UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES  EXCHANGE ACT OF
1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997      Commission file number  0-22085


                           ORION NETWORK SYSTEMS, INC.
                      ------------------------------------
             (Exact name of registrant as specified in its charter)

            Delaware                                                52-2008654
----------------------------------                                --------------
 (State or other jurisdiction of                                (I.R.S. Employer
 incorporation or organization)                              Identification No.)

          2440 Research Boulevard, Suite 400, Rockville, Maryland 20850
          -------------------------------------------------------------
                    (Address of principal executive offices)



                                 (301-258-8101)
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

          Securities registered pursuant to Section 12 (b) of the Act:
          ------------------------------------------------------------
                                      None
                                      ----

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

               Common Stock, par value $.01 per share Series A 8%
     Cumulative Redeemable Preferred Stock, par value $.01 per share Series
      B 8% Cumulative Redeemable Preferred Stock, par value $.01 per share
                          11 1/4% Senior Notes Due 2007
                     12 1/2% Senior Discount Notes Due 2007
          Warrants to Purchase Common Stock, par value $ .01 per share
                                (Title of Class)
                                -----------------

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

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 definite proxy or  information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

The  aggregate  market  value of shares of Common  Stock held by  non-affiliates
(based on the March 4, 1998  closing  price of these  shares) was  approximately
$281.0 million.  The Common Stock is traded  over-the-counter and quoted through
the Nasdaq National Market.

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

           Class                                    Outstanding at March 4, 1998
----------------------------                        ----------------------------
Common Stock, $.01 par value                                   18,761,251 shares

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None


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                           ORION NETWORK SYSTEMS, INC.
                                TABLE OF CONTENTS


PART I
                                                                            Page

     Item 1.    Business...................................................... 3


     Item 2.    Properties....................................................30

     Item 3.    Legal Proceedings.............................................31

     Item 4.    Submission of Matters to a Vote of Security Holders...........31


PART II

     Item 5.    Market for Registrant's Common Equity and Related Stockholder
                Matter........................................................31

     Item 6.    Selected Financial Data.......................................33

     Item 7.    Management's Discussion and Analysis of Financial Condition
                and Results of Operations.....................................35

     Item 8.    Financial Statements and Supplementary Data...................44

     Item 9.    Changes in and Disagreements with Accountants on Accounting
                and Financial Disclosure......................................70
PART III

     Item 10.   Directors and Executive Officers of the Registrant............70

     Item 11.   Executive Compensation........................................75

     Item 12.   Security Ownership of  Certain Beneficial Owners
                and Management................................................80


     Item 13.   Certain Relationships and Related Transactions................83


PART IV

     Item 14.   Exhibits, Financial Statement Schedules and Reports on
                Form 8-K......................................................84








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<PAGE>




                                     PART I

ITEM 1.  BUSINESS.

     Statements  contained in this Annual Report on Form 10-K regarding  Orion's
expectations with respect to the pending acquisition by Loral, Orion 2 and Orion
3, related  financing,  future  operations and other  information,  which can be
identified by the use of forward  looking  terminology,  such as "may",  "will",
"expect",  "anticipate",  "estimate",  or "continue" or the negative  thereof or
other  variations  thereon  or  comparable  terminology,   are  forward  looking
statements.  See the "Risk  Factors"  section of Orion Network  Systems,  Inc.'s
Registration Statement on Form S-1 (Registration No. 333-19167),  on file at the
Securities  and  Exchange  Commission  for  cautionary  statements   identifying
important  factors with respect to such forward  looking  statements,  including
certain  risks and  uncertainties,  that could  cause  actual  results to differ
materially from results referred to in forward looking statements.  There can be
no assurance that Orion Network Systems,  Inc.'s  expectations  regarding any of
these  matters  will be  fulfilled.  See Glossary at page G-1 at the end of this
Annual Report on Form 10-K for certain defined terms and certain technical terms
used herein.

OVERVIEW

     Orion Network Systems, Inc. ("Orion" or the "Company") is a rapidly growing
provider of satellite-based  communications  services,  focused primarily on (i)
private communications network services,  (ii) Internet services and (iii) video
distribution  and  other  satellite   transmission   services.   Orion  provides
multinational  corporations  with private  communications  networks  designed to
carry high speed data, fax, video teleconferencing,  voice and other specialized
services. The Orion satellite's ubiquitous coverage reaches all locations within
its footprint, enabling the delivery of high speed data to customers in emerging
markets and remote locations that lack the necessary  infrastructure  to support
these  services.  The  Company  also  offers  high  speed  Internet  access  and
transmission  services to  companies  outside  the United  States  seeking  wide
bandwidth  Internet access,  while avoiding "last mile" terrestrial  connections
and bypassing  congested  regional Internet network routes.  In addition,  Orion
provides satellite capacity for video distribution, satellite news gathering and
other satellite  services  primarily to  broadcasters,  news  organizations  and
telecommunications service providers. The Company provides its services directly
to customer premises using very small aperature terminals ("VSATs").

     The Company commenced operations of Orion 1, a high power Ku-band satellite
in January 1995. As of December 31, 1997,  Orion serviced 301 customers  through
682 points of service.  The Company's  customers  include Amoco Poland  Limited,
Amway Corporation, AT&T Corp., BBC, British Telecom, CNN, Citibank, N.A., Global
One, GTECH Corporation,  News International Limited, RTL Television,  Pepsi-Cola
International,  Sprint  Communications,  USA Today,  Viacom  International Inc.,
Volkswagen,  Westinghouse  Communications  and World Wide Television News and or
certain of their subsidiaries. As of December 31, 1997, Orion's contract backlog
was $269.5 million (including $89 million from one pre-launch  customer on Orion
3).   Substantially   all  of  Orion's  current  contracts  with  customers  are
denominated in U.S.  dollars.  For the three months ended December 31, 1997, the
Company generated revenues of $18.2 million and had a loss from operations,  and
net loss of $12.6 million and $27.5  million,  respectively.  For the year ended
December 31, 1997,  the Company  generated  revenues of $72.7  million and had a
loss from  operations,  net loss and net cash used in  operating  activities  of
$43.1 million, $105.7 million and, $28.0 million, respectively.

     The  Company  believes  that  demand  for  satellite-based   communications
services will continue to grow due to (i) the expansion of businesses beyond the
limits of wide bandwidth  terrestrial  infrastructure,  (ii) accelerating demand
for high speed data  services,  (iii)  growing  demand for Internet and intranet
services,  especially  outside  the  U.S.,  (iv)  increased  size  and  scope of
television   programming    distribution,    (v)   worldwide   deregulation   of
telecommunications  markets  and  (vi)  continuing  technological  advancements.
Satellites are able to provide  reliable,  high bandwidth  services  anywhere in
their coverage  areas,  and the Company  believes that it is well  positioned to
satisfy market demand for these services.

THE ORION SATELLITE SYSTEM

     The  Company  launched  Orion 1, a high  power  satellite  with 34  Ku-band
transponders,  in  November  of 1994.  Orion 1 provides  coverage of 34 European
countries,  much of the  United  States  and parts of  Canada,  Mexico and North
Africa.  Through  arrangements with local ground operators,  Orion currently has
the ability to deliver  network  services to and among  points in most  European
countries, the United States and many Latin American and Asian countries.





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<PAGE>



     In July 1996,  the Company  signed a contract  with Matra Marconi Space for
the  construction  and  launch of Orion 2 (which was  amended  and  restated  in
January 1997) and in February 1997  commenced  construction  of that  satellite.
Orion 2 will  expand the  Company's  European  coverage  and extend  coverage to
portions of the Commonwealth of Independent States, Latin America and the Middle
East, as shown in more detail in the footprint set forth below under the caption
"Implementation of the Orion Satellite System -- Orion 2". Orion 2 will increase
significantly  the  Company's  pan-European  capacity,  currently  the  area  of
strongest  demand for the Company's  services.  The Company  recently  commenced
selling  services in certain areas of Latin America.  Orion 2 is scheduled to be
launched in the second quarter of 1999.

     In January 1997, the Company entered into a satellite  procurement contract
with Hughes Space for the  construction  and launch of Orion 3,  construction of
which was commenced in December 1996. Orion 3 will cover broad areas of the Asia
Pacific region including China, Japan, Korea, India,  Southeast Asia, Australia,
New Zealand, Eastern Russia and Hawaii, as shown in more detail in the footprint
set forth below under the caption  "Implementation of the Orion Satellite System
-- Orion 3".  Orion 3's  footprint  will provide the Company with the ability to
redistribute  programming  from the United States via Hawaii to most of the Asia
Pacific region.  The Company has already taken a number of steps to establish an
early market  presence in Asia,  and has entered  into an $89 million  lease for
eight of Orion 3's 43  transponders.  Orion 3 is scheduled to be launched in the
fourth quarter of 1998.

     In the aggregate, the footprints of Orion 1, Orion 2 and Orion 3 will cover
over 85% of the world's population.

PENDING ACQUISITION OF THE COMPANY BY LORAL

     On October 7, 1997, Orion, Loral Space & Communications  Ltd. ("Loral") and
Loral Satellite Corporation,  a wholly-owned subsidiary of Loral ("Merger Sub"),
entered into an  Agreement  and Plan of Merger (as amended on February 11, 1998,
the "Merger  Agreement"),  pursuant to which Merger Sub will merge with and into
the  Company,  with the  Company  being the  surviving  corporation  and thereby
becoming a wholly-owned subsidiary of Loral (the "Loral Merger").

     The  Merger  Agreement  provides  that (i)  each  share  of  Common  Stock,
excluding treasury shares and shares owned by Loral or its subsidiaries, will be
converted  into and  exchanged for the right to receive the number of fully paid
and  nonassessable  shares of common stock,  par value $.01 per share,  of Loral
("Loral Common Stock") equal to the Exchange  Ratio (as described  below),  (ii)
each  share of the  Company's  Series  A 8%  Cumulative  Redeemable  Convertible
Preferred  Stock  (the  "Series  A  Preferred  Stock"),  Series B 8%  Cumulative
Redeemable  Convertible  Preferred  Stock (the  "Series B  Preferred  Stock" and
together with the Series A Preferred  Stock, the "Senior  Preferred  Stock") and
Series C  Preferred  Stock (the Series C  Preferred  Stock and Senior  Preferred
Stock are  hereinafter  referred to as the  "Senior  Preferred  Stock")  will be
converted  into and  exchanged for the right to receive the number of fully paid
and  nonassessable  shares of Loral  Common  Stock equal to the  Exchange  Ratio
multiplied  by the  number of shares of Common  Stock  into  which such share of
Preferred Stock was convertible  immediately  prior to the Effective Time of the
Loral Merger,  (iii) each  outstanding  stock option to purchase shares of Orion
Common Stock will be converted into an option to acquire the number of shares of
Loral  Common  Stock equal to the  Exchange  Ratio  multiplied  by the number of
shares of Common  Stock for which  such  option was  exercisable,  and (iv) each
outstanding  warrant to purchase  shares of Orion Common Stock will be converted
into a warrant to  acquire  the  number of shares of Common  Stock  equal to the
Exchange  Ratio  multiplied by the number of shares of Company  Common Stock for
which such warrant was exercisable.

Pursuant to the terms of the Merger Agreement,  the Exchange Ratio is determined
as follows:

     (i)   if the average of the volume-weighted average trading prices of Loral
Common Stock for the twenty  consecutive  trading days on which trading of Loral
Common  Stock  occurs  ending the tenth  trading  day  immediately  prior to the
closing  date for the Loral  Merger  (the  "Determination  Price")  is less than
$24.458 but greater than $16.305, the Exchange Ratio is the quotient obtained by
dividing $17.50 by the Determination Price,

     (ii)  if the Determination  Price is equal to or greater than $24.458,  the
Exchange Ratio is 0.71553 and

     (iii) if the  Determination  Price is equal to or less  than  $16.305,  the
Exchange Ratio is 1.07329.

     If the Loral  Merger  were to close on March 20,  1998,  the  Determination
Price would be 24.68652 and the Exchange Ratio would be 0.71553.




                                       4
<PAGE>



     A meeting of Orion's  shareholders has been scheduled for March 20, 1998 to
vote to approve the Loral Merger.  The Company expects the Loral Merger to close
following a favorable shareholder vote, however,  there can be no assurance that
the Loral  Merger will be  consummated.  Although  not a condition  of the Loral
Merger,  Orion  intends  to  seek  an  Internal  Revenue  Service  ruling  as to
eligibility for a tax-free exchange.

     In connection with the Merger Agreement,  certain principal stockholders of
Orion and  members of  Orion's  management  have  agreed to vote in favor of the
Loral Merger and have granted to Loral the right to purchase their securities in
Orion  for a  price  equal  to the  Loral  Merger  consideration  under  certain
circumstances.  The Company  expects the Loral Merger to be  consummated  by the
first quarter of 1998.

     The  foregoing   descriptions   of  the  Merger   Agreement  and  Principal
Stockholder  Agreement  with Loral do not  purport to be  complete  and are more
fully  described in Registration  Statement No.  333-46407 on Form S-4, and have
been filed as exhibits  2.1,  2.2 and 2.3,  respectively,  and are  incorporated
herein  by  reference.  More  information  on  Loral  is also  available  in the
foregoing Registration Statement No. 33-46407.

OTHER RECENT DEVELOPMENTS

     On March 26, 1997,  Orion acquired  German-based  Teleport Europe GmbH (now
known as Orion Network  Systems-Europe  GmbH) ("Orion  Europe") a communications
company  specializing in private satellite networks for voice and data services.
Orion purchased the shares of Orion Europe held by the German companies, Vebacom
GmbH and RWE  Telliance AG, now known as o.tel.o for  approximately  $9 million.
Orion  Europe's  1996 revenues  were in excess of $14 million.  The  acquisition
expanded Orion's customer base by approximately 55 customers,  including some of
Germany's leading multinational corporations, and added over 200 Network Service
sites (exclusive of Broadcast Service sites). In addition,  Orion acquired Orion
Europe's licenses and operating agreements to provide satellite network services
in 40  countries,  including  17  countries  in which Orion  previously  did not
provide service.

     In January 1997, the Company  consummated  the Merger (as defined below) as
part of a series of transactions which significantly changed the Company.  Those
transactions,  which  are  discussed  in more  detail  in Item 7,  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations,"  of
this Annual Report on Form 10-K, are as follows:

     (i)   the acquisition of all of the limited partnership interests which the
Company  did  not  already  own in the  Company's  operating  subsidiary,  Orion
Atlantic,  that  owns the  Orion 1  satellite,  along  with  rights  to  receive
repayment of various advances by Orion Atlantic and various other rights,  in an
exchange  transaction  for  123,172  shares of  Series C  Preferred  Stock  (the
"Exchange");

     (ii)  the  acquisition  by the  Company  of the only  outstanding  minority
interest in the Company's subsidiary Orion Network Systems-Asia  Pacific, Inc. (
formerly  known  as Orion  Asia  Pacific  Corporation)  from  British  Aerospace
Satellite   Investments,   Inc.,  in  exchange  (the  "OAP   Acquisition")   for
approximately 86,000 shares of the Company's Common Stock;

     (iii) a  $710  million   notes   offering,   with   warrants   representing
approximately  2.6% of the  outstanding  Common  Stock of the Company on a fully
diluted basis (the "Bond Offering"), and

     (iv)  the sale of $60 million of the  Company's  Convertible  Debentures to
British  Aerospace  Holdings,  Inc. and Matra  Marconi  Space (the  "Convertible
Debentures Offering").

     The Exchange and the OAP Acquisition resulted in the Company owning 100% of
Orion Atlantic and its other significant  subsidiaries and, therefore, a greatly
simplified  corporate  structure.  The Exchange  also  resulted in a significant
increase in the  Company's  capital stock  outstanding.  The net proceeds of the
Bond Offering and  Convertible  Debentures  Offering were used by the Company to
repay the credit facility it entered into in connection with the construction of
the Orion 1 satellite, to pre-fund the first three years of interest payments on
certain of the Notes,  and will be used by the Company for the  construction and
launch of two additional satellites, Orion 2 and Orion 3.




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     The Company also  recently  achieved the following  significant  milestones
with respect to the expansion of its satellite  network,  which are discussed in
more detail under the caption "Implementation of the Orion Satellite System" :

     (i)   Orion  commenced  construction  of Orion 2 in  February  1997 under a
satellite  procurement  contract  with  Matra  Marconi  Space for Orion 2. Orion
commenced  construction of Orion 3 in December 1996 and entered into a satellite
contract with Hughes Space and Communications International, Inc. for Orion 3 in
January 1997.

     (ii)  Orion  has  entered  into a  contract  with  DACOM  Corp.,  a  Korean
communications  company  ("DACOM"),  under which DACOM will,  subject to certain
conditions,  lease  eight  dedicated  transponders  on Orion 3 for 13 years,  in
return for approximately  $89 million,  payable over a period from December 1996
through seven months following the lease  commencement date for the transponders
(which is  scheduled to occur by January  1999).  Payments are subject to refund
unless Orion 3 commences commercial operation by June 30, 1999.

THE ORION STRATEGY

     Orion  strategy is to  maximize  its  revenues  per  satellite  transponder
through the delivery of value added services to end users. To quickly  establish
a  stable  base  of  revenues,   Orion  sells  transponder   capacity  to  video
broadcasters  and  telecommunications   service  providers.   However,   Orion's
long-term  strategic focus is on value-added private network and Internet access
services,   which  include  network  design,  VSAT  installation,   support  and
monitoring,  in addition to basic satellite capacity service. The implementation
of Orion's strategy is based on the following elements:

     o  Focus on Specialized Communications Needs of Multinational Organizations
     o  Bridge to Emerging Markets and Remote Locations
     o  End-to-End Service
     o  Global Coverage
     o  Early Market Entry
     o  Local Presence
     o  Ownership of Facilities

     Focus on Specialized Communications Needs of Multinational Organizations

     Orion  targets  the  needs of  multinational  businesses  and  governmental
customers for customized private network communications services.  Advantages of
the Company's  satellite-based  network services include:  (i) transmission over
wide areas to multiple dispersed sites including sites in emerging markets; (ii)
interconnectivity  among all sites;  (iii) wide  bandwidth and high data speeds;
(iv)  transmission  of  data,  fax,  teleconferencing  and  voice  over the same
network; (v) high transmission reliability,  quality and security; (vi) Internet
access; and (vii) rapid  implementation,  both for the initial  installation and
for later network modifications. Due to the flexibility of the network, Orion is
able to provide companies with customized solutions to link multiple locations.

     Bridge to Emerging Markets and Remote Locations

     Orion  targets  customers  doing  business in  emerging  markets and remote
locations  of  developed  markets  which  often lack the fiber optic and digital
infrastructure  required  for wide  bandwidth,  high  speed  data  applications.
Terrestrial  transmissions  in many  emerging  markets  must often pass  through
local,  poorly developed network segments before reaching the customer premises,
making it difficult to send and receive  high speed data.  In contrast,  Orion's
satellite system completely avoids such  "bottlenecks" in local network segments
by sending and receiving transmissions directly to and from customers,  avoiding
the need to interconnect with the local infrastructure. A significant portion of
Orion's private communications network customers transmit high-speed data to and
from  locations in Central and Eastern  Europe.  Orion 2 and Orion 3 will extend
coverage to the Commonwealth of Independent  States,  Latin America and the Asia
Pacific Region.

     End-to-End Service

     Orion provides its services directly to and among customer  locations using
satellite  transmission  and VSATs  installed  at  customer  premises.  Offering
end-to-end  services and bypassing  terrestrial  infrastructure  allows Orion to
offer higher  reliability  and higher  quality  services  than some  terrestrial
facilities by bypassing multiple  telecommunications service providers and local
networks and avoiding  related toll  charges.  It also permits  Orion to install
networks more quickly than many of its competitors,  who must deal with multiple
vendors and multiple communications technologies. Orion offers its




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customers  one-stop  shopping.  This  includes  a single  point of  contact,  an
all-inclusive contract and consistent quality of service throughout the network.

     Global Coverage

     Orion believes that providing global coverage is a competitive advantage in
marketing to multinational  corporations.  Orion 1 covers 34 European countries,
much of the U.S. and  portions of Canada,  Mexico and North  Africa.  Orion uses
capacity  leased from other  carriers to  supplement  its network  coverage area
(such as to areas of Russia, Asia and Latin America).  Orion estimates that when
Orion 2 (with  coverage of Europe,  Russia,  the eastern  United  States,  Latin
America,  North  Africa and the Middle  East) and Orion 3 (with  coverage of the
Asia Pacific  region) are deployed,  the  satellite  footprints in the aggregate
will  cover  an area  inhabited  by over  85% of the  world's  population.  This
coverage  will enable Orion to offer its  customers a single  source for service
offerings  and a greater  measure of network  quality  control than  terrestrial
alternatives.

     Early Market Entry

     Orion develops an early market presence in targeted  geographic areas prior
to satellite  launch in order to build its customer  base. To  accomplish  this,
Orion hires sales people,  develops  relationships  with local ground operators,
and delivers its services using leased satellite  capacity.  Orion employed this
strategy  prior to the  commercial  operation  of the Orion 1  satellite  and is
pursuing the same approach with Orion 2 and Orion 3. For example, the Company is
currently  providing  service  in Latin  America,  Asia and Russia  over  leased
satellite capacity.

     Local Presence

     Orion has arrangements  with ocal ground operators  covering most countries
within the Orion 1 footprint, and is entering into additional arrangements as it
offers services in new areas.  These ground  operators are critical to providing
integrated service because they obtain necessary licenses,  install and maintain
the  customers'  networks,  provide  in-country  business  experience  and often
facilitate market entry.

     Ownership of Facilities

     Orion  believes  it  is  strategically   important  to  own  its  satellite
facilities.  Orion  believes  that over the  long-term  ownership  of  satellite
facilities  provides a cost advantage  over resellers and other private  service
providers that must lease satellite  capacity to provide  services to customers.
The  Company's  satellite  ownership  enables  it to  control  the  quality  and
reliability of its network  solutions,  maintain the  flexibility to rapidly add
capacity,  new locations and new features to its customer networks,  and respond
quickly to customer requests.

INDUSTRY OVERVIEW

     Fixed  communications  satellites  are generally  located in  geostationary
orbit  approximately  22,300 miles above the earth and blanket large  geographic
areas of the earth with  signal  coverage.  Satellites  are thus well suited for
transmissions that must reach many locations over vast distances  simultaneously
(i.e.,   point-to-multipoint   transmissions),   such  as  the  distribution  of
television  programming to cable operators,  television stations and directly to
homes.  Satellites  can be  accessed  from  virtually  any  location  within the
geographic  area they cover.  This  ubiquitous  coverage allows the satellite to
transmit voice and data  communications to remote locations and emerging markets
where terrestrial infrastructure is not well developed.

     Prior to the late 1970s or early  1980s,  most  terrestrial  infrastructure
consisted of copper wire (and, to a lesser extent, microwave systems), which was
well suited for  ordinary  telephone  service.  Today most  developed  economies
employ fiber optic cables,  which provide much wider  bandwidth than copper.  In
addition,  transoceanic  cables  now link most major  industrialized  countries.
Fiber optic  cables are well suited for carrying  large  amounts of bulk traffic
between two fixed  locations,  and unlike copper wire facilities have sufficient
capacity to carry the high speed data communications that comprise an increasing
percentage of  communications  traffic.  However,  in many less developed areas,
terrestrial  facilities  still consist mainly of copper wire. Even in areas with
fiber optic  networks,  the "last mile"  connections to customer  premises often
consist of copper  wire.  As a result,  customers  with sites in areas which are
underdeveloped or which have not upgraded their "last mile" copper wire to fiber
optic  cable  often do not have  access  to the full  range of high  speed  data
communications demanded by many businesses.




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<PAGE>



     Satellites  provide a number of advantages over terrestrial  facilities for
many high speed communications  services.  First,  satellites provide ubiquitous
service within their  footprint and can deliver  service  directly to customers'
premises.  Satellites enable high speed communications service where there is no
suitable  terrestrial  alternative  available.   In  addition,   satellites  can
completely bypass terrestrial network congestion points, "last mile" bottlenecks
and  unreliable  networks of incumbent  service  providers  to provide  advanced
services to locations where  conventional  terrestrial  service is available but
inadequate.  Second,  the  cost to  provide  bandwidth  via  satellite  does not
increase with the distance between sending and receiving stations. Not only must
terrestrial networks add physical capacity to cover additional  distances,  they
must also continually reamplify transmission signals. Satellites are well suited
for   transmission   across  large   distances,   for  wide  bandwidth  and  for
point-to-multipoint   (broadcast)   applications.   Finally,   since  VSATs  are
relatively easy to install and/or relocate, high power satellite networks can be
rapidly installed, upgraded and reconfigured. In contrast, installation of fiber
optic cable is expensive, time consuming and requires obtaining rights-of-way.

     The current generation of high power Ku-band  satellites,  such as Orion 1,
is  particularly  well  suited to  provide  high speed  business  communications
services  in  addition to video  distribution  services.  The use of the Ku-band
frequencies  (as opposed to the C-band used by older  generations of satellites)
offers reduced interference with ground communications.  This enables satellites
to use the higher  broadcasting power necessary to support small,  low-cost VSAT
earth  stations  and makes it cost  effective  to transmit to or among  numerous
locations.

DATA NETWORKING

     During  the  past  decade,  there  has  been  significant  growth  in  data
networking  applications.  The data networking market includes a number of types
of services,  including leased lines for private  networks,  public data network
services,  managed network services,  frame relay and other services such as ATM
(asynchronous  transfer  mode)  and  WAN  (wide  area  network)  services.  Data
networking applications include:

     Private network services; intranets. Many companies are utilizing their own
"private" networks to meet their specific communications requirements, including
voice  and  data  communications,   business  television  transmissions,   video
teleconferencing,  high speed fax and e-mail.  Corporate  networks  offer higher
performance,  greater  control and  security  than can be  provided  through the
public  network.   Corporations  are  also  taking  advantage  of  intranets  to
distribute information within their own companies using Internet technologies.

     Data  inquiry,  collection  and  retrieval.  Hotel and  travel  reservation
systems and  financial  enterprises  use  private  communications  networks  for
database inquiries and retrieval of information  stored on computers.  Banks use
such networks to verify account  balances and connect  automatic teller machines
to computers.  Retail establishments verify credit standing and gather inventory
information. Other businesses use private communications networks to gather data
from multiple locations and transport it to central locations for analysis.

     Internet.  Business and consumers rely on the Internet for a growing number
of services,  including research, e-mail, data exchange,  software and graphics,
financial  services  and  shopping,   and  even  voice   communications.   These
applications  are predicted to continue to expand and diversify in the future as
enabling technologies mature.

     Image  transmissions.   Manufacturing,  publishing,  research  and  medical
industries  use  dedicated  communications  networks for  high-resolution  image
transmissions requiring large amounts of bandwidth.

     Government networks.  Network  telecommunications  are employed for complex
military and nonmilitary government  applications,  including administrative and
logistical functions, that require high security and customer network control.

     Orion  believes  that the demand for  international  data  networking  will
continue to grow as a result of (i) the shift to client/server  computing,  (ii)
the  proliferation  of bandwidth  intensive  applications and the development of
protocols such as frame relay to handle these applications, and (iii) use of the
Internet and intranets as part of main-stream corporate communications.

           (i) Shift to  client/server  computing.  Businesses are  increasingly
     shifting  from using large host  computers  and  centralized  data  network
     architectures  to  distributed PC and  workstation  based  platforms.  As a
     result, businesses require more private network infrastructure to establish
     and interconnect  local and wide area networks.  As businesses  expand, the
     ability to link multiple locations becomes more important.




                                       8



<PAGE>



           (ii) Proliferation of bandwidth intensive applications;  frame relay.
     Companies  are relying  more  heavily on  applications  such as CAD/CAM and
     image transfer that require more  bandwidth and result in traffic  patterns
     that involve  bursts of  transmissions.  In addition,  there is  increasing
     demand  for  near-instantaneous   response  time  and  more  reliable  data
     transport.  Frame relay services support these  applications and reduce the
     cost of fully and partially meshed networks.

           (iii)  Expansion in Internet and intranet  services.  The Internet is
     becoming a major vehicle for economic and social  activity  enabling broad,
     global access to financial and business information, research material, and
     information on leisure, arts and general interest topics.  Business uses of
     the Internet include communication within and among businesses,  electronic
     commerce,  advertising  and  merchandising.  Internet usage has also led to
     increased  demand  for  "intranet"  services  for  corporate  applications.
     Intranet servers are used for publishing  information,  processing data and
     data-based  applications and collaboration  among employees,  vendors,  and
     customers.

     The significant growth in data networking  services has led to rapid growth
in demand for satellite-based  networks.  Multinational companies are not always
able  to  implement   client/server   architectures,   install  wide   bandwidth
applications  or employ  Internet and intranet  solutions in every market due to
underdeveloped terrestrial communications  infrastructure.  Therefore, a growing
use of VSATs is to  provide  wide  bandwidth  capacity  to  industrial  sites in
emerging markets and remote locations.

ORION MARKET OPPORTUNITY

     The  Company  believes  that  demand  for  satellite-based   communications
services will continue to grow because of (i) the expansion of businesses beyond
the  limits of wide  bandwidth  terrestrial  infrastructure,  (ii)  accelerating
demand for high speed data  services,  (iii)  growing  demand for  Internet  and
intranet services, especially outside the U.S., (iv) increased size and scope of
television   programming    distribution,    (v)   worldwide   deregulation   of
telecommunications markets and (vi) continuing technological advancements.

           (i)  Expansion  of  business  beyond  the  limits  of wide  bandwidth
     terrestrial   infrastructure.   Overall   growth   in   the   international
     telecommunications market reflects the increasingly international nature of
     business,  the increasing  importance of emerging and newly  industrialized
     economies and the increase in international trade. International businesses
     expanding into emerging markets often rely on the incumbent  communications
     service  providers  for voice  circuits.  However,  as large  organizations
     increasingly rely on more sophisticated, high speed communications services
     to  run  their  businesses,   many  of  these  companies  face  operational
     bottlenecks when attempting to implement more sophisticated  communications
     networks.  These  problems are faced both by companies in emerging  markets
     and  companies  in  developed  markets  that  rely on  "last  mile"  copper
     infrastructure  to  interconnect  with a fiber  optic  network.  Satellites
     provide wide bandwidth  end-to-end  service  directly  connecting  customer
     premises and bypassing the limitations of terrestrial facilities.

           (ii) Accelerating demand for high speed data services.  The growth of
     graphical   user   interfaces,   the   popularity  of   bandwidth-intensive
     applications  such  as  CAD/CAM,   the  incorporation  of   high-resolution
     electronic images into business processes and video  teleconferencing  have
     necessitated  major upgrades of corporate data networks to accommodate  the
     high data transfer  requirements of these applications.  Most of these high
     speed data  services  require  fiber  optic  cable or other high  bandwidth
     connections to the customer premises.  Even in developed markets, the "last
     mile"  connection to the customer  premises  often consists of copper wire,
     which cannot  support many high speed data  services.  Satellites  are well
     positioned to take  advantage of this trend  because they provide  reliable
     high bandwidth service  everywhere in their coverage areas,  reaching sites
     in underdeveloped areas, and bypass "last mile" copper wire facilities that
     are unable to support high speed communications.

           (iii)  Demand  for  Internet  and  intranet  services.  The growth in
     Internet  and  intranet  services has further  strained  corporate  network
     infrastructures.  The  utility  of  Internet  services  to  users  is often
     constrained by the lack of sufficient bandwidth to support  high-resolution
     graphical  applications and images.  Even where  infrastructure  quality is
     high,  the  rapid  growth  of the  Internet  continues  to  create  network
     congestion.  Users are sometimes unable to use current-generation  software
     or gain high speed  access to the Internet due to the poor quality of their
     local  terrestrial  infrastructure.  Satellites  have  many  advantages  in
     delivering  Internet  services.  Satellite-based  networks provide services
     directly  to  customer  premises,  bypassing  terrestrial  bottlenecks  and
     congested  Internet  routing  facilities.  In  addition,   satellite  based
     networks  can be  designed to support  asymmetric  and  multicast  Internet
     traffic much more efficiently than terrestrial networks.




                                       9



<PAGE>


           (iv) Increased size and scope of television programming distribution.
     The global television market is experiencing  significant  growth,  both in
     terms of the number of broadcasters  creating programming and the number of
     channels  available to viewers.  Within the U.S.,  the number of television
     broadcast and cable television  program networks grew from three in 1970 to
     over 100 in 1993 and to approximately  200 in 1996. U.S. and  international
     broadcasters  are seeking to expand into each others'  markets,  increasing
     the need for satellite  transmission  capacity.  Non-U.S.  broadcasters are
     using international  satellites to distribute domestic  programming to U.S.
     and other overseas audiences of similar cultural heritage. Furthermore, the
     Company believes that as the number of broadcasters and channels increases,
     individual   competitors   will  have  a  greater   need  for   competitive
     differentiation  which  will  increase  the use of live  transmissions  and
     expand television coverage.  Multichannel  programming is expanding rapidly
     in Eastern  Europe,  Latin  America  and Asia.  The growth in  multichannel
     programming has increased the demand for international  programming such as
     news and sports.  Orion is well positioned to take advantage of this growth
     due to its high-power Ku-band satellite and trans-Atlantic footprint.

           (v) Worldwide deregulation of telecommunications  markets. During the
     past  decade  many  countries  have  liberalized  their  telecommunications
     markets  in order to permit  new  competitors  to  provide  facilities  and
     services.  These changes have been particularly  apparent in Europe,  where
     Orion  currently  has the ability to deliver  network  service to and among
     points in most countries.  Deregulation is also creating new competitors to
     national telecommunications companies, which represent potential additional
     customers for the Company's services.

           (vi)  Continuing  technological  advancements.  The following  recent
     technological  advances are expected to increase  capacity,  efficiency and
     demand for satellite services:

                  1. High Power Satellites.  The ability of service providers to
              deliver high quality  services  directly to customer  premises has
              greatly  improved with the  development of high power  satellites.
              Older,  lower power  satellites  require  large,  expensive  earth
              stations to receive transmissions.  Typically these earth stations
              were located outside urban areas and required interconnection with
              public telephone systems. High power satellites,  such as Orion 1,
              enable the use of small,  inexpensive VSAT earth stations that may
              be  installed at customer  locations,  thereby  reducing  customer
              costs and bypassing all terrestrial facilities.

                  2. Meshed Network Services. Traditional VSAT networks employ a
              hub/star  architecture  anchored by an expensive hub earth station
              that controls the network and communicates with each of the VSATs.
              Recent  advances in VSAT  technology  have led to the  creation of
              fully meshed satellite-based  networks.  These networks offer less
              transmission  delay than hub/star networks by enabling any network
              node to communicate  with any other network node directly  through
              the satellite without having to transmit through a central network
              control point.

                  3. Frame  Relay.  The  Company  believes  that  despite  rapid
              advances  in  network  services  and  application  software,  many
              companies  hesitated to implement meshed data networks due to high
              overhead  costs  generated  by  descriptive  and routing  commands
              required to travel with the data traffic.  Frame relay  technology
              reduces the number and complexity of commands needed to send data,
              and enables  companies to  implement  more  cost-effective  meshed
              networks.  To meet customers' demands for fully meshed frame relay
              network services, the Company has developed its VISN service.

                  4.  Compressed  Digital  Video.  CDV technology is designed to
              compress  up to ten  high-quality  video  channels  into  the same
              bandwidth that previously carried one or two analog channels. This
              technology  is  creating  a  rapid  expansion  in  the  number  of
              available video channels with improved  transmission  quality. CDV
              lowers  the  per-channel   cost  of  delivering   programming  via
              satellite  and cable  television  systems,  thereby  enabling more
              programming options to be provided to smaller markets. The Company
              believes  that CDV will enable  continued  growth in the number of
              video  channels  and  also  accelerate  broadcasters'  efforts  to
              distribute  their  programming  internationally.  The Company also
              believes  that  CDV will  result  in  higher  total  revenues  per
              transponder  as more  customers  can be  served  per  transponder.
              However,  CDV may also in effect  increase the supply of satellite
              transponders, causing prices to decline.




                                       10
<PAGE>




ORION SERVICES

     Orion provides  satellite-based  digital communications  services comprised
of: (i) private network  services for  multinational  business and  governmental
customers,  (ii)  Internet  backbone  and access  services  and (iii)  satellite
transmission  capacity  services,  including  video  distribution  services  for
broadcasters,   news  organizations  and  international   carriers.   For  1997,
approximately  43% of revenues were derived from the sale of satellite  capacity
(primarily for video distribution  services).  These figures are consistent with
the  Company's  strategy of building a stable base of revenues  through sales of
transmission  capacity and then focusing on the delivery of value-added  private
network services to end-users.

     PRIVATE COMMUNICATIONS NETWORK SERVICEs

     International  Leased  Line  Services.  Orion's  international  leased line
services include Digital Link and Digital  Channelized Link. Digital Link can be
designed as a  "point-to-point"  private  network  service  directly  connecting
customer locations or as a  "point-to-multipoint"  service for customers seeking
to transmit  communications  from a central  location to numerous  remote sites.
Orion also offers  Digital  Channelized  Link, a multiplexed  version of Digital
Link that integrates  digitally  compressed  voice,  fax and data traffic into a
single  channel.  Digital Link and Digital  Channelized  Link services have been
offered by Orion since 1993. International leased line services have constituted
a majority of Orion's  bookings of private  communications  network  services to
date.

     International Data Networking  Services.  Orion's  fully-meshed frame relay
based  international data networking  service,  "Virtual Integrated Sky Network"
("VISN"),  allows  customers  to  transmit  and  receive  voice,  fax  and  data
communications,   including   intranet   services,   among  multiple   locations
simultaneously.  VISN was  developed  by Orion and is produced by Nortel Dasa (a
joint venture among Northern  Telecom,  Dornier GmbH, and Daimler Benz Aerospace
AG). The first phase of this service became available to customers commencing in
the third quarter of 1995. Subsequent phases of the service have been introduced
during 1996 and 1997, with further phases expected to be introduced during 1998.
VISN offers customers bandwidth on demand for data, voice and fax and, following
the  introduction  of in-process  and future  releases,  customers will have the
option to be charged on a "pay per use"  basis  (e.g.,  minutes of use for voice
and volume for data).  VISN employs TDMA technology,  which further increase the
effective  bandwidth  available  for data  transmission.  The VISN  product  was
awarded "Best New Transport  Technology  Product" at the 1995 ComNet New Product
Achievement Awards Competition.  Most customers have between four and ten sites,
and  generally  have  minimum  data rates with the ability to use  substantially
greater bandwidth for bursts of traffic.

     INTERNET BACKBONE AND ACCESS SERVICES

     The Company  believes  that the rapid  growth of the  Internet  has created
substantial  opportunities  for Orion.  First,  the United States has become the
residence of the majority of the world's Internet content. Companies are looking
for reliable, wide bandwidth connections which bypass congested Internet network
segments. Orion's transatlantic capacity is well suited for companies in Europe,
including International Internet Service providers ("IIPS"),  seeking high-speed
access to the U.S.  Internet.  Second,  the  Internet has begun to evolve from a
user centered "pull"  environment  (users  requesting  information) to a content
provider  centered "push"  environment  (information  delivered to users without
concurrent  request).   Broadly  distributed   entertainment,   information  and
advertising via the Internet are well suited for broadcast,  point-to-multipoint
communications  facilities,  such as satellite. By using satellite broadcasts to
transmit  the most popular  Internet  content to regional  locations.  IISPs can
reduce  their costs and  relieve  network  congestion.  Finally,  Internet  data
communications   re  typically   asymmetric.   A  typical  large  Internet  data
transmission  is predicated by a user request that comprises only a few bytes of
traffic.   This   interaction  is  inefficient  when  carried  over  terrestrial
full-duplex networks, which carry the same capacity in each direction, providing
an inexpensive circuit for user requests and high-speed,  reliable and available
capacity for the data that flows back to the user.

     Orion's  WorldCast  service (patent  pending) is a satellite based Internet
service  for  IISPs and other  corporate  users  that  supports  asymmetric  and
multicast  traffic.  Orion recently  consolidated its Internet service offerings
under the WorldCast banner. WorldCast is a flexible network solution that can be
customized  to meet  the  specifications  of an IISP or other  user of  Internet
services.  It provides a multicast,  burstable  TCP/IP  network  with  committed
information  rates that can be configured as a pure satellite network with VSATs
or integrated with existing  terrestrial  networks.  Orion  customizes an IISP's
Internet   connectivity  by  taking   advantage  of  the  asymmetric   broadcast
characteristics  of the  Internet.  The  WorldCast  service  includes  a  Usenet
multicast channel.




                                       11



<PAGE>


     VIDEO DISTRIBUTION AND OTHER SATELLITE TRANSMISSION SERVICES

     Orion provides transmission  capacity to cable and television  programmers,
news and information networks,  telecommunications  companies and other carriers
for a variety of  applications.  A majority  of  Orion's  transmission  capacity
services consist of video services.  The Company  generally offers  transmission
capacity  services  under long term  contracts  and also offers  occasional  use
services for periods of up to a few hundred hours.

     Video   Services  --   Contribution.   Orion's   video   services   include
"contribution,"  the  long-distance  transport of video signals  (usually one or
more television channels) to one location.

     Video  Services  --  Distribution.  Cable and  television  programmers  use
Orion's   satellite   transmission   services  for  distribution  of  television
programming to local broadcast  stations,  cable head-ends,  MMDS  (multichannel
microwave distribution) systems and SMATV (satellite master antenna television).
Orion has a joint  marketing  agreement  with  NTL,  which  operates  one of the
largest  video  gateways in Europe,  located in downtown  London.  Orion and NTL
offer  programmers  uplink,  compression  and  distribution  to cable  head-ends
throughout  the United  Kingdom and to locations in Europe.  Orion's  ability to
offer  video  distribution  services  is  aided  by  the  transponder  switching
capabilities  of  Orion 1,  which  are  (and  those  of Orion 2 and  Orion 3 are
expected to be)  designed to permit  programs to be  distributed  simultaneously
throughout the satellite's coverage area.

     News and Special Events. Orion 1 is used for transmission of special events
or remote  feeds to  international  news bureaus  from  television  stations and
on-location  mobile  transmitters.  Because Orion's Ku-band  technology and VSAT
ground segment infrastructure offers high reception sensitivity,  the Company is
especially  effective in transmitting  television  signals sent from low-powered
portable   transmitters   typically  used  by  news  organizations  and  program
distributors.  In  contrast  to video  contribution  services,  news and special
events are  characterized  by  occasional  use rather  than  long-term  capacity
contracts.

