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, 1996     Commission file number  0-26450
                                                                        -------

                           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
                     --------------------------------------
                                (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 February 28, 1997 closing price of these shares) was approximately
$101 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 15, 1997
----------------------------                     -----------------------------
Common Stock, $.01 par value                           11,160,099  shares

                       DOCUMENTS INCORPORATED BY REFERENCE
                      -------------------------------------

Certain  information in the Company's  definitive  Proxy  Statement for its 1997
Annual Meeting of  Stockholders to be filed within 120 days after the end of the
registrant's  fiscal year is  incorporated by reference in Part III of this Form
10-K.



<PAGE>




                           ORION NETWORK SYSTEMS, INC.

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S>     <C>         <C>                                                                  <C>

PART I
                                                                                         Page

         Item 1.    Business                                                               1
         Item 2.    Properties                                                            24
         Item 3.    Legal Proceedings                                                     24
         Item 4.    Submission of Matters to a Vote of Security Holders                   24


PART II

         Item 5.    Market  for   Registrant's   Common   Equity   and   Related
                     Stockholder Matters                                                  25


         Item 6.    Selected Financial Data                                               26
         Item 7.    Management's  Discussion and Analysis of Financial Condition
                     and Results of Operations                                            28
         Item 8.    Financial Statements and Supplementary Data                           35

         Item 9.    Changes in and Disagreements  with Accountants on Accounting
                     and Financial Disclosure                                             55

PART III

         Item 10.   Directors and Executive Officers of the Registrant                    55

         Item 11.   Executive Compensation                                                58
         Item 12.   Security   Ownership  of  Certain   Beneficial   Owners  and
                     Management                                                           58


         Item 13.   Certain Relationships and Related Transactions                        58


PART IV

         Item 14.   Exhibits,  Financial Statement Schedules and Reports on Form
                     8-K                                                                 58
</TABLE>



<PAGE>



PART I

Item 1.  Business.

     Statements  contained in this Annual Report on Form 10-K regarding  Orion's
expectations  with  respect to 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 to avoid
"last mile"  terrestrial  connections  and bypass  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, 1996,  Orion serviced 182 customers  through
322 points of service.  The Company's  customers  include Amoco Poland  Limited,
Amway Corporation,  AT&T Corp., BBC, British Telecom, CNN, Citibank, N.A., Deere
& Co., Global One, GTECH Corporation, Hungarian Broadcasting, News International
Limited, RTL Television, Pepsi-Cola International, Sprint Communications, Viacom
International Inc., Westinghouse Communications,  World Wide Television News and
Xerox Corporation,  or certain of their  subsidiaries.  As of December 31, 1996,
Orion's  contract  backlog was $214.9  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, 1996,  the Company  generated  revenues of $11.8  million and had a
loss from  operations,  net loss and EBITDA (as defined below) of $10.1 million,
$7.4 million and $0.5  million,  respectively.  For the year ended  December 31,
1996,  the  Company  generated  revenues  of $41.8  million  and had a loss from
operations,  net loss, net cash used in operating activities and EBITDA of $36.4
million, $27.2 million, $21.8 million and $0.6 million,  respectively.  "EBITDA"
represents  earnings  before  minority  interests,   interest  income,  interest
expense,  other expense (income),  income taxes,  depreciation and amortization.
EBITDA is commonly used in the  communications  industry to analyze companies on
the  basis of  operating  performance,  leverage  and  liquidity.  EBITDA is not
intended to represent  cash flows for the period and should not be considered as
an alternative to cash flows from operating,  investing or financing  activities
as determined in accordance  with GAAP.  EBITDA is not a measurement  under GAAP
and may not be comparable to other similarly titled measures of other companies.

     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 27  European
countries,  portions of the United States and a limited number of Latin American
countries.

         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

                                       1

<PAGE>



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.

Recent Developments

     On March 26, 1997,  Orion  acquired  German-based  Teleport  Europe GmbH, a
communications  company specializing in private satellite networks for voice and
data services.  Orion purchased the shares of Teleport Europe held by the German
companies,  Vebacom  GmbH  and RWE  Telliance  AG,  now  known  as  o.tel.o  for
approximately $9 million.  Teleport 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 Teleport 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 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.

