 million for 2000. The decrease in tax
expense for 2001 is primarily attributable to a lower amount of
income subject to U.S. tax during the current period (see
Critical Accounting Matters).

The equity in net losses of affiliates was
$67 million in 2001 as compared to $1.29 billion in
2000. Lorals share of equity in net losses of affiliates
attributable to Globalstar related activities (net of taxes of
$4 million in 2001 and a tax benefit of $299 million
in 2000), was $25 million in 2001 as compared to
$1.29 billion in 2000 (including equity in net losses of
Globalstar service provider partnerships of $30 million and
$38 million,

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in 2001 and 2000, respectively). This decrease is
primarily due to the Company recognizing its share of
Globalstars equity losses and impairment charges in the
fourth quarter of 2000, which reduced its investment in and
advances in connection with Globalstar to zero. Accordingly,
Loral discontinued providing for its allocated share of
Globalstars net losses beginning in 2001 (see Acquisitions
and Investments). Lorals share of equity in net loss of
Satmex was $12 million in 2001, as compared to Lorals
share of equity in net income of Satmex of $19 million in
2000. Satmex had net income applicable to common stockholders in
2000 of $54 million, which primarily resulted from a
$67 million after-tax gain it recorded on the net insurance
recovery on the loss of a satellite (see Affiliate Matters).
Lorals share of equity in net losses of Europe*Star,
managed by Alcatel, was $6 million in 2001, as compared to
$5 million in 2000 (see Note 6 to the consolidated
financial statements). Europe*Star commenced its principal
operations in the beginning of 2001.


The minority interest benefit primarily reflects
the reduction of CyberStar LPs loss attributed to
CyberStar LPs other investor, who owned 17.6% as of
December 31, 2001.

In the fourth quarter of 2000, the Company
recorded after-tax impairment charges of $112 million
related to its investments in and advances to Globalstar service
provider partnerships (see Acquisitions and Investments).

On January 1, 2001, the Company adopted SFAS
No. 133, Accounting for Derivative Instruments and Hedging
Activities, which resulted in the Company recording a charge for
the cumulative effect of a change in accounting principle, net
of taxes, of $1.7 million (see Accounting Pronouncements).

Preferred dividends were $81 million in 2001
as compared to $68 million for 2000. The increase was
primarily due to non-cash dividend charges of $29 million
incurred in 2001, on the conversion of 3.7 million shares
of Lorals Series C Preferred Stock and
1.9 million shares of Lorals Series D Preferred
Stock into the Companys common stock, in connection with
the Companys exchange offers, offset by lower dividends as
a result of the exchange offers (see Liquidity and Capital
Resources).

As a result of the above, the net loss applicable
to common stockholders for 2001 was $277 million or $0.86
per basic and diluted share, compared to the net loss of
$1.54 billion or $5.20 per basic and diluted share for
2000. Basic and diluted weighted average shares were
324 million in 2001 and 296 million in 2000. The
increase in shares primarily relates to the 30.9 million
shares of common stock issued in connection with the
Companys preferred stock exchange offers.

Results by Operating Business

The satellite industry suffered a significant
decline in 2001 which continued through 2002 with only one
competitively bid satellite order, affecting all aspects of the
Companys business. Some of the most significant causes
behind this decline are the downturn in the global economy with
its resulting reduction and delay in demand for new
satellite-based applications and services, the postponement of
customers expansion plans, the difficulty in obtaining
funding in the capital markets by a significant segment of the
industrys customer base, and the competition from fiber
and other terrestrial alternatives.

Fixed Satellite
Services

FSS revenues were $395 million in 2002, as
compared to $464 million and $421 million in 2001 and
2000, respectively. The decrease in 2002 as compared to 2001 was
primarily due to a decrease in transponders leased and lower
prices due to the global economic downturn and the delay in
demand for new applications and services in 2002. The increase
in revenue in 2001 as compared to 2000 was primarily due to the
increased number of transponders leased and higher revenue per
transponder in 2001. EBITDA was $220 million in 2002, as
compared to $263 million and $153 million in 2001 and
2000, respectively. The decrease in EBITDA in 2002 as compared
to 2001 was primarily due to lower sales, offset by reduced
costs from streamlining operations. The increase in EBITDA in
2001 as compared to 2000 was primarily due to strong revenue
growth without a proportionate growth in costs, cost savings
realized from streamlining operations and savings related to the
exit from the direct-to-customer broadband business at the end
of 2000, which was offset by charges for integration and
rationalization of network services in 2000. As of
December 31, 2002, FSS had seven

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operational satellites. Funded backlog for the
segment totaled $1.4 billion at the end of 2002 as compared
to $1.5 billion at the end of 2001, including intercompany
backlog of $41 million and $46 million in 2002 and
2001, respectively. At December 31, 2002, FSS backlog was
equivalent to approximately 3.5 times its 2002 revenues. Net
bookings for the segment increased by $395 million for the
year ended December 31, 2002 to $278 million as
compared to 2001, due to a substantial decline in de-bookings,
offset by a decrease in gross bookings. Approximately
$267 million of the 2002 funded backlog is expected to be
realized in 2003, including approximately $4 million of
intercompany backlog. Total assets for the segment were
$1.9 billion and $2.8 billion as of December 31,
2002 and 2001, respectively. The decrease primarily related to
the write-off of goodwill in connection with the adoption of
SFAS 142 and the valuation allowances established on deferred
tax assets in 2002. Capital expenditures in 2002 were
approximately $85 million and are expected to be higher in
2003.


Satellite
Manufacturing and Technology

Revenues at SS/L, before eliminations, were
$853 million in 2002, $815 million in 2001 and
$1.0 billion in 2000. The increase in 2002 as compared to
2001 primarily resulted from the timing of work performed on
backlog programs. The decrease in 2001 as compared to 2000 was
primarily due to lower volume and delays in production of
certain programs. EBITDA before eliminations was a loss of
$19 million in 2002 and gains of $24 million in 2001
and $36 million in 2000. The decrease in EBITDA in 2002 as
compared to 2001 was primarily due to valuation allowances of
$69 million recorded on SS/L provided vendor financings (in
connection with advances related to Europe*Star and an agreement
reached with Sirius to convert vendor financing receivables into
Sirius equity), which was mitigated by overall improved
satellite program performance, reduced costs and the effects of
the recovery of a claim from a vendor. SS/L has lowered its
costs by reducing its workforce since the beginning of 2001, by
streamlining certain internal processes and by instituting
tighter controls which are designed to ensure that subcontracted
components are received on time and meet all customer
requirements. The EBITDA decline in 2001 as compared to 2000 was
primarily due to lower revenues and start-up costs associated
with the introduction of several new technologies and a
$12 million charge for future payments to the
U.S. government to settle a case relating to export
controls in 2001. Funded backlog for SS/L as of
December 31, 2002 and 2001 was $763 million and
$1.6 billion, respectively, including intercompany backlog
of $275 million as of December 31, 2002 and
$265 million as of December 31, 2001. The decline in
backlog is due to revenues earned on existing backlog with no
new satellite awards in 2002, due to the sluggish economic
conditions in the industry. Approximately $626 million of
the 2002 funded backlog is expected to be realized in 2003,
including approximately $142 million of intercompany
backlog. Total assets for the segment were $690 million and
$1.2 billion as of December 31, 2002 and 2001,
respectively. The decrease primarily related to the write-off of
goodwill in connection with the adoption of SFAS 142 in
2002. Capital expenditures in 2002 were approximately
$13 million and are expected to decrease slightly in 2003.

Transactions With Affiliates and Related
Parties

Consolidated funded backlog was $1.8 billion
and $2.7 billion at December 31, 2002 and 2001 which
includes $142 million and $351 million, respectively,
as a result of transactions entered into with affiliates and
related parties (primarily with Globalstar, Satmex, Europe*Star,
XTAR and Spainsat) for the construction of satellites.

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

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|                                                                                                                                       |  |                          |         |      |  |      |         |   |  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                                                       |  |                         
|                                                                                                                                       |  | Years ended December 31,
|                                                                                                                                       |  |                         
|                                                                                                                                       |  | 2002                     |         | 2001 |  | 2000
|                                                                                                                                       |  |                          |         |      |  |     
|Revenues                                                                                                                               |  | $                        | 85,920  |      |  | $    | 100,924 |   |  | $ | 161,730 |  
|Interest and investment income                                                                                                         |  |                          | 1,177   |      |  |      | 1,177   |   |  |   | 70,616  |  
|Interest expense capitalized on development stage
    enterprises                                                                      |  |                          | 1,252   |      |  |      | 120     |   |  |   | 4,846   |  
|Profits relating to affiliate transactions not
    eliminated                                                                          |  |                          | 9,887   |      |  |      | 3,735   |   |  |   | 26,630  |  
|Elimination of Lorals proportionate share
    of profits relating to affiliate transactions                                           |  |                          | (10,921 | )    |  |      | (1,527  | ) |  |   | (7,245  | )
|Amortization of deferred credit, excess carrying
    value, capitalized interest and profits relating to investments
    in affiliates |  |                          | (508    | )    |  |      | (538    | ) |  |   | 29,444  |  

Liquidity and Capital Resources

Loral intends to capitalize on its innovative
capabilities, market position and advanced technologies to offer
value-added satellite-based services as part of the evolving
worldwide communications networks. Loral regularly engages in
discussions with telecommunications service providers, equipment
manufacturers and others regarding possible strategic
transactions and alliances. These included joint ventures;
strategic relationships involving its fixed satellite services
operations and satellite manufacturing operations, which could
involve business combinations; participation in the Loral Global
Alliance; and dispositions of assets. In order to pursue such
opportunities Loral may utilize funds generated by growth in
operations and may seek funds from strategic partners and other
investors and through incurrence of debt or the issuance of
additional equity. The Company believes that cash, available
credit at December 31, 2002 (see cash and available credit)
and net cash provided by operating activities and certain
planned investing activities will be adequate to meet its
expected cash requirements through at least December 31,
2003.

On March 31, 2003, Loral entered into
amendments of its Loral SpaceCom and Loral Satellite credit
facilities which among other changes, amended its financial
performance covenants. At December 31, 2002, the Company
was, after giving effect to the March 2003 amendments to the
Loral SpaceCom and Loral Satellite credit facilities, in
compliance with all of the covenants and conditions under its
various lending and funding arrangements and believes that it
will continue to meet these covenants and conditions through at
least March 31, 2004.

Lorals business plan assumes the receipt of
approximately $60 million from the successful monetization of
certain long-term customer receivables in 2003. While Loral has
reached an agreement in principle with a third party to effect
such monetization, there is no assurance that this transaction
will be consummated. If Loral is unable to consummate this
transaction on a timely basis, or the proceeds from such
transaction are less than those assumed in the business plan,
Lorals ability to fund its operations would be adversely
affected. A substantial reduction in FSS revenues or the
inability of SS/L to replace existing backlog with new contracts
would also adversely impact Lorals ability to achieve its
business plan. In addition, Lorals ability to fund the
2004 interest payments on its 9.5% senior notes will depend on
its ability to successfully execute its business plan, which
includes further asset sales. There is no assurance that Loral
will be able to do so. If Loral fails to pay interest on the
9.5% senior notes when due, this will, upon expiration of a
30-day cure period, constitute an event of default under
Lorals senior note indenture, which in turn would result
in an event of default under the LSC Amended Credit Agreement
and the Loral Satellite Credit Agreement. If the holders of the
9.5% senior notes, the lenders under the LSC credit facility or
the lenders under the Loral Satellite credit facility were to
accelerate their related debt following such event of default,
an event of default would also occur with respect to Loral
Orions 10% senior notes, which are guaranteed by Loral.

Loral is likely to require and intends to seek
further amendments to the LSC and Loral Satellite facilities to
ensure compliance with financial performance covenants for
periods after March 31, 2004. There can be no assurance
that the lenders will consent to any such amendment. Because of
the cross-default provisions set forth in the LSC and Loral
Satellite credit facilities, a failure by Loral to meet any
financial performance covenant set forth in either credit
facility will result in an event of default under both the LSC
and the Loral

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Satellite credit facilities. Moreover, if the
lenders under either credit facility were to accelerate their
outstanding loans, this would constitute an event of default
under Lorals 9.5% senior notes and Loral Orions 10%
senior notes, which are guaranteed by Loral.


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, the Company does not believe that these anomalies
will affect Telstar 10/Apstar IIR. However, 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. Some of Loral Orions
bondholders have questioned whether this limitation is in
compliance with the insurance covenant in the Loral Orion
indenture. Management believes that Loral Orion 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, and the
bondholders could be able to call on the Companys
guarantee of Loral Orions senior notes.

Debt

Bank Facilities

Satellite Credit
Agreement.On December 21, 2001,
Loral Satellite, Inc. (Loral Satellite), a
subsidiary of Loral Space & Communications Corporation,
which in turn is a subsidiary of Loral, entered into the first
amendment to the $500 million secured credit agreement
dated as of November 17, 2000 by and among Loral Satellite,
Bank of America as Administrative Agent, and the other lending
parties thereto (the Satellite Credit Agreement).
The first amendment provides for a $200 million revolving
credit facility expiring January 7, 2005 and a term loan of
which $249 million was outstanding as of December 31,
2002, subject to the following remaining amortization payment
schedule: $11.25 million per quarter on March 31, 2003
through September 30, 2004 and $170 million on
January 7, 2005. During the first quarter of 2003, Loral
had drawn down the full amount of the revolving credit facility.
The first amendment also effected certain changes to provisions
relating to the collateral pool provided to lenders under the
Loral Satellite credit facility and imposed additional
limitations on the application of proceeds from any sale of
assets from this collateral pool. Proceeds from the Satellite
Credit Agreement were used by Loral Satellite to purchase all of
the creditors interests in the loans outstanding under
Globalstars $500 million credit agreement (see
Investments). The guarantee of Globalstars
$500 million credit agreement that had been provided by
Loral Satellite and Loral SatCom Ltd., a subsidiary of Loral,
was terminated and released in connection with this transaction.

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

The Satellite Credit Agreement is secured by
certain assets of Loral Satellite, including the Telstar 6
and Telstar 7 satellites and the payments due to Loral
Satellite under Globalstars $500 million credit
facility (see below). Based on third party valuations,
management believes that the fair value of Telstar 6 and
Telstar 7 is in excess of $500 million. As of
December 31, 2002, the net book value of Telstar 6 and
Telstar 7 was approximately $293 million. In addition, as
part of the first amendment, lenders under the Satellite Credit
Agreement received a junior lien on the assets of Loral SpaceCom
Corporation (LSC) and its subsidiaries pledged in
favor of the banks under the LSC Amended Credit Agreement. Loral
has also agreed to guarantee

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Loral Satellites obligations under the
Satellite Credit Agreement, which guarantee agreement contains a
minimum net worth covenant.


On March 31, 2003, Loral Satellite amended
the Satellite Credit Agreement to provide for certain
modifications, including to its financial covenants (the
Loral Satellite Amendment). This amendment increased
interest on outstanding loans by 50 basis points, reduced the
maximum LIBOR period to three months and imposed additional
requirements on Loral Satellite and its subsidiaries, including
adding minimum cumulative EBITDA and minimum cash balance
requirements and increasing the circumstances under which
mandatory prepayment of the loans are required, including from
insurance proceeds received in connection with any launch or
in-orbit failure of Loral Satellites satellites. Loral
Satellites ability to dividend funds to its parent has
been substantially reduced in connection with this amendment.
Under the Loral Satellite Amendment, Loral Satellite may now
make dividends or loans to its parent or Loral only if such
dividends or loans are applied either to effect payments on
Lorals 9.5% senior notes or to effect a maximum of
$5 million of payments on an intercompany note between
Loral and Loral SpaceCom Corporation.

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

LSC Amended Credit
Agreement.On December 21, 2001,
LSC entered into an Amended and Restated Credit Agreement with
Bank of America, N.A., as Administrative Agent, and the other
lenders parties thereto (the LSC Amended Credit
Agreement). The LSC Amended Credit Agreement provides for
a $200 million revolving credit facility expiring
January 7, 2005 and a term loan of which $360 million
was outstanding at December 31, 2002, subject to the
following remaining amortization payment schedule:
$5 million on each of March 31, June 30,
September 30 and December 31, 2003; $20 million
on each of March 31, June 30 and September 30,
2004; and $280 million on January 7, 2005. During the
first quarter of 2003, Loral had fully utilized the revolving
credit facility through draw downs and letters of credit.
Borrowings under the LSC Amended Credit Agreement bear interest,
at LSCs option, at various rates based on margins over the
lead banks base rate or the London Interbank Offered Rate
for specified periods. In December 2001, the margin levels were
increased under the new amended agreement and were fixed through
September 30, 2002. As a result of this increase in margin
levels, interest costs have increased by approximately
$11 million annually. Subsequent to September 30,
2002, the margin levels increased by one percent and are
expected to remain that way for the foreseeable future. LSC pays
a commitment fee on the unused portion of the revolver.

The LSC Amended Credit Agreement contains
financial covenants of LSC and its subsidiaries, such as
maintenance of interest coverage, leverage ratios and minimum
net worth. The LSC Amended Credit Agreement also contains
limitations on LSC and its subsidiaries, including those on
indebtedness, liens, fundamental changes, asset sales,
dividends, investments, capital expenditures, transactions with
affiliates and certain other intercompany transactions. The LSC
Amended Credit Agreement allows dividend payments to Loral if
cumulative dividend payments do not exceed 50% of its cumulative
consolidated net income and the ratio of its funded debt to
EBITDA is less than 3.0 to 1.0. As of December 31, 2002,
Loral SpaceCom had no capacity under this covenant to pay Loral
any dividends.

The LSC Amended Credit Agreement is secured by
substantially all of the assets of and the stock of LSC and its
subsidiaries, including SS/ L. LSCs obligations under the
LSC Amended Credit Agreement have been guaranteed by certain of
LSCs subsidiaries, including SS/ L. As of
December 31, 2002, the net book value of the assets that
secure the LSC Amended Credit Agreement was approximately $645
million.

On March 31, 2003, LSC further amended the LSC
Amended Credit Agreement to provide for additional
modifications, including to LSCs financial covenants (the
LSC Amendment). This amendment increased interest on
outstanding loans by 50 basis points, reduced the maximum LIBOR
period to three months and imposed additional requirements on
LSC and its subsidiaries, including adding minimum cumulative
EBITDA and cash balance requirements and increasing the
circumstances under which mandatory prepayment of the loans are
required, including from insurance proceeds received in
connection

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with any launch or in orbit failure of Loral
Skynets satellites. The amendment also imposed additional
restrictions on LSC and its subsidiaries, including further
restricting their ability to incur capital expenditures, sell
assets, incur debt, provide vendor financing and make
investments. Under the LSC Amendment, LSC requires the consent
of its lenders in order to make further expenditures for the
launch and insurance of Telstar 8, for which
$271 million is included in satellites under construction
at December 31, 2002. Moreover, if LSC is not successful in
effecting certain asset sales by June 30, 2003, LSC may not,
subject to certain limited exceptions, incur any further capital
expenditures. The lenders under the LSC facilities also received
a junior lien on the stock of Loral Satellite as part of this
amendment.


In connection with the amendment of the LSC and
the Loral Satellite credit facilities, Loral agreed to the
continued retention of a financial advisor to assist it in
various matters, including advising the Company on strategic
alternatives, which may include asset sales and other actions to
reduce indebtedness. Loral has also agreed to hire a financial
officer, whose appointment and, scope of work and authority will
be subject to the reasonable approval of certain of the lenders
under the two credit facilities. This financial officer will
work closely with Lorals management and financial advisor
regarding various matters, including communicating with the
lenders under the two bank facilities.

Loral Orion Indentures

On December 21, 2001, Loral Orion issued
$613 million principal amount of 10% senior notes due 2006
and guaranteed by Loral, in exchange for the extinguishment of
$841 million principal amount of Loral Orion 11.25% senior
notes due in 2007 and 12.5% senior discount notes due 2007 as
discussed 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 $7 million using the Black Scholes
option pricing model with the following assumptions: stock
volatility, 75%, risk free interest rate, 4.36%, and no
dividends during the expected term. As of December 31, 2002,
principal amount of $37 million of the existing 11.25%
senior notes and principal amount of $49 million of the
existing 12.5% senior discount notes remain outstanding at their
original maturities and interest rates.

The interest rate on the 10% senior notes is a
reduction from the 11.25% interest rate on the existing senior
notes and the 12.5% rate on the existing senior discount notes.
Interest is payable semi-annually on July 15 and
January 15, beginning July 15, 2002. 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 U.S. generally accepted accounting
principles dealing with debt restructurings, in December 2001
the Company recorded a gain of $34 million on the exchange,
after expenses of $8 million. The carrying value of the 10%
senior notes on the balance sheet at December 31, 2002 was
$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 remaining life of the
10% senior notes, fully offsetting interest expense through
maturity of the 10% senior notes. The indenture relating to the
10% senior notes contains covenants, including, without
limitation, restrictions on Loral Orions ability to pay
dividends or make loans to Loral.

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

Loral 9.5% Senior Notes

In January 1999, Loral sold $350 million of
9.5% senior notes due 2006. The related indenture contains
customary covenants, including, without limitation, restrictions
on incurring indebtedness and paying dividends. Interest is
payable semi-annually on January 15, and July 15.

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The Satellite Credit Agreement, the LSC Amended
Credit Agreement, the indenture relating to Loral Orions
new senior notes and the indenture relating to Lorals 9.5%
senior notes provide in certain circumstances for cross default
or cross acceleration.

Equity

Common Stock

Under the New York Stock Exchange
(NYSE) criteria for continued listing, the NYSE will
normally give consideration to de-listing a companys stock
when the average closing price of the stock is less than $1.00
over a consecutive 30-trading day period. The average closing
price of Loral common stock was less than $1.00 for 30
consecutive trading days, and, on August 22, 2002, the
Company received notice from the NYSE that its stock price was
below the NYSEs price criteria. If Loral is unable to cure
this deficiency, the Companys common stock could be
de-listed from the NYSE. De-listing of the Companys common
stock by the NYSE could result in a material adverse effect on
the liquidity of the Companys common shares, have an
adverse effect on the trading value and impair the
Companys ability to raise funds in the capital markets.
The NYSE has informed Loral that the price is the only criteria
for listing that the Company does not currently meet. The
Company has notified the NYSE of its intent to cure this
deficiency. The NYSE rules provide for a six-month period from
receipt of the notice letter from the NYSE to cure this
deficiency. In the event the actions the Company takes to cure
this deficiency require shareholder approval, the six-month cure
period will be extended until after the Companys next
annual shareholders meeting scheduled on May 29,
2003. The Company plans on seeking shareholder approval to
implement a reverse stock split at its annual meeting, in order
to, among other things, restore the Companys compliance
with NYSE share price requirements. The Company believes
(although there can be no assurance) that it will be able to
cure this deficiency within this time frame.

On March 31, 2000, Lockheed Martin
Corporation converted 45,896,978 shares of Lorals
Series A preferred stock into 45,896,978 shares of Loral
common stock.

Preferred Stock

The Companys Series C Preferred Stock
and Series D Preferred Stock have mandatory redemption
dates in 2006 and 2007, respectively. The Company has the right
to make mandatory redemption payments to the holders in either
cash or common stock, or a combination of the two. Based upon
the price of the Companys common stock at
December 31, 2002, the Company did not have available a
sufficient number of authorized shares of its common stock to
effect payment of the total mandatory redemptions in common
stock in 2006 and 2007. Accordingly, as of December 31,
2002, the Company classified an aggregate of $125 million
of its Series C Preferred Stock and Series D Preferred
Stock outside the shareholders (deficit) equity
section of the balance sheet, based on the average of the volume
weighted average daily price of the Companys common stock
as defined (approximately $0.38 per share at December 31,
2002). Had the volume weighted average daily price of the
Companys common stock as calculated been above $0.86 at
December 31, 2002, none of the Companys preferred
stock would have been classified outside the shareholders
equity section of the balance sheet. The exact number of shares
of the Companys common stock that may be issued on a
mandatory redemption date cannot be determined at this time.
That number will depend on a number of factors not known today,
such as the price of the Companys common stock and the
number of shares of the Companys preferred stock
outstanding at that time. The Company intends to submit for
shareholder approval at its next annual shareholders
meeting scheduled on May 29, 2003, an increase to the
authorized number of shares of its common stock from 750,000,000
to 1,250,000,000 which, based on the volume weighted average
daily price of the Companys common stock as defined at
December 31, 2002 and March 28, 2003, would enable the
Company to effect payment of the total mandatory redemptions in
common stock. The amount, if any, of the Series C Preferred
Stock and Series D Preferred Stock classified outside the
shareholders equity section will vary in future periods
depending on these factors.

In August 2002, Lorals board of directors
approved a plan to suspend indefinitely the future payment of
dividends on its two series of preferred stock. Accordingly,
Loral deferred the payment of quarterly dividends due on its
Series C Preferred Stock on November 1, 2002, and the
payment of quarterly dividends due on its

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Series D Preferred Stock on
November 15, 2002. Dividends on the two series will
continue to accrue. In the event accrued and unpaid dividends
accumulate to an amount equal to six quarterly dividends on the
Series C Preferred Stock, holders of the majority of the
outstanding Series C Preferred Stock will be entitled to
elect two additional members to Lorals board of directors.
In the event accrued and unpaid dividends accumulate to an
amount equal to six consecutive quarterly dividends on the
Series D Preferred Stock, holders of the majority of the
outstanding Series D Preferred will be entitled to elect
two additional members to Lorals board of directors. As of
December 31, 2002, accrued and unpaid dividends of
$3 million represented one quarterly dividend payment
outstanding.


In connection with the conversions of the
Companys preferred stock for common stock in 2002, 2001
and 2000 detailed below, the Company retired preferred stock
with mandatory redemptions aggregating $921 million in 2006
and 2007 (representing 80% of the aggregate redemption values
prior to these exchanges) and will save $55 million in
future annual dividend obligations.

On October 8, 2002, Loral completed exchange
offers for its Series C and Series D preferred stock
and converted 4.3 million shares of its Series C
Preferred Stock and 2.7 million shares of its Series D
Preferred Stock for 45.8 million shares of its common stock
and $13.4 million in cash. In connection with the exchange
offers, Loral incurred $21.6 million of dividend charges,
comprised of the $13.4 million in cash and non-cash
dividend charges of $8.2 million. The non-cash dividend
charges relate to the difference between the value of the common
stock issued in the exchanges and the value of the shares that
were issuable under the stated conversion terms of the preferred
stock and will have no impact on Lorals total
shareholders equity as the offset was an increase in
common stock and paid-in capital.

During the second quarter of 2002, in privately
negotiated exchange transactions, Loral converted
1.8 million shares of its Series C Preferred Stock and
2.7 million shares of its Series D Preferred Stock
into 30.9 million shares of its common stock. In connection
with these transactions, Loral incurred non-cash dividend
charges of $38 million, which primarily relate to the
difference between the value of the common stock issued in the
exchanges and the value of the shares that were issuable under
the stated conversion terms of the preferred stock. The non-cash
dividend charges had no impact on Lorals total
shareholders equity, as the offset was an increase in
common stock and paid-in capital

On April 16, 2001, the Company completed
exchange offers for its Series C Preferred Stock and its
Series D Preferred Stock. As a result, 3.7 million
shares of its Series C Preferred Stock and 1.9 million
shares of its Series D Preferred Stock were tendered and
exchanged into 30.9 million shares of the Companys
common stock. Loral incurred non-cash dividend charges in the
second quarter of 2001 of $29 million, which primarily
relate to the difference between the value of the common stock
issued in the exchanges and the value of the shares that were
issuable under the stated conversion terms of the preferred
stock. The non-cash dividend charges had no impact on
Lorals total shareholders equity, as the offset was
an increase in common stock and paid-in capital.

In February 2000, 1.4 million shares of
Series C Preferred Stock were converted into
3.5 million shares of Loral common stock. In connection
with this conversion, Loral issued to converting holders 332,777
additional shares of its common stock, which approximated the
dividend prepayments to which they would have been entitled if a
provisional redemption of those securities had been made (which
resulted in a non-cash dividend charge of $6 million). The
non-cash dividend charge had no impact on Lorals total
shareholders equity, as the offset was an increase in
common stock and paid-in capital.

In February 2000, Loral sold $400 million of
Series D Preferred Stock due 2007 in an offering exempt
from registration.

Other

For 2002, the Companys qualified pension
plan, under the Internal Revenue Code and regulations
thereunder, was considered fully funded (i.e. assets are greater
than liabilities) and there was no contribution required.
However, the significant declines experienced in the financial
markets have unfavorably impacted pension plan asset
performance. This, coupled with historically low interest rates
(a key factor when

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estimating pension plan liabilities), caused the
Company to recognize $65 million of non-cash charges to
other comprehensive income (loss) as of December 31,
2002. These charges did not impact the Companys reported
earnings, and will be reversible in the future if either
interest rates increase or market performance and plan returns
improve (see Critical Accounting Matters above).


Cash and
Available Credit

As of December 31, 2002, Loral had
$132 million of cash and available credit (including
$66 million of available credit from the credit facilities
described above under the captions Satellite Credit
Agreement and LSC Amended Credit Agreement).
During the first quarter of 2003, Loral drew down all of the
$66 million of available credit at December 31, 2002.

Net Cash
Provided by Operating Activities

Net cash provided by operating activities for
2002 was $195 million. This was primarily due to net income
as adjusted for non-cash items of $152 million and a
decrease in contracts-in-process of $97 million resulting
from net collections on customer contracts and a decrease in
deposits of $59 million primarily resulting from the
assignment of launch vehicles to satellite programs, offset by a
decrease in accounts payable of $89 million primarily due
to the timing of satellite related payments and a decrease in
customer advances of $35 million primarily due to progress
on satellite programs.

Net cash provided by operating activities for
2001 was $170 million. This was primarily due to net income
as adjusted for non-cash items of $113 million, an increase
in customer advances of $78 million, primarily resulting
from the timing of satellite program milestone payments, offset
by an increase in long-term receivables of $51 million due
to increases in orbital incentives.

Net Cash Used in
Investing Activities

Net cash used in investing activities for 2002
and 2001 was $139 million and $249 million,
respectively, primarily as a result of capital expenditures
mainly for the construction of satellites and investments in and
advances to affiliates.

Net Cash Used in
Financing Activities

Net cash used in financing activities for 2002
and 2001 was $150 million and $156 million,
respectively, primarily due to debt amortization payments of
$135 million and $86 million in 2002 and 2001,
respectively (including $46 million of interest payments on
the 10% senior notes in 2002, see Loral Orion Indentures) and
net cash used in equity transactions of $32 million and
$36 million in 2002 and 2001, respectively.

Fixed
Satellite Services Liquidity

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 primary components, certain of the Company and its
affiliates satellites are currently operating using back-up
components. If these back-up components fail and the primary
components cannot be restored, these satellites could lose a
significant amount of capacity or be total losses which, until
replacement satellites are placed in-orbit, would result in lost
revenues and lost profits.

On September 20, 2002, Loral entered into an
agreement with APT pursuant to which Loral will purchase a 50%
interest in the Telstar 18/Apstar V satellite, a
satellite under construction by SS/L for APT. Loral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 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 has agreed to

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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 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 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 and APT have agreed
that a non-Chinese launch provider will be used.


Pursuant to Lorals agreement with APT,
Loral will pay one-half of its purchase price prior to launch
for 13.5 transponders on the satellite, a portion of which will
be funded by existing launch vehicle deposits. The corresponding
cumulative costs relating to these transponders have been
reflected as satellites under construction on Lorals
consolidated balance sheet as of December 31, 2002. Subject
to certain acceleration rights on the part of Loral, 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 upon its payments thereon. This agreement results in a
proportionate amount of the Telstar 18/ Apstar V
satellite becoming a self-constructed asset in Lorals
consolidated financial statements. For the year ended
December 31, 2002, $71 million of revenues and
$14 million of profits were included in intercompany
eliminations to reflect this amended arrangement with APT.
Amounts attributable to the transponders to be acquired from APT
in the future of $23 million are being treated for
accounting purposes as a repurchase obligation based on the
present value of such obligations and are included in satellites
under construction and long-term liabilities on Lorals
consolidated balance sheet as of December 31, 2002. As a
result of finalizing the Telstar 18/ Apstar V launch
arrangements in March 2003, Loral agreed to take two fewer
transponders without any corresponding change to the transponder
cost borne by each of the parties.

Contractual Obligations and Other Commercial
Commitments

The following tables aggregate the contractual
obligations and other commercial commitments of Loral as of
December 31, 2002 (in thousands).

Contractual Obligations:

|                                       |  |       |           |                        |  |             |         |             |  |               |           |  |  |   |           |  |  |   |         | 
|-------------------------------------- |  | ----- | --------- | ---------------------- |  | ----------- | ------- | ----------- |  | ------------- | --------- |  |  | - | --------- |  |  | - | ------- | 
|                                       |  |       |           |                       
|                                       |  |       |           | Payments Due by Period
|                                       |  |       |           |                       
|                                       |  | Total |           | 1 year                 |  | 2  3 years |         | 4  5 years |  | After 5 years
|                                       |  |       |           |                        |  |             |         |             |  |              
|Debt(1)                                |  | $     | 2,236,575 |                        |  | $           | 130,168 |             |  | $             | 993,584   |  |  | $ | 1,112,450 |  |  | $ | 373     | 
|Operating leases(2)                    |  |       | 254,220   |                        |  |             | 42,904  |             |  |               | 57,650    |  |  |   | 49,391    |  |  |   | 104,275 | 
|Unconditional purchase obligations (3) |  |       | 238,848   |                        |  |             | 145,898 |             |  |               | 46,060    |  |  |   | 29,840    |  |  |   | 17,050  | 
|Other long-term obligations(4)         |  |       | 136,270   |                        |  |             | 36,045  |             |  |               | 24,052    |  |  |   | 11,005    |  |  |   | 65,168  | 
|Preferred stock redemptions(5)         |  |       | 223,950   |                        |  |             |        |             |  |               |          |  |  |   | 223,950   |  |  |   |        | 
|                                       |  |       |           |                        |  |             |         |             |  |               |           |  |  |   |           |  |  |   |         | 
|Total contractual cash obligations     |  | $     | 3,089,863 |                        |  | $           | 355,015 |             |  | $             | 1,121,346 |  |  | $ | 1,426,636 |  |  | $ | 186,866 | 
|                                       |  |       |           |                        |  |             |         |             |  |               |           |  |  |   |           |  |  |   |         | 

Other Commercial Commitments:

|                                                |  |           |        |                                            |  |             |        |             |  |               |   |  |  |   |   |  |  |   |       | 
|----------------------------------------------- |  | --------- | ------ | ------------------------------------------ |  | ----------- | ------ | ----------- |  | ------------- | - |  |  | - | - |  |  | - | ----- | 
|                                                |  |           |        |                                           
|                                                |  | Total     |        | Amount of Commitment Expiration Per Period
|                                                |  | Amounts   |        |                                           
|                                                |  | Committed |        | 1 year                                     |  | 2  3 years |        | 4  5 years |  | After 5 years
|                                                |  |           |        |                                            |  |             |        |             |  |              
|Standby letters of credit and
    guarantees(6) |  | $         | 18,284 |                                            |  | $           | 14,860 |             |  | $             |  |  |  | $ |  |  |  | $ | 3,424 | 
|                                                |  |           |        |                                            |  |             |        |             |  |               |   |  |  |   |   |  |  |   |       | 




|    |                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents cash obligations for principal
    payments and the difference in the carrying value and principal
    amount for Loral Orions 10% senior notes that is amortized
    over the life of the notes.
|   
|(2) | Represents future minimum payments under
    operating leases with initial or remaining terms of one year or
    more, net of sub-lease rentals of $3.2 million.                                             

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | SS/L has entered into various purchase
    commitments with suppliers due to the long lead times required
    to produce purchased parts and launch vehicles. The commitments
    included for unassigned launch vehicles represent minimum
    amounts due if the contract is terminated, net of deposits which
    the Company believes can be offset against these minimum
    amounts. Additional amounts will be incurred upon utilization of
    launch vehicles. Also includes amounts due to APT for
    Lorals purchase of transponders on Telstar
    18/Apstar V.
|   
|(4) | Primarily represents vendor financing related
    amounts owed to subcontractors, of which $47 million is
    non-recourse to SS/ L in the event of non- payment by Globalstar
    due to bankruptcy, and orbital incentive payments owed to a
    subcontractor for which SS/ L has a corresponding long-term
    receivable from the customer.                                                                                                                                                                                                                             
|   
|(5) | Preferred stock can be redeemed in cash, Loral
    common stock or a combination of both.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(6) | Letters of credit have a maturity of one year and
    are renewed annually.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

The Company has deferred revenue and established
warranty obligations relating to satellites sold to customers
which could be impacted by future performance. A reconciliation
of such deferred amounts for the year ended December 31,
2002 is as follows (in millions):

|                                                                                 |  |   |      |  
|-------------------------------------------------------------------------------- |  | - | ---- | -
|Balance of deferred amounts at January 1,
    2002                               |  | $ | 14.8 |  
|Accruals for deferred amounts issued during the
    period                       |  |   | 1.0  |  
|Accruals relating to pre-existing contracts
    (including changes in estimates) |  |   | (1.7 | )
|                                                                                 |  |   |      |  
|Balance of deferred amounts at December 31,
    2002                             |  | $ | 14.1 |  
|                                                                                 |  |   |      |  

Affiliate Matters

Satmex

In connection with the privatization of Satmex by
the Mexican Government of its fixed satellite services business,
Loral and Principia formed a joint venture, Firmamento Mexicano,
S.A. de R.L. de C.V. (Holdings). In 1997, Holdings
acquired 75% of the outstanding capital stock of Satmex. As part
of the acquisition, Servicios Corporativos Satelitales, S.A. de
C.V. (Servicios), a wholly owned subsidiary of
Holdings, issued a seven-year Government Obligation
(Government Obligation) to the Mexican Government in
consideration for the assumption by Satmex of the debt incurred
by Servicios in connection with the acquisition. The Government
Obligation had an initial face amount of $125 million,
which accretes at 6.03% and expires in December 2004. The debt
of Satmex and Holdings is non-recourse to Loral and Principia.
However, Loral and Principia have agreed to maintain assets in a
collateral trust in an amount equal to the value of the
Government Obligation through December 30, 2000 and,
thereafter, in an amount equal to 1.2 times the value of the
Government Obligation until maturity. As of December 31,
2002, Loral and Principia have pledged their respective shares
in Holdings in such trust. Loral has a 65% economic interest in
Holdings and a 49% indirect economic interest in Satmex. Loral
accounts for Satmex using the equity method. The covenants of
Satmexs debt instruments restrict the ability of Satmex to
pay dividends to Loral.

Satmex currently has two satellites in orbit
(Solidaridad 2 and Satmex 5) and one satellite in
inclined orbit (Morelos 2). In August 2000, Satmex
announced that its Solidaridad 1 satellite ceased operation
and was irretrievably lost. The loss was caused by the failure
of the back-up control processor on board the satellite.
Solidaridad 1, which was built by Hughes Space and
Communications (now Boeing Satellite Systems Boeing)
and launched in 1994, experienced a failure of its primary
control processor in April 1999, and had been operating on its
back-up processor since that time. The majority of
Solidaridad 1 customers were provided replacement capacity
on other Satmex satellites or on satellites operated by Loral
Skynet. The loss of Solidaridad 1 was fully covered by
insurance proceeds. In connection with this loss, Satmex
recognized after-tax gains of $5 million in 2002 and 2001
and $67 million in 2000, which resulted from the insurance
proceeds in excess of the carrying amount of the satellite and
the estimated incremental costs associated with providing
replacement capacity, as required by its contracts with its
customers. Satmex has contracted with SS/L to build a
replacement satellite. This satellite, known as Satmex 6,
is scheduled to be launched in the third quarter of 2003, and is
designed to provide broader coverage and higher power levels
than any other satellite currently in the Satmex fleet.

Satmex is currently pursuing loans supported by
export credit agencies to raise additional financing for its
Satmex 6 satellite project. On March 6, 2003 the
Export Import Bank of the United States (Eximbank),

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pursuant to a meeting of its Board of Directors,
referred the Satmex loan guaranty application to the United
States Congress. Pending a mandatory 35-day review period,
Satmex expects the application to return to the Eximbank board
for formal approval. There can be no assurance that Satmex will
be able to obtain such approval. These export loans, and certain
additional financings, will be needed by Satmex to fund the
Satmex 6 project and repay existing secured debt. If Satmex
is unable to successfully obtain the export loans and this
additional financing, the Companys investment in Satmex of
$51 million and receivables of $4 million at
December 31, 2002 may be adversely affected.


At December 31, 2002, Solidaridad 2 had
a remaining estimated useful life of six years.
Solidaridad 2 was also manufactured by Boeing and is
similar in design to Solidaridad 1 and to other Boeing
satellites which have experienced in-orbit component failures.
While Satmex was able to obtain a renewal of the in-orbit
insurance for Solidaridad 2 in November 2002, this policy
does not insure against an in-orbit failure due to the loss of
the satellites control processor, the same component that
caused the loss of Solidaridad 1 and other Boeing
satellites. An uninsured loss of the satellite could have a
material adverse effect on Satmexs results of operations
and financial condition.

In May 2000, Satelites Enigma S.A. de C.V., a
subsidiary of Principia, S.A. de C.V. (Principia),
exercised its option to purchase 104,105 shares of Satmex
preferred stock from Loral for $6.6 million in cash. Loral
realized a gain of $1 million in connection with this
transaction.

Europe*Star

Europe*Star, a joint venture between Loral and
Alcatel that owns and operates the Europe*Star 1 satellite,
commenced service in 2001 and is a member of the Loral Global
Alliance, which is led by Loral Skynet. Through December 31,
2002, Loral has invested $76 million in Europe*Star
(including $4 million and $6 million in 2001 and 2000,
respectively) and had provided advances (vendor financing and
receivables) of $38 million related to Europe*Star. In the
fourth quarter of 2002, the Companys investment in
Europe*Star was reduced to zero, as the Company recorded
valuation allowances of $38 million on the vendor financing
and the receivables advanced due to collection concerns and
recorded an impairment charge relating to its investment in
Europe*Star of $7 million. As a result, any future losses
attributable to Europe*Star will not be recognized by Loral. As
of December 31, 2002, Loral owned 47% of Europe*Star.
Pursuant to the terms of the shareholders agreement, Loral has
permitted Alcatel to fund additional expenditures to develop
Europe*Stars business and infrastructure through
$181 million in loans to the venture, which Alcatel claims
are payable by Europe*Star on demand. Such loans are
non-recourse to Loral.

XTAR, L.L.C.

XTAR, a joint venture between Loral and Hisdesat
Servicios Estrategicos, S.A. (Hisdesat), a
consortium comprised of leading Spanish telecommunications
companies, including Hispasat, S.A., and agencies of the Spanish
government, plans to construct and launch an X-band satellite to
provide X-band services to government users in the United States
and Spain, as well as other friendly and allied nations. XTAR is
owned 56% by Loral (accounted for under the equity method since
the Company does not control certain significant operating
decisions) and 44% by Hisdesat. In addition, XTAR has agreed to
lease certain transponders on the Spainsat satellite, which is
being constructed by SS/L for Hisdesat. As of December 31,
2002, the partners in proportion to their respective ownership
interests have contributed $55 million to XTAR. XTAR is
seeking to raise the remaining amount of the funds it needs to
construct and launch its satellite through vendor and other
third-party financings. If XTAR is unable to raise the remaining
funds it needs to construct, launch and operate its satellite,
it would adversely effect the Companys investment in XTAR
of $25 million at December 31, 2002. Loral has no
further obligations with respect to XTAR.

FSS Affiliate Results

Total affiliate revenues for Satmex, Europe*Star
and XTAR were $101 million, $142 million and
$136 million in 2002, 2001 and 2000, respectively. EBITDA
on the same basis was $43 million, $70 million and
$77 million, respectively.

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Globalstar and GTL

The Company accounts for its investment in
Globalstar on the equity method due to its inability to control
significant operating decisions at Globalstar. In 2000,
Lorals allocated share of Globalstars losses and
Globalstars impairment charges reduced Lorals
investment in and advances to Globalstar to zero (see below).
Accordingly, there is no longer any requirement for Loral to
provide for its allocated share of Globalstars net losses
subsequent to December 31, 2000. The Company accounts for
its investment in Globalstars $500 million credit facility
at fair value, with changes in the value (net of tax) recorded
as a component of other comprehensive loss (see Notes 3 and
12 to Lorals consolidated financial statements). The
Company recorded unrealized net (losses) gains after taxes
as a component of other comprehensive (loss) income of
$(13) million, $(12) million and $33 million in
2002, 2001 and 2000, respectively, in connection with this
security.

On February 15, 2002, Globalstar and certain
of its direct subsidiaries filed voluntary bankruptcy petitions
under Chapter 11 of Title 11, United States Code in
the United States Bankruptcy Court for the District of Delaware
(the Court). In connection therewith, Loral/
Qualcomm Satellite Services, L.P., the managing general partner
of Globalstar, its general partner, Loral/ Qualcomm Partnership,
L.P. (LQP), and certain of Lorals subsidiaries
that serve as general partners of LQP also filed voluntary
bankruptcy petitions with the Court. As a result of
Globalstars bankruptcy petition, several of
Globalstars debt facilities and other debt obligations
have been accelerated and are immediately due and payable.
Subcontractors have assumed $74 million of vendor financing
that SS/L has provided to Globalstar at December 31, 2002,
which includes $47 million which is non-recourse to SS/L in
the event of non-payment by Globalstar due to bankruptcy and is
included in long-term liabilities in the consolidated balance
sheets.

On February 25, 2003, Globalstar entered
into, and on March 6, 2003, the Court approved, a
debtor-in-possession (the DIP Agreement) credit
agreement with Blue River Capital LLC, Columbia Ventures
Corporation, ICO Investment Corp., Iridium Investors, LLC and
Loeb Partners Corp. Pursuant to this DIP Agreement, these five
lenders, of whom three are members of Globalstars official
unsecured creditors committee, will make up to
$10 million available to Globalstar on the terms and
subject to the conditions set forth in the DIP Agreement. The
Court also granted Globalstars motion to establish, and
Globalstar has commenced, a process to find potential outside
investors to help the company emerge from bankruptcy. There can
be no assurance that Globalstar will be successful in finding
such additional investors, that Globalstar and its creditors
will be able to reach an agreement with any interested
investors, that any proposed plan of reorganization for
Globalstar will be approved by the Court or that Globalstar will
be successfully reorganized.

On March 14, 2003, Loral signed a term sheet
with Globalstar and Globalstars official creditors
committee to resolve certain issues related to Globalstar and
Globalstars restructuring. Among other things, the
settlement incorporated in the term sheet, which is subject to
definitive documentation and approval by the Court (as to which
there can be no assurance), Globalstar would grant to Loral,
subject to certain conditions, a general release of all claims
Globalstar might have against Loral; the parties would seek to
provide Loral with one seat on the board of directors of
reorganized Globalstar; approximately 50% of Lorals
unsecured claims against Globalstar would be allowed, or
approximately $438 million; and the debt owed to Globalstar
by three foreign service providers in which Loral has a
substantial equity interest (Globalstar do Brasil, Globalstar de
Mexico and GlobalTel), of an aggregate of $7.2 million
would be eliminated. In consideration, Loral would transfer to
Globalstar eight spare satellites ordered by Globalstar but not
fully paid for; certain agreements that provided a joint venture
in which Loral is a participant with exclusivity in marketing
certain Globalstar services in the U.S. would be terminated,
with a new joint venture being formed among Globalstar and Loral
to exclusively market Globalstar services to certain
governmental agencies in the U.S.; the FCC license authorizing
the Globalstar service, which in any event was being held by a
joint venture in which Loral is a participant for the exclusive
benefit of Globalstar, would be transferred to Globalstar;
Lorals equity interest in the Globalstar Canadian service
provider would be transferred to Globalstar; a $10 million
obligation of the Canadian service provider owed to Loral at
December 31, 2002 would be reduced by $7.2 million and
the remaining debt obligation would be converted from a demand
note into a five-year term note; Lorals unsecured claims
against Globalstar would be reduced by approximately 50% or
approximately $438 million; the unused prepayment
($2,260,000) on a Globalstar contract under which there

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is a stop work order would be returned to
Globalstar by Loral; a $250,000 termination fee that may come
due under that contract would be waived; Loral would cooperate
toward a reorganization of Globalstar; and the Loral employees
on Globalstars management committee would resign. Loral
does not expect any material impact on its results of operations
or financial position as a result of this settlement.


As of December 31, 2002, the Companys
investment in Globalstar related activities was
$20 million, representing the fair value of its investment
in Globalstars $500 million credit facility, which
was based on the trading values of Globalstars public debt
at December 31, 2002. If Globalstar were unable to
effectuate a successful restructuring, the Companys
remaining investment in Globalstars $500 million
credit facility would be impaired, which, as discussed above,
would have no effect on the Companys results of
operations. Lorals investment in the operations of those
Globalstar service provider ventures in which it participates as
an equity owner was $1 million in 2002 and is expected to
be zero in 2003. In 2002, the Company paid $10 million it
had guaranteed in connection with a Globalstar service provider
partnership. Globalstar service providers own and operate
gateways, are licensed to provide services and, through their
sales and marketing organizations, are actively selling
Globalstar service, in their respective territories.

Commitments and Contingencies

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

Thirteen of the satellites built by SS/L and
launched since 1997, six of which are owned and operated by
Lorals subsidiaries or affiliates, have experienced minor
losses of power from their solar arrays. Although to date,
neither the Company nor any of the customers using the affected
satellites have experienced any degradation in performance,
there can be no assurance that one or more of the affected
satellites will not experience additional power loss that could
result in performance degradation, including loss of transponder
capacity. In the event of additional power loss, the extent of
the performance degradation, if any, will depend on numerous
factors, including the amount of the additional power loss, the
level of redundancy built into the affected satellites
design, when in the life of the affected satellite the loss
occurred and the number and type of use being made of
transponders then in service. It is also possible that one or
more transponders on a satellite may need to be removed from
service to accommodate the power loss and to preserve full
performance capabilities of the remaining transponders. A
complete or partial loss of satellites could result in a loss of
orbital incentive payments and, in the case of satellites owned
by Loral subsidiaries and affiliates, a loss of revenues and
profits. With respect to satellites under construction and
construction of new satellites, based on its investigation of
the matter, SS/L has identified and has implemented remedial
measures that SS/L believes will prevent newly launched
satellites from experiencing similar anomalies. SS/L does not
expect that implementation of these measures will cause any
significant delay in the launch of satellites under construction
or construction of new satellites. Based upon information
currently available, including design redundancies to
accommodate small power losses and that no pattern has been
identified as to the timing or specific location within the
solar arrays of the failures, the Company believes that this
matter will not have a material adverse effect on the
consolidated financial position or results of operations of
Loral.

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In September 2001, the PAS 7 satellite built by
SS/L for PanAmSat experienced an electrical power failure on its
solar arrays that resulted in the loss of use of certain
transponders on the satellite. As a result, PanAmSat has claimed
that under its contract with SS/L it is entitled to be paid
$16 million. SS/L disputes this claim and is in discussions
with PanAmSat to resolve this matter. In addition, a Loral
Skynet satellite has experienced a minor loss of power from its
solar arrays, the cause of which may be similar to the cause of
the PAS 7 anomaly. SS/L believes, however, that these failures
are isolated events and do not reflect a systemic problem in
either the satellite design or manufacturing process.
Accordingly, SS/L does not believe that these anomalies will
affect other on-orbit satellites built by SS/L. Also, the PAS 8
satellite has experienced minor losses of power from its solar
arrays, the cause of which is unrelated to the loss of power on
the PAS 7 satellite. PanAmSat has claimed that under its
contract with SS/L it is entitled to be paid $7.5 million
as a result of these minor power losses. SS/L disputes this
claim. SS/L and PanAmSat are in discussions to resolve this
matter.

SS/L has contracted to build a spot beam, Ka-band
satellite for a customer planning to offer broadband data
services directly to the consumer. SS/L had suspended work on
this program since December 2001 while the customer and SS/L
were in discussions to resolve a dispute under the contract. In
March 2003, SS/L and the customer reached an agreement in
principle to restart the satellite construction program. As of
December 31, 2002, SS/L had billed and unbilled accounts
receivable and vendor financing arrangements of $49 million
with this customer. Under the agreement, which is subject to
documentation in definitive amendments to their contract, the
customer will pay, subject to its receipt of a proposed third
party equity investment, the remainder of the purchase price
under the contract of $68.1 million (including
$49 million owed to SS/L at December 31, 2002) in
installments over time, a portion of which will be due
subsequent to completion of the satellite.

SS/L was a party to an Operational Agreement with
Alcatel Space Industries, pursuant to which the parties had
agreed to cooperate on certain satellite programs, and an
Alliance Agreement with Alcatel Space (together with Alcatel
Space Industries, Alcatel), pursuant to which
Alcatel had certain rights with respect to SS/L. The agreements
between Alcatel and SS/L were terminable on one years
notice, and, on February 22, 2001, Loral gave notice to
Alcatel that they would expire on February 22, 2002. In
April 2001, Alcatel commenced an arbitration proceeding
challenging the effectiveness of Lorals notice of
termination and asserting various alleged breaches of the
agreements by SS/ L relating to the exchange of information and
other procedural or administrative matters. In February 2002,
the arbitral tribunal issued a partial decision, which upheld
the validity of Lorals termination effective
February 22, 2002 and Alcatels claims as to certain
breaches. The partial decision was confirmed by the District
Court for the Southern District of New York on June 25,
2002. The arbitral tribunal provided both parties with an
opportunity to file any additional claims or counterclaims they
had. In March 2002, Alcatel submitted additional claims against
Loral and SS/L and is seeking at least $350 million in
damages in respect of all of its claims. On January 27,
2003, Loral and SS/L received from the arbitral tribunal a
partial decision on the additional claims and counterclaims. The
arbitral tribunal ruled in favor of Alcatel on most of its
claims alleging breaches of the Operational Agreement or
Alliance Agreement and ruled against Loral and SS/L on the
counterclaims. The arbitral tribunal set a schedule for further
submissions by the parties and for hearings to be held in May
and August 2003 to determine whether any of the breaches caused
Alcatel to suffer injury and to determine the amount of damages,
if any. If the arbitral tribunal finds that Alcatel has
sustained significant damages, there could be a material adverse
effect on Lorals consolidated financial position and
results of operations.

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

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The launch of ChinaSat-8 has been delayed pending
SS/Ls obtaining the approvals required for the launch. On
December 23, 1998, the Office of Defense Trade Controls, or
ODTC, of the U.S. Department of State temporarily suspended a
previously approved technical assistance agreement under which
SS/L had been preparing for the launch of the ChinaSat-8
satellite. In addition, SS/L was required to re-apply for new
export licenses from the State Department to permit the launch
of ChinaSat-8 on a Long March launch vehicle when the old export
licenses issued by the Commerce Department, the agency that
previously had jurisdiction over satellite licensing, expired in
March 2000. On January 4, 2001, the ODTC, while not
rejecting these license applications, notified SS/L that they
were being returned without action. On January 9, 2002,
Loral, SS/L and the United States Department of State entered
into a consent agreement (the Consent Agreement)
settling and disposing of all civil charges, penalties and
sanctions associated with alleged violations by SS/L of the Arms
Export Control Act and its implementing regulations. The Company
recorded a $12 million charge in the fourth quarter of 2001
for the penalties associated with the Consent Agreement. The
Consent Agreement provides that the State Department agrees,
assuming the Companys and SS/Ls faithful adherence
to the terms of the Consent Agreement, and the Arms Export
Control Act and its implementing regulations, that decisions
concerning export licenses for the ChinaSat-8 spacecraft will be
made on the basis of the security and foreign policy interests
of the United States, including matters relating to U.S.
relations with the Peoples Republic of China, without
reference to the State Departments previously expressed
concerns regarding SS/Ls reliability, which concerns are
considered to be appropriately mitigated through the operation
of various provisions of the Consent Agreement. Discussions
between SS/L and the State Department regarding SS/Ls
obtaining the approvals required for the launch of ChinaSat-8
are continuing.

If ChinaSat were to terminate its contract with
SS/L for ChinaSat-8 as a result of these delays, ChinaSat may
seek a refund of $134 million for payments made to SS/L as
well as penalties of up to $11 million. The Company does
not believe that ChinaSat is entitled to such a refund or
penalties and would vigorously contest any such claims by
ChinaSat. A portion of the potential claim relates to amounts
that were paid to a launch vehicle provider. To the extent that
SS/L or ChinaSat is able to recover some or all of the
$52 million deposit payment on the Chinese launch vehicle,
this recovery would reduce the amount of any claim. SS/L
believes that ChinaSat bears the risk of loss in the event that
the deposit payments are not refunded by the launch vehicle
provider. SS/L has commenced discussions with the launch vehicle
provider to recover this deposit. There can be no assurance,
however, that SS/L will be able either to obtain a refund from
the launch provider or to find a replacement customer for the
Chinese launch vehicle. If ChinaSat were to terminate the
contract, SS/L estimates that it would incur costs of
approximately $38 million to refurbish and retrofit the
satellite so that it could be sold to another customer, which
resale cannot be guaranteed.

As of December 31, 2002, SS/L had
outstanding vendor financing receivables totaling
$74 million, including accrued interest, due from Sirius,
which is currently in the process of rolling out its business.
On March 7, 2003, Sirius completed its recapitalization
plan. Under this plan, Sirius received $200 million in cash
from third party investors and exchanged approximately
$636 million of its debt and all of its $525 million
of preferred stock into common stock. As part of this
recapitalization, SS/L converted all of its vendor financing
receivables into 58,964,981 shares of common stock of Sirius. In
2002, SS/L recorded a valuation allowance on the vendor
financing receivables due from Sirius of $33 million,
representing the difference between the carrying value of
SS/Ls interest and the value of the common shares expected
to be received by SS/L based on the trading price of
Sirius common stock as of December 31, 2002. Loral
has classified the Sirius vendor financing receivable in current
assets at December 31, 2002, due to its intent to sell the
Sirius common stock within the next year. The value of the
shares SS/L received based on the closing price of Sirius
common stock on March 7, 2003 was $28 million.
Accordingly, SS/L will record a non-cash charge to earnings of
$10 million in the first quarter of 2003. All future
changes in the value of Sirius common stock will be
recorded as an adjustment to other comprehensive income
(loss) until realized. As of March 28, 2003, SS/L had
realized net proceeds of $9.0 million from the sale of a
portion of its Sirius common stock and gains on such sales of
$0.9 million and the market value of its remaining Sirius
common shares was approximately $28 million.

SS/L has entered into several long-term launch
services agreements with various launch providers to secure
future launches for its customers, including us and our
affiliates. Through the assignment of satellites to

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launch vehicles and refunds, SS/L has reduced its
launch deposits by $87 million for the year ended
December 31, 2002. Nonetheless, SS/L may, as a result of
current market conditions, cancel some of the launchers to which
it has committed. SS/L had launch services agreements with
International Launch Services (ILS) which covered
three launches. In November 2002, SS/L terminated one of those
future launches, which had a termination liability equal to
SS/Ls deposit of $5 million. Subsequently, SS/L received a
letter from ILS alleging SS/Ls breach of the agreements,
purporting to terminate all three launches and asserting a right
to retain $42.5 million in deposits, without prejudice to
any other legal claims or remedies. Despite ILSs
termination of all three launches, to protect its interest SS/L
also terminated a second launch, which had a termination
liability equal to its deposit of $5 million, and SS/L has
recognized a non-cash charge to earnings of $10 million
with respect to the two terminated launches. SS/L believes that
ILSs claims are without merit and intends to defend
against them vigorously and to seek recovery of its deposits and
termination liabilities. The Company does not believe that this
matter will have a material adverse effect on its consolidated
financial position and its results of operations, although no
assurances can be provided.


Loral Skynet has an application pending with the
FCC for authorization to use the C-Band frequency at 121 degrees
W.L. in the U.S. using a non-U.S. ITU filing. Telstar 13, which
is currently under construction, is scheduled for launch into
this orbital slot in the second quarter of 2003. New Skies
Satellites has asserted that its non-U.S. ITU filing at 120.8
degrees W.L. has date priority over Loral Skynets ITU
filing and has filed comments with the FCC seeking to impose
conditions on Loral Skynets use of the 121 degrees W.L.
slot. Loral Skynet has opposed New Skies comments. Loral
Skynet is continuing its international coordination of the 121
degrees W.L. slot. There can be no assurance, however, that
coordination discussions will be successful or that the FCC will
grant Loral Skynets application or grant the application
without adding conditions that may constrain Loral Skynets
operations at the 121 degrees W.L. slot.

On October 21, 2002, National Telecom of
India Ltd. (Natelco) filed suit against Loral and
Loral CyberStar in the United States District Court for the
Southern District of New York. The suit relates to a joint
venture agreement entered into in 1998 between Natelco and ONS
Mauritius, Ltd., a subsidiary of Loral CyberStar, the
effectiveness of which was subject to express conditions
precedent. In 1999, ONS Mauritius had notified Natelco that
Natelco had failed to satisfy those conditions precedent. In
Natelcos amended complaint filed in March 2003,
Natelco has alleged wrongful termination of the joint venture
agreement, has asserted claims for breach of contract and fraud
in the inducement, and is seeking damages and expenses in the
amount of $97 million. Loral believes that the claims are
without merit and intends to vigorously defend against them.

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

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

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supplement relating to the sale of shares of GTL
common stock in January 2000, and (e) that defendants Loral
and Schwartz are secondarily liable under Section 15 of the
Securities Act for GTLs primary violations of
Sections 11 and 12(2)(a) of the Securities Act as alleged
controlling persons of GTL. The class of plaintiffs
on whose behalf the lawsuit has been asserted consists of all
buyers of securities of Globalstar, Globalstar Capital and GTL
during the period from December 6, 1999 through
October 27, 2000, excluding the defendants and certain
persons related or affiliated therewith. Loral and
Mr. Schwartz have filed a motion to dismiss the amended
complaint in its entirety as to Loral and Mr. Schwartz,
which motion is pending before the court. Loral believes that it
has meritorious defenses to this class action lawsuit and
intends to pursue them vigorously.


On March 2, 2002, the seven separate
purported class action lawsuits filed in the United States
District Court for the Southern District of New York by various
holders of common stock of Loral Space & Communications Ltd.
(Loral) against Loral, Bernard L. Schwartz and
Richard Townsend were consolidated into one action titled In
re: Loral Space & Communications Ltd. Securities
Litigation. On May 6, 2002, plaintiffs in the
consolidated action filed a consolidated amended class action
complaint alleging (a) that all defendants violated
Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder by making material misstatements or
failing to state material facts about Lorals financial
condition and its investment in Globalstar and (b) that
Mr. Schwartz is secondarily liable for these alleged
misstatements and omissions under Section 20(a) of the
Exchange Act as an alleged controlling person of
Loral. The class of plaintiffs on whose behalf the lawsuit has
been asserted consists of all buyers of Loral common stock
during the period from November 4, 1999 through
February 1, 2001, excluding the defendants and certain
persons related or affiliated therewith. Loral and
Messrs. Schwartz and Townsend have filed a motion to
dismiss the complaint in its entirety, which motion is pending
before the court. Loral believes that it has meritorious
defenses to this class action lawsuit and intends to pursue them
vigorously. In addition, the insurers under Lorals
directors and officers liability insurance policy have denied
coverage for the case filed by Loral shareholders under the
policy and, on March 24, 2003, filed a lawsuit in the
Supreme Court of New York county seeking a declaratory judgment
upholding their coverage position. Loral believes that the
insurers have wrongfully denied coverage and intends to defend
against the denial vigorously.

Loral holds debt obligations from Globalstar (see
Note 6 to the consolidated financial statements). In other
situations in the past, challenges have been initiated seeking
subordination or recharacterization of debt held by an affiliate
of an issuer. While Loral knows of no reason why such a claim
would prevail with respect to the debt Loral holds in
Globalstar, there can be no assurance that such claims will not
be made in Globalstars bankruptcy proceeding. If such
claims were to prove successful, it will jeopardize the amount
of equity interest Loral will ultimately receive in the new
Globalstar company. Moreover, actions may be initiated in
Globalstars bankruptcy proceeding seeking to characterize
payments previously made by Globalstar to Loral prior to the
filing date as preferential payments subject to repayment. Loral
may also find itself subject to other claims brought by
Globalstar creditors and securities holders, who may seek to
impose liabilities on Loral as a result of its relationship with
Globalstar. For instance, Globalstars creditors may seek
to pierce the corporate veil in an attempt to recover Globalstar
obligations owed to them that are recourse to Lorals
subsidiaries, which are general partners in Globalstar and have
filed for bankruptcy protection. Globalstars cumulative
partners deficit at December 31, 2002, was $3.2
billion. During the second quarter of 2002, the Company
recovered a claim with a vendor on the Globalstar program.
Globalstar or its creditors may assert a claim to some portion
or all of this recovery. If so, the Company will vigorously
dispute any such claim.

In May 2000, Globalstar finalized
$500 million of vendor financing arrangements with
Qualcomm. The original terms of this vendor financing provided
for interest at 6%, a maturity date of August 15, 2003 and
required repayment pro rata with the term loans due to Loral
under Globalstars $500 million credit facility. As of
December 31, 2002, $623 million was outstanding under
this facility (including $123 million of capitalized
interest). Loral has agreed that if the principal amount
outstanding under the Qualcomm vendor financing facility exceeds
the principal amount due Loral under Globalstars
$500 million credit facility, as determined on certain
measurement dates, then Loral will guarantee 50% of such excess
amount. As of December 31, 2002, Loral had no obligation
under the guarantee.

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Other Matters

Insurance
Matters

The Company, like others in the satellite
industry, is 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 is due in part to the events of September 11,
2001. This development in the insurance industry has increased
the cost of doing business. The Company intends to pass on some
of the increased cost to its customers. There can be no
assurance, however, that it 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.

While the Company has in the past, consistent
with industry practice and the requirements in the
Companys debt agreements, typically obtained in-orbit
insurance for its satellites, the Company cannot guarantee that,
upon a policys expiration, the Company will be able to
renew the insurance on acceptable terms, especially on
satellites that have, or that are part of a family of satellites
that have, experienced problems in the past. 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. Four other satellites owned by
Loral Skynet and Loral Orion have 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 renewals of insurance for these
satellites in 2003 and 2004. An uninsured loss of a satellite
would have a material adverse effect on the Companys
consolidated financial position and its results of operations.
Moreover, the Company is required under the terms of the Loral
SpaceCom and Loral Satellite credit facilities to use the
insurance proceeds from any launch or in-orbit failure of a
satellite owned by Loral SpaceCom or Loral Satellite to prepay
the bank loans, and as a result, these insurance proceeds would
not be available to the Company to build a replacement for the
lost satellite, which would result in an adverse effect on our
future revenue.

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, future discounted cash flows and merger and
acquisition transaction multiples.

In accordance with SFAS 142, the
Companys previously recognized cost in excess of net
assets acquired (goodwill) of $892 million for
business acquisitions accounted for under the purchase method of
accounting completed prior to July 1, 2001, was reviewed
under the new transitional guidance as of January 1, 2002.
Goodwill had been previously assigned to the Companys
business segments as follows (based on the net book value at
December 31, 2001): FSS $597 million, satellite
manufacturing and technology $286 million and data

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services $9 million. The Company hired
professionals in the valuation consulting business to determine
the fair value of each of the Companys reporting units.
Since there were no quoted market prices in active markets for
the Companys reporting units, the measurement of fair
value for each reporting unit was based on the best information
available for that reporting unit, including reasonable and
supportable assumptions and projections, as follows:
(1) FSS  public company trading multiples,
(2) satellite manufacturing and technology 
future discounted cash flows, and (3) data
services  merger and acquisition transaction
multiples. Based on the fair values concluded on by those
professionals, management determined that the goodwill for each
of the Companys reporting units under the new guidance in
SFAS 142 was fully impaired. Accordingly, as of
January 1, 2002, the Company recorded a non-cash charge for
the cumulative effect of the change in accounting principle of
$890 million.


The charge 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, Intangible
Assets, 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, except per share
amounts):

|                                                                                                         |  |                   |          |                              |  |        |          |             |  |   |            |   |  |   |            |    
|-------------------------------------------------------------------------------------------------------- |  | ----------------- | -------- | ---------------------------- |  | ------ | -------- | ----------- |  | - | ---------- | - |  | - | ---------- | ---
|                                                                                                         |  |                   |          |                              |  |       
|                                                                                                         |  | Year Ended        |          |                             
|                                                                                                         |  | December 31, 2001 |          | Year Ended December 31, 2000
|                                                                                                         |  |                   |          |                             
|                                                                                                         |  | Actual            |          | As Adjusted                  |  | Actual |          | As Adjusted
|                                                                                                         |  |                   |          |                              |  |        |          |            
|Reported loss before cumulative effect of change
    in accounting principle                             |  | $                 | (194,719 | )                            |  | $      | (194,719 | )           |  | $ | (1,469,678 | ) |  | $ | (1,469,678 | )  
|Add back amortization of goodwill, net of taxes                                                          |  |                   |         |                              |  |        | 26,628   |             |  |   |           |   |  |   | 50,438     | (1)
|                                                                                                         |  |                   |          |                              |  |        |          |             |  |   |            |   |  |   |            |    
|Loss before cumulative effect of change in
    accounting principle                                      |  |                   | (194,719 | )                            |  |        | (168,091 | )           |  |   | (1,469,678 | ) |  |   | (1,419,240 | )  
|Cumulative effect of change in accounting
    principle, net of taxes                                    |  |                   | (1,741   | )                            |  |        | (1,741   | )           |  |   |           |   |  |   |           |    
|                                                                                                         |  |                   |          |                              |  |        |          |             |  |   |            |   |  |   |            |    
|Net loss                                                                                                 |  |                   | (196,460 | )                            |  |        | (169,832 | )           |  |   | (1,469,678 | ) |  |   | (1,419,240 | )  
|Preferred dividends                                                                                      |  |                   | (80,743  | )                            |  |        | (80,743  | )           |  |   | (67,528    | ) |  |   | (67,528    | )  
|                                                                                                         |  |                   |          |                              |  |        |          |             |  |   |            |   |  |   |            |    
|Net loss applicable to common shareholders                                                               |  | $                 | (277,203 | )                            |  | $      | (250,575 | )           |  | $ | (1,537,206 | ) |  | $ | (1,486,768 | )  
|                                                                                                         |  |                   |          |                              |  |        |          |             |  |   |            |   |  |   |            |    
|Reported basic and diluted loss per share before
    cumulative effect of change in accounting principle |  |                   |          |                              |  | $      | (0.86    | )           |  |   |            |   |  | $ | (5.20      | )  
|Add back goodwill amortization per share                                                                 |  |                   |          |                              |  |        | 0.09     |             |  |   |            |   |  |   | 0.17       |    
|                                                                                                         |  |                   |          |                              |  |        |          |             |  |   |            |   |  |   |            |    
|As adjusted loss per share before cumulative
    effect of change in accounting principle                |  |                   |          |                              |  |        | (0.77    | )           |  |   |            |   |  |   | (5.03      | )  
|Cumulative effect of change in accounting
    principle                                                  |  |                   |          |                              |  |        |         |             |  |   |            |   |  |   |           |    
|                                                                                                         |  |                   |          |                              |  |        |          |             |  |   |            |   |  |   |            |    
|Adjusted loss per share                                                                                  |  |                   |          |                              |  | $      | (0.77    | )           |  |   |            |   |  | $ | (5.03      | )  
|                                                                                                         |  |                   |          |                              |  |        |          |             |  |   |            |   |  |   |            |    




|    |                                                                          
|--- | -------------------------------------------------------------------------
|(1) | Includes $24 million reflected in equity in
    net losses of affiliates.