     International  Carriers.  Orion satellite transmission services are used by
international  carriers to provide backup for  terrestrial  lines and to provide
communications   services   to   areas   with   inadequate    telecommunications
capabilities.  These  carriers  resell  Orion's  capacity  as part of their  own
services.

     Capacity  Sales.  Orion sells bulk  capacity to  resellers  who use Orion's
transmission capacity as one component of a customer's end-to-end communications
solution.  For example, Orion currently sells capacity to a number of firms that
resell Orion's capacity to governmental organizations.

     Orion offers a range of value-added  services in conjunction with its video
distribution  and other  satellite  transmission  services.  Such  services  may
include  the  provision  of video  uplinking  and  receiving  stations,  digital
compression  equipment  and  software,   transmission   monitoring  and  gateway
interconnection services.

     FEATURES AND BENEFITS

     Orion's  satellite-based  services  offer  customers a number of  important
features, which provide significant benefits versus competing alternatives.

          Bypass  terrestrial  network  and  multiple  international  connection
     points.  Orion's ability to bypass terrestrial  facilities improves service
     reliability  and  quality  by  reducing  potential  points of  failure  and
     avoiding "last mile"  limitations.  In addition,  terrestrial bypass allows
     Orion  to  avoid  the  multiple  in-country  toll  charges  of  terrestrial
     facilities and thereby reduces cost.

         Direct  end-to-end  service to customer sites.  Orion provides  service
     from  rooftop to rooftop  using VSAT  earth  stations  located on  customer
     premises. This "end-to-end service" is reliable, rapidly installed,  easily
     upgraded  and  avoids  the  "last  mile"  limitations  of some  terrestrial
     alternatives.

         Ubiquitous coverage.  Orion delivers wide bandwidth service to emerging
     markets  and remote  locations  where  there are no  effective  terrestrial
     alternatives.

         One-stop shopping.  Orion provides its customers with a single point of
     contact for customer care, including service, billing and support.




                                       12



<PAGE>


         Two-way  communications for all sites. Orion's meshed network solutions
     and frame relay services  promote  network  efficiency and allow  real-time
     data transfer among dispersed network points.

         Well-suited  for asymmetric  communications  traffic.  Orion's  network
     solutions can be designed to carry asymmetric  traffic  efficiently,  which
     increases  performance  and lowers cost to customers  for services  such as
     Internet services.

         Point to multipoint  capability.  Orion's  ability to broadcast  video,
     data and  voice to  multiple  locations  simultaneously  enables  efficient
     network design.

         High power Ku-band transmissions,  high reception sensitivity.  Orion's
     high power transmissions allow customers to lower costs by utilizing small,
     less expensive  earth station  equipment.  Orion 1's reception  sensitivity
     allows for effective  reception from portable earth stations,  an advantage
     in satellite news gathering.

         Cost-competitive. Orion prices its services to be competitive with both
     satellite-based and terrestrial alternatives.

CUSTOMERS AND BACKLOG

     Customers.  As of December 31, 1997,  Orion had entered into contracts with
301 customers, principally large multinational corporations,  European companies
and governmental  agencies.  These entities come from many different industries,
including communications,  broadcasting manufacturing,  government,  banking and
finance,  energy, lottery,  consumer distribution,  Internet access services and
publishing. Selected customers from each service area are set forth below.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
<S>                                <C>                                   <C>

Private Network Services:          AT&T                                  EDS
Digital Link/Digital Channelized   Amoco                                 GE Americom
Link                               GTECH                                 Hewlett-Packard
                                   Chase Manhattan Bank                  News International Limited
                                   Citibank                              USA TODAY
                                   Concert Global Network                Westinghouse

Private Network Services:          Balluff & Co.                         Pepsi Cola
VISN                               Creditanstalt                         Price Waterhouse

WorldCast                          Ebone                                 LV Net Teleport
                                   Banknet                               Spectrum
                                   Datac                                 Terminal Bar
                                   Global Ukraine                        Global One

Video Transmission and Other       AsiaNet                               Hughes Network Systems
                                   Black Entertainment 
                                        Television                       MCI
                                   Bonneville International              RTL Television
                                   British Telecom                       Telecom Italia
                                   CNN                                   Viacom International
                                   Comsat
--------------------------------------- ---------------------------------------------------------------------
</TABLE>

     Orion has entered into a contract with DACOM Corp., a Korean communications
company which provides international and long distance telephone and leased line
services, international and domestic data communications and value added network
services. Under the contract,  DACOM will, subject to certain conditions,  lease
eight dedicated  transponders  on Orion 3 for thirteen years for  direct-to-home
television  service and other  satellite  services,  for $89 million  payable in
installments  from  December  1996  through  seven  months  following  the lease
commencement date of the transponders. Payments are subject to refund if Orion 3
has not been successfully  launched and commenced  commercial  operation by June
30, 1999.  Although Orion 3 is scheduled to be launched in the fourth quarter of
1998,  there can be no  assurance  that Orion will be able to meet the  delivery
requirement of this contract.




                                       13



<PAGE>

     Backlog.  At December 31, 1997, Orion had  approximately  $269.5 million of
contracts in backlog  (including  $89 million from the DACOM  contract and after
giving  effect to the  Exchange  and  related  transactions,  which  resulted in
changes  to  arrangements  with  Exchanging  Partners  that  reduced  backlog by
approximately  $11  million),  as compared to  approximately  $214.9  million at
December 31, 1996. The backlog  contracts  generally have terms of between three
and four years. Orion presently  anticipates that at least $206.6 million of its
backlog  will be  realized  after  1998.  Orion  has begun to  receive  contract
renewals under expiring contracts (under some of the earliest  contracts,  which
were entered into in 1993 and 1994). The size of contracts varies significantly,
depending on the amount of capacity required to provide service,  the geographic
location of the network and other services provided.

     Although many of the Company's customers,  especially customers under large
and long-term  contracts,  are large  corporations  with  substantial  financial
resources,  other  contracts  are with  companies  that may be  subject to other
business or  financial  risks.  If  customers  are unable or  unwilling  to make
required  payments,  the Company  may be required to reduce its backlog  figures
(which would result in a reduction in future revenues of the Company),  and such
reductions  could be substantial.  The Company has recently  instituted  tighter
credit policies,  and has taken steps to remove from backlog  arrangements  with
customers who have not taken service or have not made all required payments. The
Company's  contracts  commence and  terminate on fixed dates.  If the Company is
delayed in commencing service or does not provide the required service under any
particular contract, as it has occasionally done in the past, it may not be able
to  recognize  all the  revenue it  initially  includes  in  backlog  under that
contract.  In addition,  the current  backlog  contains  some  contracts for the
useful life of Orion 1; if the useful life of Orion 1 is shorter than  expected,
some portion of backlog may not be realized unless services  satisfactory to the
customer can be provided over another satellite.

SALES AND MARKETING

     Orion uses both  direct and  indirect  sales  channels.  Orion  markets its
private  communications  network  services and Internet  services through direct
sales,  local  representatives  and  distributors in Europe,  the United States,
Latin America and Asia, and wholesale arrangements with major carriers, Internet
service providers,  resellers and systems  integrators.  Orion markets its video
distribution and other satellite  transmission services primarily through direct
sales.  Orion also has  established  arrangements  with local  companies in most
countries  within the Orion 1 footprint to assist Orion with selling efforts and
to provide customer support and network maintenance functions in those countries
(as  discussed  below  under  the  caption  "Network  Operations;  Local  Ground
Operators").

     Orion generally will enter into a single  contract with customers  covering
service to a number of  countries.  Orion offers the business  customer a single
point-of-contact,  a single contract and one price for its entire network, which
Orion believes  constitutes true "one-stop  shopping." Orion prices its services
centrally,  using a single,  easily  administered set of pricing  procedures for
customer networks.

     Marketing will be critical to Orion's success.  However,  Orion has limited
experience in marketing,  having  commenced full commercial  operations in 1995.
Orion's  marketing  program until recently  consisted of direct sales using U.S.
and European based sales forces and indirect sales channels,  including  Limited
Partner  sales  representatives,  for sales in Europe.  The  majority of Orion's
contract bookings to date have been generated by its direct sales force.  During
1997,  Orion  significantly  increased its direct sales  capabilities in Europe,
particularly with respect to sales of private  communications  network services.
Sales of Orion's services  generally  involve a long-term complex sales process,
and Orion's bookings have fluctuated significantly.

     The  Company  may from time to time enter into  joint  ventures  or acquire
businesses  which  provide it with  additional  customers  or which  enhance its
marketing capabilities. In the first quarter of 1997, the Company completed such
an acquisition, as discussed above under "Other Recent Developments".

     DIRECT SALES

     Orion has  assembled a direct  sales force of 58 (as of December  31, 1997)
full-time  employees to offer its private  communications  network and satellite
transmission services,  primarily in the United States and Europe. Approximately
48% of the sales force is based in the United  States and  approximately  52% is
based  in  Europe.   Orion  expects  to  continue  to  expand  its  sales  force
significantly throughout 1998, in the U.S., Europe, Latin America and Asia.




                                       14


<PAGE>


     INDIRECT SALES CHANNELS

     Major Carriers and Other  Distributors.  Orion has entered into distributor
resale arrangements with major carriers, teleport operators, resellers and other
companies in the United States and internationally. These distributors typically
purchase  communications  network  services  from Orion at a wholesale  rate for
resale to their  customers.  This  represents an important sales channel for the
Company, and the Company is focusing on strengthening these relationships. Major
carriers  employ  substantial  sales  forces  and  have the  advantage  of being
existing  providers to many of Orion's target  customers,  which makes marketing
easier and increases awareness of customer needs.

     Representatives. Orion has entered into agreements for the marketing of its
private communications network services in the United Kingdom,  France, Germany,
Austria,  Italy and other European  countries.  These agreements call for sales,
marketing  and  customer  support  services  in  specified  geographical  areas,
generally on a non-exclusive basis. Generally,  the duration of these agreements
is three years. Third party sales  representatives  receive commissions and fees
for sales and customer support services, each of which are payable over the life
of the customer  contracts  to which the  representative's  services  relate and
which are based upon the revenues  derived.  Two former limited  partners of the
Orion  Atlantic  Limited  Partnership  who serve as sales  representatives  (and
ground operators) are entitled to receive additional commissions under a "profit
sharing"  formula based on their overall  contribution to sales,  but no amounts
have been paid  under such  formula to date.  The  agreements  with these  sales
representatives  terminate in 1998.  Orion expects that payments,  if any, under
the profit sharing arrangement will not be material.

     Indirect  sales  channels  are  supervised  by Orion  sales  managers,  who
establish marketing strategies with the representatives, establish pricing, lend
engineering support, attend certain sales calls, develop marketing materials and
sales training tools, coordinate joint efforts in promotional events and provide
information about Orion's services.

NETWORK OPERATIONS; LOCAL GROUND OPERATORS

     Orion has a network operations facilities at its corporate  headquarters in
Rockville,  Maryland,  and in Hannover  Germany  supported by arrangements  with
local companies in most countries  within the Orion 1 footprint who assist Orion
with  selling  efforts and  perform  customer  support  and network  maintenance
functions. Orion's relationships with ground operators are critical to providing
integrated  service because ground operators  maintain the customers'  networks,
provide  in-country  business  experience and often facilitate  market entry and
licensing.

     Network  Operations.  Once  the  Company  enters  into  a  contract  with a
customer,  it  finalizes  the design of the  customer's  network,  acquires  the
required  equipment and arranges for the installation  and  commissioning of the
network.  Upon  commencement of service,  Orion also monitors the performance of
the networks through its U.S. and German based network  management centers . The
network  management  centers  allow Orion to perform  diagnostic  procedures  on
customer  networks  and to  reconfigure  networks to alter data  speeds,  change
frequencies and provide additional bandwidth.

     Ground Operators.  Through arrangements with local ground operators,  Orion
currently has the ability to deliver network services (through Orion 1 or leased
capacity on other satellites) to or among points in most European countries, the
United  States and Mexico  (which  comprise  substantially  all of the countries
within the coverage area of Orion 1), as well as arrangements to deliver network
services in various  Latin  American and Asian  countries.  The ground  operator
agreements call for  installation  and maintenance of VSATs and other equipment,
customer support and other functions in designated geographical areas, generally
on a non-exclusive  basis.  Generally,  such ground  operations  agreements last
three years.  Orion coordinates  ground operations  services  (including service
calls) by its local agents through centralized  customer service centers located
at Orion's corporate headquarters and at its facilities in Hannover.  Orion also
provides  its  ground  operators  with  installation  and  maintenance  training
materials and support.  Ground  operators  receive fixed fees for  installation,
maintenance  and other  services,  which vary depending on the level of services
and the geographic area.  Certain ground operators receive payments for customer
support over the life of the related customer contract,  based upon the revenues
derived.  Two former limited partners of the Orion Atlantic Limited  Partnership
who serve as ground  operators are entitled to receive  additional  fees under a
profit sharing formula, but no amounts have been paid under such formula to date
and Orion expects that, unless such ground operators  significantly increase the
number of VSATs they maintain on behalf of Orion for Orion's  customers,  profit
sharing  payments  will not be material.  Orion's  operations  will  continue to
depend  significantly  on Orion  being able to  provide  ground  operations  for
private network services using  representatives and distributors  throughout the
footprint  of  Orion's  satellites.  In the  event  that its  network  of ground
operators  is not  maintained  and  expanded,  or fails to perform as  expected,
Orion's ability to offer private network services will be impaired.




                                       15


<PAGE>


MIGRATION PLAN FOR NEW MARKETS

     Prior  to the  launch  of  Orion 1, the  Company  began  providing  private
communications network services to customers over satellite capacity leased from
others.  This early market entry strategy has been extended to Latin America and
Asia  with  the  commencement  of  construction  of  the  Orion  2 and  Orion  3
satellites.  By developing an early market  presence,  Orion builds its customer
base, establishes  relationships with ground operators and becomes familiar with
the  regulations  and  practices  in its new  markets  prior  to  launch  of its
satellites.  Upon the launch of Orion 1, Orion migrated its customer base to its
own  satellite,  and Orion  expects to pursue the same  approach for Orion 2 and
Orion 3.

     In Latin America,  the Company has agreements with a ground  operators in a
number of countries and is currently  providing  service to customers in Mexico,
Colombia and Paraguay over leased capacity.  The Company intends to migrate such
services to Orion 2 after it commences operations, as Orion did with its Orion 1
satellite.  The  Company has a direct  sales  force  focused on selling in Latin
America,  and  is  pursuing  relationships  with  additional  ground  operators,
distributors and joint venture partners.

     In Asia,  the  Company has  agreements  with  ground  operators  in several
countries, and has commenced discussions with such entities in a number of other
Asian  countries.  The Company has begun marketing its services in Asia, both to
existing  customers with Asian  operations and through regional sales offices in
Hong Kong and Singapore.  The Company  expects its marketing for Orion 3 will be
assisted  by  the  $89  million   pre-construction  lease  by  DACOM,  a  Korean
communications  company,  of eight of Orion 3's transponders for  direct-to-home
service and other satellite services.

IMPLEMENTATION OF THE ORION SATELLITE SYSTEM

     Orion  currently  provides  its services  with Orion 1 and with  facilities
leased from other providers  covering areas outside the  satellite's  footprint.
Ultimately  the Company  will  provide  these  services  with three  satellites,
together with  facilities  leased  outside of its  footprints.  Orion 1 provides
coverage of the Northern  Atlantic  Ocean region.  Orion 2 is being  designed to
cover the Atlantic  Ocean region but with coverage of points  further East (into
the  Commonwealth  of  Independent  States) and South  (into  Latin  America and
Africa), and Orion 3 is being designed to cover the Asia Pacific region.

     The design, construction,  launch and in-orbit delivery of a satellite is a
long and capital-intensive  process.  Satellites comparable to Orion's typically
cost in excess of $200 million  (exclusive of  development,  financing and other
costs)  and take two to three  years to  construct,  launch  and place in orbit.
Prior to  launch,  the owner  generally  must  obtain a number of  licenses  and
approvals,  including approval of the host country's national telecommunications
authorities to construct and launch the satellite, coordination and registration
of an orbital  slot (of which  there are a limited  number)  through  the ITU to
avoid  interference  with other  communications  systems and a  consultation  on
interference  with INTELSAT  (and EUTELSAT in the case of European  satellites).
Obtaining the necessary consents can involve  significant time and expense,  and
in the case of the  United  States,  requires  a showing  that the owner has the
financial  ability to fund the  construction  and launch of the satellite and to
operate  for one year.  The Company has  commenced  construction  of Orion 3 and
Orion 2 prior to receipt of all  regulatory  approvals.  Failure to obtain  such
approvals  prior to launch would have a material  adverse effect on the Company.
Orion 1 is expected to have an in-orbit useful life of approximately 10.7 years,
estimated to end in October  2005,  and Orion 2 and Orion 3 are expected to have
in-orbit useful lives of 13 years and 15 years, respectively (based upon present
design). While there can be no assurances that adequate financing and regulatory
approvals will be obtained,  Orion plans to launch replacement satellites as its
satellites reach the end of their useful lives.

     ORION 1

     Orion 1 was launched in November 1994 and commenced  commercial  operations
in January 1995.

     Satellite Design and Footprint.  Orion 1, which is in geosynchronous  orbit
at  37.5(Degree)  West  Longitude,  is a high power  Ku-band  telecommunications
satellite that contains 28 transponders of 54 MHz bandwidth and six transponders
of 36 MHz  bandwidth  (although  one of these  transponders  has not operated in
accordance with specifications, as described below). The footprint of Orion 1 is
shown below  (although  certain  transponders  of Orion 1 can be reconfigured to
match changing business and telecommunications requirements).




                                       16


<PAGE>









                                                        INSERT MAP









     Satellite  Construction and  Performance.  Orion 1 was constructed by Matra
Marconi Space's subsidiary MMS Space Systems Limited, one of the major satellite
contractors in Europe.  Orion 1 was designed both for the delivery of high-speed
data and for  high-powered  digital video  transmission  to corporate  users. In
particular, Orion 1 was designed with high reception sensitivity,  which enables
two-way  transmission  from and to small earth stations,  reducing the equipment
and  transmission  cost  to  customers.  Orion  1 has  transatlantic  networking
capability, which allows users to uplink data in the U.S. or Europe and downlink
that transmission simultaneously to the U.S. and Europe.

     This   configuration   simplifies   customers'   transatlantic   networking
solutions.  Orion  believes  that Orion 1's Ku-band  technology  and VSAT ground
segment infrastructure is among the least expensive,  most flexible technologies
for interactive satellite  transmissions in the North Atlantic market. Like most
recent satellites, Orion 1 offers digitally compressed transmission, in addition
to analog transmission, which allows the satellite to increase by up to ten-fold
its usable bandwidth per transponder, leading to greater revenue per transponder
and greater network availability to customers in need of bandwidth on demand.

     When Orion 1 was delivered into orbit, one of the 36 MHz transponders  with
coverage  of the United  States  did not  perform in  accordance  with  contract
specifications.  Orion settled the matter with the  manufacturer  for a one time
refund of $2.75  million  (which  amount was applied as a  mandatory  prepayment
under the existing Orion 1 Credit Facility).  In addition, the manufacturer will
pay Orion approximately $7,000 per month for the life of the satellite under the
warranty to the extent the  transponder is not used to generate  revenue.  Orion
believes  that the failure of such  transponder  to perform in  accordance  with
specifications  will not have a significant  impact on Orion's  ability to offer
its services.

     In November 1995, one of Orion 1's components  supporting nine transponders
of  dedicated  capacity  serving the  European  portion of the Orion 1 footprint
experienced  an anomaly  that  resulted  in a  temporary  service  interruption,
lasting  approximately  two hours.  Full service to all affected  customers  was
restored using redundant  equipment on the satellite.  Orion believes,  based on
the data  received  to date by Orion  from its own  investigations  and from the
manufacturer,  and  based  upon  advice  from  Orion's  independent  engineering
consultant,  Telesat Canada, that because the redundant component is functioning
fully in accordance with  specifications  and the performance  record of similar
components is strong,  the anomalous behavior is unlikely to affect the expected
performance of the satellite over its useful life.  Furthermore,  there has been
no effect on Orion's ability to provide services to customers.  However,  in the
event that the redundant component fails, Orion 1 would experience a significant
loss of usable  capacity.  In such  event,  while  Orion  would be  entitled  to
insurance  proceeds of  approximately  $47  million and could lease  replacement
capacity  and  function  as  a  reseller  with  respect  to  such  capacity  (at
substantially reduced gross margins), the loss of capacity would have a material
adverse effect on Orion.

     Control  of  Satellite.  Orion uses its  tracking,  telemetry  and  command
facility in Mt. Jackson,  Virginia (the "TT&C facility") to control Orion 1, and
has in place backup  facilities at its headquarters in Rockville,  Maryland.  In
addition,  Orion has a  satellite  control  center at  Orion's  headquarters  in
Rockville, Maryland, from which commands can be sent to the satellite, directly,
or remotely  through the TT&C  facility.  Orion also has  constructed  a network
management  center at its headquarters to monitor the performance of Orion 1 and
to  perform  diagnostic  procedures  on and to  reconfigure  its  communications
networks.  Orion leases  additional  facilities  in Europe for backup  tracking,
telemetry and command and network monitoring functions.




                                       17


<PAGE>


     ORION 2

     Schedule  and  Footprint.  Orion  intends to launch Orion 2 in the Atlantic
Ocean region to bolster its European capacity and to expand its coverage area in
the Commonwealth of Independent States, Latin America and parts of Africa. Orion
2 will be a high power  Ku-band  communications  satellite  which  will  contain
approximately   30  transponders  of  54  MHz  bandwidth.   Orion  has  obtained
conditional  authorization  from the FCC for the orbital slot at 12(Degree) West
Longitude  for  operation  of Orion 2. The FCC has  commenced  the  coordination
process  through  the ITU and will  commence  consultation  with  INTELSAT  upon
request from Orion. Orion commenced construction of Orion 2 in February 1997 and
expects to launch Orion 2 in mid 1999.








  [Document contains a map of North America, Latin America, Europe, Africa and
                                 Asia showing in
            shaded areas the proposed coverage footprint of Orion 2]











     Satellite Construction, Launch and Performance. Matra Marconi Space and MMS
Space  Systems  are the  prime  contractors  for  Orion 2 and will use MMS Space
Systems' EUROSTAR  satellite  platform for Orion 2. This platform was previously
used for Inmarsat 2, Telecom 2, Hispasat and Orion 1.  Lockheed  Martin CLS will
provide launch services for Orion 2 using the Atlas II A-S launch vehicle. Atlas
II A-S,  which is larger than the launch vehicle used for the launch of Orion 1,
is an  expanded  version  of Atlas  II.  All 26 of the Atlas II, II A and II A-S
launches have been successful. There have been more than 500 Atlas flights since
the first research and development launch in 1957.

     The Orion 2 satellite  will be tested  extensively  prior to launch.  Matra
Marconi  Space is  obligated  to correct  all  defects in the  satellite  or its
components  discovered prior to the launch.  If Orion 2 is launched but fails to
meet the specified  performance criteria following launch, or fails to arrive at
its designated  orbit within 180 days of launch,  or is completely  destroyed or
incapable of operation, Orion 2 will be deemed a "constructive total loss." Upon
a constructive total loss of Orion 2, Orion would generally be entitled to order
from Matra Marconi Space a replacement satellite on substantially the same terms
and  conditions  as set  forth in the Orion 2  Satellite  Contract,  subject  to
certain pricing  adjustments.  If Orion 2 is  substantially  able to perform but
fails to meet  certain  criteria for full  acceptance,  Orion 2 will be deemed a
"partial  loss."  Upon a partial  loss of Orion 2, Orion  would be  entitled  to
receive  a  partial  refund  based  on  calculations  of Orion  2's  performance
capabilities.  If Orion 2 is not a constructive  total loss or partial loss, but
does not meet the specified performance  requirements at final acceptance or for
five years  thereafter,  Matra  Marconi  Space may be required  to make  certain
refund payments to Orion up to a maximum of approximately  $10 million.  Orion's
principal  remedy in the case of a constructive  total loss or partial loss will
be under the launch  insurance  the Company is to obtain.  The Orion 2 Satellite
Contract  provides  Orion with an option to  purchase a  replacement  satellite.
Under the contract,  Orion has an option to purchase a replacement satellite for
Orion 2, to be  delivered  in orbit no later  than 21 1/4 months  after  Orion's
exercise of the option.  A total or partial loss will involve delays and loss of
revenue,  which  will  impair  Orion's  ability  to  service  its  indebtedness,
including the Notes,  and such insurance will not protect Orion against business
interruption,  loss or delay of  revenues  or  similar  losses and may not fully
reimburse the Company for its expenditures.




                                       18
<PAGE>


     The Orion 2 Satellite Contract provides for incentive payments to encourage
early  delivery  and  limited  liquidated  damages  payable in the event of late
delivery.  The incentive  payments would equal $25,000 per day for each day that
Orion 2 is delivered prior to the scheduled delivery date. Liquidated damages in
the event of a late  delivery  of Orion 2 also  would be  calculated  on a daily
basis, with the aggregate amount not to exceed approximately $12 million.  These
liquidated damages would be Orion's exclusive remedy for late delivery.

     Control of  Satellite.  Orion  expects to use the TT&C  facility to control
Orion 2, and to use its existing  network  monitoring  facilities  in Rockville,
Maryland and backup facilities in Europe.

     ORION 3

     Schedule and Footprint. Orion intends to launch Orion 3 in the Asia Pacific
region.  Orion 3 is expected to cover all or  portions of China,  Japan,  Korea,
India, Hawaii, Southeast Asia, Australia, New Zealand, and Eastern Russia. Orion
3 is expected to be a high-power  satellite with  twenty-three 54 MHz and two 27
MHz equivalent Ku-band  transponders,  ten 36 MHz C-band transponders for use by
Orion,  and  eight  Ku-band  transponders  to be used by  DACOM,  a large  Asian
customer,  for direct-to-home  television services and other satellite services.
Orion,  through the Republic of the Marshall Islands,  has filed the appropriate
documentation  with the ITU process and is in the  process of  coordinating  the
orbital slot at 139(Degree)  East  Longitude.  Orion has commenced,  but has not
completed  the  consultation  process with INTELSAT with respect to such orbital
slot.  Orion  commenced  construction  of Orion 3 in December  1996.  Orion 3 is
scheduled to be launched in the fourth quarter of 1998.

     The proposed coverage of Orion 3 is shown below.







                              [INSERT COVERAGE MAP]











                                       19


<PAGE>




     Pre-Construction  Customer.  Orion has entered  into a contract  with DACOM
Corp., a Korean  communications  company which provides  international  and long
distance  telephone and leased line  services,  international  and domestic data
communications and value added network services.  Under the contract, DACOM will
lease eight dedicated  transponders  on Orion 3 for 13 years for  direct-to-home
television   service  and   satellite   services,   in  return  for  payment  of
approximately $89 million payable over a period from December 1996 through seven
months following the lease commencement date for the transponders.  Payments are
subject  to refund if the  successful  launch  and  commencement  of  commercial
operations  of Orion 3 has not  occurred by June 30, 1999.  Although  Orion 3 is
scheduled  to be  launched  in the  fourth  quarter  of  1998,  there  can be no
assurance that Orion will meet the delivery  requirements  of this contract.  As
part of the arrangements  with DACOM,  Orion granted DACOM a warrant to purchase
50,000 shares of Common Stock at $14 per share.

     Satellite Construction,  Launch and Performance.  Orion has selected Hughes
Space as the prime  contractor for Orion 3 and will use a Hughes Space HS 601 HP
satellite  platform  for Orion 3. Launch  services  for Orion 3 will be provided
using the McDonnell Douglas Delta III launch vehicle. Delta III, which is larger
than the launch  vehicle used for the launch of Orion 1, is an expanded  version
of the  Delta II launch  vehicle  which has had 53  successful  launches  with a
failure  rate of less  than 4%. A launch  of a Delta II (on  January  17,  1997)
resulted in a launch failure.  There have been no Delta III flights to date, and
the  Company  expects  its launch to be the third  Delta III  flight  based upon
information  provided by the launch vehicle  manufacturer  regarding its present
flight schedules.

     Under the Orion 3 Satellite Contract,  the Orion 3 satellite will be tested
extensively prior to launch. Hughes Space is obligated to correct all defects in
the satellite or its components discovered prior to the launch. The risk of loss
or  damage  to  Orion 3  passes  from  Hughes  Space  to  Orion  at the  time of
intentional  ignition  of Orion 3.  After  Orion 3 is  launched  and  meets  the
specified  performance  criteria  following launch,  and has not suffered damage
caused by any failure or  malfunction  of the launch  vehicle,  Hughes  Space is
required  to  perform  in-orbit  testing  of Orion 3 to  determine  whether  the
transponders meet the specified  performance  criteria. If the transponders meet
the specified performance criteria,  Hughes Space is entitled to retain the full
satellite performance payments described below.

     Orion has an option to purchase an additional  satellite (which may be used
as a replacement  satellite)  to be launched  within 12 to 19 months after Orion
exercises  such option.  Orion must pay a fee if it exercises  this option;  the
size of the fee will depend on whether the  additional  satellite is required to
be  delivered  in 12, 15 or 19 months.  Hughes Space is obligated to furnish the
replacement  satellite on terms substantially  similar to those contained in the
Orion 3 Satellite Contract.

     The Orion 3 Satellite Contract provides for incentive payments to encourage
satellite  performance  and limited  liquidated  damages payable in the event of
late delivery.  The incentive  payments could total $18 million depending on the
satellite's  performance,  of which $10 million could be payable upon acceptance
of the Orion 3  satellite  and $8  million  is  payable  over the  course of the
satellite's  operational lifetime. In the event that it is determined during the
Orion 3's operational lifetime that a transponder is not successfully operating,
Orion is  entitled  to  receive  payment  refunds  under the  Orion 3  Satellite
Contract.  Liquidated  damages in the event of a late  delivery  of Orion 3 also
would be  calculated on a daily basis,  with the aggregate  amount not to exceed
approximately $6 million.  These liquidated  damages would be Orion's  exclusive
remedy for late delivery.

     Control of  Satellite.  Orion is in the process of  completing  a tracking,
telemetry  and  command  facility  in the United  States to control  Orion 3 and
expects to maintain backup  facilities in Korea,  pursuant to arrangements  with
DACOM.




                                       20
<PAGE>


                             SUMMARY SATELLITE DATA

<TABLE>
<CAPTION>
                                        ORION 1                          ORION 2*                              ORION 3*


<S>                                <C>                          <C>                                     <C>
Region Covered..................   Europe, Southeastern         Eastern U.S., Southeastern Canada       China, Japan,  Korea, India,
                                   Canada, U.S., East of the    Europe, Commonwealth of Independent     Hawaii,Southeast Asia,
                                   Rockies and Paris of         States, Middle East, North Africa and   Australia, New Zealand 
                                   Mexico                       America                                 and Eastern Russia

Expected Launch.................   Operational(1)               Mid 1999                                Fourth Quarter of 1998
Satellite Manufacturer..........   MMS Space Systems            Matra Marconi Space                     Hughes Space
                                   (subsidiary of Matra
                                   Marconi Space)
Transponders(2).................   34                           30                                      43

Ku-Band(3)......................   28@0054 MHz                  30@0054 MHz                             23@0054 MHz
                                   6@0036 MHz                                                           2@0027 MHz
                                                                                                        8@0036 MHz (4)

C-Band(5).......................      --                            --                                  10@0036 MHz

Usable Bandwidth(6).............   1728 MHz                     1620 MHz                                1944 MHz

EIRP(7).........................   47 to 52 dBW                 47 to 50 dBW                            44 to 52
                                                                                                        for Ku-Band;
                                                                                                        34 to 38
                                                                                                        for C-band
                                                                                                        returns
Total Prime Power(8) ...........   4500 Watts                   7000 Watts                              8000 Watts

Expected End of Useful Life(9)..   2005                         2012                                    2013

Approximate Percentage of World
Population Covered by
Satellite(10)...................   17.9%                        27.0%                                   57.0%

</TABLE>

  *   All  information  relating  to Orion 2 and  Orion 3 is based on  currently
      proposed satellite designs. Particular features of Orion 2 and Orion 3 are
      subject to change,  although  changes are not  expected to have a material
      impact on the operating specifications of the satellites.

  (1) Orion 1 was  launched  on  November  29,  1994 and  commenced  commercial
      operations on January 20, 1995.

  (2) Satellite  transponders  receive  signals up from earth  stations and then
      convert,  amplify  and  transmit  the  signals  back  down to other  earth
      stations.

  (3) Ku-band  frequencies  are  higher  than  C-band  frequencies  and are used
      worldwide for commercial satellite communications.

  (4) Orion has  entered  into a contract  with  DACOM  under  which  Orion will
      provide  eight  dedicated  transponders  on  Orion  3  for  direct-to-home
      television service and other satellite services,  provided that Orion 3 is
      delivered in orbit and fully operational by June 30, 1999.

  (5) C-band frequencies minimize interference from atmospheric  conditions such
      as rain.  C-band  satellites  share  frequencies  with  terrestrial  based
      microwave  systems and therefore  require more on-ground  coordination  to
      avoid interference  problems and generally are lower power,  requiring the
      use of large earth  stations to receive  signals.  A portion of Orion 3 is
      designed to transmit  over  C-band  frequencies  since Orion 3 is to cover
      areas of Asia where satellite signals experience significant  interference
      from rain during several months of the year.

  (6) Bandwidth is a measure of the  transponder  resource which  determines the
      information carrying capacity. The actual information carrying capacity of
      a  transponder  is  determined  by  a  combination  of  the  transponder's
      bandwidth and radio-frequency ("RF") power.

  (7) Equivalent  isotropic radiated power ("EIRP") is a measure of the RF power
      of each  transponder.  Smaller and less expensive earth terminal  antennas
      can be used with higher EIRP transponders.




                                       21
<PAGE>


  (8) Total prime power is the total amount of power that is required to support
      all of the communications and electronics functions of the satellite.

  (9) The expected  end of a  satellite's  in-orbit  useful life is based on the
      period during which the  satellite's  on board fuel permits proper station
      keeping maneuvers for the satellite.  The information for Orion 1 is based
      on 1997 fuel level  estimates.  The information for Orion 2 and Orion 3 is
      based on their expected launch dates and their expected satellite designs,
      internal studies, the Orion 2 Satellite Contract and the Orion 3 Satellite
      Contract.

(10)  The approximate  percentages of world population  covered or to be covered
      by the Orion satellites are not additive. In the aggregate, the footprints
      of the Orion satellites would cover over 85% of the world's population.

     ORBITAL SLOTS

     Orion  1.  Orion  has  been  licensed  by the  FCC and  has  completed  the
coordination  process with INTELSAT to operate Orion 1 in geostationary orbit at
37.5(Degree) West Longitude.

     Orion 2. Orion has obtained conditional  authorization from the FCC for the
construction,  launch and operation of Orion 2 at 12(Degree) West Longitude.  On
behalf of Orion,  the FCC has  commenced the orbital slot  coordination  process
through the ITU. Orion  believes that its use of the  12(Degree)  West Longitude
slot for Orion 2 is not likely to interfere with proposed uses of adjacent slots
filed for by other governments, except for a possible overlap of 75 MHz with one
such filing as discussed more fully below under the caption "-- ITU Coordination
Process".  Orion has commenced consultation with INTELSAT regarding Orion 2, and
believes  that since there are no INTELSAT  satellites  located  adjacent to the
12(Degree)  West  Longitude  orbital slot, the INTELSAT  coordination  should be
obtained in due course.

     Orion 3. Orion, through the Republic of the Marshall Islands, has filed the
appropriate documentation with the ITU to begin the ITU coordination process for
Orion 3 at  139(Degree)  East  Longitude.  Based  upon the time of filing by the
Republic of the Marshall Islands,  Orion believes that the proposed orbital slot
for Orion 3 would have effective  priority under ITU procedures  with respect to
the  139(Degree)  East  Longitude  orbital slot, but some proposals for adjacent
slots would be entitled to priority  over the  Company's  proposal  (through the
Republic of the Marshall  Islands)  with respect to certain  frequencies.  Orion
believes,  based upon its monitoring of the other  proposals and  information in
the industry regarding their progress, that none of these entities will launch a
satellite  prior to launch of Orion 3 to take advantage of such priority.  Orion
has not commenced the  consultation  process with INTELSAT with respect to Orion
3, but as in the case of Orion 2 expects to complete the  INTELSAT  coordination
in due course.

     Other Orbital Slots. Orion has received an authorization from the FCC for a
Ku-band satellite in geostationary  orbit at 47(Degree) West Longitude,  and has
coordinated this orbital position with INTELSAT.  Orion has filed an application
with the FCC to operate a satellite at 126(Degree)  East Longitude.  The FCC has
filed  documentation with the ITU to commence the coordination  process for this
slot. In May 1996, in response to Orion's application, the FCC assigned the U.S.
domestic  orbital  location of 135(Degree)  West Longitude to Orion. In November
1996, the FCC granted authorization to Orion to utilize the slot, conditioned on
Orion  submitting   financial   qualification   information,   or  documentation
justifying  a waiver of the  financial  requirements,  within 120 days after the
release of the individual order with respect to Orion's application.  Orion made
its filing on March 19, 1997. The Company has also filed an application with the
FCC to amend its license to operate a Ku-band  satellite in geostationary  orbit
at 37.5(degree) West Longitude to include C-band operations at 37.5(degree) West
Longitude.

     In May 1997, the FCC confirmed the assignment of Ka-band orbital  locations
to applicants proposing to provide  geostationary-satellite  services. Orion was
assigned Ka-band orbital locations at 89(degree) West Longitude, 81(degree) West
Longitude, 47(degree) West Longitude, and 126.5(degree) East Longitude. With the
relinquishment by AT&T of certain orbital  assignments,  applicants entered into
new  negotiations  for  a  further   assignment  plan.  As  a  result  of  these
negotiations, Orion would receive an additional authorization of 67(degree) West
Longitude. In December 1997, the FCC confirmed the previous five Ka-band orbital
assignments  to Orion and indicated the 67(degree)  West Longitude  location was
now under active consideration. In addition, in November 1997, the FCC commenced
a second  processing  round for  Ka-band  orbital  assignments  and Orion  filed
amended applications seeking Ka-band orbital assignments for the 15(degree) West
Longitude and 139(degree) East Longitude locations.  No other satellite operator
has filed for the  15(degree)  West  Longitude  or  139(degree)  East  Longitude
locations.  There can be no assurance  that Orion will receive final licenses to
operate  at these  orbital  positions,  or that the FCC  will act  favorably  on
Orion's additional satellite filings.




                                       22



<PAGE>


     ITU Coordination Process. An international treaty to which the U.S. and the
Republic of the Marshall Islands are parties requires  coordination of satellite
orbital slots through the procedures of the ITU. There are only a limited number
of such  orbital  slots.  ITU  procedures  provide  for a priority  to attach to
proposals that are submitted first for a particular  orbital slot and associated
frequencies,  and provide for  protection  from  interference  by  satellites in
adjacent slots. This priority does not establish  legally-binding rights, but at
a minimum  establishes  certain  procedural  rights and obligations for and with
respect to the party that first submits its proposal.

     Over the  past  decade,  a  substantial  increase  in  satellite  proposals
introduced into the ITU coordination  process has caused delays in that process.
In  addition,  many  proposals  are  submitted  to the ITU for  registration  of
satellite systems that ultimately are not constructed or launched.  As a result,
the ITU is  investigating  ways to improve or streamline  the filing process for
registration  of orbital  slots.  In the meantime,  it has become  international
practice for operators who propose to use a certain  orbital slot to investigate
and evaluate  whether  proposals to launch  satellites into the same or a nearby
orbital location are likely to result in actual operation,  and for operators to
negotiate  with other  countries or operators  that propose to use the same or a
nearby  orbital  location.  There  can be no  assurance  of the  outcome  of any
objections  to this  international  practice  or as to the  results of the ITU's
investigations.

     Orion is involved in discussions with certain governments  concerning their
proposals to use orbital slots.  While Orion  believes that it can  successfully
coordinate  and  resolve  any  interference  concerns  regarding  the use of the
orbital  locations and frequency  bands  proposed for Orion 2 and Orion 3, there
can be no assurance that this will be achieved,  nor can there be assurance that
ITU coordination will be completed by the scheduled launch dates for Orion 2 and
Orion 3.

     In the event that  successful  coordination  cannot be achieved,  Orion may
have to modify the satellite  design for Orion 2 or Orion 3 in order to minimize
the extent of any potential  interference  with other proposed  satellites using
those orbital locations or frequency bands. Any such modifications may result in
certain  features of Orion 2 and Orion 3 differing from those  described in this
Prospectus and may result in limitations on the use of one or more  transponders
on Orion 2 or Orion 3 or delays in the launch of Orion 2 or Orion 3. In order to
achieve successful coordination,  Orion may also have to modify the operation of
the satellites,  or enter into commercial  arrangements  with operators of other
satellites,  in  order  to  protect  against  harmful  interference  to  Orion's
operations.  If interference  occurs with satellites that are in close proximity
to Orion 2 and Orion 3, or with satellites that are  subsequently  launched into
locations in close proximity  without  completing ITU  coordination  procedures,
such  interference  would  have an  adverse  effect on the  proposed  use of the
satellites and on Orion's business and financial performance.

     INSURANCE

     Orion has obtained  satellite  in-orbit life insurance for Orion 1 covering
the period from May 1997 to May 1998 in an amount of approximately  $205 million
providing   protection   against  partial  or  total  loss  of  the  satellite's
communications  capability,  including  loss of  transponders,  power,  fuel, or
ability to control the positioning of the satellite.  The aggregate  premium for
in-orbit  insurance for Orion 1 is approximately  $4.6 million per annum.  Orion
has obtained launch and in-orbit life insurance for Orion 2 and Orion 3 covering
the  period  from  launch to two years  after  launch in an amount of up to $220
million for Orion 2 and up to $230 million for Orion 3. This  coverage  provides
protection  against  partial  or total  loss of the  satellite's  communications
capability,  including loss of transponders,  power,  fuel or ability to control
the positioning of the satellite. The aggregate premium for the combined Orion 2
and Orion 3 coverage  for the launch  plus two year  period is  estimated  to be
approximately  $72.5  million.  Orion has  instructed  its  insurance  broker to
determine  if  current  market  conditions  will allow for  improvements  to the
existing  Orion  2/Orion 3 policy terms.  Launch and in-orbit  insurance for its
satellites will not protect the Company against business  interruption,  loss or
delay of revenues and similar losses and may not fully reimburse the Company for
its expenditures.