     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  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:

                                       2

<PAGE>



              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  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 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 and Russia over leased  satellite
capacity.

     Local Presence

     Orion  has  arrangements  with 30  local  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.

                                       3

<PAGE>


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. Historically, satellites
were used primarily for international voice and data traffic,  using large earth
stations that enabled lower-power satellites to function as "cables in the sky".
The principal  drawback to  satellite-based  voice  transmission is the 1/4 of a
second delay caused by the signal  traveling to and from the  satellite.  In the
U.S.,  Western  Europe and Japan,  the use of  satellites  for voice traffic has
decreased  since the early 1980s with the growth of fiber optic cable  networks.
Geostationary  satellites now are used  primarily for  television  distribution.
However,  voice and data  traffic  remains the  dominant  use of  satellites  in
developing countries.

     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.

     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.

                                       4

<PAGE>


     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.

         (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.  Recent  Comsys  and Price  Waterhouse
reports  have  identified  an  installed  base of 140,000  to 160,000  VSATs and
predict significant worldwide growth over the next few years.

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.

         (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


                                       5
<PAGE>


     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 27 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.

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 1996, 60% 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.

     One  customer,  a major  multinational  consumer  goods  company,  required
voice/fax and data  connectivity from nine offices in Central and Eastern Europe
to the company's U.S. headquarters, utilizing data speeds of up to 128 Kbps. The
sites are  manufacturing  centers for the customer's soap and toiletry  products
and the customer uses Orion's service for managing  inventory and "just-in-time"
order entry. The customer was seeking a "one-stop  shopping"  solution delivered
by a single network service provider.  The customer investigated two alternative
networking solutions and selected satellite  connectivity provided by Orion over
terrestrial facilities provided by the local PTTs due to superior quality.


                                       6
<PAGE>


     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,  and  subsequent  phases of the  service  have been
introduced during 1996 and are expected to be introduced during 1997,  including
the  addition of video  teleconferencing.  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.

     A VISN customer,  Creditanstalt Bankverein,  Austria's second largest bank,
needed a voice and data network among all of its branches in Central and Eastern
Europe. Data applications  varied from electronic mail to transfer  transactions
to its data  center in Vienna,  along with voice  requirements  for  interoffice
telephone   calls  and  facsimile   transmission.   Creditanstalt   investigated
terrestrial  leased  line and  dial-up  services  to satisfy  its  requirements.
Orion's VISN service  offered full meshed,  frame relay  network  service  which
supports both  voice/fax  and data  transmission  simultaneously.  Creditanstalt
replaced its terrestrial network with a nine site VISN network using data speeds
of up to 256 Kbps.

     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 Internet Service Providers ("ISPs"),  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,  ISPs can reduce their costs and relieve
network  congestion.   Finally,   Internet  data  communications  are  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 both  directions.  Orion's  satellite  based  solutions can be
designed  with  different  amounts of 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  offers  three
Internet-related services, described below.

     ISP Backbone Service.  Orion's DirectNet I service is designed for European
ISPs.  The  service  combines a  dedicated,  high speed  point-to-point  circuit
between the ISP's points of presence in Europe and the North  American  Internet
through a dedicated,  fully  redundant  backbone  connection.  Orion also offers
additional  features with its  DirectNet I service,  including  24-hour  network
monitoring,  control and support and a 99.5% network availability  guarantee and
associated  downtime  credits.  Orion is pursuing  requirements or joint venture
arrangements  with ISPs in which  all of their  transatlantic  traffic  would be
carried over Orion 1 as it develops.  For example, Orion has an arrangement with
PSINet,  Inc. in which Orion has agreed to serve as the  supplier  for  PSINet's
backbone,  connecting  PSINet's various points of presence in Europe to the U.S.
Internet backbone. Orion's ISP customers include, for example, companies such as
Global  Ukraine,   an  ISP  based  in  Kiev.   Global  Ukraine  sought  Internet
connectivity  to the United States  backbone with advanced  technical  features.
Orion now  provides  Global  Ukraine with a 256 Kbps circuit from the Ukraine to
the United  States with a  connection  into the U.S.  Internet at three  network
access  points,  providing  route  diversity  and ensuring fast response time by
avoiding points of potential network congestion. Orion does not expect DirectNet
I to generate more than 10% of its revenues.