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 the Companys consolidated
financial position or results of operations upon the adoption of
SFAS 143 on January 1, 2003.

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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 upon 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). 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 of $34 million on Loral
Orions debt exchanges in 2001 to gain on debt exchanges
and investments, net in its consolidated statements of
operations (see Liquidity and Capital Resources).

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.

SFAS 148

In December 2002, the FASB issued
SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure
(SFAS 148), an amendment of FASB Statement
No. 123 (SFAS 123). SFAS 148 provides
alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the disclosure
requirements of SFAS 123 to require prominent disclosures
in both annual and interim financial statements about the method
of accounting for stock-based employee compensation and the
effect of the method used on reported results. The Company has
adopted the amended disclosure requirements in its
December 31, 2002 consolidated financial statements and
will include such amended disclosures in its future quarterly
and annual filings.

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.

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|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7a. | Quantitative and Qualitative Disclosures
    about Market Risk

Foreign
Currency

The Company, in the normal course of business, is
subject to the risks associated with fluctuations in foreign
currency exchange rates. Loral entered into forward exchange
contracts to establish with certainty the U.S. dollar
amount of future anticipated cash receipts and payments and firm
commitments for cash payments denominated in a foreign currency.
The primary business objective of this hedging program is to
minimize the gains and losses resulting from exchange rate
changes. The Companys availability to the foreign exchange
market to enter into forward contracts has recently become
restricted and could effect its ability to minimize such gains
and losses. As of December 31, 2002, the Company had
foreign currency exchange contracts (forwards) with several
banks to purchase and sell foreign currencies, primarily
Japanese yen, with aggregate notionals of $101.8 million.
Such contracts were designated as hedges of certain foreign
contracts and subcontracts to be performed by SS/L through May
2006. The fair value of these forward contracts based on quoted
market prices as of December 31, 2002 and 2001 was
$11.7 million and $20.0 million, respectively, and
were included in cash and other current assets on the
consolidated balance sheets.

The Company is exposed to credit-related losses
in the event of non-performance by counter parties to these
financial instruments, but does not expect any counter party to
fail to meet its obligation. The maturity of foreign currency
exchange contracts held as of December 31, 2002 is
consistent with the contractual or expected timing of the
transactions being hedged, principally receipt of customer
payments under long-term contracts and payments to vendors under
subcontracts. These foreign exchange contracts mature as follows
(in thousands):

|         |  |             |           |          |  |        |        |        |  |          |        |        |  |  |           |  |  |   |        |  |  |   |        | 
|-------- |  | ----------- | --------- | -------- |  | ------ | ------ | ------ |  | -------- | ------ | ------ |  |  | --------- |  |  | - | ------ |  |  | - | ------ | 
|         |  |             |           |         
|         |  | To Purchase |           | To Sell 
|         |  |             |           |         
|         |  |             |           | At       |  | At     |        |        |  | At       |        | At    
|Years to |  | Yen         |           | Contract |  | Market |        | Yen    |  | Contract |        | Market
|Maturity |  | Amount      |           | Rate     |  | Rate   |        | Amount |  | Rate     |        | Rate  
|         |  |             |           |          |  |        |        |        |  |          |        |       
|1        |  |             | 1,663,633 |          |  | $      | 13,830 |        |  | $        | 14,162 |        |  |  | 4,965,949 |  |  | $ | 49,837 |  |  | $ | 41,391 | 
|2        |  |             |          |          |  |        |       |        |  |          |       |        |  |  | 2,068,907 |  |  |   | 19,985 |  |  |   | 17,620 | 
|3        |  |             |          |          |  |        |       |        |  |          |       |        |  |  | 301,680   |  |  |   | 3,025  |  |  |   | 2,657  | 
|4        |  |             | 413,130   |          |  |        | 5,134  |        |  |          | 3,769  |        |  |  | 450,840   |  |  |   | 5,674  |  |  |   | 4,116  | 
|         |  |             |           |          |  |        |        |        |  |          |        |        |  |  |           |  |  |   |        |  |  |   |        | 
|         |  |             | 2,076,763 |          |  | $      | 18,964 |        |  | $        | 17,931 |        |  |  | 7,787,376 |  |  | $ | 78,521 |  |  | $ | 65,784 | 
|         |  |             |           |          |  |        |        |        |  |          |        |        |  |  |           |  |  |   |        |  |  |   |        | 

|         |  |             |       |          |  |        |       |  |  |   |       | 
|-------- |  | ----------- | ----- | -------- |  | ------ | ----- |  |  | - | ----- | 
|         |  |            
|         |  | To Purchase
|         |  |            
|         |  |             |       | At       |  | At    
|Years to |  | EURO        |       | Contract |  | Market
|Maturity |  | Amount      |       | Rate     |  | Rate  
|         |  |             |       |          |  |       
|1        |  |             | 4,526 |          |  | $      | 3,997 |  |  | $ | 4,662 | 
|         |  |             |       |          |  |        |       |  |  |   |       | 

Loral does not enter into foreign currency
transactions for trading or speculative purposes. Loral attempts
to limit our exposure to credit risk by executing foreign
contracts with high-quality financial institutions. A discussion
of our accounting policies for derivative financial instruments
is included in the notes to Lorals consolidated financial
statements.

Interest

The Companys primary interest rate exposure
is from loss of earnings and cash flow that could result from
the movement in market interest rates on its long-term debt
requirements. As of December 31, 2002, approximately 58% of
the Companys outstanding debt had fixed interest rates.
The Company strives to manage its interest rate risk by
balancing the composition of its fixed versus variable rate
borrowings combined with the monitoring of the overall level of
borrowings and does not actively manage its interest rate risk
through the use of derivatives or other financial instruments.
The Company does not believe that movements in the fair value of
its outstanding debt, represents a significant quantitative risk.

As of December 31, 2002, the carrying value
of the Companys long-term debt was $2.2 billion and
the fair value of such debt was $1.3 billion. The fair
value of the Companys long-term debt is based on the

59



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carrying value for those obligations that have
short term variable interest rates on the outstanding borrowings
and quoted market prices for obligations with long-term or fixed
interest rates. 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 Loral Orion exchange
offers (see Note 8 to the consolidated financial
statements). The table below provides information about the
carrying amount of the Companys market sensitive 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                                                                       |  | $                                | 64,751 |      |  | $    | 64,927 |      |  | $    | 65,328  |            |  | $ | 1,028,480 |   |  | $ | 86,231 |   |  | $ | 373   |  
|Weighted average fixed interest rate                                                  |  |                                  | 3.48   | %    |  |      | 3.62   | %    |  |      | 3.79    | %          |  |   | 3.96      | % |  |   | 11.98  | % |  |   | 14.00 | %
|Variable rate debt (weighted average interest
    rate of 5.09% at December 31, 2002) |  | $                                | 67,146 |      |  | $    | 95,896 |      |  | $    | 771,392 |            |  | $ |          |   |  | $ |       |   |  | $ |      |  




Item 8.     Financial
Statements and Supplementary Data

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




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

Not applicable.

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##### Table of Contents






PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Directors

Information required for this item will be
presented in the Companys 2003 definitive proxy statement
which is incorporated herein by reference.

Executive Officers of the Registrant

The following table sets forth information
concerning the executive officers of Loral as of March 31,
2003.

|                     |  |     |    |          |  |                                                                                                                                                                                                                                                         
|-------------------- |  | --- | -- | -------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name                 |  | Age |    | Position
|                     |  |     |    |         
|Bernard L. Schwartz  |  |     | 77 |          |  | Chairman of the Board of Directors and Chief
    Executive Officer since January 1996.                                                                                                                                                                  
|Eric J. Zahler       |  |     | 52 |          |  | Director since July 2001 and President and Chief
    Operating Officer since February 2000. Prior to that Executive
    Vice President since October 1999. Prior to that Senior Vice
    President, General Counsel and Secretary since February 1998.  
|Robert E. Berry      |  |     | 74 |          |  | Senior Vice President since November 1996 and
    Chairman of Space Systems/ Loral since September 1999. Prior to
    that, President of Space Systems/ Loral since 1990.                                                                               
|Richard J. Townsend  |  |     | 52 |          |  | Executive Vice President and Chief Financial
    Officer since March 2003. Senior Vice President and Chief
    Financial Officer since October 1998. Prior to that, Corporate
    Controller and Director of Strategy for ITT Industries since
    1997.
|Laurence D. Atlas    |  |     | 45 |          |  | Vice President, Government Relations 
    Telecommunications since May 1997.                                                                                                                                                                           
|Jeanette H. Clonan   |  |     | 54 |          |  | Vice President  Communications and
    Investor Relations since December 1996.                                                                                                                                                                         
|C. Patrick DeWitt    |  |     | 56 |          |  | Vice President; President of Space Systems/ Loral
    since November 2001. Prior to that, Executive Vice President of
    Space Systems/ Loral since 1996.                                                                                              
|Terry J. Hart        |  |     | 56 |          |  | Vice President; President of Loral Skynet since
    March 1997.                                                                                                                                                                                         
|Stephen L. Jackson   |  |     | 61 |          |  | Vice President  Administration since
    March 1997.                                                                                                                                                                                                   
|Avi Katz             |  |     | 44 |          |  | Vice President, General Counsel and Secretary
    since November 1999. Prior to that, Vice President, Deputy
    General Counsel and Assistant Secretary since February 1998.                                                                           
|Russell R. Mack      |  |     | 48 |          |  | Vice President  Business Ventures
    since February 1998.                                                                                                                                                                                             
|Richard P. Mastoloni |  |     | 38 |          |  | Vice President and Treasurer since February 2002.
    Prior to that, Vice President since September 2001 and Assistant
    Treasurer since August 2000. Prior to that, Director of
    Corporate Financing since August 1997.                           
|Harvey B. Rein       |  |     | 49 |          |  | Vice President and Controller since April 1996.                                                                                                                                                                                                         
|Janet T. Yeung       |  |     | 38 |          |  | Vice President, Deputy General Counsel and
    Assistant Secretary since February 2000. Prior to that,
    Associate General Counsel and Assistant Secretary since November
    1999. Prior to that, Associate General Counsel since February
    1998. 

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##### Table of Contents






PART IV






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation






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

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

|                                                           |  |                         |            |                      |  |                           |       |  |  |  |            | 
|---------------------------------------------------------- |  | ----------------------- | ---------- | -------------------- |  | ------------------------- | ----- |  |  |  | ---------- | 
|                                                           |  |                         |            |                      |  | Number of shares         
|                                                           |  |                         |            |                      |  | remaining available for  
|                                                           |  | Number of shares to be  |            | Weighted-average     |  | future issuance under    
|                                                           |  | issued upon exercise of |            | exercise price of    |  | equity compensation plans
|                                                           |  | outstanding options,    |            | outstanding options, |  | (excluding securities    
|Plan                                                       |  | warrants and rights     |            | warrants and rights  |  | reflected in column (a)) 
|Category                                                   |  | (a) (1)                 |            | (b)                  |  | (c)                      
|                                                           |  |                         |            |                      |  |                          
|Equity compensation plans approved by shareholders         |  |                         | 14,217,740 |                      |  | $                         | 11.98 |  |  |  | 2,574,420  | 
|Equity compensation plans not approved by
    shareholders |  |                         | 27,960,683 |                      |  |                           | 3.19  |  |  |  | 9,039,317  | 
|                                                           |  |                         |            |                      |  |                           |       |  |  |  |            | 
|Total                                                      |  |                         | 42,178,423 |                      |  |                           | 6.15  |  |  |  | 11,613,737 | 
|                                                           |  |                         |            |                      |  |                           |       |  |  |  |            | 



---



|    |                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------
|(1) | Does not include 670,414 of outstanding options
    that Loral assumed in connection with the acquisition of Loral
    Orion.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Information required under Items 11, 12 and 13,
is presented in the Companys 2002 definitive proxy
statement which is incorporated herein by reference.






|         |                                                     
|-------- | ----------------------------------------------------
|Item 14. | Evaluation of Disclosure Controls and
    Procedures

(a)     Evaluation of
disclosure controls and procedures. Loral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.

62



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##### Table of Contents








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

(a) 1.     Financial
Statements

|                                                                                                                       |          |  |     |                                                                                                                                                             |  |  |     | 
|---------------------------------------------------------------------------------------------------------------------- | -------- |  | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --- | 
|                                                                                                                       |          |  |     | Page                                                                                                                                                       
|                                                                                                                       |          |  |     |                                                                                                                                                            
|Index to Financial Statements                                                                                          |          |  | F-1 |                                                                                                                                                            
|Loral Space & Communications
    Ltd.                                                                                  |          |  |     |                                                                                                                                                            
|Independent Auditors Report                                                                                           |          |  | F-2 |                                                                                                                                                            
|Consolidated Balance Sheets as of
    December 31, 2002 and 2001                                                       |          |  | F-3 |                                                                                                                                                            
|Consolidated Statements of Operations for the
    years ended December 31, 2002, 2001 and 2000                         |          |  | F-4 |                                                                                                                                                            
|Consolidated Statements of Shareholders
    (Deficit) Equity for the years ended December 31, 2002,
    2001 and 2000 |          |  | F-5 |                                                                                                                                                            
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000                         |          |  | F-6 |                                                                                                                                                            
|Notes to Consolidated Financial Statements                                                                             |          |  | F-7 |                                                                                                                                                            
|                                                                                                                       | (a)   2. |  |     | Financial Statements Schedules                                                                                                                              |  |  |     | 
|                                                                                                                       |          |  |     | Independent Auditors Report                                                                                                                                |  |  | S-1 | 
|                                                                                                                       |          |  |     | Consolidated Financial Statements of Globalstar,
    L.P.                                                                                                   |  |  | S-2 | 
|                                                                                                                       |          |  |     | Financial statement schedules not listed are
    either not required or the information required is reflected in
    the consolidated financial statements. |  |  |     | 
|                                                                                                                       | (b)   3. |  |     | Exhibits                                                                                                                                                    |  |  |     | 

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|        |        |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | ------ | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |            
|Number  |        | Description
|        |        |            
|        | 2.1    |             |  | Restructuring, Financing and Distribution
    Agreement, dated as of January 7, 1996, among Loral
    Corporation, Loral Aerospace Holdings, Inc., Loral Aerospace
    Corp., Loral General Partner, Inc., Loral Globalstar L.P., Loral
    Globalstar Limited, the Registrant and Lockheed Martin
    Corporation(1)                                                                                                                                                                                                                  
|        | 2.2    |             |  | Amendment to Restructuring, Financing and
    Distribution Agreement, dated as of April 15, 1996(1)                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 2.3    |             |  | Agreement for the Purchase and Sale of Assets
    dated as of September 25, 1996 by and between AT&T
    Corp., as Seller, and Loral Space & Communications Ltd., as
    Buyer(2)                                                                                                                                                                                                                                                                                                                                                      
|        | 2.4    |             |  | First Amendment to Agreement for the Purchase and
    Sale of Assets dated as of March 14, 1997 by and between
    AT&T Corp., as Seller, and Loral Space & Communications,
    Ltd. as Buyer(3)                                                                                                                                                                                                                                                                                                                                       
|        | 2.5    |             |  | Agreement and Plan of Merger dated as of
    October 7, 1997 by and among Orion Network Systems, Inc.,
    Loral Space & Communications Ltd. and Loral Satellite
    Corporation(4)                                                                                                                                                                                                                                                                                                                                                    
|        | 2.6    |             |  | First Amendment to Agreement and Plan of Merger
    dated as of February 11, 1998 by and among Orion Network
    Systems, Inc., Loral Space & Communications Ltd. and Loral
    Satellite Corporation(5)                                                                                                                                                                                                                                                                                                                               
|        | 2.7    |             |  | Second Amendment to Agreement and Plan of Merger
    dated as of March 20, 1998 by and among Orion Network
    Systems, Inc., Loral Space & Communications Ltd. and Loral
    Satellite Corporation(11)                                                                                                                                                                                                                                                                                                                                
|        | 3.1    |             |  | Memorandum of Association(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 3.2    |             |  | Memorandum of Increase of Share Capital dated
    January 1996(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 3.2.1  |             |  | Memorandum of Increase of Share Capital dated May
    1997(25)                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 3.2.2  |             |  | Memorandum of Increase of Share Capital dated May
    1999(25)                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 3.3    |             |  | Third Amended and Restated Bye-laws(16)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 3.4    |             |  | Schedule IV to the Third Amended and
    Restated Bye-laws(16)                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 4.1    |             |  | Rights Agreement dated March 27, 1996
    between the Registrant and The Bank of New York, Rights Agent(1)                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 4.2    |             |  | Indenture dated as of January 15, 1999
    relating to Registrants 9 1/2% Senior Notes due
    2006(12)                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10.1   |             |  | Shareholders Agreement dated as of April 23,
    1996 between Loral Corporation and the Registrant(1)                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10.1.1 |             |  | Amended Shareholders Agreement dated as of
    March 29, 2000 between the Registrant and Lockheed Martin
    Corporation(16)                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10.2   |             |  | Tax Sharing Agreement dated as of April 22,
    1996 between Loral Corporation, the Registrant, Lockheed Martin
    Corporation and LAC Acquisition Corporation(1)                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.3   |             |  | Exchange Agreement dated as of April 22,
    1996 between the Registrant and Lockheed Martin Corporation(1)                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.4   |             |  | Amended and Restated Agreement of Limited
    Partnership of Globalstar, L.P. dated as of January 26,
    1999 among Loral/ Qualcomm Satellite Services, L.P., Globalstar
    Telecommunications Limited, AirTouch Satellite Services, Inc.,
    Dacom Corporation, Dacom International, Inc., Hyundai
    Corporation, Hyundai Electronics Industries Co., Ltd., Loral/
    DASA Globalstar, L.P., Loral Space & Communications Ltd.,
    San Giorgio S.p.A., TeleSat Limited, TE.S.AM and Vodafone
    Satellite Services Limited(12)
|        | 10.4.1 |             |  | Amendment dated as of December 8, 1999 to
    the Amended and Restated Agreement of Limited Partnership of
    Globalstar, L.P.(13)                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10.4.2 |             |  | Amendment dated as of February 1, 2000 to
    the Amended and Restated Agreement of Limited Partnership of
    Globalstar, L.P.(16)                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10.5   |             |  | Service Provider Agreements by and between
    Globalstar, L.P. and each of Loral General Partner, Inc. and
    Loral/ DASA Globalstar, L.P.(7)                                                                                                                                                                                                                                                                                                                                                                                        

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|        |        |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | ------ | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |            
|Number  |        | Description
|        |        |            
|        | 10.6   |             |  | Contract between Globalstar, L.P. and Space
    Systems/ Loral, Inc.(7)                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10.7   |             |  | 1996 Amended and Restated Stock Option
    Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10.7.1 |             |  | Amendment No. 1 to 1996 Amended and Restated
    Stock Option Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.7.2 |             |  | 2000 Amended and Restated Stock Option
    Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10.7.3 |             |  | Amendment No. 1 to 2000 Amended and Restated
    Stock Option Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.8   |             |  | Common Stock Purchase Plan for Non-Employee
    Directors(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 10.9   |             |  | Employment Agreement between the Registrant and
    Bernard L. Schwartz(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.9.1 |             |  | Amendment dated as of March 1, 1998 to
    Employment Agreement between the Registrant and Bernard L.
    Schwartz(11)                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10.9.2 |             |  | Amendment dated as of July 18, 2000 to
    Employment Agreement between the Registrant and Bernard L.
    Schwartz(20)                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10.9.3 |             |  | Amendment dated February 25, 2003 to
    Employment Agreement between the Registrant and Bernard L.
    Schwartz                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 10.10  |             |  | Registration Rights Agreement dated as of
    August 9, 1996 among Loral Space & Communications Ltd.,
    Lehman Brothers Capital Partners II, L.P., Lehman Brothers
    Merchant Banking Portfolio Partnership L.P., Lehman Brothers
    Offshore Investment Partnership L.P. and Lehman Brothers
    Offshore Investment Partnership-Japan L.P.(8)                                                                                                                                                                            
|        | 10.11  |             |  | Registration Rights Agreement dated
    November 6, 1996 relating to the Registrants 6%
    Convertible Preferred Equivalent Obligations due 2006(6)                                                                                                                                                                                                                                                                                                                                                                           
|        | 10.12  |             |  | Registration Rights Agreement (Series C
    Preferred Stock) dated as of March 31, 1997 between Loral
    Space & Communications Ltd. and Finmeccanica S.p.A. and
    dated as June 23, 1997 among Loral Space &
    Communications Ltd., Aerospatiale SNI and Alcatel Espace(9)                                                                                                                                                                                                                                                
|        | 10.13  |             |  | Registration Rights Agreement (Common Stock)
    dated as of June 23, 1997 among Loral Space &
    Communications Ltd., Aerospatiale SNI and Alcatel Espace(9)                                                                                                                                                                                                                                                                                                                                                                  
|        | 10.14  |             |  | Alliance Agreement dated as of June 23, 1997
    among Loral Space & Communications Ltd., Aerospatiale SNI,
    Alcatel Espace and Finmeccanica S.p.A.(9)                                                                                                                                                                                                                                                                                                                                                                       
|        | 10.15  |             |  | Principal Stockholder Agreement dated as of
    October 7, 1997 among Loral Space & Communications
    Ltd., Loral Satellite Corporation, Orion Network Systems, Inc.
    and certain Orion stockholders signatory thereto(4)                                                                                                                                                                                                                                                                                                   
|        | 10.16  |             |  | Agreement of Limited Partnership of CyberStar,
    L.P. dated as of June 30, 1997(11)                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10.17  |             |  | Purchase and Sale Agreement dated
    November 17, 1997 between the Federal Government of the
    United Mexican States and Corporativo Satelites Mexicanos, S.A.
    de C.V. for the purchase and sale of the capital stock of
    Satelites Mexicanos, S.A. de C.V. (English translation of
    Spanish original)(11)                                                                                                                                                                                                         
|        | 10.18  |             |  | Amended and Restated Membership Agreement dated
    and effective as of August 21, 1998 among Loral Satmex Ltd.
    and Ediciones Enigma, S.A. de C.V. and Firmamento Mexicano, S.
    de R.L. de C.V.(12)                                                                                                                                                                                                                                                                                                                      
|        | 10.19  |             |  | Letter Agreement dated December 29, 1997
    between Loral Space & Communications Ltd., Telefonica Autrey
    S.A. de C.V., Donaldson, Lufkin & Jenrette Securities
    Corporation, Lehman Brothers Inc. and Lehman Commercial Paper
    Inc. and related Agreement between the Federal Government of the
    United Mexican States, Telefonica Autrey, S.A. de C.V.,
    Ediciones Enigma, S.A. de C.V., Loral Space & Communications
    Ltd., Loral Satmex Ltd. and Servicios Corporativos Satelitales,
    S.A. de C.V.(11)
|        | 10.20  |             |  | Shareholders Agreement dated December 7,
    1998 by and among Alcatel SpaceCom, Loral Space &
    Communications Ltd., Dr. Jürgen Schulte-Hillen and
    Europe*Star Limited(12)                                                                                                                                                                                                                                                                                                                                               
|        | 10.21  |             |  | Registration Rights Agreement dated as of
    January 21, 1999 relating to Registrants 9 1/2%
    Senior Notes due 2006(12)                                                                                                                                                                                                                                                                                                                                                                                                    

65



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|        |         |             |  |                                                                                                                                                                                                                                                                                                                                                        
|------- | ------- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |            
|Number  |         | Description
|        |         |            
|        | 10.22   |             |  | Lease Agreement dated as of August 18, 1999
    by and between Loral Asia Pacific Satellite (HK) Limited
    and APT Satellite Company Limited(15)                                                                                                                                                                                                     
|        | 10.23   |             |  | Registration Rights Agreement dated as of
    February 18, 2000 relating to Registrants 6%
    Series D Convertible Redeemable Preferred Stock due 2007(16)                                                                                                                                                                                           
|        | 10.24   |             |  | Fee Agreement dated as of April 19, 1996 by
    and among Globalstar, Globalstar Telecommunications Limited,
    Loral Corporation, Loral Space & Communications Ltd.,
    Qualcomm Limited Partner, Inc., Space Systems/ Loral, Inc. and
    DASA Globalstar Limited Partner, Inc.(18)                                                                
|        | 10.25   |             |  | Intercreditor Agreement dated as of
    April 19, 1996 by and among Globalstar, Globalstar
    Telecommunications Limited, Loral Corporation, Loral Space &
    Communications Ltd., Qualcomm Limited Partner, Inc., Space
    Systems/ Loral, Inc. and DASA Globalstar Limited Partner,
    Inc.(18)                                                  
|        | 10.26   |             |  | Credit Agreement dated as of November 17,
    2000 by and among Loral Satellite, Inc., Bank of America,
    National Association, Bank of America Securities LLC, Credit
    Lyonnais and Lehman Commercial Paper, Inc.(19)                                                                                                                            
|        | 10.27.1 |             |  | First Amendment to the Credit Agreement, dated as
    of December 21, 2001, among Loral Satellite, Inc., Bank of
    America, N.A., as Administrative Agent, and the other lenders
    parties thereto(24)                                                                                                                                             
|        | 10.27.2 |             |  | Form of Second Amendment to Credit Agreement,
    dated as of March 31, 2003, among Loral Satellite, Inc.,
    Bank of America, N.A., as Administrative Agent, and the other
    lender parties thereto.                                                                                                                                              
|        | 10.28.1 |             |  | Guarantee dated as of November 17, 2000 made
    by Loral Space & Communications Ltd.(19)                                                                                                                                                                                                                                                              
|        | 10.28.2 |             |  | Form of First Amendment to Guarantee dated as of
    March 31, 2003 made by Loral Space &
    Communications Ltd.                                                                                                                                                                                                                                     
|        | 10.29   |             |  | Assignment, Amendment and Release Agreement dated
    as of November 17, 2000 by and among the lenders parties to
    the Globalstar Credit Agreement, Loral Satellite, Inc., Loral
    Satcom Ltd., Loral Space & Communications Ltd., Loral Space
    & Communication Corporation, Globalstar, L.P. and Bank of
    America, National Association(19)
|        | 10.30   |             |  | Amended and Restated Collateral Agreement dated
    as of November 17, 2000 by and among Loral Satellite, Inc.
    and Bank of America, National Association(19)                                                                                                                                                                                       
|        | 10.31   |             |  | Form of Employment Protection Agreement(20)                                                                                                                                                                                                                                                                                                           
|        | 10.31.1 |             |  | Form of Amendment No. 1 to Employment
    Protection Agreement(25)                                                                                                                                                                                                                                                                                    
|        | 10.32   |             |  | Form of Subordinated Guaranty Agreement between
    Loral Space & Communications Ltd. and Loral SpaceCom
    Corporation, with respect to the $29.7 million aggregate
    principal amount, 10% Subordinated Note due 2006, with a copy of
    the 10% Subordinated Note due 2006 included therein(21)                                                 
|        | 10.33   |             |  | Warrant Agreement dated as of December 21,
    2001 between Loral Space & Communications Ltd. and The Bank
    of New York, as warrant agent(22)                                                                                                                                                                                                       
|        | 10.34   |             |  | Guaranty Agreement dated as of December 21,
    2001 between Loral Space & Communications Ltd. and Bankers
    Trust Company, as trustee(22)                                                                                                                                                                                                           
|        | 10.35   |             |  | Indenture, dated as of December 21, 2001, by
    and among Loral CyberStar, Inc., certain of its subsidiaries and
    Bankers Trust Company, as trustee(22)                                                                                                                                                                                            
|        | 10.36   |             |  | Consent Agreement dated January 9, 2002
    among the United States Department of State, Loral Space &
    Communications Ltd. and Space Systems/ Loral, Inc.(23)                                                                                                                                                                                      
|        | 10.37.1 |             |  | Amended and Restated Credit Agreement dated as of
    December 21, 2001 by and among Loral SpaceCom Corporation, Bank
    of America, N.A., as Administrative Agent, and the other lenders
    parties thereto(24)                                                                                                                                     
|        | 10.37.2 |             |  | Form of First Amendment to Amended and Restated
    Credit Agreement dated as of March 31, 2003 by and among
    Loral SpaceCom Corporation, Bank of America, N.A., as
    Administrative Agent, and the other lenders parties
    thereto.                                                                                                           

66



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##### Table of Contents



|        |         |             |  |                                                                                                                                                                                                                                                                                                                                                                                             
|------- | ------- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |            
|Number  |         | Description
|        |         |            
|        | 10.38   |             |  | Guarantee dated as of December 21, 2001 made
    by Loral Space & Communications Corporation and certain
    subsidiaries of Loral SpaceCom Corporation in favor of Bank of
    America, N.A., as Administrative Agent(24)                                                                                                                                                                  
|        | 10.39   |             |  | Security Agreement dated as of December 21
    2001, by and among Loral SpaceCom Corporation, Space Systems/
    Loral, Inc., Loral Communications Services, Inc., Loral Ground
    Services, L.L.C. and Bank of America, N.A., as Collateral
    Agent(24)                                                                                                                                 
|        | 10.40.1 |             |  | Pledge Agreement dated as of December 21,
    2001 by and among Loral SpaceCom Corporation, Space Systems/
    Loral, Inc., Loral Ground Services, L.L.C., Loral Space &
    Communications Corporation, Loral Communications Services, Inc.
    and Bank of America, N.A., as Collateral Agent(24)                                                                                         
|        | 10.40.2 |             |  | Form of Second Amended and Restated Pledge
    Agreement dated as of March 31, 2003.                                                                                                                                                                                                                                                                                                       
|        | 10.41.1 |             |  | Intercreditor and Subordination Agreement dated
    as of December 21, 2001 by and among Loral SpaceCom
    Corporation, Bank of America, N.A., as Administrative Agent for
    the lenders under the senior credit facility, Bank of America,
    N.A. as Administrative Agent for the lenders under the junior
    credit facility, and Bank of America, N.A., as Collateral
    Agent(24)
|        | 10.41.2 |             |  | Form of Second Intercreditor and Subordination
    Agreement dated as of March 31, 2003.                                                                                                                                                                                                                                                                                                   
|        | 10.42   |             |  | Apstar V Condosat Agreement dated as of
    December 10, 2002 between APT Satellite Company Limited and
    Loral Orion, Inc.                                                                                                                                                                                                                                                              
|        | 12      |             |  | Statement Re: Computation of Ratios                                                                                                                                                                                                                                                                                                                                                        
|        | 21      |             |  | List of Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                                                                                     
|        | 23.1    |             |  | Consent of Deloitte & Touche LLP                                                                                                                                                                                                                                                                                                                                                           
|        | 23.2    |             |  | Consent of Deloitte & Touche LLP                                                                                                                                                                                                                                                                                                                                                           



---

| |     |                                                                                                                                            
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference from the
    Registrants Registration Statement on Form 10
    (No. 1-14180).                                   
|
| | (2) | Incorporated by reference from the
    Registrants Current Report on Form 8-K filed on
    September 27, 1996.                            
|
| | (3) | Incorporated by reference from the
    Registrants Current Report on Form 8-K filed on
    March 28, 1997.                                
|
| | (4) | Incorporated by reference from the
    Registrants Current Report on Form 8-K filed on
    October 10, 1997.                              
|
| | (5) | Incorporated by reference from the
    Registrants Registration Statement on Form S-4 filed
    on February 17, 1998 (File No. 333-46407).
|
|
| | (6) | Incorporated by reference from the
    Registrants Annual Report on Form 10-K for the nine month
    period ended December 31, 1996.      
|
| | (7) | Incorporated by reference from the Registration
    Statement on Form S-1 of Globalstar Telecommunications
    Limited (File No. 33-86808).
|
| | (8) | Incorporated by reference from the
    Registrants Current Report on Form 8-K filed on
    August 13, 1996.                               
|
| | (9) | Incorporated by reference from the
    Registrants Current Report on Form 8-K filed on
    July 8, 1997.                                  



|     |                                                                                                                                                               
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference from the
    Registrants Current Report on Form 8-K filed on
    December 9, 1997.                                                 
|    
|(11) | Incorporated by reference from the
    Registrants Annual Report on Form 10-K for the fiscal year
    ended December 31, 1997.                               
|    
|(12) | Incorporated by reference from the
    Registrants Annual Report on Form 10-K for the fiscal year
    ended December 31, 1998.                               
|    
|(13) | Incorporated by reference from the Current Report
    on Form 8-K filed on December 21, 1999 by Globalstar
    Telecommunications Limited and Globalstar, L.P.
|    
|(14) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on August 6, 1999.                                                           

67



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##### Table of Contents





|     |                                                                                                                                
|---- | -------------------------------------------------------------------------------------------------------------------------------
|(15) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on August 23, 1999.                           
|    
|(16) | Incorporated by reference from the
    Registrants Annual Report on Form 10-K for the fiscal year
    ended December 31, 1999.
|    
|(17) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on May 3, 2000.                               
|    
|(18) | Incorporated by reference from Registrants
    Current Report of Form 8-K filed on July 7, 2000.                              
|    
|(19) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on November 20, 2000.                         
|    
|(20) | Incorporated by reference from Registrants
    Annual Report on Form 10-K for the fiscal year ended
    December 31, 2000.    
|    
|(21) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on December 14, 2001.                         
|    
|(22) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on January 7, 2002.                           
|    
|(23) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on January 9, 2002.                           
|    
|(24) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on January 10, 2002.                          
|    
|(25) | Incorporated by reference from Registrants
    Annual Report on Form 10-K for the fiscal year ended
    December 31, 2001.    



| |   |                              
| | - | -----------------------------
| |  | Filed herewith.              
|
| |  | Management compensation plan.



| |     |                     
| | --- | --------------------
| | (b) | Reports on Form 8-K.

|                 |  |                       |  |               
|---------------- |  | --------------------- |  | --------------
|Date of Report   |  |                       |  | Description   
|                 |  |                       |  |               
|October 15, 2002 |  | Item 5  Other Events |  | Exchange Offer

68



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##### Table of Contents






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 SPACE & COMMUNICATIONS LTD.



| |     |                                      
| | --- | -------------------------------------
| | By: | /s/           BERNARD
    L. SCHWARTZ

| |                          
| | -------------------------
| |                          
| | Bernard L. Schwartz      
| | Chairman of the Board and
| | Chief Executive Officer  
| | Dated: March 31, 2003    

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

|                                                                   |  |                                                       |  |               
|------------------------------------------------------------------ |  | ----------------------------------------------------- |  | --------------
|Signatures                                                         |  | Title                                                 |  | Date          
|                                                                   |  |                                                       |  |               
|                                                                  
|/s/      BERNARD L.
    SCHWARTZ           Bernard
    L. Schwartz |  | Chairman of the Board and Chief Executive
    Officer |  | March 31, 2003
|                                                                  
|/s/      HOWARD
    GITTIS           Howard
    Gittis             |  | Director                                              |  | March 31, 2003
|                                                                  
|/s/      ROBERT B.
    HODES           Robert
    B. Hodes         |  | Director                                              |  | March 31, 2003
|                                                                  
|/s/      GERSHON
    KEKST           Gershon
    Kekst             |  | Director                                              |  | March 31, 2003
|                                                                  
|/s/      CHARLES
    LAZARUS           Charles
    Lazarus         |  | Director                                              |  | March 31, 2003
|                                                                  
|/s/      SALLY MINARD           Sally
    Minard                   |  | Director                                              |  | March 31, 2003
|                                                                  
|/s/      MALVIN A.
    RUDERMAN           Malvin
    A. Ruderman   |  | Director                                              |  | March 31, 2003
|                                                                  
|/s/      E. DONALD
    SHAPIRO           E.
    Donald Shapiro     |  | Director                                              |  | March 31, 2003
|                                                                  
|/s/      ARTHUR L.
    SIMON           Arthur
    L. Simon         |  | Director                                              |  | March 31, 2003
|                                                                  
|/s/      DANIEL
    YANKELOVICH           Daniel
    Yankelovich   |  | Director                                              |  | March 31, 2003

69



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##### Table of Contents



|                                                                   |  |                                                                    |  |               
|------------------------------------------------------------------ |  | ------------------------------------------------------------------ |  | --------------
|Signatures                                                         |  | Title                                                              |  | Date          
|                                                                   |  |                                                                    |  |               
|                                                                  
|/s/      ERIC J.
    ZAHLER           Eric
    J. Zahler           |  | Director, President and COO                                        |  | March 31, 2003
|                                                                  
|/s/      RICHARD J.
    TOWNSEND           Richard
    J. Townsend |  | Executive Vice President and CFO (Principal
    Financial Officer) |  | March 31, 2003
|                                                                  
|/s/      HARVEY B.
    REIN           Harvey
    B. Rein           |  | Vice President and Controller (Principal
    Accounting Officer)   |  | March 31, 2003

70



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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS

|                                                       |                                                                                                                         |  |    
|------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------- |  | ---
|Loral Space & Communications Ltd. and
    Subsidiaries |                                                                                                                         | 
|                                                       | Independent Auditors Report                                                                                            |  | F-2
|                                                       | Consolidated Balance Sheets as of
    December 31, 2002 and 2001.                                                       |  | F-3
|                                                       | Consolidated Statements of Operations for the
    years ended December 31, 2002, 2001 and 2000.                         |  | F-4
|                                                       | Consolidated Statements of Shareholders
    (Deficit) Equity for the years ended December 31, 2002,
    2001 and 2000. |  | F-5
|                                                       | Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000.                         |  | F-6
|                                                       | Notes to Consolidated Financial Statements                                                                              |  | F-7

F-1



---



##### Table of Contents






INDEPENDENT AUDITORS REPORT

To the Shareholders of Loral Space &
Communications Ltd.

We have audited the accompanying consolidated
balance sheets of Loral Space & Communications Ltd. (a
Bermuda company) and its subsidiaries (collectively, the
Company) as of December 31, 2002 and 2001 and
the related consolidated statements of operations,
shareholders (deficit) equity, and cash flows for
each of the three years in the period ended December 31,
2002. These consolidated financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, such consolidated financial
statements present fairly, in all material respects, the
consolidated financial position of the Company as of
December 31, 2002 and 2001, and the results of its
operations and its 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 Notes 2 and 7 to the consolidated
financial statements, the Company changed its method of
accounting for goodwill and other intangibles to adopt the
provisions of Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets,
effective January 1, 2002. As discussed in Note 2 to
the consolidated financial statements, 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. As discussed in Notes 2 and 12 to the consolidated
financial statements, the Company changed its method of
accounting for derivative instruments and hedging activities to
adopt the provisions of Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, effective January 1, 2001.

DELOITTE & TOUCHE LLP

San Jose, California


March 31, 2003


F-2



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS
LTD.




CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


|                                                              |                                                                                                                                                                                             |                                                          |           |            |           |   |           |            |           | 
|------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------- | --------- | ---------- | --------- | - | --------- | ---------- | --------- | 
|                                                              |                                                                                                                                                                                             |                                                         
|                                                              |                                                                                                                                                                                             | December 31,                                            
|                                                              |                                                                                                                                                                                             |                                                         
|                                                              |                                                                                                                                                                                             | 2002                                                     |           | 2001      
|                                                              |                                                                                                                                                                                             |                                                          |           |           
|ASSETS                                                       
|Current assets:                                               |                                                                                                                                                                                             |                                                          |           |            |           |   |           |           
|                                                              | Cash and cash equivalents                                                                                                                                                                   |                                                          | $         | 65,936     |           |   | $         | 159,949    |          
|                                                              | Accounts receivable, net                                                                                                                                                                    |                                                          |           | 28,893     |           |   |           | 39,299     |          
|                                                              | Contracts-in-process                                                                                                                                                                        |                                                          |           | 113,154    |           |   |           | 174,192    |          
|                                                              | Vendor financing receivable                                                                                                                                                                 |                                                          |           | 38,016     |           |   |           |           |          
|                                                              | Inventories                                                                                                                                                                                 |                                                          |           | 95,733     |           |   |           | 98,179     |          
|                                                              | Other current assets                                                                                                                                                                        |                                                          |           | 48,695     |           |   |           | 90,431     |          
|                                                              |                                                                                                                                                                                             |                                                          |           |            |           |   |           |           
|                                                              |                                                                                                                                                                                             | Total current assets                                     |           |            | 390,427   |   |           |            | 562,050   | 
|Property, plant and equipment, net                            |                                                                                                                                                                                             |                                                          | 1,897,343 |            |           |   | 1,977,356 |           
|Cost in excess of net assets acquired, net                    |                                                                                                                                                                                             |                                                          |          |            |           |   | 891,719   |           
|Long-term receivables                                         |                                                                                                                                                                                             |                                                          | 163,191   |            |           |   | 230,195   |           
|Investments in and advances to affiliates                     |                                                                                                                                                                                             |                                                          | 95,443    |            |           |   | 192,355   |           
|Deposits                                                      |                                                                                                                                                                                             |                                                          | 58,250    |            |           |   | 155,490   |           
|Deferred tax assets                                           |                                                                                                                                                                                             |                                                          |          |            |           |   | 297,528   |           
|Other assets                                                  |                                                                                                                                                                                             |                                                          | 88,148    |            |           |   | 119,494   |           
|                                                              |                                                                                                                                                                                             |                                                          |           |            |           |   |           |           
|                                                              |                                                                                                                                                                                             | Total assets                                             |           | $          | 2,692,802 |   |           | $          | 4,426,187 | 
|                                                              |                                                                                                                                                                                             |                                                          |           |            |           |   |           |           
|LIABILITIES AND SHAREHOLDERS
    (DEFICIT) EQUITY           
|Current liabilities:                                          |                                                                                                                                                                                             |                                                          |           |            |           |   |           |           
|                                                              | Current portion of long-term debt                                                                                                                                                           |                                                          | $         | 131,898    |           |   | $         | 136,616    |          
|                                                              | Accounts payable                                                                                                                                                                            |                                                          |           | 58,323     |           |   |           | 147,033    |          
|                                                              | Accrued employment costs                                                                                                                                                                    |                                                          |           | 34,531     |           |   |           | 39,232     |          
|                                                              | Customer advances                                                                                                                                                                           |                                                          |           | 114,080    |           |   |           | 148,990    |          
|                                                              | Accrued interest and preferred dividends                                                                                                                                                    |                                                          |           | 37,370     |           |   |           | 31,170     |          
|                                                              | Income taxes payable                                                                                                                                                                        |                                                          |           | 37,936     |           |   |           | 34,516     |          
|                                                              | Other current liabilities                                                                                                                                                                   |                                                          |           | 47,005     |           |   |           | 46,960     |          
|                                                              |                                                                                                                                                                                             |                                                          |           |            |           |   |           |           
|                                                              |                                                                                                                                                                                             | Total current liabilities                                |           |            | 461,143   |   |           |            | 584,517   | 
|Pension and other postretirement liabilities                  |                                                                                                                                                                                             |                                                          | 124,193   |            |           |   | 55,590    |           
|Long-term liabilities                                         |                                                                                                                                                                                             |                                                          | 207,835   |            |           |   | 190,006   |           
|Long-term debt                                                |                                                                                                                                                                                             |                                                          | 2,112,627 |            |           |   | 2,226,525 |           
|Minority interest                                             |                                                                                                                                                                                             |                                                          | 16,150    |            |           |   | 18,681    |           
|Convertible redeemable preferred stock:                       |                                                                                                                                                                                             |                                                          |           |            |           |   |           |           
|                                                              | 6% Series C ($105,995 redemption value),
    $0.01 par value                                                                                                                                |                                                          |           | 104,582    |           |   |           |           |          
|                                                              | 6% Series D($21,118 redemption value), $0.01
    par value                                                                                                                                  |                                                          |           | 20,499     |           |   |           |           |          
|Commitments and contingencies (Notes 6, 8,
    11, 12 and 13) |                                                                                                                                                                                             |                                                          |           |            |           |   |           |           
|Shareholders (deficit) equity:                               |                                                                                                                                                                                             |                                                          |           |            |           |   |           |           
|                                                              | 6% Series C convertible redeemable preferred
    stock ($81,255 and $491,994 redemption value), $.01 par value;
    20,000,000 shares authorized, 3,745,485 and 9,839,874 shares
    issued |                                                          |           | 80,171     |           |   |           | 485,371    |          
|                                                              | 6% Series D convertible redeemable preferred
    stock ($15,582 and $305,539 redemption value), $.01 par value;
    20,000,000 shares authorized, 734,135 and 6,110,788 shares issued       |                                                          |           | 15,125     |           |   |           | 296,529    |          
|                                                              | Common stock, $.01 par value; 750,000,000 shares
    authorized, 429,260,197 and 336,789,516 shares issued                                                                                  |                                                          |           | 4,293      |           |   |           | 3,368      |          
|                                                              | Paid-in capital                                                                                                                                                                             |                                                          |           | 3,389,035  |           |   |           | 2,771,964  |          
|                                                              | Treasury stock, at cost; 174,195 shares                                                                                                                                                     |                                                          |           | (3,360     | )         |   |           | (3,360     | )        
|                                                              | Unearned compensation                                                                                                                                                                       |                                                          |           | (151       | )         |   |           | (81        | )        
|                                                              | Retained deficit                                                                                                                                                                            |                                                          |           | (3,782,107 | )         |   |           | (2,223,710 | )        
|                                                              | Accumulated other comprehensive (loss) income                                                                                                                                               |                                                          |           | (57,233    | )         |   |           | 20,787     |          
|                                                              |                                                                                                                                                                                             |                                                          |           |            |           |   |           |           
|                                                              |                                                                                                                                                                                             | Total shareholders (deficit) equity                     |           |            | (354,227  | ) |           |            | 1,350,868 | 
|                                                              |                                                                                                                                                                                             |                                                          |           |            |           |   |           |           
|                                                              |                                                                                                                                                                                             | Total liabilities and shareholders
    (deficit) equity |           | $          | 2,692,802 |   |           | $          | 4,426,187 | 
|                                                              |                                                                                                                                                                                             |                                                          |           |            |           |   |           |           

See notes to consolidated financial statements.

F-3



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS
LTD.






CONSOLIDATED STATEMENTS OF
OPERATIONS


(in thousands, except per share amounts)


|                                                                                                                                                                                       |                                                                |                          |            |         |   |      |           |         |   |   |            |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------- | ------------------------ | ---------- | ------- | - | ---- | --------- | ------- | - | - | ---------- | ------- | -
|                                                                                                                                                                                       |                                                                |                         
|                                                                                                                                                                                       |                                                                | Years ended December 31,
|                                                                                                                                                                                       |                                                                |                         
|                                                                                                                                                                                       |                                                                | 2002                     |            | 2001    |   | 2000
|                                                                                                                                                                                       |                                                                |                          |            |         |   |     
|Revenues from satellite sales                                                                                                                                                          |                                                                | $                        | 708,467    |         |   | $    | 613,880   |         |   | $ | 809,815    |        
|Revenues from satellite services                                                                                                                                                       |                                                                |                          | 389,958    |         |   |      | 455,695   |         |   |   | 414,296    |        
|                                                                                                                                                                                       |                                                                |                          |            |         |   |      |           |         |   |   |            |        
|Total revenues                                                                                                                                                                         |                                                                |                          | 1,098,425  |         |   |      | 1,069,575 |         |   |   | 1,224,111  |        
|Cost of satellite sales                                                                                                                                                                |                                                                |                          | 759,500    |         |   |      | 580,523   |         |   |   | 755,483    |        
|Cost of satellite services                                                                                                                                                             |                                                                |                          | 259,753    |         |   |      | 290,870   |         |   |   | 301,722    |        
|Selling, general and administrative expenses                                                                                                                                           |                                                                |                          | 161,201    |         |   |      | 203,410   |         |   |   | 252,992    |        
|                                                                                                                                                                                       |                                                                |                          |            |         |   |      |           |         |   |   |            |        
|Operating loss                                                                                                                                                                         |                                                                |                          | (82,029    | )       |   |      | (5,228    | )       |   |   | (86,086    | )      
|Interest and investment income                                                                                                                                                         |                                                                |                          | 12,909     |         |   |      | 28,885    |         |   |   | 129,237    |        
|Interest expense                                                                                                                                                                       |                                                                |                          | (77,045    | )       |   |      | (183,931  | )       |   |   | (170,836   | )      
|Gain (loss) on debt exchanges and
    investments, net                                                                                                                                 |                                                                |                          | (1,189     | )       |   |      | 33,941    |         |   |   | 70,842     |        
|                                                                                                                                                                                       |                                                                |                          |            |         |   |      |           |         |   |   |            |        
|Loss before income taxes, equity in net losses of
    affiliates, minority interest, Globalstar related impairment
    charges and cumulative effect of change in accounting principle |                                                                |                          | (147,354   | )       |   |      | (126,333  | )       |   |   | (56,843    | )      
|Income tax provision                                                                                                                                                                   |                                                                |                          | (355,042   | )       |   |      | (2,170    | )       |   |   | (9,375     | )      
|                                                                                                                                                                                       |                                                                |                          |            |         |   |      |           |         |   |   |            |        
|Loss before equity in net losses of affiliates,
    minority interest, Globalstar related impairment charges and
    cumulative effect of change in accounting principle               |                                                                |                          | (502,396   | )       |   |      | (128,503  | )       |   |   | (66,218    | )      
|Equity in net losses of affiliates, net of tax
    (provision) benefit of $(5,639), $(3,050) and $309,481 in 2002,
    2001 and 2000, respectively                                     |                                                                |                          | (76,280    | )       |   |      | (66,677   | )       |   |   | (1,294,910 | )      
|Minority interest, net of taxes                                                                                                                                                        |                                                                |                          | (226       | )       |   |      | 461       |         |   |   | 3,691      |        
|Globalstar related impairment charges, net of tax
    benefit of $13,169                                                                                                               |                                                                |                          |           |         |   |      |          |         |   |   | (112,241   | )      
|                                                                                                                                                                                       |                                                                |                          |            |         |   |      |           |         |   |   |            |        
|Loss before cumulative effect of change in
    accounting principle                                                                                                                    |                                                                |                          | (578,902   | )       |   |      | (194,719  | )       |   |   | (1,469,678 | )      
|Cumulative effect of change in accounting
    principle, net of taxes (Notes 7 and 12)                                                                                                 |                                                                |                          | (890,309   | )       |   |      | (1,741    | )       |   |   |           |        
|                                                                                                                                                                                       |                                                                |                          |            |         |   |      |           |         |   |   |            |        
|Net loss                                                                                                                                                                               |                                                                |                          | (1,469,211 | )       |   |      | (196,460  | )       |   |   | (1,469,678 | )      
|Preferred dividends                                                                                                                                                                    |                                                                |                          | (89,186    | )       |   |      | (80,743   | )       |   |   | (67,528    | )      
|                                                                                                                                                                                       |                                                                |                          |            |         |   |      |           |         |   |   |            |        
|Net loss applicable to common shareholders                                                                                                                                             |                                                                | $                        | (1,558,397 | )       |   | $    | (277,203  | )       |   | $ | (1,537,206 | )      
|                                                                                                                                                                                       |                                                                |                          |            |         |   |      |           |         |   |   |            |        
|Basic and diluted loss per share (Note 15):                                                                                                                                            |                                                                |                          |            |         |   |      |           |         |   |   |            |        
|                                                                                                                                                                                       | Before cumulative effect of change in accounting
    principle |                          | $          | (1.79   | ) |      | $         | (0.86   | ) |   | $          | (5.20   | )
|                                                                                                                                                                                       | Cumulative effect of change in accounting
    principle        |                          |            | (2.39   | ) |      |           |        |   |   |            |        |  
|                                                                                                                                                                                       |                                                                |                          |            |         |   |      |           |         |   |   |            |        
|                                                                                                                                                                                       | Loss per share                                                 |                          | $          | (4.18   | ) |      | $         | (0.86   | ) |   | $          | (5.20   | )
|                                                                                                                                                                                       |                                                                |                          |            |         |   |      |           |         |   |   |            |        
|Weighted average shares outstanding:                                                                                                                                                   |                                                                |                          |            |         |   |      |           |         |   |   |            |        
|                                                                                                                                                                                       | Basic and diluted                                              |                          |            | 372,719 |   |      |           | 323,793 |   |   |            | 295,839 |  
|                                                                                                                                                                                       |                                                                |                          |            |         |   |      |           |         |   |   |            |        



See notes to consolidated financial statements.


F-4



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS
LTD.






CONSOLIDATED STATEMENTS OF SHAREHOLDERS
(DEFICIT) EQUITY


Years ended December 31, 2002, 2001 and
2000


(in thousands, except per share amounts)


|                                                                                          |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |     | 
|----------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | --------------- | ------ | --------------- | - | --------------- | --- | ------------ | - | ------ | ------ | ------ | - | ------ | -------- | -------- | - |  | ----- | ------ | - | - | ------- | -------- | - |  | ------- | ------ |  | - | ----- | --- | 
|                                                                                          |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |       
|                                                                                          |                                                                                                                               |                 |        | 6% Series C     |   | 6% Series D     |     |              |   |       
|                                                                                          |                                                                                                                               | Series A        |        | Convertible     |   | Convertible     |     |              |   |       
|                                                                                          |                                                                                                                               | Convertible     |        | Redeemable      |   | Redeemable      |     |             
|                                                                                          |                                                                                                                               | Preferred Stock |        | Preferred Stock |   | Preferred Stock |     | Common Stock
|                                                                                          |                                                                                                                               |                 |        |                 |   |                 |     |             
|                                                                                          |                                                                                                                               | Shares          |        |                 |   | Shares          |     |              |   | Shares |        |        |   | Shares |          |         
|                                                                                          |                                                                                                                               | Issued          |        | Amount          |   | Issued          |     | Amount       |   | Issued |        | Amount |   | Issued |          | Amount  
|                                                                                          |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |         
|Balance December 31, 1999                                                                 |                                                                                                                               |                 | 45,897 |                 |   | $               | 459 |              |   |        | 14,909 |        |   | $      | 735,437  |          |   |  |       |        |   |   |         |          |   |  | 245,204 |        |  | $ | 2,452 |    
|Shares issued:                                                                            |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|                                                                                          | Exercise of stock options and related tax benefits                                                                            |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         | 31     |  |   |       |     | 
|                                                                                          | Employee savings plan                                                                                                         |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         | 3,213  |  |   |       | 32  | 
|                                                                                          | Conversion of Series A preferred stock to
    common stock and issuance expenses                                              |                 |        | (45,897         | ) |                 |     | (459         | ) |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         | 45,897 |  |   |       | 459 | 
|                                                                                          | Conversion of Series C preferred stock to
    common stock and related issuance of additional common shares on
    conversion |                 |        |                 |   |                 |     |              |   |        |        | (1,411 | ) |        |          | (69,628  | ) |  |       |        |   |   |         |          |   |  |         | 3,862  |  |   |       | 39  | 
|                                                                                          | Issuance of Series D preferred stock, net                                                                                     |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       | 8,000  |   |   | $       | 388,204  |   |  |         |        |  |   |       |     | 
|                                                                                          | Warrant exercises                                                                                                             |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         | 116    |  |   |       | 1   | 
|Forfeited unearned compensation                                                           |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Amortization of unearned compensation                                                     |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Amortization of restricted stock                                                          |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Unearned compensation on grants to non-employees,
    including mark-to-market adjustment |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Amortization of deferred compensation related to
    non- employees                       |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Preferred dividends $3.00 per share                                                       |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Net loss                                                                                  |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Other comprehensive income                                                                |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Realized gains included in net loss                                                       |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Comprehensive loss                                                                        |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|                                                                                          |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Balance December 31, 2000                                                                 |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        | 13,498 |        |   |        | 665,809  |          |   |  | 8,000 |        |   |   | 388,204 |          |   |  | 298,323 |        |  |   | 2,983 |    
|Shares issued:                                                                            |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|                                                                                          | Exercise of stock options and related tax benefits                                                                            |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         | 6      |  |   |       |     | 
|                                                                                          | Employee savings plan                                                                                                         |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         | 7,535  |  |   |       | 76  | 
|                                                                                          | Conversion of Series C preferred stock to
    common stock and related issuance of additional common shares on
    conversion |                 |        |                 |   |                 |     |              |   |        |        | (3,658 | ) |        |          | (180,438 | ) |  |       |        |   |   |         |          |   |  |         | 20,119 |  |   |       | 201 | 
|                                                                                          | Conversion of Series D preferred stock to
    common stock and related issuance of additional common shares on
    conversion |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       | (1,889 | ) |   |         | (91,675  | ) |  |         | 10,768 |  |   |       | 108 | 
|                                                                                          | Warrant exercises                                                                                                             |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         | 39     |  |   |       |     | 
|                                                                                          | Warrants issued in connection with Cyberstar debt
    exchanges                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |     | 
|Option grants to affiliates                                                               |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Amortization of unearned compensation                                                     |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Amortization of restricted stock                                                          |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Unearned compensation on grants to non-employees,
    including mark-to-market adjustment |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Amortization of deferred compensation related to
    non- employees                       |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Preferred dividends $3.00 per share                                                       |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Net loss                                                                                  |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Other comprehensive loss                                                                  |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Comprehensive loss                                                                        |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|                                                                                          |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Balance December 31, 2001                                                                 |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        | 9,840  |        |   |        | 485,371  |          |   |  | 6,111 |        |   |   | 296,529 |          |   |  | 336,790 |        |  |   | 3,368 |    
|                                                                                          | Shares issued:                                                                                                                |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |     | 
|                                                                                          | Employee savings plan                                                                                                         |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         | 15,357 |  |   |       | 152 | 
|                                                                                          | Restricted stock option exercise                                                                                              |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         | 400    |  |   |       | 4   | 
|                                                                                          | Conversion of Series C preferred stock to
    common stock and related issuance of additional common shares on
    conversion |                 |        |                 |   |                 |     |              |   |        |        | (6,095 | ) |        |          | (300,618 | ) |  |       |        |   |   |         |          |   |  |         | 40,416 |  |   |       | 404 | 
|                                                                                          | Conversion of Series D preferred stock to
    common stock and related issuance of additional common shares on
    conversion |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       | (5,377 | ) |   |         | (260,905 | ) |  |         | 36,232 |  |   |       | 363 | 
|                                                                                          | Orion note conversion                                                                                                         |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         | 65     |  |   |       | 2   | 
|Reclass of preferred stock to mezzanine                                                   |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        | (104,582 | )        |   |  |       |        |   |   | (20,499 | )        |   |  |         |        |  |   |       |    
|Option grants to affiliates                                                               |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Amortization of unearned compensation                                                     |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Restricted stock grant                                                                    |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Amortization of restricted stock                                                          |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Unearned compensation on grants to non-employees,
    including mark-to-market adjustment |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Amortization of deferred compensation related to
    non- employees                       |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Preferred dividends $3.00 per share                                                       |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Net loss                                                                                  |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Other comprehensive loss                                                                  |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Comprehensive loss                                                                        |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|                                                                                          |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    
|Balance December 31, 2002                                                                 |                                                                                                                               |                 |       |                 |   | $               |    |              |   |        | 3,745  |        |   | $      | 80,171   |          |   |  | 734   |        |   | $ | 15,125  |          |   |  | 429,260 |        |  | $ | 4,293 |    
|                                                                                          |                                                                                                                               |                 |        |                 |   |                 |     |              |   |        |        |        |   |        |          |          |   |  |       |        |   |   |         |          |   |  |         |        |  |   |       |    

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                                          |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   |            |        |  
|----------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | ------- | --------- | -------- | - | ------------ | ------ | -------- |  | ------------- | ------ | ------------- |  | - | ---------- | ------- | - | - | ------- | ------- |  | - | ---------- | ------ | -
|                                                                                          |                                                                                                                               |         |           |          |   |              |        |          |  | Accumulated   |        | Total        
|                                                                                          |                                                                                                                               |         |           |          |   |              |        |          |  | Other         |        | Shareholders
|                                                                                          |                                                                                                                               | Paid-In |           | Treasury |   | Unearned     |        | Retained |  | Comprehensive |        | (Deficit)    
|                                                                                          |                                                                                                                               | Capital |           | Stock    |   | Compensation |        | Deficit  |  | Income (Loss) |        | Equity       
|                                                                                          |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |              
|Balance December 31, 1999                                                                 |                                                                                                                               | $       | 2,347,323 |          |   | $            | (3,360 | )        |  | $             | (1,253 | )             |  | $ | (409,301   | )       |   | $ | 78,907  |         |  | $ | 2,750,664  |       
|Shares issued:                                                                            |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   |            |       
|                                                                                          | Exercise of stock options and related tax benefits                                                                            |         |           | 252      |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   |            | 252    |  
|                                                                                          | Employee savings plan                                                                                                         |         |           | 25,658   |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   |            | 25,690 |  
|                                                                                          | Conversion of Series A preferred stock to
    common stock and issuance expenses                                              |         |           | (85      | ) |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   |            | (85    | )
|                                                                                          | Conversion of Series C preferred stock to
    common stock and related issuance of additional common shares on
    conversion |         |           | 75,471   |   |              |        |          |  |               |        |               |  |   |            | (5,882  | ) |   |         |         |  |   |            |        |  
|                                                                                          | Issuance of Series D preferred stock, net                                                                                     |         |           |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         | 388,204 |  |   |            |        |  
|                                                                                          | Warrant exercises                                                                                                             |         |           |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   |            | 1      |  
|Forfeited unearned compensation                                                           |                                                                                                                               |         | (229      | )        |   |              |        |          |  |               | 229    |               |  |   |            |         |   |   |         |         |  |   |            |       
|Amortization of unearned compensation                                                     |                                                                                                                               |         |           |          |   |              |        |          |  |               | 846    |               |  |   |            |         |   |   |         |         |  |   | 846        |       
|Amortization of restricted stock                                                          |                                                                                                                               |         |           |          |   |              |        |          |  |               | 79     |               |  |   |            |         |   |   |         |         |  |   | 79         |       
|Unearned compensation on grants to non-employees,
    including mark-to-market adjustment |                                                                                                                               |         | 129       |          |   |              |        |          |  |               | (129   | )             |  |   |            |         |   |   |         |         |  |   |            |       
|Amortization of deferred compensation related to
    non- employees                       |                                                                                                                               |         |           |          |   |              |        |          |  |               | 80     |               |  |   |            |         |   |   |         |         |  |   | 80         |       
|Preferred dividends $3.00 per share                                                       |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |               |  |   | (61,646    | )       |   |   |         |         |  |   | (61,646    | )     
|Net loss                                                                                  |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |               |  |   | (1,469,678 | )       |   |   |         |         |  |   |            |       
|Other comprehensive income                                                                |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   | 21,689  |         |  |   |            |       
|Realized gains included in net loss                                                       |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   | (69,708 | )       |  |   |            |       
|Comprehensive loss                                                                        |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   | (1,517,697 | )     
|                                                                                          |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   |            |       
|Balance December 31, 2000                                                                 |                                                                                                                               |         | 2,448,519 |          |   |              | (3,360 | )        |  |               | (148   | )             |  |   | (1,946,507 | )       |   |   | 30,888  |         |  |   | 1,586,388  |       
|Shares issued:                                                                            |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   |            |       
|                                                                                          | Exercise of stock options and related tax benefits                                                                            |         |           |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   |            |        |  
|                                                                                          | Employee savings plan                                                                                                         |         |           | 16,455   |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   |            | 16,531 |  
|                                                                                          | Conversion of Series C preferred stock to
    common stock and related issuance of additional common shares on
    conversion |         |           | 198,453  |   |              |        |          |  |               |        |               |  |   |            | (18,436 | ) |   |         |         |  |   |            | (220   | )
|                                                                                          | Conversion of Series D preferred stock to
    common stock and related issuance of additional common shares on
    conversion |         |           | 101,489  |   |              |        |          |  |               |        |               |  |   |            | (10,089 | ) |   |         |         |  |   |            | (167   | )
|                                                                                          | Warrant exercises                                                                                                             |         |           | 1        |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   |            | 1      |  
|                                                                                          | Warrants issued in connection with Cyberstar debt
    exchanges                                                               |         |           | 6,720    |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   |            | 6,720  |  
|Option grants to affiliates                                                               |                                                                                                                               |         | 214       |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   | 214        |       
|Amortization of unearned compensation                                                     |                                                                                                                               |         |           |          |   |              |        |          |  |               | 26     |               |  |   |            |         |   |   |         |         |  |   | 26         |       
|Amortization of restricted stock                                                          |                                                                                                                               |         |           |          |   |              |        |          |  |               | 63     |               |  |   |            |         |   |   |         |         |  |   | 63         |       
|Unearned compensation on grants to non-employees,
    including mark-to-market adjustment |                                                                                                                               |         | 113       |          |   |              |        |          |  |               | (113   | )             |  |   |            |         |   |   |         |         |  |   |            |       
|Amortization of deferred compensation related to
    non- employees                       |                                                                                                                               |         |           |          |   |              |        |          |  |               | 91     |               |  |   |            |         |   |   |         |         |  |   | 91         |       
|Preferred dividends $3.00 per share                                                       |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |               |  |   | (52,218    | )       |   |   |         |         |  |   | (52,218    | )     
|Net loss                                                                                  |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |               |  |   | (196,460   | )       |   |   |         |         |  |   |            |       
|Other comprehensive loss                                                                  |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   | (10,101 | )       |  |   |            |       
|Comprehensive loss                                                                        |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   | (206,561   | )     
|                                                                                          |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   |            |       
|Balance December 31, 2001                                                                 |                                                                                                                               |         | 2,771,964 |          |   |              | (3,360 | )        |  |               | (81    | )             |  |   | (2,223,710 | )       |   |   | 20,787  |         |  |   | 1,350,868  |       
|                                                                                          | Shares issued:                                                                                                                |         |           |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   |            |        |  
|                                                                                          | Employee savings plan                                                                                                         |         |           | 11,400   |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   |            | 11,552 |  
|                                                                                          | Restricted stock option exercise                                                                                              |         |           |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   |            | 4      |  
|                                                                                          | Conversion of Series C preferred stock to
    common stock and related issuance of additional common shares on
    conversion |         |           | 319,480  |   |              |        |          |  |               |        |               |  |   |            | (28,701 | ) |   |         |         |  |   |            | (9,435 | )
|                                                                                          | Conversion of Series D preferred stock to
    common stock and related issuance of additional common shares on
    conversion |         |           | 285,201  |   |              |        |          |  |               |        |               |  |   |            | (30,808 | ) |   |         |         |  |   |            | (6,149 | )
|                                                                                          | Orion note conversion                                                                                                         |         |           |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   |            | 2      |  
|Reclass of preferred stock to mezzanine                                                   |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   | (125,081   | )     
|Option grants to affiliates                                                               |                                                                                                                               |         | 924       |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   | 924        |       
|Amortization of unearned compensation                                                     |                                                                                                                               |         |           |          |   |              |        |          |  |               | 6      |               |  |   |            |         |   |   |         |         |  |   | 6          |       
|Restricted stock grant                                                                    |                                                                                                                               |         | 150       |          |   |              |        |          |  |               | (150   | )             |  |   |            |         |   |   |         |         |  |   |            |       
|Amortization of restricted stock                                                          |                                                                                                                               |         |           |          |   |              |        |          |  |               | 2      |               |  |   |            |         |   |   |         |         |  |   | 2          |       
|Unearned compensation on grants to non-employees,
    including mark-to-market adjustment |                                                                                                                               |         | (84       | )        |   |              |        |          |  |               | 84     |               |  |   |            |         |   |   |         |         |  |   |            |       
|Amortization of deferred compensation related to
    non- employees                       |                                                                                                                               |         |           |          |   |              |        |          |  |               | (12    | )             |  |   |            |         |   |   |         |         |  |   | (12        | )     
|Preferred dividends $3.00 per share                                                       |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |               |  |   | (29,677    | )       |   |   |         |         |  |   | (29,677    | )     
|Net loss                                                                                  |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |               |  |   | (1,469,211 | )       |   |   |         |         |  |   |            |       
|Other comprehensive loss                                                                  |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   | (78,020 | )       |  |   |            |       
|Comprehensive loss                                                                        |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   | (1,547,231 | )     
|                                                                                          |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   |            |       
|Balance December 31, 2002                                                                 |                                                                                                                               | $       | 3,389,035 |          |   | $            | (3,360 | )        |  | $             | (151   | )             |  | $ | (3,782,107 | )       |   | $ | (57,233 | )       |  | $ | (354,227   | )     
|                                                                                          |                                                                                                                               |         |           |          |   |              |        |          |  |               |        |               |  |   |            |         |   |   |         |         |  |   |            |       

See notes to consolidated financial statements.