COMPETITION

     As a provider  of data  networking  and  Internet-related  services,  Orion
competes  with a  large  number  of  telecommunications  service  providers  and
value-added  resellers  of  transmission  capacity.  As a provider of  satellite
transmission  capacity,  Orion  competes  with other  providers of satellite and
terrestrial facilities.




                                       23

<PAGE>

     Many  of  these  competitors  have  significant   competitive   advantages,
including long-standing customer  relationships,  close ties with regulatory and
local authorities, control over connections to local telephone networks and have
financial  resources,  experience,  marketing  capabilities and name recognition
that are  substantially  greater than those of Orion.  The Company believes that
competition in emerging  markets will intensify as incumbent  service  providers
adapt to a competitive  environment and  international  carriers  increase their
presence in these  markets.  The Company also believes that  competition in more
developed markets will intensify as larger carriers  consolidate,  enhance their
international  alliances and increase  their focus on data  networking.  Orion's
ability  to  compete  with these  organizations  will  depend in part on Orion's
ability to price its services at a significant  discount to terrestrial  service
providers,  its  marketing  effectiveness,  its level of  customer  support  and
service and the technical advantages of its systems.

     SERVICE PROVIDERS

     Orion has encountered  strong  competition from major established  carriers
such as AT&T, MCI, Sprint, British Telecom, Cable & Wireless,  Deutsche Telekom,
France Telecom and Kokusai Denshin Denwa, which provide international telephone,
private  line and  private  network  services  using  their  national  telephone
networks and link to those of other  carriers.  A number of these  carriers have
formed global consortia to provide private network  services,  including AT&T --
Unisource Services Company (AT&T, PTT Telecom Netherlands, Telia (Sweden), Swiss
Telecom PTT and  Telefonica of Spain),  Concert  (British  Telecom and MCI), and
Global  One  (Sprint,  France  Telecom  and  Deutsche  Telekom).  Other  service
providers include Worldcom (which is in the process of acquiring MCI),  Infonet,
SITA,  Telemedia  International,  Spaceline,  ANT  Bosch  (acquired  by  General
Electric),  Impsat, and various local resellers of satellite capacity.  Finally,
service organizations that purchase satellite capacity,  VSAT and other hardware
and install their own networks may be considered competitors of the Company with
respect to their own networks. Although these carriers and service providers are
competitors,  some are also Orion's  customers.  Orion believes that all network
service  providers are  potential  users of Orion's  satellite  capacity for the
network services they offer their customers.

     SATELLITE CAPACITY

     Orion provides fixed satellite  service and does not intend to compete with
most  proposed  mobile  satellites  or low earth orbit  systems  ("LEO") such as
Globalstar,  Iridium or Odyssey  (although  the Company  expects to compete with
Teledesic,  a proposed LEO  system),  or, with the  exception of the  pre-leased
transponders on Orion 3 to be used for video transmissions,  with direct-to-home
satellite  systems  such as  Primestar,  DirecTV or EchoStar.  Mobile  satellite
services are  characterized  by voice and data  transmission  to and from mobile
terminals on platforms  such as ships or aircraft.  Direct-to-home  services are
characterized  by the  transmission  of television  and  entertainment  services
directly to consumers. Orion's satellites will compete with trans-Atlantic fixed
satellite systems, European regional and domestic systems and Asian systems.

     Existing International and Trans-Atlantic Satellite Systems. The market for
international  fixed  satellite  communications  capacity has been  dominated by
INTELSAT for thirty years,  and INTELSAT can be expected to continue to dominate
this market for the foreseeable future.  INTELSAT, a consortium of approximately
140 countries established by international treaty in 1964, owns and operates the
largest   fleet  of   commercial   geosynchronous   satellites   in  the   world
(approximately 25 satellites,  with additional satellites on order).  INTELSAT's
satellites  have  historically  been  general  purpose,  lower-power  satellites
designed to serve large areas with public telephone service  transmitted between
expensive gateway earth stations.  INTELSAT generally provides capacity directly
to its  signatories  who then  market  such  capacity  to their  customers.  The
availability  of new  services  generally is subject to the  discretion  of each
country's  signatory  and  INTELSAT  is  required  under its  charter to set its
pricing in order to achieve a fixed pre-tax return on equity that is established
from time to time by INTELSAT's  board of governors.  INTELSAT is  considering a
restructuring  and it is expected  that the  Intelsat  Assembly of Parties  will
decide on a new structure for the  organization  in 1998. Any  restructuring  of
INTELSAT that  increases  its  marketing  flexibility  could  materially  impact
Orion's  ability  to  compete in the  market  for  private  satellite  delivered
services.

     PanAmSat currently operates six satellites,  with four satellites providing
coverage in the Atlantic Ocean region, one in the Asia Pacific region and one in
the  Indian  Ocean  region.  These  satellites  primarily  provide  broadcasting
services,  such  as  television  programming  and  backhaul  operations.  PAS 3,
launched in January 1996, with coverage of the Atlantic Ocean, competes directly
with Orion 1. It has performance  attributes  which are generally  comparable to
those of Orion 1 and carries 16 Ku-band  transponders,  of which 8  transponders
are  capable  of  providing   service  to  or  within  Europe,   and  16  C-band
transponders.  PanAmSat has announced  that it intends to launch two  additional
satellites in 1998 .




                                       24


<PAGE>


     Existing European Regional and Domestic Satellite Systems. In Europe, Orion
competes with certain regional  satellites systems and may compete with domestic
satellite  systems.  Regional  and domestic  satellite  systems  generally  have
limited  ability  to serve  customers  with  needs for  extensive  international
networks.  Orion's primary  competitor in Europe is the major regional satellite
system operated by EUTELSAT. EUTELSAT,  established in 1977, presently comprises
over  approximately  45 member  countries.  EUTELSAT  operates  ten  satellites,
providing telephony,  television,  radio and data services,  and has announced a
plan to launch four new satellites through 1999.

     Asian   Pacific   Region   Satellite    Systems.    Orion   believes   that
currently-operating  satellite  systems in the Asia Pacific region generally are
limited in their ability to provide private  network and similar  services at an
acceptable performance level due to insufficient power, limited Ku-band capacity
and  limited  geographic  coverage.  Nevertheless,  there is a large  number  of
satellite systems  operating in Asia. The major Asia Pacific regional  satellite
systems include the AsiaSat system licensed in Hong Kong (with two satellites in
operation ), the Chinese Apstar system (with three  satellites in operation) and
the Indonesian Palapa system (with six satellites in orbit).  Japan has licensed
several satellite networks for domestic and international service, including the
JCSat series (five satellites in operation),  NTT's two N-Star  satellites,  and
Space  Communications   Corporation's  Superbird  Series  (three  satellites  in
operation).  Optus  operates  four  Australian  domestic  satellites  that offer
limited  international  coverage and plans several follow-on  satellites.  Korea
operates  Koreasat 1 and 2,  primarily  for domestic  service,  with plans for a
third satellite that would offer expanded regional service in 1999. Thailand has
licensed  the Thaicom  system,  with two  domestic  satellites  and one regional
satellite in operation.  Measat  operates a Malaysian  system  consisting of two
satellites providing DTH service to Malaysia and parts of Asia.

     Other Satellite Systems.  There are numerous satellites other than the ones
discussed above that compete to some extent with Orion. In addition, the Company
is aware of a substantial  number of satellites  that are in  construction or in
the planning stages,  including a number of systems  proposing to operate in the
Ka  frequency  band.  Most of these  satellites  will  cover  areas  within  the
footprint of Orion 1 and/or the proposed  footprints  of Orion 2 and Orion 3. As
these  new  satellites  commence   operations,   they  (other  than  replacement
satellites   not   significantly   larger  than  the  ones  they  replace)  will
substantially increase the capacity available for sale in the Company's markets.
After a satellite has been successfully delivered in orbit, the variable cost of
transmitting additional data via the satellite is limited. Accordingly, absent a
corresponding increase in demand, this new capacity can be expected to result in
significant  additional price  reductions.  For example,  Teledesic  Corporation
proposes  to  operate  up to 840 low earth  orbit  small  satellites  by 2001 to
provide  global  satellite   services   (including  voice,  data  and  broadband
transmission  services).  Although  Orion cannot assess to what degree,  if any,
these  proposed  satellites  might  compete with Orion in the future,  Teledesic
could provide significant competition to the Company.

     TERRESTRIAL CAPACITY

     Orion   competes  with   terrestrial   facilities  for   intra-Europe   and
trans-Atlantic capacity.

     European   Facilities.    Orion's   services   compete   with   terrestrial
telecommunications delivery services, which are being improved gradually through
the  build-out  of fiber  optic  networks  and a move  from  analog  to  digital
switching.   As  fiber  networks  and  digital  network  switching  become  more
prevalent,  the resulting  improved and less expensive  terrestrial  capacity is
increasingly competitive with Orion's services.

     Undersea   Cable.   Undersea  fiber  optic  cable  capacity  has  increased
substantially  in recent years.  Although  Orion  believes  that undersea  cable
capacity is not as well suited as satellite  capacity to serve the  requirements
of video  broadcasters or the demand for multi-point  private network  services,
fiber optic and coaxial  cables are well suited for  carrying  large  amounts of
bulk traffic,  such as long distance  telephone  calls,  between two  locations.
Operators of undersea  fiber optic cable systems  typically  are joint  ventures
among major telecommunications  companies. Orion expects strong competition from
these carriers in providing private network services.

REGULATION

     REGULATORY OVERVIEW

     The international telecommunications environment is highly regulated. As an
operator of privately  owned  international  satellite  systems  licensed by the
United States, Orion is subject to the regulatory authority of the United States
(primarily the FCC) and the national communications authorities of the countries
in which it provides service. Each of these entities can




                                       25
<PAGE>



potentially  impose  operational  restrictions on Orion.  In addition,  Orion is
subject to the  INTELSAT  and  EUTELSAT  consultation  processes.  The  changing
policies and  regulations of the United States and other countries will continue
to affect the international  telecommunications  industry.  Orion cannot predict
the impact that these  changes  will have on its business or whether the general
deregulatory trend in recent years will continue.  Orion believes that continued
deregulation  would be beneficial to Orion, but  deregulation  also could reduce
the  limitations  facing many of its  existing  competitors  and  potential  new
competitors.

     The  operation of Orion 2 and Orion 3 will  require a number of  regulatory
approvals, including (i) the approvals of the FCC (in the case of Orion 2), (ii)
completion of successful  consultations  with INTELSAT and, in the case of Orion
2, with EUTELSAT;  (iii)  satellite  "landing"  rights in countries that are not
INTELSAT  signatories or that require additional  approvals to provide satellite
or VSAT services;  and (iv) other regulatory approvals.  Obtaining the necessary
licenses and approvals  involves  significant  time and expense,  and receipt of
such licenses and approvals cannot be assured.  Failure to obtain such approvals
would have a material adverse effect on Orion. In addition, Orion is required to
obtain approvals from numerous national local authorities in the ordinary course
of its  business in  connection  with most  arrangements  for the  provision  of
services.  Within Orion 1's footprint,  such  approvals  generally have not been
difficult for Orion to obtain in a timely manner. However, the failure to obtain
particular  approvals has delayed, and in the future may delay, the provision of
services by Orion.

     AUTHORITY TO CONSTRUCT, LAUNCH AND OPERATE SATELLITES

     Orion 1. In June 1991, Orion received final authorization from the FCC (the
"Orion 1  License")  to  construct,  launch and operate a Ku-band  satellite  in
geostationary orbit at 37.5(Degree) West Longitude in accordance with the terms,
conditions and technical specifications submitted in its application to the FCC.
The Orion 1 license from the FCC expires in January 2005.  Although Orion has no
reason  to  believe  that its  licenses  will not be  renewed  (or new  licenses
obtained) at the  expiration of the license  term,  there can be no assurance of
renewal.

     Orion 2. Orion has obtained conditional  authorization from the FCC for the
orbital slot at 12(Degree)  West Longitude for operation of Orion 2. The Orion 2
authorization  will not become final until Orion  completes a consultation  with
INTELSAT and demonstration to the FCC of its financial ability to meet the costs
of construction, the launch of its satellite and operating expenses for one year
following launch.  Orion has not yet met the required  financial  qualifications
demonstration to the FCC and intends to do so within 90 days after completion of
INTELSAT  consultation.  Orion has commenced  consultation  with  INTELSAT.  The
application  filed  with  the FCC for  Orion 2  contains  a  technical  proposal
different than that currently being  coordinated  with the ITU, and will need to
be amended.  Orion has no reason to believe  that the FCC will not approve  such
amendment or that the amendment will cause material delay in obtaining final FCC
authority for Orion 2.

     Orion 3. Orion is pursuing an orbital slot at  139(Degree)  East  Longitude
through the  Republic  of the  Marshall  Islands.  Under an  agreement  with the
Republic of the  Marshall  Islands  entered  into in 1990,  the  Republic of the
Marshall  Islands agreed to file with the ITU all documents  necessary to secure
authorization  for Orion to operate a  satellite  in  geo-stationary  orbit.  In
return for the right to utilize any orbital slots secured by the Republic of the
Marshall Islands, Orion must, among other things, (i) commence construction of a
functioning  operating center for satellites  serving the Pacific Island portion
of the Orion Asia Pacific  network at least a year prior to the  operation of an
Orion  satellite,  (ii) train and support  certain  employees  designated by the
Republic of the  Marshall  Islands at least a year prior to the  operation of an
Orion Asia Pacific satellite, and (iii) construct, equip and install (except for
power supply or back-up) four earth stations capable of handling a "T-1" circuit
for  operation  with the Orion Asia Pacific  system prior to the operation of an
Orion Asia Pacific satellite.

     CONSULTATION WITH INTELSAT AND EUTELSAT

     Orion 1. Prior to receiving final licensing and launch  authority for Orion
1, Orion  successfully  completed its consultation with INTELSAT pursuant to the
INTELSAT Treaty. A similar  consultation for Orion 1 was completed with EUTELSAT
in May  1994.  Additional  consultations  or other  approvals  may be  needed in
individual countries for the use of VSATs.




                                       26


<PAGE>


     Orion 2. Orion has recently commenced  consultations  with INTELSAT.  Orion
believes  that since there are no INTELSAT  satellites  located  adjacent to the
12(Degree)  West  Longitude  orbital slot, the INTELSAT  coordination  should be
obtained in due course. Orion intends to commence  consultation with EUTELSAT in
the near future through the coordination procedures of the ITU.

     Orion 3. Orion has  commenced  consultations  with INTELSAT for Orion 3 and
believes  that since there are no INTELSAT  satellites  located  adjacent to the
139(Degree)  East Longitude  orbital slot, the INTELSAT  coordination  should be
obtained in due course.  There is no requirement to coordinate with EUTELSAT for
the 139(Degree) East Longitude orbital slot.

     There can be no  assurance  that Orion  will  successfully  complete  these
consultations.

     INTERNATIONAL TELECOMMUNICATION UNION

     An international  treaty to which the U.S. and the Republic of the Marshall
Islands are parties requires coordination of satellite orbital slots through the
procedures  of the ITU. The process for  coordinating  orbital slots through the
ITU is discussed under the caption "Orbital Slots -- ITU Coordination Process."

     Orion  1.  After  Orion  1  reached  its  orbital  position  and  commenced
operation, the FCC notified the ITU. This concluded the process for coordination
of the Orion 1 orbital slot.

     Orion 2. On  behalf  of  Orion,  the FCC has  commenced  the  orbital  slot
coordination  process  through  the  ITU.  Orion  believes  that  its use of the
12(Degree)  West  longitude  slot for Orion 2 is not  likely to  interfere  with
proposed  uses of adjacent  slots filed for by other  governments,  except for a
possible  overlap of 75 MHz with one proposal as discussed  more fully under the
caption "Orbital Slots -- ITU Coordination Process."

     Orion 3. Orion, through the Republic of the Marshall Islands, has filed the
appropriate documentation with the ITU to begin the ITU coordination process for
Orion 3 at 139(Degree) East longitude. As discussed more fully under the caption
"Orbital Slots -- ITU  Coordination  Process,"  based upon the time of filing by
the Republic of the Marshall  Islands,  Orion believes that the proposed orbital
slot for Orion 3 would have priority  under ITU  procedures  with respect to the
139(Degree)   East   longitude   orbital  slot,  but  some  proposals  by  other
administrations  for adjacent slots would be entitled to effective priority over
the  proposal by the  Republic of the  Marshall  Islands with respect to certain
frequencies. Orion believes, based upon its monitoring of the proposals of other
administrations  and information in the industry regarding their progress,  that
none of these administrations will launch a satellite prior to launch of Orion 3
to take advantage of such priority. Orion also believes that it can complete the
ITU  coordination  process for Orion 3 at 139(Degree)  East Longitude,  however,
there can be no assurance that this will be achieved.

     UNITED STATES REGULATORY RESTRICTIONS

     Orion is subject to regulation under the Communications Act, the FCC's July
1985 Separate  Systems  decision as modified by subsequent FCC decisions,  other
FCC  regulations,  and the terms of the  various  orders  issued by the FCC with
respect  to Orion  and its  subsidiaries,  including  the  terms of the  Orion 1
License.   These   regulations,   orders  and   authorizations   impose  various
restrictions  on  Orion  and on  other  similarly  situated  companies.  Certain
important restrictions are described below.

     Use of the Orion 1 Satellite System for U.S. Domestic Services.  In January
1996, the FCC eliminated  certain  distinctions  between U.S.  licensed domestic
satellites  and separate  satellite  systems.  It  authorized  both sets of U.S.
licensed  satellite   operators  to  provide  both  domestic  and  international
services.  Domestic  operators have designed their current satellite  facilities
principally for continental U.S. coverage of the United States,  and thus may as
a general matter offer only limited  competition for  international  services at
the outset.  However,  future satellite designs of domestic satellite  operators
could be modified to more directly compete in the international market.




                                       27


<PAGE>


     New Orbital  Locations.  The FCC now  requires  applicants,  at the time of
filing for an orbital position  (either  domestic arc or  international  orbital
position), to demonstrate the financial ability to construct, launch and operate
that satellite for a one year period.  This new requirement  will have no change
in the licensing of Orion's orbital  positions at  37.5(Degree)  West Longitude,
12(Degree)  West  Longitude,  47(Degree)  West  Longitude and  126(Degree)  East
Longitude (the orbital slot at  139(Degree)  East Longitude is not being pursued
through the FCC and is not subject to the financial showing requirement). To the
extent that Orion is seeking an orbital  location  through  the FCC,  Orion will
need to have significant  financing on hand at the time of application or obtain
a waiver of the required  financial  demonstration.  There is no assurance  that
Orion will be able to obtain such waiver.

     Unauthorized  Transfer of Control.  The Communications Act bars a change in
control of the holder of FCC licenses  without prior  approval from the FCC. Any
finding that a change of control  without prior FCC approval had occurred  could
have a significant  adverse effect on Orion's  ability to implement its business
plan.

     INTERNATIONAL REGULATION

     Orion will need to comply with the applicable  laws and obtain the approval
of the  regulatory  authority  of each  country in which it  proposes to provide
network  services  or  operate  VSATs.  The  laws  and  regulatory  requirements
regulating  access to  satellite  systems  vary from  country to  country.  Some
countries  have  substantially  deregulated  satellite  communications,   making
customer  access to Orion  services a simple  procedure,  while other  countries
maintain   strict   monopoly   regimes.   The   application   procedure  can  be
time-consuming  and  costly,  and the  terms  of  licenses  vary  for  different
countries.

     Orion  provides  service using the licenses it obtains or that are obtained
by local  ground  operators  or, in  certain  cases,  through  customer-obtained
authorizations.  For  example,  Orion's  representatives  in the United  Kingdom
(Kingston  Communications),  France (Matra Hachette), and Italy (Telecom Italia)
have licenses in such countries.

     Orion is to  pursuing  a similar  strategy  in Asia and Latin  America.  In
addition,  Orion will need to comply with the  national  laws of each country in
which it  provides  services.  Laws  with  respect  to  satellite  services  are
currently  unclear in  certain  jurisdictions,  particularly  within the Orion 3
footprint.  In certain of these  jurisdictions,  satellite  services may only be
provided via domestic  satellites.  The Company  believes  that certain of these
restrictions  may change and that it can structure its operations to comply with
the remaining restrictions. However, there can be no assurance in this regard.

     On February 5, 1998,  the World Trade  Organization  ("WTO")  Agreement  on
Basic Telecomm Services went into effect liberalizing market access restrictions
globally. Fifty-seven WTO countries, including the U.S., committed to reciprocal
market access  opportunities.  The Company  believes entry into force of the WTO
agreement  will better  facilitate  market  access for satellite  services,  and
signals a positive trend towards global competition.

HUMAN RESOURCES

     As of December  31,  1997,  Orion and its  subsidiaries  had 289  full-time
employees.  Of its  total  work  force,  7 are  part of  management,  119 are in
engineering  or satellite  control  operations,  79 are in marketing,  sales and
sales support, and 84 are devoted to support and administrative activities.




                                       28
<PAGE>



                           FORWARD LOOKING STATEMENTS

     Information set forth in this Annual Report on Form 10-K under the captions
"Business"  "Management's  Discussion  and Analysis of Financial  Condition  and
Results of Operations,"  "Selected  Consolidated Financial and Operational Data"
and under other captions  contains various "forward looking  statements"  within
the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the
Securities  Exchange Act of 1934, which statements  represent Orion's reasonable
judgment  concerning the future and are subject to risks and uncertainties  that
could cause Orion's actual  operation  results and financial  position to differ
materially.  Such  forward  looking  statements  include  the  following:  Orion
expectations  regarding the pending acquisition by Loral, Orion's belief and the
judgments of its independent engineering consultant,  Telesat Canada,  regarding
the expected  performance of the Orion 1 satellite over its useful life, and the
effect of such performance on Orion's business;  Orion's expectations  regarding
the period for  construction  and launch of Orion 2 and Orion 3; Orion's  belief
that it can  overcome  uncertainties  relating  to Orion 2 and Orion 3;  Orion's
expectations regarding receipt of regulatory approvals,  coordination of orbital
slots and avoidance of possible interference; Orion's beliefs regarding existing
and future regulatory requirements, its ability to comply with such requirements
and the effect of such  requirements on its business;  Orion's beliefs regarding
the competitive  advantages of satellites and of Orion's satellites,  strategies
and services in particular,  both in general and as compared to other  providers
of services or  transmission  capacity and other services  presently  offered or
which may be offered in the future; Orion's expectations regarding the growth in
telecommunications  and the  demand  for  telecommunications  services;  Orion's
beliefs regarding the demand for or attractiveness of Orion's services;  Orion's
beliefs regarding  technological advances and their effect on telecommunications
services or demand  therefore;  Orion's  beliefs  regarding  availability of net
operating loss carryforwards;  Orion's beliefs regarding its representatives and
distributors;  Orion's belief that any liability that might be incurred by Orion
upon the resolution of certain existing or future legal proceedings not having a
material  adverse effect on the consolidated  financial  condition or results of
operations  of Orion;  and the  adoption of new  accounting  releases  not being
material to its financial condition, or results of operations.

     Orion cautions that the above statements are further qualified by important
factors that could cause Orion's actual results to differ  materially from those
in the forward looking statements. Such factors include, without limitation, the
following,  in  each  case as  presented  more  fully  in  Orion's  Registration
Statement on Form S-3 (No.  333-40123)  on file at the  Securities  and Exchange
Commission under "Risk Factors" or in Loral's Registration Statement on Form S-4
(No. 333-4640):

     Acquisition:  No Assurance that Loral Acquisition will be Consummated.  The
consummation  of the  Merger is  subject  to a number of  conditions,  including
approval of the Merger  Agreement  by the  Company's  stockholders,  accuracy of
representations  and warranties  and compliance  with covenants set forth in the
Merger Agreement. It is presently anticipated that each of the conditions to the
Merger  would have to be  satisfied to  consummate  the Merger.  There can be no
assurance  that Orion will obtain all necessary  approvals and satisfy all other
conditions to the Merger.

     Satellite   Loss  or  Reduced   Performance.   Satellites  are  subject  to
significant  risks,  including  launch failure,  damage that impairs  commercial
performance, failure to achieve correct orbital placement during launch, loss of
fuel that reduces satellite life, and satellite in-orbit risks. Although Orion 1
has been successfully launched and is in commercial operation, in November 1995,
one of Orion 1's components  supporting nine transponders of dedicated  capacity
serving the European  portion of the Orion 1 footprint  experienced  an anomaly.
Orion  believes,  based  on the  data  received  to date by  Orion  from its own
investigations  and from the  manufacturer,  and based upon advice from  Orion's
independent engineering  consultant,  Telesat Canada, that because the redundant
components is strong,  the anomalous behavior is unlikely to affect the expected
performance  of the satellite over its useful life.  However,  in the event that
the currently  operating component fails, Orion 1 would experience a significant
loss of usable capacity.  Although Orion maintains  satellite in-orbit insurance
on Orion 1, any loss in orbit or  reduced  performance  of Orion 1 would  have a
material  adverse effect on Orion.  In addition,  no assurance can be given that
the launch of Orion 2 or Orion 3 will be successful. Although various sources of
data permit differing conclusions, Orion is aware of sources indicating that the
historical loss rate for all commercial geosynchronous satellite launches may be
as high as 15%.  Launch risks vary based upon the launch vehicle used and recent
performance  of that  vehicle.  In  addition,  Orion may have to  change  launch
vehicles and could be subject to delays and higher costs of launch insurance if,
for example,  one of its selected  vehicles  experiences  a launch  failure with
respect  to another  satellite.  With  respect to the risk of launch  failure of
Orion satellites, Orion has an option to purchase an additional satellite (which
may be used as a replacement satellite) to be delivered in orbit, in the case of
Orion 3, within 12, 15 or 19 months (at Orion's election) after it exercises the
option,  or, in the case of Orion 2, with 21 1/4 months after it  exercises  the
option.




                                       29


<PAGE>

Therefore, an unsuccessful launch of Orion 2 or Orion 3 would involve a delay in
revenues for at least one year, and perhaps  substantially  longer.  Significant
loss or delay of  revenue  from any of the  Company's  satellites  would  have a
material adverse effect on the Company.

     Limited  Insurance  for  Satellite  Launch  and  Operation.   The  in-orbit
insurance of Orion 1 and the launch and in-orbit insurance for Orion 2 and Orion
3 will not protect the Company against business  interruption,  loss or delay of
revenues  and  similar  losses and may not fully  reimburse  the Company for its
expenditures. In addition, such insurance includes or can be expected to include
certain contract terms,  exclusions,  deductibles and material change conditions
that are customary in the industry. Accordingly, an unsuccessful launch of Orion
2 or Orion 3 or any significant  loss of performance  with respect to any of its
satellites would have a material adverse effect on Orion

     Limited  Life of  Satellites.  While Orion 1 is expected to have an orbital
life of approximately 10.7 years (through October 2005), and Orion 2 and Orion 3
are  expected  to have  orbital  lives of  approximately  13 years and 15 years,
respectively,  there  can be no  assurance  as to the  actual  longevity  of the
satellites.  A number of factors will affect the useful life of each  satellite,
including the rate of fuel  consumption in achieving  correct orbital  placement
during  launch,  the  quality  of its  construction  and the  durability  of its
component parts.

     Timing  and  Cost  Uncertainties  with  Respect  to  Orion  2 and 3.  Orion
presently  plans to launch  Orion 2 in the  second  quarter of 1999 and plans to
launch Orion 3 in the fourth quarter of 1998,  based upon the  construction  and
launch schedules set forth in the satellite contracts.  To meet these schedules,
Orion must receive certain regulatory  approvals and take other necessary steps,
including  the  possible  need of  additional  financing.  Failure  to meet  the
construction and launch schedules could increase the cost of Orion 2 or Orion 3,
requiring additional financing.  Although the Orion 2 satellite contract and the
Orion 3 satellite  contract are  fixed-price  contracts  with firm schedules for
construction,  delivery and launch,  there can be no assurance that increases in
costs due to change  orders or delay will not occur.  There can be no  assurance
that  the  launch  of  Orion 2 or  Orion  3 will  take  place  as  scheduled.  A
significant  delay in the  delivery or launch of Orion 2 or Orion 3 would have a
material adverse effect on Orion.

     Risks of Proceeding  with  Construction  Prior to Obtaining all  Regulatory
Approvals for Orion 2 and Orion 3. Orion has commenced  construction  of Orion 3
and Orion 2 prior to completion of the required  consultation  with INTELSAT and
EUTELSAT (as defined),  receipt of final  authority from the FCC (in the case of
Orion 2) and  completion of the  International  Telecommunication  Union ("ITU")
coordination process.  Failure to obtain one more necessary approval in a timely
manner would likely have a material adverse effect on the Company.

     Additional  factors that would cause Orion's  results to differ  materially
from  those  in  the  forward  looking  statements  include  the  following:  no
assurances   regarding  the  business  plan;   Orion's  history  of  losses  and
expectation of future losses;  Orion's need for additional capital;  substantial
leverage  and secured  indebtedness;  potential  lack of market  acceptance  and
demand; ground operations;  Orion's ability to manage growth;  potential adverse
effects of competition;  no assurances  regarding  approvals needed,  current or
future regulation of the telecommunications industry;  uncertainties relating to
backlog;  no assurances  regarding  technological  changes;  risks of conducting
international business;  dependence of Orion on key personnel;  control of Orion
by principal  stockholders;  risks relating to senior preferred stock; limits on
paying dividends on Orion common stock; and  anti-takeover  and other provisions
of the  certificate  of  incorporation,  in each case as presented more fully in
Orion's  Registration  Statement  on Form  S-3  (No.  333-40123)  or in  Loral's
Registration  Statement on Form S-4 (No. 333-4640) on file at the Securities and
Exchange Commission under "Risk Factors."

ITEM 2.  PROPERTIES.

     Orion's principal offices comprise approximately 33,000 square feet located
in Rockville, Maryland. These offices house not only Orion's personnel, but also
contain  the  Company's  satellite  operations  center  for  Orion 1. The  lease
covering these facilities expires in December 1999. In February 1992, Orion sold
its earth station facility at Mount Jackson, Virginia, but retained six acres of
land at that location plus access to certain capacity and facilities.  Orion has
leased the land and  facilities  in Mount  Jackson to Orion  Atlantic for use as
part of the TT&C Station.  Orion also leases  approximately 7,300 square feet of
office space in Gaithersburg,  Maryland for operations  personnel,  2,900 square
feet of office space in Amsterdam, Netherlands also for operations personnel and
approximately  5,000 square feet in London,  England for sales and sales support
personnel.  Orion's German subsidiary, Orion Network Systems-Europe GmbH, leases
a facility in Hannover,  Germany, comprised of approximately 7,400 square meters
of land and 1,800 square meters of office space.




                                       30


<PAGE>


ITEM 3.  LEGAL PROCEEDINGS.

     In October 1995,  Skydata  Corporation  ("Skydata"),  a former  contractor,
filed suit against Orion Atlantic, Orion Satellite Corporation and Orion, in the
United States District Court for the Middle  District of Florida,  claiming that
certain Orion Atlantic  operations using frame relay switches infringe a Skydata
patent.  Skydata's  suit sought  damages in excess of $10 million and asked that
any damages assessed be trebled. On December 11, 1995, the Orion parties filed a
motion to  dismiss  the  lawsuit  on the  grounds  of lack of  jurisdiction  and
violation of a mandatory  arbitration  agreement.  In addition,  on December 19,
1995, the Orion parties filed a Demand for Arbitration  against Skydata with the
American  Arbitration  Association in Atlanta,  Georgia,  requesting  damages in
excess of $100,000 for breach of contract and declarations,  among other things,
that Orion and Orion Atlantic own a royalty-free license to the patent, that the
patent is invalid and  unenforceable  and that Orion and Orion Atlantic have not
infringed  on the patent.  On March 5, 1996,  the court  granted  the  Company's
motion to dismiss the lawsuit on the basis that Skydata's  claims are subject to
arbitration.  Skydata  appealed  the  dismissal  to the United  States  Court of
Appeals  for the  Federal  Circuit.  Skydata  also filed a  counterclaim  in the
arbitration  proceedings asserting a claim for $2 million damages as a result of
the conduct of Orion and its affiliates. On May 15, 1996, the arbitrator granted
the Orion  parties'  request  for an initial  hearing on claims  relating to the
Orion parties' rights to the patent,  including the co-ownership claim and other
contractual claims.

     On November 9, 1996,  Orion and Skydata  executed a letter with  respect to
the  settlement in full the pending  litigation and  arbitration.  On August 12,
1997, the parties  entered into a formal  settlement  agreement.  As part of the
settlement, the parties are to release all claims by either side relating in any
way to the patent and/or the pending  litigation and  arbitration.  In addition,
Skydata  is to grant  Orion (and its  affiliates)  an  unrestricted,  world-wide
paid-up  license to make,  have made,  use or sell products or methods under the
patent and all other corresponding continuation and reissue patents. Orion is to
pay Skydata $437,000 over a period of two years as part of the settlement.

     While Orion is party to  regulatory  proceedings  incident to its business,
there  are no  material  legal  proceedings  pending  or,  to the  knowledge  of
management, threatened against Orion or its subsidiaries.

ITEM 4.  SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS.

         None.

                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     Since  completion of Orion's  initial  public  offering in August 1995, the
Common  Stock has been quoted on the Nasdaq  National  Market  under the trading
symbol "ONSI." As of March 9, 1998, there were approximately 268 stockholders of
record of Orion's Common Stock.  The following table summarizes the high and low
closing sale prices of Common Stock by fiscal quarter for 1995, 1996 and 1997 as
reported on the Nasdaq National Market.

                         QUARTER ENDED:                               1995
                         -------------                            --------------
                         September 30 (from August 1)         $10 3/4 to $14 1/4
                         December 31                            6 3/4 to  12

                         Quarter Ended:                               1996
                         -------------                            --------------
                         March 31                             $ 8 1/4 to $14 3/4
                         June 30                               10 1/4 to  14 1/4
                         September 30                           7 1/4 to  12 1/8
                         December 31                            9 1/2 to  13 5/8

                         Quarter Ended:                               1997
                         -------------                            --------------
                         March 31                             $ 8 5/8 to $15
                         June 30                                8 1/2 to  12 1/4
                         September 30                          11 1/8 to  17 1/8
                         December 31                           16 5/8 to  18 1/8




                                       31


<PAGE>


     The Company has never  declared or paid any cash  dividends  on its capital
stock.  The Company  currently  intends to retain  future  earnings,  if any, to
finance the growth and  development  of its business,  and therefore the Company
does not anticipate paying cash dividends on its common Stock in the foreseeable
future.  The Company is not  permitted  to pay  dividends on the Common Stock as
long as the Company's Preferred Stock is outstanding, subject to certain limited
exceptions. The Company's Series A Preferred Stock which was issued in June 1994
and the Series B  Preferred  Stock  which was issued in June 1995  (pursuant  to
options  granted  in June  1994),  accrue  dividends  at 8% per  annum.  Accrued
dividends  on the  Series A and Series B  Preferred  Stock are  payable  only in
limited  circumstances.  Upon  conversion of the Series A and Series B Preferred
Stock into  Common  Stock,  either at the option of the holder or in those cases
where the Company has the right to require such  conversion,  accrued but unpaid
dividends  will be  canceled.  The Series C Preferred  Stock which was issued in
January 1997 accrues dividends at 6% per annum. Accrued dividends are payable in
Common Stock.  The number of shares of Common Stock  distributable as a dividend
on each  share of Series C  Preferred  Stock is  calculated  based on the market
price of such Common Stock as set forth in the Certificate of  Designations  for
the Series C Preferred  Stock.  The Indentures  relating to the Company's Senior
Notes and Senior  Discount  Note  restricts  the  payment by the Company of cash
dividends on its capital stock.

     Sales of Unregistered  Securities.  In January 1997, Orion  consummated the
following transactions involving the sale of its unregistered securities.

     On January 31, 1997,  the Company  acquired all of the limited  partnership
interests  which it did not already own in the Company's  operating  subsidiary,
International Private Satellite Partners, L.P. ("Orion Atlantic"), that owns the
Orion 1 satellite. Specifically, the Company acquired the Orion Atlantic limited
partnership  interests  and  other  rights  relating  thereto  held  by  British
Aerospace  Communications,  Inc.,  COM  DEV  Satellite  Communications  Limited,
Kingston Communications International Limited, Lockheed Martin Commercial Launch
Services,  Inc.,  MCN  Sat  US,  Inc.,  an  affiliate  of  Matra  Hachette,  and
Trans-Atlantic Satellite, Inc., an affiliate of Nissho Iwai Corp. (collectively,
the "Exchanging Partners").

     Pursuant to a Section 351 Exchange  Agreement and Plan of  Conversion  (the
"Exchange Agreement"),  the Exchanging Partners exchanged (the "Exchange") their
Orion  Atlantic  limited  partnership  interests  for 123,172  shares of a newly
created class of the Company's  Series C 6%  Cumulative  Convertible  Redeemable
Preferred  Stock (the  "Series C Preferred  Stock").  In  addition,  the Company
acquired  certain rights held by certain of the Exchanging  Partners'  rights to
receive repayment of various advances  (aggregating  approximately $41.6 million
at January 31, 1997).  The 123,172 shares of Series C Preferred  Stock issued in
the Exchange  were  convertible  (as of January 31, 1997) into  approximately  7
million  shares of the  Company's  Common  Stock.  As a result of the  Exchange,
certain of the Exchanging Partners became principal stockholders of the Company.
The Exchange is described in greater detail in Item 7, "Management's  Discussion
and Analysis of Financial  Condition and Results of  Operations," of this Annual
Report on Form 10-K.

     On January 8, 1997,  the Company  acquired  the only  outstanding  minority
interest in the Company's subsidiary Orion Asia Pacific Corporation from British
Aerospace  Satellite  Investments,  Inc. in exchange  for  approximately  86,000
shares of the Company's Common Stock.

     On January 31, 1997,  the Company also completed the sale of $60 million of
its convertible junior subordinated debentures (the "Convertible Debentures") to
two investors,  British Aerospace Holdings, Inc. ("British Aerospace") and Matra
Marconi Space UK Limited ("Matra Marconi Space").  British  Aerospace  purchased
$50 million of the Convertible  Debentures and Matra Marconi Space purchased $10
million of the Convertible  Debentures.  The Convertible  Debentures  would have
matured  in  2012,  and  bore  interest  at a rate  of  8.75%  per  annum,  paid
semi-annually in arrears solely in Common Stock of the Company.  As of March 10,
1998, all of the Convertible Debentures have been converted to approximately 4.3
million shares of common stock. The Convertible  Debentures were subordinated to
all other indebtedness of the Company.

     The Company  registered  5,052,202  shares of Common  Stock  issuable  upon
conversion  of (i) the  Series  C  Preferred  Stock  (other  than  the  Series C
Preferred Stock held by British Aerospace) and (ii) Matra Marconi's  Convertible
Debentures on a  Registration  Statement on Form S-3 (the  "Exchanging  Partners
Registration  Statement"),  which  Exchanging  Partners  Registration  Statement
became  effective  on November  19, 1997  (Registration  No.  333-40123).  As of
January 31, 1998,  approximately  3.9 million  shares of Common Stock  (issuable
upon the  conversion of 56,492 shares of the Series C Preferred  Stock and Matra
Marconi's Convertible Debentures) had been sold pursuant the Exchanging Partners
Registration Statement.




                                       32


<PAGE>

     British  Aerospace has recently  converted its  Convertible  Debentures and
sold the Common Stock issued upon  conversion in sales exempt from  registration
under the Securities Act.

     If the Loral  Merger is  consummated,  the  Common  Stock  will cease to be
publicly traded or quoted on the Nasdaq National Market.

ITEM  6.  SELECTED  CONSOLIDATED  FINANCIAL  AND  OPERATIONAL  DATA  (DOLLARS IN
          THOUSANDS, EXCEPT PER SHARE DATA).

     The following  selected  consolidated  statements of operations and balance
sheet data as of and for the years ended December 31, 1997, 1996, 1995, 1994 and
1993 are derived from the Company's audited consolidated  financial  statements.
The pro forma  consolidated  statement  of  operations  data is derived from the
unaudited pro forma  condensed  consolidated  statement of  operations.  The pro
forma data is not  necessarily  indicative  of the results  that would have been
achieved nor are they  indicative  of the  Company's  future  results.  The data
should  be read in  conjunction  with  the  Consolidated  Financial  Statements,
related  notes  and  other  financial  information  included  herein.  From  its
inception in 1982 through  January 20, 1995,  when Orion 1 commenced  commercial
operations,  Orion  was a  development  stage  enterprise.  Because  of  Orion's
exclusive  management and control of Orion Atlantic as its sole general  partner
(subject to certain  rights of approval  by the Limited  Partners),  and Orion's
aggregate 33 1/3%  (through  November  1995,  41 2/3% from December 1995 through
January  31,  1997,  thereafter  100%)  partnership   interest,   the  financial
statements of Orion Atlantic are consolidated  with the financial  statements of
Orion.  See  "Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations," "Pro Forma Condensed  Consolidated  Financial Statement"
and the Consolidated Financial Statements and Notes thereto.

     In January 1997, the Company  consummated  the Merger (as defined below) as
part of a series of transactions which significantly changed the Company.  Those
transactions,  which  are  discussed  in more  detail  in Item 7,  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations,"  of
this Annual Report on Form 10-K, are as follows:

     (i)   the  acquisition of all of the  limited  partnership  interests which
the Company did not already own in the  Company's  operating  subsidiary,  Orion
Atlantic,  that  owns the  Orion 1  satellite,  along  with  rights  to  receive
repayment of various advances by Orion Atlantic and various other rights,  in an
exchange  transaction  for  123,172  shares of  Series C  Preferred  Stock  (the
"Exchange");

     (ii)  the  acquisition  by the  Company of the only  outstanding  minority
interest in the Company's subsidiary Orion Asia Pacific Corporation from British
Aerospace Satellite  Investments,  Inc., in exchange (the "OAP Acquisition") for
approximately 86,000 shares of the Company's Common Stock;

     (iii) a  $710  million  notes   offering,   with   warrants    representing
approximately  2.6% of the  outstanding  Common  Stock of the Company on a fully
diluted basis (the "Bond Offering"), and

     (iv)  the sale of  $60 million of the Company's  Convertible  Debentures to
British  Aerospace  Holdings,  Inc. and Matra  Marconi  Space (the  "Convertible
Debentures Offering").