     Corporate  Internet  Access.  Orion's  DirectNet  II  service is offered to
international corporations requiring high volume data transmission in connection
with  World  Wide  Web  browsing  and  downloading.   DirectNet  II  provides  a
point-to-point circuit between the North American Internet and the corporation's
premises.  Orion offers large corporations  Internet access service by reselling
the Internet access services of several large ISPs, such as DIGEX and UUNet.

     Multicast  Satellite-Based Internet Services. Orion recently introduced its
WorldCast  service which allows ISPs or corporate users to significantly  reduce
Internet  bandwidth  and  ground  facility  costs.  The  service  is based on an
asymmetric architecture which couples wide bandwidth satellite broadcasting with
narrow bandwidth terrestrial links to the Internet.  Furthermore,  WorldCast can
provide a single channel that is shared among multiple ISPs,  which can remove a
significant  amount of traffic from ISP  terrestrial  networks.  The Company has
recently  taken  orders  from  customers,  but is not  currently  providing  any
customers with this service.

     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.  Approximately two-thirds 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.  Viacom has leased capacity for one
channel on Orion 1 for the purpose of occasional or full time  transmission  for
video  programming from its U.S.  facilities to a broadcast  facility in London.
From  there it can be  inserted  into  programming  and  rebroadcast  in


                                       7
<PAGE>

Europe. Orion's contribution services also include transport of news programming
for RTL,  a major  commercial  broadcast  network  in  Germany.  RTL  needed  to
interconnect  its various news bureaus in Germany and the U.S. to transmit  news
stories to its  headquarters in Cologne.  Orion provided 24 MHz of transatlantic
transmission  capacity  service  allowing  transmission of RTL's  programming in
compressed digital video format.

     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.

     Orion's  video   distribution   customers   include   Black   Entertainment
Television, Inc. ("BET"), which was seeking a video distribution service for the
distribution  of its  BET On  Jazz  International  Network,  an  internationally
distributed  programming  network  dedicated  to  international  Jazz and  Blues
artists.  BET required  receipt of its signal at its headquarters in Washington,
D.C., conversion to a European TV standard, digital compression and uplinking of
the compressed  digital video signal for  distribution to cable head ends in the
United Kingdom and other sites in Europe.

     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.  CNN selected  Orion's service for its coverage of Bosnia,  and Orion
provided service to the European Broadcasting Union for coverage of the Olympics
in Atlanta.

     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.

         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.


                                       8
<PAGE>


        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, 1996,  Orion had entered into contracts with
182 customers, principally large multinational corporations,  European companies
and governmental  agencies.  These entitles 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                               Deere & Company
Digital Link/Digital Channelized              Amoco                              EDS
Link                                          Amway                              GE Americom
                                              Chase Manhattan Bank               Global One
                                              Citibank                           News International Limited
                                              Concert                            Westinghouse

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

Internet-related                              Am. Univ. of Bulgaria              LV Net Teleport
                                              Banknet                            Spectrum
                                              Datac                              Terminal Bar
                                              Global Ukraine                     TSSA Nask

Video Transmission and Other                  AsiaNet                            Hughes Network Systems
                                              Black Entertainment Television     Hungarian Broadcasting
                                              Bonneville International           MCI
                                              British Telecom                    RTL Television
                                              CNN                                Telecom Italia
                                              Comsat                             Viacom International

--------------------------------------------- ---------------------------------- ----------------------------------
</TABLE>

     More  than half of  Orion's  customers  are  based in the  U.S.,  but these
customers  have a  substantial  majority  of their  sites in Western and Eastern
Europe.

     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.  DACOM has the right to  terminate  the
contract  before March 31, 1997 (and Orion would retain the $10 million paid) if
it fails to obtain certain approvals.  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.