F-5



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF CASH
FLOWS

(in thousands)


|                                                        |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |            |           |  
|------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | -------- | ---------- | ------- | ---- | -------- | -------- | ------- | - | -------- | ---------- | --------- | -
|                                                        |                                                                                                                                                             |                                                                      
|                                                        |                                                                                                                                                             | Years ended December 31,                                             
|                                                        |                                                                                                                                                             |                                                                      
|                                                        |                                                                                                                                                             | 2002                                                                  |          | 2001       |         | 2000
|                                                        |                                                                                                                                                             |                                                                       |          |            |         |     
|Operating activities:                                   |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|                                                        | Net loss                                                                                                                                                    |                                                                       | $        | (1,469,211 | )       |      | $        | (196,460 | )       |   | $        | (1,469,678 | )        
|                                                        | Non-cash items:                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |            |          
|                                                        |                                                                                                                                                             | Equity in net losses of affiliates, net of taxes                      |          |            | 84,478  |      |          |          | 66,677  |   |          |            | 1,294,910 |  
|                                                        |                                                                                                                                                             | Minority interest, net of taxes                                       |          |            | 226     |      |          |          | (461    | ) |          |            | (3,691    | )
|                                                        |                                                                                                                                                             | Cumulative effect of change in accounting
    principle, net of taxes |          |            | 890,309 |      |          |          | 1,741   |   |          |            |          |  
|                                                        |                                                                                                                                                             | Deferred taxes                                                        |          |            | 355,335 |      |          |          | (882    | ) |          |            | (4,474    | )
|                                                        |                                                                                                                                                             | Depreciation and amortization                                         |          |            | 187,002 |      |          |          | 227,779 |   |          |            | 216,263   |  
|                                                        |                                                                                                                                                             | Valuation allowance on advances related to
    Europe*Star            |          |            | 36,620  |      |          |          |        |   |          |            |          |  
|                                                        |                                                                                                                                                             | Vendor financing receivable valuation allowance                       |          |            | 32,574  |      |          |          |        |   |          |            |          |  
|                                                        |                                                                                                                                                             | Loss on cancellation of deposits                                      |          |            | 10,000  |      |          |          |        |   |          |            |          |  
|                                                        |                                                                                                                                                             | Provisions for inventory obsolescence                                 |          |            | 14,013  |      |          |          | 5,929   |   |          |            | 4,918     |  
|                                                        |                                                                                                                                                             | Provisions for bad debt                                               |          |            | 4,308   |      |          |          | 3,360   |   |          |            | 11,544    |  
|                                                        |                                                                                                                                                             | Loss on equipment disposals                                           |          |            | 6,191   |      |          |          |        |   |          |            |          |  
|                                                        |                                                                                                                                                             | (Gain) loss on debt exchanges and investments, net                    |          |            | 1,189   |      |          |          | (33,941 | ) |          |            | (70,842   | )
|                                                        |                                                                                                                                                             | Non-cash interest (income) expense                                    |          |            | (1,337  | )    |          |          | 39,609  |   |          |            | 37,074    |  
|                                                        |                                                                                                                                                             | Globalstar related impairment charges, net of
    taxes               |          |            |        |      |          |          |        |   |          |            | 112,241   |  
|                                                        |                                                                                                                                                             | Non-cash interest and investment income                               |          |            |        |      |          |          |        |   |          |            | (40,682   | )
|Changes in operating assets and liabilities:            |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|                                                        | Accounts receivable, net                                                                                                                                    |                                                                       |          | 6,241      |         |      |          | 13,688   |         |   |          | (19,992    | )        
|                                                        | Contracts-in-process                                                                                                                                        |                                                                       |          | 97,100     |         |      |          | 15,518   |         |   |          | 185,249    |          
|                                                        | Inventories                                                                                                                                                 |                                                                       |          | (1,604     | )       |      |          | 16,500   |         |   |          | 25,990     |          
|                                                        | Other current assets                                                                                                                                        |                                                                       |          | 1,140      |         |      |          | 6,715    |         |   |          | (5,133     | )        
|                                                        | Long-term receivables                                                                                                                                       |                                                                       |          | (1,963     | )       |      |          | (51,401  | )       |   |          | 10,335     |          
|                                                        | Deposits                                                                                                                                                    |                                                                       |          | 58,940     |         |      |          | 9,300    |         |   |          | 34,085     |          
|                                                        | Other assets                                                                                                                                                |                                                                       |          | 29,535     |         |      |          | 11,737   |         |   |          | (9,247     | )        
|                                                        | Accounts payable                                                                                                                                            |                                                                       |          | (88,666    | )       |      |          | (12,256  | )       |   |          | (76,682    | )        
|                                                        | Accrued expenses and other current liabilities                                                                                                              |                                                                       |          | (19,610    | )       |      |          | (30,665  | )       |   |          | 2,677      |          
|                                                        | Customer advances                                                                                                                                           |                                                                       |          | (34,910    | )       |      |          | 78,124   |         |   |          | 3,141      |          
|                                                        | Income taxes payable                                                                                                                                        |                                                                       |          | 3,420      |         |      |          | 2,487    |         |   |          | 11,492     |          
|                                                        | Pension and other postretirement liabilities                                                                                                                |                                                                       |          | 4,521      |         |      |          | 3,214    |         |   |          | 18         |          
|                                                        | Long-term liabilities                                                                                                                                       |                                                                       |          | (10,986    | )       |      |          | (5,326   | )       |   |          | 10,603     |          
|                                                        | Other                                                                                                                                                       |                                                                       |          | (28        | )       |      |          | (505     | )       |   |          | (1,023     | )        
|                                                        |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|Net cash provided by operating activities               |                                                                                                                                                             |                                                                       | 194,827  |            |         |      | 170,481  |          |         |   | 259,096  |           
|                                                        |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|Investing activities:                                   |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|                                                        | Capital expenditures                                                                                                                                        |                                                                       |          | (98,207    | )       |      |          | (238,373 | )       |   |          | (424,199   | )        
|                                                        | Investments in and advances to affiliates                                                                                                                   |                                                                       |          | (40,617    | )       |      |          | (27,692  | )       |   |          | (170,083   | )        
|                                                        | Proceeds from the sale leaseback of assets, net                                                                                                             |                                                                       |          |           |         |      |          | 17,393   |         |   |          |           |          
|                                                        | Proceeds from the sales of investments                                                                                                                      |                                                                       |          |           |         |      |          |         |         |   |          | 97,137     |          
|                                                        | Purchase of Globalstar loans                                                                                                                                |                                                                       |          |           |         |      |          |         |         |   |          | (67,950    | )        
|                                                        | Use and transfer of restricted and segregated cash                                                                                                          |                                                                       |          |           |         |      |          |         |         |   |          | 187,315    |          
|                                                        |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|Net cash used in investing activities                   |                                                                                                                                                             |                                                                       | (138,824 | )          |         |      | (248,672 | )        |         |   | (377,780 | )         
|                                                        |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|Financing activities:                                   |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|                                                        | Borrowings under revolving credit facilities                                                                                                                |                                                                       |          | 145,000    |         |      |          | 115,000  |         |   |          | 55,762     |          
|                                                        | Repayments under term loans                                                                                                                                 |                                                                       |          | (85,000    | )       |      |          | (81,000  | )       |   |          | (81,250    | )        
|                                                        | Repayments under revolving credit facilities                                                                                                                |                                                                       |          | (127,000   | )       |      |          | (134,000 | )       |   |          | (50,000    | )        
|                                                        | Interest payments on 10% senior notes                                                                                                                       |                                                                       |          | (45,954    | )       |      |          |         |         |   |          |           |          
|                                                        | Repayments of export-import facility                                                                                                                        |                                                                       |          | (2,146     | )       |      |          | (2,145   | )       |   |          | (2,146     | )        
|                                                        | Repayments of other long-term obligations                                                                                                                   |                                                                       |          | (2,179     | )       |      |          | (3,160   | )       |   |          | (1,917     | )        
|                                                        | Preferred dividends                                                                                                                                         |                                                                       |          | (29,678    | )       |      |          | (52,218  | )       |   |          | (61,646    | )        
|                                                        | Preferred dividends on exchange offers and
    related expenses                                                                                             |                                                                       |          | (15,583    | )       |      |          |         |         |   |          |           |          
|                                                        | Proceeds from other stock issuances                                                                                                                         |                                                                       |          | 12,524     |         |      |          | 16,531   |         |   |          | 25,857     |          
|                                                        | Payments of debt refinancing costs                                                                                                                          |                                                                       |          |           |         |      |          | (14,913  | )       |   |          |           |          
|                                                        | Proceeds from the issuance of 6% Series D
    preferred stock, net                                                                                          |                                                                       |          |           |         |      |          |         |         |   |          | 388,204    |          
|                                                        |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|Net cash (used in) provided by financing
    activities |                                                                                                                                                             |                                                                       | (150,016 | )          |         |      | (155,905 | )        |         |   | 272,864  |           
|                                                        |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|Increase (decrease) in cash and cash
    equivalents    |                                                                                                                                                             |                                                                       | (94,013  | )          |         |      | (234,096 | )        |         |   | 154,180  |           
|Cash and cash equivalents  beginning of
    period     |                                                                                                                                                             |                                                                       | 159,949  |            |         |      | 394,045  |          |         |   | 239,865  |           
|                                                        |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|Cash and cash equivalents  end of period               |                                                                                                                                                             | $                                                                     | 65,936   |            |         | $    | 159,949  |          |         | $ | 394,045  |           
|                                                        |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|Non-cash activities:                                    |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|                                                        | Exchange of Loral Orion senior notes and senior
    discount notes for new 10% senior notes and 6.04 million
    Loral warrants                             |                                                                       |          |            |         |      | $        | 910,600  |         |   |          |            |          
|                                                        |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|                                                        | Conversion of Series C preferred stock and
    Series D preferred stock to common stock and related
    issuance of additional common shares on conversions |                                                                       | $        | 605,448    |         |      | $        | 300,328  |         |   | $        | 75,510     |          
|                                                        |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|                                                        | Minimum pension liability adjustment                                                                                                                        |                                                                       | $        | (63,926    | )       |      | $        | (757     | )       |   |          |            |          
|                                                        |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|                                                        | Unrealized gains (losses) on available-for-sale
    securities, net of taxes                                                                                |                                                                       | $        | (12,603    | )       |      | $        | (12,314  | )       |   | $        | 22,937     |          
|                                                        |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|                                                        | Unrealized net (losses) gains on derivatives, net
    of taxes                                                                                              |                                                                       | $        | (2,676     | )       |      | $        | 3,362    |         |   |          |            |          
|                                                        |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|                                                        | Incurrence of debt to acquire creditors
    interests in Globalstar credit facility                                                                        |                                                                       |          |            |         |      |          |          |         |   | $        | 500,000    |          
|                                                        |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|                                                        | Conversion of Series A preferred stock to
    common stock                                                                                                  |                                                                       |          |            |         |      |          |          |         |   | $        | 459        |          
|                                                        |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|Supplemental information:                               |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|                                                        | Interest paid, net of capitalized interest                                                                                                                  |                                                                       | $        | 124,652    |         |      | $        | 157,569  |         |   | $        | 130,314    |          
|                                                        |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           
|                                                        | Taxes paid, net of refunds                                                                                                                                  |                                                                       | $        | 2,124      |         |      | $        | 585      |         |   | $        | 2,712      |          
|                                                        |                                                                                                                                                             |                                                                       |          |            |         |      |          |          |         |   |          |           

See notes to consolidated financial statements.

F-6



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS




|   |                                    
|-- | -----------------------------------
|1. | Organization and Principal Business

Loral Space & Communications Ltd. together
with its subsidiaries (Loral or the
Company) is one of the worlds leading
satellite communications companies with substantial activities
in satellite-based communications services and satellite
manufacturing. In the fourth quarter of 2002, Loral reorganized
into two operating businesses in connection with Lorals
integration of the operation and management of its data business
(conducted by Loral CyberStar, Inc. and CyberStar, L.P.) into
its FSS business, managed and operated by Loral Skynet (see
Note 16):



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Fixed Satellite Services (FSS):Loral leases transponder capacity to
    customers for various applications, including television and
    cable broadcasting, news gathering, Internet access and
    transmission, private voice and data networks, business
    television, distance learning and direct-to-home television
    (DTH) and provides satellite telemetry, tracking and
    control services (TT&C). Loral also provides
    network services such as managed communications networks,
    Internet and intranet services, business television and business
    media services to its customers.
|
| | Satellite Manufacturing and Technology:Loral designs and manufactures
    satellites and space systems and develops satellite technology
    for a broad variety of customers and applications through Space
    Systems/ Loral (SS/L).                                                                                                                                                                                                                                                                                                                                                                           



|   |                                               
|-- | ----------------------------------------------
|2. | Summary of Significant Accounting
    Policies



| |                      
| | ---------------------
| | Basis of Presentation

Loral, a Bermuda company, has a
December 31 year-end. The consolidated financial
statements for the three years ended December 31, 2002,
include the results of Loral and its subsidiaries and have been
prepared in accordance with U.S. generally accepted accounting
principles (U.S. GAAP). All intercompany
transactions have been eliminated.

Investments in Satelites Mexicanos, S.A. de C.V.
(Satmex), Europe*Star Limited
(Europe*Star), XTAR, L.L.C. (XTAR) and
Globalstar, L.P. (Globalstar) as well as other
affiliates, are accounted for using the equity method, due to
the Companys inability to control significant operating
decisions. Income and losses of affiliates are recorded based on
Lorals beneficial interest. Intercompany profit arising
from transactions with affiliates is eliminated to the extent of
the Companys beneficial interest. Any difference in the
carrying value of these investments as compared to Lorals
interest in the underlying net assets is amortized over the life
of the primary asset of the affiliate. (see New Accounting
Pronouncements). Advances to affiliates consist of amounts due
under extended payment terms. Equity in losses of affiliates is
not recognized after the carrying value of an investment,
including advances and loans, has been reduced to zero, unless
guarantees or other obligations exist. Loral capitalizes
interest cost on its investments, until such entities commence
commercial operations. Capitalized interest on investments is
amortized over the life of the primary asset of the affiliate.
Certain of the Companys affiliates are subject to the
risks associated with new businesses. See Notes 6 and 13.



| |                                                            
| | -----------------------------------------------------------
| | Use of Estimates in Preparation of Financial
    Statements

The preparation of financial statements in
conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
amounts of revenues and expenses reported for the period. Actual
results could differ from estimates.

A significant portion of Lorals satellite
manufacturing and technology revenue is associated with
long-term contracts which require significant estimates. These
estimates include forecasts of costs and schedules, estimating
contract revenue related to contract performance (including
orbital incentives) and the potential

F-7



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                             
|-- | ------------------------------------------------------------
|2. | Summary of Significant Accounting
    Policies  (Continued)

for component obsolescence in connection with
long-term procurements. Significant estimates also include the
estimated useful lives of the Companys satellites and,
prior to 2002, the amortization period of cost in excess of net
assets acquired. See New Accounting Pronouncements.



| |                        
| | -----------------------
| | Risks and Uncertainties

The Company had total long-term debt of
$2.2 billion, including current portion of $132 million,
outstanding at December 31, 2002, much of which matures in
2005 and 2006. On March 31, 2003, the Company amended its
Loral SpaceCom and Loral Satellite Inc. credit facilities which,
among other changes, amended its financial performance covenants
and imposed restrictions on its capital expenditures (see
Note 6). In addition to its debt service requirements, the
Companys business is capital intensive and requires
substantial investment. At December 31, 2002, the Company
had already incurred costs of approximately $283 million
and will need to incur costs of approximately $108 million
more in order to construct, launch and insure three new
satellites currently under construction for the Fixed Satellite
Services business. In addition, the Company has incurred costs
of $271 million on a fourth satellite. Additional
expenditures to launch and insure such satellite, however, will
require the consent of the Companys lenders. Subject to
restrictions contained in the credit facilities, the timing of
when certain of these costs will be incurred is largely
discretionary.

At December 31, 2002, the Company had an
accumulated deficit of $354 million. The Company has
generated cash from operating activities of $195 million,
$170 million and $259 million for the years ended
December 31, 2002, 2001 and 2000, respectively. The Company
believes its cash, available credit and net cash provided by
operating activities and certain planned investing activities
will be adequate to meet its expected cash requirements through
at least December 31, 2003. The Companys planned
investing activities include the receipt of approximately
$60 million from the successful monetization of certain
long-term customer receivables. If the Company does not complete
the sale of these assets or generate sufficient cash to satisfy
its debt service and operating requirements, the Company may be
required to seek alternative financing, renegotiate its current
financing agreements, 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. There can be no assurances as
to whether these alternatives will be available or whether they
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

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



| |                             
| | ----------------------------
| | Concentration of Credit Risk

Financial instruments which potentially subject
Loral to concentrations of credit risk consist principally of
cash and cash equivalents, foreign exchange contracts,
contracts-in-process, long-term receivables and advances and
loans to affiliates (see Note 6). Lorals cash and
cash equivalents are maintained with high-credit-quality
financial institutions. Historically, Lorals customers
have been primarily large multinational corporations and U.S.
and foreign governments for which the creditworthiness was
generally substantial. In recent years, the Company has added
commercial customers which include companies in emerging markets
or the development stage, some of which are highly leveraged or
partially funded. Management believes that its credit
evaluation, approval and monitoring processes combined with
negotiated billing arrangements mitigate potential credit risks
with regard to the Companys current customer base.

F-8



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                             
|-- | ------------------------------------------------------------
|2. | Summary of Significant Accounting
    Policies  (Continued)



| |                    
| | -------------------
| | Accounts Receivable

As of December 31, 2002 and 2001, accounts
receivable was reduced by an allowance for doubtful accounts of
$6.5 million and $3.8 million, respectively.



| |            
| | -----------
| | Inventories

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



| |                              
| | -----------------------------
| | Property, Plant and Equipment

Property, plant and equipment are stated at cost.
Depreciation is provided on the straight-line method for
satellites and related equipment over the estimated useful lives
of the related assets. Depreciation is provided primarily on an
accelerated method for other owned assets over the estimated
useful life of the related assets, ranging from three to
forty-five years. Leasehold improvements are amortized over the
shorter of the lease term or the estimated useful life of the
improvements.

Costs incurred in connection with the
construction and successful deployment of the Companys
satellites and related equipment are capitalized. Such costs
include direct contract costs, allocated indirect costs, launch
costs, launch insurance and construction period interest.
Capitalized interest related to the construction of satellites
for 2002, 2001 and 2000 was $28.6 million,
$23.0 million and $12.2 million, respectively. All
capitalized satellite costs are amortized over the estimated
useful life of the related satellite. The estimated useful life
of the satellites, ranging from 12 to 18 years, was
determined by engineering analyses performed at the in-service
date. Satellite lives are reevaluated periodically. Losses from
unsuccessful launches and in-orbit failures of the
Companys satellites, net of insurance proceeds, are
recorded in the period a loss occurs.



| |                                          
| | -----------------------------------------
| | Cost in Excess of Net Assets
    Acquired

On January 1, 2002, the Company adopted SFAS
No. 142, Goodwill and Other Intangible Assets
(SFAS 142), which addresses the initial
recognition and measurement of intangible assets acquired
outside of a business combination and the accounting for
goodwill and other intangible assets subsequent to their
acquisition. In connection with the adoption, the Company
recorded a non-cash charge for the cumulative effect of the
change in accounting principle of $892 million, see Note 7.
Prior to January 1, 2002, the excess of the cost of
purchased businesses over the fair value of net assets acquired
was being amortized over 40 years using the straight-line
method. Accumulated amortization was $113.0 million as of
December 31, 2001.



| |                                                                             
| | ----------------------------------------------------------------------------
| | Valuation of Long-Lived Assets and Cost in
    Excess of Net Assets Acquired

The carrying value of Lorals long-lived
assets, including investments in and advances to affiliates,
and, prior to 2002, cost in excess of net assets acquired, is
reviewed for impairment whenever events or changes in
circumstances indicate that an asset may not be recoverable. The
Company looks to current and future profitability, as well as
current and future undiscounted cash flows, excluding financing
costs, as primary indicators of recoverability. If an impairment
is determined to exist, any related impairment loss is
calculated based on fair value. Fair value is determined based
on quoted market values, discounted cash flows or appraisals, as
appropriate in the circumstances. See New Accounting
Pronouncements.

F-9



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                             
|-- | ------------------------------------------------------------
|2. | Summary of Significant Accounting
    Policies  (Continued)



| |         
| | --------
| | Deposits

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



| |                                                                      
| | ---------------------------------------------------------------------
| | Investments in Available-For-Sale Securities
    and Other Securities

The Companys investments in publicly traded
common stock are classified as available-for-sale, and are
recorded at fair value, with the resulting unrealized gain or
loss excluded from net loss and reported as a component of other
comprehensive income (loss) until realized (see Notes 3 and
12). In 2002, the Company determined that its investment in
Fantastic common stock had an other than temporary decline in
its value and recognized a loss of $1 million. In 2000, the
Company sold its entire interest in Sirius Satellite Radio Inc.
(Sirius) (1.9 million shares) and
542,000 shares of Fantastic common stock, realizing net
gains of $69.7 million. The Company accounts for its
investment in Globalstars $500 million credit
facility at fair value, with changes in the value (net of tax)
recorded as a component of other comprehensive income (loss).
See Note 6.



| |                    
| | -------------------
| | Revenue Recognition

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

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

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

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

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

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

F-10



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                             
|-- | ------------------------------------------------------------
|2. | Summary of Significant Accounting
    Policies  (Continued)

Revenues under contracts that include fixed lease
payment increases are recognized on a straight-line basis over
the life of the lease.

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



| |                         
| | ------------------------
| | Research and Development

Independent research and development costs, which
are expensed as incurred, were $16 million,
$32 million and $48 million for 2002, 2001 and 2000,
respectively, and are included in selling, general and
administrative expenses.



| |                           
| | --------------------------
| | Foreign Exchange Contracts

Loral enters into foreign exchange contracts as
hedges against exchange rate fluctuations of future accounts
receivable and accounts payable under contracts-in-process which
are denominated in foreign currencies. Prior to 2001, realized
and unrealized gains and losses on foreign exchange contracts
designated as hedges were deferred and recognized over the lives
of the related contracts-in-process. On January 1, 2001,
the Company adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133),
which among other things requires that all derivative
instruments be recorded on the balance sheet at their fair
value. See Note 12.



| |                         
| | ------------------------
| | Stock-Based Compensation

As permitted by Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation
(SFAS 123), Loral accounts for stock-based
awards to employees using the intrinsic value method in
accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25), and its interpretations. The Company
accounts for stock-based awards to non-employees in accordance
with SFAS 123 and its interpretations (see New Accounting
Pronouncements).



| |             
| | ------------
| | Income Taxes

As a Bermuda company, Loral Space &
Communications Ltd. is subject to U.S. federal, state and
local income taxation at regular corporate rates plus an
additional 30% branch profits tax on any income that
is effectively connected with the conduct of a U.S. trade
or business. Lorals U.S. subsidiaries are subject to
regular corporate tax on their worldwide income.

Deferred income taxes reflect the future tax
effect of temporary differences between the carrying amount of
assets and liabilities for financial and income tax reporting
and are measured by applying statutory tax rates in effect for
the year during which the differences are expected to reverse.
The deferred tax assets are reduced by a valuation allowance to
the extent it is more likely than not that the deferred tax
assets will not be realized. See Note 9.

F-11



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                             
|-- | ------------------------------------------------------------
|2. | Summary of Significant Accounting
    Policies  (Continued)



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

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 upon 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). 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
No. 145 and reclassified the previously recorded
extraordinary gain of $34 million on Loral Orions debt
exchanges in 2001 to gain on debt exchanges and investments, net
in its consolidated statements of operations (see Note 8).

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.

SFAS 148

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure
(SFAS 148), an amendment of SFAS 123.
SFAS 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition,
SFAS 148 amends the disclosure requirements of
SFAS 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting
for

F-12



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                             
|-- | ------------------------------------------------------------
|2. | Summary of Significant Accounting
    Policies  (Continued)

stock-based employee compensation and the effect
of the method used on reported results. The Company has adopted
the amended disclosure requirements and will include such
amended disclosures in its future quarterly and annual filings.

Under SFAS 123, the fair value of
stock-based awards to employees is calculated through the use of
option pricing models, even though such models were developed to
estimate the fair value of freely tradable, fully transferable
options without vesting restrictions, which significantly differ
from the Companys stock option awards. These models also
require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect
the calculated values. The Companys calculations were made
using the Black-Scholes option pricing model with the following
weighted average assumptions: expected life, six to twelve
months following vesting; stock volatility, 90% in 2002, 75% in
2001, and 45% in 2000; risk free interest rate, 3.6% to 6.6%
based on date of grant; and no dividends during the expected
term. The Companys calculations are based on a multiple
option valuation approach and forfeitures are recognized as they
occur. The following table summarizes what the Companys
pro forma net loss and pro forma loss per share would have been
if the fair value method under SFAS 123 was used (in
millions):

|                                                                                                                          |  |                                  |          |      |  |      |        |   |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | -------- | ---- |  | ---- | ------ | - |  | - | -------- | -
|                                                                                                                          |  |                                 
|                                                                                                                          |  | For the Years Ended December 31,
|                                                                                                                          |  |                                 
|                                                                                                                          |  | 2002                             |          | 2001 |  | 2000
|                                                                                                                          |  |                                  |          |      |  |     
|Reported loss before cumulative effect of change
    in accounting principle                                              |  | $                                | (578.9   | )    |  | $    | (194.7 | ) |  | $ | (1,469.7 | )
|Add: Total stock based compensation charged to
    operations under the intrinsic value method, net of taxes              |  |                                  | 1.0      |      |  |      |        |   |  |   |          |  
|Less: Total stock based employee compensation
    determined under the fair value method for all awards, net of
    taxes |  |                                  | (15.9    | )    |  |      | (15.5  | ) |  |   | (15.8    | )
|                                                                                                                          |  |                                  |          |      |  |      |        |   |  |   |          |  
|Pro forma net loss before cumulative effect of
    change in accounting principle                                         |  |                                  | (593.8   | )    |  |      | (210.2 | ) |  |   | (1,485.5 | )
|Cumulative effect of change in accounting
    principle                                                                   |  |                                  | (890.3   | )    |  |      | (1.7   | ) |  |   |         |  
|                                                                                                                          |  |                                  |          |      |  |      |        |   |  |   |          |  
|Pro forma net loss                                                                                                        |  |                                  | (1,484.1 | )    |  |      | (211.9 | ) |  |   | (1,485.5 | )
|Preferred dividends                                                                                                       |  |                                  | (89.2    | )    |  |      | (80.7  | ) |  |   | (67.5    | )
|                                                                                                                          |  |                                  |          |      |  |      |        |   |  |   |          |  
|Pro forma net loss applicable to common
    shareholders                                                                  |  | $                                | (1,573.3 | )    |  | $    | (292.6 | ) |  | $ | (1,553.0 | )
|                                                                                                                          |  |                                  |          |      |  |      |        |   |  |   |          |  
|Reported basic and diluted loss per share before
    cumulative effect of change in accounting principle                  |  | $                                | (1.79    | )    |  | $    | (0.86  | ) |  | $ | (5.20    | )
|Pro forma basic and diluted loss per share before
    cumulative effect of change in accounting principle                 |  |                                  | (1.83    | )    |  |      | (0.90  | ) |  |   | (5.25    | )
|Reported loss per share applicable to common
    shareholders                                                             |  |                                  | (4.18    | )    |  |      | (0.86  | ) |  |   | (5.20    | )
|Pro forma loss per share applicable to common
    shareholders                                                            |  |                                  | (4.22    | )    |  |      | (0.90  | ) |  |   | (5.25    | )

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

F-13



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                             
|-- | ------------------------------------------------------------
|2. | Summary of Significant Accounting
    Policies  (Continued)

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.



| |                  
| | -----------------
| | Reclassifications

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



|   |                                                  
|-- | -------------------------------------------------
|3. | Accumulated Other Comprehensive Income
    (Loss)

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

|                                                                                           |                                                                                      |              |         |              |  |      |        |       |  |      |         |        |   |   |         |         |   |   |         |   | 
|------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------ | ------------ | ------- | ------------ |  | ---- | ------ | ----- |  | ---- | ------- | ------ | - | - | ------- | ------- | - | - | ------- | - | 
|                                                                                           |                                                                                      |              |         |              |  |     
|                                                                                           |                                                                                      |              |         | Years ended 
|                                                                                           |                                                                                      | December 31, |         | December 31,
|                                                                                           |                                                                                      |              |         |             
|                                                                                           |                                                                                      | 2002         |         | 2001         |  | 2002 |        | 2001  |  | 2000
|                                                                                           |                                                                                      |              |         |              |  |      |        |       |  |     
|Cumulative translation adjustment                                                          |                                                                                      | $            | (1,909  | )            |  | $    | (1,905 | )     |  | $    | (4      | )      |   | $ | (392    | )       |   | $ | (1,248  | )
|Derivatives classified as cash flow hedges, net
    of taxes:                              |                                                                                      |              |         |              |  |      |        |       |  |      |         |        |   |   |         |         |   |   |         |  
|Cumulative transition adjustment                                                           |                                                                                      |              |         |              |  |      |        |       |  |      |        |        |   |   | 1,220   |         |   |   |        |  
|                                                                                           | Net (decrease) increase in foreign currency
    exchange contracts                   |              |         |              |  |      |        |       |  |      |         | (1,142 | ) |   |         | 13,125  |   |   |         |  | 
|                                                                                           | Reclassifications into revenue and cost of sales
    from other comprehensive income |              |         |              |  |      |        |       |  |      |         | (1,534 | ) |   |         | (10,983 | ) |   |         |  | 
|                                                                                           |                                                                                      |              |         |              |  |      |        |       |  |      |         |        |   |   |         |         |   |   |         |  
|                                                                                           | Unrealized net gains (losses) on derivatives                                         |              |         | 686          |  |      |        | 3,362 |  |      |         | (2,676 | ) |   |         | 3,362   |   |   |         |  | 
|Increase (decrease) in unrealized gains on
    available-for-sale securities, net of taxes |                                                                                      |              | 7,484   |              |  |      | 20,087 |       |  |      | (12,603 | )      |   |   | (12,314 | )       |   |   | 22,937  |  
|Minimum pension liability adjustment                                                       |                                                                                      |              | (64,683 | )            |  |      | (757   | )     |  |      | (63,926 | )      |   |   | (757    | )       |   |   |        |  
|Less: realized losses (gains) on
    available-for-sale securities included in net loss    |                                                                                      |              | 1,189   |              |  |      |       |       |  |      | 1,189   |        |   |   |        |         |   |   | (69,708 | )
|                                                                                           |                                                                                      |              |         |              |  |      |        |       |  |      |         |        |   |   |         |         |   |   |         |  
|Accumulated other comprehensive income (loss)                                              |                                                                                      | $            | (57,233 | )            |  | $    | 20,787 |       |  | $    | (78,020 | )      |   | $ | (10,101 | )       |   | $ | (48,019 | )
|                                                                                           |                                                                                      |              |         |              |  |      |        |       |  |      |         |        |   |   |         |         |   |   |         |  

As of December 31, 2002, the Company
anticipates reclassifying $2.5 million of the balance of
derivatives classified as cash flow hedges in OCI to earnings in
the next year. See Note 9 for the related tax amounts for
the table above.

4.     Contracts-in-Process
and Long-Term Receivables



| |                     
| | --------------------
| | Contracts-in-Process

|                           |                      |                |       |       |  |  |       |       | 
|-------------------------- | -------------------- | -------------- | ----- | ----- |  |  | ----- | ----- | 
|                           |                      |               
|                           |                      | December 31,  
|                           |                      |               
|                           |                      | 2002           |       | 2001 
|                           |                      |                |       |      
|                           |                      |               
|                           |                      | (in thousands)
|U.S. government contracts: |                      |                |       |       |  |  |       |      
|                           | Amounts billed       |                | $     | 1,735 |  |  | $     | 1,613 | 
|                           | Unbilled receivables |                |       | 4,829 |  |  |       | 3,650 | 
|                           |                      |                |       |       |  |  |       |      
|                           |                      |                | 6,564 |       |  |  | 5,263 |      
|                           |                      |                |       |       |  |  |       |      

F-14



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



4.     Contracts-in-Process
and Long-Term Receivables  (Continued)


|                      |                      |                |         |        |  |   |         |         | 
|--------------------- | -------------------- | -------------- | ------- | ------ |  | - | ------- | ------- | 
|                      |                      |               
|                      |                      | December 31,  
|                      |                      |               
|                      |                      | 2002           |         | 2001  
|                      |                      |                |         |       
|                      |                      |               
|                      |                      | (in thousands)
|Commercial contracts: |                      |                |         |        |  |   |         |        
|                      | Amounts billed       |                |         | 62,002 |  |   |         | 157,153 | 
|                      | Unbilled receivables |                |         | 44,588 |  |   |         | 11,776  | 
|                      |                      |                |         |        |  |   |         |        
|                      |                      |                | 106,590 |        |  |   | 168,929 |        
|                      |                      |                |         |        |  |   |         |        
|                      |                      | $              | 113,154 |        |  | $ | 174,192 |        
|                      |                      |                |         |        |  |   |         |        

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

Long-Term
Receivables

Billed receivables relating to long-term
contracts are expected to be collected within one year. Loral
classifies billings deferred and the orbital component of
unbilled receivables expected to be collected beyond one year as
long-term. Receivable balances related to satellite orbital
incentive payments and billings deferred as of December 31,
2002 are scheduled to be received as follows (in thousands):

|                                                           |  |            |         |  
|---------------------------------------------------------- |  | ---------- | ------- | -
|                                                           |  | Long-Term 
|                                                           |  | Receivable
|                                                           |  |           
|2003                                                       |  | $          | 17,582  |  
|2004                                                       |  |            | 19,827  |  
|2005                                                       |  |            | 19,618  |  
|2006                                                       |  |            | 19,548  |  
|2007                                                       |  |            | 17,718  |  
|Thereafter                                                 |  |            | 86,480  |  
|                                                           |  |            |         |  
|                                                           |  |            | 180,773 |  
|Less, current portion included in
    contracts-in-process |  |            | (17,582 | )
|                                                           |  |            |         |  
|Long-term receivables                                      |  | $          | 163,191 |  
|                                                           |  |            |         |  

As of December 31, 2002, Loral owed orbital
incentive obligations of $35.7 million to a subcontractor for
which Loral has a corresponding long-term receivable from the
customer. Payments of such amounts for the years 2003 through
2007 are as follows (in millions): $4.1, $4.1, $3.7, $4.2 and
$4.1 and are contingent upon collection of the related
receivables.

F-15



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

5.     Property,
Plant and Equipment

|                                                                                  |  |                |           |      |  |   |           |  
|--------------------------------------------------------------------------------- |  | -------------- | --------- | ---- |  | - | --------- | -
|                                                                                  |  |               
|                                                                                  |  | December 31,  
|                                                                                  |  |               
|                                                                                  |  | 2002           |           | 2001
|                                                                                  |  |                |           |     
|                                                                                  |  |               
|                                                                                  |  | (in thousands)
|Land and land improvements                                                        |  | $              | 24,761    |      |  | $ | 25,206    |  
|Buildings                                                                         |  |                | 85,664    |      |  |   | 79,142    |  
|Leasehold improvements                                                            |  |                | 21,633    |      |  |   | 21,770    |  
|Satellites in-orbit, including satellite
    transponder rights of $298.4 million |  |                | 1,642,175 |      |  |   | 1,642,175 |  
|Satellites under construction                                                     |  |                | 554,453   |      |  |   | 469,762   |  
|Earth stations                                                                    |  |                | 71,777    |      |  |   | 68,741    |  
|Equipment, furniture and fixtures                                                 |  |                | 279,033   |      |  |   | 273,729   |  
|Other construction in progress                                                    |  |                | 27,759    |      |  |   | 43,174    |  
|                                                                                  |  |                |           |      |  |   |           |  
|                                                                                  |  |                | 2,707,255 |      |  |   | 2,623,699 |  
|Accumulated depreciation and amortization                                         |  |                | (809,912  | )    |  |   | (646,343  | )
|                                                                                  |  |                |           |      |  |   |           |  
|                                                                                  |  | $              | 1,897,343 |      |  | $ | 1,977,356 |  
|                                                                                  |  |                |           |      |  |   |           |  

Depreciation and amortization expense for
property, plant and equipment was $182.9 million,
$192.8 million and $182.4 million in 2002, 2001 and
2000, respectively. Accumulated depreciation and amortization as
of December 31, 2002 and 2001 includes $74.7 million
and $51.8 million, respectively, related to satellite
transponders where Loral has the rights to transponders for the
remaining life of the related satellite.

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

|           |  |   |           | 
|---------- |  | - | --------- | 
|2003       |  | $ | 253,258   | 
|2004       |  |   | 201,754   | 
|2005       |  |   | 151,974   | 
|2006       |  |   | 114,197   | 
|2007       |  |   | 105,641   | 
|Thereafter |  |   | 454,087   | 
|           |  |   |           | 
|           |  | $ | 1,280,911 | 
|           |  |   |           | 

On September 20, 2002, Loral, through its
Loral Orion subsidiary, entered into an agreement with APT
pursuant to which Loral will purchase a 50% interest in the
Telstar 18/ Apstar V satellite, a satellite under construction
by SS/ L for APT. Loral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 has agreed to bear the cost of modifying the
footprint of one of the Ku-band beams on the satellite. Pursuant
to Lorals agreement with APT, Loral will pay one-half of
the purchase price prior to launch for 13.5 transponders on the
satellite, a portion of which will be funded by existing launch
vehicle deposits. The corresponding cumulative costs relating to
these transponders have been reflected as satellites under
construction on Lorals condensed consolidated balance
sheet as of December 31, 2002. Subject to certain
acceleration rights on the part of Loral, 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

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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



5.     Property,
Plant and Equipment  (Continued)


satellites in-service date,
$17.05 million for four additional transponders. Title to
these transponders will pass to Loral upon its payments thereon.
This agreement results in a proportionate amount of the
Telstar 18/ Apstar V satellite becoming a
self-constructed asset in Lorals condensed consolidated
financial statements. For the year ended December 31, 2002,
$71 million of revenues and $14 million of profits
were included in intercompany eliminations to reflect this
amended arrangement with APT. Amounts attributable to the
transponders to be acquired from APT in the future of
$23 million are being treated for accounting purposes as a
repurchase obligation based on the present value of such
obligations and are included in satellites under construction
and long-term liabilities on Lorals consolidated balance
sheet as of December 31, 2002. As a result of finalizing
the Telstar 18/ Apstar V launch arrangements in March 2003,
Loral agreed to take two fewer transponders without any
corresponding change to the transponder cost borne by each of
the parties.

6.     Investments in
and Advances to Affiliates

Investments in and Advances to Affiliates
consists of (in thousands):

|                                            |                                                                                                                                              |              |        |        |  |   |         |        | 
|------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | ------ | ------ |  | - | ------- | ------ | 
|                                            |                                                                                                                                              |             
|                                            |                                                                                                                                              | December 31,
|                                            |                                                                                                                                              |             
|                                            |                                                                                                                                              | 2002         |        | 2001  
|                                            |                                                                                                                                              |              |        |       
|Satmex equity investments                   |                                                                                                                                              | $            | 50,761 |        |  | $ | 74,554  |       
|Europe*Star equity investments and advances |                                                                                                                                              |              |       |        |  |   | 82,346  |       
|XTAR equity investment                      |                                                                                                                                              |              | 24,575 |        |  |   | 2,781   |       
|Globalstar:                                 |                                                                                                                                              |              |        |        |  |   |         |       
|                                            | Acquired notes and loans ($630 million and
    $624 million principal and accrued interest as of
    December 31, 2002 and 2001 respectively |              |        | 20,107 |  |   |         | 32,674 | 
|                                            | Vendor financing ($250 million and $249
    million principal and accrued interest as of December 31,
    2002 and 2001, respectively)       |              |        |       |  |   |         |       | 
|                                            |                                                                                                                                              |              |        |        |  |   |         |       
|                                            |                                                                                                                                              | $            | 95,443 |        |  | $ | 192,355 |       
|                                            |                                                                                                                                              |              |        |        |  |   |         |       

Equity in net (losses) income of affiliates
consists of (in thousands):

|                                                                          |  |                          |         |      |  |      |         |   |  |   |            |  
|------------------------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ---------- | -
|                                                                          |  |                         
|                                                                          |  | Years ended December 31,
|                                                                          |  |                         
|                                                                          |  | 2002                     |         | 2001 |  | 2000
|                                                                          |  |                          |         |      |  |     
|Satmex, net of taxes                                                      |  | $                        | (25,067 | )    |  | $    | (12,046 | ) |  | $ | 18,786     |  
|Europe*Star, net of taxes                                                 |  |                          | (41,586 | )    |  |      | (28,110 | ) |  |   | (6,499     | )
|XTAR, net of taxes                                                        |  |                          | (7,017  | )    |  |      | (498    | ) |  |   |           |  
|Globalstar and Globalstar service provider
    partnerships, net of taxes |  |                          | (2,610  | )    |  |      | (24,915 | ) |  |   | (1,294,675 | )
|Other affiliates, net of taxes                                            |  |                          |        |      |  |      | (1,108  | ) |  |   | (12,522    | )
|                                                                          |  |                          |         |      |  |      |         |   |  |   |            |  
|                                                                          |  | $                        | (76,280 | )    |  | $    | (66,677 | ) |  | $ | (1,294,910 | )
|                                                                          |  |                          |         |      |  |      |         |   |  |   |            |  

F-17



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



6.     Investments in
and Advances to Affiliates  (Continued)


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

|                                                                                                                                       |  |                          |         |      |  |      |         |   |  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                                                       |  |                         
|                                                                                                                                       |  | Years ended December 31,
|                                                                                                                                       |  |                         
|                                                                                                                                       |  | 2002                     |         | 2001 |  | 2000
|                                                                                                                                       |  |                          |         |      |  |     
|Revenues                                                                                                                               |  | $                        | 85,920  |      |  | $    | 100,924 |   |  | $ | 161,730 |  
|Interest and investment income                                                                                                         |  |                          | 1,177   |      |  |      | 1,177   |   |  |   | 70,616  |  
|Interest expense capitalized on development stage
    enterprises                                                                      |  |                          | 1,252   |      |  |      | 120     |   |  |   | 4,846   |  
|Profits relating to affiliate transactions not
    eliminated                                                                          |  |                          | 9,887   |      |  |      | 3,735   |   |  |   | 26,630  |  
|Elimination of Lorals proportionate share
    of profits relating to affiliate transactions                                           |  |                          | (10,921 | )    |  |      | (1,527  | ) |  |   | (7,245  | )
|Amortization of deferred credit, excess carrying
    value, capitalized interest and profits relating to investments
    in affiliates |  |                          | (508    | )    |  |      | (538    | ) |  |   | 29,444  |  

Satmex

In connection with the privatization of Satmex by
the Mexican Government of its fixed satellite services business,
Loral and Principia formed a joint venture, Firmamento Mexicano,
S.A. de R.L. de C.V. (Holdings). In 1997, Holdings
acquired 75% of the outstanding capital stock of Satmex. As part
of the acquisition, Servicios Corporativos Satelitales, S.A. de
C.V. (Servicios), a wholly owned subsidiary of
Holdings, issued a seven-year Government Obligation
(Government Obligation) to the Mexican Government in
consideration for the assumption by Satmex of the debt incurred
by Servicios in connection with the acquisition. The Government
Obligation had an initial face amount of $125 million,
which accretes at 6.03% and expires in December 2004. The debt
of Satmex and Holdings is non-recourse to Loral and Principia.
However, Loral and Principia have agreed to maintain assets in a
collateral trust in an amount equal to the value of the
Government Obligation through December 30, 2000 and,
thereafter, in an amount equal to 1.2 times the value of the
Government Obligation until maturity. As of December 31,
2002, Loral and Principia have pledged their respective shares
in Holdings in such trust. Loral has a 65% economic interest in
Holdings and a 49% indirect economic interest in Satmex. Loral
accounts for Satmex using the equity method. The covenants of
Satmexs debt instruments restrict the ability of Satmex to
pay dividends to Loral.

In August 2000, Satmex announced that its
Solidaridad 1 satellite ceased operation and was irretrievably
lost. The loss was caused by the failure of the back-up control
processor on board the satellite. Solidaridad 1, which was built
by Hughes Space and Communications (now Boeing Satellite Systems
Boeing) and launched in 1994, experienced a failure
of its primary control processor in April 1999, and had been
operating on its back-up processor since that time. The majority
of Solidaridad 1 customers were provided replacement capacity on
other Satmex satellites or on satellites operated by Loral
Skynet. The loss of Solidaridad 1 was fully covered by insurance
proceeds. In connection with this loss, Satmex recognized
after-tax gains of $5 million in 2002 and 2001 and
$67 million in 2000, which resulted from the insurance
proceeds in excess of the carrying amount of the satellite and
the estimated incremental costs associated with providing
replacement capacity, as required by its contracts with its
customers. Satmex has contracted with SS/ L to build a
replacement satellite, known as Satmex 6, for $130 million
which is scheduled to be launched in the third quarter of 2003,
and is designed to provide broader coverage and higher power
levels than any other satellite currently in the Satmex fleet.
SS/L had a receivable from Satmex at December 31, 2002 of
$4 million pertaining to Satmex 6.

F-18



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



6.     Investments in
and Advances to Affiliates  (Continued)


Satmex is currently pursuing loans supported by
export credit agencies to raise additional financing for its
Satmex 6 satellite project. On March 6, the Export
Import Bank of the United States (Eximbank),
pursuant to a meeting of its Board of Directors, referred the
Satmex loan guaranty application to the United States Congress.
Pending a mandatory 35-day review period, Satmex expects the
application to return to the Eximbank board for formal approval.
There can be no assurance that Satmex will be able to obtain
such approval. These export loans, and certain additional
financings, will be needed by Satmex to fund the Satmex 6
project and repay existing secured debt. If Satmex is unable to
successfully obtain the export loans and this additional
financing, the Companys investment in Satmex and
receivables therefrom may be adversely affected.

At December 31, 2002, Solidaridad 2 had
a remaining estimated useful life of six years.
Solidaridad 2 was also manufactured by Boeing and is
similar in design to Solidaridad 1 and to other Boeing
satellites which have experienced in-orbit component failures.
While Satmex was able to obtain a renewal of the in-orbit
insurance for Solidaridad 2 in November 2002, this policy
does not insure against an in-orbit failure due to the loss of
the satellites control processor, the same component that
caused the loss of Solidaridad 1 and other Boeing
satellites. An uninsured loss of the satellite could have a
material adverse effect on Satmexs results of operations
and financial condition.

In May 2000, Satellites Enigma S.A. de C.V., a
subsidiary of Principia, exercised its option to purchase
104,105 shares of Satmexs preferred stock from Loral
for $6.6 million in cash and Loral realized a gain of
$1 million, which is included in gain on investments on
Lorals consolidated statements of operations.

The following table presents summary financial
data for Satmex as of December 31, 2002 and 2001 and for
each of the three years in the period ended December 31,
2002 (in thousands):

|                                                        |  |                          |         |      |  |         |         |   |  |   |         | 
|------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ------- | ------- | - |  | - | ------- | 
|                                                        |  |                         
|                                                        |  | Years ended December 31,
|                                                        |  |                         
|                                                        |  | 2002                     |         | 2001 |  | 2000(1)
|                                                        |  |                          |         |      |  |        
|Statement of operations data:                           |  |                          |         |      |  |         |         |   |  |   |         | 
|Revenues                                                |  | $                        | 85,011  |      |  | $       | 128,044 |   |  | $ | 136,441 | 
|Operating income (loss)                                 |  |                          | (1,388  | )    |  |         | 35,095  |   |  |   | 34,315  | 
|Net income (loss)                                       |  |                          | (19,932 | )    |  |         | (3,112  | ) |  |   | 55,184  | 
|Net income (loss) applicable to common
    stockholders |  |                          | (21,440 | )    |  |         | (4,619  | ) |  |   | 53,677  | 

|                      |  |              |           |      |  |   |           | 
|--------------------- |  | ------------ | --------- | ---- |  | - | --------- | 
|                      |  |             
|                      |  | December 31,
|                      |  |             
|                      |  | 2002         |           | 2001
|                      |  |              |           |     
|Balance sheet data:   |  |              |           |      |  |   |           | 
|Current assets        |  | $            | 51,857    |      |  | $ | 200,507   | 
|Total assets          |  |              | 1,011,094 |      |  |   | 1,089,278 | 
|Current liabilities   |  |              | 31,036    |      |  |   | 44,791    | 
|Long-term debt        |  |              | 523,374   |      |  |   | 555,000   | 
|Long-term liabilities |  |              | 88,005    |      |  |   | 100,879   | 
|Shareholders equity  |  |              | 368,677   |      |  |   | 388,608   | 




|    |                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|(1) | During 2000, Satmex recognized an after-tax gain
    of $67 million from its net insurance recovery on the loss
    of a satellite.



| |            
| | -----------
| | Europe*Star

Europe*Star, a joint venture between Loral and
Alcatel that owns and operates the Europe*Star 1 satellite,
commenced service in 2001 and is a member of the Loral Global
Alliance, which is led by Loral

F-19



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



6.     Investments in
and Advances to Affiliates  (Continued)


Skynet. In the fourth quarter of 2002, the
Companys investment in Europe*Star was reduced to zero, as
the Company recorded valuation allowances of $38 million on
vendor financing provided on the Europe*Star program and on
receivables related to Europe*Star due to collection concerns
and recorded an impairment charge relating to its investment in
Europe*Star of $7 million. As a result, any future losses
attributable to Europe*Star will not be recognized by Loral.
During 2001 and 2000, Loral invested $4 million and
$6 million, respectively, in Europe*Star. As of
December 31, 2002 Loral owned 47% of Europe*Star. Pursuant
to the terms of the shareholders agreement, Loral has permitted
Alcatel to fund additional expenditures to develop
Europe*Stars business and infrastructure through $181
million in loans to the venture, which Alcatel claims are
payable on demand.

The following table presents summary financial
data for Europe*Star as of December 31, 2002 and 2001 and
for each of the three years in the period ended
December 31, 2002 (in thousands):

|                                    |  |                          |         |      |  |      |         |   |  |   |         |  
|----------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                    |  |                         
|                                    |  | Years ended December 31,
|                                    |  |                         
|                                    |  | 2002                     |         | 2001 |  | 2000
|                                    |  |                          |         |      |  |     
|Statement of operations data:       |  |                          |         |      |  |      |         |   |  |   |         |  
|Revenues                            |  | $                        | 16,090  |      |  | $    | 13,743  |   |  | $ |        |  
|Operating loss                      |  |                          | (23,162 | )    |  |      | (33,714 | ) |  |   | (14,391 | )
|Net loss applicable to shareholders |  |                          | (74,773 | )    |  |      | (58,995 | ) |  |   | (15,338 | )

|                                |  |              |         |      |  |   |         | 
|------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                                |  |             
|                                |  | December 31,
|                                |  |             
|                                |  | 2002         |         | 2001
|                                |  |              |         |     
|Balance sheet data:             |  |              |         |      |  |   |         | 
|Current assets                  |  | $            | 2,320   |      |  | $ | 5,186   | 
|Total assets                    |  |              | 332,327 |      |  |   | 383,884 | 
|Current liabilities             |  |              | 86,976  |      |  |   | 82,942  | 
|Long-term liabilities           |  |              | 4,088   |      |  |   | 10,423  | 
|Loans from partners            |  |              | 263,215 |      |  |   | 237,698 | 
|Net partners (deficit) capital |  |              | (21,952 | )    |  |   | 52,821  | 



| |     
| | ----
| | XTAR

XTAR, a joint venture between Loral and Hisdesat
Servicios Estrategicos, S.A. (Hisdesat), a
consortium comprised of leading Spanish telecommunications
companies, including Hispasat, S.A., and agencies of the Spanish
government, plans to construct and launch an X-band satellite to
provide X-band services to government users in the United States
and Spain, as well as other friendly and allied nations. XTAR is
owned 56% by Loral (accounted for under the equity method since
the Company does not control certain significant operating
decisions) and 44% by Hisdesat. In addition, XTAR has agreed to
lease certain transponders on the Spainsat satellite, which is
being constructed for Hisdesat. As of December 31, 2002,
the partners, in proportion to their respective ownership
interests, have contributed $55 million to XTAR. XTAR is
seeking to raise the remaining amount of the funds it needs to
construct and launch its satellite through vendor and other
third-party financings. If XTAR is unable to raise the remaining
funds it needs to construct, launch and operate its satellite,
it would adversely effect the Companys investment in XTAR.
Loral has no further obligations with respect to XTAR. SS/L is
currently constructing both the XTAR and Spainsat satellites
under contracts aggregating $185 million and is eliminating
profit on these contracts to the extent of the Companys
beneficial interest in XTAR.

F-20



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



6.     Investments in
and Advances to Affiliates  (Continued)




| |           
| | ----------
| | Globalstar

The Company accounts for its investment in
Globalstar on the equity method due to its inability to control
significant operating decisions at Globalstar. In 2000,
Lorals allocated share of Globalstars losses and
Globalstars impairment charges reduced Lorals
investment in and advances to Globalstar to zero (see below).
Accordingly, there is no longer any requirement for Loral to
provide for its allocated share of Globalstars net losses
subsequent to December 31, 2000. The Company accounts for
its investment in Globalstars $500 million credit
facility at fair value, with changes in the value (net of tax)
recorded as a component of other comprehensive loss (see
Notes 3 and 12 to Lorals consolidated financial
statements). The Company recorded unrealized net (losses) gains
after taxes as a component of other comprehensive (loss) income
of $(13) million, $(12) million and $33 million
in 2002, 2001 and 2000, respectively, in connection with this
security.

During 2002, the Company recorded a
$9 million charge to equity in net losses of affiliates
relating to liabilities it had guaranteed in connection with a
Globalstar service provider partnership, which were paid in 2002.

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

On February 15, 2002, Globalstar and certain
of its direct subsidiaries filed voluntary bankruptcy petitions
under Chapter 11 of Title 11, United States Code in
the United States Bankruptcy Court for the District of Delaware
(the Court). In connection therewith, Loral/
Qualcomm Satellite Services, L.P., the managing general partner
of Globalstar, its general partner, Loral/ Qualcomm Partnership,
L.P. (LQP), and certain of Lorals subsidiaries
that serve as general partners of LQP also filed voluntary
bankruptcy petitions with the Court. As a result of
Globalstars bankruptcy petition, several of
Globalstars debt facilities and other debt obligations
have been accelerated and are immediately due and payable.
Subcontractors have assumed $74 million of vendor financing
that SS/L has provided to Globalstar at December 31, 2002,
which includes $47 million which is non-recourse to SS/L in
the event of non-payment by Globalstar due to bankruptcy and is
included in long-term liabilities in the consolidated balance
sheets.

On February 25, 2003, Globalstar entered
into, and on March 6, 2003, the Court approved, a
debtor-in-possession (the DIP Agreement) credit
agreement with Blue River Capital LLC, Columbia Ventures
Corporation, ICO Investment Corp., Iridium Investors, LLC
and Loeb Partners Corp. Pursuant to this DIP Agreement,
these five lenders, of whom three are members of
Globalstars official unsecured creditors committee,
will make up to $10 million available to Globalstar on the
terms and subject to the conditions set forth in the
DIP Agreement. The Court also granted Globalstars
motion to establish, and Globalstar has commenced, a process to
find potential outside investors to help the company emerge from
bankruptcy. There can be no assurance that Globalstar will be
successful in finding such additional investors, that Globalstar
and its creditors will be able to reach an agreement with any
interested investors, that any proposed plan of reorganization
for Globalstar will be approved by the Court or that Globalstar
will be successfully reorganized.

On March 14, 2003, Loral signed a term sheet
with Globalstar and Globalstars official creditors
committee to resolve certain issues related to Globalstar and
Globalstars restructuring. Among other things, the
settlement incorporated in the term sheet, which is subject to
definitive documentation and approval by

F-21



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



6.     Investments in
and Advances to Affiliates  (Continued)


the Court (as to which there can be no
assurance), Globalstar would grant to Loral, subject to certain
conditions, a general release of all claims Globalstar might
have against Loral; the parties would seek to provide Loral with
one seat on the board of directors of reorganized Globalstar;
approximately 50% of Lorals unsecured claims against
Globalstar would be allowed, or approximately $438 million;
and the debt owed to Globalstar by three foreign service
providers in which Loral has a substantial equity interest
(Globalstar do Brasil, Globalstar de Mexico and GlobalTel), of
an aggregate of $7.2 million would be eliminated. In
consideration, Loral would transfer to Globalstar eight spare
satellites ordered by Globalstar but not fully paid for; certain
agreements that provided a joint venture in which Loral is a
participant with exclusivity in marketing certain Globalstar
services in the U.S. would be terminated, with a new joint
venture being formed among Globalstar and Loral to exclusively
market Globalstar services to certain governmental agencies in
the U.S.; the FCC license authorizing the Globalstar service,
which in any event was being held by a joint venture in which
Loral is a participant for the exclusive benefit of Globalstar,
would be transferred to Globalstar; Lorals equity interest
in the Globalstar Canadian service provider would be transferred
to Globalstar; a $10 million obligation of the Canadian
service provider owed to Loral at December 31, 2002 would
be reduced by $7.2 million and the remaining debt
obligation would be converted from a demand note into a
five-year term note; Lorals unsecured claims against
Globalstar would be reduced by approximately 50% or
approximately $438 million; the unused prepayment
($2,260,000) on a Globalstar contract under which there is a
stop work order would be returned to Globalstar by Loral; a
$250,000 termination fee that may come due under that contract
would be waived; Loral would cooperate toward a reorganization
of Globalstar; and the Loral employees on Globalstars
management committee would resign. Loral does not expect any
material impact on its results of operations or financial
position as a result of this settlement.

The Companys investment in Globalstar
related activities on its balance sheet as of December 31,
2002 was $20 million, representing the fair value of its
investment in Globalstars $500 million credit
facility which was based on the trading values of
Globalstars public debt at December 31, 2002. If
Globalstar is unable to effectuate a successful restructuring,
the Companys remaining investment in Globalstars
$500 million credit facility would be impaired, which would
have no effect on the Companys results of operations.
Lorals investment in the operations of those Globalstar
service provider ventures in which it participates as an equity
owner was $1 million in 2002 and is expected to be zero in
2003. In 2002, the Company paid $10 million it had
guaranteed in connection with a Globalstar service provider
partnership. These Globalstar service providers have constructed
and operate gateways, are licensed to provide services and,
through their sales and marketing organizations, are actively
selling Globalstar service, in their respective territories. As
of December 31, 2002, the Companys direct and
indirect investment in connection with Globalstar related
activities included about 38% of Globalstars common equity
(including GTL common stock), about 27% of its debt, an
investment in Globalstar Telecommunications Limited preferred
stock and investments in and advances to Globalstar service
provider partnerships. The Company also has 3.45 million
warrants to acquire Globalstar partnership interests at $91 per
interest. As of December 31, 2002, the market value of the
9.9 million shares of GTL stock owned by Loral, based on
the last reported sale was $0.5 million. The Company has
outstanding options to certain of its officers and directors to
purchase approximately 16% of the GTL common shares owned by
Loral, at an exercise price of $7.09 per share.

During 2000, Loral recorded after-tax charges of
approximately $1.4 billion ($1.7 billion pre-tax)
related to Lorals investments in and advances in
connection with Globalstar related activities, consisting of
Lorals share of after-tax operating losses of
$1.29 billion or approximately $1.6 billion on a
pre-tax basis (including approximately $882 million
representing Lorals after-tax share of Globalstars
impairment charges or approximately $1.2 billion on a
pre-tax basis) and after-tax impairment charges of
$112 million ($125 million pre-tax), resulting from
the write-down of investments in and advances to Globalstar
service provider partnerships to their estimated fair values as
of December 31, 2000.

F-22



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



6.     Investments in
and Advances to Affiliates  (Continued)


SS/L was the prime contractor for the
construction and launch of Globalstars satellites, under
construction contracts aggregating approximately
$2.2 billion, which are substantially complete. SS/L
awarded subcontracts to third parties, including other investors
in Globalstar, for substantial portions of the work under these
contracts.

The following table presents summary financial
data for Globalstar for the year ended December 31, 2000
(in thousands):

|                                                                          |  |                   |           | 
|------------------------------------------------------------------------- |  | ----------------- | --------- | 
|                                                                          |  | Year Ended       
|                                                                          |  | December 31, 2000
|                                                                          |  |                  
|Statement of operations data:                                             |  |                   |           | 
|Revenues                                                                  |  | $                 | 3,650     | 
|Operating loss (including an impairment charge of
    $2,939,790 in 2000) |  |                   | 3,472,998 | 
|Net loss                                                                  |  |                   | 3,785,671 | 
|Preferred distributions                                                   |  |                   | 30,730    | 
|Net loss applicable to ordinary partnership
    interests                 |  |                   | 3,816,401 | 



| |                 
| | ----------------
| | Other Affiliates

Other affiliate equity investments include
Lorals investment in Mabuhay Space Holdings Limited
(Mabuhay), which owns and operates certain satellite
transponders. As of December 31, 2000, the Companys
investment in Mabuhay was reduced to zero, as the Company
recorded impairment charges relating to its investment in
Mabuhay in 2000 of $12 million, net of related tax benefits.



|   |                                                                 
|-- | ----------------------------------------------------------------
|7. | Accounting for Goodwill and Other Acquired
    Intangible Assets

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



| |         
| | --------
| | Goodwill

In accordance with SFAS 142, the
Companys previously recognized cost in excess of net
assets acquired (goodwill) of $892 million for
business acquisitions accounted for under the purchase method of
accounting completed prior to July 1, 2001, was reviewed
under the new transitional guidance as of January 1, 2002.
Goodwill had been previously assigned to the Companys
business segments as follows (based on the net book value at
December 31, 2001): FSS $597 million, satellite
manufacturing and technology $286 million and data services
$9 million. The Company hired professionals in the
valuation consulting business to determine the fair

F-23



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                                               
|-- | ------------------------------------------------------------------------------
|7. | Accounting for Goodwill and Other Acquired
    Intangible Assets  (Continued)

value of each of the Companys reporting
units. Since there were no quoted market prices in active
markets for the Companys reporting units, the measurement
of fair value for each reporting unit was based on the best
information available for that reporting unit, including
reasonable and supportable assumptions and projections, as
follows: (1) FSS  public company trading
multiples, (2) satellite manufacturing and
technology  future discounted cash flows, and
(3) data services  merger and acquisition
transaction multiples. Based on the fair values concluded on by
those professionals, management determined that the goodwill for
each of the Companys reporting units under the new
guidance in SFAS 142 was fully impaired. Accordingly, as of
January 1, 2002, the Company recorded a non-cash charge for
the cumulative effect of the change in accounting principle of
$890 million.

The charge 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, Intangible
Assets, 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, except per share
amounts):

|                                                                                                         |  |                   |          |                   |  |        |          |             |  |   |            |   |  |   |            |    
|-------------------------------------------------------------------------------------------------------- |  | ----------------- | -------- | ----------------- |  | ------ | -------- | ----------- |  | - | ---------- | - |  | - | ---------- | ---
|                                                                                                         |  |                   |          |                  
|                                                                                                         |  | Year Ended        |          | Year Ended       
|                                                                                                         |  | December 31, 2001 |          | December 31, 2000
|                                                                                                         |  |                   |          |                  
|                                                                                                         |  | Actual            |          | As Adjusted       |  | Actual |          | As Adjusted
|                                                                                                         |  |                   |          |                   |  |        |          |            
|Reported loss before cumulative effect of change
    in accounting principle                             |  | $                 | (194,719 | )                 |  | $      | (194,719 | )           |  | $ | (1,469,678 | ) |  | $ | (1,469,678 | )  
|Add back amortization of goodwill, net of taxes                                                          |  |                   |         |                   |  |        | 26,628   |             |  |   |           |   |  |   | 50,438     | (1)
|                                                                                                         |  |                   |          |                   |  |        |          |             |  |   |            |   |  |   |            |    
|Loss before cumulative effect of change in
    accounting principle                                      |  |                   | (194,719 | )                 |  |        | (168,091 | )           |  |   | (1,469,678 | ) |  |   | (1,419,240 | )  
|Cumulative effect of change in accounting
    principle, net of taxes                                    |  |                   | (1,741   | )                 |  |        | (1,741   | )           |  |   |           |   |  |   |           |    
|                                                                                                         |  |                   |          |                   |  |        |          |             |  |   |            |   |  |   |            |    
|Net loss                                                                                                 |  |                   | (196,460 | )                 |  |        | (169,832 | )           |  |   | (1,469,678 | ) |  |   | (1,419,240 | )  
|Preferred dividends                                                                                      |  |                   | (80,743  | )                 |  |        | (80,743  | )           |  |   | (67,528    | ) |  |   | (67,528    | )  
|                                                                                                         |  |                   |          |                   |  |        |          |             |  |   |            |   |  |   |            |    
|Net loss applicable to common shareholders                                                               |  | $                 | (277,203 | )                 |  | $      | (250,575 | )           |  | $ | (1,537,206 | ) |  | $ | (1,486,768 | )  
|                                                                                                         |  |                   |          |                   |  |        |          |             |  |   |            |   |  |   |            |    
|Reported basic and diluted loss per share before
    cumulative effect of change in accounting principle |  |                   |          |                   |  | $      | (0.86    | )           |  |   |            |   |  | $ | (5.20      | )  
|Add back goodwill amortization per share                                                                 |  |                   |          |                   |  |        | 0.09     |             |  |   |            |   |  |   | 0.17       |    
|                                                                                                         |  |                   |          |                   |  |        |          |             |  |   |            |   |  |   |            |    
|As adjusted loss per share before cumulative
    effect of change in accounting principle                |  |                   |          |                   |  |        | (0.77    | )           |  |   |            |   |  |   | (5.03      | )  
|Cumulative effect of change in accounting
    principle                                                  |  |                   |          |                   |  |        |         |             |  |   |            |   |  |   |           |    
|                                                                                                         |  |                   |          |                   |  |        |          |             |  |   |            |   |  |   |            |    
|Adjusted loss per share                                                                                  |  |                   |          |                   |  | $      | (0.77    | )           |  |   |            |   |  | $ | (5.03      | )  
|                                                                                                         |  |                   |          |                   |  |        |          |             |  |   |            |   |  |   |            |    




|    |                                                                          
|--- | -------------------------------------------------------------------------
|(1) | Includes $24 million reflected in equity in
    net losses of affiliates.

F-24



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                                               
|-- | ------------------------------------------------------------------------------
|7. | Accounting for Goodwill and Other Acquired
    Intangible Assets  (Continued)



| |                                 
| | --------------------------------
| | 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 consolidated balance sheets
as follows (in millions):

|                  |       |                   |      |                   |  |        |      |              |   |   |      |      |  |   |      |      |  
|----------------- | ----- | ----------------- | ---- | ----------------- |  | ------ | ---- | ------------ | - | - | ---- | ---- |  | - | ---- | ---- | -
|                  |       |                   |      |                  
|                  |       | December 31, 2002 |      | December 31, 2001
|                  |       |                   |      |                  
|                  |       | Gross             |      | Accumulated       |  | Gross  |      | Accumulated 
|                  |       | Amount            |      | Amortization      |  | Amount |      | Amortization
|                  |       |                   |      |                   |  |        |      |             
|Regulatory fees   |       | $                 | 22.7 |                   |  | $      | (4.6 | )            |   | $ | 22.7 |      |  | $ | (3.0 | )   
|Other intangibles |       |                   | 13.0 |                   |  |        | (8.4 | )            |   |   | 13.0 |      |  |   | (6.6 | )   
|                  |       |                   |      |                   |  |        |      |              |   |   |      |      |  |   |      |     
|                  | Total |                   | $    | 35.7              |  |        | $    | (13.0        | ) |   | $    | 35.7 |  |   | $    | (9.6 | )
|                  |       |                   |      |                   |  |        |      |              |   |   |      |      |  |   |      |     

The weighted average remaining amortization
period for regulatory fees was eight years and for other
intangibles was three years, as of December 31, 2002.

Total pre-tax amortization expense for other
acquired intangible assets was $3.4 million for each of the
three years in the period ended December 31, 2002. Annual
pre-tax amortization expense for other acquired intangible
assets for the five years ended December 31, 2007 is
estimated to be as follows (in millions):

|     |  |   |     | 
|---- |  | - | --- | 
|2003 |  | $ | 3.4 | 
|2004 |  |   | 3.3 | 
|2005 |  |   | 2.5 | 
|2006 |  |   | 1.4 | 
|2007 |  |   | 1.4 | 

F-25



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |               
|-- | --------------
|8. | Long-Term Debt

|                                                                                                           |                                                                                                                   |                |           |         |  |   |           |         | 
|---------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------- | -------------- | --------- | ------- |  | - | --------- | ------- | 
|                                                                                                           |                                                                                                                   |               
|                                                                                                           |                                                                                                                   | December 31,  
|                                                                                                           |                                                                                                                   |               
|                                                                                                           |                                                                                                                   | 2002           |           | 2001   
|                                                                                                           |                                                                                                                   |                |           |        
|                                                                                                           |                                                                                                                   |               
|                                                                                                           |                                                                                                                   | (in thousands)
|Loral Orion 10.00% senior notes due 2006:                                                                  |                                                                                                                   |                |           |         |  |   |           |        
|                                                                                                           | Principal amount                                                                                                  |                | $         | 612,704 |  |   | $         | 612,704 | 
|                                                                                                           | Accrued interest (deferred gain on debt exchanges)                                                                |                |           | 245,080 |  |   |           | 291,034 | 
|Loral Satellite term loan, 5.60% and 5.64% at
    December 31, 2002 and 2001, respectively                 |                                                                                                                   |                | 249,000   |         |  |   | 294,000   |        
|Loral Satellite revolving credit facility, 4.67%
    and 5.14% at December 31, 2002 and 2001, respectively |                                                                                                                   |                | 179,000   |         |  |   | 136,000   |        
|LSC term loan facility, 5.03% and 4.17% at
    December 31, 2002 and 2001, respectively                    |                                                                                                                   |                | 360,000   |         |  |   | 400,000   |        
|LSC revolving credit facility, 5.05% and 4.17% at
    December 31, 2002 and 2001, respectively             |                                                                                                                   |                | 140,000   |         |  |   | 165,000   |        
|9.50% Senior notes due 2006.                                                                               |                                                                                                                   |                | 350,000   |         |  |   | 350,000   |        
|Export-Import credit facility                                                                              |                                                                                                                   |                | 6,434     |         |  |   | 8,580     |        
|Other                                                                                                      |                                                                                                                   |                | 535       |         |  |   | 557       |        
|Non-recourse debt of Loral Orion:                                                                          |                                                                                                                   |                |           |         |  |   |           |        
|                                                                                                           | 11.25% Senior notes due 2007 (principal amount
    $37 million at December 31, 2002 and 2001)                     |                |           | 39,762  |  |   |           | 40,385  | 
|                                                                                                           | 12.50% Senior discount notes due 2007 (principal
    amount at maturity and accreted principal amount $49 million |                |           | 53,982  |  |   |           | 54,696  | 
|                                                                                                           | Other                                                                                                             |                |           | 8,028   |  |   |           | 10,185  | 
|                                                                                                           |                                                                                                                   |                |           |         |  |   |           |        
|Total debt                                                                                                 |                                                                                                                   |                | 2,244,525 |         |  |   | 2,363,141 |        
|Less, current maturities                                                                                   |                                                                                                                   |                | 131,898   |         |  |   | 136,616   |        
|                                                                                                           |                                                                                                                   |                |           |         |  |   |           |        
|                                                                                                           |                                                                                                                   | $              | 2,112,627 |         |  | $ | 2,226,525 |        
|                                                                                                           |                                                                                                                   |                |           |         |  |   |           |        



| |                           
| | --------------------------
| | Satellite Credit Agreement

On December 21, 2001, Loral Satellite, Inc.
(Loral Satellite), a subsidiary of Loral
Space & Communications Corporation, which in turn is a
subsidiary of Loral, entered into the first amendment to the
$500 million secured credit agreement dated as of
November 17, 2000 by and among Loral Satellite, Bank of
America as Administrative Agent, and the other lending parties
thereto (the Satellite Credit Agreement). The first
amendment provides for a $200 million revolving credit
facility expiring January 7, 2005 and a term loan of which
$249 million was outstanding as of December 31, 2002,
subject to the following remaining amortization payment
schedule: $11.25 million per quarter on March 31, 2003
through September 30, 2004 and $170 million on
January 7, 2005. During the first quarter of 2003, Loral
had drawn down the full amount of the revolving credit facility.
The first amendment also effected certain changes to provisions
relating to the collateral pool provided to lenders under the
Loral Satellite credit facility and imposed additional
limitations on the application of proceeds from any sale of
assets from this collateral pool.