     The Exchange and the OAP Acquisition resulted in the Company owning 100% of
Orion Atlantic and its other significant  subsidiaries and, therefore, a greatly
simplified  corporate  structure.  The Exchange  also  resulted in a significant
increase in the  Company's  capital stock  outstanding.  The net proceeds of the
Bond Offering and  Convertible  Debentures  Offering were used by the Company to
repay the credit facility it entered into in connection with the construction of
the Orion 1 satellite, to pre-fund the first three years of interest payments on
certain of the Notes,  and will be used by the Company for the  construction and
launch of two additional satellites, Orion 2 and Orion 3.


                                       33


<PAGE>

<TABLE>
<CAPTION>

                                                           1997 PRO
                                             1997          FORMA (1)         1996               1995              1994      1993 (2)
                                          ----------      ----------     ----------         ---------         ----------   -------- 
                                                                         (dollars in thousands except share data)


CONSOLIDATED STATEMENTS OF  OPERATIONS
DATA:
<S>                                      <C>              <C>             <C>           <C>                <C>            <C>       
   Revenues                              $  72,741        $    72,741     $  41,847     $     22,284       $     3,415    $    2,006
   Interest expense                         83,769             89,432        27,764           24,738                61           133
   Net loss (3)                           (105,740)         (108,099)      (27,195)         (26,915)            (7,965)      (7,886)
   Net loss per common share-basic and
     diluted                             $   (9.60)       $    (9.86)     $  (2.62)     $     (3.07)            $(0.86)       (0.85)
   Weighted average common shares
     outstanding (4)                    11,639,711         11,640,504    10,951,823        9,103,505         9,272,166     9,266,445

OTHER OPERATING DATA:
   Number of customers                         301                              182     $        109                34            10
   Capital expenditures                  $ 113,344                        $  16,376     $      9,060       $    51,103        44,130
   Customer contract backlog (5)         $ 269,548                        $ 214,887          120,612       $    39,122      $ 18,185
   Sites (6)                                   682                              322              151                57          --  

CONSOLIDATED BALANCE SHEET DATA:
   Cash and cash equivalents             $  70,009                        $  32,187          55,112             11,219      $  3,404
   Restricted and segregated cash (7)      356,890                           10,000             --                --            --  
   Total assets                            896,492                          358,264          389,075           340,176       271,522
   Long-term debt (less current            790,671                          218,237          250,669           230,175       185,294
     portion)
   Limited Partners' interest in Orion
     Atlantic (8)                            --                              10,130           14,626            62,519        69,909
   Redeemable preferred stock               76,734                           20,902           20,358            14,555          --  
   Total stockholders' (deficit)           (46,849)                           (436)           26,681             3,351         8,400
     equity
   Book value per share                      (2.99)                           (.04)             2.46               .49          1.33
</TABLE>

     (1) Adjusted to reflect the pro forma effects of the  Financings  which are
         discussed  in  more  detail  in Item 7,  "Management's  Discussion  and
         Analysis of Financial  Condition  and Results of  Operations,"  of this
         Annual Report on Form 10-K.

    (2)  In 1993, Orion Atlantic  terminated its commitment to purchase a second
         satellite from MMS Space Systems,  resulting in a termination charge of
         $5 million.

    (3)  As  required  by  GAAP,  net  loss is  presented  before  accretion  of
         preferred  stock and  preferred  stock  dividends.  For the years ended
         December  31,  1997,  1997  (pro  forma),  1996,  1995,  1994  and 1993
         preferred stock  dividends and accretion are $6.0,  $6.7,  $1.4,  $1.3,
         $0.6 and $0 million, respectively.

    (4)  Computed on the basis  described for net loss per common share in Note
         2 to the Consolidated Financial Statements.

    (5)  Backlog represents future revenues under contract.

    (6)  Sites  includes   installed   VSATs  and   additional   transmission
         destinations (such as customer premises) that share a VSAT.

    (7)  Restricted  and  segregated  cash at December 31, 1997  represents  (i)
         $117.8  million in a pledged  account to fund interest  payments on the
         Senior Notes and (ii) $216.7 million segregated by the Company and used
         only to invest in certain high quality short term  investments  to make
         payments for additional  satellites and certain related costs and (iii)
         $22.4 million held in escrow related to the DACOM agreement. Restricted
         and segregated  cash at December 31, 1996,  includes $10.0 million held
         in escrow related to the DACOM agreement.

    (8)  Represents  amounts  invested by Limited  Partners (net of  syndication
         costs related to the investments),  adjusted for such Limited Partners'
         share  of net  losses.  The  interests  of the  Limited  Partners  were
         acquired by the Company in the Exchange.



                                       34

<PAGE>

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

GENERAL

     Orion Network Systems,  Inc's ("Orion" or the "Company") principal business
is the provision of satellite communications for private communications networks
and video  distribution  and other  satellite  transmission  services.  From its
inception in 1982 through  January 20, 1995,  when Orion 1 commenced  commercial
operations,  Orion was a development  stage  enterprise.  Prior to January 1995,
Orion's efforts were devoted  primarily to monitoring the  construction,  launch
and in-orbit  testing of Orion 1, product  development,  marketing  and sales of
interim private communications network services,  raising financing and planning
Orion 2 and Orion 3.

     Through January 31, 1997, Orion Satellite  Corporation (whose name has been
changed to Orion Network  Services,  Inc.) was the sole general partner in Orion
Atlantic  L.P.  ("Orion  Atlantic")  and had a 41 2/3% equity  interest in Orion
Atlantic. As a result of Orion's control of Orion Atlantic, Orion's consolidated
financial  statements  include  the  accounts  of Orion  Atlantic.  All of Orion
Atlantic's revenues and expenses are included in Orion's consolidated  financial
statements,  with appropriate adjustment to reflect the interests of the Limited
Partners in Orion Atlantic's  losses prior to the Exchange (as described in Note
A to the Condensed Consolidated  Financial  Statements).  Orion acquired all the
remaining interests in Orion Atlantic on January 31, 1997 during the Exchange as
described below. The assets and liabilities reported in the consolidated balance
sheet  at  December  31,  1997  primarily  pertain  to Orion  Atlantic.  Orion's
consolidated  financial  statements  also  include  the  accounts  of all  other
subsidiaries  of  Orion.  See  Note A to the  Condensed  Consolidated  Financial
Statements for a discussion of recent developments.

     All   subsidiaries   of  Orion   ("Subsidiary   Guarantors"),   other  than
inconsequential  subsidiaries,  have  unconditionally  guaranteed  the Notes (as
defined  below) on a joint  and  several  basis.  No  restrictions  exist on the
ability of Subsidiary Guarantors to pay dividends or make other distributions to
Orion, except to the extent provided by law generally (e.g., adequate capital to
pay dividends under state corporate laws).

RECENT DEVELOPMENTS

PENDING ACQUISITION OF THE COMPANY BY LORAL

     On October 7, 1997, Orion, Loral Space & Communications  Ltd. ("Loral") and
Loral Satellite Corporation,  a wholly-owned subsidiary of Loral ("Merger Sub"),
entered into an  Agreement  and Plan of Merger (as amended on February 11, 1998,
the "Merger  Agreement"),  pursuant to which Merger Sub will merge with and into
the  Company,  with the  Company  being the  surviving  corporation  and thereby
becoming a wholly-owned subsidiary of Loral (the "Loral Merger").

     The  Merger  Agreement  provides  that (i)  each  share  of  Common  Stock,
excluding treasury shares and shares owned by Loral or its subsidiaries, will be
converted  into and  exchanged for the right to receive the number of fully paid
and  nonassessable  shares of common stock,  par value $.01 per share,  of Loral
("Loral Common Stock") equal to the Exchange  Ratio (as described  below),  (ii)
each  share of the  Company's  Series  A 8%  Cumulative  Redeemable  Convertible
Preferred  Stock  (the  "Series  A  Preferred  Stock"),  Series B 8%  Cumulative
Redeemable  Convertible  Preferred  Stock (the  "Series B  Preferred  Stock" and
together with the Series A Preferred  Stock, the "Senior  Preferred  Stock") and
Series C  Preferred  Stock (the Series C  Preferred  Stock and Senior  Preferred
Stock are  hereinafter  referred to as the  "Senior  Preferred  Stock")  will be
converted  into and  exchanged for the right to receive the number of fully paid
and  nonassessable  shares of Loral  Common  Stock equal to the  Exchange  Ratio
multiplied  by the  number of shares of Common  Stock  into  which such share of
Preferred Stock was convertible  immediately  prior to the Effective Time of the
Loral Merger,  (iii) each  outstanding  stock option to purchase shares of Orion
Common Stock will be converted into an option to acquire the number of shares of
Loral  Common  Stock equal to the  Exchange  Ratio  multiplied  by the number of
shares of Common  Stock for which  such  option was  exercisable,  and (iv) each
outstanding  warrant to purchase  shares of Orion Common Stock will be converted
into a warrant to  acquire  the  number of shares of Common  Stock  equal to the
Exchange  Ratio  multiplied by the number of shares of Company  Common Stock for
which such warrant was exercisable.

                                       35

<PAGE>




Pursuant to the terms of the Merger Agreement,  the Exchange Ratio is determined
as follows:

(i)    if the average of the  volume-weighted  average  trading  prices of Loral
       Common Stock for the twenty consecutive  trading days on which trading of
       Loral Common Stock occurs ending the tenth trading day immediately  prior
       to the closing date for the Loral Merger (the  "Determination  Price") is
       less than $24.458 but greater  than  $16.305,  the Exchange  Ratio is the
       quotient obtained by dividing $17.50 by the Determination Price,

(ii)   if the  Determination  Price is equal to or  greater  than  $24.458,  the
       Exchange Ratio is 0.71553 and

(iii)  if the Determination Price is equal to or less than $16.305, the Exchange
       Ratio is 1.07329.

     If the Merger  were to close on March 20,  1998,  the  Determination  Price
would be 24.68652 and the Exchange Ratio would be 0.71553.

     A meeting of Orion's  shareholders has been scheduled for March 20, 1998 to
vote to approve the Loral Merger.  The Company expects the Loral Merger to close
following a favorable shareholder vote, however,  there can be no assurance that
the Loral  Merger will be  consummated.  Although  not a condition  of the Loral
Merger,  Orion  intends  to  seek  an  Internal  Revenue  Service  ruling  as to
eligibility for a tax-free exchange.

     In connection with the Merger Agreement,  certain principal stockholders of
Orion and  members of  Orion's  management  have  agreed to vote in favor of the
Loral  Merger  and  have  granted  to the  Loral  the  right to  purchase  their
securities  in Orion for a price equal to the Loral Merger  consideration  under
certain circumstances. The Company expects the Loral Merger to be consummated by
the first quarter of 1998.

     The  foregoing   descriptions   of  the  Merger   Agreement  and  Principal
Stockholder  Agreement  with Loral do not  purport to be  complete  and are more
fully  described in Registration  Statement No.  333-46407 on Form S-4, and have
been filed as exhibits  2.1,  2.2 and 2.3,  respectively,  and are  incorporated
herein  by  reference.  More  information  on  Loral  is also  available  in the
foregoing Registration Statement No. 33-46407.

OTHER RECENT DEVELOPMENTS

     In  January  1997,  Orion  consummated  a series of  transactions  that are
described below.

ACQUISITION OF ORION ATLANTIC LIMITED PARTNERSHIP INTERESTS IN THE EXCHANGE

     On January 31, 1997,  the Company  acquired all of the limited  partnership
interests  which it did not already own in the Company's  operating  subsidiary,
Orion  Atlantic,  that owns the Orion 1  satellite.  Specifically,  the  Company
acquired  the Orion  Atlantic  limited  partnership  interests  and other rights
relating  thereto  held  by  British  Aerospace  Communications,  Inc.,  COM DEV
Satellite Communications Limited, Kingston Communications International Limited,
Lockheed Martin Commercial Launch Services, Inc., MCN Sat US, Inc., an affiliate
of Matra Hachette,  and Trans-Atlantic  Satellite,  Inc., an affiliate of Nissho
Iwai Corp. (collectively, the "Exchanging Partners").

     Pursuant to a Section 351 Exchange  Agreement and Plan of  Conversion  (the
"Exchange Agreement"), the Exchanging Partners exchanged (the "Exchange"), their
Orion  Atlantic  limited  partnership  interests  for 123,172  shares of a newly
created class of the Company's  Series C 6%  Cumulative  Convertible  Redeemable
Preferred  Stock (the  "Series C Preferred  Stock").  In  addition,  the Company
acquired  certain rights held by certain of the Exchanging  Partners' to receive
repayment  of  various  advances  (aggregating  approximately  $41.6  million at
January 31, 1997).  The 123,172 shares of Series C Preferred Stock issued in the
Exchange are  convertible  into  approximately 7 million shares of the Company's
Common Stock.  As a result of the Exchange,  certain of the Exchanging  Partners
became  principal  stockholders  of the  Company.  The  Exchange is described in
greater  detail under the caption "The  Merger,  the Exchange and the  Debenture
Investments" in the Company's  Registration  Statement on Form S-4 (Registration
No. 333-19795).

     The Exchange  and the  acquisition  by the Company of the only  outstanding
minority  interest in the Company's  subsidiary  Orion Asia Pacific  Corporation
from  British  Aerospace  Satellite  Investments,  Inc.  on  January 8, 1997 (in
exchange for approximately  86,000 shares of the Company's Common Stock) results
in the  Company  owning  100%  of  Orion  Atlantic  and  its  other  significant
subsidiaries and, therefore, a greatly simplified corporate structure.

                                       36

<PAGE>



THE MERGER

     The  Exchange  was  conducted  on a  tax-free  basis  by  means of a Merger
(defined  below)  that was  consummated  on January  31,  1997.  Pursuant to the
Exchange Agreement,  Orion Oldco Services, Inc., formerly known as Orion Network
Systems,  Inc. ("Old Orion"),  formed the Company as a new Delaware  corporation
with a certificate of incorporation,  bylaws and capital structure substantially
identical in all material respects with those of Old Orion. Also pursuant to the
Exchange Agreement,  the Company formed a wholly owned subsidiary,  Orion Merger
Company, Inc. ("Orion Merger Subsidiary").  Pursuant to an Agreement and Plan of
Merger,  Orion  Merger  Subsidiary  was merged with and into Old Orion,  and Old
Orion became a wholly owned subsidiary of the Company (the "Merger"). On January
31, 1997, the effective time of the Merger, all of the stockholders of Old Orion
received  stock in the Company with  substantially  identical  rights to the Old
Orion stock they held prior to the effective  time of the Merger.  Following the
Merger,  the Company changed its name from Orion Newco  Services,  Inc. to Orion
Network  Systems,  Inc. and the Company's  wholly owned subsidiary Orion Network
Systems,  Inc.  changed its name to Orion Oldco Services,  Inc. The Exchange and
Merger are  described  in greater  detail  under the caption  "The  Merger,  the
Exchange and the Debenture  Investments" in the Company's Registration Statement
on Form S-4 (Registration No. 333-19795).

   The  Company is the  successor  issuer to Old Orion and filed a  Registration
Statement on Form 8-B with the Securities and Exchange Commission on January 31,
1997,  to register  all the issued and  outstanding  shares of Common  Stock and
preferred  stock of the Company.  The Company is considered the successor to Old
Orion for purposes of the Nasdaq National Market and the Company's  Common Stock
is quoted on the Nasdaq National Market under the trading symbol "ONSI."

FINANCINGS

     On January 31, 1997,  the Company  completed a $710  million bond  offering
(the "Bond  Offering")  comprised of  approximately  $445 million of Senior Note
Units,  each of which  consists  of one 11.25%  Senior  Note due 2007 (a "Senior
Note") and one Warrant to purchase 0.8463 shares of common stock, par value $.01
per share  ("Common  Stock")  of the  Company  (a "Senior  Note  Warrant"),  and
approximately  $265.4  million  of Senior  Discount  Note  Units,  each of which
consists of one 12.5% Senior  Discount Note due 2007 (a "Senior  Discount Note,"
and  together  with the Senior  Notes,  the "Notes") and one Warrant to purchase
0.6628  shares of Common Stock of the Company (a "Senior  Discount Note Warrant,
and together with the Senior Note  Warrants,  the  "Warrants").  Interest on the
Senior Notes will be payable  semi-annually in cash on January 15 and July 15 of
each year, commencing July 15, 1997. The Senior Discount Notes will not pay cash
interest prior to January 15, 2002. Thereafter,  cash interest will accrue until
maturity at an annual rate of 12.5% payable semi-annually on January 15 and July
15 of each year,  commencing  July 15, 2002. The exercise price for the Warrants
will be $.01 per  share of Common  Stock of the  Company.  The  shares of Common
Stock of the Company initially  issuable upon exercise of the Warrants represent
approximately  2.62% of the  outstanding  Common Stock of the Company on a fully
diluted  basis as of January 31, 1997.  The Bond  Offering was  underwritten  by
Morgan  Stanley  & Co.  Incorporated  and  Merrill  Lynch  & Co.  The  foregoing
description of the Notes is qualified in its entirety by the description of such
Notes in the Indentures and Notes documents,  copies of which have been filed as
exhibits to this Annual Report on Form 10-K.

     On January 31, 1997,  the Company also completed the sale of $60 million of
its convertible junior subordinated debentures (the "Convertible Debentures") to
two investors,  British Aerospace Holdings, Inc. ("British Aerospace") and Matra
Marconi Space UK Limited ("Matra Marconi Space").  British  Aerospace  purchased
$50 million of the Convertible  Debentures and Matra Marconi Space purchased $10
million of the Convertible Debentures (collectively, the "Convertible Debentures
Offering,"  and  together  with  the  Bond  Offering,  the  "Financings").   The
Convertible  Debentures will mature in 2012, and will bear interest at a rate of
8.75% per annum to be paid  semi-annually  in arrears  solely in Common Stock of
the  Company.   The  Convertible   Debentures  are  subordinated  to  all  other
indebtedness of the Company, including the Notes.

     The net proceeds of the Bond Offering and Convertible  Debentures  Offering
were used by the  Company  to repay the Orion 1 Credit  Facility,  pre-fund  the
first three years of interest payments on certain of the Notes, and will be used
to build and launch of two additional satellites, Orion 2 and Orion 3.

                                       37

<PAGE>



ACQUISITION OF TELEPORT EUROPE

     On March 26, 1997,  Orion acquired  German-based  Teleport Europe GmbH (now
known as Orion Network  Systems-Europe  GmbH) ("Orion  Europe") a communications
company  specializing in private satellite networks for voice and data services.
Orion purchased the shares of Orion Europe held by the German companies, Vebacom
GmbH and RWE Telliance AG, now known as o.tel.o for approximately $9 million. In
addition,  Orion acquired Orion  Europe's  licenses and operating  agreements to
provide  satellite  network services in 40 countries,  including 17 countries in
which Orion previously did not provide service.

RECENT REGISTRATION

     The Company  registered  5,052,202  shares of Common  Stock  issuable  upon
conversion  of (i) the  Series  C  Preferred  Stock  (other  than  the  Series C
Preferred Stock held by British Aerospace) and (ii) Matra Marconi's  Convertible
Debentures on a  Registration  Statement on Form S-3 (the  "Exchanging  Partners
Registration  Statement"),  which  Exchanging  Partners  Registration  Statement
became  effective  on November  19, 1997  (Registration  No.  333-40123).  As of
January 31, 1998,  approximately  3.9 million  shares of Common Stock  (issuable
upon the  conversion of 56,492 shares of the Series C Preferred  Stock and Matra
Marconi's Convertible Debentures) had been sold pursuant the Exchanging Partners
Registration Statement.

     British  Aerospace has recently  converted its  Convertible  Debentures and
sold the Common Stock issued upon  conversion in sales exempt from  registration
under the Securities Act.

     If the Loral  Merger is  consummated,  the  Common  Stock  will cease to be
publicly traded or quoted on the Nasdaq National Market.

ORION 2 AND ORION 3 COMMENCEMENT OF CONSTRUCTION

     Orion 2 and Orion 3 Construction Contracts. Orion commenced construction of
Orion 2 in  February  1997 under a  satellite  procurement  contract  with Matra
Marconi  Space for Orion 2. The  contract  for Orion 2 provides  for delivery in
orbit  of Orion 2 by June  1999,  excluding  launch  insurance  and  performance
incentives, for a firm fixed price of $201 million. Orion commenced construction
of Orion 3 in December  1996 and entered into a satellite  contract  with Hughes
Space and  Communications  International,  Inc. for Orion 3 in January 1997. The
contract for Orion 3 provides for delivery in orbit of Orion 3 by December 1998,
excluding  launch  insurance,  for a firm fixed price of $208 million  excluding
launch insurance and performance incentives.

     Pre-Construction  Lease on Orion 3. Orion has entered into a contract  with
DACOM Corp., a Korean communications company ("DACOM"),  under which DACOM will,
subject to certain conditions, lease eight dedicated transponders on Orion 3 for
13 years, in return for  approximately  $89 million,  payable over a period from
December 1996 through seven months following the lease commencement date for the
transponders (which is scheduled to occur by January 1999). Payments are subject
to refund unless Orion 3 commences commercial operation by June 30, 1999.

OVERVIEW

     Orion's  revenues  are  principally  generated  under  three  to five  year
contracts  for delivery of  communications  services.  Such revenues are derived
principally  from  recurring  monthly  fees from its  customers,  although  many
contracts  include  initial  non-recurring  installation  and other fees.  These
non-recurring  fees  generally  are  structured  to  substantially   offset  the
Company's actual costs of installation of the customer's  site-based  equipment.
The revenues from each contract vary, depending upon the type of service, amount
of capacity,  data handling  ability of the network,  the number of VSATs (which
generally are owned by Orion), value-added services and other factors. Depending
on the  complexity  of the  services to be  provided  to a customer,  the period
between  the date of  signature  of a contract  and the  commencement  of actual
services  (and  receipt of fees)  typically  ranges  from 30 days to six months.
Substantially all of Orion's contracts are denominated in U.S. dollars, although
some  contracts are  denominated  in pounds  sterling,  deutschemarks,  Austrian
shillings or French francs.  Orion begins to record revenues under its contracts
upon service commencement to the customer.

                                       38

<PAGE>



     The services  provided by Orion have been subject to decreasing prices over
recent  years  and this  pricing  pressure  is  expected  to  continue  (and may
accelerate) for the foreseeable future, particularly if, as expected,  satellite
capacity continues to increase.  Orion will need to increase its volume of sales
in order to compensate for such price reductions.  Orion believes that customers
will  increase the data speeds in their  communications  networks to support new
applications,  and  that  such  upgrading  of  customer  networks  will  lead to
increased  revenues that will mitigate the effect of price reductions.  However,
there can be no  assurance  that this will occur.  Orion  expects to continue to
incur net losses and negative cash flow (after payments for capital expenditures
and interest) for the foreseeable future.

     Orion's direct cost of services includes  principally (i) costs relating to
the  installation,  maintenance  and  licensing  of VSAT earth  stations  at its
customers'  premises;  (ii) satellite  lease payments for  transponder  capacity
(generally  for  services  outside  of the Orion 1  footprint);  (iii)  in-orbit
insurance premiums; and (iv) personnel costs and travel related to TT&C, network
monitoring,  network design and similar activities. These costs will increase as
the  Company's  business  grows.  Specifically,  in-orbit  insurance  costs will
increase  significantly  following  the  launches  of  Orion 2 and  Orion 3. The
Company constructed its TT&C facilities to control two satellites.  As a result,
the  Company  anticipates  a slight  increase  in costs  with Orion 2 and a more
substantial  increase in costs with Orion 3, which will  require  separate  TT&C
facilities and associated  miscellaneous expenses.  Sales and marketing expenses
consist of salaries,  sales  commissions  (including  commissions to third party
sales representatives),  travel and promotional expenses. The Company, commenced
a significant expansion of its marketing program in 1997 and expects to continue
this expansion  through 1998.  Due to the complexity of the Company's  services,
and the continued  expansion of sales personnel,  sales and marketing expense is
expected  to increase  significantly  during  1998.  Engineering  and  technical
expenses,  consisting  principally  of personnel  costs and travel.  General and
administrative  expenses  consist of personnel  costs other than for selling and
engineering,  information systems,  professional  services, and occupancy costs.
These  costs  will  increase  generally  as  the  Company's  operations  expand.
Depreciation  and  amortization  expenses result mainly from the depreciation of
the Orion 1 satellite,  VSATs and the related equipment to service the expansion
of the private network communication  services business (see Note 2 of the Notes
to Consolidated  Financial Statements) and will increase substantially after the
launch  of Orion 2 and  Orion 3.  Interest  income is  primarily  the  result of
interest  earned  on  the  proceeds  from  Orion's  private  and  public  equity
offerings.  Interest  costs  increased  substantially  as a  result  of the bond
offering   completed   January  31,  1997.   Orion's  costs  (other  than  sales
commissions) generally do not vary substantially with the amount of revenue from
the Orion 1 satellite.

RESULTS OF OPERATIONS

     Consolidation of Orion Network Systems - Europe GmbH ("Orion Europe").  The
Company  has  consolidated  the  operations  of Orion  Europe for the year ended
December  31,  1997,  retroactively  to  January  1,  1997.  The  effect of this
consolidation  on operations  prior to acquisition was to increase  consolidated
revenues by  approximately  $4.1 million,  increase total operating  expenses by
approximately $4.0 million and other expenses by approximately $0.7 million. The
preacquisition  loss of Orion Europe of $0.6 million has been  deducted from the
consolidated statement of operations for the year ended December 31, 1997.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996

     Revenue.  Total  revenue  for the year ended  December  31,  1997 was $72.7
million including $15.4 million from Orion Europe, compared to $41.8 million for
the  same  period  in  1996,   an  increase  of  74%.   Revenues   from  private
communications  network  services  were $36.8  million in 1997 compared to $17.0
million for the  comparable  period in 1996,  as the number of sites in services
increased  to 682 as of  December  31,  1997,  from 322 at  December  31,  1996.
Revenues from video distribution and other satellite  transmission services were
$31.4 million for 1997 compared to $24.8 million for the same period in 1996.

OPERATING EXPENSES

     Direct expenses. Direct expenses for the year ended December 31, 1997, were
$26.5  million  compared  to $15.5  million  for the same  period  in 1996.  The
increase of 71% was primarily  attributable  to Orion Europe direct  expenses of
$8.3 million, the cost of equipment associated with a sales-type equipment lease
to an existing  customer,  leased  space  segment,  site  maintenance  and other
operational costs associated with the increased sites in service for the period.

                                       39

<PAGE>



     Sales and  marketing  expenses.  Sales and  marketing  expenses  were $19.4
million,  including  $1.5  million  relating to Orion  Europe for the year ended
December 31, 1997, as compared to $11.5 million in the same period of 1996.  The
increase  of  $7.9  million  or 69% is  primarily  compensation  costs  for  the
Company's  significant expansion of its sales force, as well as additional costs
for  the  expanded  marketing  program  during  1997.  This  expansion  includes
additional commissions, consulting and advertising associated with the growth in
private communications network service business..

     Engineering and technical expenses. Engineering and technical expenses were
$7.8 million in the year ended  December  31, 1997,  as compared to $5.2 million
for the comparable  period in 1996. The increase was primarily due to additional
engineering and technical staff associated with the Orion Europe acquisition.

     General and administrative  expenses.  General and administrative  expenses
were $14.0  million  for the year ended  December  31,  1997,  compared  to $9.1
million for the period ended December 31, 1996. The increase of $4.9 million, or
54%,  for the year ended  December  31,  1997 was  primarily  due to  additional
administrative  staff  associated with the Orion Europe  acquisition and outside
services associated with the planned Loral Merger.

     Depreciation  and  amortization.  Depreciation  expense  for the year ended
December 31, 1997, was $48.2 million, an increase of $11.2 million, or 30%, over
the same period in 1996. The increase is primarily a result of  depreciation  on
the step up in basis on the Orion 1 Satellite,  the  amortization of excess cost
over fair value of net  assets  acquired  from the  acquisition  of the  Limited
Partners'  interest in Orion Atlantic and  depreciation  of ground  equipment to
service the expansion of the private network  communication service business and
depreciation and amortization relating to Orion Europe.

     Interest. Interest income was $24.7 million for the year ended December 31,
1997,  compared  to $2.3  million  for the year ended  December  31,  1996.  The
increase in interest  income ($22.4 million or 974%) during 1997, is primarily a
result of  interest  earned  on the  proceeds  from the  Company's  public  bond
offering in January 1997.  Interest expense was $83.8 million for the year ended
December 31, 1997,  compared to $27.8 million for the comparable period in 1996.
The increase in interest  expense of $56.0  million in 1997 is  attributable  to
additional  interest resulting from the completion of the Company's financing in
January 1997.

     Other.  Other  expenses  were $.5 million for the year ended  December  31,
1997, compared to $.02 million for the same period in 1996.

     Net loss. The Company incurred a net loss of $105.7 million,  compared to a
net loss of $27.2  million  for the  years  ended  December  31,  1997 and 1996,
respectively,  after deduction of the limited partners' and minority  interests'
share in the Company's  losses before  minority  interests' of $12.0 million and
$34.6 million,  respectively.  Net loss is expected to increase substantially in
subsequent  periods  as a result of  interest  expense  on the  notes  issued in
connection with the offering in January 1996 and the elimination of the minority
interests in Orion Atlantic.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995

     Revenue.  Total  revenue  for the year ended  December  31,  1996 was $41.8
million,  compared to $22.3  million for the same period in 1995, an increase of
87%. Revenues from private communications network services were $17.0 million in
1996 compared to $10.0 million for the comparable  period in 1995, as the number
of sites in  service  increased  to 322 as of  December  31,  1996,  from 151 at
December  31,  1995.  Revenues  from  video  distribution  and  other  satellite
transmission  services were $24.8 million for 1996 compared to $12.3 million for
the same period in 1995 resulting  from a substantial  increase in customers for
these services in 1996.

OPERATING EXPENSES

     Direct expenses. Direct expenses for the year ended December 31, 1996, were
$15.5  million  compared  to $17.0  million  for the same  period  in 1995.  The
decrease of $1.5  million,  or 9%, was  primarily  attributable  to accruals for
satellite incentive  obligations owed by Orion to the contractor under the Orion
1 Satellite Contract during the initial satellite deployment period from January
20, 1995 through June 30, 1995. The Company capitalized the present value of the
remaining  satellite  incentive   obligation  of  approximately  $14.8  million,
effective July 1, 1995, as part of the cost of the satellite. As of December 31,
1996, Orion had obligations with a present value of approximately  $22.4 million
with respect to satellite incentives.

                                       40

<PAGE>



     Sales and  marketing  expenses.  Sales and  marketing  expenses  were $11.5
million for the year ended December 31, 1996, as compared to $8.6 million in the
same  period  of  1995.  The  increase  of  $2.9  million,  or 34% is  primarily
attributable to sales  commissions,  third party sales  representative  fees and
ground operator fees  associated  with the growth in the private  communications
network service business.

     Engineering and technical expenses. Engineering and technical expenses were
$5.2 million in the year ended  December  31, 1996,  as compared to $5.6 million
for the comparable period in 1995.

     General and administrative  expenses.  General and administrative  expenses
were $9.1 million for the year ended December 31, 1996, compared to $6.6 million
for the period ended  December 31, 1995.  The increase of $2.5 million,  or 38%,
for  the  year  ended   December  31,  1996  was  primarily  due  to  additional
administrative staff.

     Depreciation and  amortization.  Depreciation and amortization  expense for
the year ended  December  31,  1996,  was $36.9  million,  an  increase  of $5.5
million,  or 18%,  over the same period in 1995.  The  increase  is  primarily a
result from  depreciation  of VSATs and other  ground  equipment  to service the
expansion of the private network services business and depreciation of the Orion
1 satellite, which was placed in service January 20, 1995.

     Interest.  Interest income was $2.3 million for the year ended December 31,
1996,  compared  to $1.9  million  for the year ended  December  31,  1995.  The
increase in interest  income  ($0.4  million or 21%) during 1996 is  primarily a
result of interest  earned on increased  cash  balances from the proceeds of the
Company's  initial public  offering in August 1995.  Interest  expense was $27.8
million for the year ended December 31, 1996,  compared to $24.7 million for the
comparable  period in 1995. The increase in interest  expense of $3.1 million in
1996 is attributable to expensing interest (including  commitment fees, interest
accretion  associated  with  the  Orion 1  satellite  incentive  obligation  and
amortization  of deferred  financing  costs) from the in-service date of Orion 1
and the  impact  of an  interest  rate  cap  agreement  in  1996.  Prior  to the
in-service date of Orion 1, substantially all interest expense was capitalized.

     Other.  Other  expenses  were $.02 million for the year ended  December 31,
1996,  compared to $3.4  million for the same  period in 1995.  The  decrease is
primarily related to costs incurred in connection with Orion Atlantic's plans to
raise financing for Orion 2, which plans were deferred in November 1995.

     Net loss. The Company  incurred a net loss of $27.2 million,  compared to a
net loss of $26.9  million  for the  years  ended  December  31,  1996 and 1995,
respectively,  after deduction of the limited partners' and minority  interests'
share in the Company's  losses before  minority  interests' of $34.6 million and
$46.1 million,  respectively.  Net loss is expected to increase substantially in
subsequent  periods  as a result of  interest  expense  on the  notes  issued in
connection with the offering in January 1996 and the elimination of the minority
interests in Orion Atlantic.

LIQUIDITY AND CAPITAL RESOURCES

     Prior  Funding.  Orion has required  significant  capital for operating and
investing  activities in the  development of its business,  and will continue to
need to expend significant additional capital in the future to develop fully its
global satellite communications system. The Company's funding for its operations
through  January  1997  had  been  provided  primarily  by the  sale  of  equity
securities,  including the completion of its initial  public  offering in August
1995 which generated  proceeds to the Company of approximately  $52 million (net
of underwriting discounts), bank loans, vendor financing, lease arrangements and
short-term loans from its investors.  Funding for the construction and launch of
the Orion 1 satellite and related  facilities  was fully  committed  through $90
million of equity from the limited  partners of Orion Atlantic,  an aggregate of
$251 million under a secured bank credit facility and  approximately $11 million
under other debt facilities, dedicated primarily to the construction of the TT&C
facility,  which is being used to control  Orion 1. The Orion 1 Credit  Facility
was  refinanced  in January 1997 with the proceeds from the Bond  Offering,  and
concurrently  with  the  Bond  Offering,  Orion  acquired  all  of  the  limited
partnership  interests (those which it did not already own) in Orion Atlantic in
exchange for 123,172 shares of Series C Convertible Preferred Stock representing
approximately 7 million  underlying  common shares,  of which  approximately 3.2
million  shares  have  been  sold  under the  Exchanging  Partners  Registration
Statement as of January 31, 1998.

                                       41

<PAGE>



     Existing  Capital  Resources.  The net  proceeds of the  January  1997 Bond
Offering to the Company were approximately $684 million, and the net proceeds of
the Convertible  Debentures Offering were approximately $59 million. Of the Bond
Offering  proceeds,  approximately  $222  million was used for  repayment of the
Orion 1 Credit  Facility  (including  payment  of  accrued  interest  and  hedge
breakage  costs),  approximately  $24 million was used to make  certain  initial
payments for the Orion 2 Satellite Contract,  approximately $13 million was used
to pay accrued satellite incentive fees under the Orion 1 satellite contract and
approximately $4 million was used to pay amounts owing to STET, a former limited
partner of Orion  Atlantic.  As of December 31,  1997,  the Company had cash and
cash  equivalents of $70 million and  restricted  and segregated  assets of $357
million including $217 million which was segregated in the financial  statements
by the Company to be used to make payments for additional satellites and certain
related  costs.  The  restricted  cash  consisted of $117.8  million placed in a
pledged  account  (to  pre-fund  the first six  interest  payments on the Senior
Notes).  Additionally,  included  in  restricted  and  segregated  assets is $22
million  subject to refund pending the  successful  launch and  commencement  of
commercial operation of Orion 3 as required by the DACOM agreement.

     Existing Indebtedness

     Notes.  In the Bond Offering,  Orion issued  approximately  $445 million of
11.25% Senior Notes due 2007 and approximately  $484 million principal amount at
maturity ($265.4 million initial value) of 12.5% Senior Discount Notes due 2007.
Interest on the Senior Notes is payable  semi-annually in cash on January 15 and
July 15 of each year, commencing July 15, 1997. The Senior Discount Notes do not
accrue cash interest prior to January 15, 2002.  Thereafter,  cash interest will
accrue  until  maturity  at an annual  rate of 12.5%  payable  semi-annually  on
January 15 and July 15 of each year, commencing July 15, 2002.

         The Notes have the benefit of Guarantees issued by each of the material
subsidiaries  of the  Company.  The Senior  Notes  initially  are secured by the
securities  purchased with the $134 million held in a pledged  account until the
Company makes the first six scheduled  interest payments on the Senior Notes and
thereafter  the Senior Notes will be unsecured.  The Senior  Discount  Notes are
unsecured.  The Notes are redeemable,  at the Company's  option,  in whole or in
part, at any time on or after January 15, 2002 at specified  redemption  prices.
In the event of a change of control  (as defined in the  indentures  relating to
the  Notes),  the Company  will be  obligated  to make an offer to purchase  all
outstanding  Notes at a  purchase  price  equal to 101% of  their  principal  or
accreted value, plus accrued and unpaid interest thereon to the repurchase date.
Since the Notes  have  traded in recent  periods  at prices  above 101% of their
principal amount, the Company does not anticipate that the holders of a material
principal amount of the Notes will accept the offer to repurchase.

         The  indebtedness  evidenced  by the Notes ranks pari passu in right of
payment with all existing and future unsubordinated  indebtedness of the Company
and the guarantors, respectively, and senior in right of payment to all existing
and future  subordinated  indebtedness  of the Company and the  guarantors.  The
indentures  relating to the Notes (the  "Indentures")  contain certain covenants
which,  among  other  things,  restrict  distributions  to  stockholders  of the
Company,  the  repurchase  of equity  interests in the Company and the making of
certain other investments and restricted payments,  the incurrence of additional
indebtedness  by the Company and its  restricted  subsidiaries,  the creation of
certain liens,  certain asset sales,  transactions  with  affiliates and related
parties, and mergers and consolidations.  The foregoing description of the Notes
is qualified in its entirety by the  description of such Notes in the Indentures
and Notes documents,  copies of which have been filed as exhibits to this Annual
Report on Form 10-K.

     Convertible  Debentures.  In January 1997,  the Company also  completed the
sale of $60 million of its convertible junior subordinated debentures to British
Aerospace ($50 million) and Matra Marconi Space ($10 million).  The  Convertible
Debentures  would have matured in 2012, and bore interest at a rate of 8.75% per
annum to be paid  semi-annually in arrears solely in Common Stock of the Company
at prices of between  $10.21 and $14.00  per  share,  depending  on the  average
trading prices of the Common Stock during the applicable measurement period. The
Convertible  Debentures  (and accrued but unpaid  interest) were  convertible in
whole or in part into Common Stock at any time at an initial  conversion rate of
$14.00 per  share,  as  adjusted  for stock  splits or other  recapitalizations,
certain dividends or issuances of stock to all stockholders,  issuances of stock
(or  certain  rights to acquire  stock) at a price per share below  $14.00,  and
other  events.   All  of  the   Convertible   Debentures   were  converted  into
approximately 4.3 million shares of common stock between December 1997 and March
1998.  The Common  Stock  issuable  upon  conversion  of Matra  Marconi  Space's
Convertible  Debentures was recently sold pursuant to the  Exchanging  Partners'
Registration Statement. British Aerospace has recently converted its Convertible
Debentures and sold the Common Stock issued upon conversion in sales exempt from
registration under the Securities Act.

                                       42

<PAGE>



     Other Indebtedness and Other Obligations. At December 31, 1997, the Company
had outstanding  indebtedness of  approximately  $6.0 million under a seven year
term loan provided by General Electric Capital Corporation ("GECC") for the TT&C
facility,  which is secured by the TT&C  facility  and various  assets  relating
thereto.  Additionally,  at December  31, 1997 the  Company had  obligations  of
approximately $6.5 million payable to the manufacturer of Orion 1 through 2007.

     Current  Funding  Requirements.  While the Company  believes  its  existing
resources are adequate to fund its needs  through  1998,  based upon its current
expectations  for  growth,  the  Company  anticipates  it will have  substantial
funding  requirements over the next three years to fund the costs of Orion 2 and
Orion 3, the purchase of VSATs,  other  capital  expenditures  and other capital
needs.  Interest charges on the Senior Notes over the next three years are fully
provided for by Restricted and Segregated Cash.

         The in-orbit  delivered costs of the Orion 2 and Orion 3 satellites are
expected to aggregate approximately $468 million. In addition to the $93 million
paid in 1997,  Orion will need to make payments of  approximately  $329 million,
$45 million and $.3 million in 1998, 1999 and 2000, respectively.  These amounts
include the  Company's  estimate  regarding  the cost of launch  insurance.  The
contracts for Orion 2 and Orion 3 provide firm fixed prices for the construction
and launch of those  satellites  and  provides  for  penalties  in event of late
delivery by the  manufacturer,  however,  the Company's actual payments could be
substantially  higher due to any change  orders  for the  satellites,  insurance
rates, delays and other factors.

         In  connection  with the Bond  Offering,  the Company  segregated  $407
million of the net  proceeds to make  payments  for  additional  satellites  and
certain related costs (and interest  payments on the Senior Notes).  The Company
also can use a portion of its working capital for such costs if it chooses to do
so. The  Company  had  working  capital of $85  million at  December  31,  1997.
However,  there can be no assurance that cost increases for Orion 2 and/or Orion
3 due to change orders,  insurance  rates or  construction  delays,  among other
factors  may not  increase  the  Company's  capital  requirements  or  that  the
Company's growth may vary from its expectations resulting in changes in its cash
requirements or expected cash.

         The balance of the Company's  funding  requirements  are dependent upon
its growth and cash flow from operations. The Company cannot predict whether its
existing  resources  and cash flows will be  adequate  to cover its future  cash
needs.  If existing  resources  and cash flows are not  sufficient  to cover the
Company's  future  cash  needs,  the  Company  will  need  to  raise  additional
financing. The Company does not have a revolving credit facility or other source
of readily available  capital.  Sources of additional capital may include public
or private debt, equity financings or strategic investments.  To the extent that
the Company seeks to raise  additional debt financing,  the Indentures limit the
amount of such additional debt (under a variety of provisions  contained in such
Indentures)  and  prohibit the Company from using Orion 1, Orion 2 or Orion 3 as
collateral  for  indebtedness  for  money  borrowed.  If  the  Company  requires
additional financing and is unable to obtain such financing from outside sources
in the amounts and at the times needed, there would be a material adverse effect
on the Company.