     Backlog.  At December 31, 1996, Orion had  approximately  $214.9 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  $120.6  million at
December 31, 1995. The backlog  contracts  generally have terms of between three
and four years. Orion presently  anticipates that at least $166.3 million of its
backlog  will be  realized  after  1997.  Orion  has begun to  receive  contract
renewals under expiring contracts (under some of the earliest  contracts,  which
were  entered  into in  1993).  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.  As of December 31, 1996,
Orion had a VSAT installation backlog of 83 units.

     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.  In
the second quarter of 1996, the Company determined that one large customer under
a long-term contract (accounting for backlog of approximately $19.9 million) was
not likely to


                                       9
<PAGE>


raise the  necessary  financing to commence its service in the near future,  and
accordingly  the Company no longer  considers such contract part of its backlog.
Also in the  second  quarter  of 1996,  the  Company  removed  from its  backlog
contracts with a customer (accounting for backlog of approximately $4.5 million)
which had ceased paying for the  Company's  services.  In the fourth  quarter of
1996,  the Company  removed $10.4 million from its backlog  related to contracts
under which  customers  failed to use the  contracted  service or failed to make
timely payment.  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 and the United States,
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 a U.S.
based sales force 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.  Certain  of Orion's
indirect  sales  channels  in Europe have not met  expectations.  Orion has been
significantly  increasing its direct sales capabilities in Europe,  particularly
with respect to sales of private communications network services. Although Orion
believes that the increase in its European sales  capabilities will increase its
bookings,  there  can be no  assurance  regarding  the  timing or amount of such
increase.  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.  The Company recently completed such an acquisition,  as
discussed above under "Recent Developments".

     Direct Sales

     Orion has  assembled a direct  sales force of 30 (as of December  31, 1996)
full-time  employees  in the  United  States  and  Europe to offer  its  private
communications network and satellite transmission services. Approximately 67% of
the sales force is based in the United States (in  Maryland)  and  approximately
33% is based in Europe.  Orion  expects to  continue  to expand its sales  force
significantly throughout 1997, both in the U.S. and Europe.

     Indirect Sales Channels

     Representatives/Distributors.  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.   Sales
representatives are supervised by Orion sales managers,  who establish marketing
strategies with the  representatives,  establish  pricing,  attend certain sales
calls,  develop marketing  materials and sales training tools,  coordinate joint
efforts in promotional  events and provide  information  about Orion's services.
Orion also  provides  engineering  support to its sales  representatives.  Orion
provides  some  of  these   functions  to  support  the  sales  efforts  of  its
distributors.  Distributors  purchase  Orion's  services at wholesale prices and
resell those services to customers at prices determined by the distributors. 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.  Orion
expects   that  unless   such  sales   representatives   increase   their  sales
significantly,  payments  under  the  profit  sharing  arrangement  will  not be
material.

     Major Carriers and Other  Wholesalers.  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.


                                       10
<PAGE>


Network Operations; Local Ground Operators

     Orion  has a  centralized  network  operations  function  at its  corporate
headquarters  in  Rockville,  Maryland,  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 obtain necessary licenses, install and maintain
the  customers'  networks,  provide  in-country  business  experience  and often
facilitate market entry.

     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. based network  management  center,  located at its
corporate  headquarters in Rockville,  Maryland,  and from facilities in Europe.
The network management center allows 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 30 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 twenty seven 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 certain other Latin American  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 Amsterdam.  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.

     Set forth below is a map showing the locations of Orion's existing European
ground operators and potential new ground operators.

      [Document contains a map of Europe indicating where Orion has ground
                            operators and where Orion
            is negotiating the hiring of additional ground operators]












                                       11
<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 is being extended to Latin America and
Asia with the execution of the Orion 2 Satellite  Contract and  commencement  of
construction  of  Orion 3 in  December  1996.  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 a relationship with a ground operator in
Mexico 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 three  U.S-based  direct sales  personnel  focused on selling in
Latin  America,  and is  pursuing  relationships  with  other  potential  ground
operators and joint venture partners.