Borrowings under the Satellite Credit Agreement
bear interest, at Loral Satellites option, at various
rates based on fixed margins over the lead banks base rate
or the London Interbank Offer Rate for specified periods. Loral
Satellite pays a commitment fee on the unused portion of the
revolver. The Satellite Credit Agreement contains financial
covenants, including maintenance of a minimum collateral
coverage ratio, minimum net worth and minimum EBITDA. The
Satellite Credit Agreement also contains customary

F-26



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                 
|-- | --------------------------------
|8. | Long-Term Debt 
    (Continued)

limitations, including those on indebtedness,
fundamental changes, asset sales, dividends, investments,
capital expenditures, creating liens (other than those created
pursuant to the Satellite Credit Agreement), prepayments or
amendments of indebtedness, and transactions with affiliates.
During 2002, Loral Satellite paid dividends of $35 million
to its parent.

The Satellite Credit Agreement is secured by
certain assets of Loral Satellite, including the Telstar 6
and Telstar 7 satellites and the payments due to Loral
Satellite under Globalstars $500 million credit
facility (see Note 6). Based on third party valuations,
management believes that the fair value of Telstar 6 and
Telstar 7 is in excess of $500 million. As of
December 31, 2002, the net book value of Telstar 6 and
Telstar 7 was approximately $293 million. In addition,
as part of the first amendment, lenders under the Satellite
Credit Agreement received a junior lien on the assets of Loral
SpaceCom Corporation (LSC) and its subsidiaries
pledged in favor of the banks under the LSC Amended Credit
Agreement. Loral has also agreed to guarantee Loral
Satellites obligations under the Satellite Credit
Agreement, which guarantee agreement contains a minimum net
worth covenant.

On March 31, 2003, Loral Satellite amended
the Satellite Credit Agreement to provide for certain
modifications, including to its financial covenants (the
Loral Satellite Amendment). This amendment increased
interest on outstanding loans by 50 basis points, reduced
the maximum LIBOR period to three months and imposed additional
requirements on Loral Satellite and its subsidiaries, including
adding minimum cumulative EBITDA and minimum cash balance
requirements and increasing the circumstances under which
mandatory prepayment of the loans are required, including from
insurance proceeds received in connection with any launch or
in-orbit failure of Loral Satellites satellites. Loral
Satellites ability to dividend funds to its parent has
been substantially reduced in connection with this amendment.
Under the Loral Satellite Amendment, Loral Satellite may now
make dividends or loans to its parent or Loral only if such
dividends or loans are applied either to effect payments on
Lorals 9.5% senior notes or to effect a maximum of
$5 million of payments on an intercompany note between
Loral and Loral SpaceCom Corporation.

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



| |                             
| | ----------------------------
| | LSC Amended Credit Agreement

On December 21, 2001, LSC entered into an
Amended and Restated Credit Agreement with Bank of America,
N.A., as Administrative Agent, and the other lenders parties
thereto (the LSC Amended Credit Agreement). The LSC
Amended Credit Agreement provides for a $200 million
revolving credit facility expiring January 7, 2005 and a
term loan of which $360 million was outstanding at
December 31, 2002, subject to the following remaining
amortization payment schedule: $5 million on each of
March 31, June 30, September 30 and
December 31, 2003; $20 million on each of
March 31, June 30 and September 30, 2004; and
$280 million on January 7, 2005. During the first
quarter of 2003, Loral had substantially utilized the revolving
credit facility through draw downs and letters of credit.
Borrowings under the LSC Amended Credit Agreement bear interest,
at LSCs option, at various rates based on margins over the
lead banks base rate or the London Interbank Offered Rate
for specified periods. In December 2001, the margin levels were
increased under the new amended agreement and were fixed through
September 30, 2002. As a result of this increase in margin
levels, interest costs have increased by approximately
$11 million annually. Subsequent to September 30,
2002, the margin levels increased by one percent. LSC pays a
commitment fee on the unused portion of the revolver.

F-27



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                 
|-- | --------------------------------
|8. | Long-Term Debt 
    (Continued)

The LSC Amended Credit Agreement contains
financial covenants of LSC and its subsidiaries, such as
maintenance of interest coverage, leverage ratios and minimum
net worth. The LSC Amended Credit Agreement also contains
limitations on LSC and its subsidiaries, including those on
indebtedness, liens, fundamental changes, asset sales,
dividends, investments, capital expenditures, transactions with
affiliates and certain other intercompany transactions. The LSC
Amended Credit Agreement allows dividend payments to Loral if
cumulative dividend payments do not exceed 50% of its cumulative
consolidated net income and the ratio of its funded debt to
EBITDA is less than 3.0 to 1.0. As of December 31, 2002,
Loral SpaceCom had no capacity under this covenant to pay Loral
any dividends.

The LSC Amended Credit Agreement is secured by
substantially all of the assets of and the stock of LSC and its
subsidiaries, including SS/ L. LSCs obligations under the
LSC Amended Credit Agreement have been guaranteed by certain of
LSCs subsidiaries, including SS/ L. As of
December 31, 2002, the net book value of the assets that
secure the LSC Amended Credit Agreement was approximately
$645 million.

On March 31, 2003, LSC further amended the
LSC Amended Credit Agreement to provide for additional
modifications, including to LSCs financial covenants (the
LSC Amendment). This amendment increased interest on
outstanding loans by 50 basis points, reduced the revolver
commitment by $2 million and the maximum LIBOR period to
three months and imposed additional requirements on LSC and its
subsidiaries, including adding minimum cumulative EBITDA and
cash balance requirements and increasing the circumstances under
which mandatory prepayment of the loans are required, including
from insurance proceeds received in connection with any launch
or in orbit failure of Loral Skynets satellites. The
amendment also imposed additional restrictions on LSC and its
subsidiaries, including further restricting their ability to
incur capital expenditures, sell assets, incur debt, provide
vendor financing and make investments. Under the LSC Amendment,
LSC cannot, without the consent of its lenders, make further
expenditures for the launch and insurance of Telstar 8, for
which $271 million is included in satellites under
construction at December 31, 2002. Moreover, if LSC is not
successful in effecting certain asset sales by June 30,
2003, LSC may not, subject to certain limited exceptions, incur
any further capital expenditures. The lenders under the LSC
facilities also received a junior lien on the stock of Loral
Satellite as part of this amendment.

In connection with the amendment of the LSC and
the Loral Satellite credit facilities, Loral agreed to the
continued retention of a financial advisor to assist it in
various matters, including advising the Company on strategic
alternatives, which may include asset sales and other actions to
reduce indebtedness. Loral has also agreed to hire a financial
officer, whose appointment, and scope of work and authority will
be subject to the reasonable approval of certain of the lenders
under the two credit facilities. This financial officer will
work closely with Lorals management and financial advisor
regarding various matters, including communicating with the
lenders under the two bank facilities.



| |                       
| | ----------------------
| | Loral Orion Indentures

On December 21, 2001, Loral Orion issued
$613 million principal amount of 10% senior notes due 2006
and guaranteed by Loral, in exchange for the extinguishment of
$841 million principal amount of Loral Orion 11.25% senior
notes due in 2007 and 12.5% senior discount notes due 2007 as
discussed 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 $7 million using the Black Scholes
option pricing model with the following assumptions: stock
volatility, 75%, risk free interest rate, 4.36%, and no
dividends during the expected term. As of December 31,
2002, principal amount of $37 million of the existing
11.25% senior notes and principal amount of $49 million of
the existing 12.5% senior discount notes remain outstanding at
their original maturities and interest rates.

F-28



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                 
|-- | --------------------------------
|8. | 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 U.S. generally accepted accounting
principles dealing with debt restructurings, in 2001 the Company
recorded a gain of $34 million on the exchange, after
expenses of $8 million, see New Accounting Pronouncements.
The carrying value of the 10% senior notes on the balance sheet
at December 31, 2002 was $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 remaining life of the 10% senior notes, fully
offsetting interest expense through maturity of the 10% senior
notes. The indenture relating to the 10% senior notes contains
covenants, including, without limitation, restrictions on Loral
Orions ability to pay dividends or make loans to Loral.

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

In connection with the Loral Orion acquisition in
1998, the carrying value of the senior notes and senior discount
notes were increased to reflect a fair value adjustment based on
quoted market prices at the date of acquisition. Such adjustment
resulted in effective interest rates of 8.69% and 9.69% on the
senior notes and senior discount notes, respectively, through
maturity.

The Loral Orion 11.25% senior notes are due in
2007 and pay interest semi-annually. The 12.5% senior discount
notes are due in 2007 and pay interest semi-annually commencing
on July 15, 2002. Along with the issuance of each 11.25%
senior note and 12.5% senior discount note, one warrant was
originally issued to purchase shares of common stock. Upon the
acquisition of Loral Orion, each warrant was converted so that
it could purchase shares of Loral common stock. As of
December 31, 2002, exercisable warrants for 45,297 shares
of Loral common stock at an exercise price of $0.02 per share
under the Loral Orion 11.25% senior notes and 83,972 shares of
Loral common stock at an exercise price of $0.03 per share under
the Loral Orion 12.5% senior discount notes are yet to be
exercised.



| |                      
| | ---------------------
| | Other Debt Agreements

In 1999, Loral sold $350 million principal
amount of 9.5% Senior Notes due 2006 (Senior Notes).
The Senior Notes are general unsecured obligations of Loral
that: (1) are structurally junior in right of payment to
all existing and future indebtedness of Lorals
subsidiaries; (2) are equal in right of payment with all
existing and future senior indebtedness of Loral (except as to
assets pledged to secure such indebtedness); and (3) are
senior in right of payment to any future indebtedness which is
by its terms junior in right of payment to any senior
indebtedness of Loral. Interest on the Senior Notes accrues at
the rate of 9.5% per annum and is payable semi-annually on
January 15 and July 15. The Senior Notes will mature
on January 15, 2006. Loral may redeem all or part of the
Senior Notes on or after January 15, 2003. Upon a change of
control (as defined), each holder of Senior Notes will have the
right to require Loral to repurchase such holders Senior
Notes at a price equal to 101% of the principal amount thereof
plus accrued interest to the date of repurchase.

The Satellite Credit Agreement, LSC Amended
Credit Agreement, the indenture relating to Loral Orions
10% senior notes, and Lorals indenture relating to its
9.5% senior notes, provide for cross default or cross
acceleration provisions.

F-29



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                 
|-- | --------------------------------
|8. | Long-Term Debt 
    (Continued)

SS/ L borrowed a total of $42.9 million
under an export-import credit facility (the EX-IM
Facility) with a Japanese bank. The EX-IM Facility is
fully secured by a letter of credit arrangement with another
bank. As of December 31, 2002, no amounts remained
available for borrowing under this facility. The outstanding
principal is being repaid in semi-annual installments through
November 1, 2005. Interest is charged at LIBOR less 1/4%
and is payable semi-annually on May 1 and November 1.

The aggregate maturities of the carrying value of
total debt for the years 2003 through 2007 are as follows (in
millions): $131.9, $160.8, $836.7, $1,028.5 and $86.2.

On March 31, 2003, Loral entered into
amendments of its Loral SpaceCom and Loral Satellite credit
facilities, which among other changes, amended its financial
performance covenants. At December 31, 2002, the Company
was, after giving effect to the March 2003 amendments to the
Loral SpaceCom and Loral Satellite credit facilities, in
compliance with all of the covenants and conditions under its
various lending and funding arrangements.

Lorals business plan assumes the receipt of
approximately $60 million from the successful monetization of
certain long-term customer receivables in 2003. While Loral has
reached an agreement in principle with a third party to effect
such monetization, there is no assurance that this transaction
will be consummated. If Loral is unable to consummate this
transaction on a timely basis, or the proceeds from such
transaction are less than those assumed in the business plan,
Lorals ability to fund its operations would be adversely
affected. A substantial reduction in our fixed satellite
services revenues or the inability of SS/L to replace existing
backlog with new contracts would also adversely impact our
ability to achieve our business plan. In addition, Lorals
ability to fund the 2004 interest payments on its 9.5% senior
notes will depend on its ability to successfully execute its
business plan, which includes further asset sales. There is no
assurance that Loral will be able to do so. If Loral fails to
pay interest on the 9.5% senior notes when due, this will, upon
expiration of a 30-day cure period, constitute an event of
default under Lorals senior note indenture, which in turn
would result in an event of default under the LSC Amended Credit
Agreement and the Loral Satellite Credit Agreement. If the
holders of the 9.5% senior notes, the lenders under the LSC
credit facility or the lenders under the Loral Satellite credit
facility were to accelerate their related debt following such
event of default, an event of default would also occur with
respect to Loral Orions 10% senior notes, which are
guaranteed by Loral.

Loral is likely to require and intends to seek
further amendments to the LSC and Loral Satellite facilities to
ensure compliance with financial performance covenants for
periods after March 31, 2004. There can be no assurance
that the lenders will consent to any such amendment. Because of
the cross-default provisions set forth in the LSC and Loral
Satellite credit facilities, a failure by Loral to meet any
financial performance covenant set forth in either credit
facility will result in an event of default under both the LSC
and the Loral Satellite credit facilities. Moreover, if the
lenders under either credit facility were to accelerate their
outstanding loans, this would constitute an event of default
under Lorals 9.5% senior notes and Loral Orions 10%
senior notes, which are guaranteed by Loral.

F-30



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

9.     Income
Taxes

The benefit (provision) for income taxes on
the loss before income taxes, equity in net loss of affiliates,
minority interest, Globalstar related impairment charges and
cumulative effect of change in accounting principle consists of
the following (in thousands):

|                           |                     |                          |          |          |   |      |        |        |   |   |        |         |  
|-------------------------- | ------------------- | ------------------------ | -------- | -------- | - | ---- | ------ | ------ | - | - | ------ | ------- | -
|                           |                     |                         
|                           |                     | Years ended December 31,
|                           |                     |                         
|                           |                     | 2002                     |          | 2001     |   | 2000
|                           |                     |                          |          |          |   |     
|Current:                   |                     |                          |          |          |   |      |        |        |   |   |        |        
|                           | U.S. Federal        |                          | $        | 5,347    |   |      | $      | (2,147 | ) |   | $      | (2,202  | )
|                           | State and local     |                          |          | (4,013   | ) |      |        | 1,164  |   |   |        | (11,322 | )
|                           | Foreign             |                          |          | (1,041   | ) |      |        | (2,069 | ) |   |        | (325    | )
|                           |                     |                          |          |          |   |      |        |        |   |   |        |        
|                           | Total               |                          |          | 293      |   |      |        | (3,052 | ) |   |        | (13,849 | )
|                           |                     |                          |          |          |   |      |        |        |   |   |        |        
|Deferred:                  |                     |                          |          |          |   |      |        |        |   |   |        |        
|                           | U.S. Federal        |                          |          | 25,463   |   |      |        | 7,635  |   |   |        | 1,924   |  
|                           | State and local     |                          |          | 13,980   |   |      |        | (6,753 | ) |   |        | 2,550   |  
|                           | Foreign             |                          |          | 880      |   |      |        |        |   |   |        |         |  
|                           | Valuation allowance |                          |          | (395,658 | ) |      |        |        |   |   |        |         |  
|                           |                     |                          |          |          |   |      |        |        |   |   |        |        
|                           | Total               |                          |          | (355,335 | ) |      |        | 882    |   |   |        | 4,474   |  
|                           |                     |                          |          |          |   |      |        |        |   |   |        |        
|Total income tax provision |                     | $                        | (355,042 | )        |   | $    | (2,170 | )      |   | $ | (9,375 | )      
|                           |                     |                          |          |          |   |      |        |        |   |   |        |        

The income tax benefit (provision) excludes
the following (in thousands):

|                                              |                                  |                          |   |        |   |      |   |        |   |  |   |         | 
|--------------------------------------------- | -------------------------------- | ------------------------ | - | ------ | - | ---- | - | ------ | - |  | - | ------- | 
|                                              |                                  |                         
|                                              |                                  | Years ended December 31,
|                                              |                                  |                         
|                                              |                                  | 2002                     |   | 2001   |   | 2000
|                                              |                                  |                          |   |        |   |     
|Equity in net loss of Globalstar partnership: |                                  |                          |   |        |   |      |   |        |   |  |   |        
|                                              | Current tax (provision)          |                          | $ | (5,639 | ) |      | $ |        |   |  | $ |         | 
|                                              | Deferred tax benefit (provision) |                          |   |        |   |      |   | (4,356 | ) |  |   | 298,664 | 
|Equity in net loss of Satmex:                 |                                  |                          |   |        |   |      |   |        |   |  |   |        
|                                              | Deferred tax benefit             |                          |   |        |   |      |   | 988    |   |  |   |         | 
|Equity in net loss of other affiliates:       |                                  |                          |   |        |   |      |   |        |   |  |   |        
|                                              | Deferred tax benefit             |                          |   |        |   |      |   | 318    |   |  |   | 10,817  | 
|                                              |                                  |                          |   |        |   |      |   |        |   |  |   |        

F-31



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



9.     Income
Taxes  (Continued)


|                                                                         |                                  |                          |        |      |  |      |        |        |   |  |         |         |  
|------------------------------------------------------------------------ | -------------------------------- | ------------------------ | ------ | ---- |  | ---- | ------ | ------ | - |  | ------- | ------- | -
|                                                                         |                                  |                         
|                                                                         |                                  | Years ended December 31,
|                                                                         |                                  |                         
|                                                                         |                                  | 2002                     |        | 2001 |  | 2000
|                                                                         |                                  |                          |        |      |  |     
|Subtotal of amounts attributable to equity in net
    loss of affiliates |                                  |                          | (5,639 | )    |  |      | (3,050 | )      |   |  | 309,481 |        
|Globalstar related impairment charges:                                   |                                  |                          |        |      |  |      |        |        |   |  |         |        
|                                                                         | Deferred tax benefit             |                          |        |      |  |      |        |        |   |  |         | 13,169  |  
|Minority interest for CyberStar L.P.:                                    |                                  |                          |        |      |  |      |        |        |   |  |         |        
|                                                                         | Current tax (provision)          |                          |        |      |  |      |        | (125   | ) |  |         | (703    | )
|                                                                         | Deferred tax benefit             |                          |        |      |  |      |        | 36     |   |  |         | 186     |  
|Cumulative effect of change in accounting
    principle:                 |                                  |                          |        |      |  |      |        |        |   |  |         |        
|                                                                         | Deferred tax benefit             |                          |        |      |  |      |        | 1,197  |   |  |         |         |  
|Unrealized gain on available-for-sale securities:                        |                                  |                          |        |      |  |      |        |        |   |  |         |        
|                                                                         | Deferred tax benefit (provision) |                          |        |      |  |      |        | 6,157  |   |  |         | (17,593 | )
|Unrealized gains on derivatives                                          |                                  |                          |        |      |  |      |        |        |   |  |         |        
|                                                                         | Deferred tax (provision)         |                          |        |      |  |      |        | (2,312 | ) |  |         |         |  

The benefit (provision) for income taxes on the
loss before income taxes, equity in net loss of affiliates,
minority interest, Globalstar related impairment charges and
cumulative effect of change in accounting principle 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):

|                                                          |                                                                          |                          |          |          |   |      |        |         |   |   |        |         |  
|--------------------------------------------------------- | ------------------------------------------------------------------------ | ------------------------ | -------- | -------- | - | ---- | ------ | ------- | - | - | ------ | ------- | -
|                                                          |                                                                          |                         
|                                                          |                                                                          | Years ended December 31,
|                                                          |                                                                          |                         
|                                                          |                                                                          | 2002                     |          | 2001     |   | 2000
|                                                          |                                                                          |                          |          |          |   |     
|Tax benefit at U.S. Statutory Rate of 35%                 |                                                                          | $                        | 51,574   |          |   | $    | 44,217 |         |   | $ | 19,895 |        
|Permanent adjustments which change statutory
    amounts: |                                                                          |                          |          |          |   |      |        |         |   |   |        |        
|                                                          | State and local income taxes, net of federal
    income tax              |                          |          | 6,479    |   |      |        | (3,633  | ) |   |        | (5,702  | )
|                                                          | Non-U.S. income and losses taxed at lower rates                          |                          |          | (16,212  | ) |      |        | (26,141 | ) |   |        | (11,144 | )
|                                                          | Non-deductible amortization of cost in excess of
    net assets acquired |                          |          |          |   |      |        | (8,738  | ) |   |        | (8,738  | )
|                                                          | Government export controls settlement                                    |                          |          | (204     | ) |      |        | (4,034  | ) |   |        |         |  
|                                                          | Change in valuation allowance                                            |                          |          | (395,658 | ) |      |        |         |   |   |        |         |  
|                                                          | Other, net                                                               |                          |          | (1,021   | ) |      |        | (3,841  | ) |   |        | (3,686  | )
|                                                          |                                                                          |                          |          |          |   |      |        |         |   |   |        |        
|Net income tax provision                                  |                                                                          | $                        | (355,042 | )        |   | $    | (2,170 | )       |   | $ | (9,375 | )      
|                                                          |                                                                          |                          |          |          |   |      |        |         |   |   |        |        

For the years ended December 31, 2002, 2001
and 2000, loss before income taxes includes approximately
$49 million, $71 million and $25 million,
respectively, of non-U.S. source loss. As of December 31,
2002, the Company had net operating loss carryforwards of
approximately $551 million, which includes
$208 million related to foreign partner interests in
Globalstar and CyberStar L.P., as well as tax credit
carryforwards of approximately $11.7 million, which expire
at varying dates from 2010 through 2022. 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

F-32



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



9.     Income
Taxes  (Continued)


in SFAS No. 109. Based upon this analysis,
management concluded during the fourth quarter of 2002 that, due
to insufficient positive evidence substantiating recoverability,
the valuation allowance should be increased by
$390.4 million to a balance of $576.5 million. Of this
net increase, $31.9 million represented deferred tax assets
applied directly to shareholders equity for other
comprehensive income items, net, $18.7 million primarily
related to the cumulative effect of a change in accounting
principles on the adoption of SFAS 142 and $55.9 million
represented a reduction to the allowance which was applied
directly against the deferred tax asset. Included in the
reduction was the elimination of the benefit for loss
carryforwards related to certain foreign partners interests in
Globalstar that will expire unrealized. The balance of
$395.7 million was charged to the 2002 results. As of
December 31, 2002, a valuation allowance has been
established for the entire balance of the Companys net
deferred tax asset. The valuation allowance was
$186.1 million at December 31, 2001 and
$114.0 million at December 31, 2000. The increases for
2001 and 2000 primarily related to the additional reserve
established for the benefit from the loss carryforwards related
to the foreign partner interests in Globalstar.

Loral will maintain the valuation allowance until
sufficient positive evidence exists to support the reversal of
the reserve. Until such time, we expect to report no tax
provision net of valuation allowance adjustments, except for
potential alternative minimum taxes and minor state, local and
foreign tax provisions. When Loral determines that it will be
able to realize its deferred tax assets, an adjustment to the
valuation allowance will increase income in the period such
determination is made.

F-33



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



9.     Income
Taxes  (Continued)


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

|                                   |                                                          |              |         |          |   |   |         |          |  
|---------------------------------- | -------------------------------------------------------- | ------------ | ------- | -------- | - | - | ------- | -------- | -
|                                   |                                                          |             
|                                   |                                                          | December 31,
|                                   |                                                          |             
|                                   |                                                          | 2002         |         | 2001    
|                                   |                                                          |              |         |         
|Deferred tax assets:               |                                                          |              |         |          |   |   |         |         
|                                   | Postretirement benefits other than pensions              |              | $       | 17,144   |   |   | $       | 15,113   |  
|                                   | Inventoried costs                                        |              |         | 18,755   |   |   |         | 33,832   |  
|                                   | Net operating loss and tax credit carryforwards          |              |         | 207,568  |   |   |         | 246,788  |  
|                                   | Compensation and benefits                                |              |         | 12,022   |   |   |         | 11,365   |  
|                                   | Premium on senior notes                                  |              |         | 157,042  |   |   |         | 191,121  |  
|                                   | Investments in and advances to affiliates                |              |         | 335,588  |   |   |         | 306,030  |  
|                                   | Other, net                                               |              |         | 26,591   |   |   |         |          |  
|                                   | Pension costs                                            |              |         | 25,462   |   |   |         |          |  
|                                   |                                                          |              |         |          |   |   |         |         
|                                   | Total deferred tax assets before valuation
    allowance |              | $       | 800,172  |   |   | $       | 804,249  |  
|                                   | Less valuation allowance                                 |              |         | (576,525 | ) |   |         | (186,100 | )
|                                   |                                                          |              |         |          |   |   |         |         
|                                   | Net deferred tax asset                                   |              | $       | 223,647  |   |   | $       | 618,149  |  
|                                   |                                                          |              |         |          |   |   |         |         
|Deferred tax liabilities:          |                                                          |              |         |          |   |   |         |         
|                                   | Other, net                                               |              | $       |          |   |   | $       | 14,404   |  
|                                   | Pension costs                                            |              |         |          |   |   |         | 5,180    |  
|                                   | Property, plant and equipment                            |              |         | 210,778  |   |   |         | 216,768  |  
|                                   | Income recognition on long-term contracts                |              |         | 39,820   |   |   |         | 53,412   |  
|                                   |                                                          |              |         |          |   |   |         |         
|                                   | Total deferred tax liability                             |              | $       | 250,598  |   |   | $       | 289,764  |  
|                                   |                                                          |              |         |          |   |   |         |         
|Net deferred tax asset (liability) |                                                          | $            | (26,951 | )        |   | $ | 328,385 |         
|                                   |                                                          |              |         |          |   |   |         |         

The net deferred income taxes are classified as
follows (in thousands):

|                      |  |              |        |      |  |   |         | 
|--------------------- |  | ------------ | ------ | ---- |  | - | ------- | 
|                      |  |             
|                      |  | December 31,
|                      |  |             
|                      |  | 2002         |        | 2001
|                      |  |              |        |     
|Other current assets  |  |              |        |      |  | $ | 30,857  | 
|                      |  |              |        |      |  |   |         | 
|Deferred tax assets   |  |              |        |      |  | $ | 297,528 | 
|                      |  |              |        |      |  |   |         | 
|Long-term liabilities |  | $            | 26,951 |      |  |   |         | 
|                      |  |              |        |      |  |   |         | 

10.     Shareholders
Equity



| |             
| | ------------
| | Common Stock

Under the New York Stock Exchange
(NYSE) criteria for continued listing, the NYSE will
normally give consideration to de-listing a companys stock
when the average closing price of the stock is less than $1.00
over a consecutive 30-trading day period. The average closing
price of Loral common stock was less than $1.00 for 30
consecutive trading days, and, on August 22, 2002, the
Company received notice from the NYSE that its stock price was
below the NYSEs price criteria. If Loral is unable to cure
this deficiency, the Companys common stock could be
de-listed from the NYSE. De-listing of the Companys common
stock by the NYSE

F-34



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



10.     Shareholders
Equity  (Continued)


could result in a material adverse effect on the
liquidity of the Companys common shares, have an adverse
effect on the trading value and impair the Companys
ability to raise funds in the capital markets. The NYSE has
informed Loral that the price is the only criteria for listing
that the Company does not currently meet. The Company has
notified the NYSE of its intent to cure this deficiency. The
NYSE rules provide a six-month period from receipt of the notice
letter from the NYSE to cure this deficiency. In the event the
actions the Company takes to cure this deficiency require
shareholder approval, the six-month cure period will be extended
until after the Companys next annual shareholders
meeting currently scheduled on May 29, 2003. The Company
plans on seeking shareholder approval to implement a reverse
stock split at its annual meeting, in order to, among other
things, restore the Companys compliance with NYSE share
price requirements. The Company believes (although there can be
no assurance) that it will be able to cure this deficiency
within this time frame.

Series A
Preferred Stock

On March 31, 2000, Lockheed Martin
Corporation (Lockheed Martin) converted 45,896,978
shares of Lorals Series A preferred stock into
45,896,978 shares of Loral common stock.

Series B
Preferred Stock

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

6% Series C
and Series D Convertible Redeemable Preferred
Stock

The Companys 6% Series C convertible
redeemable preferred stock (the Series C Preferred
Stock) and 6% Series D convertible redeemable
preferred stock (the Series D Preferred Stock)
have mandatory redemption dates in 2006 and 2007, respectively.
The Company has the right to make mandatory redemption payments
to the holders in either cash or common stock, or a combination
of the two. Based upon the price of the Companys common
stock at December 31, 2002, the Company did not have
available a sufficient number of authorized shares of its common
stock to effect payment of the total mandatory redemptions in
common stock in 2006 and 2007. Accordingly, as of
December 31, 2002, the Company classified an aggregate of
$125 million of its Series C Preferred Stock and
Series D Preferred Stock outside the shareholders
equity section of the balance sheet, based on the average of the
volume weighted average daily price of the Companys common
stock as defined (approximately $0.38 per share at
December 31, 2002). Had the volume weighted average daily
price of the Companys common stock as calculated been
above $0.86 at December 31, 2002, none of the
Companys preferred stock would have been classified
outside the shareholders equity section of the balance
sheet. The exact number of shares of the Companys common
stock that may be issued on a mandatory redemption date cannot
be determined at this time. That number will depend on a number
of factors not known today, such as the price of the
Companys common stock and the number of shares of the
Companys preferred stock outstanding at that time. The
Company intends to submit for shareholder approval at its next
annual shareholders meeting currently scheduled on
May 29, 2003 an increase to the authorized number of shares
of its common stock from 750,000,000 to 1,250,000,000 which,
based on the volume weighted average daily price of the
Companys common stock as defined at December 31, 2002
and March 28, 2003, would enable the Company to effect
payment of the total mandatory redemptions in common stock. The

F-35



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



10.     Shareholders
Equity  (Continued)


amount, if any, of the Series C Preferred
Stock and Series D Preferred Stock classified outside the
shareholders equity section will vary in future periods
depending on these factors.

In August 2002, Lorals board of directors
approved a plan to suspend indefinitely the future payment of
dividends on its two series of preferred stock. Accordingly,
Loral has deferred the payment of quarterly dividends due on its
Series C Preferred Stock on November 1, 2002, and the
payment of quarterly dividends due on its the Series D
Preferred Stock on November 15, 2002. Dividends on the two
series will continue to accrue. In the event accrued and unpaid
dividends accumulate to an amount equal to six quarterly
dividends on the Series C Preferred Stock, holders of the
majority of the outstanding Series C Preferred Stock will
be entitled to elect two additional members to Lorals
board of directors. In the event accrued and unpaid dividends
accumulate to an amount equal to six consecutive quarterly
dividends on the Series D Preferred Stock, holders of the
majority of the outstanding Series D Preferred will be
entitled to elect two additional members to Lorals board
of directors. As of December 31, 2002, accrued and unpaid
dividends of $3 million represented one quarterly dividend
payment outstanding.

6% Series C
Convertible Preferred Stock

The Series C Preferred Stock outstanding at
December 31, 2002 had an aggregate liquidation preference
equal to its $187 million aggregate redemption value and a
mandatory redemption date of November 1, 2006. The
Series C Preferred Stock outstanding at December 31,
2002 is convertible into 9,363,713 shares of common stock of the
Company at a conversion price of $20 per share. The
Series C Preferred Stock is non-voting unless Loral does
not pay dividends for an aggregate of six quarters, and with
respect to dividend rights and rights upon liquidation, winding
up and dissolution, ranks pari passuwith the
Series D Preferred Stock and senior to or pari passuwith all other existing and future series of preferred stock
of Loral and senior to Loral common stock. Prior to redemption,
the Series C Preferred Stock is redeemable in cash at any
time, in whole or in part, at the option of the Company (at a
premium which declines over time). The Series C Preferred
Stock is redeemable in cash, Loral common stock or a combination
thereof, at the option by the Company, on the mandatory
redemption date. See Series C and Series D Preferred
Stock Conversions below.

6% Series D
Convertible Preferred Stock

In February 2000, Loral sold $400 million of
Series D Preferred Stock due 2007 in an offering exempt
from registration.

The Series D Preferred Stock outstanding at
December 31, 2002 had an aggregate liquidation preference
equal to its $37 million aggregate redemption value and a
mandatory redemption date of February 15, 2007. The
Series D Preferred Stock outstanding at December 31,
2002 is convertible into 1,851,044 shares of common stock at a
conversion price of $19.83 per share. The Series D
Preferred Stock is non-voting, unless Loral does not pay
dividends for six consecutive quarters, and with respect to
dividend rights and rights upon liquidation, winding up and
dissolution, ranks pari passuwith the Series C
Preferred Stock and all other existing and future series of
preferred stock of Loral and senior to Loral common stock. The
Series D Preferred Stock is redeemable in cash, Loral
common stock or a combination thereof, at the option by the
Company, on the mandatory redemption date. See Series C and
Series D Preferred Stock Conversions below.

Series C
and Series D Preferred Stock Conversions

In connection with the conversions of the
Companys preferred stock for common stock in 2002, 2001
and 2000 detailed below, the Company retired preferred stock
with mandatory redemptions aggregating $921 million in 2006
and 2007 (representing 80% of the aggregate redemption values
prior to these exchanges) and will save $55 million in
future annual dividend obligations.

F-36



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



10.     Shareholders
Equity  (Continued)


On October 8, 2002, Loral completed exchange
offers for its Series C and Series D preferred stock
and converted 4.3 million shares of its Series C
Preferred Stock and 2.7 million shares of its Series D
Preferred Stock for 45.8 million shares of its common stock
and $13.4 million in cash. In connection with the exchange
offers, Loral incurred $21.6 million of dividend charges,
comprised of the $13.4 million in cash and non-cash
dividend charges of $8.2 million. The non-cash dividend
charges relate to the difference between the value of the common
stock issued in the exchanges and the value of the shares that
were issuable under the stated conversion terms of the preferred
stock and will have no impact on Lorals total
shareholders equity as the offset was an increase in
common stock and paid-in capital.

During the second quarter of 2002, in privately
negotiated exchange transactions, Loral converted
1.8 million shares of its Series C Preferred Stock and
2.7 million shares of its Series D Preferred Stock
into 30.9 million shares of its common stock. In connection
with these transactions, Loral incurred non-cash dividend
charges of $38 million, which primarily relate to the
difference between the value of the common stock issued in the
exchanges and the value of the shares that were issuable under
the stated conversion terms of the preferred stock. The non-cash
dividend charges had no impact on Lorals total
shareholders equity, as the offset was an increase in
common stock and paid-in capital.

On April 16, 2001, the Company completed
exchange offers for its Series C Preferred Stock and its
Series D Preferred Stock. As a result, 3.7 million
shares of its Series C Preferred Stock and 1.9 million
shares of its Series D Preferred Stock were tendered and
exchanged into 30.9 million shares of the Companys
common stock. Loral incurred non-cash dividend charges in the
second quarter of 2001 of $29 million, which primarily
relate to the difference between the value of the common stock
issued in the exchanges and the value of the shares that were
issuable under the stated conversion terms of the preferred
stock. The non-cash dividend charges had no impact on
Lorals total shareholders equity, as the offset was
an increase in common stock and paid-in capital.

In February 2000, 1.4 million shares of the
Series C Preferred Stock were converted into
3.5 million shares of Loral common stock. In connection
with this conversion, Loral issued to the converting
shareholders 332,777 additional shares of its common stock,
which approximated the dividend prepayments to which the holders
would have been entitled if a provisional redemption of those
securities had been made (which resulted in a non-cash dividend
charge of $6 million). The non-cash dividend charge had no
impact on Lorals total shareholders equity, as the
offset was an increase in common stock and paid-in capital.

Stock
Plans

On April 18, 2000, the Board of Directors of
Loral approved a new stock option plan (the 2000
Plan) in order to provide an inducement to attract and
retain the services of qualified employees. The 2000 Plan is
intended to constitute a broadly-based plan as
defined in Section 312.04(h) of the NYSE Listed Company
Manual, which provides that at least 50% of grants thereunder
exclude senior management. The 2000 Plan provides for the grant
of non-qualified stock options only. As of December 31,
2002, up to 37 million shares of common stock may be issued
under the 2000 Plan, of which approximately 28 million
options at a weighted average exercise price of $3.19 per
share were outstanding as of December 31, 2002. Employees
of Loral, its subsidiaries and affiliates are eligible to
participate in the 2000 Plan. Such options become exercisable as
determined by the Board, generally over three years, and
generally expire no more than 10 years from the date of the
grant. The 2000 Plan (but not outstanding options) will
terminate on the tenth anniversary of its adoption.

In April 1996, Loral established the 1996 Stock
Option Plan. An aggregate of 18 million shares of common
stock have been reserved for issuance, of which approximately
14.2 million options at a weighted average exercise price
of $11.98 per share were outstanding as of December 31,
2002. Under this plan, options

F-37



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



10.     Shareholders
Equity  (Continued)


are granted at the discretion of the
Companys Board of Directors to employees of the Company
and its affiliates. Such options become exercisable as
determined by the Board, generally over three to five years, and
generally expire no more than 10 years from the date of the
grant.

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

A summary of the status of the Companys
stock option plans as of December 31, 2002, 2001 and 2000
and changes during the periods then ended is presented below:

|                                                                               |  |        |            |          |  |   |       | 
|------------------------------------------------------------------------------ |  | ------ | ---------- | -------- |  | - | ----- | 
|                                                                               |  |        |            | Weighted
|                                                                               |  |        |            | Average 
|                                                                               |  |        |            | Exercise
|                                                                               |  | Shares |            | Price   
|                                                                               |  |        |            |         
|Outstanding at January 1, 2000                                                 |  |        | 13,356,864 |          |  | $ | 15.25 | 
|Granted at fair market value (weighted average
    fair value $1.87 per share) |  |        | 20,764,697 |          |  |   | 5.80  | 
|Exercised                                                                      |  |        | (31,193    | )        |  |   | 9.09  | 
|Forfeited                                                                      |  |        | (1,342,125 | )        |  |   | 15.25 | 
|                                                                               |  |        |            |          |  |   |       | 
|Outstanding at December 31, 2000                                               |  |        | 32,748,243 |          |  |   | 9.26  | 
|Granted at fair market value (weighted average
    fair value $0.81 per share) |  |        | 16,084,518 |          |  |   | 1.60  | 
|Exercised                                                                      |  |        | (5,500     | )        |  |   | 0.01  | 
|Forfeited                                                                      |  |        | (1,166,598 | )        |  |   | 9.80  | 
|                                                                               |  |        |            |          |  |   |       | 
|Outstanding at December 31, 2001                                               |  |        | 47,660,663 |          |  |   | 6.66  | 
|Granted at fair market value (weighted average
    fair value $1.08 per share) |  |        | 939,500    |          |  |   | 1.86  | 
|Forfeited                                                                      |  |        | (5,751,326 | )        |  |   | 8.64  | 
|                                                                               |  |        |            |          |  |   |       | 
|Outstanding at December 31, 2002                                               |  |        | 42,848,837 |          |  | $ | 6.29  | 
|                                                                               |  |        |            |          |  |   |       | 
|Options exercisable at December 31, 2000                                       |  |        | 9,297,970  |          |  | $ | 12.67 | 
|                                                                               |  |        |            |          |  |   |       | 
|Options exercisable at December 31, 2001                                       |  |        | 15,541,766 |          |  | $ | 11.06 | 
|                                                                               |  |        |            |          |  |   |       | 
|Options exercisable at December 31, 2002                                       |  |        | 25,556,056 |          |  | $ | 7.74  | 
|                                                                               |  |        |            |          |  |   |       | 

F-38



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



10.     Shareholders
Equity  (Continued)


The following table summarizes information about
Lorals outstanding stock options at December 31, 2002:

|                     |  |                   |            |             |  |          |      |        |  |          |       |  |  |  |            |  |  |   |       | 
|-------------------- |  | ----------------- | ---------- | ----------- |  | -------- | ---- | ------ |  | -------- | ----- |  |  |  | ---------- |  |  | - | ----- | 
|                     |  |                  
|                     |  | December 31, 2002
|                     |  |                  
|                     |  |                   |            |            
|                     |  | Outstanding       |            |            
|                     |  |                   |            | Exercisable
|                     |  |                   |            | Weighted    |  |          |      |       
|                     |  |                   |            | Average     |  | Weighted |      |        |  | Weighted
|                     |  |                   |            | Remaining   |  | Average  |      |        |  | Average 
|                     |  |                   |            | Contractual |  | Exercise |      |        |  | Exercise
|Exercise Price Range |  | Number            |            | Life-Years  |  | Price    |      | Number |  | Price   
|                     |  |                   |            |             |  |          |      |        |  |         
|$ 0.38 - $ 1.96      |  |                   | 13,335,712 |             |  |          | 8.79 |        |  | $        | 1.31  |  |  |  | 6,114,908  |  |  | $ | 1.35  | 
|$ 2.20 - $ 3.47      |  |                   | 11,276,585 |             |  |          | 8.00 |        |  |          | 3.07  |  |  |  | 4,901,496  |  |  |   | 3.17  | 
|$ 6.06 - $ 8.13      |  |                   | 8,465,786  |             |  |          | 7.45 |        |  |          | 8.03  |  |  |  | 6,246,778  |  |  |   | 8.03  | 
|$10.50 - $15.75      |  |                   | 5,256,743  |             |  |          | 4.04 |        |  |          | 11.62 |  |  |  | 4,957,963  |  |  |   | 11.54 | 
|$15.81 - $22.13      |  |                   | 2,897,185  |             |  |          | 6.29 |        |  |          | 16.69 |  |  |  | 1,988,945  |  |  |   | 16.72 | 
|$23.85 - $27.28      |  |                   | 1,616,826  |             |  |          | 5.14 |        |  |          | 24.74 |  |  |  | 1,345,966  |  |  |   | 24.73 | 
|                     |  |                   |            |             |  |          |      |        |  |          |       |  |  |  |            |  |  |   |       | 
|                     |  |                   | 42,848,837 |             |  |          | 7.43 |        |  |          | 6.29  |  |  |  | 25,556,056 |  |  |   | 7.74  | 
|                     |  |                   |            |             |  |          |      |        |  |          |       |  |  |  |            |  |  |   |       | 

All options granted during 2002, 2001 and 2000
were non-qualified stock options. As of December 31, 2002,
11,613,737 shares of common stock were available for future
grant under the plans.

The foregoing excludes the effect of Lorals
exchange offer for certain of its outstanding stock options
completed on March 7, 2003. In connection with this
exchange offer, Loral accepted and cancelled existing stock
options to purchase an aggregate of 14,884,403 shares of common
stock that were tendered in the exchange offer and agreed to
grant in exchange new stock options to purchase an aggregate of
6,021,488 shares of common stock. The new options will be
granted, subject to the terms and conditions of the exchange
offer, on September 8, 2003, and will have an exercise
price per share equal to the fair market value of the common
stock on the date of grant.



|    |                                     
|--- | ------------------------------------
|11. | Pensions and Other Employee Benefits



| |         
| | --------
| | Pensions

The Company maintains a pension plan and a
supplemental retirement plan. These plans are defined benefit
pension plans and members in certain locations may contribute to
the pension plan in order to receive enhanced benefits.
Eligibility for participation in these plans vary and benefits
are based on members compensation and/or years of service.
None of the employees associated with the acquisition of Loral
Orion were transferred into these plans. The Companys
funding policy is to fund the pension plan in accordance with
the Internal Revenue Code and regulations thereon and to fund
the supplemental retirement plan on an actuarial basis,
including service cost and amortization amounts. Plan assets are
generally invested in U.S. government and agency
obligations and listed stocks and bonds.



| |               
| | --------------
| | Other Benefits

In addition to providing pension benefits, the
Company provides certain health care and life insurance benefits
for retired employees and dependents. Participants are eligible
for these benefits when they retire from active service and meet
the eligibility requirements for the Companys pension
plan. These benefits are funded primarily on a pay-as-you-go
basis, with the retiree generally paying a portion of the cost
through contributions, deductibles and coinsurance provisions.

F-39



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                       
|--- | ------------------------------------------------------
|11. | Pensions and Other Employee
    Benefits  (Continued)

The following tables provide a reconciliation of
the changes in the plans benefit obligations and fair
value of assets for 2002 and 2001, and a statement of the funded
status as of December 31, 2002 and 2001, respectively.

|                                                |  |                  |          |                |  |      |         |      |  |   |         |   |  |   |         |  
|----------------------------------------------- |  | ---------------- | -------- | -------------- |  | ---- | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                |  |                  |          |               
|                                                |  | Pension Benefits |          | Other Benefits
|                                                |  |                  |          |               
|                                                |  | 2002             |          | 2001           |  | 2002 |         | 2001
|                                                |  |                  |          |                |  |      |         |     
|                                                |  |                 
|                                                |  | (in thousands)  
|Reconciliation of benefit obligation            |  |                  |          |                |  |      |         |      |  |   |         |   |  |   |         |  
|Obligation at January 1                         |  | $                | 277,297  |                |  | $    | 248,105 |      |  | $ | 49,309  |   |  | $ | 38,493  |  
|Service cost                                    |  |                  | 9,382    |                |  |      | 8,804   |      |  |   | 2,135   |   |  |   | 1,790   |  
|Interest cost                                   |  |                  | 21,041   |                |  |      | 19,867  |      |  |   | 4,111   |   |  |   | 3,504   |  
|Participant contributions                       |  |                  | 1,348    |                |  |      | 1,371   |      |  |   | 961     |   |  |   | 848     |  
|Plan amendments                                 |  |                  | 61       |                |  |      |         |      |  |   |         |   |  |   |         |  
|Actuarial loss                                  |  |                  | 26,229   |                |  |      | 12,632  |      |  |   | 17,671  |   |  |   | 7,839   |  
|Benefit payments                                |  |                  | (15,408  | )              |  |      | (13,482 | )    |  |   | (2,197  | ) |  |   | (3,165  | )
|                                                |  |                  |          |                |  |      |         |      |  |   |         |   |  |   |         |  
|Obligation at December 31                       |  | $                | 319,950  |                |  | $    | 277,297 |      |  | $ | 71,990  |   |  | $ | 49,309  |  
|Reconciliation of fair value of plan
    assets |  |                  |          |                |  |      |         |      |  |   |         |   |  |   |         |  
|Fair value of plan assets at January 1          |  | $                | 243,818  |                |  | $    | 276,758 |      |  | $ | 1,426   |   |  | $ | 1,553   |  
|Actual return (loss) on plan assets             |  |                  | (20,721  | )              |  |      | (23,169 | )    |  |   | 124     |   |  |   | 66      |  
|Employer contributions                          |  |                  | 2,259    |                |  |      | 2,340   |      |  |   | 1,235   |   |  |   | 2,124   |  
|Participant contributions                       |  |                  | 1,348    |                |  |      | 1,371   |      |  |   | 961     |   |  |   | 848     |  
|Benefit payments                                |  |                  | (15,408  | )              |  |      | (13,482 | )    |  |   | (2,197  | ) |  |   | (3,165  | )
|                                                |  |                  |          |                |  |      |         |      |  |   |         |   |  |   |         |  
|Fair value of plan assets at December 31        |  | $                | 211,296  |                |  | $    | 243,818 |      |  | $ | 1,549   |   |  | $ | 1,426   |  
|Funded status                                   |  |                  |          |                |  |      |         |      |  |   |         |   |  |   |         |  
|Unfunded status at December 31                  |  | $                | (108,654 | )              |  | $    | (33,479 | )    |  | $ | (70,441 | ) |  | $ | (47,883 | )
|Unrecognized prior service cost                 |  |                  | (279     | )              |  |      | (376    | )    |  |   | (5,110  | ) |  |   | (6,382  | )
|Unrecognized loss                               |  |                  | 103,949  |                |  |      | 34,899  |      |  |   | 33,087  |   |  |   | 16,139  |  
|                                                |  |                  |          |                |  |      |         |      |  |   |         |   |  |   |         |  
|Net amount recognized                           |  | $                | (4,984   | )              |  | $    | 1,044   |      |  | $ | (42,462 | ) |  | $ | (38,126 | )
|                                                |  |                  |          |                |  |      |         |      |  |   |         |   |  |   |         |  

The following table provides the details of the
net pension asset (liability) recognized in the balance sheet as
of December 31, 2002 and 2001, respectively (in thousands):

|                                     |  |      |         |      |  |   |         |  
|------------------------------------ |  | ---- | ------- | ---- |  | - | ------- | -
|                                     |  | 2002 |         | 2001
|                                     |  |      |         |     
|Prepaid benefit cost                 |  | $    | 12,833  |      |  | $ | 17,905  |  
|Accrued benefit liability            |  |      | (82,500 | )    |  |   | (17,618 | )
|Accumulated other comprehensive loss |  |      | 64,683  |      |  |   | 757     |  
|                                     |  |      |         |      |  |   |         |  
|Net amount recognized                |  | $    | (4,984  | )    |  | $ | 1,044   |  
|                                     |  |      |         |      |  |   |         |  

For 2002, the Companys qualified pension
plan, under the Internal Revenue Code and regulations
thereunder, was considered fully funded (i.e. assets are greater
than liabilities) and there was no contribution required.
However, the significant declines experienced in the financial
markets have unfavorably impacted pension plan asset
performance. This, coupled with historically low interest rates
(a key factor when estimating pension plan liabilities), caused
the Company to recognize $65 million of non-cash charges to
other comprehensive income (loss) as of December 31, 2002.
These charges did not impact the Companys reported

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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                       
|--- | ------------------------------------------------------
|11. | Pensions and Other Employee
    Benefits  (Continued)

earnings, and will be reversible in the future if
either interest rates increase or market performance and plan
returns improve.

The Company has a supplemental retirement plan,
which has an accumulated benefit obligation in excess of plan
assets. The accumulated benefit obligation was
$26.5 million and $25.4 million and the fair value of
plan assets was $9.8 million and $10.0 million, as of
December 31, 2002 and 2001, respectively, which amounts are
included in the above tables.

The following table provides the components of
net periodic (benefit) cost for the plans for 2002, 2001 and
2000, respectively (in thousands):

|                                   |  |                  |         |                |  |      |         |      |  |      |         |      |  |   |        |   |  |   |        |   |  |   |        |  
|---------------------------------- |  | ---------------- | ------- | -------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                   |  |                  |         |               
|                                   |  | Pension Benefits |         | Other Benefits
|                                   |  |                  |         |               
|                                   |  | 2002             |         | 2001           |  | 2000 |         | 2002 |  | 2001 |         | 2000
|                                   |  |                  |         |                |  |      |         |      |  |      |         |     
|Service cost                       |  | $                | 9,382   |                |  | $    | 8,804   |      |  | $    | 7,569   |      |  | $ | 2,135  |   |  | $ | 1,790  |   |  | $ | 1,522  |  
|Interest cost                      |  |                  | 21,041  |                |  |      | 19,867  |      |  |      | 18,288  |      |  |   | 4,111  |   |  |   | 3,504  |   |  |   | 2,838  |  
|Expected return on plan assets     |  |                  | (22,640 | )              |  |      | (25,900 | )    |  |      | (29,102 | )    |  |   | (135   | ) |  |   | (148   | ) |  |   | (161   | )
|Amortization of prior service cost |  |                  | (36     | )              |  |      | (41     | )    |  |      | (41     | )    |  |   | (1,272 | ) |  |   | (1,272 | ) |  |   | (1,272 | )
|Amortization of net loss (gain)    |  |                  | 540     |                |  |      | 23      |      |  |      | (4,197  | )    |  |   | 733    |   |  |   | 380    |   |  |   | 106    |  
|                                   |  |                  |         |                |  |      |         |      |  |      |         |      |  |   |        |   |  |   |        |   |  |   |        |  
|Net periodic cost (benefit)        |  | $                | 8,287   |                |  | $    | 2,753   |      |  | $    | (7,483  | )    |  | $ | 5,572  |   |  | $ | 4,254  |   |  | $ | 3,033  |  
|                                   |  |                  |         |                |  |      |         |      |  |      |         |      |  |   |        |   |  |   |        |   |  |   |        |  

The principal actuarial assumptions were:

|                               |  |      |      |      |  |      |      |   |  |  |      |  
|------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                               |  | 2002 |      | 2001 |  | 2000
|                               |  |      |      |      |  |     
|Discount rate                  |  |      | 6.75 | %    |  |      | 7.50 | % |  |  | 7.75 | %
|Expected return on plan assets |  |      | 9.00 | %    |  |      | 9.50 | % |  |  | 9.50 | %
|Rate of compensation increase  |  |      | 4.25 | %    |  |      | 4.25 | % |  |  | 4.25 | %

Actuarial assumptions used a health care cost
trend rate of 11.0% decreasing gradually to 4.50% by 2009.
Assumed health care cost trend rates have a significant effect
on the amounts reported for the health care plans. A 1% change
in assumed health care cost trend rates for 2001 would have the
following effects (in thousands):

|                                                                                                                        |  |             |       |             |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------- |  | ----------- | ----- | ----------- |  | - | ------ | -
|                                                                                                                        |  | 1% Increase |       | 1% Decrease
|                                                                                                                        |  |             |       |            
|Effect on total of service and interest cost
    components of net periodic postretirement health care benefit
    cost |  | $           | 934   |             |  | $ | (738   | )
|Effect on the health care component of the
    accumulated postretirement benefit obligation                            |  |             | 6,456 |             |  |   | (5,245 | )



| |                      
| | ---------------------
| | Employee Savings Plan

The Company has an employee savings plan, which
provides that the Company match the contributions of
participating employees up to a designated level. Under this
plan, the matching contributions in Loral common stock or cash
were $6.6 million, $6.7 million and $6.2 million
in 2002, 2001 and 2000, respectively.

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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                              
|--- | -------------------------------------------------------------
|12. | Financial Instruments, Derivative Instruments
    and Hedging



| |                      
| | ---------------------
| | Financial Instruments

The following methods and assumptions were used
to estimate the fair value of each class of financial
instruments for which it is practicable to estimate fair value:

The carrying amount of cash and cash equivalents
approximates fair value because of the short maturity of those
instruments. The fair value of the investments in
available-for-sale securities are based on market quotations or,
for the Companys investment in Globalstars
$500 million credit facility, the quoted market price of
Globalstars public debt securities (see Note 6). The
fair value of the Companys long-term debt is based on the
carrying value for those obligations that have short-term
variable interest rates on the outstanding borrowings and quoted
market prices for obligations with long-term or fixed interest
rates.

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

|                                             |  |              |           |            |  |          |           |            |  |   |           |  |  |   |           | 
|-------------------------------------------- |  | ------------ | --------- | ---------- |  | -------- | --------- | ---------- |  | - | --------- |  |  | - | --------- | 
|                                             |  |             
|                                             |  | December 31,
|                                             |  |             
|                                             |  |              |           |           
|                                             |  | 2002         |           | 2001      
|                                             |  |              |           |           
|                                             |  | Carrying     |           |            |  | Carrying |           |           
|                                             |  | Amount       |           | Fair Value |  | Amount   |           | Fair Value
|                                             |  |              |           |            |  |          |           |           
|Cash and cash equivalents                    |  | $            | 65,936    |            |  | $        | 65,936    |            |  | $ | 159,949   |  |  | $ | 159,949   | 
|Investments in available-for-sale securities |  |              | 20,255    |            |  |          | 20,255    |            |  |   | 32,858    |  |  |   | 32,858    | 
|Long-term debt, including current maturities |  |              | 2,244,525 |            |  |          | 1,271,127 |            |  |   | 2,363,141 |  |  |   | 1,652,162 | 

The fair value of the investments in
available-for-sale securities includes unrealized gains of
$20 million and $32 million as of December 31,
2002 and 2001, respectively, which relates to the Companys
investment in Globalstars $500 million credit
facility (see Note 3). Approximately $245 million of the
difference between the carrying amount and the fair value of the
long-term debt as of December 31, 2002 is attributable to
the accounting for the Loral Orion exchange offer (see
Note 8).



| |                 
| | ----------------
| | Foreign Currency

The Company, in the normal course of business, is
subject to the risks associated with fluctuations in foreign
currency exchange rates. Loral entered into forward exchange
contracts to establish with certainty the U.S. dollar
amount of future anticipated cash receipts and payments and firm
commitments for cash payments denominated in a foreign currency.
The primary business objective of this hedging program is to
minimize the gains and losses resulting from exchange rate
changes. The Companys availability to the foreign exchange
market to enter into forward contracts has recently become
restricted and could effect its ability to minimize such gains
and losses. As of December 31, 2002, the Company had
foreign currency exchange contracts (forwards) with several
banks to purchase and sell foreign currencies, primarily
Japanese yen, with aggregate notionals of $101.8 million.
Such contracts were designated as hedges of certain foreign
contracts and subcontracts to be performed by SS/L through May
2006. The fair value of these forward contracts based on quoted
market prices as of December 31, 2002 and 2001 was
$11.7 million and $20.0 million, respectively, and
were included in cash and other current assets on the
consolidated balance sheets.

The Company is exposed to credit-related losses
in the event of non-performance by counter parties to these
financial instruments, but does not expect any counter party to
fail to meet its obligation. The maturity of foreign currency
exchange contracts held as of December 31, 2002 is
consistent with the contractual or expected timing of the
transactions being hedged, principally receipt of customer
payments under long-term

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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                            
|--- | ---------------------------------------------------------------------------
|12. | Financial Instruments, Derivative Instruments
    and Hedging  (Continued)

contracts and payments to vendors under
subcontracts. These foreign exchange contracts mature as follows
(in thousands):

|         |  |             |           |          |  |        |         |        |  |          |         |        |  |  |           |  |  |  |         |  |  |  |         | 
|-------- |  | ----------- | --------- | -------- |  | ------ | ------- | ------ |  | -------- | ------- | ------ |  |  | --------- |  |  |  | ------- |  |  |  | ------- | 
|         |  |             |           |         
|         |  | To Purchase |           | To Sell 
|         |  |             |           |         
|         |  |             |           | At       |  | At     |         |        |  | At       |         | At    
|Years to |  | Yen         |           | Contract |  | Market |         | Yen    |  | Contract |         | Market
|Maturity |  | Amount      |           | Rate     |  | Rate   |         | Amount |  | Rate     |         | Rate  
|         |  |             |           |          |  |        |         |        |  |          |         |       
|1        |  |             | 1,663,633 |          |  |        | $13,830 |        |  |          | $14,162 |        |  |  | 4,965,949 |  |  |  | $49,837 |  |  |  | $41,391 | 
|2        |  |             |          |          |  |        |        |        |  |          |        |        |  |  | 2,068,907 |  |  |  | 19,985  |  |  |  | 17,620  | 
|3        |  |             |          |          |  |        |        |        |  |          |        |        |  |  | 301,680   |  |  |  | 3,025   |  |  |  | 2,657   | 
|4        |  |             | 413,130   |          |  |        | 5,134   |        |  |          | 3,769   |        |  |  | 450,840   |  |  |  | 5,674   |  |  |  | 4,116   | 
|         |  |             |           |          |  |        |         |        |  |          |         |        |  |  |           |  |  |  |         |  |  |  |         | 
|         |  |             | 2,076,763 |          |  |        | $18,964 |        |  |          | $17,931 |        |  |  | 7,787,376 |  |  |  | $78,521 |  |  |  | $65,784 | 
|         |  |             |           |          |  |        |         |        |  |          |         |        |  |  |           |  |  |  |         |  |  |  |         | 

|         |  |             |       |          |  |        |         |  |  |  |         |  |  |  |  |  |  |  |  |  |  |  |  | 
|-------- |  | ----------- | ----- | -------- |  | ------ | ------- |  |  |  | ------- |  |  |  |  |  |  |  |  |  |  |  |  | 
|         |  |             |       |          |  |        |         | 
|         |  | To Purchase |       |          |  |        |         | 
|         |  |             |       |          |  |        |         | 
|         |  |             |       | At       |  | At     |         |  |  |  |         | 
|Years to |  | EURO        |       | Contract |  | Market |         |  |  |  |         | 
|Maturity |  | Amount      |       | Rate     |  | Rate   |         |  |  |  |         | 
|         |  |             |       |          |  |        |         |  |  |  |         | 
|1        |  |             | 4,526 |          |  |        | $ 3,997 |  |  |  | $ 4,662 |  |  |  |  |  |  |  |  |  |  |  |  | 
|         |  |             |       |          |  |        |         |  |  |  |         |  |  |  |  |  |  |  |  |  |  |  |  | 

Loral does not enter into foreign currency
transactions for trading or speculative purposes. Loral attempts
to limit its exposure to credit risk by executing foreign
contracts with high-quality financial institutions.



| |                                   
| | ----------------------------------
| | Derivative Instruments and Hedging

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



| |                                     
| | ------------------------------------
| | Foreign Exchange Exposure Management

The Company enters into long-term construction
contracts with customers and vendors, some of which are
denominated in foreign currencies, and hedges substantially all
of the foreign currency risks with foreign currency exchange
contracts (forwards) with maturities matching the expected cash
flows. Derivatives are used to eliminate, reduce, or transfer
substantially all foreign currency risks that can be identified
and quantified in order to minimize the risk of foreign exchange
rate fluctuations to operating results and cash flows. Hedges of
expected foreign currency denominated contract revenues and
related purchases are designated and documented at inception as
cash flow hedges, evaluated for effectiveness at least
quarterly, and have maturities through 2006. As the critical
terms of the currency exchange contracts and expected cash flows
from long-term construction contracts are matched at hedge
inception, currency exchange contract effectiveness is
calculated by comparing the fair value of the derivative to the
change in value of the expected cash flow, with the effective
portion of highly effective hedges reflected on the balance
sheet and accumulated in OCI. Forward points are excluded from
effectiveness testing on derivatives that are adjusted due to

F-43



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                            
|--- | ---------------------------------------------------------------------------
|12. | Financial Instruments, Derivative Instruments
    and Hedging  (Continued)

accelerated or delayed cash flows within the
contract. OCI associated with hedges of foreign currency
contract revenues and costs are reclassified to revenue and cost
of sales, respectively, based on a percentage of contract
completion, while gains and losses associated with hedges of
receivables and payables are reclassified to interest income or
expense.

The Company also enters into firm commitments
with unrelated parties to purchase required component and
subassembly inventory from vendors, some of which are
denominated in foreign currencies, and hedges substantially all
of the foreign currency risk with foreign currency forward
contracts or, for short periods, with foreign currency balances.
Hedges of firm commitments are designated and documented at
inception as fair value hedges and evaluated for effectiveness
at least quarterly. As the critical terms of the forward
contracts and firm commitments are matched at hedge inception,
forward contract effectiveness is calculated by comparing the
fair value of the derivative to the change in value of the
expected inventory purchase. Forward points are excluded from
effectiveness testing on hedges that are adjusted due to
accelerated or delayed payments and cash balances. Changes in
the value of both highly effective hedges and the designated
firm commitment are reflected on the balance sheet and
recognized currently in interest income or expense.

Ineffectiveness from all hedging activity was
immaterial for the years ended December 31, 2002 and 2001.
For the year ended December 31, 2001, SS/L recognized
charges of $0.7 million, for hedges that no longer qualify
as fair value hedges and $1.5 million for excluded forward
points on accelerated or delayed cash flows, which were recorded
as interest expense.



|    |                              
|--- | -----------------------------
|13. | Commitments and Contingencies

The Company had outstanding letters of credit of
approximately $15 million and $30 million as of
December 31, 2002 and 2001, respectively.

Due to the long lead times required to produce
purchased parts and launch vehicles, the Company has entered
into various purchase commitments with suppliers. These
commitments aggregated approximately $181 million as of
December 31, 2002, and primarily related to satellite
backlog. The commitments included for unassigned launch vehicles
represent minimum amounts due if the contract is terminated, net
of deposits which the Company believes can be offset against
these minimum amounts. The aggregate maturities of these
commitments for 2003 through 2007 are as follows (in millions):
$145.9, $34.4, 1.0, zero and zero. Additional amounts will be
incurred upon utilization of launch vehicles.

The Company has deferred revenue and established
warranty obligations relating to satellites sold to customers
which could be impacted by future performance. A reconciliation
of such deferred amounts for the year ended December 31,
2002 is as follows (in millions):

|                                                                                 |  |   |      |  
|-------------------------------------------------------------------------------- |  | - | ---- | -
|Balance of deferred amounts at January 1,
    2002                               |  | $ | 14.8 |  
|Accruals for deferred amounts issued during the
    period                       |  |   | 1.0  |  
|Accruals relating to pre-existing contracts
    (including changes in estimates) |  |   | (1.7 | )
|                                                                                 |  |   |      |  
|Balance of deferred amounts at December 31,
    2002                             |  | $ | 14.1 |  
|                                                                                 |  |   |      |  

Loral Skynet has in the past entered into prepaid
leases, sales contracts and other arrangements relating to
transponders on its satellites. Under the terms of these
agreements, Loral Skynet continues to operate the satellites
which carry the transponders and originally provided for a
warranty for a period of 10 to 14 years, in the case of
sales contracts and other arrangements (19 transponders), and
the lease term, in the case of the prepaid leases (six
transponders). Depending on the contract, Loral Skynet may be
required to replace transponders which do not meet operating
specifications. Substantially all customers are entitled to a
refund equal to the reimbursement value if there is no
replacement, which is normally covered by insurance. In the

F-44



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                
|--- | -----------------------------------------------
|13. | Commitments and
    Contingencies  (Continued)

case of the sales contracts, the reimbursement
value is based on the original purchase price plus an interest
factor from the time the payment was received to acceptance of
the transponder by the customer, reduced on a straight-line
basis over the warranty period. In the case of prepaid leases,
the reimbursement value is equal to the unamortized portion of
the lease prepayment made by the customer. In the case of other
arrangements, in the event of transponder failure where
replacement capacity is not available on the satellite, one
customer is not entitled to reimbursement, and the other
customers reimbursement value is based on contractually
prescribed amounts that decline over time.

Thirteen of the satellites built by SS/L and
launched since 1997, six of which are owned and operated by
Lorals subsidiaries or affiliates, have experienced minor
losses of power from their solar arrays. Although to date,
neither the Company nor any of the customers using the affected
satellites have experienced any degradation in performance,
there can be no assurance that one or more of the affected
satellites will not experience additional power loss that could
result in performance degradation, including loss of transponder
capacity. In the event of additional power loss, the extent of
the performance degradation, if any, will depend on numerous
factors, including the amount of the additional power loss, the
level of redundancy built into the affected satellites
design, when in the life of the affected satellite the loss
occurred and the number and type of use being made of
transponders then in service. It is also possible that one or
more transponders on a satellite may need to be removed from
service to accommodate the power loss and to preserve full
performance capabilities of the remaining transponders. A
complete or partial loss of satellites could result in a loss of
orbital incentive payments and, in the case of satellites owned
by Loral subsidiaries and affiliates, a loss of revenues and
profits. With respect to satellites under construction and
construction of new satellites, based on its investigation of
the matter, SS/L has identified and has implemented remedial
measures that SS/L believes will prevent newly launched
satellites from experiencing similar anomalies. SS/L does not
expect that implementation of these measures will cause any
significant delay in the launch of satellites under construction
or construction of new satellites. Based upon information
currently available, including design redundancies to
accommodate small power losses and that no pattern has been
identified as to the timing or specific location within the
solar arrays of the failures, the Company believes that this
matter will not have a material adverse effect on the
consolidated financial position or results of operations of
Loral.

In September 2001, the PAS 7 satellite built
by SS/L for PanAmSat experienced an electrical power failure on
its solar arrays that resulted in the loss of use of certain
transponders on the satellite. As a result, PanAmSat has claimed
that under its contract with SS/L it is entitled to be paid
$16 million. SS/L disputes this claim and is in discussions
with PanAmSat to resolve this matter. In addition, a Loral
Skynet satellite has experienced a minor loss of power from its
solar arrays, the cause of which may be similar to the cause of
the PAS 7 anomaly. SS/L believes, however, that these
failures are isolated events and do not reflect a systemic
problem in either the satellite design or manufacturing process.
Accordingly, SS/L does not believe that these anomalies will
affect other on-orbit satellites built by SS/L. Also, the
PAS 8 satellite has experienced minor losses of power from
its solar arrays, the cause of which is unrelated to the loss of
power on the PAS 7 satellite. PanAmSat has claimed that
under its contract with SS/L it is entitled to be paid
$7.5 million as a result of these minor power losses. SS/L
disputes this claim. SS/L and PanAmSat are in discussions to
resolve this matter.

SS/L has contracted to build a spot beam, Ka-band
satellite for a customer planning to offer broadband data
services directly to the consumer. SS/L had suspended work on
this program since December 2001 while the customer and SS/L
were in discussions to resolve a dispute under the contract. In
March 2003, SS/L and the customer reached an agreement in
principle to restart the satellite construction program. As of
December 31, 2002, SS/L had billed and unbilled accounts
receivable and vendor financing arrangements of $49 million
with this customer. Under the agreement, which is subject to
documentation in definitive amendments to their contract, the
customer will pay, subject to its receipt of a proposed third
party equity

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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                
|--- | -----------------------------------------------
|13. | Commitments and
    Contingencies  (Continued)

investment, the remainder of the purchase price
under the contract of $68.1 million (including
$49 million owed to SS/L at December 31, 2002) in
installments over time, a portion of which will be due
subsequent to completion of the satellite.

SS/L was a party to an Operational Agreement with
Alcatel Space Industries, pursuant to which the parties had
agreed to cooperate on certain satellite programs, and an
Alliance Agreement with Alcatel Space (together with Alcatel
Space Industries, Alcatel), pursuant to which
Alcatel had certain rights with respect to SS/L. The agreements
between Alcatel and SS/L were terminable on one years
notice, and, on February 22, 2001, Loral gave notice to
Alcatel that they would expire on February 22, 2002. In
April 2001, Alcatel commenced an arbitration proceeding
challenging the effectiveness of Lorals notice of
termination and asserting various alleged breaches of the
agreements by SS/L relating to the exchange of information and
other procedural or administrative matters. In February 2002,
the arbitral tribunal issued a partial decision, which upheld
the validity of Lorals termination effective
February 22, 2002 and Alcatels claims as to certain
breaches. The partial decision was confirmed by the District
Court for the Southern District of New York on June 25,
2002. The arbitral tribunal provided both parties with an
opportunity to file any additional claims or counterclaims they
had. In March 2002, Alcatel submitted additional claims against
Loral and SS/L and is seeking at least $350 million in
damages in respect of all of its claims. On January 27,
2003, Loral and SS/L received from the arbitral tribunal a
partial decision on the additional claims and counterclaims. The
arbitral tribunal ruled in favor of Alcatel on most of its
claims alleging breaches of the Operational Agreement or
Alliance Agreement and ruled against Loral and SS/L on the
counterclaims. The arbitral tribunal set a schedule for further
submissions by the parties and for hearings to be held in May
and August 2003 to determine whether any of the breaches caused
Alcatel to suffer injury and to determine the amount of damages,
if any. If the arbitral tribunal finds that Alcatel has
sustained significant damages, there could be a material adverse
effect on Lorals consolidated financial position and
results of operations.