TAXES

     As of December 31, 1997,  Orion had net operating  loss  carryforwards  for
federal tax  purposes of  approximately  $162  million.  The ability of Orion to
benefit from net operating losses for federal income tax purposes will depend on
a number of factors, including whether Orion has sufficient income from which to
deduct  the  losses,  limitations  that may arise as a result of  changes in the
ownership of Orion, including as a result of the Transactions and other factors,
and  certain  other  limitations  which may  significantly  reduce the  economic
benefit of those losses to Orion.  Due to  uncertainty  regarding its ability to
realize  the  benefits  of its net  deferred  tax  assets,  including  such  net
operating loss carryforwards,  the Company has established a valuation allowance
for the full amount of its net deferred tax assets.

EFFECT OF INFLATION

     Orion believes that inflation has not had a material  effect on the results
of operations to date.

                                       43

<PAGE>



 ITEM 8.

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Orion Network Systems, Inc.

     We have  audited  the  accompanying  consolidated  balance  sheets of Orion
Network  Systems,  Inc.  as of  December  31,  1997 and  1996,  and the  related
consolidated   statements  of  operations,   changes  in  stockholders'   equity
(deficit),  and cash  flows  for each of the  three  years in the  period  ended
December 31, 1997.  These  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance about whether the  consolidated  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,  the financial statements referred to above present fairly,
in all material respects,  the consolidated  financial position of Orion Network
Systems, Inc. at December 31, 1997 and 1996, and the consolidated results of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 1997, in conformity with generally accepted accounting principles.

                                             /S/ ERNST & YOUNG LLP

Washington, DC
February 20, 1998


                                       44

<PAGE>

                           ORION NETWORK SYSTEMS, INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                          DECEMBER 31,               DECEMBER 31,
                                                                              1997                       1996
                                                                          -----------                 ----------
<S>                                                                    <C>                        <C>           
ASSETS
Current assets:
  Cash and cash equivalents                                            $   70,008,657             $   32,187,807
  Restricted assets                                                        50,064,014                         --
  Accounts receivable (less allowance for doubtful accounts
    of $734,000 and $100,000 at December 31, 1997 and
    1996, respectively)                                                    11,780,972                  6,473,316
  Prepaid expenses and other current assets                                 6,846,598                  3,583,403
                                                                          -----------                 ----------
Total current assets                                                      138,700,241                 42,244,526
                                                                          ===========                 ==========

Restricted and segregated assets                                          306,825,961                 10,000,000

Property and equipment, at cost:

  Land                                                                         73,911                     73,911
  Telecommunications equipment                                             40,654,418                 25,342,528
  Furniture and computer equipment                                          8,626,501                  4,849,711
  Satellite and related equipment                                         322,159,088                321,247,346
                                                                          -----------                 ----------
                                                                          371,513,918                351,513,496
  Less:  accumulated depreciation                                         (77,079,857)               (68,224,957)
  Satellite construction in progress                                      106,843,174                  4,560,844
                                                                          -----------                 ----------
  Net property and equipment                                              401,277,235                287,849,383

Deferred financing costs, net                                              22,510,041                 12,918,233
Other assets, net                                                          27,178,809                  5,252,302
                                                                          -----------                 ----------
    Total assets                                                      $   896,492,287            $   358,264,444
                                                                      ===============            ===============
</TABLE>

                 See Notes to Consolidated Financial Statements.

                                       45

<PAGE>



                           ORION NETWORK SYSTEMS, INC.
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,         DECEMBER 31,
                                                                            1997                 1996
                                                                        ------------         ------------
<S>                                                                    <C>                  <C>          
LIABILITIES AND STOCKHOLDERS' deficit
Current liabilities:
  Accounts payable                                                     $   5,230,567        $   6,411,028
  Accrued liabilities                                                     10,594,952            7,653,208
  Other current liabilities                                                7,129,861            5,406,072
  Interest payable                                                        24,771,509            8,583,882
  Current portion of long-term debt                                        6,406,143           34,975,060
                                                                       -------------        -------------
    Total current liabilities                                             54,133,032           63,029,250

Long-term debt                                                           790,670,606          218,236,839
Other liabilities                                                         21,803,582           46,402,299

Limited Partners' interest in Orion Atlantic                                    --             10,130,058

Commitments and contingencies
Redeemable preferred stock:
  Series A 8% Cumulative Redeemable Convertible Preferred
    Stock, $.01 par value;  15,000 shares authorized;  6,933 and
    13,871 shares issued and outstanding at December 31, 1997 and
    1996, respectively, plus accrued dividends                             8,613,508           16,097,880
  Series B 8% Cumulative Redeemable Convertible Preferred
    Stock, $.01 par value; 5,000 shares authorized; 2,059 and
    4,298 shares issued and outstanding at December 31, 1997
    and 1996, respectively, plus accrued dividends                         2,466,755            4,804,486
  Series C 6% Cumulative Redeemable Convertible Preferred
    Stock, $.01 par value; 150,000 shares authorized; 82,641 and 0
    shares issued and outstanding at December 31, 1997 and 1996,
    respectively, plus accrued dividends and accretion                    65,653,949                 --

Stockholders' deficit:
  Common stock, $.01 par value; 40,000,000 shares authorized;
    15,959,089 and 11,244,665 issued and outstanding at
    December 31, 1997 and 1996, respectively                                 159,591              112,447
  Capital in excess of par value                                         153,294,210           86,932,391
  Treasury stock, 269,274 and 259,515 shares                                 (91,490)                --
  Foreign currency translation adjustment                                   (955,800)                --
  Accumulated deficit                                                   (199,255,656)         (87,481,206)
                                                                       -------------        -------------
    Total stockholders' deficit                                          (46,849,145)            (436,368)
                                                                       -------------        -------------

    Total liabilities and stockholders' deficit                        $ 896,492,287        $ 358,264,444
                                                                       =============        =============
</TABLE>


                 See Notes to Consolidated Financial Statements.

                                       46

<PAGE>

                           ORION NETWORK SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                                   -----------------------
                                                           1997               1996              1995
                                                     --------------     ---------------   --------------- 
<S>                                                  <C>                <C>               <C>            
Service revenue                                      $   72,740,631     $    41,847,292   $    22,283,882

Operating expenses:
  Direct                                                 26,531,298          15,457,260        16,968,926
  Sales and marketing                                    19,423,372          11,465,040         8,613,399
  Engineering and technical services                      7,750,208           5,190,619         5,554,690
  General and administrative                             13,955,718           9,138,973         6,574,202
  Depreciation and amortization                          48,161,257          36,948,158        31,403,376
                                                     --------------     ---------------   --------------- 
       Total operating expenses                         115,821,853          78,200,050        69,114,593
                                                     --------------     ---------------   --------------- 

Loss from operations                                    (43,081,222)        (36,352,758)      (46,830,711)

Other expense (income):
  Interest income                                       (24,711,461)         (2,313,842)       (1,924,822)
  Interest expense                                       83,769,168          27,764,126        24,738,446
  Other                                                     507,089              23,649         3,382,506
                                                     --------------     ---------------   --------------- 
       Total other expense, net                          59,564,796          25,473,933        26,196,130
                                                     --------------     ---------------   --------------- 

Loss before extraordinary loss on extinguishment
  of debt, minority interest and preacquisition        (102,646,018)        (61,826,691)      (73,026,841)
  loss of acquired subsidiary

Extraordinary loss on extinguishment of debt            (15,763,220)                 --                --

Limited Partners' interest in the net loss
  of Orion Atlantic                                      12,042,978          34,631,281        46,111,663
Preacquisition loss of acquired subsidiary                  626,246                  --                --
                                                     --------------     ---------------   --------------- 

Net loss                                               (105,740,014)        (27,195,410)      (26,915,178)

Preferred stock dividend, net of forfeitures              6,034,436           1,369,665         1,329,007
                                                     --------------     ---------------   --------------- 

Net loss attributable to common stockholders         $ (111,774,450)    $   (28,565,075)  $   (28,244,185)
                                                     ==============     ===============   =============== 

Extraordinary loss per share, net of minority
  interest - basic and diluted                       $         (.56)   $             --   $            --
                                                     ==============     ===============   =============== 

Net loss per common share-basic and diluted          $        (9.60)   $          (2.62)  $         (3.07)
                                                     ==============     ===============   =============== 

Weighted average common shares outstanding               11,639,711          10,951,823         9,103,505
                                                     ==============     ===============   =============== 
</TABLE>


                 See Notes to Consolidated Financial Statements.


                                       47

<PAGE>



                           ORION NETWORK SYSTEMS, INC.
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)


<TABLE>
<CAPTION>
                                         COMMON STOCK
                                   --------------------------     CAPITAL IN                                  
                                     NUMBER                       EXCESS OF       ACCUMULATED       TREASURY  
                                   OF SHARES        AMOUNT        PAR VALUE         DEFICIT        STOCK (1)  
                                   ---------        ------        ---------         -------        ---------  
<S>                               <C>           <C>             <C>             <C>                <C>        
Balance at December 31, 1994        7,045,523   $      70,455   $  33,952,062   $  (30,671,946)    $        --
  Issuance of common stock          4,002,941          40,030      50,960,330               --              --
  Exercise of stock options and                                                                               
    warrants                           67,501             675         573,221               --              --
  Preferred stock dividend, net of
    forfeitures                            --              --              --       (1,329,007)             --
  Net loss for 1995                        --              --              --      (26,915,178)             --
                                    ---------   -------------   -------------   --------------     -----------

Balance at December 31, 1995       11,115,965         111,160      85,485,613      (58,916,131)             --
  Conversion of preferred stock
    to common  stock                   91,071             911         804,034               --              --
  Issuance of stock warrants               --              --         300,000               --              --
  Exercise of stock options and
    warrants                           37,629             376         342,744               --              --
  Preferred stock dividend, net of
    forfeitures                            --              --              --       (1,369,665)             --
  Net loss for 1996                        --              --              --      (27,195,410)             --
                                    ---------   -------------   -------------   --------------     -----------

Balance at December 31, 1996       11,244,665         112,447      86,932,391      (87,481,206)             --
  Issuance of common stock             11,286             113         142,317               --              --
  Conversion of preferred stock
    to common  stock                3,351,728          33,517      38,811,976               --              --
    
  Conversion of debentures to
    common stock                      735,292           7,353      10,284,314               --              --
  Issuance of common stock for
    the purchase of APSC               85,715             857       1,199,143               --              --
  Issuance of common stock for
    interest payments                 205,229           2,052       2,622,947               --              --
  Issuance of common stock for
  preferred stock dividend            120,954           1,210       2,069,252               --              --
  payments
  Issuance of warrants relating to
  Senior Notes and Senior
  Discount Notes, net                      --              --       9,223,674               --              --
  Exercise of stock options and
    warrants                          176,489           1,765       1,764,295               --              --
  Employee stock purchase plan         27,731             277         243,901               --              --
  Preferred stock dividend and
   accretion, net of forfeitures           --              --              --       (6,034,436)             --
  Foreign currency translation             --              --              --               --              --
  Purchase of treasury stock               --              --              --               --         (91,490)
  Net loss for 1997                        --              --              --     (105,740,014)             --
                                   ----------   -------------   -------------    -------------      ----------
  Balance at December 31, 1997     15,959,089   $     159,591   $ 153,294,210    $(199,255,656)     $  (91,490)
                                   ==========   =============   =============    =============      ==========
</TABLE>

<TABLE>
<CAPTION>
                                      FOREIGN          TOTAL
                                     CURRENCY     STOCKHOLDERS'
                                   TRANSLATION   EQUITY (DEFICIT)
                                   -----------   ----------------

<S>                                 <C>          <C>           
Balance at December 31, 1994        $       --   $    3,350,571
  Issuance of common stock                  --       51,000,360
  Exercise of stock options and                         573,896
    warrants                                --
  Preferred stock dividend, net of
    forfeitures                             --       (1,329,007)
  Net loss for 1995                         --      (26,915,178)
                                    ----------   --------------

Balance at December 31, 1995                --       26,680,642
  Conversion of preferred stock
to common  stock                            --          804,945
  Issuance of stock warrants                --          300,000
  Exercise of stock options and
    warrants                                --          343,120
  Preferred stock dividend, net of
    forfeitures                             --       (1,369,665)
  Net loss for 1996                         --      (27,195,410)
                                    ----------   --------------

Balance at December 31, 1996                --         (436,368)
  Issuance of common stock                  --          142,430
  Conversion of preferred stock
    to common  stock                        --       38,845,493
    
  Conversion of debentures to
    common stock                            --       10,291,667
  Issuance of common stock for
    the purchase of APSC                    --        1,200,000
  Issuance of common stock for
    interest payments                       --        2,624,999
  Issuance of common stock for
  preferred stock dividend                  --        2,070,462
  payments
  Issuance of warrants relating to
  Senior Notes and Senior
  Discount Notes, net                       --        9,223,674
  Exercise of stock options and
    warrants                                --        1,766,060
  Employee stock purchase plan              --          244,178
  Preferred stock dividend and
   accretion, net of forfeitures            --       (6,034,436)
  Foreign currency translation        (955,800)        (955,800)
  Purchase of treasury stock                --          (91,490)
  Net loss for 1997                         --     (105,740,014)
                                    ----------     ------------ 
  Balance at December 31, 1997      $ (955,800)  $  (46,849,145)
                                    ==========   ============== 

</TABLE>

                 See Notes to Consolidated Financial Statements.


(1)  Includes 269,274 treasury shares of which 259,515 are carried at no cost.

                                       48

<PAGE>



                           ORION NETWORK SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                           -----------------------------------------------------------
                                                                 1997                 1996                 1995
                                                           ---------------       ---------------     ---------------
           OPERATING ACTIVITIES
<S>                                                        <C>                   <C>                 <C>             
Net loss                                                   $  (105,740,014)      $   (27,195,410)    $   (26,915,178)
Adjustments to reconcile net loss to net cash
  used in operating activities:
  Extraordinary loss on extinguishment of debt                  15,763,220                    --
  Depreciation and amortization                                 48,161,257            36,948,158          31,403,376
  Amortization of deferred financing costs                       2,409,787             2,130,588           2,130,588
  Provision for bad debts                                        1,021,618               919,453             277,529
  Accretion of interest                                         34,347,467             2,371,506           5,185,834
  Interest earned on restricted assets                         (18,203,066)                   --                  --
  Limited Partners' interest in the net loss of Orion
     Atlantic and other minority interest                      (12,042,978)          (34,631,281)        (46,089,010)
  Gain on sale of assets                                                --               (54,738)            (59,301)
  Changes in operating assets and liabilities:
     Accounts receivable                                        (2,922,508)           (2,203,171)         (4,915,257)
     Prepaid expenses and other current assets                  (2,277,177)             (285,895)         (3,147,592)
     Other assets                                               (3,639,941)              (69,708)           (519,773)
     Accounts payable and accrued liabilities                   (2,639,393)           (3,621,847)          7,327,377
     Other current liabilities                                   1,543,035             3,298,544           3,670,988
     Interest payable                                           16,180,273               578,803            (885,106)
                                                           ---------------       ---------------     ---------------
Net cash used in operating activities                          (28,038,420)          (21,814,998)        (32,535,525)

INVESTING ACTIVITIES
Capital expenditures                                           (11,062,046)          (12,625,444)         (8,549,799)
Increase in restricted and segregated assets                  (419,187,388)          (10,000,000)                 --
Release of restricted and segregated assets                     90,500,480                    --                  --
Satellite construction costs, including capitalized
  interest                                                    (102,282,330)           (3,750,231)           (510,613)
Advance on DACOM contract,  net                                 12,250,000             9,900,000
Refund from satellite manufacturer                                      --                    --           2,750,000
Purchase of Teleport Europe, net of cash acquired               (8,374,845)                   --                  --
Other                                                                   --               (37,865)           (558,817)
                                                           ---------------       ---------------     ---------------
Net cash used in investing activities                         (438,156,129)          (16,513,540)         (6,869,229)

FINANCING ACTIVITIES
Limited Partners' capital contributions                                 --            30,135,000           7,600,000
Redemption of Limited Partner interest                                  --                    --          (4,450,000)
Debt and equity financing costs                                (26,122,220)           (2,265,291)                 --
Proceeds from issuance of redeemable preferred stock                    --                    --           4,483,001
Proceeds from issuance of common stock, net of issuance
    costs                                                        2,152,668               343,120          51,974,436
Treasury stock purchase                                            (91,490)                   --                  --
PPU borrowings                                                          --                    --           2,275,000
Proceeds from issuance of debt                                 770,397,000                    --                  --
Proceeds from senior notes payable banks and notes payable              --                    --          18,918,984
Repayment of senior notes payable to banks and notes payable  (216,723,484)          (27,802,281)        (14,385,015)
Swap termination fee                                            (5,287,827)                   --                  --
Payment of satellite incentives                                (18,620,886)                   --                  --
Other                                                           (1,688,362)           14,994,212          16,881,102
                                                           ---------------       ---------------     ---------------
Net cash provided by financing activities                      504,015,339            15,404,760          83,297,508
                                                           ---------------       ---------------     ---------------

Net increase (decrease) in cash and cash equivalents            37,820,850           (22,923,778)         43,892,754
Cash and cash equivalents at beginning of period                32,187,807            55,111,585          11,218,831
                                                           ---------------       ---------------     ---------------
Cash and cash equivalents at end of period                 $    70,008,657       $    32,187,807     $    55,111,585
                                                           ===============       ===============     ===============
</TABLE>




                 See Notes to Consolidated Financial Statements.


                                       49

<PAGE>



                           ORION NETWORK SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   ORGANIZATION.

     Orion Network Systems, Inc.'s ("Orion" or the "Company") principal business
is the provision of satellite communications for private communications networks
and video  distribution  and other  satellite  transmission  services.  From its
inception in 1982 through  January 20, 1995,  when Orion 1 commenced  commercial
operations,  Orion was a development  stage  enterprise.  Prior to January 1995,
Orion's efforts were devoted  primarily to monitoring the  construction,  launch
and in-orbit  testing of Orion 1, product  development,  marketing  and sales of
interim private communications network services,  raising financing and planning
Orion 2 and Orion 3.

     Through January 31, 1997, Orion Satellite  Corporation (whose name has been
changed to Orion Network  Services,  Inc.) was the sole general partner in Orion
Atlantic  L.P.  ("Orion  Atlantic")  and had a 41 2/3% equity  interest in Orion
Atlantic. As a result of Orion's control of Orion Atlantic, Orion's consolidated
financial  statements  include  the  accounts  of Orion  Atlantic.  All of Orion
Atlantic's revenues and expenses are included in Orion's consolidated  financial
statements,  with appropriate adjustment to reflect the interests of the Limited
Partners in Orion  Atlantic's  losses prior to the Exchange as described  below.
Orion acquired all the remaining interests in Orion Atlantic on January 31, 1997
during  the  Exchange  as  described  below.  Orion's   consolidated   financial
statements also include the accounts of all other subsidiaries of Orion.

     All   subsidiaries   of  Orion   ("Subsidiary   Guarantors"),   other  than
inconsequential  subsidiaries,  have  unconditionally  guaranteed  the Notes (as
defined  below) on a joint  and  several  basis.  No  restrictions  exist on the
ability of Subsidiary Guarantors to pay dividends or make other distributions to
Orion, except to the extent provided by law generally (e.g., adequate capital to
pay dividends under state corporate laws).

                                                    Jurisdiction of Organization
                       Subsidiary Name                     or Incorporation
-------------------------------------------------  -----------------------------
Asia Pacific Space and Communications, Ltd.                    Delaware

International Private Satellite Partners, L.P.
(doing business as Orion Atlantic, L.P.)                       Delaware

Orion Network Systems-Asia Pacific, Inc.
(formerly known as Orion Asia Pacific Corporation)             Delaware

Orion Network Systems-Europe, Inc.
(formerly known as Orion Atlantic Europe, Inc.)                Delaware

Orion Oldco Services, Inc.
(formerly known as Orion Network Systems, Inc.)                Delaware

OrionNet Finance Corporation                                   Delaware

OrionNet, Inc.                                                 Delaware

Orion Network Services, Inc.
(formerly known as Orion Satellite Corporation)                Delaware

Orion Network Systems-Europe GmbH
(formerly known as Teleport Europe GmbH)             Federal Republic of Germany

     Each of the  Subsidiary  Guarantors  is a wholly  owned  subsidiary  of the
Company.  The  Subsidiary  Guarantors  comprise  all of the direct and  indirect
subsidiaries of the Company (other than inconsequential subsidiaries).

                                       50

<PAGE>



                           ORION NETWORK SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

1.   ORGANIZATION - (CONTINUED)

     Separate  financial  statements  of  the  Subsidiary   Guarantors  are  not
presented  because (a) such  Subsidiary  Guarantors  have jointly and  severally
guaranteed  the  Notes  on a full and  unconditional  basis,  (b) the  aggregate
assets,  liabilities,  earnings  and  equity of the  Subsidiary  Guarantors  are
substantially equivalent to the assets, liabilities,  earnings and equity of the
Company on a consolidated  basis and (c)  management  has  determined  that such
information is not material to investors.

     In  January  1997,  Orion  consummated  a series of  transactions  that are
described below.

ACQUISITION OF ORION ATLANTIC LIMITED PARTNERSHIP INTERESTS IN THE EXCHANGE

     On January 31, 1997,  the Company  acquired all of the limited  partnership
interests  which it did not already own in the Company's  operating  subsidiary,
Orion  Atlantic,  that owns the Orion 1  satellite.  Specifically,  the  Company
acquired  the Orion  Atlantic  limited  partnership  interests  and other rights
relating  thereto  held  by  British  Aerospace  Communications,  Inc.,  COM DEV
Satellite Communications Limited, Kingston Communications International Limited,
Lockheed Martin Commercial Launch Services, Inc., MCN Sat US, Inc., an affiliate
of Matra Hachette,  and Trans-Atlantic  Satellite,  Inc., an affiliate of Nissho
Iwai Corp. (collectively,  the "Exchanging Partners"). The Company accounted for
this  transaction  as an  acquisition  of  minority  interest,  and as a result,
approximately  $34.3  million was allocated to the cost of the Orion 1 satellite
and related equipment.

     Pursuant to a Section 351 Exchange  Agreement and Plan of  Conversion  (the
"Exchange Agreement"),  the Exchanging Partners exchanged (the "Exchange") their
Orion  Atlantic  limited  partnership  interests  for 123,172  shares of a newly
created class of the Company's  Series C 6%  Cumulative  Convertible  Redeemable
Preferred  Stock (the  "Series C Preferred  Stock").  In  addition,  the Company
acquired  certain rights held by certain of the Exchanging  Partners' to receive
repayment  of  various  advances  (aggregating  approximately  $41.6  million at
January 31, 1997).  The 123,172 shares of Series C Preferred Stock issued in the
Exchange are  convertible  into  approximately 7 million shares of the Company's
Common Stock.  As a result of the Exchange,  certain of the Exchanging  Partners
became principal stockholders of the Company.

THE MERGER

     The  Exchange  was  conducted  on a  tax-free  basis  by  means of a Merger
(defined  below)  that was  consummated  on January  31,  1997.  Pursuant to the
Exchange Agreement,  Orion Oldco Services, Inc., formerly known as Orion Network
Systems,  Inc. ("Old Orion"),  formed the Company as a new Delaware  corporation
with a certificate of incorporation,  bylaws and capital structure substantially
identical in all material respects with those of Old Orion. Also pursuant to the
Exchange Agreement,  the Company formed a wholly owned subsidiary,  Orion Merger
Company, Inc. ("Orion Merger Subsidiary").  Pursuant to an Agreement and Plan of
Merger,  Orion  Merger  Subsidiary  was merged with and into Old Orion,  and Old
Orion became a wholly owned subsidiary of the Company (the "Merger"). On January
31, 1997, the effective time of the Merger, all of the stockholders of Old Orion
received  stock in the Company with  substantially  identical  rights to the Old
Orion stock they held prior to the effective  time of the Merger.  Following the
Merger,  the Company changed its name from Orion Newco  Services,  Inc. to Orion
Network Systems,  Inc. and the Company's wholly owned subsidiary,  Orion Network
Systems, Inc. , changed its name to Orion Oldco Services, Inc.

FINANCINGS

     On January 31, 1997,  the Company  completed a $710  million bond  offering
(the "Bond  Offering")  comprised of  approximately  $445 million of Senior Note
Units,  each of which  consists  of one 11.25%  Senior  Note due 2007 (a "Senior
Note") and one Warrant to purchase 0.8463 shares of common stock, par value $.01
per share  ("Common  Stock")  of the  Company  (a "Senior  Note  Warrant"),  and
approximately  $265.4  million  of Senior  Discount  Note  Units,  each of which
consists of one 12.5% Senior  Discount Note due 2007 (a "Senior  Discount Note,"
and  together  with the Senior  Notes,  the "Notes") and one Warrant to purchase
0.6628  shares of Common Stock of the Company (a "Senior  Discount Note Warrant,
and together with the Senior Note  Warrants,  the  "Warrants").  Interest on the
Senior Notes is payable  semi-annually in cash on January 15 and July 15 of each
year,  commencing  July 15,  1997.  The  Senior  Discount  Notes do not pay cash
interest prior to January 15, 2002. Thereafter,  cash interest will accrue until
maturity at an annual rate of 12.5% payable semi-


                                       51

<PAGE>




                           ORION NETWORK SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

1.   ORGANIZATION - (CONTINUED)

annually on January 15 and July 15 of each year,  commencing  July 15, 2002. The
exercise price of the Warrants is $.01 per share of Common Stock of the Company.
There were 697,400 Warrants issued in connection with the Notes (See Note 6).

     On January 31, 1997,  the Company also completed the sale of $60 million of
its convertible junior subordinated debentures (the "Convertible Debentures") to
two investors,  British Aerospace Holdings, Inc. ("British Aerospace") and Matra
Marconi Space UK Limited ("Matra Marconi Space").  British  Aerospace  purchased
$50 million of the Convertible  Debentures and Matra Marconi Space purchased $10
million of the Convertible Debentures (collectively, the "Convertible Debentures
Offering,"  and  together  with  the  Bond  Offering,  the  "Financings").   The
Convertible  Debentures mature in 2012, and bear interest at a rate of 8.75% per
annum payable  semi-annually  in arrears  solely in Common Stock of the Company.
The Convertible  Debentures are  subordinated  to all other  indebtedness of the
Company, including the Notes.

     The net proceeds of the Bond Offering and Convertible  Debentures  Offering
were used by the  Company  to repay the Orion 1 Credit  Facility,  pre-fund  the
first three years of interest payments on certain of the Notes, and will be used
to build and launch two additional satellites, Orion 2 and Orion 3.

ACQUISITION OF TELEPORT EUROPE

     On March 26, 1997,  Orion acquired  German-based  Teleport Europe GmbH (now
known as Orion Network  Systems-Europe  GmbH) ("Orion  Europe") a communications
company  specializing in private satellite networks for voice and data services.
Orion purchased the shares of Orion Europe held by the German companies, Vebacom
GmbH and RWE Telliance AG, now known as o.tel.o for approximately $9 million. In
addition,  Orion acquired Orion  Europe's  licenses and operating  agreements to
provide  satellite  network services in 40 countries,  including 17 countries in
which Orion previously did not provide service.  The net purchase price of Orion
Europe was $8.4 million and was allocated as follows:

     Working capital deficit, net of cash acquired         $    (.6)
     Property and equipment                                     9.3
     Other, net                                                 (.3)
                                                           --------
                                                           $    8.4
                                                           ========


     The proforma effect on net loss assuming the acquisition took place January
1, 1997 was not material.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION POLICY

     The consolidated financial statements for the year ended December 31, 1997,
include  the  accounts  of Orion  and its  wholly-owned  subsidiaries  and Orion
Financial  Partnership  (OFP),  in  which  Orion  holds  a  50%  interest.   The
consolidated  financial  statements  for the years ended  December  31, 1996 and
1995, include the accounts of Orion, its two wholly-owned subsidiaries OrionNet,
Inc.  (OrionNet)  and  Orion  Network  Services,  Inc.,  its  former  83%  owned
subsidiary,  Asia Pacific Space and Communications Ltd. (Asia Pacific), the OFP,
in which Orion holds a 50% interest,  and Orion Atlantic,  in which Orion held a
41 2/3% ownership interest.  Orion Network Services, Inc. as the general partner
of Orion Atlantic, exercised control of Orion Atlantic through the provisions of
the   partnership   agreement.   All  significant   intercompany   accounts  and
transactions have been eliminated.  In January 1997, all of the outside interest
in these entities, except for outside interests of OFP, were acquired.

                                       52

<PAGE>



                           ORION NETWORK SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

CASH AND CASH EQUIVALENTS

     Orion  considers  all highly  liquid  investments  with a maturity of three
months or less when purchased to be cash equivalents.  Cash and cash equivalents
includes cash in banks and short term investments as follows:

                                             DECEMBER 31,
                                          1997          1996
                                      -----------   -----------
                 Cash .............   $ 2,256,356   $ 2,627,477
                 Money market funds     2,543,600    14,213,484
                 Commercial paper .    65,208,701    15,346,846
                                      -----------   -----------
                                      $70,008,657   $32,187,807
                                      ===========   ===========

The commercial paper held at December 31, 1997 matures between January and March
1998.

RESTRICTED AND SEGREGATED ASSETS

     Restricted and segregated assets consist of the following:

                                                      DECEMBER 31,
                                             ------------------------------
                                                   1997          1996
                                             -------------    -------------
    U.S. treasury notes                      $ 117,800,000    $        --
    Commercial paper                           216,696,975             --
    Time deposits                               22,393,000       10,000,000
                                             -------------    -------------
    Total restricted and segregated assets     356,889,975       10,000,000
    Less:  current portion                     (50,064,014)            --
                                             -------------    -------------
                                             $ 306,825,961    $  10,000,000
                                             =============    =============

Included in restricted and segregated assets is $3.7 million of accrued interest
at December 31, 1997. The current portion represents  interest to be paid on the
Senior Notes in 1998. The commercial paper and U.S. treasury discount notes held
at December 31, 1997 mature between  January and March 1998 and January 1998 and
January 2000, respectively.

PROPERTY AND EQUIPMENT

     Property  and  equipment  are  carried  at cost.  Depreciation  expense  is
calculated using the  straight-line  method over their estimated useful lives as
follows:

                 Satellite and related equipment    10.5 years
                 Telecommunications equipment ...   2-7 years
                 Furniture and computer equipment   2-7 years

     Costs  incurred  in  connection  with  the   construction   and  successful
deployment of the Orion 1 satellite and related equipment are capitalized.  Such
costs include direct  contract cost,  allocated  indirect  costs,  launch costs,
launch  insurance,  construction  period  interest  and  the  present  value  of
satellite incentive payments. Similar costs for Orion 2 and Orion 3 are included
in "Satellite  construction in progress."  Orion began  depreciating the Orion 1
satellite over its estimated  useful life  commencing on the date of operational
delivery in orbit (January 20, 1995).

                                       53

<PAGE>



                           ORION NETWORK SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

DEFERRED FINANCING COSTS

     Deferred financing costs related to the Financings include $22.6 million in
fees paid to an investment  banker and are being  amortized  over the period the
debt is expected to be  outstanding.  Accumulated  amortization  at December 31,
1997 and 1996 was $2,289,925 and $9,122,000,  respectively.  Deferred  financing
costs of $10.5 million  relating to the Orion 1 Credit Facility were expensed in
January 1997 in connection  with the  Financings and are included in the caption
"Extraordinary loss on extinguishment of debt".

OTHER ASSETS

     Other  assets  consist   principally  of  FCC  license  application  costs,
organization  costs  and  goodwill.   The  Company  amortizes  the  FCC  license
application  costs  related  to Orion 1 over the  estimated  useful  life of the
satellite.  Organization  costs are  amortized  over  five  years.  Goodwill  is
primarily  amortized  over the  remaining  useful  life of Orion 1.  Accumulated
amortization  at  December  31,  1997 and 1996 was  $6,214,359  and  $3,150,000,
respectively.

     Other assets, net of amortization at December 31, 1997 and 1996, consist of
the following:

                                                    DECEMBER 31,
                                               1997              1996
                                          ---------------  ---------------
     Goodwill                             $    20,331,878  $     1,412,546
     Note receivable                            3,038,901               --
     FCC license application costs              1,781,097        1,639,054
     Other                                      2,026,933        2,200,702
                                          ---------------  ---------------
                                          $    27,178,809  $     5,252,302
                                          ===============  ===============


FOREIGN CURRENCY TRANSLATION

     Results of operations for foreign  entities,  primarily the Company's Orion
Network  Systems-Europe  GmbH subsidiary,  are translated using average exchange
rates during the period.  Assets and liabilities are translated to U.S.  dollars
using the  exchange  rate in effect at the  balance  sheet date.  The  resulting
translation adjustments are reflected in stockholders' equity (deficit).

INTEREST RATE MODIFICATION AGREEMENT

     Orion  entered into an  interest-rate  swap and cap agreement to modify the
interest  characteristics  of the Orion 1 Credit  Facility  from a floating to a
fixed-rate basis. This agreement involved the receipt of floating rate amount in
exchange for fixed-rate interest payments over the life of the agreement without
an  exchange  of the  underlying  principal  amount.  The  differential  paid or
received  was  accrued  as  interest  rates  changed  and was  recognized  as an
adjustment  to interest  expense.  The fair value of the swap  agreement was not
recognized in the financial statements. This agreement was terminated in January
1997 in connection  with the Financings  discussed in Note 1. No such agreements
were in place at December 31, 1997.

                                       54

<PAGE>



                           ORION NETWORK SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

REVENUE RECOGNITION

     Revenue is recognized  as earned in the period in which  telecommunications
and related services are provided.

     The following  summarizes the Company's  domestic and foreign  revenues for
the years ended December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                ---------------------------------------
                                                    1997          1996          1995
                                                -----------   -----------   -----------
<S>                                             <C>           <C>           <C>        
Revenues from unaffiliated customers
    United States ...........................   $30,927,234   $21,261,980   $ 8,528,736
    Europe ..................................    37,720,990    14,571,979     8,056,146
Revenues from related parties ...............     4,092,407     6,013,333     5,699,000
                                                -----------   -----------   -----------
Total services revenue ......................   $72,740,631   $41,847,292   $22,283,882
                                                ===========   ===========   ===========
</TABLE>

INCOME TAXES

     The Company recognizes deferred tax assets and liabilities for the expected
future consequences of temporary differences between financial reporting and tax
bases of assets and  liabilities  using enacted tax rates that will be in effect
when the differences are expected to reverse.

     Following is a summary of components of deferred taxes at December 31, 1997
and 1996 (in thousands):

                                                     DECEMBER 31,
                                                --------------------
                                                   1997        1996
                                                --------    --------
          Deferred tax assets:
          Net operating loss carryforward ...   $ 61,648    $ 29,535
          Accrued discount on Senior Discount
            Notes ...........................     11,917        --
          Amortization of intangibles .......      2,947         466
          Other .............................      3,385       2,566
                                                --------    --------
                                                  79,897      32,567
          Deferred tax liabilities:

          Depreciation ......................    (16,289)       (299)
          Other .............................       (741)       (124)
                                                --------    --------
                                                 (17,030)       (423)
                                                --------    --------
          Net deferred tax asset ............     62,867      32,144

          Valuation allowance ...............    (62,867)    (32,144)
                                                --------    --------
          Net deferred tax asset, after
            valuation allowance .............   $   --      $   --
                                                ========    ========

     At December 31, 1997, Orion has approximately $162 million in net operating
loss carryforwards which expire at varying dates from 2004 through 2012. The use
of these loss  carryforwards may be limited under the Internal Revenue Code as a
result of ownership changes  experienced by Orion. Due to uncertainty  regarding
its ability to realize the benefits of such net operating loss carryforwards and
other net deferred tax assets, the Company has established a valuation allowance
for the full amount of these net deferred tax assets.

                                       55

<PAGE>



                           ORION NETWORK SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

NET LOSS PER COMMON SHARE

     Net loss per common share is based on the weighted average number of common
shares  outstanding  during  the  period.  In  1997,  the  Financial  Accounting
Standards  Board issued  Statement  No. 128,  Earnings per Share.  Statement 128
replaced the  calculation  of primary and fully diluted  earnings per share with
basic and diluted earnings per share.  Unlike primary earnings per share,  basic
earnings  per share  excludes  any  dilutive  effects of options,  warrants  and
convertible securities.  The effect of such securities for all periods presented
is  anti-dilutive,  and  therefore has been  excluded  from the  calculation  of
diluted  earnings  per share.  The adoption of FASB 128 had no impact on the per
share amounts previously presented.

STATEMENTS OF CASH FLOWS

Non-cash   investing  and  financing   activities  and  supplemental  cash  flow
information includes:

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED DECEMBER 31,
                                                                    -------------------------------------------------
                                                                         1997             1996              1995
                                                                    --------------    --------------   --------------
<S>                                                                 <C>               <C>              <C>           
Property and equipment financed by capital leases.............      $           --    $      482,452   $    2,850,766
Preferred stock dividend, net of forfeitures..................           6,034,436         1,369,665        1,329,007
Conversion of redeemable preferred stock to common stock......          38,845,493           804,945            9,000
Conversion of subordinated debentures to common stock.........          10,291,667                --               --
Premium on satellite due to redemption of L.P interest........                  --                --        3,066,925
Redemption of STET interest with notes payable................                  --                --        8,000,000
Reduction in amount due to satellite manufacturer.............                  --                --          485,799
Satellite incentive obligation capitalized...................                   --                --       14,816,406

Acquisition of Teleport Europe, net of cash acquired:

  Working capital deficit, net of cash acquired...............             683,567                --               --
  Property and equipment......................................          (9,346,584)               --               --
  Other, net..................................................             288,172                --               --
                                                                    --------------    --------------   --------------
Net cash used to acquire Teleport Europe......................          (8,374,845)               --               --

Issuance of Series C preferred stock..........................          94,000,000                --               --
Issuance of common stock for preferred stock dividend.........           2,070,462                --               --
Issuance of common  stock and warrants .......................          13,406,631           300,000               --
Interest paid during the year.................................          35,572,722        20,619,316       11,312,875
</TABLE>

USE OF ESTIMATES

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results could differ from those estimates.

RECLASSIFICATIONS

     Certain prior year amounts have been reclassified to conform to the current
year presentation.

                                       56

<PAGE>



                           ORION NETWORK SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

3.   ORION ATLANTIC

     Orion  Atlantic  is  a  Delaware  limited  partnership  formed  to  provide
international private communications networks and basic transponder capacity and
capacity  services  (including  ancillary  ground  services) to  businesses  and
institutions  with  trans-Atlantic  and  intra-European  needs. The business was
organized by Orion Network Services,  the general partner of Orion Atlantic. The
principal purposes of Orion Atlantic was to finance the construction, launch and
operation of up to two  telecommunications  satellites in  geosynchronous  orbit
over the  Atlantic  Ocean and to  establish  a  multinational  sales and service
organization.  Eight  international  corporations,  including Orion,  invested a
total of $90  million in equity as limited  partners  in Orion  Atlantic.  Orion
Atlantic  through January 1997, was financed by a credit facility which provided
up  to  $251  million  for  the  first  satellite  from  a  syndicate  of  major
international  banks led by Chase  Manhattan  Bank,  N.A.  In  addition to their
equity  investments,  the Limited  Partners had agreed to lease  capacity on the
satellites  up to an  aggregate  $155  million and had entered  into  additional
contingent capacity lease contracts  ("contingent call") up to an aggregate $271
million,  as support for repayment of the senior debt. The firm capacity  leases
and  contingent  calls were payable  over a seven-year  period after the Orion 1
satellite was placed in service. In July 1995, January and July 1996 the Limited
Partners  (excluding  the Company)  paid $7.6  million,  $18.0 million and $12.1
million, respectively, pursuant to the contingent calls. As discussed in Note 1,
in January 1997, the Company acquired all of the limited  partnership  interests
it did not already own in Orion Atlantic.

     Orion 1 -- The fixed base price of Orion 1, excluding  obligations relating
to satellite performance, aggregated $227 million. In addition to the fixed base
price,  the  contract  required  payments  in lieu of a further  contract  price
increase,  aggregating approximately $44 million through 2006. Such payments are
due,  generally,   if  24  out  of  34  satellite   transponders  are  operating
satisfactorily.  Shortly after  acceptance of the satellite in January 1995, the
Company filed a warranty claim with the satellite  manufacturer  relating to one
transponder that was not performing in accordance with contract  specifications.
In August 1995, Orion Atlantic received a one time refund of $2.75 million which
was applied as a mandatory prepayment to the senior notes payable - banks.

     The  Company  believes  that  since  Orion  1  is  properly   deployed  and
operational,  based upon industry data and experience, payment of the obligation
mentioned above is highly probable and the Company capitalized the present value
of this  obligation  of  approximately  $14.8 million as part of the cost of the
satellite.  Payment of amounts  due under this  obligation  were  delayed  until
payment was permitted under the senior notes payable -- banks. The present value
was  estimated by  discounting  the  obligation  at 14% over the expected  term,
assuming  payment of the incentives  begins upon  expiration of the senior notes
payable -- banks in 2002.

     Redemption of STET Partnership Interest; Issuance of New Interest to Orion.
-- In November 1995 Orion  Atlantic  redeemed the limited  partnership  interest
held by STET (the "STET  Redemption") for $11.5 million,  including $3.5 million
of cash and $8.0 million in 12%,  promissory notes due through 1997. STET's firm
and  contingent  capacity  leases  remained in place until released by the Banks
under the Orion 1 Credit Facility. STET's existing contractual arrangements with
Orion Atlantic were modified in a number of respects,  including (i) a reduction
of  approximately  $3.5 million in amounts due by Orion  Atlantic to  Telespazio
S.p.A., an affiliate of STET, over a ten-year period under contracts relating to
the  construction of Orion 2, back-up  tracking,  telemetry and command services
through  a  facility  in Italy and  engineering  consulting  services,  (ii) the
establishment  of ground  operations and distribution  agreements  between Orion
Atlantic and Telecom Italia,  a subsidiary of STET,  relating to Italy,  and the
granting to Telecom Italia of exclusive marketing rights relating to Italy for a
period ending December 1998 conditioned  upon Telecom Italia  achieving  certain
sales  quotas,  and  (iii)  canceling  exclusive  ground  operations  and  sales
representation  agreements  between Orion Atlantic and STET (or its  affiliates)
relating to Eastern Europe.