     In Asia,  the  Company  has  assigned  two full  time  personnel  to pursue
arrangements with potential ground operators and joint venture partners, and has
commenced  discussions with such entities in a number of Asian countries.  Orion
has  begun  the  process  of  identifying  potential  sales  representatives  in
countries within the Orion 3 footprint.  The Company has also begun  discussions
with  existing  customers who have  operations  within the Orion 3 footprint and
have  expressed an interest in  procuring  Orion's  services in Asia.  Orion has
started to identify other potential multinational and Asia-based customers,  and
plans to open a regional  office in Asia in the second half of 1997. 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).








                                   INSERT MAP


                                       12
<PAGE>



     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.  The redundant  equipment
currently generates a majority of Orion's revenues. 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.

     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]







                                       13
<PAGE>



     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.

     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  to  begin  the ITU  process  to  coordinate  an  orbital  slot at
139(Degree)  East Longitude.  Orion has not commenced 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]












                                       14
<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. DACOM has the
right to terminate  the  contract  before March 31, 1997 (and Orion would retain
the $10 million  paid) if it fails to obtain  certain  approvals.  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%. The most recent  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  expects to lease a tracking,  telemetry  and
command  facility in the United States to control Orion 3 and to maintain backup
facilities in Korea, pursuant to arrangements with DACOM.



                                       15
<PAGE>



                             SUMMARY SATELLITE DATA
<TABLE>
<CAPTION>


                                             ORION 1                      ORION 2*                          ORION 3*
                                             -------                      --------                          --------
<S>                                     <C>                       <C>                                 <C>    <C>    <C>    <C>
Region Covered.......................   Europe, Southeastern      Eastern U.S., Southeastern Canada   China, Japan, Korea, India,
                                        Canada, U.S., East of     Europe, Commonwealth of Independent Hawaii, Southeast Asia,
                                        the Rockies and Paris     States, Middle East, North Africa   and   Australia, New Zealand
                                        of 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. Such designs are not finalized and, therefore,
      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.

  (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 fuel level  estimates on February 5, 1996. 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.


                                       16
<PAGE>



(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 also  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.

     In May  1996,  the  FCC  assigned  Ka-band  orbital  locations  for 33 U.S.
companies for international  orbital locations,  including two assigned to Orion
at  78(Degree)  East  Longitude and  126.5(Degree)  East  Longitude,  and one at
47(Degree)  West  Longitude.   In  February  1997,  these  companies  reached  a
consensual Ka-band orbital assignment plan for domestic orbital positions. Orion
received orbital positions during this negotiation at 47(Degree) West Longitude,
81(Degree)  West  Longitude,   89(Degree)  West  Longitude,   127(Degree)   West
Longitude,  78(Degree) East Longitude and 126.5(Degree) East Longitude.  The FCC
is  expected to release  Ka-band  service  rules in April 1997.  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  other  satellite
filings.

     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


                                       17
<PAGE>


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 1996 to May 1997 in an initial amount of approximately  $245
million  providing  protection  against partial or total loss of the satellite's
communications capability,  including loss of transponders,  power or ability to
control the  positioning  of the satellite.  The aggregate  premium for in-orbit
insurance for Orion 1 is  approximately  $6 million per annum.  Orion intends to
procure launch  insurance for the  construction,  launch and insurance  costs of
Orion 2 and Orion 3. In the  past,  satellite  launch  insurance  was  generally
procured  approximately  six  months  prior to launch.  Recently,  it has become
possible to obtain a commitment  from  insurance  underwriters  well before that
time, which fixes the rate and certain terms of launch insurance.  Orion intends
shortly to seek such a commitment from insurance  underwriters to provide launch
insurance for Orion 2 and Orion 3. Present insurance rates range at or above 16%
of the insured  amount,  depending  upon such factors as the launch  history and
recent performance of the launch vehicle to be used and general  availability of
launch insurance in the insurance  marketplace (although such rates have reached
20% or higher in the past  several  years).  Such  insurance  can be expected to
include  certain  contract  terms,  exclusions,  deductibles and material change
conditions that are customary in the industry. After launch of Orion 2 and Orion
3, the Company intends to procure satellite  in-orbit life insurance for Orion 2
and Orion 3. 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.