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

The launch of ChinaSat-8 has been delayed pending
SS/Ls obtaining the approvals required for the launch. On
December 23, 1998, the Office of Defense Trade Controls, or
ODTC, of the U.S. Department of State temporarily suspended
a previously approved technical assistance agreement under which
SS/L had been preparing for the launch of the ChinaSat-8
satellite. In addition, SS/L was required to re-apply for new
export licenses from the State Department to permit the launch
of ChinaSat-8 on a Long March launch vehicle when the old export
licenses issued by the Commerce Department, the agency that
previously had jurisdiction over satellite licensing, expired in
March 2000. On January 4, 2001, the ODTC, while not
rejecting these license applications, notified SS/L that they
were being returned without action. On January 9, 2002,
Loral, SS/L and the United States Department of State entered
into a consent agreement (the Consent Agreement)
settling and disposing of all civil charges, penalties and
sanctions associated with alleged violations by SS/L of the Arms
Export Control Act and its implementing regulations. The Company
recorded a $12 million charge in 2001 for the penalties
associated with the Consent Agreement. The Consent Agreement
provides that the State Department agrees, assuming the
Companys and SS/Ls faithful adherence to the terms
of the Consent Agreement, and the Arms Export Control Act and
its implementing regulations, that decisions concerning export
licenses for the ChinaSat-8 spacecraft will be made on the basis

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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                
|--- | -----------------------------------------------
|13. | Commitments and
    Contingencies  (Continued)

of the security and foreign policy interests of
the United States, including matters relating to
U.S. relations with the Peoples Republic of China,
without reference to the State Departments previously
expressed concerns regarding SS/Ls reliability, which
concerns are considered to be appropriately mitigated through
the operation of various provisions of the Consent Agreement.
Discussions between SS/L and the State Department regarding
SS/Ls obtaining the approvals required for the launch of
ChinaSat-8 are continuing.

If ChinaSat were to terminate its contract with
SS/L for ChinaSat-8 as a result of these delays, ChinaSat may
seek a refund of $134 million for payments made to SS/L as
well as penalties of up to $11 million. The Company does
not believe that ChinaSat is entitled to such a refund or
penalties and would vigorously contest any such claims by
ChinaSat. A portion of the potential claim relates to amounts
that were paid to a launch vehicle provider. To the extent that
SS/L or ChinaSat is able to recover some or all of the
$52 million deposit payment on the Chinese launch vehicle,
this recovery would reduce the amount of any claim. SS/L
believes that ChinaSat bears the risk of loss in the event that
the deposit payments are not refunded by the launch vehicle
provider. SS/L has commenced discussions with the launch vehicle
provider to recover this deposit. There can be no assurance,
however, that SS/L will be able either to obtain a refund from
the launch provider or to find a replacement customer for the
Chinese launch vehicle. If ChinaSat were to terminate the
contract, SS/L estimates that it would incur costs of
approximately $38 million to refurbish and retrofit the
satellite so that it could be sold to another customer, which
resale cannot be guaranteed.

As of December 31, 2002, SS/L had
outstanding vendor financing receivables totaling
$74 million, including accrued interest, due from Sirius,
which is currently in the process of rolling out its business.
On March 7, 2003, Sirius completed its recapitalization
plan. Under this plan, Sirius received $200 million in cash
from third party investors and exchanged approximately
$636 million of its debt and all of its $525 million
of preferred stock into common stock. As part of this
recapitalization, SS/L converted all of its vendor financing
receivables into 58,964,981 shares of common stock of
Sirius. In 2002, SS/L recorded a valuation allowance on the
vendor financing receivables due from Sirius of
$33 million, representing the difference between the
carrying value of SS/Ls interest and the value of the
common shares expected to be received by SS/L based on the
trading price of Siriuss common stock as of
December 31, 2002. Loral has classified the Sirius vendor
financing receivable in current assets at December 31, 2002, due
to its intent to sell the Sirius common stock within the next
year. The value of the shares SS/L received based on the closing
price of Sirius common stock on March 7, 2003 was
$28 million. Accordingly, SS/L will record a non-cash
charge to earnings of $10 million in the first quarter of
2003. All future changes in the value of Sirius common
stock will be recorded as an adjustment to other comprehensive
income (loss) until realized. As of March 28, 2003, SS/L
had realized net proceeds of $9.0 million from the sale of
a portion of its Sirius common stock and gains on such sales of
$0.9 million and the market value of its remaining Sirius
common stock was $28 million.

SS/L has entered into several long-term launch
services agreements with various launch providers to secure
future launches for its customers, including us and our
affiliates. Through the assignment of satellites to launch
vehicles and refunds, SS/L has reduced its launch deposits by
$87 million for the year ended December 31, 2002.
Nonetheless, SS/L may, as a result of current market conditions,
cancel some of the launchers to which it has committed. SS/L had
launch services agreements with International Launch Services
(ILS) which covered three launches. In November
2002, SS/L terminated one of those future launches, which had a
termination liability equal to SS/Ls deposit of $5
million. Subsequently, SS/L received a letter from ILS alleging
SS/Ls breach of the agreements, purporting to terminate
all three launches and asserting a right to retain
$42.5 million in deposits, without prejudice to any other
legal claims or remedies. Despite ILSs termination of all
three launches, to protect its interest SS/L also terminated a
second launch, which had a termination liability equal to its
deposit of $5 million, and SS/L has recognized a non-cash
charge to earnings of $10 million with respect to the two
terminated launches. SS/L believes that ILSs claims are
without merit and intends to defend against them vigorously and
to seek recovery of its

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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                
|--- | -----------------------------------------------
|13. | Commitments and
    Contingencies  (Continued)

deposits and termination liabilities. The Company
does not believe that this matter will have a material adverse
effect on its consolidated financial position and its results of
operations, although no assurances can be provided.

While the Company has in the past, consistent
with industry practice and the requirements in the
Companys debt agreements, typically obtained in-orbit
insurance for its satellites, the Company cannot guarantee that,
upon a policys expiration, the Company will be able to
renew the insurance on acceptable terms, especially on
satellites that have, or that are part of a family of satellites
that have, experienced problems in the past. 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, the Company does 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. Some of Loral Orions
bondholders have questioned whether this limitation is in
compliance with the insurance covenant in the Loral Orion
indenture. Management believes that Loral Orion 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, and the
bondholders could be able to call on the Companys
guarantee of Loral Orions senior notes. Four other
satellites owned by Loral Skynet and Loral Orion have 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 renewals of insurance for
these satellites in 2003 and 2004. An uninsured loss of a
satellite would have a material adverse effect on the
Companys consolidated financial position and its results
of operations. Moreover, the Company is required under the terms
of its bank facilities to use the insurance proceeds from any
launch or in-orbit failure of a satellite owned by Loral
SpaceCom or Loral Satellite to prepay the bank loans, and as a
result, these insurance proceeds would not be available to us to
build a replacement for the lost satellite, which would result
in an adverse effect on our future revenue.

Loral Skynet has an application pending with the
FCC for authorization to use the C-Band frequency at 121 degrees
W.L. in the U.S. using a non-U.S. ITU filing. Telstar 13,
which is currently under construction, is scheduled for launch
into this orbital slot in the second quarter of 2003. New Skies
Satellites has asserted that its non-U.S. ITU filing at 120.8
degrees W.L. has date priority over Loral Skynets ITU
filing and has filed comments with the FCC seeking to impose
conditions on Loral Skynets use of the 121 degrees W.L.
slot. Loral Skynet has opposed New Skies comments. Loral
Skynet is continuing its international coordination of the 121
degrees W.L. slot. There can be no assurance, however, that
coordination discussions will be successful or that the FCC will
grant Loral Skynets application or grant the application
without adding conditions that may constrain Loral Skynets
operations at the 121 degrees W.L. slot.

On October 21, 2002, National Telecom of
India Ltd. (Natelco) filed suit against Loral and
Loral CyberStar in the United States District Court for the
Southern District of New York. The suit relates to a joint
venture agreement entered into in 1998 between Natelco and ONS
Mauritius, Ltd., a subsidiary of Loral CyberStar, the
effectiveness of which was subject to express conditions
precedent. In 1999, ONS Mauritius had notified Natelco that
Natelco had failed to satisfy those conditions precedent. In
Natelcos amended complaint filed in March 2003, Natelco
has alleged wrongful termination of the joint venture agreement,
has asserted claims for breach of contract and fraud in the
inducement and is seeking damages and expenses in the amount of
$97 million. Loral believes that the claims are without
merit and intends to vigorously defend against them.

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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                
|--- | -----------------------------------------------
|13. | Commitments and
    Contingencies  (Continued)

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

Globalstar Related
Matters.On September 26, 2001,
the nineteen separate purported class action lawsuits filed in
the United States District Court for the Southern District of
New York by various holders of securities of Globalstar
Telecommunications Limited (GTL) and Globalstar,
L.P. (Globalstar) against GTL, Loral,
Bernard L. Schwartz and other defendants were consolidated
into one action titled In re: Globalstar Securities
Litigation. In November 2001, plaintiffs in the consolidated
action filed a consolidated amended class action complaint
against Globalstar, GTL, Globalstar Capital Corporation, Loral
and Bernard L. Schwartz alleging (a) that all defendants
(except Loral) violated Section 10(b) of the Securities
Exchange Act of 1934 (the Exchange Act) and
Rule 10b-5 promulgated thereunder, by making material
misstatements or failing to state material facts about
Globalstars business and prospects, (b) that
defendants Loral and Schwartz are secondarily liable for these
alleged misstatements and omissions under Section 20(a) of
the Exchange Act as alleged controlling persons of
Globalstar, (c) that defendants GTL and Schwartz are liable
under Section 11 of the Securities Act of 1933 (the
Securities Act) for untrue statements of material
facts in or omissions of material facts from a registration
statement relating to the sale of shares of GTL common stock in
January 2000, (d) that defendant GTL is liable under
Section 12(2)(a) of the Securities Act for untrue
statements of material facts in or omissions of material facts
from a prospectus and prospectus supplement relating to the sale
of shares of GTL common stock in January 2000, and (e) that
defendants Loral and Schwartz are secondarily liable under
Section 15 of the Securities Act for GTLs primary
violations of Sections 11 and 12(2)(a) of the Securities
Act as alleged controlling persons of GTL. The class
of plaintiffs on whose behalf the lawsuit has been asserted
consists of all buyers of securities of Globalstar, Globalstar
Capital and GTL during the period from December 6, 1999
through October 27, 2000, excluding the defendants and
certain persons related or affiliated therewith. Loral and
Mr. Schwartz have filed a motion to dismiss the amended
complaint in its entirety as to Loral and Mr. Schwartz,
which motion is pending before the court. Loral believes that it
has meritorious defenses to this class action lawsuit and
intends to pursue them vigorously.



On March 2, 2002, the seven separate
purported class action lawsuits filed in the United States
District Court for the Southern District of New York by various
holders of common stock of Loral Space & Communications Ltd.
(Loral) against Loral, Bernard L. Schwartz and
Richard Townsend were consolidated into one action titled In
re: Loral Space & Communications Ltd. Securities
Litigation. On May 6, 2002, plaintiffs in the
consolidated action filed a consolidated amended class action
complaint alleging (a) that all defendants violated
Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder by making material misstatements or
failing to state material facts about Lorals financial
condition and its investment in Globalstar and (b) that
Mr. Schwartz is secondarily liable for these alleged
misstatements and omissions under Section 20(a) of the
Exchange Act as an alleged controlling person of
Loral. The class of plaintiffs on whose behalf the lawsuit has
been asserted consists of all buyers of Loral common stock
during the period from November 4, 1999 through
February 1, 2001, excluding the defendants and certain
persons related or affiliated therewith. Loral and
Messrs. Schwartz and Townsend have filed a motion to
dismiss the complaint in its entirety, which motion is pending
before the court. Loral believes that it has meritorious
defenses to this class action lawsuit and intends to pursue them
vigorously. In addition, the insurers under Lorals
directors and officers liability insurance policy have denied
coverage for the case filed by Loral shareholders under the
policy and, on March 24, 2003, filed a lawsuit in the
Supreme Court of New York county seeking a declaratory judgment
upholding their coverage position. Loral believes that the
insurers have wrongfully denied coverage and intends to defend
against the denial vigorously.

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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                
|--- | -----------------------------------------------
|13. | Commitments and
    Contingencies  (Continued)

Loral holds debt obligations from Globalstar (see
Note 6). In other situations in the past, challenges have
been initiated seeking subordination or recharacterization of
debt held by an affiliate of an issuer. While Loral knows of no
reason why such a claim would prevail with respect to the debt
Loral holds in Globalstar, there can be no assurance that such
claims will not be made in Globalstars bankruptcy
proceeding. If such claims were to prove successful, it will
jeopardize the amount of equity interest Loral will ultimately
receive in the new Globalstar company. Moreover, actions may be
initiated in Globalstars bankruptcy proceeding seeking to
characterize payments previously made by Globalstar to Loral
prior to the filing date as preferential payments subject to
repayment. Loral may also find itself subject to other claims
brought by Globalstar creditors and securities holders, who may
seek to impose liabilities on Loral as a result of its
relationship with Globalstar. For instance, Globalstars
creditors may seek to pierce the corporate veil in an attempt to
recover Globalstar obligations owed to them that are recourse to
Lorals subsidiaries, which are general partners in
Globalstar and have filed for bankruptcy protection.
Globalstars cumulative partners deficit at
December 31, 2002, was $3.2 billion.

In May 2000, Globalstar finalized
$500 million of vendor financing arrangements with
Qualcomm. The original terms of this vendor financing provided
for interest at 6%, a maturity date of August 15, 2003 and
required repayment pro rata with the term loans due to Loral
under Globalstars $500 million credit facility. As of
December 31, 2002, $623 million was outstanding under
this facility (including $123 million of capitalized
interest). Loral has agreed that if the principal amount
outstanding under the Qualcomm vendor financing facility exceeds
the principal amount due Loral under Globalstars
$500 million credit facility, as determined on certain
measurement dates, then Loral will guarantee 50% of such excess
amount. As of December 31, 2002, Loral had no obligation
under the guarantee.

Lease
Arrangements

The Company leases certain facilities, equipment
and transponder capacity under agreements expiring at various
dates. Certain leases covering facilities contain renewal and or
purchase options which may be exercised by the Company. Rent
expense, net of sublease income of $2.0 million,
$4.3 million and $4.7 million, was $61.7 million,
$62.9 million and $62.7 million in 2002, 2001 and 2000
respectively.

Future minimum payments, by year and in the
aggregate, under operating leases with initial or remaining
terms of one year or more consisted of the following as of
December 31, 2002 (in thousands):

|           |  |   |         | 
|---------- |  | - | ------- | 
|2003       |  | $ | 42,904  | 
|2004       |  |   | 29,770  | 
|2005       |  |   | 27,880  | 
|2006       |  |   | 26,383  | 
|2007       |  |   | 23,008  | 
|Thereafter |  |   | 104,275 | 
|           |  |   |         | 
|           |  | $ | 254,220 | 
|           |  |   |         | 

Future minimum payments have been reduced by
minimum sublease rentals of $3.2 million due in the future
under non-cancelable subleases.

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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

14.     Related Party
Transactions

In connection with contract performance, Loral
acquired services from Lockheed Martin. A summary of such
transactions and balances as of December 31, 2002 and 2001,
and for the three years in the period ended December 31,
2002, respectively, is as follows (in thousands):

|                                     |            |                          |        |      |   |      |        |      |   |   |         |  | 
|------------------------------------ | ---------- | ------------------------ | ------ | ---- | - | ---- | ------ | ---- | - | - | ------- |  | 
|                                     |            |                         
|                                     |            | Years ended December 31,
|                                     |            |                         
|                                     |            | 2002                     |        | 2001 |   | 2000
|                                     |            |                          |        |      |   |     
|Cost of purchased goods and services |            | $                        | 21,675 |      |   | $    | 15,966 |      |   | $ | 155,510 | 
|Balance at year end:                 |            |                          |        |      |   |      |        |      |   |   |         | 
|                                     | Receivable |                          | $      | 376  |   |      | $      | 577  |   |   |         |  | 
|                                     | Payable    |                          |        | (304 | ) |      |        | (485 | ) |   |         |  | 
|                                     |            |                          |        |      |   |      |        |      |   |   |         | 
|Net receivable                       |            | $                        | 72     |      |   | $    | 92     |      |   |   |         | 
|                                     |            |                          |        |      |   |      |        |      |   |   |         | 

Lorals sales to, purchases from, and
balances with three international aerospace and communications
companies (including Alcatel), including the effect of the
related party transactions in Note 6, as of
December 31, 2002 and 2001, and for the three years in the
period ended December 31, 2002, respectively, were as
follows (in thousands):

|                                     |            |      |         |        |   |      |         |         |   |   |         |  | 
|------------------------------------ | ---------- | ---- | ------- | ------ | - | ---- | ------- | ------- | - | - | ------- |  | 
|                                     |            | 2002 |         | 2001   |   | 2000
|                                     |            |      |         |        |   |     
|Revenue from goods and services sold |            | $    | 755     |        |   | $    | 216     |         |   | $ | 7,348   | 
|Cost of purchased goods and services |            |      | 163,242 |        |   |      | 114,232 |         |   |   | 239,920 | 
|Balance at year end:                 |            |      |         |        |   |      |         |         |   |   |         | 
|                                     | Receivable |      | $       | 923    |   |      | $       | 45,055  |   |   |         |  | 
|                                     | Payable    |      |         | (6,233 | ) |      |         | (27,299 | ) |   |         |  | 
|                                     |            |      |         |        |   |      |         |         |   |   |         | 
|Net (payable) receivable             |            | $    | (5,310  | )      |   | $    | 17,756  |         |   |   |         | 
|                                     |            |      |         |        |   |      |         |         |   |   |         | 

15.     Loss Per
Share

Basic loss per share is computed based upon the
weighted average number of shares of common stock and the
Series A Preferred Stock outstanding. Diluted loss per
share excludes the assumed conversion of the Series C
Preferred Stock and the Series D Preferred Stock (see
Note 10), as their effect would have been antidilutive in
2002, 2001 and 2000, respectively. For 2002, 2001 and 2000,
weighted options equating to approximately 1.5 million,
0.4 million and 0.3 million shares of common stock,
respectively, as calculated using the treasury stock method,
were excluded from the calculation of diluted loss per share, as
the effect would have been antidilutive.

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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



15.     Loss Per
Share  (Continued)


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

|                                  |                                                                       |                                       |   |            |         |      |   |          |         |  |   |            |         | 
|--------------------------------- | --------------------------------------------------------------------- | ------------------------------------- | - | ---------- | ------- | ---- | - | -------- | ------- |  | - | ---------- | ------- | 
|                                  |                                                                       |                                      
|                                  |                                                                       | Years ended December 31,             
|                                  |                                                                       |                                      
|                                  |                                                                       | 2002                                  |   | 2001       |         | 2000
|                                  |                                                                       |                                       |   |            |         |     
|                                  |                                                                       |                                      
|                                  |                                                                       | (in thousands, except per share data)
|Numerator:                        |                                                                       |                                       |   |            |         |      |   |          |         |  |   |           
|                                  | Loss before cumulative effect of change in
    accounting principle   |                                       | $ | (578,902   | )       |      | $ | (194,719 | )       |  | $ | (1,469,678 | )      
|                                  | Cumulative effect of change in accounting
    principle, net of taxes |                                       |   | (890,309   | )       |      |   | (1,741   | )       |  |   |           |        
|                                  |                                                                       |                                       |   |            |         |      |   |          |         |  |   |           
|                                  | Net loss                                                              |                                       |   | (1,469,211 | )       |      |   | (196,460 | )       |  |   | (1,469,678 | )      
|                                  | Preferred dividends                                                   |                                       |   | (89,186    | )       |      |   | (80,743  | )       |  |   | (67,528    | )      
|                                  |                                                                       |                                       |   |            |         |      |   |          |         |  |   |           
|                                  | Numerator for basic and diluted loss per share
                      |                                       |   |            |         |      |   |          |         |  |   |            |        
|                                  | Net loss applicable to common stockholders                            |                                       | $ | (1,558,397 | )       |      | $ | (277,203 | )       |  | $ | (1,537,206 | )      
|                                  |                                                                       |                                       |   |            |         |      |   |          |         |  |   |           
|Denominator:                      |                                                                       |                                       |   |            |         |      |   |          |         |  |   |           
|                                  | Weighted average shares:                                              |                                       |   |            |         |      |   |          |         |  |   |            |        
|                                  |                                                                       | Common stock                          |   |            | 372,719 |      |   |          | 323,793 |  |   |            | 284,491 | 
|                                  |                                                                       | Series A preferred stock              |   |            |        |      |   |          |        |  |   |            | 11,348  | 
|                                  |                                                                       |                                       |   |            |         |      |   |          |         |  |   |           
|                                  | Denominator for basic and diluted loss per share                      |                                       |   | 372,719    |         |      |   | 323,793  |         |  |   | 295,839    |        
|                                  |                                                                       |                                       |   |            |         |      |   |          |         |  |   |           
|Basic and diluted loss per share: |                                                                       |                                       |   |            |         |      |   |          |         |  |   |           
|                                  | Before cumulative effect of change in accounting
    principle        |                                       | $ | (1.79      | )       |      | $ | (0.86    | )       |  | $ | (5.20      | )      
|                                  | Cumulative effect of change in accounting
    principle               |                                       |   | (2.39      | )       |      |   |         |         |  |   |           |        
|                                  |                                                                       |                                       |   |            |         |      |   |          |         |  |   |           
|                                  | Loss per share                                                        |                                       | $ | (4.18      | )       |      | $ | (0.86    | )       |  | $ | (5.20      | )      
|                                  |                                                                       |                                       |   |            |         |      |   |          |         |  |   |           

16.     Segments

Loral is organized into two operating businesses:
fixed satellite services and satellite manufacturing and
technology (see Note 1). In the fourth quarter of 2002, in
connection with Lorals integration of the operation and
management of its data business (conducted by Loral CyberStar,
Inc. and CyberStar, L.P.) into Skynet Network Services, the
Company aggregated the fixed satellite services and the data
service segment into one segment and no longer included the
results of its affiliates, Satmex, XTAR and Europe*Star in its
segment results and has restated the information for 2001 and
2000 accordingly.

In evaluating financial performance, management
uses revenues and operating income (loss) before depreciation
and amortization, including amortization of unearned stock
compensation (EBITDA) as the measure of a
segments profit or loss. Intersegment revenues primarily
consist of satellites under construction by satellite
manufacturing and technology for fixed satellite services and
the leasing of transponder capacity by satellite manufacturing
and technology from fixed satellite services. The accounting
policies of the reportable segments are the same as those
described in Note 2, except that the results for the
satellite manufacturing and technology segment are prepared in
accordance with accounting principles applicable to government
contracts, whereby all costs incurred, including general and
administrative costs, are allocated to customer programs.
Management evaluates this segments financial performance
on this basis. The required adjustment to conform to U.S.
generally accepted accounting principles for commercial
contracts is reflected in eliminations.

F-52



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



16.     Segments 
(Continued)


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

2002 Segment Information

|                                       |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|-------------------------------------- |  | --------- | ------- | ------------- |  | ------------ | ----- | ----- |  | - | ----- | - |  | - | ------- | -
|                                       |  |           |         | Satellite     |  |              |       |      
|                                       |  | Fixed     |         | Manufacturing |  |              |       |      
|                                       |  | Satellite |         | and           |  |              |       |      
|                                       |  | Services  |         | Technology    |  | Corporate(1) |       | Total
|                                       |  |           |         |               |  |              |       |      
|Revenues and EBITDA:                   |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Revenue from external customers(2)     |  | $         | 391.2   |               |  | $            | 708.5 |       |  |   |       |   |  | $ | 1,099.7 |  
|Intersegment revenues                  |  |           | 4.2     |               |  |              | 144.6 |       |  |   |       |   |  |   | 148.8   |  
|                                       |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Operating segment revenues             |  | $         | 395.4   |               |  | $            | 853.1 |       |  |   |       |   |  |   | 1,248.5 |  
|                                       |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Eliminations(3)                        |  |           |         |               |  |              |       |       |  |   |       |   |  |   | (150.1  | )
|                                       |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Operating revenues as reported         |  |           |         |               |  |              |       |       |  |   |       |   |  | $ | 1,098.4 |  
|                                       |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Segment EBITDA before eliminations(4)  |  | $         | 219.9   |               |  | $            | (18.6 | )     |  | $ | (36.8 | ) |  | $ | 164.5   |  
|                                       |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Eliminations(3)                        |  |           |         |               |  |              |       |       |  |   |       |   |  |   | (59.5   | )
|                                       |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|EBITDA(4)                              |  |           |         |               |  |              |       |       |  |   |       |   |  |   | 105.0   |  
|Depreciation and amortization(5)(6)    |  |           |         |               |  |              |       |       |  |   |       |   |  |   | (187.0  | )
|                                       |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Operating loss                         |  |           |         |               |  |              |       |       |  |   |       |   |  | $ | (82.0   | )
|                                       |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Other Data:                            |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Depreciation and amortization(5)(6)    |  | $         | 153.3   |               |  | $            | 33.1  |       |  | $ | 0.6   |   |  | $ | 187.0   |  
|                                       |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Equity in net losses of FSS affiliates |  | $         | (73.7   | )             |  |              |       |       |  |   |       |   |  | $ | (73.7   | )
|                                       |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Capital expenditures(6)                |  | $         | 84.8    |               |  | $            | 13.3  |       |  | $ | 0.1   |   |  | $ | 98.2    |  
|                                       |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  
|Total assets(6)                        |  | $         | 1,904.7 |               |  | $            | 690.3 |       |  | $ | 97.8  |   |  | $ | 2,692.8 |  
|                                       |  |           |         |               |  |              |       |       |  |   |       |   |  |   |         |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents corporate expenses incurred in support
    of the Companys operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(2) | Includes revenues from affiliates of
    $85.9 million, $100.9 million and $161.7 million
    in 2002, 2001 and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(3) | Represents the elimination of intercompany sales
    and EBITDA, primarily for satellites under construction by SS/ L
    for wholly owned subsidiaries; and the adjustment required to
    EBITDA to conform the basis of accounting used by the satellite
    manufacturing and technology segment from that applicable to
    government contracts to U.S. generally accepted accounting
    principles for commercial contracts.                                                                                                                                                                                                                                                                                                                   
|   
|(4) | EBITDA (which is equivalent to operating
    income/loss before depreciation and amortization, including
    amortization of unearned stock compensation) 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 Lorals operating results. EBITDA is not
    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.
|   
|(5) | Includes amortization of unearned stock
    compensation charges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(6) | The amounts are presented after the elimination
    of intercompany profit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F-53



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



16.     Segments 
(Continued)


2001 Segment Information

|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|-------------------------------------- |  | --------- | ------- | ------------- |  | ------------ | ------- | ----- |  | - | ----- | - |  | - | ------- | -
|                                       |  |           |         | Satellite     |  |              |         |      
|                                       |  | Fixed     |         | Manufacturing |  |              |         |      
|                                       |  | Satellite |         | and           |  |              |         |      
|                                       |  | Services  |         | Technology    |  | Corporate(1) |         | Total
|                                       |  |           |         |               |  |              |         |      
|Revenues and EBITDA:                   |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Revenue from external customers(2)     |  | $         | 457.4   |               |  | $            | 613.9   |       |  |   |       |   |  | $ | 1,071.3 |  
|Intersegment revenues                  |  |           | 6.8     |               |  |              | 200.9   |       |  |   |       |   |  |   | 207.7   |  
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Operating segment revenues             |  | $         | 464.2   |               |  | $            | 814.8   |       |  |   |       |   |  |   | 1,279.0 |  
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Eliminations(3)                        |  |           |         |               |  |              |         |       |  |   |       |   |  |   | (209.4  | )
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Operating revenues as reported         |  |           |         |               |  |              |         |       |  |   |       |   |  | $ | 1,069.6 |  
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Segment EBITDA before eliminations(4)  |  | $         | 263.4   |               |  | $            | 24.2    |       |  | $ | (37.5 | ) |  | $ | 250.1   |  
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Eliminations(3)                        |  |           |         |               |  |              |         |       |  |   |       |   |  |   | (27.5   | )
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|EBITDA(4)                              |  |           |         |               |  |              |         |       |  |   |       |   |  |   | 222.6   |  
|Depreciation and amortization(5)(6)    |  |           |         |               |  |              |         |       |  |   |       |   |  |   | (227.8  | )
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Operating loss                         |  |           |         |               |  |              |         |       |  |   |       |   |  | $ | (5.2    | )
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Other Data:                            |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Depreciation and amortization(5)(6)    |  | $         | 185.0   |               |  | $            | 40.9    |       |  | $ | 1.9   |   |  | $ | 227.8   |  
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Equity in net losses of FSS affiliates |  | $         | (40.7   | )             |  |              |         |       |  |   |       |   |  | $ | (40.7   | )
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Capital expenditures(6)                |  | $         | 212.0   |               |  | $            | 26.1    |       |  | $ | 0.3   |   |  | $ | 238.4   |  
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Total assets(6)                        |  | $         | 2,827.5 |               |  | $            | 1,170.3 |       |  | $ | 428.4 |   |  | $ | 4,426.2 |  
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  

F-54



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



16.     Segments 
(Continued)


2000 Segment Information

|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|-------------------------------------- |  | --------- | ------- | ------------- |  | ------------ | ------- | ----- |  | - | ----- | - |  | - | ------- | -
|                                       |  |           |         | Satellite     |  |              |         |      
|                                       |  | Fixed     |         | Manufacturing |  |              |         |      
|                                       |  | Satellite |         | and           |  |              |         |      
|                                       |  | Services  |         | Technology    |  | Corporate(1) |         | Total
|                                       |  |           |         |               |  |              |         |      
|Revenues and EBITDA:                   |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Revenue from external customers(2)     |  | $         | 416.7   |               |  | $            | 809.8   |       |  |   |       |   |  | $ | 1,226.5 |  
|Intersegment revenues                  |  |           | 4.5     |               |  |              | 192.5   |       |  |   |       |   |  |   | 197.0   |  
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Operating segment revenues             |  | $         | 421.2   |               |  | $            | 1,002.3 |       |  |   |       |   |  |   | 1,423.5 |  
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Eliminations(3)                        |  |           |         |               |  |              |         |       |  |   |       |   |  |   | (199.4  | )
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Operating revenues as reported         |  |           |         |               |  |              |         |       |  |   |       |   |  | $ | 1,224.1 |  
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Segment EBITDA before eliminations(4)  |  | $         | 153.4   |               |  | $            | 35.5    |       |  | $ | (44.4 | ) |  | $ | 144.5   |  
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Eliminations(3)                        |  |           |         |               |  |              |         |       |  |   |       |   |  |   | (14.3   | )
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|EBITDA(4)                              |  |           |         |               |  |              |         |       |  |   |       |   |  |   | 130.2   |  
|Depreciation and amortization(5)       |  |           |         |               |  |              |         |       |  |   |       |   |  |   | (216.3  | )
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Operating loss                         |  |           |         |               |  |              |         |       |  |   |       |   |  | $ | (86.1   | )
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Other Data:                            |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Depreciation and amortization(5)(6)    |  | $         | 175.8   |               |  | $            | 37.7    |       |  | $ | 2.8   |   |  | $ | 216.3   |  
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Equity in net income of FSS affiliates |  | $         | 12.3    |               |  |              |         |       |  |   |       |   |  | $ | 12.3    |  
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Capital expenditures(6)                |  | $         | 399.9   |               |  | $            | 22.2    |       |  | $ | 2.1   |   |  | $ | 424.2   |  
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  
|Total assets(6)                        |  | $         | 2,792.0 |               |  | $            | 1,192.1 |       |  | $ | 731.1 |   |  | $ | 4,715.2 |  
|                                       |  |           |         |               |  |              |         |       |  |   |       |   |  |   |         |  

Revenue by
Customer Location

The following table presents revenues by country
based on customer location for 2002, 2001 and 2000 (in
thousands).

|                           |  |      |           |      |  |      |           |  |  |   |           | 
|-------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                           |  | 2002 |           | 2001 |  | 2000
|                           |  |      |           |      |  |     
|United States              |  | $    | 596,378   |      |  | $    | 698,260   |  |  | $ | 948,288   | 
|Japan                      |  |      | 174,629   |      |  |      | 118,635   |  |  |   | 122,802   | 
|Mexico                     |  |      | 57,409    |      |  |      | 79,088    |  |  |   | 6,704     | 
|Peoples Republic of China |  |      | 64,373    |      |  |      | 27,275    |  |  |   | 13,381    | 
|Thailand                   |  |      | 89,875    |      |  |      | 22,508    |  |  |   | 9,039     | 
|Spain                      |  |      | 31,814    |      |  |      | 8,411     |  |  |   | 129       | 
|France                     |  |      | 1,704     |      |  |      | 1,575     |  |  |   | 28,272    | 
|Other                      |  |      | 82,243    |      |  |      | 113,823   |  |  |   | 95,496    | 
|                           |  |      |           |      |  |      |           |  |  |   |           | 
|                           |  | $    | 1,098,425 |      |  | $    | 1,069,575 |  |  | $ | 1,224,111 | 
|                           |  |      |           |      |  |      |           |  |  |   |           | 

During 2002, two customers of SS/ L accounted for
approximately 12% and 10% of Lorals consolidated revenues.
During 2001, one customer of SS/ L accounted for approximately
14% of Lorals consolidated revenues. During 2000, three
customers of SS/ L accounted for 13%, 12% and 11%, respectively,
of Lorals consolidated revenues.

F-55



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



16.     Segments 
(Continued)


With the exception of the Companys
satellites in-orbit (see Note 5), the Companys long-lived
assets are primarily located in the United States.

17.     Financial
Information for Subsidiary Issuer and Guarantor and
Non-Guarantor Subsidiaries

Loral is a holding company (the Parent
Company), which is the ultimate parent of all Loral
subsidiaries. In December 2001, the Companys wholly owned
subsidiary, Loral Orion (the Subsidiary Issuer),
issued New Senior Notes in an exchange offer (see Note 8)
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).

Presented below is condensed consolidating
financial information for the Parent Company, the Subsidiary
Issuer, the Guarantor Subsidiary and the other wholly-owned
subsidiaries (the Non-Guarantor Subsidiaries) for
the years ended December 31, 2002, 2001 and 2000. The
condensed consolidating financial information has been presented
to show the nature of assets held, results of operations and
cash flows of the Parent Company, Subsidiary Issuer, Guarantor
Subsidiary and Non-Guarantor Subsidiaries assuming the expected
guarantee structure of the New Senior Notes was in effect at the
beginning of the periods presented.

The supplemental condensed consolidating
financial information reflects the investments of the Parent
Company in the Subsidiary Issuer, the Guarantor Subsidiary and
the Non-Guarantor Subsidiaries using the equity method of
accounting. The Companys significant transactions with its
subsidiaries other than the investment account and related
equity in net loss of unconsolidated subsidiaries are the
management fee charged by Loral SpaceCom to the Parent Company
and intercompany payables and receivables between its
subsidiaries resulting primarily from the funding of the
construction of satellites for the fixed satellite services
segment. Lorals $200 million note receivable from
unconsolidated subsidiaries is due from Loral Space &
Communications Corporation (LSCC), bears interest at
8.2% per annum with the final due date being October 1,
2008. Interest payments are deferred until April 1, 2005,
when LSCC will begin to make semi-annual installments of
$48 million on the first day of April and October of each
year until the note is paid in full. Loral SpaceCom (a
non-guarantor subsidiary) holds a $29.7 million
subordinated note receivable from the subsidiary issuer. The
note is subordinated to all existing and future indebtedness of
the subsidiary issuer and guaranteed by the Parent Company. The
note bears interest at a rate of 10% per annum. All principal
and interest on the note is due at maturity on July 30,
2006. During 2002, Loral Satellite provided $35.2 million
to Loral in the form of a note receivable which bears no
interest and is payable upon maturity of the Loral Satellite
Credit Agreement.

F-56



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##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

17.     Financial
Information for Subsidiary Issuer and Guarantor and
Non-Guarantor Subsidiaries  (Continued)

LORAL SPACE & COMMUNICATIONS
LTD.

CONDENSED CONSOLIDATING BALANCE
SHEET


December 31, 2002


(in thousands)


|                                                           |                                                        |                                                          |          |            |         |            |          |               |         |              |          |              |        |  |            |            |         |  |           |           |           |   |           |            |           | 
|---------------------------------------------------------- | ------------------------------------------------------ | -------------------------------------------------------- | -------- | ---------- | ------- | ---------- | -------- | ------------- | ------- | ------------ | -------- | ------------ | ------ |  | ---------- | ---------- | ------- |  | --------- | --------- | --------- | - | --------- | ---------- | --------- | 
|                                                           |                                                        | Parent                                                   |          | Subsidiary |         | Guarantor  |          | Non-Guarantor |         |              |          |             
|                                                           |                                                        | Company                                                  |          | Issuer     |         | Subsidiary |          | Subsidiaries  |         | Eliminations |          | Consolidated
|                                                           |                                                        |                                                          |          |            |         |            |          |               |         |              |          |             
|Current assets:                                            |                                                        |                                                          |          |            |         |            |          |               |         |              |          |              |        |  |            |            |         |  |           |           |           |   |           |           
|                                                           | Cash and cash equivalents                              |                                                          | $        | 1,514      |         |            | $        | 42,964        |         |              | $        |             |        |  | $          | 21,458     |         |  | $         |          |           |   | $         | 65,936     |          
|                                                           | Accounts receivable, net                               |                                                          |          |           |         |            |          | 7,477         |         |              |          | 138          |        |  |            | 21,278     |         |  |           |          |           |   |           | 28,893     |          
|                                                           | Contracts-in-process                                   |                                                          |          |           |         |            |          |              |         |              |          |             |        |  |            | 113,154    |         |  |           |          |           |   |           | 113,154    |          
|                                                           | Vendor financing receivable                            |                                                          |          |           |         |            |          |              |         |              |          |             |        |  |            | 38,016     |         |  |           |          |           |   |           | 38,016     |          
|                                                           | Inventories                                            |                                                          |          |           |         |            |          |              |         |              |          |             |        |  |            | 95,733     |         |  |           |          |           |   |           | 95,733     |          
|                                                           | Other current assets                                   |                                                          |          | 823        |         |            |          | 5,540         |         |              |          | 8,584        |        |  |            | 34,659     |         |  |           | (911      | )         |   |           | 48,695     |          
|                                                           |                                                        |                                                          |          |            |         |            |          |               |         |              |          |              |        |  |            |            |         |  |           |           |           |   |           |           
|                                                           |                                                        | Total current assets                                     |          |            | 2,337   |            |          |               | 55,981  |              |          |              | 8,722  |  |            |            | 324,298 |  |           |           | (911      | ) |           |            | 390,427   | 
|Property, plant and equipment, net                         |                                                        |                                                          |         |            |         |            | 319,998  |               |         |              | 204,701  |              |        |  | 1,396,920  |            |         |  | (24,276   | )         |           |   | 1,897,343 |           
|Long-term receivables                                      |                                                        |                                                          |         |            |         |            |         |               |         |              |         |              |        |  | 163,191    |            |         |  |          |           |           |   | 163,191   |           
|Notes receivable (payable) unconsolidated
    subsidiaries |                                                        |                                                          | 157,500  |            |         |            | (31,540  | )             |         |              |         |              |        |  | (125,960   | )          |         |  |          |           |           |   |          |           
|Due to (from) unconsolidated subsidiaries                  |                                                        |                                                          | 36,448   |            |         |            | (97,652  | )             |         |              | 107,917  |              |        |  | (13,413    | )          |         |  | (33,300   | )         |           |   |          |           
|Investments in unconsolidated subsidiaries                 |                                                        |                                                          | (20,185  | )          |         |            | 304,590  |               |         |              | (271,698 | )            |        |  | (1,642,070 | )          |         |  | 1,629,363 |           |           |   |          |           
|Investments in and advances to affiliates                  |                                                        |                                                          | 21,507   |            |         |            |         |               |         |              |         |              |        |  | 73,936     |            |         |  |          |           |           |   | 95,443    |           
|Deposits                                                   |                                                        |                                                          |         |            |         |            |         |               |         |              |         |              |        |  | 58,250     |            |         |  |          |           |           |   | 58,250    |           
|Deferred tax assets                                        |                                                        |                                                          |         |            |         |            |         |               |         |              |         |              |        |  |           |            |         |  |          |           |           |   |          |           
|Other assets                                               |                                                        |                                                          | 3,191    |            |         |            | 16,622   |               |         |              | 696      |              |        |  | 67,639     |            |         |  |          |           |           |   | 88,148    |           
|                                                           |                                                        |                                                          |          |            |         |            |          |               |         |              |          |              |        |  |            |            |         |  |           |           |           |   |           |           
|                                                           |                                                        | Total assets                                             |          | $          | 200,798 |            |          | $             | 567,999 |              |          | $            | 50,338 |  |            | $          | 302,791 |  |           | $         | 1,570,876 |   |           | $          | 2,692,802 | 
|                                                           |                                                        |                                                          |          |            |         |            |          |               |         |              |          |              |        |  |            |            |         |  |           |           |           |   |           |           
|Current liabilities:                                       |                                                        |                                                          |          |            |         |            |          |               |         |              |          |              |        |  |            |            |         |  |           |           |           |   |           |           
|                                                           | Current portion of long-term debt                      |                                                          | $        |           |         |            | $        | 64,727        |         |              | $        |             |        |  | $          | 67,171     |         |  | $         |          |           |   | $         | 131,898    |          
|                                                           | Accounts payable                                       |                                                          |          | 2,404      |         |            |          | 1,194         |         |              |          | 1,193        |        |  |            | 53,532     |         |  |           |          |           |   |           | 58,323     |          
|                                                           | Accrued employment costs                               |                                                          |          |           |         |            |          |              |         |              |          |             |        |  |            | 34,531     |         |  |           |          |           |   |           | 34,531     |          
|                                                           | Customer advances                                      |                                                          |          |           |         |            |          | 1,208         |         |              |          | 521          |        |  |            | 112,351    |         |  |           |          |           |   |           | 114,080    |          
|                                                           | Accrued interest and preferred dividends               |                                                          |          | 20,840     |         |            |          | 4,700         |         |              |          |             |        |  |            | 11,830     |         |  |           |          |           |   |           | 37,370     |          
|                                                           | Income taxes payable                                   |                                                          |          | 8,123      |         |            |          |              |         |              |          |             |        |  |            | 31,232     |         |  |           | (1,419    | )         |   |           | 37,936     |          
|                                                           | Other current liabilities                              |                                                          |          |           |         |            |          | 1,968         |         |              |          | 35           |        |  |            | 45,002     |         |  |           |          |           |   |           | 47,005     |          
|                                                           |                                                        |                                                          |          |            |         |            |          |               |         |              |          |              |        |  |            |            |         |  |           |           |           |   |           |           
|                                                           |                                                        | Total current liabilities                                |          |            | 31,367  |            |          |               | 73,797  |              |          |              | 1,749  |  |            |            | 355,649 |  |           |           | (1,419    | ) |           |            | 461,143   | 
|Pension and other postretirement liabilities               |                                                        |                                                          |         |            |         |            |         |               |         |              |         |              |        |  | 124,193    |            |         |  |          |           |           |   | 124,193   |           
|Long-term liabilities                                      |                                                        |                                                          | 48,577   |            |         |            | 7,743    |               |         |              | 11,387   |              |        |  | 172,119    |            |         |  | (31,991   | )         |           |   | 207,835   |           
|Long-term debt                                             |                                                        |                                                          | 350,000  |            |         |            | 894,829  |               |         |              |         |              |        |  | 867,798    |            |         |  |          |           |           |   | 2,112,627 |           
|Minority interest                                          |                                                        |                                                          |         |            |         |            |         |               |         |              |         |              |        |  | 16,150     |            |         |  |          |           |           |   | 16,150    |           
|                                                           | 6% Series C convertible redeemable preferred
    stock |                                                          |          | 104,582    |         |            |          |              |         |              |          |             |        |  |            |           |         |  |           |          |           |   |           | 104,582    |          
|                                                           | 6% Series D convertible redeemable preferred
    stock |                                                          |          | 20,499     |         |            |          |              |         |              |          |             |        |  |            |           |         |  |           |          |           |   |           | 20,499     |          
|Shareholders (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                                        |                                                          |          | 3,389,035  |         |            |          | 604,166       |         |              |          |             |        |  |            |           |         |  |           | (604,166  | )         |   |           | 3,389,035  |          
|                                                           | Treasury stock, at cost                                |                                                          |          | (3,360     | )       |            |          |              |         |              |          |             |        |  |            |           |         |  |           |          |           |   |           | (3,360     | )        
|                                                           | Unearned compensation                                  |                                                          |          | (151       | )       |            |          |              |         |              |          |             |        |  |            |           |         |  |           |          |           |   |           | (151       | )        
|                                                           | Retained (deficit) earnings                            |                                                          |          | (3,782,107 | )       |            |          | (1,012,536    | )       |              |          | 37,202       |        |  |            | (1,233,118 | )       |  |           | 2,208,452 |           |   |           | (3,782,107 | )        
|                                                           | Accumulated other comprehensive loss                   |                                                          |          | (57,233    | )       |            |          |              |         |              |          |             |        |  |            |           |         |  |           |          |           |   |           | (57,233    | )        
|                                                           |                                                        |                                                          |          |            |         |            |          |               |         |              |          |              |        |  |            |            |         |  |           |           |           |   |           |           
|Total shareholders (deficit) equity                       |                                                        |                                                          | (354,227 | )          |         |            | (408,370 | )             |         |              | 37,202   |              |        |  | (1,233,118 | )          |         |  | 1,604,286 |           |           |   | (354,227  | )         
|                                                           |                                                        |                                                          |          |            |         |            |          |               |         |              |          |              |        |  |            |            |         |  |           |           |           |   |           |           
|                                                           |                                                        | Total liabilities and shareholders
    (deficit) equity |          | $          | 200,798 |            |          | $             | 567,999 |              |          | $            | 50,338 |  |            | $          | 302,791 |  |           | $         | 1,570,876 |   |           | $          | 2,692,802 | 
|                                                           |                                                        |                                                          |          |            |         |            |          |               |         |              |          |              |        |  |            |            |         |  |           |           |           |   |           |           

F-57



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

17.     Financial
Information for Subsidiary Issuer and Guarantor and
Non-Guarantor Subsidiaries  (Continued)

LORAL SPACE & COMMUNICATIONS
LTD.

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS


Year ended December 31, 2002


(in thousands)


|                                                                                                                                                                                         |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |           |          |   |   |            |           | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | ---------- | ---------- |  | ---------- | -------- | ------------- |  | ------------ | ------ | ------------ |  | - | -------- | --------- |  | - | --------- | -------- | - | - | ---------- | --------- | 
|                                                                                                                                                                                         |                | Parent  |            | Subsidiary |  | Guarantor  |          | Non-Guarantor |  |              |        |             
|                                                                                                                                                                                         |                | Company |            | Issuer     |  | Subsidiary |          | Subsidiaries  |  | Eliminations |        | Consolidated
|                                                                                                                                                                                         |                |         |            |            |  |            |          |               |  |              |        |             
|Revenues from satellite sales                                                                                                                                                            |                | $       |           |            |  | $          |         |               |  | $            |       |              |  | $ | 761,793  |           |  | $ | (53,326   | )        |   | $ | 708,467    |          
|Revenues from satellite services                                                                                                                                                         |                |         |           |            |  |            | 99,717   |               |  |              | 48,198 |              |  |   | 293,577  |           |  |   | (51,534   | )        |   |   | 389,958    |          
|Management fee from parent                                                                                                                                                               |                |         |           |            |  |            |         |               |  |              |       |              |  |   | 18       |           |  |   | (18       | )        |   |   |           |          
|                                                                                                                                                                                         |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |           |          |   |   |            |          
|                                                                                                                                                                                         | Total revenues |         |            |           |  |            |          | 99,717        |  |              |        | 48,198       |  |   |          | 1,055,388 |  |   |           | (104,878 | ) |   |            | 1,098,425 | 
|Costs of satellite sales                                                                                                                                                                 |                |         |           |            |  |            |         |               |  |              |       |              |  |   | 805,690  |           |  |   | (46,190   | )        |   |   | 759,500    |          
|Costs of satellite services                                                                                                                                                              |                |         |           |            |  |            | 100,360  |               |  |              | 29,231 |              |  |   | 178,646  |           |  |   | (48,484   | )        |   |   | 259,753    |          
|Selling, general and administrative expenses                                                                                                                                             |                |         | 7,198      |            |  |            | 10,089   |               |  |              | 964    |              |  |   | 142,950  |           |  |   |          |          |   |   | 161,201    |          
|Management fee expense                                                                                                                                                                   |                |         | 18         |            |  |            |         |               |  |              |       |              |  |   |         |           |  |   | (18       | )        |   |   |           |          
|                                                                                                                                                                                         |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |           |          |   |   |            |          
|Operating income (loss)                                                                                                                                                                  |                |         | (7,216     | )          |  |            | (10,732  | )             |  |              | 18,003 |              |  |   | (71,898  | )         |  |   | (10,186   | )        |   |   | (82,029    | )        
|Interest and investment income                                                                                                                                                           |                |         | 21,514     |            |  |            | 631      |               |  |              |       |              |  |   | 15,155   |           |  |   | (24,391   | )        |   |   | 12,909     |          
|Interest expense                                                                                                                                                                         |                |         | (39,327    | )          |  |            | (13,016  | )             |  |              | 3      |              |  |   | (51,843  | )         |  |   | 27,138    |          |   |   | (77,045    | )        
|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 |                |         | (26,218    | )          |  |            | (23,117  | )             |  |              | 18,006 |              |  |   | (108,586 | )         |  |   | (7,439    | )        |   |   | (147,354   | )        
|Income tax benefit (provision)                                                                                                                                                           |                |         | (6,398     | )          |  |            | (14,739  | )             |  |              | (6,455 | )            |  |   | (150,708 | )         |  |   | (176,742  | )        |   |   | (355,042   | )        
|                                                                                                                                                                                         |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |           |          |   |   |            |          
|(Loss) income before equity in net losses of
    unconsolidated subsidiaries and affiliates, minority interest
    and cumulative effect of change in accounting principle               |                |         | (32,616    | )          |  |            | (37,856  | )             |  |              | 11,551 |              |  |   | (259,294 | )         |  |   | (184,181  | )        |   |   | (502,396   | )        
|Equity in net income (losses) of
    unconsolidated subsidiaries, net of taxes                                                                                                           |                |         | (1,360,150 | )          |  |            | 11,551   |               |  |              |       |              |  |   |         |           |  |   | 1,348,599 |          |   |   |           |          
|Equity in net income (losses) of affiliates,
    net of taxes                                                                                                                            |                |         | (76,445    | )          |  |            |         |               |  |              |       |              |  |   | 165      |           |  |   |          |          |   |   | (76,280    | )        
|Minority interest, net of taxes                                                                                                                                                          |                |         |           |            |  |            |         |               |  |              |       |              |  |   | (226     | )         |  |   |          |          |   |   | (226       | )        
|                                                                                                                                                                                         |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |           |          |   |   |            |          
|(Loss) income before cumulative effect of change
    in accounting principle                                                                                                             |                |         | (1,469,211 | )          |  |            | (26,305  | )             |  |              | 11,551 |              |  |   | (259,355 | )         |  |   | 1,164,418 |          |   |   | (578,902   | )        
|Cumulative effect of change in accounting
    principle, net of taxes                                                                                                                    |                |         |           |            |  |            | (562,201 | )             |  |              |       |              |  |   | (328,108 | )         |  |   |          |          |   |   | (890,309   | )        
|                                                                                                                                                                                         |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |           |          |   |   |            |          
|Net (loss) income                                                                                                                                                                        |                | $       | (1,469,211 | )          |  | $          | (588,506 | )             |  | $            | 11,551 |              |  | $ | (587,463 | )         |  | $ | 1,164,418 |          |   | $ | (1,469,211 | )        
|                                                                                                                                                                                         |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |           |          |   |   |            |          

F-58



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

17.     Financial
Information for Subsidiary Issuer and Guarantor and
Non-Guarantor Subsidiaries  (Continued)

LORAL SPACE & COMMUNICATIONS
LTD.

CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS


For the year ended December 31,
2002


(in thousands)


|                                                           |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |            |         |  
|---------------------------------------------------------- | --------------------------------------------------------------- | --------------------------------------------------------------------- | ------- | ---------- | --------- | ---------- | ------- | ------------- | ------- | ------------ | - | ------------ | ------- | - | -------- | -------- | ------- | - | ------ | --------- | ---------- | - | -------- | ---------- | ------- | -
|                                                           |                                                                 | Parent                                                                |         | Subsidiary |           | Guarantor  |         | Non-Guarantor |         |              |   |             
|                                                           |                                                                 | Company                                                               |         | Issuer     |           | Subsidiary |         | Subsidiaries  |         | Eliminations |   | Consolidated
|                                                           |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |             
|Operating activities:                                      |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |           
|                                                           | Net (loss) income                                               |                                                                       | $       | (1,469,211 | )         |            | $       | (588,506      | )       |              | $ | 11,551       |         |   | $        | (587,463 | )       |   | $      | 1,164,418 |            |   | $        | (1,469,211 | )      
|                                                           | Non-cash items:                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |            |        
|                                                           |                                                                 | Equity in net losses of affiliates, net of taxes                      |         |            | 76,445    |            |         |               |        |              |   |              |        |   |          |          | 8,033   |   |        |           |           |   |          |            | 84,478  |  
|                                                           |                                                                 | Minority interest, net of taxes                                       |         |            |          |            |         |               |        |              |   |              |        |   |          |          | 226     |   |        |           |           |   |          |            | 226     |  
|                                                           |                                                                 | Cumulative effect of change in accounting
    principle, net of taxes |         |            |          |            |         |               | 562,201 |              |   |              |        |   |          |          | 328,108 |   |        |           |           |   |          |            | 890,309 |  
|                                                           |                                                                 | Equity in net losses of unconsolidated
    subsidiaries, net of taxes |         |            | 1,360,150 |            |         |               | (11,551 | )            |   |              |        |   |          |          |        |   |        |           | (1,348,599 | ) |          |            |        |  
|                                                           |                                                                 | Deferred taxes                                                        |         |            | 6,214     |            |         |               | 32,130  |              |   |              | 5,143   |   |          |          | 152,285 |   |        |           | 159,563    |   |          |            | 355,335 |  
|                                                           |                                                                 | Depreciation and amortization                                         |         |            | (47       | )          |         |               | 54,279  |              |   |              | 21,013  |   |          |          | 111,757 |   |        |           |           |   |          |            | 187,002 |  
|                                                           |                                                                 | Valuation allowance on Europe*Star advances                           |         |            |          |            |         |               |        |              |   |              |        |   |          |          | 36,620  |   |        |           |           |   |          |            | 36,620  |  
|                                                           |                                                                 | Vendor financing receivable valuation allowance                       |         |            |          |            |         |               |        |              |   |              |        |   |          |          | 32,574  |   |        |           |           |   |          |            | 32,574  |  
|                                                           |                                                                 | Loss on cancellation of deposits                                      |         |            |          |            |         |               |        |              |   |              |        |   |          |          | 10,000  |   |        |           |           |   |          |            | 10,000  |  
|                                                           |                                                                 | Provision for inventory obsolescence                                  |         |            |          |            |         |               |        |              |   |              |        |   |          |          | 14,013  |   |        |           |           |   |          |            | 14,013  |  
|                                                           |                                                                 | Provisions for bad debt                                               |         |            |          |            |         |               |        |              |   |              |        |   |          |          | 4,308   |   |        |           |           |   |          |            | 4,308   |  
|                                                           |                                                                 | Loss on equipment disposals                                           |         |            |          |            |         |               |        |              |   |              |        |   |          |          | 6,191   |   |        |           |           |   |          |            | 6,191   |  
|                                                           |                                                                 | Loss on investments                                                   |         |            | 1,189     |            |         |               |        |              |   |              |        |   |          |          |        |   |        |           |           |   |          |            | 1,189   |  
|                                                           |                                                                 | Non-cash interest (income) expense                                    |         |            |          |            |         |               | 503     |              |   |              |        |   |          |          | (1,840  | ) |        |           |           |   |          |            | (1,337  | )
|                                                           | Changes in operating assets and liabilities:                    |                                                                       |         |            |           |            |         |              |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |            |        
|                                                           |                                                                 | Accounts receivable, net                                              |         |            |          |            |         |               | 5,594   |              |   |              | 359     |   |          |          | 288     |   |        |           |           |   |          |            | 6,241   |  
|                                                           |                                                                 | Contracts-in-process                                                  |         |            |          |            |         |               |        |              |   |              |        |   |          |          | 97,100  |   |        |           |           |   |          |            | 97,100  |  
|                                                           |                                                                 | Inventories                                                           |         |            |          |            |         |               |        |              |   |              |        |   |          |          | (1,604  | ) |        |           |           |   |          |            | (1,604  | )
|                                                           |                                                                 | Long-term receivables                                                 |         |            |          |            |         |               |        |              |   |              |        |   |          |          | (1,963  | ) |        |           |           |   |          |            | (1,963  | )
|                                                           |                                                                 | Deposits                                                              |         |            |          |            |         |               |        |              |   |              |        |   |          |          | 58,940  |   |        |           |           |   |          |            | 58,940  |  
|                                                           |                                                                 | Due to (from) unconsolidated subsidiaries                             |         |            | (17,135   | )          |         |               | 33,882  |              |   |              | (34,931 | ) |          |          | (904    | ) |        |           | 19,088     |   |          |            |        |  
|                                                           |                                                                 | Other current assets and other assets                                 |         |            | 2,260     |            |         |               | 3,589   |              |   |              | (3,296  | ) |          |          | 28,122  |   |        |           |           |   |          |            | 30,675  |  
|                                                           |                                                                 | Accounts payable                                                      |         |            | (1,357    | )          |         |               | (1,484  | )            |   |              | 481     |   |          |          | (86,306 | ) |        |           |           |   |          |            | (88,666 | )
|                                                           |                                                                 | Accrued expenses and other current liabilities                        |         |            | 715       |            |         |               | 2,811   |              |   |              |        |   |          |          | (23,136 | ) |        |           |           |   |          |            | (19,610 | )
|                                                           |                                                                 | Customer advances                                                     |         |            |          |            |         |               | (3,739  | )            |   |              | (320    | ) |          |          | (30,851 | ) |        |           |           |   |          |            | (34,910 | )
|                                                           |                                                                 | Income taxes payable                                                  |         |            | 184       |            |         |               |        |              |   |              |        |   |          |          | 3,572   |   |        |           | (336       | ) |          |            | 3,420   |  
|                                                           |                                                                 | Pension and other postretirement liabilities                          |         |            |          |            |         |               |        |              |   |              |        |   |          |          | 4,521   |   |        |           |           |   |          |            | 4,521   |  
|                                                           |                                                                 | Long-term liabilities                                                 |         |            |          |            |         |               |        |              |   |              |        |   |          |          | (10,986 | ) |        |           |           |   |          |            | (10,986 | )
|                                                           |                                                                 | Other                                                                 |         |            | (2        | )          |         |               |        |              |   |              |        |   |          |          | (26     | ) |        |           |           |   |          |            | (28     | )
|                                                           |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |           
|Net cash provided by (used in) operating
    activities    |                                                                 |                                                                       | (40,595 | )          |           |            | 89,709  |               |         |              |  |              |         |   | 151,579  |          |         |   | (5,866 | )         |            |   | 194,827  |           
|                                                           |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |           
|Investing activities:                                      |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |           
|                                                           | Capital expenditures                                            |                                                                       |         |           |           |            |         | (18,033       | )       |              |   |             |         |   |          | (86,040  | )       |   |        | 5,866     |            |   |          | (98,207    | )      
|                                                           | Investments in and advances to unconsolidated
    subsidiaries  |                                                                       |         | (2,243     | )         |            |         |              |         |              |   |             |         |   |          | 2,243    |         |   |        |          |            |   |          |           |        
|                                                           | Investments in and advances to affiliates                       |                                                                       |         | (11,479    | )         |            |         |              |         |              |   |             |         |   |          | (29,138  | )       |   |        |          |            |   |          | (40,617    | )      
|                                                           |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |           
|Net cash (used in) provided by in investing
    activities |                                                                 |                                                                       | (13,722 | )          |           |            | (18,033 | )             |         |              |  |              |         |   | (112,935 | )        |         |   | 5,866  |           |            |   | (138,824 | )         
|                                                           |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |           
|Financing activities:                                      |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |           
|                                                           | Borrowings under revolving credit facilities                    |                                                                       |         |           |           |            |         |              |         |              |   |             |         |   |          | 145,000  |         |   |        |          |            |   |          | 145,000    |        
|                                                           | Repayments under term loans                                     |                                                                       |         |           |           |            |         |              |         |              |   |             |         |   |          | (85,000  | )       |   |        |          |            |   |          | (85,000    | )      
|                                                           | Repayments under revolving credit facilities                    |                                                                       |         |           |           |            |         |              |         |              |   |             |         |   |          | (127,000 | )       |   |        |          |            |   |          | (127,000   | )      
|                                                           | Interest payments on 10% senior notes                           |                                                                       |         |           |           |            |         | (45,952       | )       |              |   |             |         |   |          | (2       | )       |   |        |          |            |   |          | (45,954    | )      
|                                                           | Repayment of export-import facility                             |                                                                       |         |           |           |            |         |              |         |              |   |             |         |   |          | (2,146   | )       |   |        |          |            |   |          | (2,146     | )      
|                                                           | Repayments of other long-term obligations                       |                                                                       |         |           |           |            |         | (2,159        | )       |              |   |             |         |   |          | (20      | )       |   |        |          |            |   |          | (2,179     | )      
|                                                           | Note receivable from unconsolidated affiliate                   |                                                                       |         | 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                      |                                                                 |                                                                       | 9,763   |            |           |            | (48,111 | )             |         |              |  |              |         |   | (111,668 | )        |         |   |       |           |            |   | (150,016 | )         
|                                                           |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |           
|Increase (decrease) in cash and cash
    equivalents       |                                                                 |                                                                       | (44,554 | )          |           |            | 23,565  |               |         |              |  |              |         |   | (73,024  | )        |         |   |       |           |            |   | (94,013  | )         
|Cash and cash equivalentsbeginning of period              |                                                                 |                                                                       | 46,068  |            |           |            | 19,399  |               |         |              |  |              |         |   | 94,482   |          |         |   |       |           |            |   | 159,949  |           
|                                                           |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |           
|Cash and cash equivalentsend of period                    |                                                                 | $                                                                     | 1,514   |            |           | $          | 42,964  |               |         | $            |  |              |         | $ | 21,458   |          |         | $ |       |           |            | $ | 65,936   |           
|                                                           |                                                                 |                                                                       |         |            |           |            |         |               |         |              |   |              |         |   |          |          |         |   |        |           |            |   |          |           

F-59



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

17.     Financial
Information for Subsidiary Issuer and Guarantor and
Non-Guarantor Subsidiaries  (Continued)

LORAL SPACE & COMMUNICATIONS
LTD.

CONDENSED CONSOLIDATING BALANCE
SHEET


December 31, 2001


(in thousands)


|                                               |                                                        |                                                          |           |            |           |            |         |               |           |              |          |              |        |  |            |          |           |  |         |           |         |   |           |            |           | 
|---------------------------------------------- | ------------------------------------------------------ | -------------------------------------------------------- | --------- | ---------- | --------- | ---------- | ------- | ------------- | --------- | ------------ | -------- | ------------ | ------ |  | ---------- | -------- | --------- |  | ------- | --------- | ------- | - | --------- | ---------- | --------- | 
|                                               |                                                        | Parent                                                   |           | Subsidiary |           | Guarantor  |         | Non-Guarantor |           |              |          |             
|                                               |                                                        | Company                                                  |           | Issuer     |           | Subsidiary |         | Subsidiaries  |           | Eliminations |          | Consolidated
|                                               |                                                        |                                                          |           |            |           |            |         |               |           |              |          |             
|Current assets:                                |                                                        |                                                          |           |            |           |            |         |               |           |              |          |              |        |  |            |          |           |  |         |           |         |   |           |           
|                                               | Cash and cash equivalents                              |                                                          | $         | 46,068     |           |            | $       | 19,399        |           |              | $        |             |        |  | $          | 94,482   |           |  | $       |          |         |   | $         | 159,949    |          
|                                               | Accounts receivable, net                               |                                                          |           |           |           |            |         | 13,071        |           |              |          | 497          |        |  |            | 25,731   |           |  |         |          |         |   |           | 39,299     |          
|                                               | Contracts-in-process                                   |                                                          |           |           |           |            |         |              |           |              |          |             |        |  |            | 174,192  |           |  |         |          |         |   |           | 174,192    |          
|                                               | Inventories                                            |                                                          |           |           |           |            |         |              |           |              |          |             |        |  |            | 98,179   |           |  |         |          |         |   |           | 98,179     |          
|                                               | Other current assets                                   |                                                          |           | 265        |           |            |         | 6,053         |           |              |          | 5,151        |        |  |            | 78,962   |           |  |         |          |         |   |           | 90,431     |          
|                                               |                                                        |                                                          |           |            |           |            |         |               |           |              |          |              |        |  |            |          |           |  |         |           |         |   |           |           
|                                               |                                                        | Total current assets                                     |           |            | 46,333    |            |         |               | 38,523    |              |          |              | 5,648  |  |            |          | 471,546   |  |         |           |        |   |           |            | 562,050   | 
|Property, plant and equipment, net             |                                                        |                                                          |          |            |           |            | 354,196 |               |           |              | 225,714  |              |        |  | 1,415,856  |          |           |  | (18,410 | )         |         |   | 1,977,356 |           
|Costs in excess of net assets acquired, net    |                                                        |                                                          |          |            |           |            | 562,201 |               |           |              |         |              |        |  | 329,518    |          |           |  |        |           |         |   | 891,719   |           
|Long-term receivables                          |                                                        |                                                          |          |            |           |            |        |               |           |              |         |              |        |  | 230,195    |          |           |  |        |           |         |   | 230,195   |           
|Note receivable from unconsolidated subsidiary |                                                        |                                                          | 200,000   |            |           |            | (29,700 | )             |           |              |         |              |        |  | (170,300   | )        |           |  |        |           |         |   |          |           
|Due to (from) unconsolidated subsidiaries      |                                                        |                                                          | 12,430    |            |           |            | (62,961 | )             |           |              | 72,978   |              |        |  | (8,235     | )        |           |  | (14,212 | )         |         |   |          |           
|Investments in unconsolidated subsidiaries     |                                                        |                                                          | 1,432,614 |            |           |            | 293,039 |               |           |              | (271,698 | )            |        |  | (1,734,719 | )        |           |  | 280,764 |           |         |   |          |           
|Investments in and advances to affiliates      |                                                        |                                                          | 77,061    |            |           |            |        |               |           |              |         |              |        |  | 115,294    |          |           |  |        |           |         |   | 192,355   |           
|Deposits                                       |                                                        |                                                          |          |            |           |            |        |               |           |              |         |              |        |  | 155,490    |          |           |  |        |           |         |   | 155,490   |           
|Deferred tax assets                            |                                                        |                                                          |          |            |           |            | 32,130  |               |           |              |         |              |        |  | 122,332    |          |           |  | 143,066 |           |         |   | 297,528   |           
|Other assets                                   |                                                        |                                                          | 6,632     |            |           |            | 20,836  |               |           |              | 832      |              |        |  | 91,194     |          |           |  |        |           |         |   | 119,494   |           
|                                               |                                                        |                                                          |           |            |           |            |         |               |           |              |          |              |        |  |            |          |           |  |         |           |         |   |           |           
|                                               |                                                        | Total assets                                             |           | $          | 1,775,070 |            |         | $             | 1,208,264 |              |          | $            | 33,474 |  |            | $        | 1,018,171 |  |         | $         | 391,208 |   |           | $          | 4,426,187 | 
|                                               |                                                        |                                                          |           |            |           |            |         |               |           |              |          |              |        |  |            |          |           |  |         |           |         |   |           |           
|Current liabilities:                           |                                                        |                                                          |           |            |           |            |         |               |           |              |          |              |        |  |            |          |           |  |         |           |         |   |           |           
|                                               | Current portion of long-term debt                      |                                                          | $         |           |           |            | $       | 49,449        |           |              | $        |             |        |  | $          | 87,167   |           |  | $       |          |         |   | $         | 136,616    |          
|                                               | Accounts payable                                       |                                                          |           | 1,357      |           |            |         | 2,677         |           |              |          | 713          |        |  |            | 142,286  |           |  |         |          |         |   |           | 147,033    |          
|                                               | Accrued employment costs                               |                                                          |           |           |           |            |         |              |           |              |          |             |        |  |            | 39,232   |           |  |         |          |         |   |           | 39,232     |          
|                                               | Customer advances                                      |                                                          |           |           |           |            |         | 952           |           |              |          | 128          |        |  |            | 147,910  |           |  |         |          |         |   |           | 148,990    |          
|                                               | Accrued interest and preferred dividends               |                                                          |           | 22,543     |           |            |         | 1,889         |           |              |          |             |        |  |            | 6,738    |           |  |         |          |         |   |           | 31,170     |          
|                                               | Income taxes payable                                   |                                                          |           | 7,939      |           |            |         |              |           |              |          |             |        |  |            | 27,660   |           |  |         | (1,083    | )       |   |           | 34,516     |          
|                                               | Other current liabilities                              |                                                          |           |           |           |            |         | 5,719         |           |              |          | 235          |        |  |            | 41,006   |           |  |         |          |         |   |           | 46,960     |          
|                                               | Deferred tax liabilities  current                     |                                                          |           | 20,737     |           |            |         |              |           |              |          |             |        |  |            |         |           |  |         | (20,737   | )       |   |           |           |          
|                                               |                                                        |                                                          |           |            |           |            |         |               |           |              |          |              |        |  |            |          |           |  |         |           |         |   |           |           
|                                               |                                                        | Total current liabilities                                |           |            | 52,576    |            |         |               | 60,686    |              |          |              | 1,076  |  |            |          | 491,999   |  |         |           | (21,820 | ) |           |            | 584,517   | 
|Pension and other postretirement liabilities   |                                                        |                                                          |          |            |           |            |        |               |           |              |         |              |        |  | 55,590     |          |           |  |        |           |         |   | 55,590    |           
|Long-term liabilities                          |                                                        |                                                          | 21,626    |            |           |            | 7,986   |               |           |              | 6,747    |              |        |  | 180,487    |          |           |  | (26,840 | )         |         |   | 190,006   |           
|Long-term debt                                 |                                                        |                                                          | 350,000   |            |           |            | 959,555 |               |           |              |         |              |        |  | 916,970    |          |           |  |        |           |         |   | 2,226,525 |           
|Minority interest                              |                                                        |                                                          |          |            |           |            |        |               |           |              |         |              |        |  | 18,681     |          |           |  |        |           |         |   | 18,681    |           
|Shareholders (deficit) 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                                        |                                                          |           | 2,771,964  |           |            |         | 604,166       |           |              |          |             |        |  |            |         |           |  |         | (604,166  | )       |   |           | 2,771,964  |          
|                                               | Treasury stock, at cost                                |                                                          |           | (3,360     | )         |            |         |              |           |              |          |             |        |  |            |         |           |  |         |          |         |   |           | (3,360     | )        
|                                               | Unearned compensation                                  |                                                          |           | (81        | )         |            |         |              |           |              |          |             |        |  |            |         |           |  |         |          |         |   |           | (81        | )        
|                                               | Retained deficit                                       |                                                          |           | (2,223,710 | )         |            |         | (424,129      | )         |              |          | 25,651       |        |  |            | (645,556 | )         |  |         | 1,044,034 |         |   |           | (2,223,710 | )        
|                                               | Accumulated other comprehensive income                 |                                                          |           | 20,787     |           |            |         |              |           |              |          |             |        |  |            |         |           |  |         |          |         |   |           | 20,787     |          
|                                               |                                                        |                                                          |           |            |           |            |         |               |           |              |          |              |        |  |            |          |           |  |         |           |         |   |           |           
|Total shareholders (deficit) equity           |                                                        |                                                          | 1,350,868 |            |           |            | 180,037 |               |           |              | 25,651   |              |        |  | (645,556   | )        |           |  | 439,868 |           |         |   | 1,350,868 |           
|                                               |                                                        |                                                          |           |            |           |            |         |               |           |              |          |              |        |  |            |          |           |  |         |           |         |   |           |           
|                                               |                                                        | Total liabilities and shareholders
    (deficit) equity |           | $          | 1,775,070 |            |         | $             | 1,208,264 |              |          | $            | 33,474 |  |            | $        | 1,018,171 |  |         | $         | 391,208 |   |           | $          | 4,426,187 | 
|                                               |                                                        |                                                          |           |            |           |            |         |               |           |              |          |              |        |  |            |          |           |  |         |           |         |   |           |           

F-60



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

17.     Financial
Information for Subsidiary Issuer and Guarantor and
Non-Guarantor Subsidiaries  (Continued)

LORAL SPACE & COMMUNICATIONS
LTD.