     Orion  Atlantic  funded  the  STET  Redemption  by  selling  a new  limited
partnership interest to Orion for $8 million (including $3.5 million in cash and
$4.5 million in 12% promissory  notes due through 1997).  In connection with the
STET  redemption,  Orion agreed to indemnify  Telecom  Italia for payments which
were made in July 1995 of $950,000  and which would be made in the future  under
its firm and contingent capacity agreements with Orion Atlantic and posted a $10
million letter of credit to support such  indemnity.  The Company  accounted for
this  transaction  as an  acquisition  of a minority  interest and, as a result,
approximately  $3.1  million was  allocated to the cost of the Orion 1 satellite
and related equipment.

                                       57

<PAGE>



                           ORION NETWORK SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

3.   ORION ATLANTIC - (CONTINUED)

     During 1995,  Orion Atlantic  entered into  agreements with certain Limited
Partners (including the Company) under which the participating  Limited Partners
voluntarily  gave up their rights to receive  capacity under their firm capacity
agreements through January 1996. The participating Limited Partners continued to
make payments for such capacity but have the right to receive refunds from Orion
Atlantic out of cash  available  after  operating  costs and payments  under the
Credit  Facility.  At December 31, 1996,  Orion Atlantic  received $27.7 million
(excluding payments from the Company) under the firm capacity agreements subject
to refund,  which  amounts are  included in "Other  liabilities."  In  addition,
services revenue  included $4.1 million,  $6.0 million and $5.7 million in 1997,
1996 and 1995 from Limited Partners  pursuant to the firm capacity  commitments,
not subject to refund. In connection with the Exchange described in Note 1, such
rights were acquired by the Company.

4.   COMMITMENTS AND CONTINGENCIES

     Orion 1 -- In November 1995, a portion of the Orion 1 satellite experienced
an  anomaly  that  resulted  in  a  temporary  service   interruption,   lasting
approximately two hours, in the dedicated  capacity serving the European portion
of Orion  Atlantic's  services.  Full  service  to all  affected  customers  was
restored using redundant equipment on the satellite. The Company believes, based
on the data and the  Telesat  Report  (issued  by  Telesat  Canada,  independent
engineering  consultants dated November 14, 1995),  that,  because the redundant
component  is  functioning  fully  in  accordance  with  specifications  and the
performance  record of similar  components is strong,  the anomalous behavior is
unlikely to affect the expected  performance  of the  satellite  over its useful
life. Furthermore,  there has been no effect on the Company's ability to provide
services  to  customers.  However,  in the event  that the  currently  operating
component fails, Orion 1 would experience a significant loss of usable capacity.
In such event,  while the Company  would be  entitled to  insurance  proceeds of
approximately $47 million and could lease replacement capacity and function as a
reseller  with  respect  to such  capacity,  the loss of  capacity  would have a
material adverse effect on the Company.

     Orion 2 -- In July 1996,  the Company  signed a contract with Matra Marconi
Space for the construction and launch of Orion 2 (which was amended and restated
in January 1997) and in February 1997 commenced  construction of that satellite.
The contract  provides for delivery in orbit of Orion 2 by June 1999, for a firm
fixed price of $201 million,  excluding launch insurance and incentive payments.
Orion 2 will  expand the  Company's  European  coverage  and extend  coverage to
portions of the Commonwealth of Independent States, Latin America and the Middle
East.

     Orion  3  --  In  January  1997,  the  Company  entered  into  a  satellite
procurement  contract with Hughes Space for the construction and launch of Orion
3,  construction of which commenced in December 1996. The contract  provides for
delivery  in orbit of Orion 3 by December  1998,  for a firm fixed price of $208
million,  excluding launch insurance and incentive payments.  Orion 3 will cover
broad areas of the Asia Pacific region including China, Japan, Korea,  Southeast
Asia, Australia, New Zealand, Eastern Russia and Hawaii.

     In November 1996, Orion entered into a contract with DACOM Corp. ("DACOM"),
a Korean  communications  company,  under which DACOM will lease eight dedicated
transponders on Orion 3 for 13 years, in return for  approximately  $89 million,
which is payable over a period from December  1996 through six months  following
the lease commencement date for the transponders (which is scheduled to occur by
January  1999).  DACOM is to  deposit  funds  with  Orion in  accordance  with a
milestone  schedule.  As of December 31, 1997, Orion had received $22.25 million
from DACOM.  This amount is included in "Other  Liabilities".  Orion maintains a
$22.25 million letter of credit which will be released on August 1, 1998.  Orion
has an obligation  to maintain a letter of credit for seven months  beginning on
the lease  commencement  date in the amount of $44.75 million.  Prior to launch,
payments are subject to refund pending the successful launch and commencement of
commercial  operation  of Orion 3. DACOM  maintains a $54.75  million  letter of
credit securing substantially all of DACOM's remaining payments.

                                       58

<PAGE>



                           ORION NETWORK SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

4.   COMMITMENTS AND CONTINGENCIES - (CONTINUED)

     Litigation  --  On  November  9,  1996,   Orion  and  Skydata   Corporation
("Skydata")  executed a letter with respect to the settlement in full of pending
litigation  and  arbitration  related  to a  patent  dispute.  As  part  of  the
settlement,   Skydata  granted  Orion  (and  its  affiliates)  an  unrestricted,
world-wide  paid-up  license to make, have made, use or sell products or methods
under the patent and all other  corresponding  continuation and reissue patents.
Orion  is to pay  Skydata  $437,000  over a period  of two  years as part of the
settlement.

     Other -- Orion has entered into operating  leases,  principally  for office
space. Rent expense was $1,312,000, $915,000 and $735,000 during the years ended
December 31, 1997, 1996 and 1995, respectively.

     Future minimum lease payments are as follows:

                            1998 .....   $1,588,800
                            1999 .....    1,283,100
                            2000 .....      185,100
                            2001 .....       93,500
                            2002 .....       46,000
                            Thereafter      552,500
                                         ----------
                                         $3,749,000
                                         ==========


5.   LONG-TERM DEBT

     Long-term debt at December 31, 1997 and 1996 consists of the following:

<TABLE>
<CAPTION>
                                                                         DECEMBER 31,
                                                               --------------------------------
                                                                    1997              1996
                                                               ---------------  ---------------
<S>                                                            <C>              <C>            
Senior notes (net of unamortized discount of
  $4.9 million)                                                $   440,099,914  $            --
Senior discount notes (maturity value of $484 million).            292,336,605               --
Convertible junior subordinated debentures...........               50,000,000               --
Senior notes payable to banks..........................                     --      207,714,842
Notes payable - TT&C Facility..........................              6,021,601        6,956,624
Satellite incentive obligations........................              6,478,533       22,373,746
Notes payable - STET...................................                     --        5,550,000
Notes payable - limited partners.......................                     --        8,050,000
Other                                                                2,140,096        2,566,687
                                                               ---------------  ---------------
     Total long-term debt..............................            797,076,749      253,211,899
Less: current portion..................................              6,406,143       34,975,060
                                                               ---------------  ---------------
     Long-term debt less current portion...............        $   790,670,606  $   218,236,839
                                                               ===============  ===============
</TABLE>


                                       59


<PAGE>



                           ORION NETWORK SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

5.   LONG-TERM DEBT - (CONTINUED)

     Total interest  (including  commitment  fees and  amortization  of deferred
financing  costs)  incurred for the years ended December 31, 1997, 1996 and 1995
was $91.1, $27.8, and $26.0 million, respectively. Capitalized interest for 1997
was $7.3 million.  Aggregate annual  maturities of long-term debt consist of the
following (in thousands):

                           1998 .....   $  6,406,143
                           1999 .....      1,347,198
                           2000 .....      1,177,692
                           2001 .....      1,252,335
                           2002 .....      1,582,997
                           Thereafter    785,310,384
                                        ------------
                                        $797,076,749
                                        ============


     Senior Notes and Senior  Discount Notes -- On January 31, 1997, the Company
completed a $710  million  bond  offering  (the "Bond  Offering")  comprised  of
approximately  $445 million of Senior Note Units,  each of which consists of one
11.25% Senior Note due 2007 (a "Senior Note") and one Warrant to purchase 0.8463
shares of common stock, par value $.01 per share ("Common Stock") of the Company
(a "Senior Note Warrant"),  and approximately  $265.4 million of Senior Discount
Note Units, each of which consists of one 12.5% Senior Discount Note due 2007 (a
"Senior Discount Note," and together with the Senior Notes, the "Notes") and one
Warrant to  purchase  0.6628  shares of Common  Stock of the  Company (a "Senior
Discount  Note  Warrant  and  together  with  the  Senior  Note  Warrants,   the
"Warrants").  Interest on the Senior Notes is payable  semi-annually  in cash on
January  15 and July 15 of each  year,  commencing  July 15,  1997.  The  Senior
Discount Notes do not pay cash interest  prior to January 15, 2002.  Thereafter,
cash  interest  accrues  until  maturity  at an  annual  rate of  12.5%  payable
semi-annually on January 15, and July 15 of each year, commencing July 15, 2002.
The  exercise  price for the  Warrants is $.01 per share of Common  Stock of the
Company.  The Company made interest  payments of $22,806,250  and $25,031,250 in
July 1997 and January 1998 on the Senior Notes.  The  indentures  supporting the
Senior Notes and the Senior  Discount  Notes contain  certain  covenants  which,
among other things,  restrict  distributions to stockholders of the Company, the
repurchase  of equity  interests in the Company and the making of certain  other
investments and restricted payments,  the incurrence of additional  indebtedness
by the Company and its restricted  subsidiaries , the creation of liens, certain
asset sales,  transaction with affiliates and related  parties,  and mergers and
consolidations.  The  Company is in  compliance  with the  requirements  of such
indentures.

     Convertible  Junior  Subordinated  Debentures  -- On January 31,  1997,  in
connection  with the Financings  discussed in Note 1, the Company  completed the
sale of $60  million of its  convertible  junior  subordinated  debentures  (the
"Convertible  Debentures") to two investors,  British Aerospace  Holdings,  Inc.
("British  Aerospace")  and  Matra  Marconi  Space UK  Limited  ("Matra  Marconi
Space").  British Aerospace purchased $50 million of the Convertible  Debentures
and  Matra  Marconi  Space  purchased  $10  million  of  the  Convertible.   The
Convertible  Debentures mature in 2012, and bear interest at a rate of 8.75% per
annum to be paid semi-annually in arrears solely in Common Stock of the Company.
The Convertible  Debentures are  subordinated  to all other  indebtedness of the
Company, including the Notes. Matra Marconi Space converted their $10 million of
Convertible  Debentures and accrued interest into 735,292 shares of common stock
in December 1997.  Subsequent to year end, British Aerospace converted their $50
million of Convertible  Debentures and accrued interest into  approximately  3.6
million shares of common stock.

         Senior  Notes  Payable  to Banks - The  senior  notes  payable to banks
outstanding  under a credit facility prior to repayment as described below, bore
interest at 1.75% over the LIBOR. The Company entered into agreements with Chase
Manhattan  Bank, N.A. ( "Chase" ) for interest rate hedging  arrangements  which
fixed the maximum  interest rate through  November 1995 at 11.54%.  Thereafter a
self funding  interest rate cap  agreement  was in place  relating to a notional
amount declining

                                       60

<PAGE>




                           ORION NETWORK SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

5.   LONG-TERM DEBT - (CONTINUED)

every six months from $150 million effective  November 30, 1995 to $15.6 million
effective  March 31,  2001.  Under the terms of the cap  agreement,  when  LIBOR
equaled or exceeded 5.5% Orion Atlantic paid Chase a fee equal to 3.3% per annum
of the  notional  amount and received a payment from Chase in an amount equal to
the difference between the actual LIBOR rate and 5.5% on the notional amount. In
January  1997,  the Company used the net  proceeds of the Bond  Offering and the
Convertible  Debenture  Offering  to  repay  the  Orion 1  Credit  Facility  and
terminated  the  hedging  arrangement.  The loss on  termination  of the hedging
arrangement of $5.3 million is included in "Extraordinary loss on extinguishment
of debt."

     Note Payable -- TT&C  Facility -- In June 1995 upon  acceptance of the TT&C
Facility,  the Company  refinanced  $9.3 million from  General  Electric  Credit
Corporation as a seven-year  term loan,  payable  monthly.  The interest rate is
fixed at 13.5%.  The TT&C debt is secured by the TT&C  Facility,  the  Satellite
Control  System  Contract and Orion  Atlantic's  leasehold  interest in the TT&C
Facility land. The TT&C financing agreement contains customary  representations,
warranties and covenants regarding certain activities of the Company.

     Satellite  Incentive  Obligations -- The obligations  relating to satellite
performance  have been  recorded at the present  value  (discounted  at 14%, the
Company's estimated  incremental  borrowing rate for unsecured financing) of the
required payments commencing at the originally  scheduled maturity of the senior
notes  payable  to banks and  continuing  through  2006.  Under the terms of the
construction  contract,  payment of the obligation is delayed until such time as
payment is  permitted  under the senior  notes  payable to banks.  During  1997,
payments aggregating $18.6 million were made pursuant to this obligation.

     Notes  Payable  -- STET -- In  connection  with  the STET  Redemption,  the
Company issued $8 million of promissory notes bearing interest at 12% per annum.
Payments  were due as  follows:  $2.5  million  plus  accrued  interest  paid on
December 31, 1996; $3.5 million plus accrued interest on the earlier of December
31,  1997 or the  refinancing  of the senior  notes  payable  to banks;  and the
remaining  $2.0  million in monthly  installments  of $0.2  million plus accrued
interest beginning January 1997. At December 31, 1997, the $8 million promissory
notes issued in connection with the STET Redemption have been repaid.

     Notes Payable -- Limited  Partners -- In January 1997,  the Company  issued
Series C Convertible Preferred Stock in exchange for the Preferred Participation
Units (PPUs) aggregating $8.1 million due to certain former Limited Partners for
development  of Orion  Atlantic's  network  services  business.  Holders of PPUs
earned interest on aggregate amounts drawn at the rate of 30% per annum.

Interest payable at December 31, 1996 was $5.9 million and is included in "Other
liabilities".

6.   REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

     The Company has authorized  1,000,000  shares of $0.01 par value  preferred
stock.

    Redeemable Preferred Stock

     In June  1994,  Orion  issued  11,500  shares  of  Series  A 8%  Cumulative
Redeemable Convertible Preferred Stock at $1,000 per share and granted an option
to purchase an additional 3,833 shares of similar  preferred stock at $1,000 per
share. Dividends on preferred stock accrue at 8% per year and are payable as and
when declared.  Orion may redeem the preferred stock at the amount invested plus
accrued and unpaid dividends. Upon such a redemption, the preferred stockholders
would  receive a warrant  to  acquire at $8.50 per share the number of shares of
common stock into which the preferred stock was  convertible.  The 11,500 shares
issued are convertible  into 1,352,941 shares of common stock ($8.50 per share).
Upon  conversion  any  accrued and unpaid  dividends  are  forfeited.  Orion may
require  conversion of the preferred stock if certain  conditions are met. After
Orion  issued  preferred  stock  (along  with  warrants  and  options to make an
additional  investment)  in June 1994, the Directors and affiliates of Directors
who  purchased  common  stock in December  1993 and the  institutions  and other
investors  who purchased  common stock in June 1994 each  exercised its right to
receive

                                       61

<PAGE>



                           ORION NETWORK SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

6.   REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY - (CONTINUED)

preferred  stock  (along  with  warrants  and  options  to  make  an  additional
investment)  in exchange  for the common  stock  previously  acquired  and Orion
issued an  aggregate  of 3,000  shares of Series A  Preferred  Stock and related
options for 1,000 shares to such persons and  entities.  The 3,000 shares issued
are convertible  into 352,941 shares of common stock ($8.50 per share).  Through
December 31, 1997,  7,567 shares of preferred  stock were converted into 890,235
shares of common stock.  The remaining 6,933 shares  outstanding are convertible
into 815,647 shares of common stock at December 31, 1997.

     The  preferred  stock  has a  liquidation  preference  equal to the  amount
invested plus accrued and unpaid dividends.  Preferred stockholders are entitled
to vote on an  as-converted  basis  and have the right to put the stock to Orion
upon a merger,  change of  control  or sale of  substantially  all assets at the
greater of liquidation  value or fair value. The put expires upon the completion
of a qualified public equity offering, as defined. If the preferred stock is not
previously  redeemed or converted to common stock,  the  preferred  stockholders
also have the right to put the stock to Orion as follows:  33 1/3%  beginning in
June 1999; 66 2/3% beginning in June 2000; and 100% beginning in June 2001.

     In June 1995,  certain  Directors,  affiliates  of  Directors,  and certain
holders of Series A Preferred Stock purchased 4,483 shares of Series B Preferred
Stock for  approximately  $4.5 million.  This purchase was pursuant to an option
granted in June 1995 to purchase $1 of preferred  stock  similar to the Series A
Preferred  Stock for each $3 of Series A Preferred Stock purchased in June 1994,
except that such similar  preferred  stock would be convertible at any time with
Common  Stock at a price  within a range of $10.20 to $17.00 per share of common
stock based upon when the option is exercised.  The Series B Preferred Stock has
rights,  designations  and  preferences  substantially  similar  to those of the
Series A Preferred Stock, and is subject to similar  covenants,  except that the
Series B Preferred  Stock is convertible  into 439,510 shares of Common Stock at
an  initial  price  of  $10.20  per  share,  subject  to  certain  anti-dilution
adjustments,  and  purchases  of Series B Preferred  Stock did not result in the
purchaser receiving any rights to purchase additional  preferred stock.  Through
December 31, 1997,  2,424 shares of preferred  stock were converted into 237,647
shares of common stock.  The remaining 2,059 shares  outstanding are convertible
into 201,862 shares of common stock at December 31, 1997.

     In  January  1997,  Orion  issued  123,172  shares of  Series C  Cumulative
Redeemable  Preferred Stock to British Aerospace  Communications,  Inc., COM DEV
Satellite Communications Limited, Kingston Communications International Limited,
Lockheed  Martin  Commercial  Launch  Services,  Inc.,  MCN  Sat US,  Inc.,  and
Trans-Atlantic  Satellite, Inc. in exchange for their Orion Atlantic partnership
interests.  Dividends  on the  preferred  stock  accrue  at 6% per  year and are
distributable in the Company's common stock calculated based on the market price
of such stock under a formula provided in the Certificate of  Designations.  The
shares are convertible into approximately 7 million shares ($17.50 per share) of
the  Company's  common  stock.  Through  December  31,  1997,  40,531  shares of
preferred stock,  including  dividends,  were converted into  approximately  2.4
million shares of common stock. Series C Cumulative  Preferred Stock is recorded
net of deferred  offering  costs of  approximately  $3.3  million.  The Series C
Cumulative Preferred Stock is subject to mandatory redemption at par value in 25
years. The difference  between in carrying value and par value is being accreted
over such period.

     The  preferred  stock  has a  liquidation  preference  equal to the  amount
invested plus accrued and unpaid dividends.  Preferred stockholders are entitled
to vote on an  as-converted  basis  and have the right to put the stock to Orion
upon a merger,  change of  control  or sale of  substantially  all assets at the
greater of liquidation value or fair value.

     Stockholders' Equity

     1987  Employee  Stock  Option Plan - Under the 1987  Employee  Stock Option
Plan,  1,470,588  shares of common stock are reserved for issuance upon exercise
of options granted. Shares of common stock may generally be purchased under this
plan at prices not less than the fair market  value,  as determined by the Board
of Directors, on the date the option is granted.

                                       62

<PAGE>



                           ORION NETWORK SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


6.   REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY - (CONTINUED)

     Stock options outstanding at December 31:

<TABLE>
<CAPTION>
                                         1997             1996             1995
                                     --------------  ---------------  ---------------
<S>                                  <C>             <C>              <C>            
Range of exercise price...........   $ 8.16 - 12.29  $  8.16 - 12.24  $  5.44 - 12.24

Outstanding at  beginning of year          911,663          971,469           804,056
Granted during year...............         400,670          122,750           380,069
Exercised.........................         (81,383)         (37,629)          (60,928)
Canceled                                   (56,640)        (144,927)         (151,728)
                                     --------------  ---------------  ---------------
Outstanding at end of year........       1,174,310          911,663           971,469
                                     ==============  ===============  ===============
</TABLE>


     In November  1993,  stock  options for 95,588  shares of common  stock were
granted to key executives  which may be exercised  only upon the  achievement of
certain business and financial objectives.  At December 31, 1995, the executives
had  earned  the  right  to  exercise  40,441  of  these  options  based  on the
achievement of such objectives. The remaining options were canceled during 1996.

     Stock options vest annually over a one to five-year period. All options are
exercisable  up to seven  years  from  the date of  grant.  The  Company's  1987
Employee  Stock Option Plan expired in 1997. No further shares are available for
grant under this plan.  There were 506,803 and 429,265  options  exercisable  at
December 31, 1997 and 1996, respectively.

     In July 1996, the Company  granted,  subject to shareholder  approval,  the
Chairman of the Executive  Committee  100,000 options at $9.83 per share.  These
options vested as follows, 50,000 on January 17, 1997 and 50,000 upon successful
completion  of either a  refinancing  of the Orion 1  satellite,  financing  for
construction,  launch  and  insurance  for  Orion 2 or Orion 3 or a  substantial
acquisition or relationship with a strategic  partner.  These  requirements were
met in January 1997.

     Non-Employee  Director  Stock  Option  Plan -- In  1996,  Orion  adopted  a
non-employee  director  stock option plan.  Under this plan,  380,000  shares of
common stock are reserved for issuance.  During 1997,  there were 80,000 options
granted  pursuant  to this  plan at $9.60  per  share.  At  December  31,  1997,
aggregate options  outstanding  pursuant to this plan totaled 270,000, of which,
180,000 were exercisable at prices ranging from $8.49 to $12.53 per share.

     1997  Employee  Stock Option Plan - In 1997,  Orion  adopted a second stock
option plan.  Under this plan, as amended,  1,300,000 shares of common stock are
reserved for issuance upon exercise of options  granted.  Shares of common stock
may be  purchased  under  this  plan at prices  not less than the fair  value as
determined by the Board of Directors, on the date the option is granted.

     Compensation expense relating to these plans was not significant.


                                       63

<PAGE>



                           ORION NETWORK SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


6.   REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY - (CONTINUED)

     Stock options outstanding at December 31:

                                                         1997

                  Range of exercise price ........   $9.30 - 17.06
                                                     =============

                  Outstanding at beginning of year              --
                  Granted during year ............         556,000
                  Exercised ......................              --
                  Canceled .......................          (4,000)
                                                     -------------
                  Outstanding at end of year .....         552,000
                                                     =============



     There were 62,500 options exercisable at December 31, 1997.

     The Company has elected to continue to follow  Accounting  Principles Board
Opinion  No.  25,  "Accounting  for Stock  Issued to  Employees"  ("APB 25") and
related  Interpretations  in  accounting  for its  employee  stock  based  award
programs,  because the alternative fair value accounting provided for under FASB
Statement No. 123,  "Accounting for Stock Based Compensation" ("SFAS 123") which
is effective for awards after  January 1, 1996 requires use of option  valuation
models that were not developed for use in valuing employee stock options.  Under
APB 25, when the exercise price of the employee award equals the market price of
the  underlying  stock on the date of grant,  as has been the case  historically
with the Company's awards, no compensation expense is recognized.

     Pro forma  information  regarding  net  income  and  earnings  per share is
required by SFAS 123, and has been  determined  as if the Company had  accounted
for its stock  options under the fair value method of that  statement.  The fair
value  of  these  options  was  estimated  at the  date  of the  grant  using  a
Black-Scholes valuation model with the following assumptions:

                                        1997             1996             1995
                                      ---------        ---------       ---------
Risk-free interest rate.............      6.5%            6.5%            6.5%
Expected dividend yield.............      0.0%            0.0%            0.0%
Expected life of option.............  6.5 YEARS        5.8 years       5.8 years
Volatility of the Company's stock...      69%              68%             68%



     For purposes of adjusted pro forma disclosures, the estimated fair value of
the options is amortized to expense over the option's vesting period. The effect
of applying SFAS 123 on pro forma net loss is not necessarily  representative of
the effects on reported net loss for future  years due to,  among other  things,
(1) the vesting period of the stock options and the (2) fair value of additional
stock options in future years. The Company's  adjusted pro forma information for
the years ended December 31, are as follows:

                                           1997          1996        1995
                                        ---------    -----------   ---------- 
                                               (Net loss in thousands)

Adjusted pro forma net loss ........... $(110,703)   $   (28,031)  $  (27,306)
                                        =========    ===========   ==========
Adjusted pro forma net loss per share$  $(10.03)     $     (2.68)  $    (3.11)
                                        =========    ===========   ==========


                                       64

<PAGE>



                           ORION NETWORK SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


6.   REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY - (CONTINUED)

     401(k) Profit Sharing Plan -- In September  1996,  Orion amended the 401(k)
profit  sharing  plan.  Under  this  plan,  100,000  shares of common  stock are
reserved  for  issuance  as  the  Company's   discretionary  match  of  employee
contributions.  The Company's matching  contributions may be made in either cash
or in the  equivalent  amount of the Company's  common stock.  During 1997,  the
Company issued 11,286 shares for the 1996 plan year.

     Stock Purchase Plan -- In September  1996,  Orion adopted an employee stock
purchase plan. Under this plan,  500,000 shares of common stock are reserved for
issuance.  Shares of common stock are purchased  under this plan through payroll
deduction.  The purchase price of each share of common stock purchased under the
plan will be 85% of the fair market value of the common stock on the measurement
date. During 1997, the Company issued 27,731 shares pursuant to the Plan.

     Stock Warrants - In November 1996,  Orion granted 50,000  warrants to DACOM
to  purchase  shares  of  common  stock  at $14  per  share.  The  warrants  are
exercisable for a six month period  beginning six months after the  commencement
date, as defined in the Joint  Investment  Agreement,  and ending one year after
the  commencement  date and will terminate at that time or at any time the Joint
Investment  Agreement is terminated.  The fair value of the warrants at the date
of issue was $300,000 and was estimated using a Black Scholes valuation model.

     Warrants outstanding at December 31:

<TABLE>
<CAPTION>
                                             1997             1996            1995
                                         -------------   -------------   -------------
<S>                                      <C>             <C>             <C>     
  Range of exercise price .............. $0.01 - 14.00   $9.79 - 14.00   $9.79 - 12.79
                                         =============   =============   =============
  Outstanding at beginning of year .....    142,115            553,768         735,769
  Granted during year ..................    697,400             50,000              --
  Exercised ............................    (96,159)                --              --
  Canceled .............................     (2,806)          (461,653)       (182,001)
                                         -------------   -------------   -------------
  Outstanding at end of year ...........    740,550            142,115         553,768
                                         =============   =============   =============
</TABLE>


     There were 690,550 and 92,115 warrants exercisable at December 31, 1997 and
1996, respectively.

     The holders of  preferred  stock also hold  warrants to purchase  1,017,509
shares of common stock at the conversion  price of such preferred  stock.  These
warrants  do  not  become  exercisable  unless  Orion  exercises  its  right  to
repurchase the preferred stock at the liquidation value, plus accrued and unpaid
dividends.

     In January  1997,  the  Company  issued  Senior  Note  Warrants  and Senior
Discount  Note Warrants to acquire  376,608 and 320,792  shares of common stock,
respectively  at $.01 per  share in  connection  with  the  Bond  Offering.  The
warrants were not exercisable  prior to six months after the closing date of the
Bond Offering and became separately  transferable from the Notes six months from
date of issuance.  The  estimated  fair value of the warrants  aggregating  $9.6
million was  allocated  $5.2  million to Senior Notes and $4.4 million to Senior
Discount  Notes as debt  discount.  At December 31, 1997,  6,850  warrants  were
converted into 5,797 shares of common stock.

     Shares Reserved for Issuance - The Company has 14,036,809  shares of common
stock at December 31, 1997 reserved for issuance  upon  conversion of debentures
and preferred  stock,  exercise of outstanding  stock options and warrants,  and
common stock issued under the stock purchase and 401(k) profit sharing plans.

                                       65

<PAGE>



                           ORION NETWORK SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


7.    FAIR VALUES OF FINANCIAL INSTRUMENTS

     Other than  amounts due under the Senior Notes and Senior  Discount  Notes,
Orion  believes  that the carrying  amount  reported in the balance sheet of its
other financial assets and liabilities approximates their fair value at December
31, 1997. The fair value of the Company's  Senior Notes and Senior  Discount was
estimated to be approximately  $511.8 million and $377.5 million,  respectively.
Based upon the conversion  value at December 31, 1997 of the  underlying  common
stock,  the  fair  value  of  the  Company's   redeemable  preferred  stock  was
approximately $102.8 million.

8.   PENDING ACQUISITION OF THE COMPANY BY LORAL

     On October 7, 1997, Orion, Loral Space & Communications  Ltd. ("Loral") and
Loral Satellite Corporation,  a wholly-owned subsidiary of Loral ("Merger Sub"),
entered into an  Agreement  and Plan of Merger (as amended on February 11, 1998,
the "Merger  Agreement"),  pursuant to which Merger Sub will merge with and into
the  Company,  with the  Company  being the  surviving  corporation  and thereby
becoming a wholly-owned subsidiary of Loral (the "Loral Merger").

     The  Merger  Agreement  provides  that (i)  each  share  of  Common  Stock,
excluding treasury shares and shares owned by Loral or its subsidiaries, will be
converted  into and  exchanged for the right to receive the number of fully paid
and  nonassessable  shares of common stock,  par value $.01 per share,  of Loral
("Loral Common Stock") equal to the Exchange  Ratio (as described  below),  (ii)
each  share of the  Company's  Series  A 8%  Cumulative  Redeemable  Convertible
Preferred  Stock  (the  "Series  A  Preferred  Stock"),  Series B 8%  Cumulative
Redeemable  Convertible  Preferred  Stock (the  "Series B  Preferred  Stock" and
together with the Series A Preferred  Stock, the "Senior  Preferred  Stock") and
Series C  Preferred  Stock (the Series C  Preferred  Stock and Senior  Preferred
Stock are  hereinafter  referred to as the  "Senior  Preferred  Stock")  will be
converted  into and  exchanged for the right to receive the number of fully paid
and  nonassessable  shares of Loral  Common  Stock equal to the  Exchange  Ratio
multiplied  by the  number of shares of Common  Stock  into  which such share of
Preferred Stock was convertible  immediately  prior to the Effective Time of the
Loral Merger,  (iii) each  outstanding  stock option to purchase shares of Orion
Common Stock will be converted into an option to acquire the number of shares of
Loral  Common  Stock equal to the  Exchange  Ratio  multiplied  by the number of
shares of Common  Stock for which  such  option was  exercisable,  and (iv) each
outstanding  warrant to purchase  shares of Orion Common Stock will be converted
into a warrant to acquire  the number of shares of Loral  Common  Stock equal to
the Exchange Ratio  multiplied by the number of shares of Common Stock for which
such warrant was exercisable.

Pursuant to the terms of the Merger Agreement,  the Exchange Ratio is determined
as follows:

     (i) if the average of the  volume-weighted  average trading prices of Loral
Common Stock for the twenty  consecutive  trading days on which trading of Loral
Common  Stock  occurs  ending the tenth  trading  day  immediately  prior to the
closing  date for the Loral  Merger  (the  "Determination  Price")  is less than
$24.458 but greater than $16.305, the Exchange Ratio is the quotient obtained by
dividing $17.50 by the Determination Price,

     (ii) if the  Determination  Price is equal to or greater than $24.458,  the
Exchange Ratio is 0.71553 and

     (iii) if the  Determination  Price is equal to or less  than  $16.305,  the
Exchange Ratio is 1.07329.

     A meeting of Orion's  shareholders has been scheduled for March 20, 1998 to
vote to approve the Loral Merger.  The Company expects the Loral Merger to close
following a favorable shareholder vote, however,  there can be no assurance that
the Loral  Merger will be  consummated.  Although  not a condition  of the Loral
Merger,  Orion  intends  to  seek  an  Internal  Revenue  Service  ruling  as to
eligibility for a tax-free exchange.

     In the event the Loral Merger is  completed,  the Company will be obligated
to make an offer to purchase all  outstanding  Senior and Senior  Discount Notes
(the "Notes") at a purchase  price equal to 101% of their  principal or accreted
value,  plus accrued and unpaid interest  therein to the repurchase  date. Since
the Notes have traded in recent periods at prices above 101% of their  principal
amount, the Company does not anticipate that the holders of a material principal
amount of the Notes will accept the repurchase offer.

                                       66

<PAGE>



                           ORION NETWORK SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


8.   PENDING ACQUISITION OF THE COMPANY BY LORAL - (CONTINUED)

     In connection with the Merger Agreement,  certain principal stockholders of
Orion and  members of  Orion's  management  have  agreed to vote in favor of the
Loral Merger and have granted to Loral the right to purchase their securities in
Orion  for a  price  equal  to the  Loral  Merger  consideration  under  certain
circumstances.

9.   CONDENSED FINANCIAL INFORMATION OF ORION

     Presented below are condensed  balance sheets of Orion (parent company only
basis) at December 31, 1997 and 1996.  All material  contingencies,  obligations
and guarantees of Orion have been separately disclosed in the preceding notes to
the financial statements.


<TABLE>
<CAPTION>
             CONDENSED BALANCE SHEETS OF ORION NETWORK SYSTEMS, INC.

                                                               DECEMBER 31,
                                                     ------------------------------
                                                          1997             1996
                                                     -------------    -------------
<S>                                                  <C>              <C>          
ASSETS
Current assets:
  Cash and cash equivalents ......................   $        --      $  26,564,562
  Restricted assets ..............................      50,064,014             --
  Receivable from Orion Atlantic .................            --            253,088
  Other current assets ...........................            --            766,784
                                                     -------------    -------------
       Total current assets ......................      50,064,014       27,584,434
Restricted and segregated assets .................     284,432,961             --
Investment in and advances to subsidiaries .......     460,571,744      (12,088,208)
Other assets .....................................      42,021,096       10,590,071
                                                     -------------    -------------
       Total assets ..............................   $ 837,089,815    $  26,086,297
                                                     =============    =============
LIABILITIES AND STOCKHOLDERS' deficit
Current liabilities:
  Notes and interest payable to Orion Atlantic ...   $        --      $   2,327,427
  Interest payable ........................... ...      24,768,229             --
  Accounts payable and accrued liabilities .......            --          2,828,616
                                                     -------------    -------------
       Total current liabilities .................      24,768,229        5,156,043
Long term debt ...................................     782,436,519            7,053
Other liabilities ................................            --            457,203
Redeemable preferred stock .......................      76,734,212       20,902,366
Stockholders' deficit ............................     (46,849,145)        (436,368)
                                                     -------------    -------------
       Total liabilities and stockholders' deficit   $ 837,089,815    $  26,086,297
                                                     =============    =============
</TABLE>


                                       67

<PAGE>



                           ORION NETWORK SYSTEMS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

9.   CONDENSED FINANCIAL INFORMATION OF ORION - (CONTINUED)

        CONDENSED STATEMENTS OF OPERATIONS OF ORION NETWORK SYSTEMS, INC.

<TABLE>
<CAPTION>
                                                                          YEAR ENDED DECEMBER 31,
                                                             1997                  1996                   1995
                                                       ---------------       ---------------        --------------- 
<S>                                                    <C>                   <C>                    <C>            
Services revenue.....................................  $            --       $        34,000        $            --
Operating expenses and other income:
   General and administrative........................        2,170,102             3,832,286              3,171,305
   Interest expense (income), net....................       57,069,304            (1,883,719)            (1,834,589)
                                                       ---------------       ---------------        --------------- 
   Total operating expenses and other income.........       59,239,406             1,948,567              1,336,716
Equity in net losses of subsidiaries.................       46,500,608            25,280,843             25,578,462
                                                       ---------------       ---------------        --------------- 
Net loss.............................................  $  (105,740,014)      $   (27,195,410)       $   (26,915,178)
                                                       ===============       ===============        =============== 
</TABLE>


        CONDENSED STATEMENTS OF CASH FLOWS OF ORION NETWORK SYSTEMS, INC.

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED DECEMBER 31,
                                                                    1997                  1996                  1995
                                                               ---------------        --------------        --------------
<S>                                                            <C>                    <C>                  <C>             
NET CASH USED IN OPERATIONS................................    $   (22,806,250)       $   (4,046,446)      $    (4,107,237)

INVESTING ACTIVITIES:
  Advances to subsidiaries.................................       (407,092,800)          (15,528,710)           (8,664,024)
  Capital expenditures.....................................                                 (504,729)             (597,698)
  Increase in restricted and segregated assets ............       (406,937,388)                   --                    --
  Release of restricted and segregated assets .............         90,500,480                    --                    --
                                                               ---------------        --------------        --------------
  Net cash used in investing activities....................       (723,529,708)          (16,033,439)           (9,261,722)

FINANCING ACTIVITIES:
  Proceeds from issuance of debt, net                              744,274,780                    --                    --
  Proceeds from issuance of redeemable preferred stock.....                 --                    --             4,483,001
  Proceeds from issuance of common stock...................          2,152,668               343,120            51,974,436
  PPU funding..............................................                 --                    --              (455,000)
  Repayment of notes payable...............................                 --            (2,496,300)              (37,792)
  Purchase of treasury stock ..............................            (91,490)                   --                    --
                                                               ---------------       ---------------        ---------------
                                                                                           

  Net cash (used in) provided by financing activities......        746,335,958            (2,153,180)           55,964,645
                                                                   -----------            ----------            ----------
  Net (decrease) increase in cash and cash equivalents.....                 --           (22,233,065)           42,595,686
Cash and cash equivalents at beginning of year.............                 --            48,797,627             6,201,941
                                                               ---------------        --------------        --------------
Cash and cash equivalents at end of year...................    $            --        $   26,564,562        $   48,797,627
                                                               ===============        ==============        ==============
</TABLE>


     Basis of presentation -- In these parent  company-only  condensed financial
statements,  Orion's investment in subsidiaries is stated at cost less equity in
the losses of subsidiaries since date of inception or acquisition. Orion Network
Systems, Inc. is presented for 1997 and Orion Oldco Services,  Inc. is presented
for 1996 and 1995,  as a result of the Exchange,  the Merger and the  financings
consummated  January  31,  1997  all  described  in  Note 1 of the  Consolidated
Financial Statements.

                                       68

<PAGE>



                           ORION NETWORK SYSTEMS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)


10.  PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

     The  following  pro forma  condensed  consolidated  statement of operations
gives  effect,  as of  January  1,  1997,  to the  Exchange,  the Merger and the
Financings  consummated  on January 31, 1997,  all as described in Note 1 to the
Consolidated Financial Statements and related transactions.

     The unaudited pro forma condensed consolidated statement of operations does
not purport to present the actual  results of  operations of the Company had the
Transactions in fact occurred on the date specified, nor is it indicative of the
results of operations that may be achieved in the future.

            PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
                                                                     YEAR ENDED
                                                                  DECEMBER 31, 1997
                                                                  -----------------
                                                                   (In thousands)
<S>                                                               <C>        
Service revenue ...........................................       $    72,741
Operating expenses ........................................           116,239
Other expense (income) ....................................            64,601
                                                                  -----------
Net loss ..................................................          (108,099)
Preferred stock dividend and accretion, net of forfeitures             (6,687)
                                                                  -----------
Net loss attributable to common stockholders ..............          (114,786)
                                                                  ===========
Net loss per common share .................................             (9.86)
                                                                  ===========
</TABLE>

11.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following is a summary of the quarterly  results of operations  for the
years ended December 31, 1997 and 1996 (in thousands except per share data):

<TABLE>
<CAPTION>

                                            MARCH 31,              JUNE 30,           SEPTEMBER 30,        DECEMBER 31,
                                        ---------------          -----------         --------------       -------------
<S>                                     <C>                      <C>                 <C>                  <C>       
1997
  Revenues......................        $    20,233              $   16,687          $   17,619           $   18,202
  Loss from operations..........             (8,317)                (10,915)            (11,270)             (12,579)
  Net loss......................            (25,984)                (24,745)            (27,510)             (27,501)
  Net loss per share............            (2.48)                   (2.42)              (2.63)               (2.11)
                                                                            
1996                                                                        
  Revenues......................        $     7,646              $   10,123          $   12,247           $   11,831
  Loss from operations..........            (10,155)                 (8,963)             (7,151)             (10,084)
  Net loss......................             (7,251)                 (6,760)             (5,796)              (7,388)
  Net loss per share............             (0.70)                  (0.65)              (0.55)               (0.72)
                                                                    
</TABLE>

                                       69

<PAGE>




ITEM 9. CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  AND  ACCOUNTING  AND
        FINANCIAL DISCLOSURES.

         None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The  following  are the current  Directors  and  Executive  Officers of the
Company.  Upon closing of the Loral  Merger,  all  Directors of the Company will
resign and new Directors will be appointed by Loral.

<TABLE>
<CAPTION>
                                                                                     TERM EXPIRES
----------------------  -------  -----------------------------------------------  ------------------
         NAME             AGE                  POSITION WITH ORION                   (DIRECTORS)
<S>                       <C>                                                            <C> 
-----------------------
Gustave M. Hauser.....    69     Chairman, Director                                      1998

W. Neil Bauer.........    51     President and Chief Executive Officer                   1999
                                 Director (Principal Executive Officer)

David J. Frear........    41     Senior Vice President, Chief Financial Officer           --
                                 and Treasurer (Principal Financial Officer
                                 and Principal Accounting Officer)

Richard H. Shay.......    57     Senior Vice President, Law  and Administration           --
                                 and Secretary

Denis Curtin..........    59     Senior Vice President and General Manager,               --
                                 Engineering, Operations and Technology

Han C. Giner..........    59     Vice President of Orion and President,                   --
                                 Orion Network Systems-Asia Pacific, Inc.

Richard J. Brekka.....    37     Director                                                2000
Warren B. French, Jr..    74     Director                                                2000
Barry Horowitz........    54     Director                                                1998
Sidney S. Kahn........    61     Director                                                1999
John G. Puente........    68     Director                                                1998
W. Anthony Rice.......    46     Director                                                2000
John V. Saeman........    62     Director                                                1998
Robert M. Van Degna...    54     Director                                                1999
</TABLE>


                                       70


<PAGE>




BACKGROUND OF DIRECTORS AND EXECUTIVE OFFICERS

     Information with respect to the business experience and the affiliations of
the directors and executive officers of Orion is set forth below.

     Gustave M. Hauser has been  Chairman of Orion  since  January  1996 and has
been a director of Orion since December  1982.  Since 1983, he has been Chairman
and Chief Executive  Officer of Hauser  Communications,  Inc., an investment and
operating  firm   specializing   in  cable   television  and  other   electronic
communications.  From  1973 to 1983 he served as  Chairman  and Chief  Executive
Officer  of  Warner-Amex  Cable  Communications,  Inc.  (formerly  Warner  Cable
Communications,  Inc.), a major  multiple  system  operator of cable  television
systems and originator of satellite delivered video programming. He is a trustee
of the  Museum  of  Television  and  Radio.  He is a past Vice  Chairman  of the
National  Cable  Television  Association,  and from 1970 to 1977 he  served,  by
appointment of the President of the United States, as a director of the Overseas
Private Investment Corporation.

     W. Neil Bauer has been  President  of Orion since March 1993,  and has been
Chief  Executive  Officer  and a director  since  September  1993.  From 1989 to
February 1993, Mr. Bauer was employed by GE American Communications, Inc., where
he served as Senior Vice President and General Manager of Commercial Operations.
Prior  to  1989,  Mr.  Bauer  was  Chief   Financial   Officer  of  GE  American
Communications,  Inc. and later head of  commercial  sales.  He held several key
financial  planning  positions  at GE/RCA  from 1984  through  1986  focused  on
operational  and  business  analysis of diverse  business  units  including  all
communications   units.   From   1974-1983,   he  was  employed  by  RCA  Global
Communications,  an international  record carrier.  During this period,  he held
several  financial and  operational  positions and was responsible for financial
and business planning.

     David J. Frear has been Vice President and Chief Financial Officer of Orion
since  November  1993,  Treasurer  of Orion since  January  1994 and Senior Vice
President  since the second  quarter of 1997.  From September 1990 through April
1993, Mr. Frear served as Vice President and Chief Financial Officer of Millicom
Incorporated, an international  telecommunications service company. From January
1988 to  September  1990,  Mr. Frear held  various  positions in the  investment
banking  department  at Bear,  Stearns & Co. Inc. Mr. Frear  received his CPA in
1979.

     Richard H. Shay has been  Secretary  of Orion since  January  1993,  a Vice
President  from April 1992 until  becoming  Senior Vice  President in the second
quarter of 1997.  From July 1981 until  September 1985, Mr. Shay served as Chief
Counsel  to  the  National  Telecommunications  and  Information  Administration
("NTIA") of the U.S.  Department of Commerce and then as Deputy General  Counsel
to the  Department,  where  he was  responsible  for the  legal  matters  of the
Department's  agencies.  In his capacity as Chief Counsel to NTIA, Mr. Shay also
served as Acting Director of its Office of International  Policy,  served on the
official U.S. delegation to the 1982 Nairobi  Plenipotentiary  Conference of the
ITU and was involved in preparation for the 1983 ITU Direct Broadcast  Satellite
World Administrative Radio Conference.

     Denis J. Curtin is Senior Vice President and General Manager,  Engineering,
Operations  and  Technology.  He joined the  Company in  September  1988 as Vice
President,   Engineering.   He  previously  was  Senior  Director  of  Satellite
Engineering of COMSAT's Systems Division. While at COMSAT, Dr. Curtin served for
over 21 years in the systems engineering,  program and engineering management of
both domestic and international  satellite  systems.  He has an MS in Physics, a
Ph.D. in Mechanical Engineering, and has published numerous papers on solar cell
and  solar  array  technology,   is  the  editor  of  the  Trends  in  Satellite
Communications  and is a Fellow of the American  Institute of  Astronautics  and
Aeronautics.

     Hans C. Giner became President of Orion Network Systems-Asia Pacific, Inc.,
Orion's  subsidiary  devoted to pursuing  construction and launch of a satellite
covering  the Asia  Pacific  region,  in the  fourth  quarter of 1995 and a Vice
President  of  Orion in the  first  quarter  of  1996.  Mr.  Giner  served  as a
consultant  to Orion from October 1995 through  January 1996 relating to similar
matters.   Prior  thereto,  he  held  senior  positions  in  the  satellite  and
telecommunications  industries for more than 20 years. Most recently, from April
1994 through September 1995 he served as President of Stellar One Corporation, a
high-tech company  designing,  manufacturing  and distributing  technologies for
telecommunications  groups,  particularly  local telephone and cable  television
companies.  Prior to that, from November 1987 through March 1994, Mr. Giner held
several  positions for, and  ultimately  served as president and CEO of Millisat
Holdings,  Inc., a member of the Millicom Group,  with worldwide  responsibility
for development of media and telecommunications properties, including broadcast,
cable and wireless television.

                                       71

<PAGE>




     Richard J.  Brekka has been a director  of Orion  since June 1994.  He is a
Managing  Partner of MWI and Partners and a Senior Managing  Director of Dolphin
Communications.   He  was  a  Managing  Director  of  CIBC  Wood  Gundy  Capital
("CIBC-WG"), the merchant banking division of Canadian Imperial Bank of Commerce
("CIBC") and was a Director and the President of CIBC Wood Gundy Ventures, Inc.,
an indirect  wholly owned  subsidiary of CIBC until June 1997. Mr. Brekka joined
CIBC-WG in February 1992. Prior to joining CIBC-WG, Mr. Brekka was an officer of
Chase Manhattan  Bank's merchant banking group from February 1988 until February
1992.

     Warren B. French,  Jr. has been a director of Orion since  August 1988.  He
was  President  and a director  of  Shenandoah  Telephone  Company of  Edinburg,
Virginia  from  1973  to  1988  and  President  and  a  director  of  Shenandoah
Telecommunications  Company, the parent company of Shenandoah Telephone Company,
from 1981 to 1988.  From 1988  through  1995,  he was Chairman and a director of
Shenandoah  Telecommunications  Company.  He is a past  Chairman  of the  United
States  Telephone  Association  and  is a  former  director  of  First  National
Corporation, and of Hungarian Telephone and Cable Corp.

     Barry Horowitz has been a director of Orion since May 1996. He is President
and Chief  Executive  Officer of  Mitretek  Systems,  Inc.  Mitretek  works with
federal, state and local governments as well as other non-profit public interest
organizations on technology-based  research and development  programs.  Mitretek
was incorporated in December 1995 as a result of a restructuring  with The MITRE
Corporation. Principal capabilities are related to information and environmental
system technologies.  In addition, Dr. Horowitz is President and Chief Executive
Officer of  Concept 5  Technologies,  Inc.,  a  subsidiary  of  Mitretek,  which
provides technical services to commercial clients, with its initial focus on the
financial  community.  Prior to the  restructuring  and since 1969, Dr. Horowitz
served MITRE in several capacities, including Trustee and President and CEO.

     Sidney  S.  Kahn has  been a  director  of Orion  since  July  1987.  He is
presently a private  investor.  From 1977 to December  1989,  he was Senior Vice
President of E.F.  Hutton Company,  Inc., a wholly owned  subsidiary of the E.F.
Hutton Group, Inc. He is also a director of Delia's, Inc.

     John G. Puente has been a director  since 1984.  Mr. Puente was Chairman of
Orion  from April 1987  through  January  1996,  and since  July,  1996 has been
serving as a consultant to the Company and chairman of the  Company's  Executive
Committee. He served as Chief Executive Officer of Orion from April 1987 through
September 1993. He was a director and, from 1978 to April 1987, served as Senior
Vice  President,  Executive Vice President or Vice Chairman of M/A-COM,  Inc., a
diversified  telecommunications  and manufacturing  company. He was a founder of
SouthernNet, Inc., a fiber optic long distance communications company and one of
the two  companies  that  merged to form  Telecom  USA,  Inc.  (which  was later
acquired  by MCI),  serving as a director  of  SouthernNet  from July 1984 until
August  1987,  and  Chairman  of the Board of  SouthernNet  from July 1984 until
December 1986.  During his tenure as Chairman of the Board of  SouthernNet,  Mr.
Puente was  instrumental  in the  founding  of the  National  Telecommunications
Network,  a national  consortium  of long  distance  fiber optic  communications
companies, and was its first chairman. In 1972, Mr. Puente was a founder of DCC,
Inc.,  of which he became  Chairman and CEO. In 1978,  DCC, Inc. was acquired by
Microwave Associates to form M/A-COM, Inc.; DCC, Inc., subsequently was acquired
by Hughes Aircraft  Company and became Hughes Network  Systems,  Inc. Mr. Puente
also  played a prominent  role in the early  development  of the  communications
satellite  industry,  holding  technical and  executive  positions in COMSAT and
American   Satellite   Corporation.   He  is   also   a   director   of   Primus
Telecommunications, Inc.

     W. Anthony Rice has been a director of Orion since January  1994.  Mr. Rice
is Chief Executive Officer of British  Aerospace Asset Management,  the business
unit  responsible  for all of the company's  activities in respect of commercial
aircraft  leasing and  financing.  Previously,  he served as Group  Treasurer of
British  Aerospace  Public  Limited  Company  from  1991  until the end of 1995.
British Aerospace is Europe's leading defense and aerospace company.

     John V. Saeman has been a director of Orion since  December  1982. He is an
owner of Medallion Enterprises LLC, a private investment firm located in Denver,
Colorado.  Mr. Saeman was Vice Chairman and Chief Executive Officer of Daniels &
Associates,  Inc. and its related entities in the telecommunications  field from
1980 to 1988. He is former  director as well as past Chairman of Cable Satellite
Public Affairs  Network  (C-Span) as well as a former director and past Chairman
of the  National  Cable  Television  Association.  Mr.  Saeman was a director of
Celerex Corporation and is a director of Nordstrom National Credit Bank. Celerex
Corporation filed a petition for  reorganization  under Chapter 11 of the United
States Bankruptcy Code in 1995.

                                       72

<PAGE>




     Robert M. Van Degna has been a director of Orion since June 1994. He is the
managing  general  partner of Fleet  Equity  Partners  ("Fleet").  Mr. Van Degna
joined  Fleet  Financial  Group in 1971 and has held a variety  of  lending  and
management  positions  until he organized  Fleet in 1982 and became its managing
general partner.  Mr. Van Degna also serves as a director of ACC Corporation and
Preferred Networks, Inc.

     Orion's  Certificate of Incorporation  and Bylaws provide that the Board of
Directors of Orion, which presently consists of eleven 11 members (including one
vacancy),  shall consist of that number of directors determined by resolution of
the Board of Directors. The Certificate of Incorporation provides that the Board
of  Directors   shall  be  divided  into  three  classes,   each  consisting  of
approximately  one-third  of the total number of  directors.  Class I Directors,
consisting  of Messrs.  Hauser,  Horowitz,  Puente and Saeman,  will hold office
until the 1998 annual meeting of stockholders; Class II Directors, consisting of
Messrs. Bauer, Kahn and Van Degna will hold office until the 1999 annual meeting
of stockholders;  and Class III Directors consisting of Messrs. Brekka, Rice and
French will hold  office  until the 2000 annual  meeting of  stockholders.  Upon
closing  of the Loral  Merger,  Orion's  Board of  Directors  would no longer be
divided  into  classes.  There  are no  family  relationships  among  any of the
directors or officers of Orion.  Executive  Officers  serve at the discretion of
the Board of Directors.

COMMITTEES OF THE BOARD OF DIRECTORS

     The Board of Directors has  established a Committee on Auditing,  Corporate
Responsibility  and  Ethics  (the  "Audit  Committee"),  a  Committee  on  Human
Resources  and  Compensation  (the  "Compensation   Committee"),   an  Executive
Committee, a Finance Committee, a Nominating Committee and a Pricing Committee.

     The Audit Committee is comprised of Messrs.  Van Degna  (chairman),  Hauser
and Kahn. The Audit  Committee  examines and considers  matters  relating to the
financial  affairs of the Company,  including  reviewing  the  Company's  annual
financial  statements,  the  scope  of the  independent  annual  audit  and  the
independent  auditors' letter to management  concerning the effectiveness of the
Company's  internal  financial and  accounting  controls.  During the year ended
December 31, 1997,  the Audit  Committee  held one  meeting.  All three  members
attended the meeting.

     The  Compensation  Committee  is comprised  of Messrs.  Brekka  (chairman),
French  and  Van  Degna.   The  Compensation   Committee   considers  and  makes
recommendations to the Company's Board of Directors with respect to programs for
human resource development and management organization and succession,  approves
changes in senior executive compensation, considers and makes recommendations to
the  Company's  Board of  Directors  with  respect to  compensation  matters and
policies  and  employee  benefit and  incentive  plans and  exercises  authority
granted to it to  administer  such plans and  administers  the  Company's  stock
option and grants of stock options under the stock option plans. During the year
ended December 31, 1997, the  Compensation  Committee held six meetings.  Two of
the three members attended at least five meetings; Mr. Van Degna attended two of
the six meetings.

     The  Executive  Committee  is  comprised of Messrs.  Hauser,  Kahn,  Puente
(chairman),  Saeman and Van Degna. The Executive  Committee  provides  strategic
direction with respect to financing, strategic partners, acquisitions and market
focus, subject to approval by the Board of Directors of all significant actions.
The Executive  Committee met numerous  times during the year ended  December 31,
1997.

     The Finance Committee is comprised of Messrs.  Bauer, Brekka,  Hauser, Kahn
(chairman),  Puente,  Rice and Saeman. The Finance Committee considers and makes
recommendations  to the Board of Directors with respect to the financial affairs
of  the  Company,   including   matters   relating  to  capital   structure  and
requirements,  financial  performance,  dividend  policy,  capital  and  expense
budgets and significant capital commitments.  During the year ended December 31,
1997, the Finance Committee did not meet.

     The Nominating Committee is comprised of Messrs.  French,  Puente, Rice and
Saeman (chairman). The Nominating Committee recommends to the Board of Directors
qualified  candidates  for election as  directors  of the Company and  considers
candidates, if any, recommended by shareholders.  During the year ended December
31, 1997, the Nominating Committee did not meet.

                                       73

<PAGE>




     The Pricing Committee is comprised of Messrs.  Hauser, Kahn and Puente. The
Pricing  Committee was formed for the purpose of  considering  and approving the
pricing  of the  Senior  Notes and  Senior  Discount  Notes  offered in the Bond
Offering.  During the year ended December 31, 1997,  the Pricing  Committee held
one meeting. All three members attended the meeting.

COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT

     Section  16(a) of the  Securities  Exchange  Act of 1934,  as amended  (the
"Act"),  requires the Company's officers and directors and other persons who own
more than ten percent of the  Company's  Common  Stock to file  reports with the
Securities  and  Exchange  Commission  about their  beneficial  ownership of the
Company's Common Stock.

     Based  solely on a review of  copies  of Forms 3, 4 and 5  furnished  to it
during the last fiscal year, the Company is aware only of the following  reports
submitted on an untimely  basis.  A Form 4 for Sidney S. Kahn, a Director of the
Company,  was filed  late with  respect  to two  transactions.  There also was a
failure to timely file a Form 4 on behalf of John G.  Puente,  a Director of the
Company, with respect to one transaction.

LIMITS ON LIABILITY; INDEMNIFICATION

     Orion's  Certificate of Incorporation  provides that Orion's directors will
not be liable for monetary  damages for breach of the directors'  fiduciary duty
of care to Orion and its  stockholders.  This  provision in the  Certificate  of
Incorporation   does  not  eliminate  the  duty  of  care,  and  in  appropriate
circumstances  equitable  remedies  such as an  injunction  or  other  forms  of
non-monetary  relief would remain  available  under  Delaware law. In accordance
with the  requirements  of Delaware law,  Orion's  directors  remain  subject to
liability  for  monetary  damages (i) for any breach of their duty of loyalty to
Orion  or its  stockholders,  (ii) for acts or  omissions  not in good  faith or
involving  intentional  misconduct  or knowing  violation  of law,  (iii)  under
Section 174 of the Delaware General  Corporation Law for approval of an unlawful
dividend  or  an  unlawful  stock  purchase  or  redemption  and  (iv)  for  any
transaction from which the director derived an improper personal  benefit.  This
provision  also does not affect a  director's  responsibilities  under any other
laws,  such as the  federal  securities  laws or state or federal  environmental
laws.

     Orion's   Certificate  of  Incorporation  also  provides  that,  except  as
expressly  prohibited by law,  Orion shall  indemnify any person who was or is a
party (or threatened to be made a party) to any threatened, pending or completed
action,  suit or  proceeding  by reason of the fact that such person is or was a
director  or officer of Orion (or is or was serving at the request of Orion as a
director  or  officer  of  another  enterprise),   against  expenses  (including
attorneys' fees),  judgments,  fines and amounts paid in settlement actually and
reasonably  incurred  by such person in  connection  with such  action,  suit or
proceeding  if such  person  acted  in  good  faith  and a  manner  such  person
reasonably believed to be in or not opposed to the best interests of Orion, and,
with respect to any criminal  action or proceeding,  had no reasonable  cause to
believe his or her conduct was unlawful.  Such indemnification shall not be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to Orion unless (and only to the extent that) the Delaware
Court of  Chancery  or the  court  in  which  such  action  or suit was  brought
determines  that, in view of all the  circumstances  of the case, such person is
fairly and reasonably entitled to indemnity.

     Following  the closing of the Loral  Merger,  it is expected  that  Orion's
Certificate of Incorporation will be amended and/or restated.

                                       74

<PAGE>



ITEM  11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

     The following table sets forth a summary of total  compensation,  including
bonuses, paid to the Chief Executive Officer and the four other most highly paid
executive  officers  (the  "named  executive  officers")  for  services  in  all
capacities  to the  Company  and its  subsidiaries  for the fiscal  years  ended
December 31, 1997, 1996, and 1995.



<TABLE>
<CAPTION>
                                                  ANNUAL COMPENSATION                     LONG-TERM COMPENSATION
                                                                                       AWARDS                 PAYOUTS
                                                                    OTHER                    SECURITIES
                                                                   ANNUAL     RESTRICTED     UNDERLYING            ALL OTHER
         NAME AND                                                  COMPEN-       STOCK        OPTIONS/     LTIP      COMPEN-
     PRINCIPAL POSITION            YEAR    SALARY($)  BONUS($)   SATION ($)(1) AWARD(S)($)     SARS(#)   PAYOUTS    SATION($)
     ------------------            ----    ---------  --------   ------------- -----------     -------   -------    ---------

<S>                                <C>      <C>         <C>          <C>                       <C>   
     W. Neil Bauer...............  1997    $292,736   $100,000                                 75,000
     Executive Officer             1996     278,106    100,000
     President and Chief           1995     265,000     90,000                                110,294
     Executive Officer

     David J. Frear..............  1997     205,047     63,000                                250,000
     Sr. Vice President, Treasurer 1996     185,996     90,000
     and Chief Financial Officer   1995     179,005     40,000       4,570                     55,147

     Hans C. Giner...............  1997     162,920     38,000                                 40,000
     Vice President of the Company 1996     141,638     35,000                                 35,000
     and President, Orion Network  1995          --         --
     Systems-Asia Pacific, Inc.

     Denis J. Curtin,............  1997     200,548     45,000                                 43,000
     Senior Vice President and     1996     155,380     40,000                                  5,000
     General Manager Engineering,  1995     151,081     38,000                                 24,705
     Operations and Technology

     John J. Albert..............  1997     235,000       2040
     Sr. Vice President and General1996     250,706     15,000
     Manager, Marketing and        1995     175,664     18,000                                 14,705
     Satellite Services
</TABLE>


     (1) Relocation expenses.


OPTION GRANTS IN LAST FISCAL YEAR

     During 1997, the Company adopted the Orion Network Systems, Inc. 1997 Stock
Option Plan (the "1997  Employee  Stock Option  Plan").  Under the 1997 Employee
Stock Option Plan, options to purchase up to an aggregate of 1,300,000 shares of
Common Stock are  available  for grants to  employees of the Company.  Under the
Company's 1987 Employee Stock Option Plan (the "1987 Stock Option Plan"),  which
expired in 1997,  options to purchase up to an  aggregate  of 400,670  shares of
Common Stock were granted  during the year ended  December 31, 1997. The Company
has also adopted a Non-Employee  Director  Stock Option Plan (the  "Non-Employee
Director Stock Option Plan"). Under the Non-Employee Director Stock Option Plan,
options  to  purchase  up to  380,000  shares  have  been  or  will  be  granted
automatically to non-employee directors of the Company. The following table sets
forth  information  concerning  grants of stock  options to the named  executive
officers  pursuant to the 1997 Employee  Stock Option Plan and the 1987 Employee
Stock Option Plan during the year ended December 31, 1997.

                                       75

<PAGE>



<TABLE>
<CAPTION>
                                                        INDIVIDUAL GRANTS
                             -------------------------------------------------------------------------
                                                                                                           POTENTIAL REALIZED
                                                                                                           VALUE AT ASSUMED
                                                                                                           ANNUAL RATES OF
                             NUMBER OF         % OF TOTAL                                                  STOCK PRICE
                             SECURITIES        OPTIONS                                                     APPRECIATION FOR
                             UNDERLYING        GRANTED TO          EXERCISE OR                             OPTION TERM
                             OPTIONS           EMPLOYEES IN        BASE PRICE PER        EXPIRATION
NAME                         GRANTED           FISCAL YEAR         SHARE($/SH)(1)        DATE              5%($)     10%($)
----                         --------------    ----------------    -----------------     -------------     ---------------------
<S>                               <C>                <C>                  <C>               <C>  <C>       <C>        <C>    
W. Neil Bauer                     75,000             7.9                  10.00             3/12/04        305,325    711,538
David J. Frear                   125,000            13.2                  10.00             3/12/04        508,876  1,185,896
                                 125,000            13.2                   9.60             4/24/04        488,521  1,138,460
Hans C. Giner                     40,000             4.2                  11.51             7/16/04        187,429    436,789
Denis J. Curtin                   40,000             4.2                  10.00             3/12/04        162,840    379,487
                                   3,000             0.3                  11.51             7/16/04          14,057    32,759
John J. Albert                    40,000             4.2                  11.51             7/16/04        187,429    436,789
</TABLE>


(1)  A grant of 75,000  options to Mr. Bauer , 125,000  options to Mr. Frear and
     40,000  options to Mr.  Curtin each had exercise  prices of ninety  percent
     (93%) of the fair market  value of the Common  Stock on the date the option
     was granted.  An  additional  grant of 125,000  options to Mr. Frear had an
     exercise  price of  sixty-two  (62%) of the fair market value of the Common
     Stock on the date the option was  granted.  With  respect to the  remaining
     option grants,  the option  exercise price is equal to one hundred  percent
     (100%) of the fair market  value of the Common Stock on the date the option
     was granted.

(2)  The options will vest in equal  installments  over a three year period from
     the date of grant;  provided,  however,  that options  granted to Mr. Frear
     will immediately vest upon a change of control of the Company.

OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES

     The following table sets forth the value of all unexercised options held at
year-end  1997 by the  named  executive  officers.  No named  executive  officer
exercised any stock options during the fiscal year.

<TABLE>
<CAPTION>
                                               NUMBER OF SECURITIES             VALUE OF UNEXERCISED
                                               UNDERLYING UNEXERCISED           IN-THE-MONEY OPTIONS AT
                                               OPTIONS AT FY-END                DECEMBER 31, 1997(1)
                                          -----------------------------    --------------------------------
NAME                                           EXERCISABLE/UNEXERCISABLE        EXERCISABLE/UNEXERCISABLE
----                                      -----------------------------    --------------------------------
<S>                                                  <C>                              <C>
W. Neil Bauer............................            149,998/160,295                  1,083,736/1,042,541
David J. Frear...........................            119,115/226,472                   799,873/1,549,568
Hans C. Giner............................              7,000/68,000                     55,865/448,060
Denis J. Curtin..........................             38,755/55,823                     307,720/373,329
John J. Albert...........................             20,587/52,500                     132,565/296,163
</TABLE>


----------------
(1) Based on a per share price of $17.125 on December 31, 1997.

                                       76

<PAGE>



COMPENSATION OF DIRECTORS

     For  the  year  ended  December  31,  1997,   directors   received   annual
compensation  of $4,000,  $1,500 for each Board of Directors  meeting  attended,
$750 for each committee  meeting  attended (other than with respect to Executive
Committee  meetings for which no compensation was given) and per annum grants of
stock options to purchase  10,000 shares of Common Stock under the  Non-Employee
Director  Stock  Option Plan.  A grant of options to purchase  10,000  shares of
Common  Stock was made to each  non-employee  director  in May 1997.  An initial
grant of options to purchase  30,000  shares of Common Stock under that plan was
made to Barry Horowitz, a director,  upon his election in March 1996. The option
exercise price of the options granted to each non-employee  director in May 1997
and Mr.  Horowitz  in March  1996 was equal to the fair  market  value of Common
Stock on the respective dates the options were granted.

EMPLOYMENT  AGREEMENTS  AND  TERMINATION  OF  EMPLOYMENT  AND  CHANGE IN CONTROL
ARRANGEMENTS

     The  Company  has  not  entered  into  any  employment  agreements  or  any
termination  of  employment  or change in control  arrangements  with any of its
officers,  except for certain change in control  vesting  provisions in the 1987
Employee  Stock Option Plan, the 1997 Employee Stock Option Plan and the options
granted to David J. Frear,  Senior Vice President,  Chief Financial  Officer and
Treasurer, under those Options Plans.

     In his capacity as consultant to the Company, John G. Puente, a director of
the Company and Chairman of the Executive  Committee,  was compensated at a rate
of $25,000 per month for the period  September  1996 through  September 1997 and
has been  granted  non-incentive  stock  options,  which  grant was  approved by
Orion's stockholders in May 1997.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     None.

HUMAN RESOURCES AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

     The  Committee  on Human  Resources  and  Compensation  of the  Board  (the
"Compensation Committee") is responsible for the oversight and administration of
executive  compensation  and for  administration  of the Company's 1997 Employee
Stock  Purchase  Plan and 1987  Employee  Stock  Option  Plan,  as amended.  The
Compensation  Committee believes that the actions of each executive officer have
the  potential  to impact the  short-term  and  long-term  profitability  of the
Company and  considers the impact of each  executive  officer's  performance  in
designing  and  administering  the  executive  compensation  program.  In making
compensation  decisions,  the  Compensation  Committee  has,  from time to time,
received  information and advice regarding the  compensation  practices of other
companies in the satellite communications or related industries.

     PHILOSOPHY AND OBJECTIVES  FOR EXECUTIVE  COMPENSATION.  The purpose of the
Company's executive compensation program is to: (i) attract, motivate and retain
key  executives  responsible  for the  success of the  Company as a whole;  (ii)
increase  shareholder  value;  (iii)  increase  the overall  performance  of the
Company; and (iv) increase the performance of the individual executive.

     EXECUTIVE  COMPENSATION  POLICIES.  The Compensation  Committee's executive
compensation policies are designed to provide competitive levels of compensation
that  integrate   compensation  with  the  Company's  short-term  and  long-term
performance  goals,  reward  above-average   corporate  performance,   recognize
individual initiative and achievements, and assist the Company in attracting and
retaining qualified executives. Target levels of the executive officers' overall
compensation are determined  subjectively and are intended to be consistent with
the Compensation  Committee's  perception of the salaries of similarly  situated
senior  executives  in  the  satellite  communications  or  related  industries.
Particular  factors  which the  Compensation  Committee  believes  important  to
assessing  the  Company's  performance  are growth in revenues and the number of
customer  contracts,  completion  of  financing  or  other  major  transactions,
implementation  of the Company's global satellite  network and, on a longer term
basis, growth in stockholder value measured by stock price.

     The Company's executive compensation structure is comprised of base salary,
annual cash  performance  bonuses,  long-term  compensation in the form of stock
option  grants,  and  various  benefits,  including  medical,  pension and stock
purchase plans generally available to all employees of the Company.

                                       77

<PAGE>



     Base  Salary.  In  establishing  appropriate  levels  of base  salary,  the
Compensation  Committee  considered  the perceived  base salary levels of senior
executives  at other  satellite  communications  or  related  companies  and the
particular  officer's  overall  contributions  to Orion during the past year and
previously. Base salaries for fiscal 1997 generally were intended to be the same
as the perceived  levels of similarly sized companies in the satellite  services
industry.  During fiscal 1997, the President and Chief Executive  Officer's base
salary was $294,008,  representing an  approximately 5 percent increase from his
1996 base salary.

The  Compensation  Committee  considered a number of factors in  approving  this
increase,   including  prior  base  salary  increases,  the  senior  executive's
increased  experience and  responsibility,  his general  performance  during the
prior  year,  the  Company's  increased  size and the  Compensation  Committee's
perception as to what salary he could command in other similarly sized companies
in the satellite  communications or related industries.  During fiscal 1997, the
Compensation  Committee  approved base salary  increases for the Named Executive
Officers  of  between  approximately  5 and 14  percent,  based  on the  factors
described above.

     Annual  Performance   Bonuses.   Since  1994,  a  significant   portion  of
compensation for executives has consisted of cash bonuses.  In the early part of
each fiscal year, the Compensation Committee has reviewed with the President and
Chief  Executive   Officer  and  approved,   with  any  modifications  it  deems
appropriate,  the annual  performance  bonus range for each senior executive for
that year.  Generally,  these bonuses have ranged up to approximately 40 percent
of such senior  executive's  base salary.  The actual amount of a bonus grant is
determined subjectively at the end of each fiscal year, based on such factors as
the  perceived  value to the  Company of the  individual's  achievement  and the
amount  of  effort  involved  in  such  achievement,  the  salary  level  of the
individual  and the  performance  of the  Company.  For 1997,  the  Compensation
Committee  granted the President and Chief Executive Officer a performance bonus
of $100,000,  representing 34 percent of his annual base salary (compared to his
potential bonus of 40 percent of his base salary).  The  Compensation  Committee
also awarded bonuses to the Named Executive  Officers,  other than the President
and  Chief  Executive  Officer,   totaled   approximately  27  percent  of  such
executives'   annual  base  salary,   as  compared  to  opportunities   totaling
approximately 35 percent.

     Stock Option Grants.  The Company believes that stock option grants provide
meaningful   long-term   incentives  because  they  reward  the  enhancement  of
stockholder  value. The number of stock options granted to each senior executive
is determined  subjectively,  principally at the time such executive is hired by
the  Company,  based  on  a  number  of  factors,   including  the  individual's
anticipated  degree of  responsibility,  salary level and stock option awards by
other similarly  sized  satellite  communications  or related  companies.  Stock
option  grants  by the  Compensation  Committee  generally  are made  under  the
Company's  1997 Employee  Stock Option Plan at the  prevailing  market value and
will have value only if the Company's stock price increases.  Grants made by the
Compensation Committee generally vest in equal annual amounts over three or five
years;  executives  must be  employed  by the  Company at the time of vesting in
order to exercise the options.

     During fiscal 1997, the  Compensation  Committee  granted named  executives
officers options exercisable for an aggregate of 658,000 shares of the Company's
common stock,  at an average  exercise  price of $10.55 in connection  with such
executive  officers'  performance.  Factors  considered  in making  such  awards
include, the general level of such executive's performance,  salary level, stock
and option holdings and recent noteworthy achievements.

                                             Respectfully submitted,

                                             HUMAN RESOURCES AND COMPENSATION

                                             COMMITTEE OF THE BOARD OF DIRECTORS

                                             Richard J. Brekka (Chairman)
                                             Warren B. French, Jr.
                                             Robert M. Van Degna

                                       78

<PAGE>



STOCK PERFORMANCE CHART

     The following line graph sets forth comparative  information  regarding the
Company's cumulative  stockholder return on its Common Stock over the year ended
December  31,  1997.  Total  stockholder  return is measured  by dividing  total
dividends (assuming dividend  reinvestment) plus share price change for a period
by the share price at the  beginning of the  measurement  period.  The Company's
cumulative stockholder return based on an investment of $100 at the beginning of
the year ended December 31, 1997 is compared to the  cumulative  total return of
the  NASDAQ  Market  Index  and an index  comprised  of public  companies  whose
securities  have been trading  publicly  during the year ended December 31, 1997
and which report under the standard  industrial  classification  code 3663 (five
companies excluding Orion) (the "Peer Group Index").

                         COMPARISON OF CUMULATIVE TOTAL
                    RETURN AMONG ORION NETWORK SYSTEMS, INC.,

                    NASDAQ MARKET INDEX AND PEER GROUP INDEX
                      FOR THE YEAR ENDED DECEMBER 31, 1997

                                [OBJECT OMITTED]


                                       79

<PAGE>




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following  table sets forth certain  information  regarding  beneficial
ownership  of  Orion's  Common  Stock,  as of  January  15,  1998,  by (i)  each
stockholder  known by Orion to be the beneficial owner of more than five percent
of the  outstanding  Orion Common  Stock,  (ii) each  Director of Orion and each
named  executive  officer (see  "Executive  Compensation - Summary  Compensation
Table") of Orion,  and (iv) all  Directors  and named  executive  officers  as a
group.

<TABLE>
<CAPTION>
                                                                              PERCENT OF           
                                                          AMOUNT AND        TOTAL SHARES OF           PERCENT OF   
                                                           NATURE OF         COMMON STOCK           TOTAL SHARES OF
                                                          BENEFICIAL          OUTSTANDING            COMMON STOCK  
OWNERSHIP (1)                                                 (2)       FULLY DILUTED BASIS (6)    OUTSTANDING ON A
-------------                                                 ---       -----------------------    ----------------
<S>                                                       <C>                    <C>                        <C> 
British Aerospace.......................................  7,650,226              32.9                       26.9
Holdings, Inc.  (3)(4)
15000 Conference Center Drive, Suite 200
Chantilly, VA  20151

CIBC Wood Gundy Ventures, Inc...........................    977,123               5.9                        3.4
425 Lexington Avenue
New York, NY 10017

W. Neil Bauer, President and Chief......................    215,340               1.3                          *
Executive Officer  (6)(7)
2440 Research Blvd., Suite 400
Rockville, MD 20850

Richard J. Brekka, Director  (8)........................     20,000                 *                          *
712 Fifth Avenue.
Suite 8D
New York, NY 10019

Denis J. Curtin, Senior Vice President,.................     68,252                 *                          *
and General Manager, Engineering, Operations
and Technology  (20)
2440 Research Blvd., Suite 400
Rockville, MD 20850

David J. Frear, Senior Vice President, Chief............    179,660               1.0                          *
Financial Officer and Treasurer  (6)(9)
2440 Research Blvd., Suite 400
Rockville, MD 20850

Warren B. French, Jr., Director  (10)...................     25,623                 *                          *
124 S. Main Street
Edinburg, VA 22824

Hans Giner, President, Orion

Network Systems-Asia Pacific, Inc.  (11)................     12,000                 *                          *
2440 Research Blvd., Suite 400
Rockville, MD 20850
</TABLE>


                                       80

<PAGE>




<TABLE>
<CAPTION>
                                                                              PERCENT OF           
                                                          AMOUNT AND        TOTAL SHARES OF           PERCENT OF   
                                                           NATURE OF         COMMON STOCK           TOTAL SHARES OF
                                                          BENEFICIAL          OUTSTANDING            COMMON STOCK  
OWNERSHIP (1)                                                 (2)       FULLY DILUTED BASIS (6)    OUTSTANDING ON A
-------------                                                 ---       -----------------------    ----------------
<S>                                                       <C>                    <C>                        <C> 
Gustave M. Hauser, Chairman, Director  (3)(6)(12).......    547,517               3.2                        1.9
712 Fifth Avenue
New York, NY 01910

Barry Horowitz, Director  (13)..........................     20,000                 *                          *
Mitretek Systems, Inc.
7525 Colshire Drive
McLean, VA 22102

Sidney S. Kahn, Director  (3)(6)(14)....................    235,429               1.4                          *
14 East 60th Street, Suite 500
New York, NY 10022

John G. Puente, Director  (3)(6)(15)....................    519,181               3.1                        1.8
2440 Research Blvd., Suite 400
Rockville, MD 20850

W. Anthony Rice, Director  (16)........................      20,000                *                           *
British Aerospace Public Limited Company
Warwick House, PO Box 87
Farnborough Aerospace Centre, Farnborough

Hants, GU146YU

John V. Saeman, Director...............................   1,492,833              8.9                         5.2
J.V. Saeman & Co.  (3)(6)(17)
Medallion Enterprises, LLC
Suite 570
3200 Cherry Creek South Drive

Denver, CO 80209

Richard H. Shay, Senior Vice President,................      55,392                *                           *
Law and Administration, Secretary  (18)
2440 Research Blvd., Suite 400
Rockville, MD 20850

Robert M. Van Degna, Director  (20)....................      20,000                *                           *
Fleet Equity Partners
50 Kennedy Plaza
Providence, RI 02903

All directors and named executive officers
as a group (14 persons)                                   3,427,633               19.3                        12.1
</TABLE>

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

1)   In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to
     be a "beneficial  owner" of a security if he or she has or shares the power
     to vote or direct  the voting of such  security  or the power to dispose or
     direct the  disposition of such  security.  A person is also deemed to be a
     beneficial  owner of any  securities  of which that person has the right to
     acquire  beneficial  ownership  within 60 days from January 15, 1998.  More
     than  one  person  may be  deemed  to be a  beneficial  owner  of the  same
     securities.  All  persons  shown in the table  above  have sole  voting and
     investment power, except as otherwise indicated. This table includes shares
     of Orion Common Stock subject to outstanding  options  granted  pursuant to
     Orion's 1997 Employee  Stock Option Plan,  1987 Employee  Stock Option Plan
     and Non-Employee Director Stock Option Plan.

2)   For the purpose of computing the  percentage  ownership of each  beneficial
     owner,  any securities which were not outstanding but which were subject to
     options,  warrants, rights or conversion privileges held by such beneficial
     owner  exercisable  within  60  days  were  deemed  to  be  outstanding  in
     determining  the  percentage  owned by such  person,  but  were not  deemed
     outstanding in determining the percentage owned by any other person.

3) Stockholders who are parties to the Principal Stockholder Agreement.

4)   Includes  3,007,770  shares  issuable  upon  conversion of 52,636 shares of
     Orion  Series  C  Preferred  Stock  and  3,571,429   shares  issuable  upon
     conversion of $50 million of Convertible Debentures.

5)   The percentage  ownership of each  beneficial  owner  calculated on a fully
     diluted basis assumes conversion or exercise of all derivative  securities,
     including options, warrants, rights or conversion privileges.

                                       81

<PAGE>





6)   Does not include  shares  issuable  upon  exercise  of  warrants  which are
     exercisable  only in the event  that the Orion  Senior  Preferred  Stock is
     redeemed by Orion prior to its conversion into Orion Common Stock.

7)   Includes 211,763 shares issuable upon the exercise of stock options held by
     Mr. Bauer  exercisable  within 60 days. Does not include 10,220 shares held
     of record,  1,882 shares issuable upon the conversion of 16 shares of Orion
     Series A Preferred  Stock and 522 shares  issuable upon conversion of 5.333
     shares of Orion Series B Preferred Stock purchased in June 1995 held by Mr.
     Bauer's wife. Mr. Bauer disclaims beneficial ownership of these shares.

8)   Includes 20,000 shares issuable upon exercise of stock options  exercisable
     within 60 days.

9)   Includes  171,812  shares  issuable  upon the  exercise  of  stock  options
     exercisable  within 60 days and 1,176 shares issuable upon conversion of 10
     shares of Orion  Series A  Preferred  Stock and 326  shares  issuable  upon
     conversion of 3.333 shares of Orion Series B Preferred Stock.

10)  Does not include 172,520 shares held of record, 29,412 shares issuable upon
     the  conversion  of 250 shares of Orion  Series A Preferred  Stock or 8,170
     shares  issuable  upon  conversion  of  83.334  shares  of  Orion  Series B
     Preferred Stock held by Shenandoah Telecommunications Company, of which Mr.
     French is the former  Chairman  and  presently  a  consultant.  Mr.  French
     disclaims  beneficial  ownership of these  shares.  Includes  20,000 shares
     issuable upon exercise of stock options exercisable within 60 days.

11)  Includes  12,000  shares  issuable  upon  the  exercise  of  stock  options
     exercisable within 60 days.

12)  Includes  58,823 shares issuable upon the conversion of 500 shares of Orion
     Series A Preferred  Stock and 16,339  shares  issuable  upon  conversion of
     166.667 shares of Orion Series B Preferred Stock held by Mr. Hauser and his
     wife.  Includes  120,000  shares  issuable  upon  exercise of stock options
     exercisable within 60 days.

13)  Includes  20,000  shares  issuable  upon  the  exercise  of  stock  options
     exercisable within 60 days.

14)  Includes  8,169 shares  issuable upon  conversion of 83.333 shares of Orion
     Series B Preferred Stock.  Includes 20,000 shares issuable upon exercise of
     stock options exercisable within 60 days.

15)  Includes  153,087  shares  issuable  upon the  exercise  of  stock  options
     exercisable within 60 days, 1,411 shares issuable upon the conversion of 12
     shares of Orion  Series A  Preferred  Stock and 392  shares  issuable  upon
     conversion  of 4 shares  of  Orion  Series B  Preferred  Stock  held by Mr.
     Puente.

16)  Does not include 7,650,226 shares  beneficially  owned by British Aerospace
     Holdings,  Inc.  Mr.  Rice,  a director  of Orion and a director of British
     Aerospace Holdings,  Inc.,  disclaims beneficial ownership of these shares.
     Includes 20,000 shares issuable upon exercise of stock options  exercisable
     within 60 days.

17)  The 1,492,833  shares of Orion Common Stock  beneficially  owned by John V.
     Saeman  include  58,823 shares  issuable  upon  conversion of 500 shares of
     Orion Series A Preferred  Stock, and 16,339 shares issuable upon conversion
     of 166.667  shares of Orion  Series B  Preferred  Stock.  Of the  remaining
     1,417,671 shares of stock beneficially owned by John V. Saeman, 796,398 are
     held by J. V. Saeman & Co., a general partnership,  of which Mr. Saeman and
     his wife are the sole  partners,  44,196 are held by JCC,  Ltd.,  a limited
     partnership,  of  which J. V.  Saeman & Co.  is the  general  partner,  and
     545,523  are  held by  Medallion  Enterprises,  LLC,  a  limited  liability
     company,  of which Mr. Saeman and his wife are the sole  members.  Includes
     20,000 shares issuable upon exercise of stock options exercisable within 60
     days.

18)  Includes 37,544 shares issuable upon exercise of stock options  exercisable
     within 60 days.

19)  Includes  55,030  shares  issuable  upon  the  exercise  of  stock  options
     exercisable  within 60 days, and 705 shares issuable upon the conversion of
     6 shares of Orion  Series A Preferred  Stock and 196 shares  issuable  upon
     conversion of 2 shares of Orion Series B Preferred Stock.