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS


Year ended December 31, 2001


(in thousands)


|                                                                                                                                                                                                                    |                |         |          |            |  |            |         |               |  |              |        |              |  |   |         |           |  |   |         |          |   |   |          |           | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | -------- | ---------- |  | ---------- | ------- | ------------- |  | ------------ | ------ | ------------ |  | - | ------- | --------- |  | - | ------- | -------- | - | - | -------- | --------- | 
|                                                                                                                                                                                                                    |                | Parent  |          | Subsidiary |  | Guarantor  |         | Non-Guarantor |  |              |        |             
|                                                                                                                                                                                                                    |                | Company |          | Issuer     |  | Subsidiary |         | Subsidiaries  |  | Eliminations |        | Consolidated
|                                                                                                                                                                                                                    |                |         |          |            |  |            |         |               |  |              |        |             
|Revenues from satellite sales                                                                                                                                                                                       |                | $       |         |            |  | $          |        |               |  | $            |       |              |  | $ | 621,284 |           |  | $ | (7,404  | )        |   | $ | 613,880  |          
|Revenues from satellite services                                                                                                                                                                                    |                |         |         |            |  |            | 96,623  |               |  |              | 51,461 |              |  |   | 372,919 |           |  |   | (65,308 | )        |   |   | 455,695  |          
|Management fee from parent                                                                                                                                                                                          |                |         |         |            |  |            |        |               |  |              |       |              |  |   | 36,730  |           |  |   | (36,730 | )        |   |   |         |          
|                                                                                                                                                                                                                    |                |         |          |            |  |            |         |               |  |              |        |              |  |   |         |           |  |   |         |          |   |   |          |          
|                                                                                                                                                                                                                    | Total revenues |         |          |           |  |            |         | 96,623        |  |              |        | 51,461       |  |   |         | 1,030,933 |  |   |         | (109,442 | ) |   |          | 1,069,575 | 
|Costs of satellite sales                                                                                                                                                                                            |                |         |         |            |  |            |        |               |  |              |       |              |  |   | 586,147 |           |  |   | (5,624  | )        |   |   | 580,523  |          
|Costs of satellite services                                                                                                                                                                                         |                |         |         |            |  |            | 119,917 |               |  |              | 26,407 |              |  |   | 203,097 |           |  |   | (58,551 | )        |   |   | 290,870  |          
|Selling, general and administrative expenses                                                                                                                                                                        |                |         | 1,243    |            |  |            | 10,796  |               |  |              |       |              |  |   | 192,551 |           |  |   | (1,180  | )        |   |   | 203,410  |          
|Management fee expense                                                                                                                                                                                              |                |         | 36,730   |            |  |            |        |               |  |              |       |              |  |   |        |           |  |   | (36,730 | )        |   |   |         |          
|                                                                                                                                                                                                                    |                |         |          |            |  |            |         |               |  |              |        |              |  |   |         |           |  |   |         |          |   |   |          |          
|Operating income (loss)                                                                                                                                                                                             |                |         | (37,973  | )          |  |            | (34,090 | )             |  |              | 25,054 |              |  |   | 49,138  |           |  |   | (7,357  | )        |   |   | (5,228   | )        
|Interest and investment income                                                                                                                                                                                      |                |         | 23,238   |            |  |            | 644     |               |  |              | 9      |              |  |   | 38,428  |           |  |   | (33,434 | )        |   |   | 28,885   |          
|Interest expense                                                                                                                                                                                                    |                |         | (37,629  | )          |  |            | (98,310 | )             |  |              | (29    | )            |  |   | (84,279 | )         |  |   | 36,316  |          |   |   | (183,931 | )        
|Gain on debt exchanges                                                                                                                                                                                              |                |         |         |            |  |            | 34,541  |               |  |              |       |              |  |   | (600    | )         |  |   |        |          |   |   | 33,941   |          
|(Loss) income before income taxes, equity in net
    losses of unconsolidated affiliates and affiliates, minority
    interest, cumulative effect of change in accounting principle
    and discontinued operations |                |         | (52,364  | )          |  |            | (97,215 | )             |  |              | 25,034 |              |  |   | 2,687   |           |  |   | (4,475  | )        |   |   | (126,333 | )        
|Income tax benefit (provision)                                                                                                                                                                                      |                |         | (6,315   | )          |  |            | (1,744  | )             |  |              | (8,762 | )            |  |   | (19,105 | )         |  |   | 33,756  |          |   |   | (2,170   | )        
|                                                                                                                                                                                                                    |                |         |          |            |  |            |         |               |  |              |        |              |  |   |         |           |  |   |         |          |   |   |          |          
|(Loss) income before equity in net losses of
    unconsolidated affiliates, minority interest, cumulative effect
    of change in accounting principle and discontinued operations                                  |                |         | (58,679  | )          |  |            | (98,959 | )             |  |              | 16,272 |              |  |   | (16,418 | )         |  |   | 29,281  |          |   |   | (128,503 | )        
|Equity in net (losses) income of unconsolidated
    subsidiaries, net of tax benefit                                                                                                                                |                |         | (66,128  | )          |  |            | 11,950  |               |  |              |       |              |  |   |        |           |  |   | 54,178  |          |   |   |         |          
|Equity in net (losses) income of affiliates, net
    of taxes                                                                                                                                                       |                |         | (71,653  | )          |  |            |        |               |  |              |       |              |  |   | 4,976   |           |  |   |        |          |   |   | (66,677  | )        
|Minority interest, net of taxes                                                                                                                                                                                     |                |         |         |            |  |            |        |               |  |              |       |              |  |   | 461     |           |  |   |        |          |   |   | 461      |          
|                                                                                                                                                                                                                    |                |         |          |            |  |            |         |               |  |              |        |              |  |   |         |           |  |   |         |          |   |   |          |          
|(Loss) income before cumulative effect of change
    in accounting principle and discontinued operations                                                                                                            |                |         | (196,460 | )          |  |            | (87,009 | )             |  |              | 16,272 |              |  |   | (10,981 | )         |  |   | 83,459  |          |   |   | (194,719 | )        
|Cumulative effect of change in accounting
    principle                                                                                                                                                             |                |         |         |            |  |            |        |               |  |              |       |              |  |   | (1,741  | )         |  |   |        |          |   |   | (1,741   | )        
|Loss from operations of discontinued operations,
    net                                                                                                                                                            |                |         |         |            |  |            | (7,765  | )             |  |              |       |              |  |   |        |           |  |   | 7,765   |          |   |   |         |          
|                                                                                                                                                                                                                    |                |         |          |            |  |            |         |               |  |              |        |              |  |   |         |           |  |   |         |          |   |   |          |          
|Net loss applicable to common shareholders                                                                                                                                                                          |                | $       | (196,460 | )          |  | $          | (94,774 | )             |  | $            | 16,272 |              |  | $ | (12,722 | )         |  | $ | 91,224  |          |   | $ | (196,460 | )        
|                                                                                                                                                                                                                    |                |         |          |            |  |            |         |               |  |              |        |              |  |   |         |           |  |   |         |          |   |   |          |          

F-61



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

17.     Financial
Information for Subsidiary Issuer and Guarantor and
Non-Guarantor Subsidiaries  (Continued)

LORAL SPACE & COMMUNICATIONS
LTD.

CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS


For the year ended December 31,
2001


(in thousands)


|                                                                 |                                                              |                                                                       |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |          |         |  
|---------------------------------------------------------------- | ------------------------------------------------------------ | --------------------------------------------------------------------- | -------- | ---------- | ------ | ---------- | ------- | ------------- | ------- | ------------ | - | ------------ | ------- | - | -------- | -------- | ------- | - | ------ | ------ | ------- | - | -------- | -------- | ------- | -
|                                                                 |                                                              | Parent                                                                |          | Subsidiary |        | Guarantor  |         | Non-Guarantor |         |              |   |             
|                                                                 |                                                              | Company                                                               |          | Issuer     |        | Subsidiary |         | Subsidiaries  |         | Eliminations |   | Consolidated
|                                                                 |                                                              |                                                                       |          |            |        |            |         |               |         |              |   |             
|Operating activities:                                            |                                                              |                                                                       |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         
|                                                                 | Net (loss) income                                            |                                                                       | $        | (196,460   | )      |            | $       | (87,009       | )       |              | $ | 16,272       |         |   | $        | (12,722  | )       |   | $      | 83,459 |         |   | $        | (196,460 | )      
|                                                                 | Non-cash items:                                              |                                                                       |          |            |        |            |         |               |         |              |   |              |         |   |          |         |         |   |        |       |         |   |          |         |        
|                                                                 |                                                              | Equity in net losses of affiliates, net of taxes                      |          |            | 71,653 |            |         |               |        |              |   |              |        |   |          |          | (4,976  | ) |        |        |        |   |          |          | 66,677  |  
|                                                                 |                                                              | Equity in net losses of unconsolidated
    subsidiaries, net of taxes |          |            | 66,128 |            |         |               | (11,950 | )            |   |              |        |   |          |          |        |   |        |        | (54,178 | ) |          |          |        |  
|                                                                 |                                                              | Minority interest, net of taxes                                       |          |            |       |            |         |               |        |              |   |              |        |   |          |          | (461    | ) |        |        |        |   |          |          | (461    | )
|                                                                 |                                                              | Cumulative effect of change in accounting
    principle, net of taxes |          |            |       |            |         |               |        |              |   |              |        |   |          |          | 1,741   |   |        |        |        |   |          |          | 1,741   |  
|                                                                 |                                                              | Deferred taxes                                                        |          |            | 5,905  |            |         |               | 12,852  |              |   |              | 6,517   |   |          |          | 21,838  |   |        |        | (47,994 | ) |          |          | (882    | )
|                                                                 |                                                              | Depreciation and amortization                                         |          |            |       |            |         |               | 72,992  |              |   |              | 21,013  |   |          |          | 133,774 |   |        |        |        |   |          |          | 227,779 |  
|                                                                 |                                                              | Provision for inventory obsolescence                                  |          |            |       |            |         |               |        |              |   |              |        |   |          |          | 5,929   |   |        |        |        |   |          |          | 5,929   |  
|                                                                 |                                                              | Provision for bad debt                                                |          |            |       |            |         |               | 3,460   |              |   |              |        |   |          |          | (100    | ) |        |        |        |   |          |          | 3,360   |  
|                                                                 |                                                              | Gain on debt exchanges                                                |          |            |       |            |         |               | (34,541 | )            |   |              |        |   |          |          | 600     |   |        |        |        |   |          |          | (33,941 | )
|                                                                 |                                                              | Non-cash interest expense                                             |          |            |       |            |         |               | 39,609  |              |   |              |        |   |          |          |        |   |        |        |        |   |          |          | 39,609  |  
|                                                                 | Changes in operating assets and liabilities:                 |                                                                       |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |          |        
|                                                                 |                                                              | Accounts receivable, net                                              |          |            |       |            |         |               | (4,676  | )            |   |              | 1,205   |   |          |          | 17,159  |   |        |        |        |   |          |          | 13,688  |  
|                                                                 |                                                              | Contracts-in-process                                                  |          |            |       |            |         |               |        |              |   |              |        |   |          |          | 15,518  |   |        |        |        |   |          |          | 15,518  |  
|                                                                 |                                                              | Inventories                                                           |          |            |       |            |         |               |        |              |   |              |        |   |          |          | 16,500  |   |        |        |        |   |          |          | 16,500  |  
|                                                                 |                                                              | Other current assets                                                  |          |            |       |            |         |               | (2,083  | )            |   |              | (2,756  | ) |          |          | 11,554  |   |        |        |        |   |          |          | 6,715   |  
|                                                                 |                                                              | Long-term receivables                                                 |          |            |       |            |         |               |        |              |   |              |        |   |          |          | (51,401 | ) |        |        |        |   |          |          | (51,401 | )
|                                                                 |                                                              | Deposits                                                              |          |            |       |            |         |               | 863     |              |   |              | (863    | ) |          |          | 9,300   |   |        |        |        |   |          |          | 9,300   |  
|                                                                 |                                                              | Due to (from) unconsolidated subsidiaries                             |          |            | 6,075  |            |         |               | 58,281  |              |   |              | (38,795 | ) |          |          | (43,834 | ) |        |        | 18,273  |   |          |          |        |  
|                                                                 |                                                              | Investments in unconsolidated affiliates                              |          |            |       |            |         |               |        |              |   |              |        |   |          |          |        |   |        |        |        |   |          |          |        |  
|                                                                 |                                                              | Other assets                                                          |          |            |       |            |         |               | (2,889  | )            |   |              | (329    | ) |          |          | 14,955  |   |        |        |        |   |          |          | 11,737  |  
|                                                                 |                                                              | Accounts payable                                                      |          |            | 96     |            |         |               | (8,011  | )            |   |              |        |   |          |          | (4,341  | ) |        |        |        |   |          |          | (12,256 | )
|                                                                 |                                                              | Accrued expenses and other current liabilities                        |          |            | (2,538 | )          |         |               | 2,166   |              |   |              | (2,166  | ) |          |          | (28,127 | ) |        |        |        |   |          |          | (30,665 | )
|                                                                 |                                                              | Customer advances                                                     |          |            |       |            |         |               | (724    | )            |   |              | (98     | ) |          |          | 78,946  |   |        |        |        |   |          |          | 78,124  |  
|                                                                 |                                                              | Income taxes payable                                                  |          |            | 402    |            |         |               |        |              |   |              |        |   |          |          | (1,140  | ) |        |        | 3,225   |   |          |          | 2,487   |  
|                                                                 |                                                              | Pension and other postretirement liabilities                          |          |            |       |            |         |               |        |              |   |              |        |   |          |          | 3,214   |   |        |        |        |   |          |          | 3,214   |  
|                                                                 |                                                              | Long-term liabilities                                                 |          |            |       |            |         |               | 7,861   |              |   |              |        |   |          |          | (13,187 | ) |        |        |        |   |          |          | (5,326  | )
|                                                                 |                                                              | Other                                                                 |          |            | 918    |            |         |               |        |              |   |              |        |   |          |          | (1,423  | ) |        |        |        |   |          |          | (505    | )
|                                                                 |                                                              |                                                                       |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         
|Net cash provided by (used in) operating
    activities          |                                                              |                                                                       | (47,821  | )          |        |            | 46,201  |               |         |              |  |              |         |   | 169,316  |          |         |   | 2,785  |        |         |   | 170,481  |         
|                                                                 |                                                              |                                                                       |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         
|Net cash provided by net assets from discontinued
    operations |                                                              |                                                                       |         |            |        |            | 2,236   |               |         |              |  |              |         |   |         |          |         |   | (2,236 | )      |         |   |         |         
|                                                                 |                                                              |                                                                       |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         
|Investing activities:                                            |                                                              |                                                                       |         |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         
|                                                                 | Capital expenditures                                         |                                                                       |          |           |        |            |         | (579          | )       |              |   |             |         |   |          | (237,245 | )       |   |        | (549   | )       |   |          | (238,373 | )      
|                                                                 | Investments in and advances to affiliates                    |                                                                       |          | (19,668    | )      |            |         |              |         |              |   |             |         |   |          | (8,024   | )       |   |        |       |         |   |          | (27,692  | )      
|                                                                 | Investments in and advances to unconsolidated
    affiliates |                                                                       |          | (2,102     | )      |            |         |              |         |              |   |             |         |   |          | 2,102    |         |   |        |       |         |   |          |         |        
|                                                                 | Proceeds from the sale leaseback of assets, net              |                                                                       |          |           |        |            |         |              |         |              |   |             |         |   |          | 17,393   |         |   |        |       |         |   |          | 17,393   |        
|                                                                 |                                                              |                                                                       |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         
|Net cash used in investing activities                            |                                                              |                                                                       | (21,770  | )          |        |            | (579    | )             |         |              |  |              |         |   | (225,774 | )        |         |   | (549   | )      |         |   | (248,672 | )       
|                                                                 |                                                              |                                                                       |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         
|Financing activities:                                            |                                                              |                                                                       |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         
|                                                                 | Borrowings under revolving credit facilities                 |                                                                       |          |           |        |            |         |              |         |              |   |             |         |   |          | 115,000  |         |   |        |       |         |   |          | 115,000  |        
|                                                                 | Repayments under term loans                                  |                                                                       |          |           |        |            |         |              |         |              |   |             |         |   |          | (81,000  | )       |   |        |       |         |   |          | (81,000  | )      
|                                                                 | Repayments under revolving credit facilities                 |                                                                       |          |           |        |            |         |              |         |              |   |             |         |   |          | (134,000 | )       |   |        |       |         |   |          | (134,000 | )      
|                                                                 | Repayments of export-import facility                         |                                                                       |          |           |        |            |         |              |         |              |   |             |         |   |          | (2,145   | )       |   |        |       |         |   |          | (2,145   | )      
|                                                                 | Repayments of other long-term obligations                    |                                                                       |          |           |        |            |         | (2,995        | )       |              |   |             |         |   |          | (165     | )       |   |        |       |         |   |          | (3,160   | )      
|                                                                 | Preferred dividends                                          |                                                                       |          | (52,218    | )      |            |         |              |         |              |   |             |         |   |          |         |         |   |        |       |         |   |          | (52,218  | )      
|                                                                 | Proceeds from other stock issuances                          |                                                                       |          | 16,472     |        |            |         |              |         |              |   |             |         |   |          | 59       |         |   |        |       |         |   |          | 16,531   |        
|                                                                 | Payment of debt refinancing costs                            |                                                                       |          |           |        |            |         |              |         |              |   |             |         |   |          | (14,913  | )       |   |        |       |         |   |          | (14,913  | )      
|                                                                 | Equity contribution from parent                              |                                                                       |          |           |        |            |         | 2,700         |         |              |   |             |         |   |          | (2,700   | )       |   |        |       |         |   |          |         |        
|                                                                 | Repayment of note due to Loral SpaceCom                      |                                                                       |          |           |        |            |         | (28,166       | )       |              |   |             |         |   |          | 28,166   |         |   |        |       |         |   |          |         |        
|                                                                 |                                                              |                                                                       |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         
|Net cash (used in) provided by financing
    activities          |                                                              |                                                                       | (35,746  | )          |        |            | (28,461 | )             |         |              |  |              |         |   | (91,698  | )        |         |   |       |        |         |   | (155,905 | )       
|                                                                 |                                                              |                                                                       |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         
|Increase (decrease) in cash and cash
    equivalents             |                                                              |                                                                       | (105,337 | )          |        |            | 19,397  |               |         |              |  |              |         |   | (148,156 | )        |         |   |       |        |         |   | (234,096 | )       
|Cash and cash equivalentsbeginning of period                    |                                                              |                                                                       | 151,405  |            |        |            | 2       |               |         |              |  |              |         |   | 242,638  |          |         |   |       |        |         |   | 394,045  |         
|                                                                 |                                                              |                                                                       |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         
|Cash and cash equivalentsend of period                          |                                                              | $                                                                     | 46,068   |            |        | $          | 19,399  |               |         | $            |  |              |         | $ | 94,482   |          |         | $ |       |        |         | $ | 159,949  |         
|                                                                 |                                                              |                                                                       |          |            |        |            |         |               |         |              |   |              |         |   |          |          |         |   |        |        |         |   |          |         

F-62



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

17.     Financial
Information for Subsidiary Issuer and Guarantor and
Non-Guarantor Subsidiaries  (Continued)

LORAL SPACE & COMMUNICATIONS
LTD.

CONDENSED CONSOLIDATING STATEMENT OF
OPERATIONS

Year ended December 31, 2000


(in thousands)


|                                                                                                                                                                                                        |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |         |          |   |   |            |           | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | ---------- | ---------- |  | ---------- | -------- | ------------- |  | ------------ | ------ | ------------ |  | - | -------- | --------- |  | - | ------- | -------- | - | - | ---------- | --------- | 
|                                                                                                                                                                                                        |                | Parent  |            | Subsidiary |  | Guarantor  |          | Non-Guarantor |  |              |        |             
|                                                                                                                                                                                                        |                | Company |            | Issuer     |  | Subsidiary |          | Subsidiaries  |  | Eliminations |        | Consolidated
|                                                                                                                                                                                                        |                |         |            |            |  |            |          |               |  |              |        |             
|Revenues from satellite sales                                                                                                                                                                           |                | $       |           |            |  | $          |         |               |  | $            |       |              |  | $ | 812,312  |           |  | $ | (2,497  | )        |   | $ | 809,815    |          
|Revenues from satellite services                                                                                                                                                                        |                |         |           |            |  |            | 66,609   |               |  |              | 42,084 |              |  |   | 361,446  |           |  |   | (55,843 | )        |   |   | 414,296    |          
|Management fee from parent                                                                                                                                                                              |                |         |           |            |  |            |         |               |  |              |       |              |  |   | 64,601   |           |  |   | (64,601 | )        |   |   |           |          
|                                                                                                                                                                                                        |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |         |          |   |   |            |          
|                                                                                                                                                                                                        | Total revenues |         |            |           |  |            |          | 66,609        |  |              |        | 42,084       |  |   |          | 1,238,359 |  |   |         | (122,941 | ) |   |            | 1,224,111 | 
|Costs of satellite sales                                                                                                                                                                                |                |         |           |            |  |            |         |               |  |              |       |              |  |   | 761,440  |           |  |   | (5,957  | )        |   |   | 755,483    |          
|Costs of satellite services                                                                                                                                                                             |                |         |           |            |  |            | 103,961  |               |  |              | 25,989 |              |  |   | 223,185  |           |  |   | (51,413 | )        |   |   | 301,722    |          
|Selling, general and administrative expenses                                                                                                                                                            |                |         | 1,197      |            |  |            | 12,437   |               |  |              | 390    |              |  |   | 240,019  |           |  |   | (1,051  | )        |   |   | 252,992    |          
|Management fee expense                                                                                                                                                                                  |                |         | 64,601     |            |  |            |         |               |  |              |       |              |  |   |         |           |  |   | (64,601 | )        |   |   |           |          
|                                                                                                                                                                                                        |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |         |          |   |   |            |          
|Operating income (loss)                                                                                                                                                                                 |                |         | (65,798    | )          |  |            | (49,789  | )             |  |              | 15,705 |              |  |   | 13,715   |           |  |   | 81      |          |   |   | (86,086    | )        
|Interest and investment income                                                                                                                                                                          |                |         | 74,977     |            |  |            | 2,961    |               |  |              | 80     |              |  |   | 77,652   |           |  |   | (26,433 | )        |   |   | 129,237    |          
|Interest expense                                                                                                                                                                                        |                |         | (29,435    | )          |  |            | (97,155  | )             |  |              | (9     | )            |  |   | (73,675  | )         |  |   | 29,438  |          |   |   | (170,836   | )        
|Gain on investments, net                                                                                                                                                                                |                |         | 69,706     |            |  |            |         |               |  |              |       |              |  |   | 1,136    |           |  |   |        |          |   |   | 70,842     |          
|                                                                                                                                                                                                        |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |         |          |   |   |            |          
|(Loss) income before income taxes, equity in net
    losses of unconsolidated affiliates and subsidiaries, minority
    interest, Globalstar related impairment charges and discontinued
    operations |                |         | 49,450     |            |  |            | (143,983 | )             |  |              | 15,776 |              |  |   | 18,828   |           |  |   | 3,086   |          |   |   | (56,843    | )        
|Income tax benefit (provision)                                                                                                                                                                          |                |         | (15,949    | )          |  |            | 4,250    |               |  |              | (5,524 | )            |  |   | (33,976  | )         |  |   | 41,824  |          |   |   | (9,375     | )        
|                                                                                                                                                                                                        |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |         |          |   |   |            |          
|(Loss) income before equity in net losses of
    unconsolidated affiliates and subsidiaries, minority interest,
    Globalstar related impairment charges and discontinued operations                   |                |         | 33,501     |            |  |            | (139,733 | )             |  |              | 10,252 |              |  |   | (15,148  | )         |  |   | 44,910  |          |   |   | (66,218    | )        
|Equity in net losses of unconsolidated
    subsidiaries, net of tax benefit                                                                                                                             |                |         | (700,187   | )          |  |            | 3,970    |               |  |              |       |              |  |   |         |           |  |   | 696,217 |          |   |   |           |          
|Equity in net losses of affiliates, net of taxes                                                                                                                                                        |                |         | (723,763   | )          |  |            |         |               |  |              |       |              |  |   | (571,147 | )         |  |   |        |          |   |   | (1,294,910 | )        
|Minority interest, net of taxes                                                                                                                                                                         |                |         |           |            |  |            |         |               |  |              |       |              |  |   | 3,691    |           |  |   |        |          |   |   | 3,691      |          
|Globalstar related impairment charges, net of tax
    benefit                                                                                                                                           |                |         | (79,229    | )          |  |            |         |               |  |              |       |              |  |   | (33,012  | )         |  |   |        |          |   |   | (112,241   | )        
|                                                                                                                                                                                                        |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |         |          |   |   |            |          
|Net (loss) income before discontinued operations                                                                                                                                                        |                |         | (1,469,678 | )          |  |            | (135,763 | )             |  |              | 10,252 |              |  |   | (615,616 | )         |  |   | 741,127 |          |   |   | (1,469,678 | )        
|Loss from operations of discontinued operations,
    net                                                                                                                                                |                |         |           |            |  |            | (2,019   | )             |  |              |       |              |  |   |         |           |  |   | 2,019   |          |   |   |           |          
|                                                                                                                                                                                                        |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |         |          |   |   |            |          
|Net (loss) income applicable to common
    shareholders                                                                                                                                                 |                | $       | (1,469,678 | )          |  | $          | (137,782 | )             |  | $            | 10,252 |              |  | $ | (615,616 | )         |  | $ | 743,146 |          |   | $ | (1,469,678 | )        
|                                                                                                                                                                                                        |                |         |            |            |  |            |          |               |  |              |        |              |  |   |          |           |  |   |         |          |   |   |            |          

F-63



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------
|17. | Financial Information for Subsidiary Issuer
    and Guarantor and Non-Guarantor Subsidiaries 
    (Continued)

LORAL SPACE & COMMUNICATIONS
LTD.

CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

For the year ended December 31,
2000


(in thousands)


|                                                           |                                                                    |                                                                       |          |            |         |            |          |              |         |              |          |              |          |   |          |          |         |   |         |         |          |   |          |            |           |  
|---------------------------------------------------------- | ------------------------------------------------------------------ | --------------------------------------------------------------------- | -------- | ---------- | ------- | ---------- | -------- | ------------ | ------- | ------------ | -------- | ------------ | -------- | - | -------- | -------- | ------- | - | ------- | ------- | -------- | - | -------- | ---------- | --------- | -
|                                                           |                                                                    |                                                                       |          |            |         |            |          | Non-         |         |              |          |             
|                                                           |                                                                    | Parent                                                                |          | Subsidiary |         | Guarantor  |          | Guarantor    |         |              |          |             
|                                                           |                                                                    | Company                                                               |          | Issuer     |         | Subsidiary |          | Subsidiaries |         | Eliminations |          | Consolidated
|                                                           |                                                                    |                                                                       |          |            |         |            |          |              |         |              |          |             
|Operating activities:                                      |                                                                    |                                                                       |          |            |         |            |          |              |         |              |          |              |          |   |          |          |         |   |         |         |          |   |          |           
|                                                           | Net (loss) income                                                  |                                                                       | $        | (1,469,678 | )       |            | $        | (135,763     | )       |              | $        | 10,252       |          |   | $        | (615,616 | )       |   | $       | 741,127 |          |   | $        | (1,469,678 | )        
|                                                           | Non-cash items:                                                    |                                                                       |          |            |         |            |          |              |         |              |          |              |          |   |          |          |         |   |         |         |          |   |          |            |          
|                                                           |                                                                    | Equity in net losses of affiliates, net of taxes                      |          |            | 723,763 |            |          |              |        |              |          |              |         |   |          |          | 571,147 |   |         |         |         |   |          |            | 1,294,910 |  
|                                                           |                                                                    | Equity in net losses of unconsolidated
    subsidiaries, net of taxes |          |            | 700,187 |            |          |              | (3,970  | )            |          |              |         |   |          |          |        |   |         |         | (696,217 | ) |          |            |          |  
|                                                           |                                                                    | Minority interest, net of taxes                                       |          |            |        |            |          |              |        |              |          |              |         |   |          |          | (3,691  | ) |         |         |         |   |          |            | (3,691    | )
|                                                           |                                                                    | Deferred taxes                                                        |          |            | 13,604  |            |          |              | 4,241   |              |          |              | 364      |   |          |          | 27,572  |   |         |         | (50,255  | ) |          |            | (4,474    | )
|                                                           |                                                                    | Depreciation and amortization                                         |          |            |        |            |          |              | 68,963  |              |          |              | 21,013   |   |          |          | 126,287 |   |         |         |         |   |          |            | 216,263   |  
|                                                           |                                                                    | Provision for inventory obsolescence                                  |          |            |        |            |          |              |        |              |          |              |         |   |          |          | 4,918   |   |         |         |         |   |          |            | 4,918     |  
|                                                           |                                                                    | Provision for bad debt                                                |          |            |        |            |          |              | 1,070   |              |          |              |         |   |          |          | 10,474  |   |         |         |         |   |          |            | 11,544    |  
|                                                           |                                                                    | Gain on investments, net                                              |          |            | (70,842 | )          |          |              |        |              |          |              |         |   |          |          |        |   |         |         |         |   |          |            | (70,842   | )
|                                                           |                                                                    | Non-cash interest expense                                             |          |            |        |            |          |              | 37,074  |              |          |              |         |   |          |          |        |   |         |         |         |   |          |            | 37,074    |  
|                                                           |                                                                    | Globalstar related impairment charges, net of
    taxes               |          |            | 79,229  |            |          |              |        |              |          |              |         |   |          |          | 33,012  |   |         |         |         |   |          |            | 112,241   |  
|                                                           |                                                                    | Non-cash interest and investment income                               |          |            | (25,821 | )          |          |              | (3,518  | )            |          |              |         |   |          |          | (11,343 | ) |         |         |         |   |          |            | (40,682   | )
|                                                           |                                                                    | Satellite purchase price payable                                      |          |            |        |            |          |              | 180,755 |              |          |              | (180,755 | ) |          |          |        |   |         |         |         |   |          |            |          |  
|Changes in operating assets and liabilities:               |                                                                    |                                                                       |          |            |         |            |          |              |         |              |          |              |          |   |          |          |         |   |         |         |          |   |          |           
|                                                           | Accounts receivable, net                                           |                                                                       |          |           |         |            |          | (5,403       | )       |              |          | (29          | )        |   |          | (14,560  | )       |   |         |        |          |   |          | (19,992    | )        
|                                                           | Contracts-in-process                                               |                                                                       |          |           |         |            |          |             |         |              |          |             |          |   |          | 185,249  |         |   |         |        |          |   |          | 185,249    |          
|                                                           | Inventories                                                        |                                                                       |          |           |         |            |          |             |         |              |          |             |          |   |          | 25,990   |         |   |         |        |          |   |          | 25,990     |          
|                                                           | Other current assets                                               |                                                                       |          |           |         |            |          | 2,344        |         |              |          | 491          |          |   |          | (7,968   | )       |   |         |        |          |   |          | (5,133     | )        
|                                                           | Long-term receivables                                              |                                                                       |          |           |         |            |          |             |         |              |          |             |          |   |          | 10,335   |         |   |         |        |          |   |          | 10,335     |          
|                                                           | Deposits                                                           |                                                                       |          |           |         |            |          | (110         | )       |              |          | 110          |          |   |          | 34,085   |         |   |         |        |          |   |          | 34,085     |          
|                                                           | Due to (from) unconsolidated subsidiaries                          |                                                                       |          | 11,850     |         |            |          | 9,571        |         |              |          | (36,629      | )        |   |          | 97,884   |         |   |         | (82,676 | )        |   |          |           |          
|                                                           | Other assets                                                       |                                                                       |          |           |         |            |          | 1,467        |         |              |          | (405         | )        |   |          | (10,309  | )       |   |         |        |          |   |          | (9,247     | )        
|                                                           | Accounts payable                                                   |                                                                       |          | (699       | )       |            |          | 2,786        |         |              |          |             |          |   |          | (78,769  | )       |   |         |        |          |   |          | (76,682    | )        
|                                                           | Accrued expenses and other current liabilities                     |                                                                       |          | 2,294      |         |            |          | (1,885       | )       |              |          | 1,885        |          |   |          | 383      |         |   |         |        |          |   |          | 2,677      |          
|                                                           | Customer advances                                                  |                                                                       |          |           |         |            |          | 2,127        |         |              |          | (907         | )        |   |          | 1,921    |         |   |         |        |          |   |          | 3,141      |          
|                                                           | Income taxes payable                                               |                                                                       |          | 2,518      |         |            |          |             |         |              |          |             |          |   |          | 9,034    |         |   |         | (60     | )        |   |          | 11,492     |          
|                                                           | Pension and other postretirement liabilities                       |                                                                       |          |           |         |            |          |             |         |              |          |             |          |   |          | 18       |         |   |         |        |          |   |          | 18         |          
|                                                           | Long-term liabilities                                              |                                                                       |          |           |         |            |          | 1,265        |         |              |          |             |          |   |          | 9,338    |         |   |         |        |          |   |          | 10,603     |          
|                                                           | Other                                                              |                                                                       |          | 4,794      |         |            |          |             |         |              |          |             |          |   |          | (5,817   | )       |   |         |        |          |   |          | (1,023     | )        
|                                                           |                                                                    |                                                                       |          |            |         |            |          |              |         |              |          |              |          |   |          |          |         |   |         |         |          |   |          |           
|Net cash provided by (used in) operating
    activities    |                                                                    |                                                                       | (28,801  | )          |         |            | 161,014  |              |         |              | (184,610 | )            |          |   | 399,574  |          |         |   | (88,081 | )       |          |   | 259,096  |           
|                                                           |                                                                    |                                                                       |          |            |         |            |          |              |         |              |          |              |          |   |          |          |         |   |         |         |          |   |          |           
|Net cash used in net assets of discontinued
    operations |                                                                    |                                                                       |         |            |         |            | (68,114  | )            |         |              |         |              |          |   | (1,804   | )        |         |   | 69,918  |         |          |   |         |           
|                                                           |                                                                    |                                                                       |          |            |         |            |          |              |         |              |          |              |          |   |          |          |         |   |         |         |          |   |          |           
|Investing activities:                                      |                                                                    |                                                                       |          |            |         |            |          |              |         |              |          |              |          |   |          |          |         |   |         |         |          |   |          |           
|                                                           | Capital expenditures                                               |                                                                       |          |           |         |            |          | (182,095     | )       |              |          |             |          |   |          | (260,267 | )       |   |         | 18,163  |          |   |          | (424,199   | )        
|                                                           | Investments in and advances to affiliates                          |                                                                       |          | (181,430   | )       |            |          |             |         |              |          |             |          |   |          | 11,347   |         |   |         |        |          |   |          | (170,083   | )        
|                                                           | Investments in and advances to unconsolidated
    affiliates       |                                                                       |          | (187,252   | )       |            |          |             |         |              |          |             |          |   |          | 187,252  |         |   |         |        |          |   |          |           |          
|                                                           | Increase in restricted and segregated assets                       |                                                                       |          |           |         |            |          | (64          | )       |              |          |             |          |   |          | 64       |         |   |         |        |          |   |          |           |          
|                                                           | Proceeds from the sales of investments                             |                                                                       |          | 97,137     |         |            |          |             |         |              |          |             |          |   |          |         |         |   |         |        |          |   |          | 97,137     |          
|                                                           | Purchase of Globalstar loans                                       |                                                                       |          |           |         |            |          |             |         |              |          |             |          |   |          | (67,950  | )       |   |         |        |          |   |          | (67,950    | )        
|                                                           | Use and transfer of restricted and segregated cash                 |                                                                       |          |           |         |            |          | 190,898      |         |              |          |             |          |   |          | (3,583   | )       |   |         |        |          |   |          | 187,315    |          
|                                                           |                                                                    |                                                                       |          |            |         |            |          |              |         |              |          |              |          |   |          |          |         |   |         |         |          |   |          |           
|Net cash used in investing activities                      |                                                                    |                                                                       | (271,545 | )          |         |            | 8,739    |              |         |              |         |              |          |   | (133,137 | )        |         |   | 18,163  |         |          |   | (377,780 | )         
|                                                           |                                                                    |                                                                       |          |            |         |            |          |              |         |              |          |              |          |   |          |          |         |   |         |         |          |   |          |           
|Financing activities:                                      |                                                                    |                                                                       |          |            |         |            |          |              |         |              |          |              |          |   |          |          |         |   |         |         |          |   |          |           
|                                                           | Borrowings under revolving credit facilities                       |                                                                       |          |           |         |            |          |             |         |              |          |             |          |   |          | 55,762   |         |   |         |        |          |   |          | 55,762     |          
|                                                           | Repayments under term loans                                        |                                                                       |          |           |         |            |          |             |         |              |          |             |          |   |          | (81,250  | )       |   |         |        |          |   |          | (81,250    | )        
|                                                           | Repayments under revolving credit facilities                       |                                                                       |          |           |         |            |          |             |         |              |          |             |          |   |          | (50,000  | )       |   |         |        |          |   |          | (50,000    | )        
|                                                           | Repayments of export-import facility                               |                                                                       |          |           |         |            |          |             |         |              |          |             |          |   |          | (2,146   | )       |   |         |        |          |   |          | (2,146     | )        
|                                                           | Repayments of other long-term obligations                          |                                                                       |          |           |         |            |          | (1,678       | )       |              |          |             |          |   |          | (239     | )       |   |         |        |          |   |          | (1,917     | )        
|                                                           | Preferred dividends                                                |                                                                       |          | (61,646    | )       |            |          |             |         |              |          |             |          |   |          |         |         |   |         |        |          |   |          | (61,646    | )        
|                                                           | Proceeds from other stock issuances                                |                                                                       |          | 25,982     |         |            |          |             |         |              |          |             |          |   |          | (125     | )       |   |         |        |          |   |          | 25,857     |          
|                                                           | Proceeds from the issuance of 6% Series D
    preferred stock, net |                                                                       |          | 388,204    |         |            |          |             |         |              |          |             |          |   |          |         |         |   |         |        |          |   |          | 388,204    |          
|                                                           | Proceeds from sale of orbital slots to parent, net                 |                                                                       |          |           |         |            |          | 34,260       |         |              |          |             |          |   |          | (34,260  | )       |   |         |        |          |   |          |           |          
|                                                           | Equity contribution from parent                                    |                                                                       |          |           |         |            |          | 10,750       |         |              |          |             |          |   |          | (10,750  | )       |   |         |        |          |   |          |           |          
|                                                           | Increase in note payable to SpaceCom                               |                                                                       |          |           |         |            |          | 35,752       |         |              |          |             |          |   |          | (35,752  | )       |   |         |        |          |   |          |           |          
|                                                           | Capital contribution from Loral CyberStar                          |                                                                       |          |           |         |            |          | (180,755     | )       |              |          | 180,755      |          |   |          |         |         |   |         |        |          |   |          |           |          
|                                                           |                                                                    |                                                                       |          |            |         |            |          |              |         |              |          |              |          |   |          |          |         |   |         |         |          |   |          |           
|Net cash (used in) provided by financing
    activities    |                                                                    |                                                                       | 352,540  |            |         |            | (101,671 | )            |         |              | 180,755  |              |          |   | (158,760 | )        |         |   |        |         |          |   | 272,864  |           
|                                                           |                                                                    |                                                                       |          |            |         |            |          |              |         |              |          |              |          |   |          |          |         |   |         |         |          |   |          |           
|Increase (decrease) in cash and cash equivalents           |                                                                    |                                                                       | 52,194   |            |         |            | (32      | )            |         |              | (3,855   | )            |          |   | 105,873  |          |         |   |        |         |          |   | 154,180  |           
|Cash and cash equivalents  beginning
    of period        |                                                                    |                                                                       | 99,211   |            |         |            | 34       |              |         |              | 3,855    |              |          |   | 136,765  |          |         |   |        |         |          |   | 239,865  |           
|                                                           |                                                                    |                                                                       |          |            |         |            |          |              |         |              |          |              |          |   |          |          |         |   |         |         |          |   |          |           
|Cash and cash equivalents  end of
    period              |                                                                    | $                                                                     | 151,405  |            |         | $          | 2        |              |         | $            |         |              |          | $ | 242,638  |          |         | $ |        |         |          | $ | 394,045  |           
|                                                           |                                                                    |                                                                       |          |            |         |            |          |              |         |              |          |              |          |   |          |          |         |   |         |         |          |   |          |           

F-64



---



##### Table of Contents



LORAL SPACE & COMMUNICATIONS LTD. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                                       
|--- | --------------------------------------------------------------------------------------
|18. | Quarterly Financial Information(Unaudited, in thousands, except per
    share amounts)

|                                                                    |                                                                |               |          |               |  |               |         |              |  |   |         |      |  |   |          |      | 
|------------------------------------------------------------------- | -------------------------------------------------------------- | ------------- | -------- | ------------- |  | ------------- | ------- | ------------ |  | - | ------- | ---- |  | - | -------- | ---- | 
|                                                                    |                                                                |              
|                                                                    |                                                                | Quarter ended
|                                                                    |                                                                |              
|                                                                    |                                                                | March 31,     |          | June 30,      |  | September 30, |         | December 31,
|                                                                    |                                                                |               |          |               |  |               |         |             
|                                                                    |                                                                |               |          | (Restated)(1) |  | (Restated)(1) |         |             
|Year ended December 31, 2002                                        |                                                                |               |          |               |  |               |         |              |  |   |         |      |  |   |          |     
|Revenues                                                            |                                                                | $             | 308,176  |               |  | $             | 316,360 |              |  | $ | 210,982 |      |  | $ | 262,907  |     
|Operating income (loss)                                             |                                                                |               | 14,705   |               |  |               | 8,675   |              |  |   | (15,805 | )    |  |   | (89,604  | )   
|Loss before cumulative effect of change in
    accounting principle |                                                                |               | (19,860  | )             |  |               | (22,569 | )            |  |   | (48,712 | )    |  |   | (487,761 | )   
|Net loss                                                            |                                                                |               | (896,360 | )             |  |               | (22,569 | )            |  |   | (48,712 | )    |  |   | (501,570 | )   
|Preferred dividends                                                 |                                                                |               | (11,963  | )             |  |               | (46,810 | )            |  |   | (8,607  | )    |  |   | (21,806  | )   
|Net loss applicable to common shareholders                          |                                                                |               | (908,323 | )             |  |               | (69,379 | )            |  |   | (57,319 | )    |  |   | (523,376 | )   
|Basic and diluted loss per share(2):                                |                                                                |               |          |               |  |               |         |              |  |   |         |      |  |   |          |     
|                                                                    | Before cumulative effect of change in accounting
    principle |               |          | 0.09          |  |               |         | 0.19         |  |   |         | 0.15 |  |   |          | 1.21 | 
|                                                                    | Cumulative effect of change in accounting
    principle        |               |          | 2.60          |  |               |         |             |  |   |         |     |  |   |          | 0.03 | 
|                                                                    |                                                                |               |          |               |  |               |         |              |  |   |         |      |  |   |          |     
|                                                                    | Loss per share                                                 |               |          | 2.69          |  |               |         | 0.19         |  |   |         | 0.15 |  |   |          | 1.24 | 
|Market price per share                                              |                                                                |               |          |               |  |               |         |              |  |   |         |      |  |   |          |     
|                                                                    | High                                                           |               |          | 3.27          |  |               |         | 2.44         |  |   |         | 1.08 |  |   |          | 0.70 | 
|                                                                    | Low                                                            |               |          | 1.80          |  |               |         | 0.91         |  |   |         | 0.22 |  |   |          | 0.23 | 

|                                                                    |      |               |         |          |  |               |         |              |  |   |         |      |  |  |          |      | 
|------------------------------------------------------------------- | ---- | ------------- | ------- | -------- |  | ------------- | ------- | ------------ |  | - | ------- | ---- |  |  | -------- | ---- | 
|                                                                    |      |              
|                                                                    |      | Quarter ended
|                                                                    |      |              
|                                                                    |      | March 31,     |         | June 30, |  | September 30, |         | December 31,
|                                                                    |      |               |         |          |  |               |         |             
|Year ended December 31, 2001                                        |      |               |         |          |  |               |         |              |  |   |         |      |  |  |          |     
|Revenues                                                            |      | $             | 261,135 |          |  | $             | 274,862 |              |  | $ | 261,063 |      |  |  | $272,515 |     
|Operating income (loss)                                             |      |               | 3,924   |          |  |               | 6,808   |              |  |   | (6,959  | )    |  |  | (9,001   | )   
|Loss before cumulative effect of change in
    accounting principle |      |               | (57,268 | )        |  |               | (54,697 | )            |  |   | (52,288 | )    |  |  | (30,466  | )   
|Net loss                                                            |      |               | (59,009 | )        |  |               | (54,697 | )            |  |   | (52,288 | )    |  |  | (30,466  | )   
|Preferred dividends                                                 |      |               | (16,123 | )        |  |               | (40,694 | )            |  |   | (11,963 | )    |  |  | (11,963  | )   
|Net loss applicable to common shareholders                          |      |               | (75,132 | )        |  |               | (95,391 | )            |  |   | (64,251 | )    |  |  | (42,429  | )   
|Loss per share  basic and
    diluted(2)                           |      |               | 0.25    |          |  |               | 0.29    |              |  |   | 0.19    |      |  |  | 0.13     |     
|Market price per share                                              |      |               |         |          |  |               |         |              |  |   |         |      |  |  |          |     
|                                                                    | High |               |         | 6.34     |  |               |         | 3.55         |  |   |         | 2.90 |  |  |          | 3.10 | 
|                                                                    | Low  |               |         | 2.10     |  |               |         | 1.03         |  |   |         | 1.25 |  |  |          | 1.10 | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The results for the satellite manufacturing and
    technology segment are prepared in accordance with accounting
    principles applicable to government contracts, whereby all costs
    incurred, including general and administrative costs, are
    allocated to programs. Management evaluates this segments
    financial performance on this basis. The required adjustment to
    conform to U.S. generally accepted accounting principles for
    commercial contracts and self constructed assets is reflected in
    consolidation (see Note 16). Subsequent to the filing of
    the Companys September 30, 2002 Form 10-Q, the
    Company determined that it had miscalculated this adjustment in
    its eliminations and has restated its reported results for the
    second and third quarters of 2002 to reflect the correct
    amounts. The following is a summary of the significant effects
    of the restatement (in thousands, except per share amounts):

|                                                                                           |  |                    |         |                    |  |            |         |          |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------ |  | ------------------ | ------- | ------------------ |  | ---------- | ------- | -------- |  | - | ------- | - |  | - | ------- | -
|                                                                                           |  |                    |         |                   
|                                                                                           |  | Three Months Ended |         | Three Months Ended
|                                                                                           |  | June 30, 2002      |         | September 30, 2002
|                                                                                           |  |                    |         |                   
|                                                                                           |  | Previously         |         | As                 |  | Previously |         | As      
|                                                                                           |  | Reported           |         | Restated           |  | Reported   |         | Restated
|                                                                                           |  |                    |         |                    |  |            |         |         
|Operating income (loss)                                                                    |  | $                  | 17,708  |                    |  | $          | 8,675   |          |  | $ | (8,546  | ) |  | $ | (15,805 | )
|Loss before cumulative effect of change in
    accounting principle and net loss           |  |                    | (16,661 | )                  |  |            | (22,569 | )        |  |   | (43,708 | ) |  |   | (48,712 | )
|Net loss applicable to common shareholders                                                 |  |                    | (63,471 | )                  |  |            | (69,379 | )        |  |   | (52,315 | ) |  |   | (57,319 | )
|Loss per share before cumulative effect of change
    in accounting principle and net loss |  |                    | (0.18   | )                  |  |            | (0.19   | )        |  |   | (0.14   | ) |  |   | (0.15   | )



|    |                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The quarterly earnings per share information is
    computed separately for each period. Therefore, the sum of such
    quarterly per share amounts may differ from the total for the
    year.

F-65



---



##### Table of Contents



|    |                                                  
|--- | -------------------------------------------------
|18. | Quarterly Financial Information 
    (Continued)

INDEPENDENT AUDITORS REPORT

To the Partners of Globalstar, L.P. (a
Debtor-in-Possession):

We have audited the accompanying consolidated
balance sheets of Globalstar, L.P. (a limited partnership) and
its subsidiaries (collectively, the Partnership) (a
Debtor-in-Possession) as of December 31, 2002 and 2001 and
the related consolidated statements of operations,
partners capital (deficit) and cash flows for each of
the three years in the period ended December 31, 2002.
These financial statements are the responsibility of the
Partnership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 present fairly, in all material respects, the
financial position of the Partnership at December 31, 2002
and 2001 and the results of its operations and its 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 2 to the consolidated
financial statements, the Partnership has filed for
reorganization under Chapter 11 of the Federal Bankruptcy
Code. The accompanying consolidated financial statements do not
purport to reflect or provide for the consequences of the
bankruptcy proceedings. In particular, such financial statements
do not purport to show (a) as to assets, their realizable
value on a liquidation basis or their availability to satisfy
liabilities; (b) as to pre-petition liabilities, the
amounts that may be allowed for claims or contingencies, or the
status and priority thereof; (c) as to the partnership
interests, the effect of any changes that may be made in the
capitalization of the Partnership; or (d) as to the
operations, the effect of any changes that may be made in its
business.

The accompanying consolidated financial
statements have been prepared assuming that the Partnership will
continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, on February 15, 2002,
the Partnership filed for reorganization under Chapter 11
of the Federal Bankruptcy Code. These factors, among others,
raise substantial doubt about the Partnerships ability to
continue as a going concern. The consolidated financial
statements do not include adjustments that might result from the
outcome of this uncertainty.

DELOITTE & TOUCHE LLP

San Jose, California

February 24, 2003 (March 25, 2003 as to
the fourth and fifth paragraph of Note 2 and Note 20)


S-1



---



##### Table of Contents



GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION

CONSOLIDATED BALANCE SHEETS

(In thousands, except partnership
interests)


|                                                                                                            |                                                                                                                                                                                                                                                                        |                                           |           |            |            |   |         |            |            |  
|----------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | --------- | ---------- | ---------- | - | ------- | ---------- | ---------- | -
|                                                                                                            |                                                                                                                                                                                                                                                                        |                                          
|                                                                                                            |                                                                                                                                                                                                                                                                        | December 31,                             
|                                                                                                            |                                                                                                                                                                                                                                                                        |                                          
|                                                                                                            |                                                                                                                                                                                                                                                                        | 2002                                      |           | 2001      
|                                                                                                            |                                                                                                                                                                                                                                                                        |                                           |           |           
|ASSETS                                                                                                      |                                                                                                                                                                                                                                                                        |                                           |           |            |            |   |         |           
|Current assets:                                                                                             |                                                                                                                                                                                                                                                                        |                                           |           |            |            |   |         |           
|                                                                                                            | Cash and cash equivalents                                                                                                                                                                                                                                              |                                           | $         | 15,284     |            |   | $       | 55,625     |           
|                                                                                                            | Accounts receivable, net of allowance of $2,030
    at December 31, 2002 and $2,158 at December 31, 2001.                                                                                                                                                              |                                           |           | 4,687      |            |   |         | 2,282      |           
|                                                                                                            | Inventory                                                                                                                                                                                                                                                              |                                           |           | 1,294      |            |   |         | 1,090      |           
|                                                                                                            | Prepaid expenses and other current assets                                                                                                                                                                                                                              |                                           |           | 7,899      |            |   |         | 12,971     |           
|                                                                                                            |                                                                                                                                                                                                                                                                        |                                           |           |            |            |   |         |           
|                                                                                                            |                                                                                                                                                                                                                                                                        | Total current assets                      |           |            | 29,164     |   |         |            | 71,968     |  
|                                                                                                            |                                                                                                                                                                                                                                                                        |                                           |           |            |            |   |         |           
|Property and equipment:                                                                                     |                                                                                                                                                                                                                                                                        |                                           |           |            |            |   |         |           
|                                                                                                            | Globalstar System, net                                                                                                                                                                                                                                                 |                                           |           | 198,756    |            |   |         | 229,774    |           
|                                                                                                            | Other property and equipment, net                                                                                                                                                                                                                                      |                                           |           | 2,143      |            |   |         | 2,216      |           
|                                                                                                            |                                                                                                                                                                                                                                                                        |                                           |           |            |            |   |         |           
|                                                                                                            |                                                                                                                                                                                                                                                                        |                                           | 200,899   |            |            |   | 231,990 |           
|                                                                                                            |                                                                                                                                                                                                                                                                        |                                           |           |            |            |   |         |           
|Additional spare satellites                                                                                 |                                                                                                                                                                                                                                                                        |                                           | 24,236    |            |            |   | 23,823  |           
|Production gateways, net of allowance of $18,943
    at December 31, 2002 and $20,212 at December 31, 2001. |                                                                                                                                                                                                                                                                        |                                           | 12,553    |            |            |   | 28,151  |           
|Deferred financing costs                                                                                    |                                                                                                                                                                                                                                                                        |                                           |          |            |            |   | 68,330  |           
|Other assets, net                                                                                           |                                                                                                                                                                                                                                                                        |                                           | 27,522    |            |            |   | 32,129  |           
|                                                                                                            |                                                                                                                                                                                                                                                                        |                                           |           |            |            |   |         |           
|                                                                                                            |                                                                                                                                                                                                                                                                        | Total assets                              |           | $          | 294,374    |   |         | $          | 456,391    |  
|                                                                                                            |                                                                                                                                                                                                                                                                        |                                           |           |            |            |   |         |           
|LIABILITIES AND PARTNERS
    (DEFICIT)                                                                     |                                                                                                                                                                                                                                                                        |                                           |           |            |            |   |         |           
|Current liabilities:                                                                                        |                                                                                                                                                                                                                                                                        |                                           |           |            |            |   |         |           
|                                                                                                            | Term loans payable to affiliates                                                                                                                                                                                                                                       |                                           | $         |           |            |   | $       | 400,000    |           
|                                                                                                            | Revolving credit facility to affiliates                                                                                                                                                                                                                                |                                           |           |           |            |   |         | 100,000    |           
|                                                                                                            | Senior notes payable ($1,450,000 aggregate
    principal amount)                                                                                                                                                                                                       |                                           |           |           |            |   |         | 1,417,942  |           
|                                                                                                            | Accounts payable                                                                                                                                                                                                                                                       |                                           |           | 2,522      |            |   |         | 3,752      |           
|                                                                                                            | Payable to affiliates                                                                                                                                                                                                                                                  |                                           |           | 7,745      |            |   |         | 35,111     |           
|                                                                                                            | Vendor financing liability                                                                                                                                                                                                                                             |                                           |           |           |            |   |         | 814,246    |           
|                                                                                                            | Dividends payable                                                                                                                                                                                                                                                      |                                           |           |           |            |   |         | 29,870     |           
|                                                                                                            | Accrued expenses                                                                                                                                                                                                                                                       |                                           |           | 6,419      |            |   |         | 42,524     |           
|                                                                                                            | Accrued interest                                                                                                                                                                                                                                                       |                                           |           |           |            |   |         | 246,871    |           
|                                                                                                            | Deferred revenue                                                                                                                                                                                                                                                       |                                           |           | 2,365      |            |   |         |           |           
|                                                                                                            |                                                                                                                                                                                                                                                                        |                                           |           |            |            |   |         |           
|                                                                                                            |                                                                                                                                                                                                                                                                        | Total current liabilities                 |           |            | 19,051     |   |         |            | 3,090,316  |  
|                                                                                                            |                                                                                                                                                                                                                                                                        |                                           |           |            |            |   |         |           
|Deferred revenues                                                                                           |                                                                                                                                                                                                                                                                        |                                           |          |            |            |   | 31,359  |           
|Vendor financing liability, net of current portion                                                          |                                                                                                                                                                                                                                                                        |                                           |          |            |            |   | 55,139  |           
|Accrued interest on notes payable                                                                           |                                                                                                                                                                                                                                                                        |                                           |          |            |            |   | 32,320  |           
|Notes payable                                                                                               |                                                                                                                                                                                                                                                                        |                                           |          |            |            |   | 150,000 |           
|Notes payable to affiliates                                                                                 |                                                                                                                                                                                                                                                                        |                                           |          |            |            |   | 95,010  |           
|                                                                                                            |                                                                                                                                                                                                                                                                        |                                           |           |            |            |   |         |           
|                                                                                                            |                                                                                                                                                                                                                                                                        | Total noncurrent liabilities              |           |            |           |   |         |            | 363,828    |  
|                                                                                                            |                                                                                                                                                                                                                                                                        |                                           |           |            |            |   |         |           
|Liabilities subject to compromise                                                                           |                                                                                                                                                                                                                                                                        |                                           | 3,425,921 |            |            |   |        |           
|Commitments and contingencies (Note 10 and 19)                                                              |                                                                                                                                                                                                                                                                        |                                           |           |            |            |   |         |           
|Partners (deficit):                                                                                        |                                                                                                                                                                                                                                                                        |                                           |           |            |            |   |         |           
|                                                                                                            | 8% Series A convertible redeemable preferred
    partnership interests (4,356,295 and 4,358,395 interests
    outstanding at December 31, 2002 and 2001, respectively,
    $218 million redemption value at December 31, 2002 and 2001                                 |                                           |           |           |            |   |         |           |           
|                                                                                                            | 9% Series B convertible redeemable preferred
    partnership interests (389,500 and 1,693,433 interests
    outstanding at December 31, 2002 and 2001, respectively,
    $20 million and $85 million redemption value at
    December 31, 2002 and 2001, respectively) |                                           |           |           |            |   |         |           |           
|                                                                                                            | Ordinary general partnership interests
    (45,910,604 and 45,289,938 interests outstanding at
    December 31, 2002 and 2001, respectively)                                                                                                                           |                                           |           | (3,114,193 | )          |   |         | (2,961,347 | )         
|                                                                                                            | Ordinary limited partnership interests
    (19,937,500 interests outstanding at December 31, 2002 and
    2001)                                                                                                                                                        |                                           |           | (239,740   | )          |   |         | (239,740   | )         
|                                                                                                            | Unearned compensation                                                                                                                                                                                                                                                  |                                           |           |           |            |   |         | (1         | )         
|                                                                                                            | Warrants                                                                                                                                                                                                                                                               |                                           |           | 203,335    |            |   |         | 203,335    |           
|                                                                                                            |                                                                                                                                                                                                                                                                        |                                           |           |            |            |   |         |           
|                                                                                                            |                                                                                                                                                                                                                                                                        | Total partners (deficit)                 |           |            | (3,150,598 | ) |         |            | (2,997,753 | )
|                                                                                                            |                                                                                                                                                                                                                                                                        |                                           |           |            |            |   |         |           
|                                                                                                            |                                                                                                                                                                                                                                                                        | Total liabilities and partners (deficit) |           | $          | 294,374    |   |         | $          | 456,391    |  
|                                                                                                            |                                                                                                                                                                                                                                                                        |                                           |           |            |            |   |         |           

See notes to consolidated financial statements.

S-2



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##### Table of Contents



GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION

CONSOLIDATED STATEMENTS OF
OPERATIONS

(In thousands, except per ordinary partnership
interest amounts)


|                                                                                    |                                       |                          |         |        |         |      |         |         |         |   |           |           |           | 
|----------------------------------------------------------------------------------- | ------------------------------------- | ------------------------ | ------- | ------ | ------- | ---- | ------- | ------- | ------- | - | --------- | --------- | --------- | 
|                                                                                    |                                       |                         
|                                                                                    |                                       | Years ended December 31,
|                                                                                    |                                       |                         
|                                                                                    |                                       | 2002                     |         | 2001   |         | 2000
|                                                                                    |                                       |                          |         |        |         |     
|Revenues:                                                                           |                                       |                          |         |        |         |      |         |         |         |   |           |          
|                                                                                    | Service                               |                          | $       | 17,182 |         |      | $       | 6,195   |         |   | $         | 2,223     |          
|                                                                                    | Subscriber equipment                  |                          |         | 7,457  |         |      |         | 152     |         |   |           |          |          
|                                                                                    | Royalty income                        |                          |         |       |         |      |         | 57      |         |   |           | 1,427     |          
|                                                                                    |                                       |                          |         |        |         |      |         |         |         |   |           |          
|                                                                                    |                                       | Total revenue            |         |        | 24,639  |      |         |         | 6,404   |   |           |           | 3,650     | 
|                                                                                    |                                       |                          |         |        |         |      |         |         |         |   |           |          
|Operating expenses:                                                                 |                                       |                          |         |        |         |      |         |         |         |   |           |          
|                                                                                    | Cost of subscriber equipment          |                          |         | 5,650  |         |      |         | 130     |         |   |           |          |          
|                                                                                    | Operations                            |                          |         | 26,379 |         |      |         | 56,074  |         |   |           | 127,969   |          
|                                                                                    | Marketing, general and administrative |                          |         | 39,104 |         |      |         | 101,392 |         |   |           | 80,705    |          
|                                                                                    | Restructuring                         |                          |         | 7,694  |         |      |         | 12,035  |         |   |           |          |          
|                                                                                    | Launch termination costs              |                          |         | 18,379 |         |      |         |        |         |   |           |          |          
|                                                                                    | Impairment of assets                  |                          |         |       |         |      |         |        |         |   |           | 2,939,790 |          
|                                                                                    | Depreciation and amortization         |                          |         | 30,904 |         |      |         | 35,554  |         |   |           | 327,938   |          
|                                                                                    |                                       |                          |         |        |         |      |         |         |         |   |           |          
|                                                                                    |                                       | Total operating expenses |         |        | 128,110 |      |         |         | 205,185 |   |           |           | 3,476,402 | 
|                                                                                    |                                       |                          |         |        |         |      |         |         |         |   |           |          
|Operating loss                                                                      |                                       |                          | 103,471 |        |         |      | 198,781 |         |         |   | 3,472,752 |          
|Interest income                                                                     |                                       |                          | 101     |        |         |      | 4,513   |         |         |   | 16,490    |          
|Interest expense                                                                    |                                       |                          | 46,523  |        |         |      | 381,170 |         |         |   | 329,163   |          
|                                                                                    |                                       |                          |         |        |         |      |         |         |         |   |           |          
|Loss before taxes                                                                   |                                       |                          | 149,893 |        |         |      | 575,438 |         |         |   | 3,785,425 |          
|Income tax expense                                                                  |                                       |                          | 66      |        |         |      | 73      |         |         |   | 246       |          
|                                                                                    |                                       |                          |         |        |         |      |         |         |         |   |           |          
|Net loss                                                                            |                                       |                          | 149,959 |        |         |      | 575,511 |         |         |   | 3,785,671 |          
|Preferred distributions on redeemable preferred
    partnership interests           |                                       |                          | 2,887   |        |         |      | 26,562  |         |         |   | 30,730    |          
|                                                                                    |                                       |                          |         |        |         |      |         |         |         |   |           |          
|Net loss applicable to ordinary partnership
    interests                           |                                       | $                        | 152,846 |        |         | $    | 602,073 |         |         | $ | 3,816,401 |          
|                                                                                    |                                       |                          |         |        |         |      |         |         |         |   |           |          
|Net loss per ordinary partnership
    interest  basic and diluted                  |                                       | $                        | 2.32    |        |         | $    | 9.26    |         |         | $ | 61.23     |          
|                                                                                    |                                       |                          |         |        |         |      |         |         |         |   |           |          
|Weighted average ordinary partnership interests
    outstanding  basic and diluted |                                       |                          | 65,789  |        |         |      | 65,040  |         |         |   | 62,325    |          
|                                                                                    |                                       |                          |         |        |         |      |         |         |         |   |           |          

See notes to consolidated financial statements.

S-3



---



##### Table of Contents



GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION

CONSOLIDATED STATEMENTS OF PARTNERS
CAPITAL (DEFICIT)

(in thousands)


|                                                                                                                                                                                          |  |             |          |             |  |             |            |              |  |          |          |       |  |   |         |   |  |   |         |   |  |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | -------- | ----------- |  | ----------- | ---------- | ------------ |  | -------- | -------- | ----- |  | - | ------- | - |  | - | ------- | - |  | - | ---------- | -
|                                                                                                                                                                                          |  | Convertible |          |             |  |             |            |              |  |          |          |      
|                                                                                                                                                                                          |  | Redeemable  |          | General     |  | Limited     |            |              |  |          |          |      
|                                                                                                                                                                                          |  | Preferred   |          | Ordinary    |  | Ordinary    |            |              |  |          |          |      
|                                                                                                                                                                                          |  | Partnership |          | Partnership |  | Partnership |            | Unearned     |  |          |          |      
|                                                                                                                                                                                          |  | Interests   |          | Interests   |  | Interests   |            | Compensation |  | Warrants |          | Total
|                                                                                                                                                                                          |  |             |          |             |  |             |            |              |  |          |          |      
|Capital balances  January 1, 2000                                                                                                                                                        |  | $           | 358,968  |             |  | $           | 481,616    |              |  | $        | 34,914   |       |  | $ | (16,754 | ) |  | $ | 169,585 |   |  | $ | 1,028,329  |  
|Exercise of warrants (23 interests)                                                                                                                                                       |  |             |          |             |  |             | 1,864      |              |  |          |          |       |  |   |         |   |  |   | (271    | ) |  |   | 1,593      |  
|Stock compensation transactions by managing
    general partner for the benefit of Globalstar                                                                                             |  |             |          |             |  |             |            |              |  |          | 95       |       |  |   |         |   |  |   |         |   |  |   | 95         |  
|Sale of ordinary partnership interests in
    connection with GTL stock option exercises (7 interests)                                                                                    |  |             |          |             |  |             | 293        |              |  |          |          |       |  |   |         |   |  |   |         |   |  |   | 293        |  
|Sale of ordinary partnership interests in
    connection with GTL common stock issuance  February
    2000 (1,988 interests)                                                             |  |             |          |             |  |             | 268,471    |              |  |          |          |       |  |   |         |   |  |   |         |   |  |   | 268,471    |  
|Sale of ordinary partnership interests in
    connection with GTL stock issuance 
    September & October 2000 (1,000 interests)                                                         |  |             |          |             |  |             | 27,769     |              |  |          |          |       |  |   |         |   |  |   |         |   |  |   | 27,769     |  
|Sale of ordinary partnership interests from
    partners equity financing  September 2000
    (1,295 interests)                                                                         |  |             |          |             |  |             | 56,200     |              |  |          |          |       |  |   |         |   |  |   |         |   |  |   | 56,200     |  
|Conversion of 9% Series B convertible
    redeemable preferred partnership interests into ordinary
    partnership interests and related payment of dividend in stock
    (269 interests) |  |             | (2,014   | )           |  |             | 5,344      |              |  |          |          |       |  |   |         |   |  |   |         |   |  |   | 3,330      |  
|Warrants issued for ordinary partnership
    interests in exchange for debt guarantee                                                                                                     |  |             |          |             |  |             |            |              |  |          |          |       |  |   |         |   |  |   | 34,442  |   |  |   | 34,442     |  
|Conversion of 8% Series A convertible
    redeemable preferred partnership interests into ordinary
    partnership interests and related payment of dividend in stock
    (180 interests) |  |             | (10      | )           |  |             | 4,374      |              |  |          |          |       |  |   |         |   |  |   |         |   |  |   | 4,364      |  
|Change in fair value of stock compensation for
    the benefit of Globalstar                                                                                                              |  |             |          |             |  |             | (20,393    | )            |  |          |          |       |  |   | 20,393  |   |  |   |         |   |  |   |            |  
|Amortization of unearned compensation                                                                                                                                                     |  |             |          |             |  |             |            |              |  |          |          |       |  |   | (3,699  | ) |  |   |         |   |  |   | (3,699     | )
|Net loss applicable to ordinary partnership
    interests  year ended December 31, 2000.                                                                                                 |  |             | (356,944 | )           |  |             | (3,184,708 | )            |  |          | (274,749 | )     |  |   |         |   |  |   |         |   |  |   | (3,816,401 | )
|                                                                                                                                                                                          |  |             |          |             |  |             |            |              |  |          |          |       |  |   |         |   |  |   |         |   |  |   |            |  
|Capital balances  December 31,
    2000.                                                                                                                                                 |  |             |         |             |  |             | (2,359,170 | )            |  |          | (239,740 | )     |  |   | (60     | ) |  |   | 203,756 |   |  |   | (2,395,214 | )
|Warrants issued for ordinary partnership
    interests in exchange for debt guarantee                                                                                                     |  |             |          |             |  |             |            |              |  |          |          |       |  |   |         |   |  |   | (421    | ) |  |   | (421       | )
|Conversion of 8% Series A convertible
    redeemable preferred partnership interests (20 interests)                                                                                       |  |             |         |             |  |             |           |              |  |          |          |       |  |   |         |   |  |   |         |   |  |   |            |  
|Conversion of 9% Series B convertible
    redeemable preferred partnership interests (602 interests)                                                                                      |  |             |         |             |  |             |           |              |  |          |          |       |  |   |         |   |  |   |         |   |  |   |            |  
|Change in fair value of stock compensation for
    the benefit of Globalstar                                                                                                              |  |             |          |             |  |             | (104       | )            |  |          |          |       |  |   | 104     |   |  |   |         |   |  |   |            |  
|Amortization of unearned compensation                                                                                                                                                     |  |             |          |             |  |             |            |              |  |          |          |       |  |   | (45     | ) |  |   |         |   |  |   | (45        | )
|Net loss applicable to ordinary partnership
    interests  year ended December 31, 2001.                                                                                                 |  |             |          |             |  |             | (602,073   | )            |  |          |          |       |  |   |         |   |  |   |         |   |  |   | (602,073   | )
|                                                                                                                                                                                          |  |             |          |             |  |             |            |              |  |          |          |       |  |   |         |   |  |   |         |   |  |   |            |  
|Capital balances  December 31,
    2001.                                                                                                                                                 |  |             |         |             |  |             | (2,961,347 | )            |  |          | (239,740 | )     |  |   | (1      | ) |  |   | 203,335 |   |  |   | (2,997,753 | )
|Conversion of 8% Series A convertible
    redeemable preferred partnership interests (1 interest)                                                                                         |  |             |         |             |  |             |           |              |  |          |          |       |  |   |         |   |  |   |         |   |  |   |            |  
|Conversion of 9% Series B convertible
    redeemable preferred partnership interests (620 interests)                                                                                      |  |             |         |             |  |             |           |              |  |          |          |       |  |   |         |   |  |   |         |   |  |   |            |  
|Amortization of unearned compensation                                                                                                                                                     |  |             |          |             |  |             |            |              |  |          |          |       |  |   | 1       |   |  |   |         |   |  |   | 1          |  
|Net loss applicable to ordinary partnership
    interests  year ended December 31, 2002.                                                                                                 |  |             |          |             |  |             | (152,846   | )            |  |          |          |       |  |   |         |   |  |   |         |   |  |   | (152,846   | )
|                                                                                                                                                                                          |  |             |          |             |  |             |            |              |  |          |          |       |  |   |         |   |  |   |         |   |  |   |            |  
|Capital balances  December 31,
    2002.                                                                                                                                                 |  | $           |         |             |  | $           | (3,114,193 | )            |  | $        | (239,740 | )     |  | $ |        |   |  | $ | 203,335 |   |  | $ | (3,150,598 | )
|                                                                                                                                                                                          |  |             |          |             |  |             |            |              |  |          |          |       |  |   |         |   |  |   |         |   |  |   |            |  

See notes to consolidated financial statements.