20)  Excludes  588,234 shares  issuable upon conversion of 4,000 shares of Orion
     Series A Preferred  Stock held by Fleet and 1,000  shares of Orion Series A
     Preferred  Stock  held  by  Chisholm,  and  130,718  shares  issuable  upon
     conversion  of 1,333.333  shares of Orion Series B Preferred  Stock held by
     Fleet.  Mr.  Van Degna,  a director  of Orion,  is the  chairman  and chief
     executive  officer of each of the managing general partners of Fleet Equity
     Partners  VI,  L.P.,  the  chairman  and chief  executive  officer of Fleet
     Venture Resources, Inc. and the chairman and chief executive officer of the
     corporation  that is the  general  partner of the  partnership  that is the
     general  partner of  Chisholm  Partners  II, L.P.  Mr. Van Degna  disclaims
     beneficial ownership of these shares.  Includes 20,000 shares issuable upon
     exercise of stock options exercisable within 60 days.

                                       82

<PAGE>



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The following is a summary of certain  transactions and relationships among
the Company and its  associated  entities,  and among the  directors,  executive
officers and stockholders of the Company and its associated  entities during the
fiscal year ended December 31, 1997.

     In January 1997, the Company acquired the outstanding  minority interest in
the Company's  subsidiary Orion Asia Pacific  Corporation from British Aerospace
Satellite  Investments,  Inc.  ("British  Aerospace  Satellite") in exchange for
approximately 86,000 shares of Common Stock).  British Aerospace Satellite is an
affiliate of British Aerospace Communications,  Inc. ("British Aerospace"),  the
beneficial owner of more than 5% of the Company's Common Stock.

     In January  1997,  the Company sold $60 million of its  convertible  junior
subordinated debentures (the "Convertible Debentures") to two investors, British
Aerospace Holdings,  Inc., an affiliate of British Aerospace,  and Matra Marconi
Space. British Aerospace Holdings, Inc. purchased $50 million of the Convertible
Debentures  and Matra  Marconi Space  purchased  $10 million of the  Debentures.
British Aerospace beneficially owns more than 5% of the Company's Common Stock.

     In January 1997, the Company acquired the limited partnership  interests in
International  Satellite Partners, L.P, a wholly owned subsidiary of the Company
("Orion Atlantic"), and other rights relating thereto held by British Aerospace,
COM DEV Satellite Communications Limited, Kingston Communications  International
Limited ("Kingston"),  Lockheed Martin Commercial Launch Services, Inc., MCN Sat
US, Inc., an affiliate of Matra Hachette, and Trans-Atlantic Satellite, Inc., an
affiliate of Nissho Iwai Corp  (collectively,  the "Exchanging  Partners").  The
Exchanging Partners exchanged their Orion Atlantic limited partnership interests
for  123,172  shares of Series C  Preferred  Stock  (the  "Exchange").  With the
exception of COM DEV Satellite  Communications  Limited, the Exchanging Partners
each  beneficially  owned more than 5% of the Company's Common Stock as a result
of the Exchange.

     The Company  registered  5,052,202  shares of Common  Stock  issuable  upon
conversion  of (i) the  Series  C  Preferred  Stock  (other  than  the  Series C
Preferred Stock held by British Aerospace) and (ii) Matra Marconi's  Convertible
Debentures on a  Registration  Statement on Form S-3 (the  "Exchanging  Partners
Registration  Statement"),  which  Exchanging  Partners  Registration  Statement
became  effective  on November  19, 1997  (Registration  No.  333-40123).  As of
January 31, 1998,  approximately  3.9 million  shares of Common Stock  (issuable
upon the conversion of 56,492 shares of the Series C Preferred  Stock) and Matra
Marconi's Convertible  Debentures had been sold pursuant the Exchanging Partners
Registration Statement.

     British  Aerospace has recently  converted its  Convertible  Debentures and
sold the Common Stock issued upon  conversion in sales exempt from  registration
under the Securities Act.

     In January  1997,  the Company paid $13 million to Matra  Marconi  Space as
incentive payments under the Orion 1 satellite contract of which $10 million was
used by Matra  Marconi  Space to purchase $10 million of the  Debentures.  Matra
Hachette, one of the parent companies of Matra Marconi Space,  beneficially owns
more than 5% of the Company's Common Stock.

     In January  1997, a wholly owned  subsidiary of the Company was merged with
and into Orion Oldco, the predecessor of the Company, as a result of which Orion
Oldco become a wholly owned  subsidiary  of the Company (the  "Merger").  In the
Merger,  all stockholders of Orion Oldco converted their shares of Orion Oldco's
common  stock and  preferred  stock  into an  identical  number  of  shares  the
Company's Common Stock and Preferred Stock.

     On December 31, 1997,  Orion's  Board of Directors  adopted the  following,
subject to stockholder approval at the special meeting of stockholders scheduled
for March 20, 1998 (i) amendments to the Non-Employee Director Stock Option Plan
and  certain  options  granted  thereunder  to  provide  for  early  vesting  of
approximately 90,000 options and conversion of options granted under the plan in
connection with the Loral Merger, (ii) amendments to the Stock Option Agreement,
dated as of July 17, 1996, by and between  Orion and John G. Puente,  a director
and Chairman of the Executive  Committee of Orion's Board of Directors,  and the
100,000 options granted  thereunder to provide for conversion of such options in
connection  with the Loral  Merger  and  (iii)  amendments  to the Stock  Option
Agreement,  dated as of March 12,  1997,  by and  between  Orion and  Gustave M.
Hauser,  a director and Chairman of Orion's Board of Directors,  and the 100,000
options  granted  thereunder  to  provide  for  conversion  of such  options  in
connection with the Loral Merger.


                                       83

<PAGE>




                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

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

     The following  consolidated  financial statements of Orion Network Systems,
Inc. are included in Item 8:

          Consolidated Balance Sheets - December 31, 1997 and 1996

          Consolidated Statements of Operations - Years ended December 31, 1997,
          1996 and 1995

          Consolidated Statements of Changes in Stockholders' Equity (Deficit) -
          Years ended December 31, 1997, 1996, and 1995

          Consolidated Statements of Cash Flows - Years ended December 31, 1997,
          1996 and 1995

          Notes to Consolidated Financial Statements - December 31, 1997

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



                                       84

<PAGE>


EXHIBIT
NUMBER                        EXHIBIT DESCRIPTION
-------                       -------------------

2.1     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.  (Incorporated by reference to exhibit number 2.1
        in Current Report on Form 8-K dated October 9, 1997).

2.2     Principal Stockholder Agreement among Orion Network Systems, Inc., Loral
        Space  &  Communications  Ltd.,  Loral  Satellite  Corporation  and  the
        stockholders that are signatories thereto,  dated as of October 7, 1997.
        (Incorporated  by reference to exhibit  number 2.2 in Current  Report on
        Form 8-K dated October 9, 1997).

2.3     Amendment No. 1 Agreement  and Plan of Merger,  dated as of February 11,
        1998,  by  and  among  Orion  Network  Systems,   Inc.,  Loral  Space  &
        Communications  Ltd. and Loral Satellite  Corporation.  (Incorporated by
        reference to exhibit number 2.2 in Registration  Statement No. 333-46407
        on Form S-4).

2.4     Amendment No. 1 to Principal  Stockholder  Agreement among Orion Network
        Systems,  Inc.,  Loral  Space &  Communications  Ltd.,  Loral  Satellite
        Corporation and the stockholders that are signatories thereto,  dated as
        of December 1, 1997.

3.1     Restated  Certificate of Incorporation  of Orion Network  Systems,  Inc.
        (Incorporated  by  reference  to  exhibit  number  3.1  in  Registration
        Statement on Form 8-B filed with the Commission on January 31, 1997).

3.2     Amended and Restated Bylaws of Orion Network Systems, Inc. (Incorporated
        by reference to exhibit number 3.2 in Registration Statement on Form 8-B
        filed with the Commission on January 31, 1997).

3.3     Certificate   of   Incorporation   of  Orion   Network   Systems,   Inc.
        (Incorporated  by  reference  to  exhibit  number  3.1  in  Registration
        Statement No. 33-80518 on Form S-1).

3.4     Bylaws of Orion  Network  Systems,  Inc.  (Incorporated  by reference to
        exhibit number 3.2 in Registration Statement No. 33-80518 on Form S-1)

3.5     Certificate   of   Incorporation   of   Orion   Satellite   Corporation.
        (Incorporated  by  reference  to  Exhibit  number  3.5  to  Registration
        Statement No. 333-19167 on Form S-1).

3.6     Bylaws of Orion  Satellite  Corporation.  (Incorporated  by reference to
        Exhibit number 3.6 to Registration Statement No. 333-19167 on Form S-1).

3.7     Certificate of Limited  Partnership of International  Private  Satellite
        Partners,  L.P.  Incorporated  by  reference  to  Exhibit  number 3.7 to
        Registration Statement No. 333-19167 on Form S-1).

3.8     Form of Third Amended and Restated  Agreement of Limited  Partnership of
        International   Private  Satellite  Partners,   L.P.   (Incorporated  by
        reference to Exhibit number 3.8 to Registration  Statement No. 333-19167
        on Form S-1).

3.9     Certificate  of  Incorporation  of  OrionNet,   Inc.   (Incorporated  by
        reference to Exhibit number 3.9 to Registration  Statement No. 333-19167
        on Form S-1).

3.10    Bylaws of OrionNet,  Inc.  (Incorporated  by reference to Exhibit number
        3.10 to Registration  Statement No. 333-19167 on Form S-1).

Certificate  of  Incorporation  of  Orion  Network  Systems-Asia  Pacific,  Inc.
(formerly known as Orion Asia Pacific Corporation) (Incorporated by reference to
Exhibit number 3.11 to Registration Statement No. 333-19167 on Form S-1).

                                       85

<PAGE>



EXHIBIT
NUMBER                        EXHIBIT DESCRIPTION
-------                       -------------------

3.12    Bylaws of Orion Network  Systems-Asia  Pacific,  Inc. (formerly known as
        Orion Asia Pacific  Corporation)  (Incorporated  by reference to Exhibit
        number 3.12 to Registration Statement No. 333-19167 on Form S-1).

3.13    Certificate   of   Incorporation   of  OrionNet   Finance   Corporation.
        (Incorporated  by  reference  to  Exhibit  number  3.13 to  Registration
        Statement No. 333-19167 on Form S-1).

3.14    Bylaws of Orion Net Finance  Corporation.  (Incorporated by reference to
        Exhibit  number 3.14 to  Registration  Statement  No.  333-19167 on Form
        S-1).

3.15    Certificate of Incorporation  of Asia Pacific Space and  Communications,
        Ltd.  (Incorporated  by reference to Exhibit number 3.15 to Registration
        Statement No. 333-19167 on Form S-1).

3.16    Bylaws of Asia Pacific Space and Communications,  Ltd.  (Incorporated by
        reference to Exhibit number 3.16 to Registration Statement No. 333-19167
        on Form S-1).

3.17    Certificate  of  Incorporation  of Orion  Network  Systems-Europe,  Inc.
        (formerly  known  as  Orion  Atlantic  Europe,  Inc.)  (Incorporated  by
        reference to Exhibit number 3.17 to Registration Statement No. 333-19167
        on Form S-1).

3.18    Bylaws of Orion Network  Systems-Europe,  Inc.  (formerly known as Orion
        Atlantic Europe, Inc.) (Incorporated by reference to Exhibit number 3.18
        to Registration Statement No. 333-19167 on Form S-1).

4.1     Form of  Senior  Note  Indenture  and  Form of  Note  included  therein.
        (Incorporated  by  reference  to  Exhibit  number  4.1  to  Registration
        Statement No. 333-19167 on Form S-1).

4.2     Form of  Senior  Discount  Note  Indenture  and  Form  of Note  included
        therein.   (Incorporated   by  reference   to  Exhibit   number  4.2  to
        Registration Statement No. 333-19167 on Form S-1).

4.3     Form of  Collateral  Pledge and  Security  Agreement.  (Incorporated  by
        reference to Exhibit number 4.3 to Registration  Statement No. 333-19167
        on Form S-1).

4.4     INTENTIONALLY OMITTED

4.5     Form of  Warrant  Agreement,  by and  between  Orion and  Bankers  Trust
        Company,  and  Form  of  Warrant  included  therein.   (Incorporated  by
        reference to Exhibit number 4.5 to Registration  Statement No. 333-19167
        on Form S-1).

4.6     Forms of Warrant issued by Orion.  (Incorporated by reference to exhibit
        number 4.1 in Registration Statement No. 33-80518 on Form S-1).

4.7     Forms of  Warrant  issued  by  Orion  to  holders  of  Preferred  Stock.
        (Incorporated  by  reference  to  exhibit  number  4.2  in  Registration
        Statement No. 33-80518 on Form S-1).

4.8     Forms of Certificate of Designation of Series A 8% Cumulative Redeemable
        Convertible   Preferred  Stock,   Series  B  8%  Cumulative   Redeemable
        Convertible  Preferred  Stock  and  Series  C 6%  Cumulative  Redeemable
        Convertible  Preferred  Stock of Orion.  (Incorporated  by  reference to
        exhibit number 4.3 in Registration  Statement No.  333-19795 on Form 8-B
        filed with the Commission on January 31, 1997).

4.9     Forms of Series A Preferred Stock, Series B Preferred Stock and Series C
        Preferred  Stock  certificates of Orion.  (Incorporated  by reference to
        exhibit number 4.4 in Registration Statement No. 333-19795 on Form S-4).

                                       86

<PAGE>




EXHIBIT
NUMBER                        EXHIBIT DESCRIPTION
-------                       -------------------

4.10    Form of Common Stock Certificate of Orion. (Incorporated by reference to
        exhibit number 4.5 in Registration Statement No. 333-19795 on Form S-4).

4.11    Form of Warrant  issued to DACOM Corp.  (Incorporated  by  reference  to
        exhibit number 4.6 in Registration Statement No. 333-19795 on Form S-4).

4.12    Debenture  Purchase  Agreement,  dated  January 13,  1997,  with British
        Aerospace and Matra Marconi Space. (Incorporated by reference to exhibit
        number 4.7 in Registration  Statement No. 333-19795 on Form S-4 of Orion
        Newco Services,  Inc.), as amended as of January 31, 1997  (Incorporated
        by  reference  to  exhibit  10.4 in  Current  Report  on Form 8-K  dated
        February 14, 1997).

10.1    Second Amended and Restated Purchase Agreement, dated September 26, 1991
        ("Satellite  Contract") by and between  OrionServ and British  Aerospace
        PLC and the First  Amendment,  dated as of September  15,  1992,  Second
        Amendment,  dated as of November 9, 1992, Third  Amendment,  dated as of
        March 12, 1993,  Fourth  Amendment,  dated as of April 15,  1993,  Fifth
        Amendment,  dated as of September 22, 1993, Sixth Amendment, dated as of
        April 6, 1994,  Seventh  Amendment,  dated as of August 9, 1994,  Eighth
        Amendment,  dated as of  December  8, 1994,  and  Amendment  No. 9 dated
        October 24, 1995, thereto.  [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR
        PORTIONS OF THESE  DOCUMENTS.]  (Incorporated  by  reference to exhibits
        number 10.13 and 10.14 in  Registration  Statement No.  33-80518 on Form
        S-1).

10.2    Restated  Amendment  No.  10 dated  December  10,  1996,  between  Orion
        Atlantic  and Matra  Marconi  Space to the Second  Amended and  Restated
        Purchase  Agreement,  dated September 16, 1991 by and between  OrionServ
        and British  Aerospace PLC (which  contract and prior  exhibits  thereto
        were incorporated by reference as exhibit number 10.1). (Incorporated by
        reference to exhibit number 10.2 in Registration Statement No. 333-19795
        on Form S-4).

10.3    INTENTIONALLY OMITTED

10.4    INTENTIONALLY OMITTED

10.5    Contract for a Satellite Control System,  dated December 7, 1992, by and
        between  Orion   Atlantic,   Telespazio   S.p.A.   and  Martin  Marietta
        Corporation.  [CONFIDENTIAL  TREATMENT  HAS BEEN GRANTED FOR PORTIONS OF
        THIS  DOCUMENT.]  (Incorporated  by reference to exhibit number 10.31 in
        Registration Statement No. 33-80518 on Form S-1).

10.6    Credit  Agreement,  dated as of November 23, 1993,  by and between Orion
        Atlantic,  OrionServ and General Electric Capital Corporation  (`GECC').
        [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.]
        (Incorporated  by  reference  to exhibit  number  10.32 in  Registration
        Statement No. 33-80518 on Form S-1).

10.7    Security Agreement,  dated as of November 23, 1993, by and between Orion
        Atlantic,  OrionServ  and GECC.  ("Incorporated  by reference to exhibit
        number 10.33 in Registration Statement No. 33-80518 on Form S-1).

10.8    Assignment and Security Agreement, dated as of November 23, 1993, by and
        between Orion Atlantic,  OrionServ and GECC.  (Incorporated by reference
        to exhibit number 10.34 in  Registration  Statement No. 33-80518 on Form
        S-1).

                                       87

<PAGE>



EXHIBIT
NUMBER                        EXHIBIT DESCRIPTION
-------                       -------------------

10.9    Consent and  Agreement,  dated as of November 23,  1993,  by and between
        Orion Atlantic,  Martin Marietta Corporation and GECC.  (Incorporated by
        reference to exhibit number 10.35 in Registration Statement No. 33-80518
        on Form S-1).

10.10   Deed of Trust,  dated as of November  23,  1993,  by and  between  Orion
        Atlantic,  W. Allen Ames,  Jr. and Michael J. Schwel,  as Trustees,  and
        GECC. (Incorporated by reference to exhibit number 10.37 in Registration
        Statement No. 33-80518 on Form S-1).

10.11   Lease Agreement, dated as of November 23, 1993, by and between OrionNet,
        Inc. and Orion  Atlantic,  as amended by an Amendment,  dated January 3,
        1995.  [CONFIDENTIAL  TREATMENT  HAS BEEN  GRANTED FOR PORTIONS OF THESE
        DOCUMENTS.  (Incorporated  by  reference  to  exhibit  number  10.38  in
        Registration Statement No. 33-80518 on Form S-1).

10.12   Note for Interim  Loans,  dated as of November 23, 1993,  by and between
        Orion  Atlantic and GECC.  (Incorporated  by reference to exhibit number
        10.42 in Registration Statement No. 33-80518 on Form S-1).

10.13   Sales Representation  Agreement and Ground Operations Service Agreement,
        each dated as of May 1, 1994 and June 03,  1994,  by and between each of
        OrionNet,  Inc. and  Kingston  Communications,  respectively,  and Orion
        Atlantic,  as amended by side  agreements,  dated May 1, 1994,  July 12,
        1994, and February 1, 1995. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR
        PORTIONS OF THESE  DOCUMENTS.]  (Incorporated  by  reference  to exhibit
        number 10.43 in Registration Statement No. 33-80518 on Form S-1).

10.14   Lease  Agreement,  dated as of October 2, 1992, by and between  OrionNet
        and Research Grove Associates, as amended by Amendment No. 1 dated March
        26, 1993.  Amendment  No. 2 dated August 23, 1993,  and  Amendment No. 3
        dated  December 20, 1993.  (Incorporated  by reference to exhibit number
        10.39 in Registration Statement No. 33-80518 on Form S-1).

10.15   Sales Representation  Agreement and Ground Operations Service Agreement,
        dated as of June 30,  1995,  by and between MCN Sat  Service,  S.A.  and
        Orion Atlantic. [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF
        THIS  DOCUMENT.]  (Incorporated  by reference to exhibit number 10.69 in
        Orion's Registration Statement No. 33-80518 on Form S-1).

10.16   INTENTIONALLY OMITTED

10.17   INTENTIONALLY OMITTED

10.18   INTENTIONALLY OMITTED

10.19   Orion 2 Spacecraft  Purchase  Contract,  dated  January 29, 1997 between
        Orion Atlantic and Matra Marconi Space. [CONFIDENTIAL TREATMENT HAS BEEN
        GRANTED FOR PORTIONS OF THIS  DOCUMENT.]  (Incorporated  by reference to
        exhibit  number  10.19 in Current  Report on Form 10-K  dated  March 31,
        1997).

10.20   Orion's  Amended  and  Restated  1987  Stock  Option  Plan  as  amended.
        (Incorporated  by  reference  to exhibit  number  10.23 in  Registration
        Statement No. 33-80518 on Form S-1).

10.21   INTENTIONALLY OMITTED

10.22   INTENTIONALLY OMITTED

                                       88

<PAGE>



EXHIBIT
NUMBER                        EXHIBIT DESCRIPTION
-------                       -------------------

10.23   INTENTIONALLY OMITTED

10.24   INTENTIONALLY OMITTED

10.25   INTENTIONALLY OMITTED

10.26   INTENTIONALLY OMITTED

10.27   INTENTIONALLY OMITTED

10.28   INTENTIONALLY OMITTED

10.29   INTENTIONALLY OMITTED

10.30   Stock Purchase Agreement, dated as of April 29, 1994, by and between the
        Company and SS/L.  (Incorporated by reference to exhibit number 10.53 in
        Registration Statement No. 33-80518 on Form S-1).

10.31   Registration  Rights  Agreement,  dated as of  April  29,  1994,  by and
        between the  Company and SS/L.  (Incorporated  by  reference  to exhibit
        number 10.54 in Registration Statement No. 33-80518 on Form S-1).

10.32   Purchase  Agreement,  dated  as of June 17,  1994,  by and  between  the
        Company, CIBC, Fleet and Chisholm. (Incorporated by reference to exhibit
        number 10.55 in Registration Statement No. 33-80518 on Form S-1).

10.33   Stockholders  Agreement,  dated as of June 17, 1994,  by and between the
        Company, CIBC, Fleet, Chisholm and certain principal stockholders of the
        Company.   (Incorporated   by  reference  to  exhibit  number  10.56  in
        Registration Statement No. 33-80518 on Form S-1).

10.34   Registration Rights Agreement, dated as of June 17, 1994, by and between
        the Company,  CIBC,  Fleet and Chisholm.  (Incorporated  by reference to
        exhibit  number 10.57 in  Registration  Statement  No.  33-80518 on Form
        S-1).

10.35   Purchase Agreement, dated as of June 16, 1995, by and among the Company,
        CIBC,  Fleet and an  affiliate of Fleet.  (Incorporated  by reference to
        exhibit  number 10.58 in  Registration  Statement  No.  33-80518 on Form
        S-1).

10.36   Definitive  Agreement,  dated April 26, 1990,  by and between Orion Asia
        Pacific and Republic of the Marshall  Islands and Stock Option Agreement
        related thereto.  [CONFIDENTIAL  TREATMENT HAS BEEN GRANTED FOR PORTIONS
        OF THESE DOCUMENTS.]  (Incorporated by reference to exhibit number 10.60
        in Registration Statement No. 33-80518 on Form S-1).

10.37   Amended and Restated Option Agreement,  dated January,  29, 1997, by and
        between  Orion  Atlantic and Matra  Marconi  Space and First  Amendment,
        dated  February  13, 1997,  thereto.  [CONFIDENTIAL  TREATMENT  HAS BEEN
        GRANTED FOR PORTIONS OF THIS  DOCUMENT.]  (Incorporated  by reference to
        exhibit  number  10.37 in Current  Report on Form 10-K  dated  March 31,
        1997).

10.38   INTENTIONALLY OMITTED

10.39   TT&C Earth  Station  Agreement,  dated as of November 11,  1996,  by and
        between Orion Asia Pacific and DACOM Corp.  [CONFIDENTIAL  TREATMENT HAS
        BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.]  (Incorporated by reference
        to exhibit number 10.39 in Registration  Statement No. 333-19795 on Form
        S-4).

                                       89

<PAGE>



EXHIBIT
NUMBER                        EXHIBIT DESCRIPTION
-------                       -------------------

10.40   Joint  Investment  Agreement,  dated as of  November  11,  1996,  by and
        between Orion Asia Pacific and DACOM Corp.  [CONFIDENTIAL  TREATMENT HAS
        BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.]  (Incorporated by reference
        to exhibit number 10.40 in Registration  Statement No. 333-19795 on Form
        S-4).

10.41   Orion Network Systems, Inc. Employee Stock Purchase Plan.  (Incorporated
        by  reference  to  exhibit  number  4.4 in  Registration  Statement  No.
        333-19021 on Form S-8).

10.42   Orion Network Systems, Inc. 401(k) Profit Sharing Plan. (Incorporated by
        reference to exhibit number 4.5 in Registration  Statement No. 333-19021
        on Form S-8).

10.43   Orion Network  Systems,  Inc.  Non-Employee  Director Stock Option Plan.
        (Incorporated  by  reference  to exhibit  number  10.43 in  Registration
        Statement No. 333-19795 on Form S-4).

10.44   Exchange  Agreement dated June 1996 among Orion Network  Systems,  Orion
        Atlantic, OrionServ and the Limited Partners. (Incorporated by reference
        to exhibit 10 in Current Report on Form 8-K dated December 20, 1996).

10.45   First  Amendment to Exchange  Agreement  dated December 1996 among Orion
        Network  Systems,  Orion Atlantic,  OrionServ and the Limited  Partners.
        (Incorporated  by  reference  to exhibit  number  10.45 in  Registration
        Statement No. 333-19795 on Form S-4).

10.46   Redemption  Agreement  dated  November 21, 1995, by and between STET and
        Orion Atlantic, the promissory notes delivered thereunder and Instrument
        of Redemption  relating  thereto.  (Incorporated by reference to exhibit
        number 10.1 in Current Report on Form 8-K dated November 21, 1995).

10.47   IPSP-Telecom  Italia  Agreement  dated November 21, 1995, by and between
        Telecom  Italia and Orion  Atlantic.  [CONFIDENTIAL  TREATMENT  HAS BEEN
        GRANTED FOR PORTIONS OF THIS  DOCUMENT.]  (Incorporated  by reference to
        exhibit  number 10.2 in Current  Report on Form 8-K dated  November  21,
        1995).

10.48   Indemnity  Agreement  dated  November  21,  1995,  by and among  Telecom
        Italia,  Orion Atlantic,  Orion and STET.  (Incorporated by reference to
        exhibit  number 10.3 in Current  Report on Form 8-K dated  November  21,
        1995).

10.49   Subscription Agreement dated November 21, 1995, by and between Orion and
        Orion   Atlantic,   and  the  Promissory   note  delivered   thereunder.
        (Incorporated  by reference to exhibit  number 10.5 in Current Report on
        Form 8-K dated November 21, 1995).

10.50   INTENTIONALLY OMITTED

10.51   Registration  Rights  Agreement,  dated  January 13, 1997,  by and among
        Orion Newco Services,  Inc., British Aerospace Holdings,  Inc. and Matra
        Marconi  Space.  (Incorporated  by reference to Exhibit  number 10.51 to
        Registration Statement No. 333-19795 on form S-4).

10.52   Orion 3 Spacecraft  Purchase  Contract,  dated  January 15, 1997, by and
        among Hughes Space and  Communications  International,  Inc., Orion Asia
        Pacific Corporation and Orion Network Systems.  [CONFIDENTIAL  TREATMENT
        HAS BEEN  GRANTED FOR  PORTIONS  OF THIS  DOCUMENT.].  (Incorporated  by
        reference  to  Exhibit  number  10.52  to  Registration   Statement  No.
        333-19167 on Form S-1).

                                       90

<PAGE>



EXHIBIT
NUMBER                        EXHIBIT DESCRIPTION
-------                       -------------------

10.53   Letter Agreement,  effective as of May 20/21, 1997, by and between Orion
        Network Systems, Inc. and Morgan Stanley & Co. ++

10.54   Orion  Network  Systems,  Inc. 1997 Stock Option Plan  (Incorporated  by
        reference to Exhibit number 4.4 in Registration  Statement No. 333-32457
        on Form S-8)

----------

        (b)     Reports on Form 8-K filed in the fourth quarter of 1997:

        Current Report on Form 8-K dated October 8, 1997 reporting  execution of
        the Merger Agreement.

        (c)     Exhibits

        None.

        (d)     Financial Statement Schedule

        None.


                                       91

<PAGE>



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.

                                            Orion Network Systems, Inc.
                                                   (Registrant)


Date:  March___, 1998                            /s/ W. Neil Bauer
                                             W. Neil Bauer, President
                                    -------------------------------------------
                                        Chief Executive Office and Director
                                           (Principal Executive Office)


Date:  March ___, 1998                          /s/ David, J. Frear
                                          David J. Frear, Vice President
                                    -------------------------------------------
                                       Chief Financial Officer and Treasurer
                                    (Principal Financial Officer and Principal
                                                Accounting Officer)


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.

    /s/ Gustave M. Hauser                                /s/ John V. Saeman
    ---------------------                                ------------------
      Gustave M. Hauser                                    John V. Saeman
      Chairman, Director                                      Director


      /s/ John G. Puente                                /s/ Richard J. Brekka
      ------------------                                ---------------------
        John G. Puente                                    Richard J. Brekka
           Director                                            Director


  /s/ Warren B. French, Jr.                              /s/ Sidney S. Kahn
  -------------------------                              ------------------
    Warren B. French, Jr.                                  Sidney S. Kahn
           Director                                            Director


     /s/ W. Anthony Rice                               /s/ Robert M. Van Degna
     -------------------                               -----------------------
       W. Anthony Rice                                   Robert M. Van Degna
           Director                                            Director


                                                         /s/ Barry Horowitz
                                                         ------------------
                                                           Barry Horowitz
                                                              Director





<PAGE>



                                    GLOSSARY

ORION, THE EXCHANGING PARTNERS AND CERTAIN CREDITORS:

BANKS............................   A syndicate of international  banks that are
                                    parties to the Orion 1 Credit Facility.

BRITISH AEROSPACE................   British  Aerospace  Public Limited  Company,
                                    one  of  the   world's   leading   aerospace
                                    organizations, and its affiliates, including
                                    its     subsidiary     British     Aerospace
                                    Communications,  Inc.,  a  Limited  Partner.
                                    Kingston Satellite Services, a joint venture
                                    between Kingston  Communications and British
                                    Aerospace,  serves  as sales  representative
                                    and ground  operator for Orion in the United
                                    Kingdom.

COM DEV..........................   COM DEV Satellite  Communications Limited, a
                                    Limited Partner and a subsidiary of COM DEV,
                                    Limited. COM DEV, Limited is also a supplier
                                    of  value-added   satellite   communications
                                    services,  products  for  wireless  personal
                                    communications  and satellite remote sensing
                                    data.

GECC.............................   General  Electric Capital  Corporation,  the
                                    lender for the TT&C Financing.

KINGSTON COMMUNICATIONS..........   Kingston    Communications     International
                                    Limited,  a Limited Partner and a subsidiary
                                    of Kingston  Communications  (Hull) plc, the
                                    only municipally-owned  telephone company in
                                    the  United  Kingdom.   Kingston   Satellite
                                    Services,  a joint venture between  Kingston
                                    Communications and British Aerospace, serves
                                    as sales  representative and ground operator
                                    for Orion in the United Kingdom.

LIMITED PARTNERS.................   The  limited  partners  in  Orion  Atlantic,
                                    including British Aerospace  Communications,
                                    Inc.,  COM  DEV,  Kingston   Communications,
                                    Lockheed  Martin CLS,  MCN Sat US, Inc.  and
                                    Trans-Atlantic Satellite, Inc.

LOCKHEED MARTIN..................   Lockheed   Martin   Corporation,   a   major
                                    manufacturer   of  aerospace   and  military
                                    equipment,  and the ultimate  parent company
                                    of Lockheed  Martin  CLS, a Limited  Partner
                                    and the launch subcontractor under the Orion
                                    1 Satellite  Contract.  Lockheed  Martin CLS
                                    acquired  the  assets  of  General  Dynamics
                                    Commercial   Launch   Services   through   a
                                    transfer  of  assets  from  Martin  Marietta
                                    Corporation,  which in turn  acquired  these
                                    and other assets (including the Atlas family
                                    of launch  vehicles)  from General  Dynamics
                                    Corporation in 1994.

LOCKHEED MARTIN CLS..............   Lockheed Martin  Commercial Launch Services,
                                    Inc., a Limited  Partner and a subsidiary of
                                    Martin   Marietta   Technologies,   Inc.,  a
                                    Lockheed Martin company. Lockheed Martin CLS
                                    acquired  the  assets  of  General  Dynamics
                                    Commercial   Launch   Services   through   a
                                    transfer  of  assets  from  Martin  Marietta
                                    Corporation,  which in turn  acquired  these
                                    and other assets (including the Atlas family
                                    of launch  vehicles)  from General  Dynamics
                                    Corporation in 1994.  Lockheed Martin CLS is
                                    a commercial  launch  services  provider and
                                    provided  launch  services  to  Orion as the
                                    launch   subcontractor  under  the  Orion  1
                                    Satellite  Contract.   Lockheed  Martin  CLS
                                    became a Limited  Partner by  acquiring  the
                                    limited  partnership   interest  of  General
                                    Dynamics   CLS  in  the   1994   transaction
                                    described above.

MATRA HACHETTE...................   Matra  Hachette,   an  aerospace,   defense,
                                    industrial and media company and part of the
                                    Lagardere  Groupe of France,  and the parent
                                    company  of MCN  Sat  US,  Inc.,  a  Limited
                                    Partner. Matra Hachette is one of the parent
                                    companies  of Matra  Marconi  Space which is
                                    the parent company of MMS Space Systems, the
                                    prime   contractor  for  Orion  1,  and  the
                                    manufacturer  under  the  Orion 2  Satellite
                                    Contract.

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                              GLOSSARY (CONTINUED)

NISSHO IWAI CORP.................   Nissho  Iwai   Corporation,   is  a  trading
                                    company in Japan,  and the parent company of
                                    Trans-Atlantic  Satellite,  Inc.,  a Limited
                                    Partner.

ORION............................   (1) the combined operations of Orion Network
                                    Systems,  Inc., a Delaware corporation,  and
                                    its    subsidiaries    (collectively,    the
                                    "Operating  Company"),  prior to the date of
                                    the  merger  of a  newly  formed  subsidiary
                                    ("Merger  Sub")  of  Orion  Newco  Services,
                                    Inc., a recently formed Delaware corporation
                                    ("Orion Newco"),  into the Operating Company
                                    (the   "Merger")   and  (2)  Orion  and  its
                                    subsidiaries,    including   the   Operating
                                    Company, after the Merger.

ORION 1 CREDIT FACILITY..........   A facility  of up to $251  million of senior
                                    debt provided to finance Orion 1, which will
                                    be repaid with proceeds of the Offering.

ORION ASIA PACIFIC...............   Asia Pacific Space and Communications, Ltd.,
                                    a Delaware  corporation.  Orion acquired 83%
                                    of the  stock of such  company  in  December
                                    1992 and has  acquired  the  remaining  17%,
                                    which  was  held by  British  Aerospace,  in
                                    exchange for approximately  86,000 shares of
                                    Common Stock in the OAP Acquisition.

ORION ATLANTIC...................   International  Private  Satellite  Partners,
                                    L.P.,  a  Delaware  limited  partnership  of
                                    which  OrionServ  is  the  general  partner,
                                    which owns Orion 1.

ORIONNET.........................   OrionNet,  Inc., a Delaware  corporation and
                                    wholly owned subsidiary of Orion.

ORIONSERV........................   Orion Network Services, Inc. (formerly known
                                    as Orion Satellite Corporation),  a Delaware
                                    corporation  and wholly owned  subsidiary of
                                    Orion.

PARTNERSHIP AGREEMENT............   The limited  partnership  agreement of Orion
                                    Atlantic,   which  includes  the  terms  and
                                    conditions    governing   the    partnership
                                    arrangements among  the Partners.

STET.............................   STET-Societa   Finanziaria    Telefonica-per
                                    Azioni is a former  Limited  Partner and the
                                    parent  company  of  Telecom   Italia,   the
                                    Italian PTT.

STET REDEMPTION..................   The redemption on November 21, 1995 by Orion
                                    Atlantic of the limited partnership interest
                                    held  by STET  and  modification  of  STET's
                                    previously existing contractual arrangements
                                    with Orion Atlantic.

TT&C FINANCING...................   A facility of up to $11 million  provided by
                                    GECC  for  Orion's  TT&C  facility  that was
                                    converted to a seven-year  term loan on June
                                    1, 1995 and which had an outstanding balance
                                    of $7.2 million as of September 30, 1996.

SATELLITE CONSTRUCTION AND SATELLITE COMMUNICATIONS:

BANDWIDTH.......................    The relative range of  frequencies  that can
                                    be  passed  through  a  transmission  medium
                                    without   distortion.    The   greater   the
                                    bandwidth,   the  greater  the   information
                                    carrying capacity.  Bandwidth is measured in
                                    Hertz.

C-BAND...........................   Certain high frequency radio frequency bands
                                    between   3,400   to   6,725   MHz  used  by
                                    communications satellites.

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                              GLOSSARY (CONTINUED)

CONSTRUCTIVE TOTAL  LOSS.........   If a satellite  is  completely  destroyed or
                                    incapable of  operation  (except for certain
                                    failures  due to  circumstances  beyond  the
                                    control  of  the   manufacturer)   during  a
                                    specified number of days after launch.

FOOTPRINT .......................   Signal coverage area for a satellite.

HERTZ............................   The unit for measuring  the  frequency  with
                                    which  an   electromagnetic   signal  cycles
                                    through  the  zero-value  state  between the
                                    lowest  and   highest   states.   One  Hertz
                                    (abbreviated  as Hz)  equals  one  cycle per
                                    second; kHz (kiloHertz) stands for thousands
                                    of  Hertz;   MHz   (megaHertz)   stands  for
                                    millions of Hertz.

HUGHES SPACE.....................   Hughes     Space     and      Communications
                                    International,  Inc., the manufacturer under
                                    the Orion 3 Satellite Contract. Hughes Space
                                    is a subsidiary of Hughes Aircraft  Company,
                                    which  is a  subsidiary  of  General  Motors
                                    Corporation.

KU-BAND..........................   Certain high frequency radio frequency bands
                                    between  10,700 to 14,500 MHz permitting the
                                    use  of  smaller  antennae  than  the  older
                                    C-band technology.

MATRA MARCONI SPACE..............   Matra Marconi  Space UK Limited,  the parent
                                    company   of  MMS   Space   Systems   and  a
                                    subsidiary  of Matra  Marconi  Space NV, and
                                    the manufacturer under the Orion 2 Satellite
                                    Contract. Matra Marconi Space NV is owned by
                                    Matra  Hachette  (51  percent)  and  General
                                    Electric Co. of Britain (49 percent).

ORION 1..........................   The   high-power   Ku-band    communications
                                    satellite  operated over the Atlantic  Ocean
                                    by Orion.

ORION 1 SATELLITE CONTRACT.......   The fixed price turnkey contract  originally
                                    entered into between  British  Aerospace and
                                    Orion Atlantic for the design, construction,
                                    launch  and  delivery  in  orbit of Orion 1.
                                    British Aerospace  assigned its rights under
                                    the contract to MMS Space Systems, which was
                                    subsequently   purchased  by  Matra  Marconi
                                    Space  NV  and  renamed  MMS  Space  Systems
                                    Limited. British Aerospace remains liable to
                                    Orion for the  performance  of the  contract
                                    but  performance  has been  assigned  to MMS
                                    Space  Systems and the  Company  understands
                                    that MMS Space  Systems  and  Matra  Marconi
                                    Space  NV  have  fully  indemnified  British
                                    Aerospace against liabilities thereunder.

ORION 2..........................   The   high-power   Ku-band    communications
                                    satellite  to be operated  over the Atlantic
                                    Ocean by Orion.

ORION 2 SATELLITE CONTRACT.......   The spacecraft  purchase  agreement  between
                                    Orion   and   Matra    Marconi   Space   for
                                    construction and launch of Orion 2.

ORION 3..........................   The   high-power   Ku-band    communications
                                    satellite  to be  operated  by  Orion in the
                                    Asia Pacific region.

ORION 3 SATELLITE CONTRACT.......   The spacecraft  purchase  agreement  between
                                    Orion   Asia   Pacific,   a   wholly   owned
                                    subsidiary  of Orion,  and Hughes  Space for
                                    construction  and  launch of Orion 3.

SPACE SYSTEMS OR MMS SPACE
  SYSTEMS........................   MMS   Space   Systems   Limited,   a  former
                                    subsidiary  of British  Aerospace  which was
                                    sold to Matra Marconi Space NV, in 1994. MMS
                                    Space Systems served as the prime contractor
                                    under the Orion 1 Satellite Contract.

TRANSPONDER......................   The  part of a  satellite  which is used for
                                    the reception of communication signals from,
                                    and the frequency conversion,  amplification
                                    and  transmission of  communication  signals
                                    to, earth.

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                              GLOSSARY (CONTINUED)

TT&C STATION.....................   A satellite control system, which includes a
                                    satellite  control  center  and a  tracking,
                                    telemetry and command station complex at Mt.
                                    Jackson, Virginia.

VSAT.............................   Very small aperture  terminal earth stations
                                    that  can  be   installed   on  rooftops  or
                                    elsewhere   at  customer   locations,   with
                                    antennas  as small as 0.8 meters but ranging
                                    in sizes up to 2.4 meters in diameter.

REGULATION AND COMPETITION:

COMMUNICATIONS ACT...............   The  U.S.  Communications  Act of  1934,  as
                                    amended.

EUTELSAT.........................   European   regional   satellite   facilities
                                    consortium   owned   by   approximately   40
                                    European countries.

FCC..............................   The  United  States  Federal  Communications
                                    Commission.

INTELSAT.........................   International  Telecommunications  Satellite
                                    Organization,   an  international  satellite
                                    facilities consortium owned by approximately
                                    140   government    and   privately    owned
                                    telecommunications companies.

ITU  ............................   International  Telecommunication  Union,  an
                                    international  body formed by treaty that is
                                    responsible for coordinating and registering
                                    orbital slots to satellites.

ORION 1 LICENSE..................   The  license  granted to Orion by the FCC to
                                    construct,  launch and  operate  Orion 1, at
                                    designated  orbital  location   37.5(Degree)
                                    West longitude over the Atlantic Ocean.

PANAMSAT.........................   PanAmSat Corporation, a publicly traded U.S.
                                    company providing  trans-Atlantic  satellite
                                    service and services to Latin  America,  the
                                    Pacific Ocean  region,  and the Indian Ocean
                                    region,  using a satellite  system  separate
                                    from INTELSAT.

PTT..............................   Postal,      telephone     and     telegraph
                                    organization,  ordinarily a government-owned
                                    communications monopoly.

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