S-4



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##### Table of Contents



GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION

CONSOLIDATED STATEMENTS OF CASH
FLOWS

(In thousands)


|                                                         |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |            |         |          |  
|-------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ------------------------------------- | -------- | ------ | ------- | -------- | -------- | ------- | -------- | ------- | ---------- | ------- | -------- | -
|                                                         |                                                                                                                                                           |                                                        
|                                                         |                                                                                                                                                           | Years ended December 31,                               
|                                                         |                                                                                                                                                           |                                                        
|                                                         |                                                                                                                                                           | 2002                                                    |                                       | 2001     |        | 2000   
|                                                         |                                                                                                                                                           |                                                         |                                       |          |        |        
|Operating activities:                                    |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |           
|                                                         | Net loss                                                                                                                                                  |                                                         | $                                     | (149,959 | )      |         | $        | (575,511 | )       |          | $       | (3,785,671 | )      
|                                                         | Impairment of assets                                                                                                                                      |                                                         |                                       |         |        |         |          |         |         |          |         | 2,939,790  |        
|                                                         | Launch termination costs                                                                                                                                  |                                                         |                                       | 18,379   |        |         |          |         |         |          |         |           |        
|                                                         | Loss on failed satellites and disposal of fixed
    assets                                                                                                |                                                         |                                       | 3,553    |        |         |          | 1,392    |         |          |         |           |        
|                                                         | Provision for gateway receivables                                                                                                                         |                                                         |                                       | 9,494    |        |         |          | 20,212   |         |          |         |           |        
|                                                         | Provision for doubtful accounts                                                                                                                           |                                                         |                                       | (136     | )      |         |          | 9,419    |         |          |         |           |        
|                                                         | Provision for inventory                                                                                                                                   |                                                         |                                       |         |        |         |          | 5,471    |         |          |         |           |        
|                                                         | Amortization of unearned compensation                                                                                                                     |                                                         |                                       | 1        |        |         |          | (45      | )       |          |         | (3,604     | )      
|                                                         | Depreciation and amortization                                                                                                                             |                                                         |                                       | 30,904   |        |         |          | 35,554   |         |          |         | 327,938    |        
|                                                         | Non-cash interest                                                                                                                                         |                                                         |                                       | 8,388    |        |         |          | 66,426   |         |          |         | 63,809     |        
|                                                         | Changes in operating assets and liabilities:                                                                                                              |                                                         |                                       |          |        |         |          |          |         |          |         |            |        
|                                                         |                                                                                                                                                           | Accounts receivable                                     |                                       |          | (416   | )       |          |          | (3,504  | )        |         |            | (422    | )       
|                                                         |                                                                                                                                                           | Inventory                                               |                                       |          | 2,319  |         |          |          | 130     |          |         |            |        |         
|                                                         |                                                                                                                                                           | Prepaid expenses and other current assets               |                                       |          | 2,342  |         |          |          | (13,039 | )        |         |            | (2,720  | )       
|                                                         |                                                                                                                                                           | Other assets                                            |                                       |          | (142   | )       |          |          | (401    | )        |         |            | (2,090  | )       
|                                                         |                                                                                                                                                           | Accounts payable                                        |                                       |          | (188   | )       |          |          | (10,146 | )        |         |            | 6,174   |         
|                                                         |                                                                                                                                                           | Payable to affiliates                                   |                                       |          | (1,054 | )       |          |          | 11,278  |          |         |            | (25,027 | )       
|                                                         |                                                                                                                                                           | Accrued expenses                                        |                                       |          | 2,451  |         |          |          | 23,204  |          |         |            | 1,479   |         
|                                                         |                                                                                                                                                           | Accrued interest and other                              |                                       |          | 38,125 |         |          |          | 315,705 |          |         |            | 12,462  |         
|                                                         |                                                                                                                                                           | Deferred revenue                                        |                                       |          | (2,074 | )       |          |          | (6,593  | )        |         |            | 12,141  |         
|                                                         |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |           
|                                                         |                                                                                                                                                           |                                                         | Net cash used in operating activities |          |        | (38,013 | )        |          |         | (120,448 | )       |            |         | (455,741 | )
|                                                         |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |           
|Investing activities:                                    |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |           
|                                                         | Globalstar System                                                                                                                                         |                                                         |                                       |         |        |         |          | (4,364   | )       |          |         | (23,305    | )      
|                                                         | Payable to affiliates for Globalstar System                                                                                                               |                                                         |                                       |         |        |         |          | (7,673   | )       |          |         | (31,399    | )      
|                                                         | Accounts payable                                                                                                                                          |                                                         |                                       |         |        |         |          | (253     | )       |          |         | (3,536     | )      
|                                                         | Vendor financing liability                                                                                                                                |                                                         |                                       |         |        |         |          |         |         |          |         | 94,543     |        
|                                                         |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |           
|                                                         | Cash provided by (used for) Globalstar System                                                                                                             |                                                         |                                       |         |        |         |          | (12,290  | )       |          |         | 36,303     |        
|                                                         | Advances for production gateways and user
    terminals                                                                                                   |                                                         |                                       |         |        |         |          | (2,120   | )       |          |         | (163,547   | )      
|                                                         | Cash receipts for production gateways and user
    terminals                                                                                              |                                                         |                                       | 283      |        |         |          | 3,609    |         |          |         | 111,875    |        
|                                                         | Receipt and use of restricted cash, net                                                                                                                   |                                                         |                                       |         |        |         |          | 22,448   |         |          |         | 23,798     |        
|                                                         | Additional spare satellites, net of vendor
    financing                                                                                                  |                                                         |                                       |         |        |         |          | (8,505   | )       |          |         | (100,688   | )      
|                                                         | Construction in progress                                                                                                                                  |                                                         |                                       | (326     | )      |         |          |         |         |          |         |           |        
|                                                         | Purchases of property and equipment                                                                                                                       |                                                         |                                       | (394     | )      |         |          | (604     | )       |          |         | (2,897     | )      
|                                                         | Acquisition, net of cash acquired                                                                                                                         |                                                         |                                       | (1,891   | )      |         |          | 1,371    |         |          |         |           |        
|                                                         |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |           
|                                                         |                                                                                                                                                           | Net cash provided by (used in) investing
    activities |                                       |          | (2,328 | )       |          |          | 3,909   |          |         |            | (95,156 | )       
|                                                         |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |           
|Financing activities:                                    |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |           
|                                                         | Sale of ordinary partnership interests upon
    exercise of options and warrants                                                                          |                                                         |                                       |         |        |         |          |         |         |          |         | 354,326    |        
|                                                         | Repayment of vendor financing                                                                                                                             |                                                         |                                       |         |        |         |          | (2,237   | )       |          |         | (83,652    | )      
|                                                         | Distributions on redeemable preferred partnership
    interests                                                                                           |                                                         |                                       |         |        |         |          |         |         |          |         | (23,051    | )      
|                                                         | Borrowings under credit facilities                                                                                                                        |                                                         |                                       |         |        |         |          |         |         |          |         | 350,000    |        
|                                                         |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |           
|                                                         |                                                                                                                                                           | Net cash provided by (used in) financing
    activities |                                       |          |       |         |          |          | (2,237  | )        |         |            | 597,623 |         
|                                                         |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |           
|Net increase (decrease) in cash and cash
    equivalents |                                                                                                                                                           |                                                         | (40,341                               | )        |        |         | (118,776 | )        |         |          | 46,726  |           
|Cash and cash equivalents, beginning of period           |                                                                                                                                                           |                                                         | 55,625                                |          |        |         | 174,401  |          |         |          | 127,675 |           
|                                                         |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |           
|Cash and cash equivalents, end of period                 |                                                                                                                                                           | $                                                       | 15,284                                |          |        | $       | 55,625   |          |         | $        | 174,401 |           
|                                                         |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |           
|Noncash transactions:                                    |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |           
|                                                         | Receivables offset by payables and notes payable                                                                                                          |                                                         | $                                     | (2,391   | )      |         | $        | (11,314  | )       |          |         |            |        
|                                                         |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |           
|                                                         | Issuance of notes to guarantors for repayment of
    revolving credit line                                                                                |                                                         |                                       |          |        |         |          |          |         |          | $       | 250,000    |        
|                                                         |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |           
|                                                         | Payables to affiliates converted into vendor
    financing                                                                                                |                                                         |                                       |          |        |         |          |          |         |          | $       | (368,259   | )      
|                                                         |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |           
|                                                         | Distributions on redeemable preferred partnership
    interests on GTL common stock                                                                       |                                                         |                                       |          |        |         |          |          |         |          | $       | (7,694     | )      
|                                                         |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |           
|                                                         | Ordinary partnership interests distributed upon
    conversion of redeemable preferred partnership interests and
    related dividend make-whole payments |                                                         |                                       |          |        |         |          |          |         |          | $       | 2,024      |        
|                                                         |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |           
|                                                         | Warrants issued in connection with QUALCOMM
    vendor financing                                                                                          |                                                         |                                       |          |        |         | $        | (421     | )       |          | $       | 34,442     |        
|                                                         |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |           
|                                                         | Dividends accrued                                                                                                                                         |                                                         | $                                     | 2,887    |        |         | $        | 26,562   |         |          | $       | (15        | )      
|                                                         |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |           
|                                                         | Change in fair value of stock compensation for
    the benefit of Globalstar                                                                              |                                                         |                                       |          |        |         | $        | 104      |         |          | $       | (20,393    | )      
|                                                         |                                                                                                                                                           |                                                         |                                       |          |        |         |          |          |         |          |         |           

See notes to consolidated financial statements.

S-5



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##### Table of Contents



GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1. Organization and Business

Globalstar, L.P. (Globalstar), a
Delaware limited partnership, was formed in November 1993,
remaining inactive until March 23, 1994, when it received
capital subscriptions for $275 million and commenced
operations.

The governing body of Globalstar is the General
Partners Committee. The Committee may have up to seven
members, five of whom may be appointed by the managing general
partner of Globalstar, Loral/ QUALCOMM Satellite Services, L.P.
(LQSS). The general partner of LQSS is Loral/
QUALCOMM Partnership, L.P. (LQP), a Delaware limited
partnership comprised of subsidiaries of Loral Space &
Communications Ltd., a Bermuda company (and with its
subsidiaries Loral) and QUALCOMM Incorporated
(QUALCOMM). The managing general partner of LQP is
Loral General Partner, Inc. (LGP), a subsidiary of
Loral. As of December 31, 2002, Loral owned, directly or
indirectly, 25,163,207 (approximately 38.2%) of the ordinary
partnership interests of Globalstar, including interests
attributable to 9,902,990 shares of Globalstar
Telecommunications Limited (GTL) outstanding common
stock.

Globalstar was founded to design, construct and
operate a worldwide, low-earth orbit satellite-based wireless
digital telecommunications system (the Globalstar
System). The Globalstar Systems worldwide coverage
is designed to enable its service providers to extend modern
telecommunications services to millions of people who currently
lack basic telephone service and to enhance wireless
communications in areas underserved or not served by existing or
future cellular systems, providing a telecommunications solution
in parts of the world where the build-out of terrestrial systems
cannot be economically justified. In 1995, the United States
Federal Communications Commission (the FCC) granted
the necessary license to a wholly-owned subsidiary of LQP to
construct, launch and operate the Globalstar System. LQP has
agreed to use such license for the exclusive benefit of
Globalstar.

GTL was incorporated in 1994 as an exempted
company under the Companies Act 1981 of Bermuda. GTLs sole
business is acting as a general partner of Globalstar and its
sole assets consist of its equity interests in Globalstar. As of
December 31, 2002, GTL owned 27,911,240 (42.4%) of
Globalstars outstanding ordinary partnership interests and
100% of the outstanding 8% and 9% convertible redeemable
preferred partnership interests (the RPPIs).

Globalstar operates in one industry segment,
satellite telecommunications, providing global mobile and fixed
wireless voice and data services.

2. Basis of Presentation

On February 15, 2002 (the Petition
Date), Globalstar and certain of its subsidiaries filed
voluntary petitions under Chapter 11 of Title 11 of
the United States Code (the Bankruptcy Code), in the
United States Bankruptcy Court (Bankruptcy Court)
for the District of Delaware (Case Nos. 02-10499, 02-10501,
02-10503 and 02-10504). Globalstar and its debtor subsidiaries
remain in possession of their assets and properties and continue
to operate their businesses as debtors-in-possession. Also, on
February 15, 2002, the managing general partner of
Globalstar, LQSS, filed a voluntary petition in Delaware under
Chapter 11 of the Bankruptcy Code in the Bankruptcy Court.
These factors, among others, raise substantial doubt about
Globalstars ability to continue as a going concern. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

Under Chapter 11, substantially all
unsecured liabilities as of the Petition Date are subject to
compromise or other treatment under a plan of reorganization,
which must be approved and confirmed by the Bankruptcy Court.
For financial reporting purposes, those liabilities and
obligations whose treatment and satisfaction are dependent on
the outcome of the Chapter 11 case have been segregated in
the condensed consolidated balance sheet as liabilities subject
to compromise. Generally, all actions to enforce or otherwise
require repayment of Globalstars pre-petition liabilities
are stayed under Section 362(a) of the Bankruptcy Code
while Globalstar

S-6



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##### Table of Contents



GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

continues its business operations as a
debtor-in-possession. The amount and settlement terms of the
pre-petition liabilities subject to compromise are subject to an
approved plan of reorganization and may differ significantly
from the amounts as reflected in these consolidated financial
statements.

On January 14, 2003, Globalstar and the
Creditors Committee reached an agreement with New Valley
Corporation (New Valley) providing for
debtor-in-possession financing (the New Valley DIP
Facility) of up to $20 million and a total investment
in a reorganized Globalstar of $55 million. Globalstar
filed a motion with the Bankruptcy Court for approval of this
new investment on January 15, 2003 and filed a
Form 8-K on the same date. A hearing to seek Bankruptcy
Court approval of the New Valley DIP Facility was scheduled for
January 30, 2003 in Delaware. Prior to the hearing, the
Creditors Committee informed Globalstar and New Valley
that the Creditors Committee would not support approval of
the New Valley investment, but that a consortium including
certain individual members of the Creditors Committee was
prepared to provide substitute debtor-in-possession financing.
As a consequence, New Valley withdrew its investment offer as of
January 30, 2003. Globalstar filed another Form 8-K
reflecting New Valleys withdrawal on February 4, 2003.

On February 14, 2003, Globalstar and the
consortium of lenders (the DIP Lenders) reached
agreement on debtor-in-possession financing of $10 million
(the DIP Facility) and filed a motion with the
Bankruptcy Court seeking approval of such financing. Globalstar
also filed a motion defining certain auction procedures by which
Globalstar would conclude its search for an investor to fund
Globalstars restructuring and exit from bankruptcy. The
Bankruptcy Court provided interim approval of the DIP Facility
and approved the auction procedures on February 20, 2003,
and the parties executed the DIP Facility documents on
February 25, 2003. Copies of the DIP Facility, auction
procedures and related documents were filed with a Form 8-K
on February 27, 2003. The Bankruptcy Court granted final
approval of the DIP Facility on March 6, 2003. As a
condition to the DIP Lenders obligation to fund draws by
Globalstar under the DIP Facility in excess of $2.0 million,
among other things (i) Globalstar was required to secure from
Loral/QUALCOMM Partnership, L.P. (LQP) a pledge in
favor of the DIP Lenders of LQPs ownership interest in the
outstanding stock of L/Q Licensee, Inc. (L/Q
Licensee), and (ii) Globalstar was required to reach an
agreement, satisfactory to the DIP Lenders, with respect to
specified matters relating to Loral and certain of its
affiliates (the conditions set forth in clauses (i) and (ii)
above, collectively, the Loral Condition). The Loral
Condition was initially required to be satisfied by March 7,
2003, but the DIP Facility was amended to extend the deadline
for meeting the Loral Condition to March 21, 2003. The Loral
Condition was satisfied prior to the extended deadline.

Under the approved auction procedures, Globalstar
received expressions of interest from prospective investors in
early March 2003, and with the assistance of its financial
advisors and in consultation with the Creditors Committee,
determined which of them were qualified to perform
due diligence and make a definitive proposal for an equity
investment in Globalstar or the purchase of Globalstars
assets. March 21, 2003 was the deadline set for the
submission of investment proposals by the qualified bidders.
Globalstar, in consultation with the Creditors Committee,
expects to choose the highest and best investment proposal in
early-April and to file a modified plan of reorganization with
the Bankruptcy Court shortly thereafter. No assurance can be
given as to whether this auction process will ultimately lead to
a successful restructuring of Globalstar.

Globalstar has developed a business plan in
connection with its restructuring; the business plan will be an
integral part of Globalstars plan of reorganization. The
business plan, which is predicated on an infusion of funds,
assumes the consolidation of certain Globalstar service provider
operations into a new Globalstar company (New
Globalstar). Several of the acquisitions contemplated in
the business plan were completed during 2001 and 2002. The
consolidation strategy has brought additional efficiencies to
the operation of the Globalstar System and allowed for increased
geographic coverage and pricing coordination in
Globalstars service offerings and pricing. In addition,
Globalstar intends to revise its business relationships with the
remaining independent service providers, including exploring the
possible acquisition of their businesses or

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GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

assets. Globalstar believes that these, and
additional, steps are needed to achieve and maintain financial
viability (see Note 4).

Globalstar has incurred cumulative partnership
losses of $5.21 billion through December 31, 2002,
which have been funded primarily through the issuance of
partnership interests and debt by Globalstar.

3. Summary of Significant Accounting
Policies

Since the Petition Date, Globalstars
consolidated financial statements have been prepared in
compliance with Statement of Position
(SOP 90-7) on Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code issued by the
American Institute of Certified Public Accountants.
Specifically, all pre-petition liabilities subject to compromise
have been segregated on the balance sheet and classified as
liabilities subject to compromise. No interest expense on
pre-petition liabilities or dividends on redeemable preferred
partnership interests since the Petition Date have been accrued
or recorded as these amounts are not expected to be allowed
claims. No debt discounts or deferred financing costs have been
amortized since the Petition Date as the value of the allowed
debt has not been fixed by the Bankruptcy Court. Debt
obligations have not been adjusted to reorganization values
since the Bankruptcy Court has not yet confirmed a plan of
reorganization. Management expects that the allowed claims will
be established near the date that a final plan of reorganization
is confirmed by the Bankruptcy Court and pre-petition
liabilities will be adjusted as the claims are resolved.

Adjusting the debt obligations to redemption
values may result in a reorganization charge approximating
$102.2 million. Interest income since the Petition Date has
been reported as a reorganization item as the amounts are
considered to be proceeds of the bankruptcy proceedings.

Pre-petition
Debt, Accrued Interest, and Dividends Payable

Under Chapter 11, substantially all
unsecured liabilities as of the Petition Date are subject to
compromise or other treatment under a plan of reorganization,
which must be approved and confirmed by the Bankruptcy Court.
For financial reporting purposes, those liabilities and
obligations whose treatment and satisfaction are dependent on
the outcome of the Chapter 11 case have been segregated in
the consolidated balance sheet as liabilities subject to
compromise. Generally, all actions to enforce or otherwise
require repayment of pre-petition liabilities are stayed while
Globalstar continues its business operations as a
debtor-in-possession. The amount and settlement terms of the
pre-petition liabilities subject to compromise are subject to an
approved plan of reorganization and may differ significantly
from the amounts as reflected in these consolidated financial
statements.

As a result of the Chapter 11 filing, no
principal or interest payments will be made on unsecured
pre-petition debt without Bankruptcy Court approval or until a
plan of reorganization providing for the repayment terms has
been confirmed by the Bankruptcy Court and becomes effective.
Interest expense on pre-petition debt will not be paid during
the bankruptcy proceeding and is not expected to be an allowed
claim; therefore, $266.2 million of interest on
pre-petition debt has not been recorded since the Petition Date.
In addition, $15.0 million and $41.0 million of
amortization have not been recorded since the Petition Date on
the debt discounts and premiums and deferred financing costs,
respectively. Dividends of $16.8 million on RPPIs since the
Petition Date have not been accrued or recorded as these amounts
are not expected to be allowed claims.

Use
of Estimates in Preparation of Financial Statements

The preparation of consolidated financial
statements in conformity with generally accepted accounting
principles 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 expenses reported
for the period. Actual results could differ from estimates.

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GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Principles
of Consolidation

The consolidated financial statements include the
accounts of Globalstar and its wholly owned and majority owned
subsidiaries. All significant intercompany transactions and
balances have been eliminated.

Reclassifications

Certain amounts from the prior year have been
reclassified to conform to current year presentation. These
reclassifications do not change previously reported total
assets, liabilities, partners capital (deficit) or
net loss.

Cash
and Cash Equivalents

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

Concentration
of Credit Risk

Financial instruments which potentially subject
Globalstar to concentrations of credit risk are cash and cash
equivalents. Globalstars cash and cash equivalents are
maintained with high-credit-quality financial institutions. The
creditworthiness of such institutions is generally substantial
and management believes that its credit evaluation, approval and
monitoring processes mitigate potential credit risks.

Inventory

Inventory consists of purchased products,
including fixed and mobile user terminals, accessories and
gateway spare parts. Inventory is stated at lower of cost or
market. Cost is computed using a standard cost, which
approximates acquisition cost on a first-in, first-out basis.
Globalstar provides inventory allowances for inventories with a
lower market value or which is slow moving. Unsalable inventory
is written off.

In connection with the Vodafone and TE.S.A.M.
transactions (see Note 4), Globalstar acquired a large
number of user terminals and accessories. Management allocated
value only to inventory for which Globalstar forecasts usage
through 2003. There is no alternative market for these products.

Property
and Equipment

Property and equipment are stated at historical
cost, less accumulated depreciation. Depreciation is provided
using the straight-line method over the estimated useful lives
of the respective assets, as follows:

|                                |  |                                                                                        
|------------------------------- |  | ---------------------------------------------------------------------------------------
|Globalstar System               |  | Up to periods of 10 years from commencement
    of service in the first quarter of 2000
|Furniture, fixtures & equipment |  | 3 to 10 years                                                                          
|Leasehold improvements          |  | Shorter of lease term or the estimated useful
    lives of the improvements            

Globalstar
System

The Globalstar System includes costs for the
design, manufacture, test, and launch of a constellation of
low-earth orbit satellites, including in-orbit spare satellites
(the Space Segment), and ground and satellite
operations control centers, gateways and user terminals (the
Ground Segment).

Losses from in-orbit failures of
Globalstars satellites, net of insurance proceeds, are
recorded in the period it is determined that the satellite is
not recoverable.

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GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The carrying value of the Globalstar System is
reviewed for impairment whenever events or changes in
circumstances indicate that the recorded value of the Space
Segment and Ground Segment, taken as a whole, may not be
recoverable. Globalstar looks to current and future undiscounted
cash flows, excluding financing costs, as primary indicators of
recoverability. If an impairment is determined to exist, any
related impairment loss is calculated based on fair value.

Additional
Spare Satellites

Following a launch failure in September 1998,
Globalstar decided to purchase eight additional satellites for
$148 million (including performance incentives of up to
$16 million) to serve as on-ground spares. As of
December 31, 2002, costs of $147 million (including a
portion of the performance incentives) have been recognized for
these spare satellites. Seven of the eight have been completed,
and all eight are in storage in California. Depreciation of
these assets will not begin until the satellites are placed in
service.

Production
Gateways

These assets include $12.6 million and
$28.2 million in net receivables at December 31, 2002
and 2001, respectively, from service providers associated with
the reimbursement of gateway acquisition and deployment costs
previously paid by Globalstar to QUALCOMM. As of
December 31, 2002, these receivables are delinquent and
Globalstar has sent notices of default where appropriate. If the
collection of these payments is unsuccessful, Globalstar may
retain title to these gateways, subject to local restrictions,
or Globalstar may receive an equity position in the service
provider company in exchange for debt forgiveness. The
production gateway receivable, net of reserve, is based on the
estimated value of the anticipated recovery of the receivables
based on current discussions between Globalstar and the service
providers. As of December 31, 2002, Globalstar has reserved
$18.9 million of the production gateway receivables.

Deferred
Financing Costs and Interest

Deferred financing costs represent costs incurred
in obtaining long-term credit facilities and the estimated fair
value of warrant agreements issued in connection with these
facilities. Prior to the Petition Date, these costs were
classified as long term assets and were being amortized over the
terms of the credit facilities as interest expense. Globalstar
ceased the amortization of the costs on the Petition Date as the
value of the debt has not been confirmed by the Bankruptcy
Court. The amortization expense that otherwise would have been
recorded from the Petition Date through December 31, 2002
is $41.0 million. As of December 31, 2002, the
deferred financing costs have been offset with the related debt
and included in the liabilities subject to compromise.

Other
Assets

Other assets primarily include the fair value of
warrants issued to China Telecom (see Note 12) and
expenditures, including license fees, legal fees and direct
engineering and other technical support, for obtaining the
required FCC licenses. Such amounts are amortized over periods
of up to 10 years, the expected life of the first
generation satellites. Accumulated amortization totaled
$9.7 million at December 31, 2002.

Deferred
Revenues

Customer activation fees are deferred and
recognized over one year, the average life of the customer
contract. Globalstar service providers purchased approximately
$11.7 million of gross advance minutes ($8.8 million
net of 25% discount). Approximately $2.2 million of these
gross advance minutes were recognized as service revenue during
the year ended December 31, 2002. Prior to the Petition
Date, deferred revenues included the advance payments from
Globalstars strategic partners to secure exclusive rights
to Globalstar service territories and related to promotional
programs. These advance payments were recoverable

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GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

by the service providers, through credits against
certain service fees payable to Globalstar, but since the
Petition Date they have been classified as liabilities subject
to compromise.

Preferred
Partnership Distributions

Distributions are accrued on RPPIs at the stated
rate per annum. Distributions are recorded as reductions against
the ordinary partnership capital accounts (see Note 12).
Since the Petition Date, the distributions on RPPIs are no
longer accrued. The distributions that otherwise would have been
recorded from the Petition Date through December 31, 2002
are $16.8 million.

Stock-Based
Compensation

Globalstar accounts for stock-based employee
compensation in accordance with the provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, (APB No. 25) and
related interpretations and complies with the disclosure
provisions under Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based
Compensation, (SFAS No. 123).

The following table illustrates the effect on
Globalstars reported net loss applicable to common
shareholders and net loss per share if Globalstar had applied
the fair value recognition provision of SFAS No. 123 to
stock-based employee compensation (in thousands, except per
share amounts):

|                                                                                                                |  |              |         |      |  |      |         |  |  |   |           | 
|--------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ---- |  | ---- | ------- |  |  | - | --------- | 
|                                                                                                                |  |             
|                                                                                                                |  | December 31,
|                                                                                                                |  |             
|                                                                                                                |  | 2002         |         | 2001 |  | 2000
|                                                                                                                |  |              |         |      |  |     
|Net loss, as reported                                                                                           |  | $            | 152,846 |      |  | $    | 602,073 |  |  | $ | 3,816,401 | 
|Less: Total stock-based employee compensation
    expense determined under the fair value method for all awards |  |              | 4,138   |      |  |      | 9,748   |  |  |   | 12,495    | 
|                                                                                                                |  |              |         |      |  |      |         |  |  |   |           | 
|Pro-forma net loss                                                                                              |  | $            | 156,984 |      |  | $    | 611,821 |  |  | $ | 3,828,896 | 
|                                                                                                                |  |              |         |      |  |      |         |  |  |   |           | 
|Reported basic and diluted earnings per common
    share                                                        |  | $            | 2.32    |      |  | $    | 9.26    |  |  | $ | 61.23     | 
|                                                                                                                |  |              |         |      |  |      |         |  |  |   |           | 
|Pro-forma basic and diluted earnings per common
    share                                                       |  | $            | 2.39    |      |  | $    | 9.41    |  |  | $ | 61.43     | 
|                                                                                                                |  |              |         |      |  |      |         |  |  |   |           | 

Revenue
Recognition

Globalstar owns and operates the Globalstar
satellite constellation and earns its revenues primarily through
the sale of airtime minutes on a wholesale basis to Globalstar
service providers. Revenue from services to Globalstar service
providers is recognized based upon airtime minutes processed and
contractual fee arrangements. Service provider airtime revenue,
resulting from recently acquired operations in North America
(see Note 4), is recognized at the close of the monthly
billing cycle for each customer. Where collectibility is
uncertain, revenue is recognized on the cash basis.

Customer activation fees are deferred and
recognized over one year, the average life of the customer
contract. Service revenue is presented net of commissions paid
to distributors ($1.3 million for the year ended
December 31, 2002).

Subscriber equipment revenue represents the sale
of fixed and mobile user terminals and accessories. Revenue is
recognized upon shipment provided title and risk of loss had
passed to the customer, persuasive evidence of an arrangement
exists, the fee is fixed and determinable and collectibility is
probable.

Research
and Development Expenses

Globalstars research and development costs
were $1.9 million, $4.4 million and $5.3 million
in 2002, 2001 and 2000, respectively, and are expensed as
incurred as part of operating expenses.

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GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

User
Terminal Rebates and Subsidies

In some cases Globalstar provides rebates to
service providers that offer rebates to end users and subsidies
to service providers for user terminal purchases from
manufacturers. These rebates and subsidies are accounted for as
marketing expenses as incurred. These rebates and other
financial assistance are not linked to contractual service
periods with either the service providers or end users and there
is no pattern of billable minutes or revenue that suggests a
linkage to these arrangements.

Net
Loss Allocation

Net losses are allocated among the partners in
proportion to their percentage interests until the adjusted
capital account of a partner is reduced to zero, then in
proportion to, and to the extent of, positive adjusted capital
account balances and then to the general partners.

Under the terms of Globalstars partnership
agreement, adjusted partners capital accounts are
calculated in accordance with the principles of United States
Treasury regulations governing the allocation of taxable income
and loss including adjustments to reflect the fair market value
(including intangibles) of partnership assets upon certain
capital transactions including a sale of partnership interests.
Such adjustments are not permitted under generally accepted
accounting principles and, accordingly, are not reflected in the
accompanying consolidated financial statements.

Foreign
Currency

Globalstar uses the U.S. dollar as its functional
currency. Foreign currency assets and liabilities are remeasured
into U.S. dollars at current exchange rates and revenue and
expenses are translated at the average exchange rates in effect
during each period. Gains or losses are recognized as a
component of other comprehensive income. During the period ended
December 31, 2002, net foreign currency transaction gains
and losses were not material.

Income
Taxes

Globalstar is organized as a limited partnership
with various corporate subsidiaries. Generally, taxable income
or loss, deductions and credits of the partnership are passed
through to its partners. Globalstars corporate
subsidiaries will provide for a tax provision or benefit using
the asset and liability method of accounting for income taxes as
prescribed by SFAS No. 109, Accounting for Income Taxes. As
of December 31, 2002 and 2001, Globalstars corporate
subsidiaries have gross deferred tax assets of approximately
$6.1 million and $0.8 million, respectively. A
valuation reserve has been set up to reserve 100% of the
deferred tax assets due to concerns about the ability to
generate sufficient income to be able to utilize the assets.

Earnings
Per Ordinary Partnership Interest

Due to Globalstars net losses for 2002,
2001 and 2000, diluted weighted average ordinary partnership
interests outstanding excludes the weighted average effect of:
(i) the assumed conversion of the 8% RPPIs into
2.3 million ordinary partnership interests for 2002, 2001
and 2000; (ii) the assumed conversion of the 9% RPPIs into
0.2 million, 1.0 million and 1.4 million ordinary
partnership interests for 2002, 2001 and 2000, respectively; and
(iii) the assumed issuance of ordinary partnership
interests upon exercise of warrants and GTLs outstanding
options and warrants, totaling 10.8 million for 2002 and
2001, and 9.3 million ordinary partnership interests for
2000, as their effect would have been anti-dilutive.
Accordingly, basic and diluted net loss per ordinary partnership
interest are based on the net loss applicable to ordinary
partnership interests and the weighted average ordinary
partnership interests outstanding for 2002, 2001 and 2000.

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GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Comprehensive
Income

Comprehensive income (loss) is comprised of
two components: net loss and other comprehensive income (loss).
Other comprehensive income (loss) refers to revenue,
expenses, gains and losses that under generally accepted
accounting principles are recorded as an element of
partners capital (deficit), but are excluded from net
loss. Comprehensive income (loss) for the years ended
December 31, 2002, 2001 and 2000 was the same as net loss.

New
Accounting Pronouncements

In June 2001, the Financial Accounting Standards
Board (the FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 141, Business
Combinations and SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 141 requires that business
combinations 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 No. 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 No. 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. Globalstar adopted SFAS
No. 142 on January 1, 2002. The adoption of this
pronouncement did not have an impact on its financial position
or its results of operations.

In August 2001, the FASB issued SFAS
No. 144, Accounting for Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 supersedes SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of, and addresses
financial accounting and reporting for the impairment or
disposal of long-lived assets. Globalstar adopted SFAS
No. 144 on January 1, 2002. The adoption of this
pronouncement did not have an impact on its financial position
or its results of operations.

In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities, which addresses accounting for restructuring and
similar costs. SFAS No. 146 supersedes previous accounting
guidance, principally Emerging Issues Task Force
(EITF) Issue No. 94-3. Globalstar will adopt
the provisions of SFAS No. 146 for restructuring activities
initiated after December 31, 2002. SFAS No. 146
requires that the liability for costs associated with an exit or
disposal activity be recognized when the liability is incurred.
Under EITF Issue No. 94-3, a liability for an exit cost was
recognized at the date of the companys commitment to an
exit plan. SFAS No. 146 also establishes that the liability
should initially be measured and recorded at fair value.
Accordingly, SFAS No. 146 may affect the timing of
recognizing future restructuring costs as well as the amounts
recognized.

In November 2002, the FASB issued FASB
Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN 45 requires companies to recognize, at
the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. Guarantees
in existence at December 31, 2002 are grandfathered for the
purposes of recognition and would only need to be disclosed.
Globalstar does not expect that the adoption of FIN No. 45
will have an effect on its consolidated financial statements.
Globalstar will adopt the initial recognition and measurement
provisions of FIN No. 45 for guarantees issued or modified
after December 31, 2002.

In December 2002, the EITF reached a consensus on
EITF Issue No. 00-21, Revenue Arrangements with
Multiple Deliverables. EITF Issue No. 00-21 addresses
certain aspects of the accounting by a vendor for arrangements
under which it will perform multiple revenue-generating
activities. In some arrangements, the different
revenue-generating activities (deliveries) are sufficiently
separable and there exists sufficient evidence of their fair
values to separately account for some or all of the deliveries
(that is, there are separate units of accounting). In other
arrangements, some or all of the deliveries are not
independently functional, or

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GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

there is not sufficient evidence of their fair
values to account for them separately. EITF Issue No. 00-21
addresses when, and if so, how an arrangement involving multiple
deliverables should be divided into separate units of
accounting. EITF Issue No. 00-21 does not change otherwise
applicable revenue recognition criteria. The guidance in this
Issue is effective for revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. The adoption
of EITF Issue No. 00-21 is not expected to have a material
effect on Globalstars consolidated financial statements.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment
to FASB Statement No. 123. SFAS No. 148 provides
alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the
disclosure requirement of SFAS No. 123, Accounting
for Stock-Based Compensation, to require prominent
disclosures in both annual and interim consolidated financial
statements about the method of accounting for stock-based
employee compensation and the effect of the method used on
reported results. Globalstar adopted the disclosure provisions
of SFAS No. 148 effective December 31, 2002.

4. Acquisitions

In December 2001, Globalstar signed two
agreements to acquire certain subsidiaries of Vodafone Group Plc
(Vodafone) through Globalstar Corporation, a
non-debtor subsidiary of Globalstar. In the first transaction,
completed on December 18, 2001, Globalstar purchased all of
the outstanding common shares of Vodafone Satellite Services,
Inc. (VSSI), a Delaware corporation, for $100 plus
acquisition costs of $258,000. Globalstar has renamed the
company Globalstar Satellite Services Inc. (GSSI).
GSSI indirectly owns the majority interest in Globalstar Canada
Satellite Co. (GCSC), a Nova Scotia corporation
based in Ontario, Canada. The results of operations of GCSC,
since December 2001, are presented in these consolidated
financial statements. GCSC is the Globalstar service provider in
Canada and generates its revenue from the provision of
Globalstar services in Canada, billing customers for usage over
two Canadian gateways. Loral Holdings Ltd., a subsidiary of
Loral, owns the remaining minority interest in GCSC. As part of
the purchase, Globalstar released the seller from a portion of a
gateway payment guarantee related to Canadian gateways in
exchange for a credit memo to offset expenses from an affiliated
company. Lorals interest in GCSC is expected to be
transferred to Globalstar as part of the Loral Settlement
discussed below (see Note 20). However, there can be no
assurances that the Loral Settlement will be effected.

The following table summarizes the estimated
values of the assets acquired and liabilities assumed with the
acquisition (in thousands):

|                            |                           |                   |       |       | 
|--------------------------- | ------------------------- | ----------------- | ----- | ----- | 
|                            |                           | December 18, 2001
|                            |                           |                  
|Current assets              |                           | $                 | 4,399 |      
|Receivables from affiliates |                           |                   | 2,134 |      
|Property and equipment      |                           |                   | 1,720 |      
|                            |                           |                   |       |      
|                            | Total assets acquired     |                   |       | 8,253 | 
|                            |                           |                   |       |      
|Current liabilities         |                           |                   | 1,312 |      
|Payable to affiliates       |                           |                   | 6,683 |      
|                            |                           |                   |       |      
|                            | Total liabilities assumed |                   |       | 7,995 | 
|                            |                           |                   |       |      
|                            | Net assets acquired       |                   | $     | 258   | 
|                            |                           |                   |       |      

On August 19, 2002, the second transaction
with Vodafone was completed to acquire the United States and
Caribbean gateways and sales operations. A Globalstar subsidiary
purchased all the outstanding equity interests of Globalstar
USA, LLC (GUSA), a Delaware limited liability
company, and all outstanding

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GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

common shares of Globalstar Caribbean Ltd.
(GCL), a Cayman Islands corporation, for
$100 plus acquisition costs of $1.9 million. Included
with the transaction was the transfer of the U.S. operating
license for mobile satellite services. This transaction was part
of Globalstars plan to bring additional efficiencies to
the operation of the Globalstar System. The following table
summarizes the estimated values of the assets acquired and
liabilities assumed with the acquisition (in thousands):

|                      |                           |                 |       |       | 
|--------------------- | ------------------------- | --------------- | ----- | ----- | 
|                      |                           | August 19, 2002
|                      |                           |                
|Current assets        |                           | $               | 3,806 |      
|                      |                           |                 |       |      
|                      | Total assets acquired     |                 |       | 3,806 | 
|                      |                           |                 |       |      
|Current liabilities   |                           |                 | 1,137 |      
|Payable to affiliates |                           |                 | 778   |      
|                      |                           |                 |       |      
|                      | Total liabilities assumed |                 |       | 1,915 | 
|                      |                           |                 |       |      
|                      | Net assets acquired       |                 | $     | 1,891 | 
|                      |                           |                 |       |      

The operating results of GCSC, GUSA and GCL,
since the acquisition dates, are included in the consolidated
statements. The following unaudited pro forma consolidated
amounts give effect to the acquisitions of GUSA and GCL as if
they had occurred on January 1, 2001 and GCSC as if it had
occurred on January 1, 2000 by consolidating the results of
operations with Globalstars results for the years ended
December 31, 2002, 2001 and 2000 (in thousands, except per
ordinary partnership interest amounts):

|                                                                   |  |                          |         |      |  |      |         |  |  |   |           | 
|------------------------------------------------------------------ |  | ------------------------ | ------- | ---- |  | ---- | ------- |  |  | - | --------- | 
|                                                                   |  |                         
|                                                                   |  | Years ended December 31,
|                                                                   |  |                         
|                                                                   |  | 2002                     |         | 2001 |  | 2000
|                                                                   |  |                          |         |      |  |     
|Revenue                                                            |  | $                        | 32,685  |      |  | $    | 28,775  |  |  | $ | 10,383    | 
|Net loss                                                           |  | $                        | 155,793 |      |  | $    | 630,091 |  |  | $ | 3,828,368 | 
|Net loss per ordinary partnership
    interest  basic and diluted |  | $                        | 2.37    |      |  | $    | 9.69    |  |  | $ | 61.43     | 
|Shares used in per share calculation 
    basic and diluted       |  |                          | 65,789  |      |  |      | 65,040  |  |  |   | 62,325    | 

The unaudited pro forma results have been
prepared for comparative purposes only and do not purport to be
indicative of the results of operations which actually would
have been achieved had the combination been in effect at the
beginning of the periods presented, or of future results of the
operations of the entities.

On July 2, 2002 Globalstar, through
Globalstar Corporation, acquired TE.SA.M.s French gateway
and back office assets related to the provision of Globalstar
services in Europe, TE.SA.M.s limited partnership
interests in Globalstar and TE.SA.M.s remaining inventory.
Under the terms of the transaction, both Globalstar and TE.SA.M.
forgave all outstanding obligations between the parties and
provided mutual releases of liability. Also, Globalstar
reimbursed TE.SA.M. for the cost of operating the French gateway
from March 1, 2002 through July 1, 2002 at a cost of
approximately 400,000 Euros. The French gateway was operational,
but was not producing revenues at the time of the purchase.
Globalstar has restarted the European business and is earning
limited revenue from the French gateway. TE.SA.M. is in the
process of liquidating and has exited the Globalstar business.
TE.SA.M. provided Globalstar service through gateways in France,
Turkey, Venezuela, Argentina, and Peru. Local purchasers in
Turkey, Venezuela, Argentina, and Peru have purchased local
service provider operations from TE.SA.M. and have executed
letter agreements with Globalstar that define the terms under
which they provide Globalstar services. As a result of the
TE.SA.M transaction, net gateway receivables of
$3.7 million were written off, $6.6 million in
liabilities were forgiven, $1.6 million of inventory was
purchased and $4.4 million of previously provided bad debt
allowances were reversed.

S-15



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##### Table of Contents



GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

5. Production Gateways

In order to accelerate the deployment of gateways
around the world, Globalstar agreed to help service providers
finance approximately $80 million of the cost of the
initial gateways. Globalstar entered into an agreement with
QUALCOMM for the manufacture, deployment and maintenance of
Globalstar gateways. Globalstar, in turn, invoiced the service
providers for the contract costs plus a markup. As of
December 31, 2002, the collection of $35.2 million of
service provider gateway purchase receivables, which are secured
by gateway assets, are deferred indefinitely, as well as
$2.8 million of interest. Currently due under the
production gateway purchase agreement are $4.1 million of
gateway operational costs. The collection of these receivables
is delinquent and Globalstar has sent notices of default where
appropriate. If the collection of these payments is
unsuccessful, Globalstar will retain title to these gateways,
subject to local restrictions. As of December 31, 2002,
Globalstar has classified the production gateway purchase
receivables as long-term assets and provided an allowance for
doubtful collection of $18.9 million and $20.2 million
as of December 31, 2002 and 2001, respectively.

6. Property and Equipment

|                               |  |                |         |      |  |   |         |  
|------------------------------ |  | -------------- | ------- | ---- |  | - | ------- | -
|                               |  |               
|                               |  | December 31,  
|                               |  |               
|                               |  | 2002           |         | 2001
|                               |  |                |         |     
|                               |  |               
|                               |  | (In thousands)
|Globalstar System              |  | $              | 284,151 |      |  | $ | 288,206 |  
|Construction in progress       |  |                | 326     |      |  |   |        |  
|Leasehold improvements         |  |                | 388     |      |  |   | 434     |  
|Furniture and office equipment |  |                | 4,283   |      |  |   | 3,800   |  
|                               |  |                |         |      |  |   |         |  
|                               |  |                | 289,148 |      |  |   | 292,440 |  
|Accumulated depreciation       |  |                | (88,249 | )    |  |   | (60,450 | )
|                               |  |                |         |      |  |   |         |  
|                               |  | $              | 200,899 |      |  | $ | 231,990 |  
|                               |  |                |         |      |  |   |         |  

Globalstars property and equipment consists
of an in-orbit satellite constellation, ground equipment located
in the United States and support equipment located in various
countries around the world. Depreciation expense for 2002, 2001
and 2000 was $27.2 million, $31.6 million, and
$323.9 million, respectively.

7. Accrued Expenses

Accrued expenses at December 31, 2002
consist of the following:

|                                  |  |                |       |      |  |   |        | 
|--------------------------------- |  | -------------- | ----- | ---- |  | - | ------ | 
|                                  |  |               
|                                  |  | December 31,  
|                                  |  |               
|                                  |  | 2002           |       | 2001
|                                  |  |                |       |     
|                                  |  |               
|                                  |  | (In thousands)
|Accrued professional fees         |  | $              | 3,028 |      |  | $ | 617    | 
|Accrued compensation and benefits |  |                | 1,310 |      |  |   | 3,129  | 
|Accrued contract services         |  |                | 608   |      |  |   |       | 
|Accrued legal settlement(1)       |  |                |      |      |  |   | 35,000 | 
|Other accrued expenses            |  |                | 1,473 |      |  |   | 3,778  | 
|                                  |  |                |       |      |  |   |        | 
|                                  |  | $              | 6,419 |      |  | $ | 42,524 | 
|                                  |  |                |       |      |  |   |        | 



---



|    |                                                                                            
|--- | -------------------------------------------------------------------------------------------
|(1) | Legal settlement included in liabilities subject
    to compromise as of December 31, 2002.

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##### Table of Contents



GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

8. Liabilities Subject to
Compromise

Under Chapter 11, substantially all
unsecured liabilities as of the Petition Date are subject to
compromise or other treatment under a plan of reorganization,
which must be approved and confirmed by the Bankruptcy Court.
For financial reporting purposes, those liabilities and
obligations whose treatment and satisfaction are dependent on
the outcome of the Chapter 11 case have been segregated in
the condensed consolidated balance sheet as liabilities subject
to compromise. Generally, all actions to enforce or otherwise
require repayment of pre-petition liabilities are stayed while
Globalstar continues its business operations as a
debtor-in-possession. The amount and settlement terms of the
pre-petition liabilities subject to compromise are subject to an
approved plan of reorganization and may differ significantly
from the amounts as reflected in these consolidated financial
statements.

As a result of the Chapter 11 filing, no
principal or interest payments will be made on unsecured
pre-petition debt without Bankruptcy Court approval or until a
plan or reorganization providing for the repayment terms has
been confirmed by the Bankruptcy Court becomes effective.
Therefore, interest expense on pre-petition debt has not been
accrued since the Petition Date.

Liabilities subject to compromise are comprised
of the following (in thousands):

|                                        |                                         |              |           |           | 
|--------------------------------------- | --------------------------------------- | ------------ | --------- | --------- | 
|                                        |                                         | December 31,
|                                        |                                         | 2002        
|                                        |                                         |             
|Term loans payable to affiliates        |                                         | $            | 400,000   |          
|Revolving credit facility to affiliates |                                         |              | 100,000   |          
|Senior notes payable                    |                                         |              | 1,419,283 |          
|Notes payable                           |                                         |              | 150,000   |          
|Notes payable to affiliates             |                                         |              | 95,010    |          
|Accounts payable                        |                                         |              | 1,461     |          
|Payable to affiliates                   |                                         |              | 40,287    |          
|Vendor financing liability              |                                         |              | 880,062   |          
|Dividends payable                       |                                         |              | 32,757    |          
|Accrued expenses                        |                                         |              | 38,342    |          
|Accrued interest                        |                                         |              | 306,639   |          
|Deferred revenues                       |                                         |              | 23,363    |          
|Deferred financing costs                |                                         |              | (61,283   | )        
|                                        |                                         |              |           |          
|                                        | Total liabilities subject to compromise |              | $         | 3,425,921 | 
|                                        |                                         |              |           |          

Globalstar recorded a $17.2 million
pre-petition liability when it requested Space Systems/ Loral,
Inc. (SS/ L) terminate the satellite launch call-up
orders in October 2002. Globalstar believes that this
termination liability will not be classified as an
administrative claim in its bankruptcy case, and has recorded
the liability as a pre-petition liability subject to compromise.
In addition, Globalstar wrote off a $1.2 million deposit
associated with the launch call-up orders.

S-17



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##### Table of Contents



GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

9. Payables to Affiliates and Vendor
Financing

Payables and vendor financing due to affiliates
is comprised of the following (in thousands):

|                 |  |               |       |              |  |              |         |  |  |   |         | 
|---------------- |  | ------------- | ----- | ------------ |  | ------------ | ------- |  |  | - | ------- | 
|                 |  | Post Petition |       | Pre-Petition |  |             
|                 |  | December 31,  |       | December 31, |  | December 31,
|                 |  | 2002          |       | 2002         |  | 2001        
|                 |  |               |       |              |  |             
|SS/ L            |  | $             | 409   |              |  | $            | 278,364 |  |  | $ | 259,098 | 
|Loral            |  |               | 277   |              |  |              | 981     |  |  |   | 961     | 
|QUALCOMM         |  |               |      |              |  |              | 637,755 |  |  |   | 629,139 | 
|GCC              |  |               | 6,770 |              |  |              |        |  |  |   | 6,199   | 
|Other affiliates |  |               | 289   |              |  |              | 3,249   |  |  |   | 9,099   | 
|                 |  |               |       |              |  |              |         |  |  |   |         | 
|                 |  | $             | 7,745 |              |  | $            | 920,349 |  |  | $ | 904,496 | 
|                 |  |               |       |              |  |              |         |  |  |   |         | 

All payables to affiliates and vendor financing
incurred prior to the Petition Date have been classified as
liabilities subject to compromise (see Note 8). No
principal or interest payments will be made on unsecured
pre-petition debt without Bankruptcy Court approval or until a
plan of reorganization providing for the repayment terms has
been confirmed by the Bankruptcy Court and becomes effective.
Interest expense of $71.9 million, which would have been
recognized for the period from the Petition Date through
December 31, 2002 under pre-petition accounting practices,
has not been accrued. Debt discounts related to the vendor
financing have not been adjusted since the Petition Date. Under
pre-petition accounting practices, the value of vendor financing
debt would have been increased by $5.1 million during the
period from the Petition Date through December 31, 2002.

In May 2000, Globalstar finalized
$531.1 million of vendor financing arrangements (including
$31.1 million of accrued interest) with QUALCOMM that
replaced the previous arrangement. As of December 31, 2002,
$623.3 million was outstanding under this facility
(including $123.3 million of accrued interest). This
liability, including accrued interest through the Petition Date,
has been included in liabilities subject to compromise (see
Note 8). In connection with this agreement, QUALCOMM
received warrants to purchase 3,450,000 Globalstar partnership
interests at an exercise price of $42.25 per interest. The
exercise price was determined by reference to the fair market
value of GTLs common stock on the closing date of the
vendor financing, based on an approximate ratio of one
partnership interest for every four shares of GTL common stock.
The warrants are vested and will expire in 2007. The fair value
of the vested warrants totaled approximately $34.0 million
and is being amortized over the term of the vendor financing
arrangements. However, in light of Globalstars
Chapter 11 petition, these warrants are likely to be of
little or no value.

As a result of Globalstars bankruptcy
petition filed on February 15, 2002, this vendor financing
was accelerated and became immediately due and payable and is
included in liabilities subject to compromise.

SS/ L provided $344 million of billings
deferred under its construction contracts with Globalstar, which
included $120 million of orbital incentives. The orbital
payments on the replacement satellites are due on a per
satellite basis with 50% due when the satellite is placed in
storage. The remaining 50% is due when Globalstar directs SS/ L
to ship the satellite to the launch base. Until such time,
interest on the remaining 50% accrues at an interest rate of 10%
per annum. As of December 31, 2002, seven of the eight
replacement satellites were placed in storage and payments
became due. No payments were made in 2002 and interest accrued
on the remaining 50% through the Petition Date. Total accrued
interest on the orbitals as of December 31, 2002 was
$237,000. Payments were made on the $134 million of
non-interest bearing vendor financing through January 15,
2001. Penalty fees were accrued at LIBOR plus 3%, through the
Petition Date, and total accrued penalties as of
December 31, 2002 were $1.2 million. Interest was
being accrued at LIBOR plus 3%, through the Petition Date, and
total accrued interest as of December 31, 2002 was
$53.7 million. All of the construction contract amounts
owed to SS/ L have been included in liabilities subject to
compromise. Claims

S-18



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##### Table of Contents



GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

of Loral and its affiliates are expected to be
resolved as part of the Loral Settlement discussed below (see
Note 20). However, there can be no assurance that the Loral
Settlement will be effected.

10. Credit Facilities

As of December 31, 2002, the credit
facilities have been included in the liabilities subject to
compromise (see Note 8). No principal or interest payments
will be made on unsecured pre-petition debt without Bankruptcy
Court approval or until a plan of reorganization providing for
the repayment terms has been confirmed by the Bankruptcy Court
and becomes effective. Interest expense of $39.7 million
and $12.1 million has not been accrued on the $500 million
credit facility and on the notes issued to the guarantors of The
Chase Manhattan Bank $250 million credit facility,
respectively, from the Petition Date through December 31,
2002. As a result of Globalstars bankruptcy petition filed
on February 15, 2002, this credit facility was accelerated
and became immediately due and payable.

$250
Million Credit Agreement

On June 30, 2000, Globalstars
$250 million credit facility with The Chase Manhattan Bank
became due and was repaid in full by its guarantors, including
Lockheed Martin Corporation (Lockheed Martin),
QUALCOMM, DASA Globalstar Limited Partner, Inc.
(DASA) and SS/ L, who had previously received
warrants for GTL common stock in consideration of their
guarantee. Pursuant to the relevant agreements, Globalstar
issued three-year notes in the amounts of $206.3 million,
$21.9 million, $11.7 million and $10.1 million to
Lockheed Martin, QUALCOMM, SS/ L and DASA, respectively, in
satisfaction of their subrogation rights. The notes are due on
June 30, 2003 and bear interest, on a deferred basis, at a
rate of London Interbank Offer Rate (LIBOR) plus 3%.
On the consolidated balance sheet of Globalstar the notes are
presented as liabilities subject to compromise as of
December 31, 2002 and notes payable and notes payable to
affiliates as of December 31, 2001.

Lockheed Martin, however, rejected the notes it
received and instead requested that Globalstar issue new
securities with additional rights and enhanced value, without
waiving its claim that it is entitled to receive an immediate
cash reimbursement by Globalstar of its $150 million
payment to the bank lenders. Globalstar disputes Lockheed
Martins interpretation of the relevant agreements. If the
dispute is not resolved, Globalstar cannot be sure that if the
matter were litigated, the court would agree with
Globalstars interpretation of the agreements. Management
believes, however, that a court would agree with
Globalstars interpretation of the relevant agreements. The
notes are unsecured claims in Globalstars bankruptcy case.

In 2001, an issue was raised as to whether the
three-year notes issued to the guarantors of The Chase Manhattan
Bank $250 million credit facility were prepared in
accordance with the recourse provisions of the guarantee
arrangement. Management does not believe the existing notes
containing non-recourse language will need to be replaced with
notes not containing the non-recourse language. If the existing
non-recourse notes were replaced with notes not containing the
non-recourse language, the replacement would not impact
Globalstars results of operations. However, allocations of
Globalstars losses to general partners would increase by
the amount of the increase in recourse obligations.

Prior to filing Chapter 11,
$5.0 million of the notes payable to affiliates (Loral)
were offset with various receivables from Globalstar.



| |                                                  
| | -------------------------------------------------
| | $500 Million Credit Agreement with
    Affiliates

On August 5, 1999, Globalstar entered into a
$500 million credit agreement with a group of banks. The
creditors interests under the credit facility were
purchased by a wholly owned subsidiary of Loral on
November 17, 2000, which had previously guaranteed the
facility. As of December 31, 2002, all amounts under the
$500 million credit agreement were drawn. Borrowings under
the facilities bear interest, at

S-19



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##### Table of Contents



GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Globalstars option, at various rates based
on margins over the lead banks base rate or the LIBOR for
periods of one to six months. The claims of the Loral
subsidiary, in respect of this credit agreement constitute
unsecured claims in Globalstars bankruptcy case.

In consideration for the guarantee by Loral in
1999, Loral and certain Loral subsidiaries received warrants to
purchase an aggregate of 3,450,000 Globalstar partnership
interests, valued at $141.1 million, (equivalent to
approximately 13.8 million shares of common stock of GTL)
at an exercise price of $91.00 per partnership interest
(equivalent to $22.75 per share of GTL common stock). The
outstanding warrants are vested and expire in 2006. However, in
light of Globalstars Chapter 11 petition, the
warrants are likely to be of little or no value.

11. Senior Notes and Warrants

As of December 31, 2002, the senior notes
have been included in the liabilities subject to compromise (see
Note 8). No principal or interest payments will be made on
unsecured pre-petition debt without Bankruptcy Court approval or
until a plan of reorganization providing for the repayment terms
has been confirmed by the Bankruptcy Court and becomes
effective. Therefore, interest expense of $142.5 million
has not been accrued from the Petition Date through
December 31, 2002. Prior to the Petition Date, Globalstar
was increasing the carrying value of the senior notes payable to
their ultimate redemption value over the lives of the notes. On
the Petition Date, the note values were stayed, therefore the
carrying value was not increased by $10.0 million for the
period from the Petition Date through December 31, 2002.

In January 2001, Globalstar suspended
indefinitely principal and interest payments on its funded debt
in order to conserve cash for operations. Under the terms of
Globalstars 11 3/8% senior notes due
February 15, 2004, its 11 1/4% senior notes due
June 15, 2004, its 10 3/4% senior notes due
November 1, 2004, and its 11 1/2% senior notes due
June 1, 2005 (the Notes), non-payment of
interest on the Notes when it becomes due, and continuance of
non-payment for 30 days, is an event of
default. As a result of Globalstars bankruptcy
petition filed on February 15, 2002, these Notes were
accelerated and became immediately due and payable.

|                        |  |                |           |           |  |           |           |      |  |      |               |           |  |          |             |  |  |  |      |  |  |  |       |   |  |  |               | 
|----------------------- |  | -------------- | --------- | --------- |  | --------- | --------- | ---- |  | ---- | ------------- | --------- |  | -------- | ----------- |  |  |  | ---- |  |  |  | ----- | - |  |  | ------------- | 
|                        |  |                |           |           |  |           |           |      |  |      |               |          
|                        |  | December 31,   |           |           |  |           |           |      |  |      |               |          
|                        |  |                |           |           |  |           |           |      |  |      |               |          
|                        |  | 2002(1)        |           | 2001      |  |           |           |      |  |      |               | Effective |  |         
|                        |  |                |           |           |  |           |           |      |  | Due  |               | Interest  |  | Interest
|                        |  |                |           | Date Sold |  | Principal |           | Date |  | Rate |               | Payment  
|                        |  | (in thousands) |           |           |  |           |           |      |  |      |               |          
|11 3/8% Senior Notes(2) |  | $              | 489,217   |           |  | $         | 488,642   |      |  |      | February 1997 |           |  | $        | 500,000,000 |  |  |  | 2004 |  |  |  | 13.33 | % |  |  | Semi-annually | 
|11 1/4% Senior Notes(2) |  |                | 314,760   |           |  |           | 314,301   |      |  |      | June 1997     |           |  |          | 325,000,000 |  |  |  | 2004 |  |  |  | 13.57 | % |  |  | Semi-annually | 
|10 3/4% Senior Notes(2) |  |                | 322,635   |           |  |           | 322,545   |      |  |      | October 1997  |           |  |          | 325,000,000 |  |  |  | 2004 |  |  |  | 11.63 | % |  |  | Semi-annually | 
|11 1/2% Senior Notes(3) |  |                | 292,671   |           |  |           | 292,454   |      |  |      | May 1998      |           |  |          | 300,000,000 |  |  |  | 2005 |  |  |  | 13.12 | % |  |  | Semi-annually | 
|                        |  |                |           |           |  |           |           |      |  |      |               |           |  |          |             |  |  |  |      |  |  |  |       |   |  |  |               | 
|                        |  | $              | 1,419,283 |           |  | $         | 1,417,942 |      |  |      |               |           |  |          |             |  |  |  |      |  |  |  |       |   |  |  |               | 
|                        |  |                |           |           |  |           |           |      |  |      |               |           |  |          |             |  |  |  |      |  |  |  |       |   |  |  |               | 



---



|    |                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Balance is included as liabilities subject to
    compromise as of December 31, 2002, and interest was only
    accrued through the Petition Date.
|   
|(2) | Notes are subject to a prepayment premium prior
    to 2004.                                                                                      
|   
|(3) | Notes may not be redeemed prior to June 2003 and
    are subject to a prepayment premium prior to 2005.                                           

As of December 31, 2002, there were
outstanding warrants to purchase 3,814,897 shares of GTL common
stock which were issued in connection with the Globalstars
11 3/8 % Senior Notes, exercisable at a price of $17.394
per share, which expire on February 15, 2004. However, in
light of Globalstars Chapter 11 petition, the
warrants are likely to be of little or no value.

S-20



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##### Table of Contents



GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

12. Ordinary Partners
Capital



| |                     
| | --------------------
| | Capital Contribution

China Telecom has a warrant to acquire 937,500
Globalstar ordinary partnership interests for $18,750,000.
Globalstar had previously granted this and other warrants to
China Telecom in connection with service provider arrangements
in China under which China Telecommunications Broadcast
Satellite Corporation acts as the sole distributor of Globalstar
service in China. The fair value of the warrants issued to China
Telecom totaled approximately $31.9 million and has been
recorded in the accompanying balance sheet in other assets and
is being amortized over ten years, the expected life of the
first generation of satellites. Accumulated amortization as of
December 31, 2002 is $8.6 million.



| |                                                                       
| | ----------------------------------------------------------------------
| | 8% Series A Convertible Redeemable
    Preferred Partnership Interests

In 1999, Globalstar sold to GTL seven million
units (face amount of $50 per unit) of 8% RPPIs, in connection
with GTLs offering of 7 million shares (face amount
of $50 per share) of 8% Series A convertible redeemable
preferred stock due 2011 (the 8% Preferred Stock).
Dividends on the 8% RPPIs and the 8% Preferred Stock accrue at
8% per annum and are payable quarterly.

In 2002, 2,100 shares of the 8% Preferred Stock
were converted into 4,508 shares of GTL common stock. As a
result of the conversion, the 2,100 8% RPPIs were converted into
1,113 Globalstar ordinary partnership interests. The remaining
shares of 8% Preferred Stock outstanding at December 31,
2002 were convertible into 9,365,807 shares of GTL common
stock.

Each 8% RPPI is convertible into .53085 ordinary
partnership interests, subject to adjustment in the event of
subdivision, combination, or reclassification of the ordinary
partnership interests. As of December 31, 2002, the
outstanding 8% RPPIs were convertible into 2,312,546 of ordinary
partnership interests.

The 8% RPPIs rank pari passuwith the 9%
RPPIs and senior to ordinary partnership interests and have
terms substantially similar to the 8% Preferred Stock. However,
they are subordinate to all existing and future liabilities of
Globalstar, and cash distributions thereon are limited to the
amount of the partnership capital accounts that are maintained
for such interests. The 8% RPPIs will convert to ordinary
partnership interests upon any conversion of the 8% Preferred
Stock into GTL common stock. Payments due on the 8% RPPIs may be
made in cash, Globalstar ordinary partnership interests or a
combination of both at the option of Globalstar. In January
2001, Globalstar suspended distributions on the 8% RPPIs. As a
result, GTL suspended dividend payments on the 8% Preferred
Stock. The partnership agreement provides that, in the event
accrued and unpaid dividends accumulate to an amount equal to
six quarterly dividends on the 8% Preferred Stock, holders of
the majority of the outstanding 8% Preferred Stock and the
holders of any other securities having similar voting rights
will be entitled to elect one additional member to the general
partners committee of Globalstar. As of December 31, 2002,
this right has not been exercised.



| |                                                                       
| | ----------------------------------------------------------------------
| | 9% Series B Convertible Redeemable
    Preferred Partnership Interests

On December 2, 1999, Globalstar sold to GTL
three million units (face amount of $50 per unit) of 9% RPPIs in
connection with GTLs offering of 3 million shares
(face amount of $50 per share) of 9% Series B convertible
redeemable preferred stock due 2011 (the 9% Preferred
Stock). Dividends on the 9% RPPIs and the 9% Preferred
Stock accrue at 9% per annum and are payable quarterly.

In 2002, 1,303,933 shares of 9% Preferred Stock
were converted into 2,511,766 shares of GTL common stock. As a
result of such conversions, the 1,303,933 9% RPPIs were
converted into 620,189 Globalstar ordinary partnership
interests. As of December 31, 2002, the outstanding 9%
Preferred Stock was convertible into 750,213 shares of GTL
common stock.

S-21



---



##### Table of Contents



GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Each 9% RPPI is convertible into .47562 ordinary
partnership interests, subject to adjustment in the event of
subdivision, combination, or reclassification of the ordinary
partnership interests. As of December 31, 2002, the
outstanding 9% Preferred RPPIs were convertible into 185,171
ordinary partnership interests.

The 9% RPPIs rank pari passuwith the 8%
RPPIs and senior to ordinary partnership interests and have
terms substantially similar to the 9% Preferred Stock. However,
they are subordinate to all existing and future liabilities of
Globalstar, and cash distributions thereon are limited to the
amount of the partnership capital accounts that are maintained
for such interests. The 9% RPPIs will convert to ordinary
partnership interests upon any conversion of the 9% Preferred
Stock into GTL common stock. Payments due on the 9% RPPIs may be
made in cash, Globalstar ordinary partnership interests or a
combination of both at the option of Globalstar. In January
2001, Globalstar suspended distributions on the 9% RPPIs. As a
result, GTL suspended dividend payments on the 9% Preferred
Stock. The partnership agreement provides that, in the event
accrued and unpaid dividends accumulate to an amount equal to
six quarterly dividends on the 9% Preferred Stock, holders of
the majority of the outstanding 9% Preferred Stock and the
holders of any other securities having similar voting rights
will be entitled to elect one additional member to the general
partners committee of Globalstar. As of December 31, 2002,
this right has not been exercised.

Stock
Option Arrangements

Officers and employees of Globalstar are eligible
to participate in GTLs 1994 Stock Option Plan (the
Plan), which provides for nonqualified and incentive
stock options. The Plan is administered by a stock option
committee (the Committee), appointed by the GTL
Board of Directors. The Committee determines the option price,
exercise date and the expiration date of each option (provided
no option shall be exercisable after ten years from the date of
grant). Proceeds received by GTL for options exercised will be
used to purchase Globalstar ordinary partnership interests under
an approximate four-for-one exchange arrangement.

Globalstar issued 6,825 ordinary partnership
interests during 2000, in exchange for proceeds from
GTL option exercises. There were no ordinary partnership
interests issued in 2002 and 2001.

Globalstar accounts for its employee stock-based
compensation using the intrinsic value method in accordance with
APB 25, Accounting for Stock Issued to Employees and its
related interpretations. Accordingly, no compensation expense
has been recognized in Globalstars consolidated financial
statements for employee stock-based compensation; except for
$95,000 of compensation expense in 2000, related to the below
market option grants issued by Loral. There was no employee
stock-based compensation expense in 2002 and 2001. In addition,
during 2000, GTL granted stock options to certain non-employees
of Globalstar to purchase 167,000 shares of GTL common stock.
The fair value of such options totaled approximately $290,000.
The fair value attributable to the unvested portion of such
options is subject to adjustment based upon the future value of
GTLs common stock.

SFAS 123 requires the disclosure of pro forma net
income and earnings per share as if Globalstar adopted the fair
value method. Under SFAS 123, the fair value of stock-based
awards to employees is calculated through the use of option
pricing models, even though such models were developed to
estimate the fair value of freely tradable, fully transferable
options without vesting restriction, which significantly differ
from Globalstars stock option awards. These models also
require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect
the calculated values. Globalstars calculations (see
Note 3) were made using the Black-Scholes option pricing
model with the following weighted average assumptions: expected
life, six to twelve months following vesting; stock volatility,
70% for 2002, 2001 and 2000; risk free interest rates, 4.4% to
6.6% based on the date of grant; and no dividends during the
expected term. Globalstars calculations are based on a
multiple option valuation approach and forfeitures are
recognized as they occur.

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##### Table of Contents



GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A summary of the status of the Plan for the years
ended December 31, 2002, 2001 and 2000 is presented below:

|                                                             |  |        |            |           |  |   |       | 
|------------------------------------------------------------ |  | ------ | ---------- | --------- |  | - | ----- | 
|                                                             |  |        |            | Weighted-
|                                                             |  |        |            | Average  
|                                                             |  |        |            | Exercise 
|                                                             |  | Shares |            | Price    
|                                                             |  |        |            |          
|Outstanding at January 1, 2000                               |  |        | 4,643,800  |           |  |   | 20.03 | 
|Granted (weighted average fair value of $4.04 per
    share) |  |        | 4,566,250  |           |  |   | 9.76  | 
|Forfeited                                                    |  |        | (984,750   | )         |  |   | 16.29 | 
|Exercised                                                    |  |        | (26,300    | )         |  |   | 10.72 | 
|                                                             |  |        |            |           |  |   |       | 
|Outstanding at December 31, 2000                             |  |        | 8,199,000  |           |  |   | 14.79 | 
|Granted                                                      |  |        |           |           |  |   |      | 
|Forfeited                                                    |  |        | (1,745,638 | )         |  |   | 15.50 | 
|Exercised                                                    |  |        |           |           |  |   |      | 
|                                                             |  |        |            |           |  |   |       | 
|Outstanding at December 31, 2001                             |  |        | 6,453,362  |           |  |   | 14.46 | 
|Granted                                                      |  |        |           |           |  |   |      | 
|Forfeited                                                    |  |        | (1,044,795 | )         |  |   | 14.09 | 
|Exercised                                                    |  |        |           |           |  |   |      | 
|                                                             |  |        |            |           |  |   |       | 
|Outstanding at December 31, 2002                             |  |        | 5,408,567  |           |  | $ | 14.96 | 
|                                                             |  |        |            |           |  |   |       | 
|Outstanding at December 31, 2001                             |  |        | 2,425,071  |           |  | $ | 11.87 | 
|                                                             |  |        |            |           |  |   |       | 
|Outstanding at December 31, 2000                             |  |        | 1,123,816  |           |  | $ | 14.20 | 
|                                                             |  |        |            |           |  |   |       | 

The options generally expire ten years from the
date of grant and become exercisable over the period stated in
each option, generally ratably over a five-year period except
for 4,336,250 options granted in 2000 which become exercisable
ratably over a three-year period. All options granted were
non-qualified stock options with an exercise price equal to fair
market value at the date of grant. As of December 31, 2002,
4,490,733 shares of common stock were available for future grant
under the Plan.

The following table summarizes information about
GTLs outstanding stock options at December 31, 2002:

|                     |  |             |           |             |  |          |      |        |  |          |       |  |  |  |           |  |  |   |       | 
|-------------------- |  | ----------- | --------- | ----------- |  | -------- | ---- | ------ |  | -------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                     |  |             |           |            
|                     |  | Outstanding |           | Exercisable
|                     |  |             |           |            
|                     |  |             |           | Weighted    |  |          |      |       
|                     |  |             |           | Average     |  | Weighted |      |        |  | Weighted
|                     |  |             |           | Remaining   |  | Average  |      |        |  | Average 
|                     |  |             |           | Contractual |  | Exercise |      |        |  | Exercise
|Exercise Price Range |  | Number      |           | Life-Years  |  | Price    |      | Number |  | Price   
|                     |  |             |           |             |  |          |      |        |  |         
|$3.01 to $4.64       |  |             | 198,000   |             |  |          | 4.03 |        |  | $        | 4.11  |  |  |  | 195,333   |  |  | $ | 4.13  | 
|$4.65 to $17.15      |  |             | 3,156,617 |             |  |          | 6.81 |        |  |          | 9.73  |  |  |  | 2,336,892 |  |  |   | 9.96  | 
|$17.16 to $29.03     |  |             | 1,809,450 |             |  |          | 6.12 |        |  |          | 23.11 |  |  |  | 1,058,200 |  |  |   | 23.28 | 
|$29.04 to $31.41     |  |             | 244,500   |             |  |          | 6.21 |        |  |          | 30.98 |  |  |  | 193,750   |  |  |   | 31.00 | 
|                     |  |             |           |             |  |          |      |        |  |          |       |  |  |  |           |  |  |   |       | 
|                     |  |             | 5,408,567 |             |  |          | 6.45 |        |  | $        | 14.96 |  |  |  | 3,784,175 |  |  | $ | 14.46 | 
|                     |  |             |           |             |  |          |      |        |  |          |       |  |  |  |           |  |  |   |       | 

13. Restructuring

Beginning in 2001, Globalstar implemented a
number of initiatives designed to reduce its cost of operations
and restructure the companys finances. These initiatives
included reductions in Globalstars workforce, the
development of financial restructuring plans, negotiations with
Globalstars significant creditors, and the initiation of
Globalstars Chapter 11 cases on February 15,
2002. As a result of the restructuring

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GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

efforts, Globalstar has recorded cumulative
charges totaling $19.7 million through December 31,
2002. Restructuring and reorganization charges recorded in the
quarter ended December 31, 2002 were $2.3 million,
including $1.4 million in Globalstar advisory fees,
$0.7 million in creditor advisory fees, and $0.2 in
employee separation costs. Since the Petition Date, all advisory
fees are expensed as incurred as reorganization charges and
interest income is recognized as a reorganization item,
consistent with SOP 90-7.

A summary of the restructuring charges incurred
from the beginning of 2001 through December 31, 2002 are as
follows (in millions):

|                          |       |          |      |         |  |           |     |      |  |   |     |     | 
|------------------------- | ----- | -------- | ---- | ------- |  | --------- | --- | ---- |  | - | --- | --- | 
|                          |       | Amounts  |      | Amounts |  | Accrued  
|                          |       | Expensed |      | Paid    |  | Liability
|                          |       |          |      |         |  |          
|Globalstar advisory fees  |       | $        | 10.3 |         |  | $         | 7.7 |      |  | $ | 2.6 |    
|Creditor advisory fees    |       |          | 4.5  |         |  |           | 3.6 |      |  |   | 0.9 |    
|Employee separation costs |       |          | 5.1  |         |  |           | 5.1 |      |  |   |    |    
|Other restructuring costs |       |          | 0.1  |         |  |           | 0.1 |      |  |   |    |    
|                          |       |          |      |         |  |           |     |      |  |   |     |    
|                          | Total |          |      | 20.0    |  |           | $   | 16.5 |  |   | $   | 3.5 | 
|                          |       |          |      |         |  |           |     |      |  |   |     |    
|Less interest income      |       |          | 0.3  |         |  |           |     |      |  |   |     |    
|                          |       |          |      |         |  |           |     |      |  |   |     |    
|Total                     |       | $        | 19.7 |         |  |           |     |      |  |   |     |    
|                          |       |          |      |         |  |           |     |      |  |   |     |    

Globalstar Advisory Fees  Globalstar
has retained financial advisors, restructuring counsel and other
advisors to assist in the development of its financial
restructuring plans, discussions with its various creditor
groups and preparation for its Chapter 11 bankruptcy
petition. The remaining $2.6 million accrued as of
December 31, 2002 related to fees that were incurred, but
either not billed by the advisors or fees that were waiting for
court approval to be paid.

Creditor Advisory Fees  At
Globalstars expense, Globalstars informal committee
of bondholders and later the official Creditors Committee
retained financial advisors and restructuring counsel.
Globalstar discontinued paying the informal committees
expenses upon formation of the official Creditors
Committee. The remaining $0.9 million accrued as of
December 31, 2002 related to fees that were incurred, but
either not billed by the advisors or fees that were waiting for
court approval to be paid.

Employee Separation Costs  Globalstar
reduced its workforce from 439 full-time employees as of
January 1, 2001 to 146 full-time employees and
2 part-time employees as of December 31, 2002,
including 25 GUSA employees added as of August 19,
2002, primarily through three separate actions in March, July
and September of 2001. Employee separation costs of
$4.9 million and $0.2 million were recorded for the
year 2001 and 2002, respectively, for employee severance
obligations, payments in accordance with Globalstars
retention bonus program and fringe benefit costs related to
terminated employees.

14. Pensions and Other Employee
Benefits

Pensions

Globalstar maintains a pension plan and a
supplemental executive retirement plan. These plans are defined
benefit pension plans and members in certain locations may
contribute to the pension plan in order to receive enhanced
benefits. Eligibility for participation in these plans varies
and benefits are based on members compensation and years
of service. Globalstars funding policy is to fund the
pension plan in accordance with the Internal Revenue Code and
regulations thereon and to fund the supplemental retirement plan
on an actuarial basis, including service cost and amortization
amounts. Plan assets are generally invested in United States
government and agency obligations and listed stocks and bonds.

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##### Table of Contents



GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Other
Benefits

In addition to providing pension benefits,
Globalstar provides certain health care and life insurance
benefits for retired employees and dependents. Participants are
eligible for these benefits when they retire from active service
and meet the eligibility requirements for Globalstars
pension plan. The life insurance coverage is provided at no cost
to retirees and the health care coverage is funded primarily on
a pay-as-you-go basis with the retiree generally paying a
portion of the cost through contributions, deductibles and
coinsurance provisions.

The following tables provide a reconciliation of
the changes in the plans benefit obligations and fair
value of assets for 2002 and 2001, and a statement of the funded
status as of December 31, 2002 and 2001, respectively.

|                                                |  |                  |        |                |  |      |        |      |  |   |        |   |  |   |        |  
|----------------------------------------------- |  | ---------------- | ------ | -------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                |  |                  |        |               
|                                                |  | Pension Benefits |        | Other Benefits
|                                                |  |                  |        |               
|                                                |  | 2002             |        | 2001           |  | 2002 |        | 2001
|                                                |  |                  |        |                |  |      |        |     
|                                                |  |                 
|                                                |  | (in thousands)  
|Reconciliation of benefit obligation            |  |                  |        |                |  |      |        |      |  |   |        |   |  |   |        |  
|Obligation at January 1                         |  | $                | 11,328 |                |  | $    | 9,337  |      |  | $ | 1,856  |   |  | $ | 1,407  |  
|Service cost                                    |  |                  | 427    |                |  |      | 695    |      |  |   | 77     |   |  |   | 154    |  
|Interest cost                                   |  |                  | 831    |                |  |      | 793    |      |  |   | 84     |   |  |   | 129    |  
|Participant contributions                       |  |                  | 84     |                |  |      | 170    |      |  |   | 37     |   |  |   | 31     |  
|Actuarial (gain) loss                           |  |                  | 647    |                |  |      | 893    |      |  |   | (471   | ) |  |   | 147    |  
|Benefit payments                                |  |                  | (459   | )              |  |      | (560   | )    |  |   | (29    | ) |  |   | (12    | )
|                                                |  |                  |        |                |  |      |        |      |  |   |        |   |  |   |        |  
|Obligation at December 31                       |  | $                | 12,858 |                |  | $    | 11,328 |      |  | $ | 1,554  |   |  | $ | 1,856  |  
|                                                |  |                  |        |                |  |      |        |      |  |   |        |   |  |   |        |  
|Reconciliation of fair value of plan
    assets |  |                  |        |                |  |      |        |      |  |   |        |   |  |   |        |  
|Fair value of plan assets at January 1          |  | $                | 7,151  |                |  | $    | 7,760  |      |  | $ | 39     |   |  | $ | 37     |  
|Actual return on plan assets                    |  |                  | (683   | )              |  |      | (666   | )    |  |   | 1      |   |  |   | 2      |  
|Employer contributions                          |  |                  | 1,064  |                |  |      | 447    |      |  |   | (8     | ) |  |   | (19    | )
|Participant contributions                       |  |                  | 84     |                |  |      | 170    |      |  |   | 36     |   |  |   | 31     |  
|Benefit payments                                |  |                  | (459   | )              |  |      | (560   | )    |  |   | (29    | ) |  |   | (12    | )
|                                                |  |                  |        |                |  |      |        |      |  |   |        |   |  |   |        |  
|Fair value of plan assets at December 31        |  | $                | 7,157  |                |  | $    | 7,151  |      |  | $ | 39     |   |  | $ | 39     |  
|                                                |  |                  |        |                |  |      |        |      |  |   |        |   |  |   |        |  
|Funded status                                   |  |                  |        |                |  |      |        |      |  |   |        |   |  |   |        |  
|Funded (unfunded) status at December 31         |  | $                | (5,701 | )              |  | $    | (4,177 | )    |  | $ | (1,515 | ) |  | $ | (1,817 | )
|Unrecognized (gain) loss                        |  |                  | 4,615  |                |  |      | 2,629  |      |  |   | (116   | ) |  |   | 334    |  
|Unrecognized prior service cost                 |  |                  |       |                |  |      |        |      |  |   | 328    |   |  |   | 364    |  
|Unrecognized transition obligation (asset)      |  |                  | (133   | )              |  |      | (173   | )    |  |   |       |   |  |   |       |  
|                                                |  |                  |        |                |  |      |        |      |  |   |        |   |  |   |        |  
|Net amount recognized in accrued liabilities    |  | $                | (1,219 | )              |  | $    | (1,721 | )    |  | $ | (1,303 | ) |  | $ | (1,119 | )
|                                                |  |                  |        |                |  |      |        |      |  |   |        |   |  |   |        |  

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##### Table of Contents



GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table provides the components of
net periodic benefit cost for the plans for the years ended
December 31, 2002, 2001 and 2000, respectively (in
thousands):

|                                 |  |                  |      |                |  |      |      |      |  |      |      |      |  |   |     |   |  |   |     |   |  |   |     |  
|-------------------------------- |  | ---------------- | ---- | -------------- |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  | - | --- | - |  | - | --- | - |  | - | --- | -
|                                 |  |                  |      |               
|                                 |  | Pension Benefits |      | Other Benefits
|                                 |  |                  |      |               
|                                 |  | 2002             |      | 2001           |  | 2000 |      | 2002 |  | 2001 |      | 2000
|                                 |  |                  |      |                |  |      |      |      |  |      |      |     
|Service cost                     |  | $                | 427  |                |  | $    | 695  |      |  | $    | 532  |      |  | $ | 77  |   |  | $ | 154 |   |  | $ | 100 |  
|Interest cost                    |  |                  | 831  |                |  |      | 793  |      |  |      | 662  |      |  |   | 84  |   |  |   | 129 |   |  |   | 101 |  
|Expected return on plan assets   |  |                  | (723 | )              |  |      | (720 | )    |  |      | (796 | )    |  |   | (3  | ) |  |   | (4  | ) |  |   | (3  | )
|Amortization of net (gain) loss  |  |                  | (40  | )              |  |      | (40  | )    |  |      | (40  | )    |  |   | 38  |   |  |   | 38  |   |  |   | 38  |  
|Recognized actuarial (gain) loss |  |                  | 66   |                |  |      | 4    |      |  |      | (51  | )    |  |   | (19 | ) |  |   | 10  |   |  |   | 4   |  
|                                 |  |                  |      |                |  |      |      |      |  |      |      |      |  |   |     |   |  |   |     |   |  |   |     |  
|Net periodic benefit cost        |  | $                | 561  |                |  | $    | 732  |      |  | $    | 307  |      |  | $ | 177 |   |  | $ | 327 |   |  | $ | 240 |  
|                                 |  |                  |      |                |  |      |      |      |  |      |      |      |  |   |     |   |  |   |     |   |  |   |     |  

The principal actuarial assumptions were:

|                               |  |      |      |      |  |      |      |   |  |  |      |  
|------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                               |  | 2002 |      | 2001 |  | 2000
|                               |  |      |      |      |  |     
|Discount rate                  |  |      | 6.75 | %    |  |      | 7.50 | % |  |  | 7.75 | %
|Expected return on plan assets |  |      | 9.00 | %    |  |      | 9.50 | % |  |  | 9.50 | %
|Rate of compensation increase  |  |      | 4.25 | %    |  |      | 4.25 | % |  |  | 4.25 | %

Actuarial assumptions used a health care cost
trend rate of 11.0% decreasing gradually to 4.5% by 2009.
Assumed health care cost trend rates have a significant effect
on the amounts reported for the health care plans. A 1% change
in assumed health care cost trend rates for 2002 would have the
following effects:

|                                                                                                                     |  |             |         |             |  |   |          |  
|-------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------- | ----------- |  | - | -------- | -
|                                                                                                                     |  | 1% Increase |         | 1% Decrease
|                                                                                                                     |  |             |         |            
|Effect on total service and interest cost
    components of net periodic postretirement health care benefit
    cost |  | $           | 36,353  |             |  | $ | (28,057  | )
|Effect on the health care component of the
    accumulated postretirement benefit obligation                         |  |             | 193,216 |             |  |   | (152,413 | )

Employee
Savings Plan

In 1996, Globalstar adopted an employee savings
plan which provides that Globalstar match the contributions of
participating employees up to a designated level. Under this
plan, the matching contributions were approximately $347,000,
$432,000 and $701,000 for 2002, 2001 and 2000, respectively.

S-26



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##### Table of Contents



GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

15. Taxes

Globalstar is organized as a limited partnership
with various corporate subsidiaries. Generally, taxable income
or loss, deductions and credits of the partnership are passed
through to its partners. Globalstars corporate
subsidiaries provision (benefit) for income taxes consists
of (in thousands):

|         |             |                          |   |      |    |      |   |    |    |  |   |     |     | 
|-------- | ----------- | ------------------------ | - | ---- | -- | ---- | - | -- | -- |  | - | --- | --- | 
|         |             |                         
|         |             | Years ended December 31,
|         |             |                         
|         |             | 2002                     |   | 2001 |    | 2000
|         |             |                          |   |      |    |     
|Current  |             |                          |   |      |    |      |   |    |    |  |   |    
|         | Federal     |                          | $ |     |    |      | $ | 37 |    |  | $ | 186 |    
|         | State       |                          |   |     |    |      |   | 8  |    |  |   | 28  |    
|         | Foreign tax |                          |   | 66   |    |      |   | 28 |    |  |   | 32  |    
|         |             |                          |   |      |    |      |   |    |    |  |   |    
|         |             | Total                    |   | $    | 66 |      |   | $  | 73 |  |   | $   | 246 | 
|         |             |                          |   |      |    |      |   |    |    |  |   |    
|Deferred |             |                          |   |      |    |      |   |    |    |  |   |    
|         | Federal     |                          | $ |     |    |      | $ |   |    |  | $ |    |    
|         | State       |                          |   |     |    |      |   |   |    |  |   |    |    
|         | Foreign tax |                          |   |     |    |      |   |   |    |  |   |    |    
|         |             | Total                    |   | $    |   |      |   | $  |   |  |   | $   |    | 
|         |             |                          |   |      |    |      |   |    |    |  |   |    
|         |             | Total                    |   | $    | 66 |      |   | $  | 73 |  |   | $   | 246 | 
|         |             |                          |   |      |    |      |   |    |    |  |   |    

The components of the net deferred income tax
assets as of December 31, were as follows (in thousands):

|                                        |                        |      |        |      |  |   |      |   | 
|--------------------------------------- | ---------------------- | ---- | ------ | ---- |  | - | ---- | - | 
|                                        |                        | 2002 |        | 2001
|                                        |                        |      |        |     
|Net operating loss/credit carryforwards |                        | $    | 1,720  |      |  | $ | 69   |  
|Fixed assets                            |                        |      | 2,211  |      |  |   | 412  |  
|Accruals and reserves                   |                        |      | 2,258  |      |  |   | 339  |  
|                                        |                        |      |        |      |  |   |      |  
|Gross deferred tax asset                |                        |      | 6,189  |      |  |   | 820  |  
|Valuation allowance                     |                        |      | (6,189 | )    |  |   | (820 | )
|                                        |                        |      |        |      |  |   |      |  
|                                        | Net deferred tax asset |      | $      |     |  |   | $    |  | 
|                                        |                        |      |        |      |  |   |      |  

As of December 31, 2002, Globalstars
corporate subsidiaries have cumulative net operating loss
carryforwards for federal income tax reporting purposes of
approximately $3,271,000. The federal net operating loss
carryforwards expire in varying dates in 2021 and 2022. Under
current tax law, net operating loss carryforwards available in
any given year may be limited upon the occurrence of certain
events, including significant changes in ownership interest
resulting from significant stock transactions.

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GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The actual provision for income taxes differs
from the statutory U.S. federal income tax rate as follows
(in thousands):

|                                              |       |                          |         |      |  |      |          |    |  |   |            |     | 
|--------------------------------------------- | ----- | ------------------------ | ------- | ---- |  | ---- | -------- | -- |  | - | ---------- | --- | 
|                                              |       |                         
|                                              |       | Years ended December 31,
|                                              |       |                         
|                                              |       | 2002                     |         | 2001 |  | 2000
|                                              |       |                          |         |      |  |     
|Provision at U.S. statutory rate of 35%       |       | $                        | (52,485 | )    |  | $    | (201,429 | )  |  | $ | (1,324,985 | )  
|Nontaxable partnership income                 |       |                          | 46,680  |      |  |      | 201,346  |    |  |   | 1,321,708  |    
|State income taxes, net of federal benefit    |       |                          | (32     | )    |  |      | 8        |    |  |   | 29         |    
|Change in valuation allowance                 |       |                          | 5,369   |      |  |      | 65       |    |  |   | 3,318      |    
|Effect of foreign income tax at various rates |       |                          | 421     |      |  |      | 16       |    |  |   |           |    
|Other                                         |       |                          | 113     |      |  |      | 67       |    |  |   | 176        |    
|                                              |       |                          |         |      |  |      |          |    |  |   |            |    
|                                              | Total |                          | $       | 66   |  |      | $        | 73 |  |   | $          | 246 | 
|                                              |       |                          |         |      |  |      |          |    |  |   |            |    

16. Revenue Information

Globalstars revenue by subsidiary and
affiliated companies is presented for purposes of disseminating
the distribution of Globalstars revenue and is as follows
(in thousands):

|                                         |                                                         |                          |        |         |        |         |       |     |       |   |       |   |       | 
|---------------------------------------- | ------------------------------------------------------- | ------------------------ | ------ | ------- | ------ | ------- | ----- | --- | ----- | - | ----- | - | ----- | 
|                                         |                                                         |                         
|                                         |                                                         | Years ended December 31,
|                                         |                                                         |                         
|                                         |                                                         | 2002                     |        | 2001(1) |        | 2000(1)
|                                         |                                                         |                          |        |         |        |        
|Wholesale revenue  Globalstar,
    L.P. |                                                         | $                        | 5,776  |         |        | $       | 5,994 |     |       | $ | 3,650 |  
|Service provider revenue:                |                                                         |                          |        |         |        |         |       |     |       |   |       |  
|                                         | Canada  Globalstar Canada Satellite Co.                |                          |        | 15,916  |        |         |       | 410 |       |   |       |  |      
|                                         | United States  Globalstar USA, LLC                     |                          |        | 6,732   |        |         |       |    |       |   |       |  |      
|                                         | Europe  Globalstar Europe Satellite
    Services, Ltd. |                          |        | 72      |        |         |       |    |       |   |       |  |      
|Eliminations                             |                                                         |                          | (3,857 | )       |        |         |      |     |       |   |      |  
|                                         |                                                         |                          |        |         |        |         |       |     |       |   |       |  
|                                         |                                                         | Total revenue            |        | $       | 24,639 |         |       | $   | 6,404 |   |       | $ | 3,650 | 
|                                         |                                                         |                          |        |         |        |         |       |     |       |   |       |  

The following table provides Globalstar,
L.P.s net wholesale revenue by geographical location for
the years ended December 31, 2002, 2001 and 2000 (in
thousands):

|                |  |                          |       |      |  |      |       |  |  |   |       | 
|--------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                |  |                         
|                |  | Years ended December 31,
|                |  |                         
|                |  | 2002                     |       | 2001 |  | 2000
|                |  |                          |       |      |  |     
|Canada          |  | $                        | 1,436 |      |  | $    | 1,135 |  |  | $ | 500   | 
|Brazil          |  |                          | 857   |      |  |      | 1,536 |  |  |   | 356   | 
|United States   |  |                          | 773   |      |  |      | 566   |  |  |   | 270   | 
|East Asia       |  |                          | 645   |      |  |      | 160   |  |  |   | 35    | 
|Saudi Arabia    |  |                          | 494   |      |  |      | 320   |  |  |   | 41    | 
|Russia          |  |                          | 363   |      |  |      | 361   |  |  |   | 75    | 
|Caribbean       |  |                          | 234   |      |  |      | 192   |  |  |   | 16    | 
|Mexico          |  |                          | 169   |      |  |      | 243   |  |  |   | 167   | 
|Other(1)        |  |                          | 805   |      |  |      | 1,481 |  |  |   | 2,190 | 
|                |  |                          |       |      |  |      |       |  |  |   |       | 
|Service revenue |  | $                        | 5,776 |      |  | $    | 5,994 |  |  | $ | 3,650 | 
|                |  |                          |       |      |  |      |       |  |  |   |       | 



---



|    |                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $0.1 million and $1.5 million
    of royalty income for 2001 and 2000, respectively. There was no
    royalty revenue in 2002.

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GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

17. Financial Instruments

The following methods and assumptions were used
to estimate the fair value of each class of financial
instruments for which it is practicable to estimate fair value.

The carrying amounts of cash and cash equivalents
approximates fair value because of the short maturity of those
instruments. The fair value of the senior notes is based on
market quotations. The fair value of the vendor financing, notes
payable, notes payable to affiliates, and the credit agreement
is based on the ratio of the carrying amount to fair value of
the senior notes.

The estimated fair values of Globalstars
financial instruments are as follows (in thousands):

|                            |  |                   |         |                   |  |          |        |       |  |   |         |  |  |   |        | 
|--------------------------- |  | ----------------- | ------- | ----------------- |  | -------- | ------ | ----- |  | - | ------- |  |  | - | ------ | 
|                            |  |                   |         |                  
|                            |  | December 31, 2002 |         | December 31, 2001
|                            |  |                   |         |                  
|                            |  | Carrying          |         | Fair              |  | Carrying |        | Fair 
|                            |  | Amount            |         | Value             |  | Amount   |        | Value
|                            |  |                   |         |                   |  |          |        |      
|Cash and cash equivalents   |  | $                 | 15,284  |                   |  | $        | 15,284 |       |  | $ | 55,625  |  |  | $ | 55,625 | 
|Vendor financing            |  |                   | 880,062 |                   |  |          | 35,202 |       |  |   | 869,385 |  |  |   | 56,510 | 
|10 3/4% Senior notes        |  |                   | 322,635 |                   |  |          | 13,000 |       |  |   | 322,545 |  |  |   | 21,125 | 
|11 1/4% Senior notes        |  |                   | 314,760 |                   |  |          | 13,000 |       |  |   | 314,301 |  |  |   | 21,125 | 
|11 3/8% Senior notes        |  |                   | 489,217 |                   |  |          | 20,000 |       |  |   | 488,642 |  |  |   | 32,500 | 
|11 1/2% Senior notes        |  |                   | 292,671 |                   |  |          | 12,000 |       |  |   | 292,454 |  |  |   | 19,500 | 
|Notes payable               |  |                   | 170,832 |                   |  |          | 6,833  |       |  |   | 169,787 |  |  |   | 11,036 | 
|Notes payable to affiliates |  |                   | 108,204 |                   |  |          | 4,328  |       |  |   | 107,543 |  |  |   | 6,990  | 
|Revolving credit facility   |  |                   | 100,000 |                   |  |          | 4,000  |       |  |   | 100,000 |  |  |   | 6,500  | 
|Term Loan A                 |  |                   | 100,000 |                   |  |          | 4,000  |       |  |   | 100,000 |  |  |   | 6,500  | 
|Term Loan B                 |  |                   | 300,000 |                   |  |          | 12,000 |       |  |   | 300,000 |  |  |   | 19,500 | 

18. Related Party Transactions

In addition to the transactions described in
Notes 4, 5, 7, 8, 9, 10, 11, 12, 13 and 14, Globalstar has
a number of other transactions with its affiliates. Such
transactions have been negotiated on an arms-length basis and
Globalstar believes that the arrangements are no less favorable
to Globalstar than could be obtained from unaffiliated parties.
The following describes these related-party transactions.

Globalstar has granted to SS/L an irrevocable,
royalty-free, non-exclusive license to use certain intellectual
property expressly developed in connection with the SS/L
agreement provided that SS/L will not use, or permit others to
use, such license for the purpose of engaging in any business
activity that would be in material competition with Globalstar.
Globalstar has similarly agreed that it will not license such
intellectual property if it will be used for the purpose of
designing or building satellites that would be in competition
with SS/L.

On July 17, 2001, the FCC granted Globalstar
and seven other applicants authorizations to construct, launch
and operate MSS systems in the 2 GHz band, subject to strict
milestone requirements. Globalstar entered into a non-contingent
contract with SS/L on July 16, 2002. On January 30,
2003, the FCCs International Bureau declared the 2 GHz
license to be null and void. Globalstar believes that this
action by the FCCs staff is inconsistent with the facts
and the law and has requested the full FCC to review and reverse
it. Globalstar has also requested the full FCC to stay the
Bureaus decision pending review. On January 31, 2003,
Globalstar instructed SS/L to stop work on the contract and
requested repayment of the balance of the payment that had not
been spent.

In 1998, Globalstar secured twelve-month call-up
orders for two additional Delta launch vehicles from SS/L for
the purpose of launching spare satellites. The call-up date for
Delta 8 was September 8, 2002, and

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GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the call-up date for Delta 9 was March 31,
2002. During 2002, Globalstar sought and received several
no-cost month-to-month deferrals of the call-up deadline for
Delta 9. In October 2002, the launch contractor declined to
grant additional no-cost extensions. Globalstar determined that
it would be more advantageous to terminate the launches than to
begin to make the required progress payments and requested SS/L
to terminate the launches if further no cost extensions could
not be secured. Consequently, SS/L terminated the Globalstar
Delta 8 and 9 launches on October 31, 2002.

Globalstar has requested further information from
SS/L related to the termination including SS/Ls actual
costs related to the termination and the disposition of
Globalstar unique hardware related to these launch vehicles. In
the fourth quarter of 2002, Globalstar wrote off the deposit of
$1.2 million related to the additional Delta launch
vehicles. Additionally, SS/L has advised Globalstar that SS/L
will invoice Globalstar for $17.2 million of remaining
termination liability related to these launches. Globalstar
believes that this termination liability will not be classified
as an administrative claim in its bankruptcy case, and has
recorded the liability as a pre-petition liability subject to
compromise.

Globalstar has granted to QUALCOMM an
irrevocable, non-exclusive, worldwide perpetual license to
intellectual property owned by Globalstar in the Ground Segment
and developed pursuant to the QUALCOMM agreement. QUALCOMM may,
pursuant to such grant, use the intellectual property for
applications other than the Globalstar System provided that
QUALCOMM may not for a period of three years after its
withdrawal as a strategic partner or prior to the third
anniversary of the Full Constellation Date (as defined is such
grant), whichever is earlier, engage in any business activity
that would be in competition with the Globalstar System. The
grant of intellectual property to QUALCOMM described above is
generally royalty free. Under certain specified circumstances,
however, QUALCOMM will be required to pay a 3% royalty fee on
such intellectual property.

Globalstar entered into agreements with certain
limited partners, for the integration and testing of the
Globalstar System at certain of the partners gateways.
Costs incurred under these arrangements for the years ended
December 31, 2001 and 2000 were approximately $374,000 and
$1,050,000, for 2001 and 2000, respectively. There were no costs
incurred in 2002.

QUALCOMM initially agreed to grant at least one
vendor a nonexclusive worldwide license to use QUALCOMMs
intellectual property to manufacture and sell gateways to
Globalstars service providers. The foregoing license would
be granted by QUALCOMM to one or more such vendors on reasonable
terms and conditions, which will in any event not provide for
royalty fees in excess of 7% of a gateways sales price
(not including the approximately $400,000 per gateway in
recoupment expenses payable to Globalstar). Thus far, no other
vendor has committed to manufacture gateways, and Globalstar
does not expect any other vendor to manufacture gateways.
QUALCOMM granted a license to manufacture Globalstar user
terminals to Ericsson and Telit and also agreed to grant a
similar license to at least one additional qualified
manufacturer to enable it to manufacture and sell the Globalstar
user terminals to service providers. However, these rights were
granted under the Development Contract, which QUALCOMM has
purported to terminate.

Subsidiaries of Loral have formed joint ventures
with partners which have executed service provider agreements
granting the joint ventures exclusive rights to provide
Globalstar service to users in Brazil, Canada, Mexico, and
Russia as long as specified minimum levels of subscribers are
met. In December 2001, a subsidiary of Globalstar acquired a
majority interest in the Canadian service provider business. As
a result of this transaction, Globalstar and Loral are now
partners in the Canadian joint venture. Because of the
consolidation, all transactions with GCSC are eliminated.
Founding service provider agreements have been entered into with
certain of Globalstars limited partners for specific
countries. These service providers will receive certain
discounts from Globalstars expected pricing schedule
generally over a five-year period. Globalstar has also agreed to
provide QUALCOMM, under certain circumstances, with capacity on
the Globalstar System for its OmniTRACS services at its most
favorable rates and to grant to QUALCOMM the exclusive right to
utilize the Globalstar System to provide OmniTRACS-like services.

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GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On December 30, 2002, the Bankruptcy Court
approved a settlement agreement among Globalstar Services
Company, Inc. (GSCI), Globalstar, Globalstar
Vodafone Network Pty Ltd. Australia and Globalstar Australia Pty
Ltd. Under this settlement, Globalstar consented to the transfer
by Vodafone Satellite Services Limited (VSSL) to
Localstar of the service provider rights in Australia, and
Globalstar entered into a new service provider agreement with
Localstar. VSSL was the original authorized service provider for
Australia and the operator of three gateways in that country. In
conjunction with this transaction, VSSL agreed to settle certain
pre-petition and post-petition debts with Globalstar. Globalstar
received payments totaling $1.7 million from Vodafone in
January 2003.

Globalstar has entered into various agreements
with other service providers and gateway operators to provide
and receive various services related to the Globalstar business.
Currently, Globalstar is providing retail billing support to its
service providers in Mexico and Brazil, on a cost reimbursable
basis. Additionally, Globalstar has agreements in place to
provide, also on cost reimbursable basis, certain information
technology and telecommunications network related support to
GCC, in which it holds a minority interest. Also, GCC bills
Globalstar for the monitoring of gateways in United States,
Canada, and France. In addition, Globalstar is billed for all
costs related to the operations of the gateways located in
Canada, as cost recovery mechanism for GCC. Globalstar also net
settles with other service providers roaming charges that arise
from subscribers using gateways other then their home gateway to
complete calls on the Globalstar System. During 2002, Globalstar
billed $0.5 million under these agreements.

Total gross receivables due from affiliates for
amounts financed under the production gateway contracts, usage,
and other services is as follows (in thousands):

|                 |  |              |        |      |  |   |        | 
|---------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                 |  |             
|                 |  | December 31,
|                 |  |             
|                 |  | 2002         |        | 2001
|                 |  |              |        |     
|SS/L             |  | $            | 1,586  |      |  | $ | 325    | 
|Loral            |  |              | 4,994  |      |  |   | 6,535  | 
|Other affiliates |  |              | 25,682 |      |  |   | 48,109 | 
|                 |  |              |        |      |  |   |        | 
|                 |  | $            | 32,262 |      |  | $ | 54,969 | 
|                 |  |              |        |      |  |   |        | 

Total purchases from affiliates is as follows (in
thousands):

|                 |  |                          |        |      |  |      |        |  |  |   |         | 
|---------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  | - | ------- | 
|                 |  |                         
|                 |  | Years ended December 31,
|                 |  |                         
|                 |  | 2002                     |        | 2001 |  | 2000
|                 |  |                          |        |      |  |     
|SS/L             |  | $                        | 864    |      |  | $    | 15,756 |  |  | $ | 74,082  | 
|Loral            |  |                          | 704    |      |  |      | 2,642  |  |  |   | 3,872   | 
|QUALCOMM         |  |                          | 4,056  |      |  |      | 40,629 |  |  |   | 99,988  | 
|GCC              |  |                          | 5,831  |      |  |      |       |  |  |   | 335     | 
|Other affiliates |  |                          | 132    |      |  |      | 14,078 |  |  |   | 6,569   | 
|                 |  |                          |        |      |  |      |        |  |  |   |         | 
|                 |  | $                        | 11,587 |      |  | $    | 73,105 |  |  | $ | 184,846 | 
|                 |  |                          |        |      |  |      |        |  |  |   |         | 

Total usage revenue recognized from other
affiliates is $2.3 million, $5.2 million and
$1.9 million for the years ended December 31, 2002,
2001, and 2000, respectively.

Starting with commencement of service by
Globalstar and upon receipt of revenue, LQP, the general partner
of LQSS, receives a managing partners allocation equal to
2.5% of Globalstars revenues up to $500 million plus
3.5% of revenues in excess of $500 million. Loral and
QUALCOMM ultimately will receive 80% and 20%, respectively, of
such distribution. Should Globalstar incur a net loss in any
year following commencement of operations, the allocation for
that year will be reduced by 50% and LQP will reimburse
Globalstar for allocation payments, if any, received in any
prior quarter of such year, sufficient to reduce its

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GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

management allocation for the year to 50%. The
managing partners allocation may be deferred (with interest at
4% per annum) in any quarter in which Globalstar would report
negative cash flow from operations if the managing
partners allocation were made. As of December 31,
2002, the managing partners allocation of $167,000 has
been deferred and $108,000 has been classified as a liability
subject to compromise.

19. Commitments and
Contingencies

Globalstar currently has three leases for
facilities, two in California and one in Ontario, Canada. The
leases expire in July 2005, November 2006 and December 2008,
respectively. The following table presents the future minimum
lease payments (in thousands):

|                             |  |   |        | 
|---------------------------- |  | - | ------ | 
|2003                         |  | $ | 3,235  | 
|2004                         |  |   | 3,271  | 
|2005                         |  |   | 3,303  | 
|2006                         |  |   | 3,306  | 
|2007                         |  |   | 3,242  | 
|Thereafter                   |  |   | 3,323  | 
|                             |  |   |        | 
|Total minimum lease payments |  | $ | 19,680 | 
|                             |  |   |        | 

Rent expense for 2002, 2001 and 2000, was
approximately $3.5 million, $3.9 million, and
$4.1 million, respectively. Included in rent expense are
payments to Lockheed Martin of $3.0 million,
$3.5 million, and $3.7 million for 2002, 2001 and
2000, respectively.

On February 20, 2001, a purported class
action lawsuit was filed against Globalstar and Globalstar
Capital Corporation on behalf of the owners of the 10 3/4%
senior notes, due November 2004 (the 10 3/4% Senior
Notes) in Superior Court, New Castle County, Delaware.
Globalstar Capital Corporation and Globalstar issued the
10 3/4% Senior Notes as joint obligors. The complaint
alleges that the defendants repudiated the 10 3/4% Senior
Notes registration statement, prospectus and indenture,
without consent of the holders of the 10 3/4% Senior Notes,
when Globalstar announced that it was suspending its future
interest payments on the 10 3/4% Senior Notes. On
April 23, 2001, the defendants moved to dismiss the
complaint for failure to state a cause of action. A second
similar class action was filed in Delaware on June 5, 2001.
The defendants have also moved to dismiss this complaint.
Plaintiffs subsequently amended the complaint and defendants
again moved to dismiss the amended complaint for failure to
state a cause of action. On December 31, 2001, the court
granted defendants motion to dismiss in part, dismissing
plaintiffs claims for principal and interest not yet due,
but allowing plaintiffs to proceed with their breach of contract
claim based on the interest payments already missed at the time
the amended complaints were filed. Defendants answered the
complaints on January 17, 2002. These proceedings are now
automatically stayed in accordance with Section 362(a) of
the Bankruptcy Code. On August 7, 2001, Globalstar received
a petition filed on July 13, 2001 in Texas state court by
L.E. Creel III, a holder of an 11 3/8% senior
note due February 2004 seeking principal payment of the note
plus interest. Globalstar filed an answer contesting the
petition. On December 6, 2001, the parties participated in
court ordered mediation, which failed to lead to a settlement of
plaintiffs claim. This proceeding is also stayed pursuant
the Bankruptcy Code.

On February 28, 2001, plaintiff Eric Eismann
filed a purported class action complaint against GTL in the
United States District Court for the Southern District of
New York. The other defendants named in the complaint were
Loral and Bernard Schwartz, the former Chief Executive Officer
of Globalstar. Globalstar was not a named defendant in these
actions. The complaint alleges that (a) GTL and
Mr. Schwartz violated Section 10(b) of the Exchange
Act and Rule 10b-5 promulgated thereunder, by making
material misstatements or failing to state material facts about
GTLs business and prospects and (b) that Loral and
Mr. Schwartz are secondarily liable for these alleged
misstatements and omissions under Section 20(a) of the

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GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Exchange Act as alleged controlling
persons of GTL. The class of plaintiffs on whose behalf
this lawsuit has been asserted consists of all buyers of GTL
common stock from December 6, 1999, through
October 27, 2000, excluding the defendants, officers and
directors of GTL and certain persons affiliated therewith.
Eighteen additional purported class action complaints were
subsequently filed in the United States District Court for the
Southern District of New York. These complaints were granted
class action status and consolidated into a case known as In
Re Globalstar Securities Litigation,01 Civ. 1748 (SHS). On
September 26, 2001, the court appointed The Phillips Family
as Lead Plaintiff for the class. On November 13, 2001, Lead
Plaintiff filed a Consolidated Amended Class Action
Complaint and a demand for jury trial. The amended complaint
drops the cause of action against certain individuals and adds
causes of action against Globalstar and its wholly-owned
subsidiary, Globalstar Capital. GTL and Globalstar believe that
they have meritorious defenses to these actions and on or about
February 25, 2002, filed a motion to dismiss the complaint.
The case against Globalstar and Globalstar Capital is stayed
pursuant to the Bankruptcy Code. There are, however, no
assurances that the defenses to these actions will be successful.

On December 5, 2002, StarMD, LLC
(StarMD) filed a complaint in the Pennsylvania Court
of Common Pleas, Allegheny County, naming GUSA as the defendant.
The complaint alleges four counts: (1) in equity, seeking a
mandatory injunction requiring GUSA to sell to StarMD as
many telephones as its requests and to provide service to
plaintiffs customers . . . ; (2) in assumpsit,
for lost profits and related revenue from the sale
of an estimated 10,800 telephones, in the amount of
$31,104,000; (3) in assumpsit, for recovery of the value of
plaintiffs efforts in developing a marketing campaign, for
damages in excess of $25,000; and (4) in
trespass, for tortiously interfering with plaintiffs
agreement with Globalstar for the development and co-marketing
of an antenna kit for the Globalstar 1600 telephone. In February
2003, GUSA filed Preliminary Objections requesting the court to
dismiss the complaint on grounds of (1) lack of personal
jurisdiction, (2) improper venue, (3) forum non
conveniens, (4) a prior-existing valid and enforceable
agreement to arbitrate and (5) legal insufficiency. The
request for dismissal is before the court awaiting decision.

Any plan of reorganization would likely involve
the cancellation of debt in exchange for equity. The
cancellation of debt will give rise to considerable taxable
income that will be allocable to the partners of Globalstar.
Under a certain interpretation of Section 1446 of the
Internal Revenue Code of 1986, as amended, Globalstar may be
obligated to pay a 35% withholding tax on all income allocated
to the foreign partners even if they do not receive a cash
distribution. Globalstar believes the imposition of the
withholding tax may have the effect of diverting its assets from
its creditors to its foreign partners in contravention of
bankruptcy law. Globalstar expects to enter into an agreement
with the United States Internal Revenue Service pursuant to
which, based upon certain representations and satisfaction of
certain terms and conditions, Globalstars total
withholding obligation on this taxable income will be
significantly reduced. However, there can be no assurances such
an agreement will be reached.

At the time of their respective acquisitions both
GCSC and GUSA were offering service guarantees to portions of
their customer base, under which certain customers are entitled
to cash compensation in the event that Globalstar services do
not remain active and available to them for at least one year
after initial activation. Globalstar has assumed these
guarantees since the acquisition and is continuing them only
when necessary for certain accounts. As of December 31,
2002, Globalstar has maximum contingent obligations with respect
to these service guarantees of approximately $3.1 million,
that would come due in the event that Globalstar services were
discontinued in Canada or the United States. Globalstar believes
service will continue, therefore no accrual was recorded.

On May 21, 2002, an employee incentive
program was approved by the Bankruptcy Court to recognize and
retain key employees. The total value of the program is
$2.9 million of which $0.7 million was paid in July
2002. The balance of the incentive program will be paid upon the
successful reorganization of Globalstar.

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GLOBALSTAR, L.P., A
DEBTOR-IN-POSSESSION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Under certain conditions, up to $1.0 million
of the remaining payments may be made in common stock of New
Globalstar.

20. Subsequent Events

On March 14, 2003, Loral, the
Creditors Committee and Globalstar signed a term sheet
outlining to the terms and conditions of a comprehensive
settlement of certain contested matters and a release of the
claims against Loral (the Loral Settlement). Also on
March 14, 2003, Globalstar and the Creditors
Committee filed a joint motion under Bankruptcy Rule 9019
for an order approving the Loral Settlement with the Bankruptcy
Court. The parties agreed to use their reasonable best efforts
to execute a definitive agreement based on the term sheet by
March 26, 2003. The Loral Settlement, which will be
effected in connection with Globalstars restructuring and
emergence from bankruptcy, provides the following, among other
items: (1) SS/L would transfer to Globalstar title as
is to the eight spare satellites that are currently held
in storage by SS/L; (2) certain strategic agreements under
which Loral holds exclusive rights to provide Globalstar
services to defense and national security agencies and in the
aviation market would terminate, and a new joint venture company
(to be owned 75% by Globalstar and 25% by Loral) would be formed
to pursue the defense and national security business;
(3) L/Q Licensee, a subsidiary of LQP, would transfer the
Federal Communications Commission license held by it to
Globalstar or LQP would transfer operations of L/Q Licensee to
Globalstar; (4) Loral would convey its interests in the
Canadian service provider operations to Globalstar;
(5) certain Loral service provider financial obligations
would be settled through a reduction in debt obligations due
from GCC to Loral and other financial obligations involving a
Russian joint venture would be restructured;
(6) Lorals general unsecured claims as a creditor in
the Globalstar bankruptcy proceeding would be quantified and
allowed; (7) SS/L would return to Globalstar unused advance
prepayments related to the 2 GHz satellite contract;
(8) Lorals designees would resign from
Globalstars General Partners Committee; and (9) third
party claims against Loral, certain Loral affiliates and all six
members of Globalstars General Partners Committee,
as provided in the term sheet, would be released. The motion
supporting the Loral Settlement is expected to be heard by the
Bankruptcy Court on April 9, 2003.

On March 25, 2003, Globalstar entered into a
settlement and release agreement with Elsacom S.p.A.
(Elsacom) and a gateway asset purchase agreement
(collectively the Elsacom Settlement) with a wholly
owned subsidiary of Elsacom. Elsacom is the primary Globalstar
service provider in Central and Eastern Europe, the operator of
the gateway located in Avezzano, Italy and, through its
affiliate, Globalstar Northern Europe, the former operator of
the gateway located in Karkkila, Finland. Although Elsacom had
defaulted on its gateway contract obligations to Globalstar,
Elsacom desired to continue providing Globalstar service to its
customers from Avezzano. Accordingly, Globalstar and Elsacom
agreed to negotiate a mutually acceptable plan for paying
certain of the debt, transferring the equipment in Finland to
Globalstar and maintaining Elsacoms service provider
rights. Under the terms of the Elsacom Settlement, Globalstar
will receive cash payments totaling $2.4 million in two
installments to be completed by June 2003 and the release of all
past payment obligations due to Elsacom in exchange for
liquidation of the gateway contract payments due to Globalstar
from Elsacom. Additionally, Globalstar will retain title to the
gateway equipment installed in Finland. Globalstar intends to
dismantle the Finland gateway and to place the removable parts,
which contain most of the gateways electronics, in storage
for future deployment.

S-34



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##### Table of Contents






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
Space & Communications Ltd. (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 Space & Communications Ltd.;

(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



---



##### Table of Contents



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
Space & Communications Ltd. (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 Space & Communications Ltd.;

(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



---



##### Table of Contents



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
Space & Communications Ltd. (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



---



##### Table of Contents



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
Space & Communications Ltd. (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



---



##### Table of Contents






INDEX TO EXHIBITS

|        |        |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | ------ | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |            
|Number  |        | Description
|        |        |            
|        | 2.1    |             |  | Restructuring, Financing and Distribution
    Agreement, dated as of January 7, 1996, among Loral
    Corporation, Loral Aerospace Holdings, Inc., Loral Aerospace
    Corp., Loral General Partner, Inc., Loral Globalstar L.P., Loral
    Globalstar Limited, the Registrant and Lockheed Martin
    Corporation(1)                                                                                                                                                                                                                  
|        | 2.2    |             |  | Amendment to Restructuring, Financing and
    Distribution Agreement, dated as of April 15, 1996(1)                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 2.3    |             |  | Agreement for the Purchase and Sale of Assets
    dated as of September 25, 1996 by and between AT&T
    Corp., as Seller, and Loral Space & Communications
    Ltd., as Buyer(2)                                                                                                                                                                                                                                                                                                                                                      
|        | 2.4    |             |  | First Amendment to Agreement for the Purchase and
    Sale of Assets dated as of March 14, 1997 by and between
    AT&T Corp., as Seller, and Loral Space &
    Communications, Ltd. as Buyer(3)                                                                                                                                                                                                                                                                                                                                       
|        | 2.5    |             |  | Agreement and Plan of Merger dated as of
    October 7, 1997 by and among Orion Network Systems, Inc.,
    Loral Space & Communications Ltd. and Loral Satellite
    Corporation(4)                                                                                                                                                                                                                                                                                                                                                    
|        | 2.6    |             |  | First Amendment to Agreement and Plan of Merger
    dated as of February 11, 1998 by and among Orion Network
    Systems, Inc., Loral Space & Communications Ltd. and
    Loral Satellite Corporation(5)                                                                                                                                                                                                                                                                                                                               
|        | 2.7    |             |  | Second Amendment to Agreement and Plan of Merger
    dated as of March 20, 1998 by and among Orion Network
    Systems, Inc., Loral Space & Communications Ltd. and
    Loral Satellite Corporation(11)                                                                                                                                                                                                                                                                                                                                
|        | 3.1    |             |  | Memorandum of Association(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 3.2    |             |  | Memorandum of Increase of Share Capital dated
    January 1996(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 3.2.1  |             |  | Memorandum of Increase of Share Capital dated May
    1997(25)                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 3.2.2  |             |  | Memorandum of Increase of Share Capital dated May
    1999(25)                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 3.3    |             |  | Third Amended and Restated Bye-laws(16)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 3.4    |             |  | Schedule IV to the Third Amended and
    Restated Bye-laws(16)                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 4.1    |             |  | Rights Agreement dated March 27, 1996
    between the Registrant and The Bank of New York, Rights Agent(1)                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 4.2    |             |  | Indenture dated as of January 15, 1999
    relating to Registrants 9 1/2% Senior Notes due
    2006(12)                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10.1   |             |  | Shareholders Agreement dated as of April 23,
    1996 between Loral Corporation and the Registrant(1)                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10.1.1 |             |  | Amended Shareholders Agreement dated as of
    March 29, 2000 between the Registrant and Lockheed Martin
    Corporation(16)                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10.2   |             |  | Tax Sharing Agreement dated as of April 22,
    1996 between Loral Corporation, the Registrant, Lockheed Martin
    Corporation and LAC Acquisition Corporation(1)                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.3   |             |  | Exchange Agreement dated as of April 22,
    1996 between the Registrant and Lockheed Martin Corporation(1)                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.4   |             |  | Amended and Restated Agreement of Limited
    Partnership of Globalstar, L.P. dated as of January 26,
    1999 among Loral/ Qualcomm Satellite Services, L.P., Globalstar
    Telecommunications Limited, AirTouch Satellite Services, Inc.,
    Dacom Corporation, Dacom International, Inc., Hyundai
    Corporation, Hyundai Electronics Industries Co., Ltd., Loral/
    DASA Globalstar, L.P., Loral Space & Communications
    Ltd., San Giorgio S.p.A., TeleSat Limited, TE.S.AM and Vodafone
    Satellite Services Limited(12)
|        | 10.4.1 |             |  | Amendment dated as of December 8, 1999 to
    the Amended and Restated Agreement of Limited Partnership of
    Globalstar, L.P.(13)                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10.4.2 |             |  | Amendment dated as of February 1, 2000 to
    the Amended and Restated Agreement of Limited Partnership of
    Globalstar, L.P.(16)                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10.5   |             |  | Service Provider Agreements by and between
    Globalstar, L.P. and each of Loral General Partner, Inc. and
    Loral/ DASA Globalstar, L.P.(7)                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10.6   |             |  | Contract between Globalstar, L.P. and Space
    Systems/ Loral, Inc.(7)                                                                                                                                                                                                                                                                                                                                                                                                                                                                



---



##### Table of Contents



|        |         |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- | ------- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |            
|Number  |         | Description
|        |         |            
|        | 10.7    |             |  | 1996 Amended and Restated Stock Option
    Plan                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.7.1  |             |  | Amendment No. 1 to 1996 Amended and Restated
    Stock Option Plan                                                                                                                                                                                                                                                                                                                                                         
|        | 10.7.2  |             |  | 2000 Amended and Restated Stock Option
    Plan                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.7.3  |             |  | Amendment No. 1 Amended and Restated to 2000
    Stock Option Plan                                                                                                                                                                                                                                                                                                                                                         
|        | 10.8    |             |  | Common Stock Purchase Plan for Non-Employee
    Directors(1)                                                                                                                                                                                                                                                                                                                                                                
|        | 10.9    |             |  | Employment Agreement between the Registrant and
    Bernard L. Schwartz(1)                                                                                                                                                                                                                                                                                                                                                  
|        | 10.9.1  |             |  | Amendment dated as of March 1, 1998 to
    Employment Agreement between the Registrant and Bernard L.
    Schwartz(11)                                                                                                                                                                                                                                                                                                      
|        | 10.9.2  |             |  | Amendment dated as of July 18, 2000 to
    Employment Agreement between the Registrant and Bernard L.
    Schwartz(20)                                                                                                                                                                                                                                                                                                      
|        | 10.9.3  |             |  | Amendment dated as of February 25, 2003 to
    Employment Agreement between the Registrant and Bernard L.
    Schwartz                                                                                                                                                                                                                                                                                                     
|        | 10.10   |             |  | Registration Rights Agreement dated as of
    August 9, 1996 among Loral Space & Communications
    Ltd., Lehman Brothers Capital Partners II, L.P., Lehman Brothers
    Merchant Banking Portfolio Partnership L.P., Lehman Brothers
    Offshore Investment Partnership L.P. and Lehman Brothers
    Offshore Investment Partnership-Japan L.P.(8)                                                                         
|        | 10.11   |             |  | Registration Rights Agreement dated
    November 6, 1996 relating to the Registrants 6%
    Convertible Preferred Equivalent Obligations due 2006(6)                                                                                                                                                                                                                                                                        
|        | 10.12   |             |  | Registration Rights Agreement (Series C
    Preferred Stock) dated as of March 31, 1997 between Loral
    Space & Communications Ltd. and Finmeccanica S.p.A. and
    dated as June 23, 1997 among Loral Space &
    Communications Ltd., Aerospatiale SNI and Alcatel Espace(9)                                                                                                                                             
|        | 10.13   |             |  | Registration Rights Agreement (Common Stock)
    dated as of June 23, 1997 among Loral Space &
    Communications Ltd., Aerospatiale SNI and Alcatel Espace(9)                                                                                                                                                                                                                                                               
|        | 10.14   |             |  | Alliance Agreement dated as of June 23, 1997
    among Loral Space & Communications Ltd., Aerospatiale
    SNI, Alcatel Espace and Finmeccanica S.p.A.(9)                                                                                                                                                                                                                                                                    
|        | 10.15   |             |  | Principal Stockholder Agreement dated as of
    October 7, 1997 among Loral Space & Communications
    Ltd., Loral Satellite Corporation, Orion Network Systems, Inc.
    and certain Orion stockholders signatory thereto(4)                                                                                                                                                                                                
|        | 10.16   |             |  | Amended and Restated Credit and Participation
    Agreement, dated as of November 14, 1997, among Loral
    SpaceCom Corporation, Space Systems/ Loral, Inc., the Banks
    parties thereto, Bank of America National Trust and Savings
    Association, as Administrative Agent, and Istituto Bancario San
    Paolo di Torino S.p.A., individually and as Italian Export
    Financing and Arranger and as Selling Bank(10)
|        | 10.16.1 |             |  | First Amendment dated as of May 7, 1998 to
    and of the Amended and Restated Credit and Participation
    Agreement, dated as of November 14, 1997, among Loral
    SpaceCom Corporation, Space Systems/ Loral, Inc. and the banks
    parties thereto(12)                                                                                                                                                                 
|        | 10.16.2 |             |  | Second Amendment dated as of September 4,
    1998 to and of the Amended and Restated Credit Agreement dated
    as of November 14, 1997, among Loral SpaceCom Corporation,
    Space Systems/ Loral, Inc. and the banks parties thereto(16)                                                                                                                                                                                 
|        | 10.16.3 |             |  | Third Amendment dated as of July 12, 1999 to
    and of the Amended and Restated Credit Agreement dated as of
    November 14, 1997, among Loral SpaceCom Corporation, Space
    Systems/ Loral, Inc. and the banks parties thereto(16)                                                                                                                                                                                      
|        | 10.16.4 |             |  | Fourth Amendment dated as of November 10,
    1999 to and of the Amended and Restated Credit Agreement dated
    as of November 14, 1997, among Loral SpaceCom Corporation,
    Space Systems/ Loral, Inc. and the banks parties thereto(16)                                                                                                                                                                                 
|        | 10.16.5 |             |  | Fifth Amendment dated as of December 15,
    2000 to and of the Amended and Restated Credit Agreement dated
    as of November 14, 1997, among Loral SpaceCom Corporation,
    Space Systems/ Loral, Inc. and the banks parties thereto(20)                                                                                                                                                                                  
|        | 10.17   |             |  | Agreement of Limited Partnership of CyberStar,
    L.P. dated as of June 30, 1997(11)                                                                                                                                                                                                                                                                                                                                        



---



##### Table of Contents



|        |         |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | ------- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |            
|Number  |         | Description
|        |         |            
|        | 10.18   |             |  | Purchase and Sale Agreement dated
    November 17, 1997 between the Federal Government of the
    United Mexican States and Corporativo Satelites Mexicanos, S.A.
    de C.V. for the purchase and sale of the capital stock of
    Satelites Mexicanos, S.A. de C.V. (English translation of
    Spanish original)(11)                                                                                                                                                                                                         
|        | 10.19   |             |  | Amended and Restated Membership Agreement dated
    and effective as of August 21, 1998 among Loral Satmex Ltd.
    and Ediciones Enigma, S.A. de C.V. and Firmamento Mexicano, S.
    de R.L. de C.V.(12)                                                                                                                                                                                                                                                                                                                      
|        | 10.20   |             |  | Letter Agreement dated December 29, 1997
    between Loral Space & Communications Ltd., Telefonica
    Autrey S.A. de C.V., Donaldson, Lufkin & Jenrette
    Securities Corporation, Lehman Brothers Inc. and Lehman
    Commercial Paper Inc. and related Agreement between the Federal
    Government of the United Mexican States, Telefonica Autrey, S.A.
    de C.V., Ediciones Enigma, S.A. de C.V., Loral Space &
    Communications Ltd., Loral Satmex Ltd. and Servicios
    Corporativos Satelitales, S.A. de C.V.(11)
|        | 10.21   |             |  | Shareholders Agreement dated December 7,
    1998 by and among Alcatel SpaceCom, Loral Space &
    Communications Ltd., Dr. Jürgen Schulte-Hillen and
    Europe*Star Limited(12)                                                                                                                                                                                                                                                                                                                                               
|        | 10.22   |             |  | Registration Rights Agreement dated as of
    January 21, 1999 relating to Registrants 9 1/2%
    Senior Notes due 2006(12)                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10.23   |             |  | Lease Agreement dated as of August 18, 1999
    by and between Loral Asia Pacific Satellite (HK) Limited and APT
    Satellite Company Limited(15)                                                                                                                                                                                                                                                                                                                                                                              
|        | 10.24   |             |  | Registration Rights Agreement dated as of
    February 18, 2000 relating to Registrants 6%
    Series D Convertible Redeemable Preferred Stock due 2007(16)                                                                                                                                                                                                                                                                                                                                                                    
|        | 10.25   |             |  | Fee Agreement dated as of April 19, 1996 by
    and among Globalstar, Globalstar Telecommunications Limited,
    Loral Corporation, Loral Space & Communications Ltd.,
    Qualcomm Limited Partner, Inc., Space Systems/ Loral, Inc. and
    DASA Globalstar Limited Partner, Inc.(18)                                                                                                                                                                                                                                         
|        | 10.26   |             |  | Intercreditor Agreement dated as of
    April 19, 1996 by and among Globalstar, Globalstar
    Telecommunications Limited, Loral Corporation, Loral
    Space & Communications Ltd., Qualcomm Limited Partner,
    Inc., Space Systems/ Loral, Inc. and DASA Globalstar Limited
    Partner, Inc.(18)                                                                                                                                                                                                                           
|        | 10.27   |             |  | Credit Agreement dated as of November 17,
    2000 by and among Loral Satellite, Inc., Bank of America,
    National Association, Bank of America Securities LLC, Credit
    Lyonnais and Lehman Commercial Paper, Inc.(19)                                                                                                                                                                                                                                                                                                     
|        | 10.27.1 |             |  | First Amendment to the Credit Agreement, dated as
    of December 21, 2001, among Loral Satellite, Inc., Bank of
    America, N.A., as Administrative Agent, and the other lenders
    parties thereto(24)                                                                                                                                                                                                                                                                                                                      
|        | 10.27.2 |             |  | Form of Second Amendment to Credit Agreement,
    dated as of March 31, 2003, among Loral Satellite, Inc.,
    Bank of America, N.A., as Administrative Agent, and the other
    lender parties thereto.                                                                                                                                                                                                                                                                                                                       
|        | 10.28.1 |             |  | Guarantee dated as of November 17, 2000 made
    by Loral Space & Communications Ltd.(19)                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10.28.2 |             |  | Form of First Amendment to Guarantee dated as of
    March 31, 2003. Made by Loral Space & Communications
    Ltd.                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10.29   |             |  | Assignment, Amendment and Release Agreement dated
    as of November 17, 2000 by and among the lenders parties to
    the Globalstar Credit Agreement, Loral Satellite, Inc., Loral
    Satcom Ltd., Loral Space & Communications Ltd., Loral
    Space & Communication Corporation, Globalstar, L.P. and
    Bank of America, National Association(19)                                                                                                                                                                         
|        | 10.30   |             |  | Amended and Restated Collateral Agreement dated
    as of November 17, 2000 by and among Loral Satellite, Inc.
    and Bank of America, National Association(19)                                                                                                                                                                                                                                                                                                                                                                
|        | 10.31   |             |  | Form of Employment Protection Agreement(20)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10.31.1 |             |  | Form of Amendment No. 1 to Employment
    Protection Agreement(25)                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10.32   |             |  | Form of Subordinated Guaranty Agreement between
    Loral Space & Communications Ltd. and Loral SpaceCom
    Corporation, with respect to the $29.7 million aggregate
    principal amount, 10% Subordinated Note due 2006, with a
    copy of the 10% Subordinated Note due 2006 included therein(21)                                                                                                                                                                                                                          



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##### Table of Contents



|        |         |             |  |                                                                                                                                                                                                                                                                                                                                                                                             
|------- | ------- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |            
|Number  |         | Description
|        |         |            
|        | 10.33   |             |  | Warrant Agreement dated as of December 21,
    2001 between Loral Space & Communications Ltd. and The
    Bank of New York, as warrant agent(22)                                                                                                                                                                                                                                            
|        | 10.34   |             |  | Guaranty Agreement dated as of December 21,
    2001 between Loral Space & Communications Ltd. and
    Bankers Trust Company, as trustee(22)                                                                                                                                                                                                                                                
|        | 10.35   |             |  | Indenture, dated as of December 21, 2001, by
    and among Loral CyberStar, Inc., certain of its subsidiaries and
    Bankers Trust Company, as trustee(22)                                                                                                                                                                                                                                 
|        | 10.36   |             |  | Consent Agreement dated January 9, 2002
    among the United States Department of State, Loral
    Space & Communications Ltd. and Space Systems/ Loral,
    Inc.(23)                                                                                                                                                                                                                       
|        | 10.37.1 |             |  | Amended and Restated Credit Agreement dated as of
    December 21, 2001 by and among Loral SpaceCom Corporation,
    Bank of America, N.A., as Administrative Agent, and the other
    lenders parties thereto(24)                                                                                                                                                                          
|        | 10.37.2 |             |  | Form of First Amendment to Amended and Restated
    Credit Agreement dated as of March 31, 2003 by and among
    Loral SpaceCom Corporation, Bank of America, N.A., as
    Administrative Agent, and the other lenders parties
    thereto.                                                                                                                                                
|        | 10.38   |             |  | Guarantee dated as of December 21, 2001 made
    by Loral Space & Communications Corporation and certain
    subsidiaries of Loral SpaceCom Corporation in favor of Bank of
    America, N.A., as Administrative Agent(24)                                                                                                                                                                  
|        | 10.39   |             |  | Security Agreement dated as of December 21
    2001, by and among Loral SpaceCom Corporation, Space Systems/
    Loral, Inc., Loral Communications Services, Inc., Loral Ground
    Services, L.L.C. and Bank of America, N.A., as Collateral
    Agent(24)                                                                                                                                 
|        | 10.40   |             |  | Pledge Agreement dated as of December 21,
    2001 by and among Loral SpaceCom Corporation, Space Systems/
    Loral, Inc., Loral Ground Services, L.L.C., Loral
    Space & Communications Corporation, Loral
    Communications Services, Inc. and Bank of America, N.A., as
    Collateral Agent(24)                                                                                     
|        | 10.40.2 |             |  | Form of Second Amendment and Restated Pledge
    Agreement dated as of March 31, 2003                                                                                                                                                                                                                                                                                                      
|        | 10.41.1 |             |  | Intercreditor and Subordination Agreement dated
    as of December 21, 2001 by and among Loral SpaceCom
    Corporation, Bank of America, N.A., as Administrative Agent for
    the lenders under the senior credit facility, Bank of America,
    N.A. as Administrative Agent for the lenders under the junior
    credit facility, and Bank of America, N.A., as Collateral
    Agent(24)
|        | 10.41.2 |             |  | Form of Second Intercreditor and Subordination
    Agreement dated as of March 31, 2003                                                                                                                                                                                                                                                                                                    
|        | 10.42   |             |  | Apstar V Condosat Agreement dated as of
    December 10, 2002 between APT Satellite Company Limited and
    Loral Orion, Inc.                                                                                                                                                                                                                                                              
|        | 12      |             |  | Statement Re: Computation of Ratios                                                                                                                                                                                                                                                                                                                                                        
|        | 21      |             |  | List of Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                                                                                     
|        | 23.1    |             |  | Consent of Deloitte & Touche LLP                                                                                                                                                                                                                                                                                                                                                           
|        | 23.2    |             |  | Consent of Deloitte & Touche LLP                                                                                                                                                                                                                                                                                                                                                           




| |     |                                                                                                                                            
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference from the
    Registrants Registration Statement on Form 10
    (No. 1-14180).                                   
|
| | (2) | Incorporated by reference from the
    Registrants Current Report on Form 8-K filed on
    September 27, 1996.                            
|
| | (3) | Incorporated by reference from the
    Registrants Current Report on Form 8-K filed on
    March 28, 1997.                                
|
| | (4) | Incorporated by reference from the
    Registrants Current Report on Form 8-K filed on
    October 10, 1997.                              
|
| | (5) | Incorporated by reference from the
    Registrants Registration Statement on Form S-4 filed
    on February 17, 1998 (File No. 333-46407).
|
| | (6) | Incorporated by reference from the
    Registrants Annual Report on Form 10-K for the nine month
    period ended December 31, 1996.      
|
| | (7) | Incorporated by reference from the Registration
    Statement on Form S-1 of Globalstar Telecommunications
    Limited (File No. 33-86808).
|
| | (8) | Incorporated by reference from the
    Registrants Current Report on Form 8-K filed on
    August 13, 1996.                               



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##### Table of Contents





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



|     |                                                                                                                                                               
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference from the
    Registrants Current Report on Form 8-K filed on
    December 9, 1997.                                                 
|    
|(11) | Incorporated by reference from the
    Registrants Annual Report on Form 10-K for the fiscal
    year ended December 31, 1997.                               
|    
|(12) | Incorporated by reference from the
    Registrants Annual Report on Form 10-K for the fiscal
    year ended December 31, 1998.                               
|    
|(13) | Incorporated by reference from the Current Report
    on Form 8-K filed on December 21, 1999 by Globalstar
    Telecommunications Limited and Globalstar, L.P.
|    
|(14) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on August 6, 1999.                                                           
|    
|(15) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on August 23, 1999.                                                          
|    
|(16) | Incorporated by reference from the
    Registrants Annual Report on Form 10-K for the fiscal
    year ended December 31, 1999.                               
|    
|(17) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on May 3, 2000.                                                              
|    
|(18) | Incorporated by reference from Registrants
    Current Report of Form 8-K filed on July 7, 2000.                                                             
|    
|(19) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on November 20, 2000.                                                        
|    
|(20) | Incorporated by reference from Registrants
    Annual Report on Form 10-K for the fiscal year ended
    December 31, 2000.                                   
|    
|(21) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on December 14, 2001.                                                        
|    
|(22) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on January 7, 2002.                                                          
|    
|(23) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on January 9, 2002.                                                          
|    
|(24) | Incorporated by reference from Registrants
    Current Report on Form 8-K filed on January 10, 2002.                                                         
|    
|(25) | Incorporated by reference from Registrants
    Annual Report on Form 10-K for the fiscal year ended
    December 31, 2001.                                   



| |   |                              
| | - | -----------------------------
| |  | Filed herewith.              
|
| |  | Management compensation plan.