     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 MFS Worldcom (which acquired IDB  Communications  Group, Inc.
and  Wiltel  International,   Inc.),  Infonet,  SITA,  Telemedia  International,
Spaceline,  ANT Bosch (which is being  acquired by General  Electric),  Teleport
Europe,  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.


                                       18
<PAGE>



     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  (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 1997. 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 four satellites,  with one satellite  providing
coverage in each of the  Atlantic  Ocean  region,  the Asia  Pacific  region and
Indian Ocean region (the fourth covers the Atlantic Ocean region but is near the
end of  its  useful  life).  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 four  additional
satellites,  two in 1997 that will provide coverage of the U.S., Central America
and Mexico,  and two that will provide  coverage of the Indian and Pacific Ocean
regions,  respectively,  in 1997 and early  1998.  PanAmSat is in the process of
selling a controlling interest to Hughes Electronics Corp., which is the largest
private  space-related  company  in the world.  This  transaction  will  enhance
PanAmSat's ability to compete with Orion.

     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 seven  satellites,
providing telephony,  television,  radio and data services,  and has announced a
plan to launch five new satellites through 1998.

     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  and a third  planned for launch in 1997),  the Chinese  Apstar system
(also with two  satellites  in operation and a third planned for launch near the
end of 1997) and the  Indonesian  Palapa system (with three  satellites in orbit
and plans to launch at least  three more  satellites  through  1999).  Japan has
licensed  several  satellite  networks for domestic and  international  service,
including the JCSat series (three  satellites in operation and a fourth  planned
for  launch in 1997),  NTT's two  N-Star  satellites,  and Space  Communications
Corporation's  Superbird A and B (with a third planned for 1997). 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 in operation,  and plans two new satellites
in  1997  offering  regional  coverage.   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.  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


                                       19
<PAGE>


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  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 recently 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.

     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 not commenced  consultations  with INTELSAT for Orion 3,
but Orion 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.


                                       20
<PAGE>



     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.

     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),  Germany (Nortel Dasa) and
Italy (Telecom Italia) have licenses in such countries.  Orion also has obtained
"landing rights" through the INTELSAT treaty  (although each INTELSAT  signatory
country  retains  sovereignty  over the  transmission  of satellite  signals and
retains the right to object to the use of satellites within its borders).  Orion
is now authorized,  either directly or through its ground operators,  to provide
service in 27 European countries.


                                       21
<PAGE>



     Orion expects to pursue 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  15,  1997,  the World  Trade  Organization  ("WTO")  completed
negotiations    concerning    the    regulatory    liberalization    of    basic
telecommunications  services.  Sixty-nine  WTO  countries,  including  the U.S.,
submitted  offers.  The Company  believes  completion of this WTO agreement will
better facilitate market access for satellite  services,  and signals a positive
trend towards global competition.

Human Resources

     As of December  31,  1996,  Orion and its  subsidiaries  had 173  full-time
employees.  Of its  total  work  force,  6 are  part  of  management,  40 are in
engineering  or satellite  control  operations,  75 are in marketing,  sales and
sales support, and 52 are devoted to support and administrative activities.


                                       22
<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'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
intention not to pay any dividend on the Common Stock in the foreseeable future;
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-1 (No.  333-19167)  on file at the  Securities  and Exchange
Commission under "Risk Factors":

     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.  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. Although Orion intends
to procure insurance for the construction, launch and insurance costs of Orion 2
and Orion 3, Orion has not obtained any commitment  from insurance  underwriters
to provide  launch  insurance  for Orion 2 or Orion 3. There can be no assurance
that such insurance will be available or that the price of such insurance or the
terms and  exclusions  in the actual  insurance  policy will be favorable to the
Company.

     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,  finalize the satellite designs
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


                                       23
<PAGE>


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;  the  substantial  financial  risks and financing
requirements;  substantial  leverage  and  limits on  Orion's  ability  to raise
additional  funds;  potential  adverse  effects of  competition;  no  assurances
regarding   approvals   needed,    current   or   future   regulation   of   the
telecommunications  industry;  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-1 (No.
333-19167)  on  file at the  Securities  and  Exchange  Commission  under  "Risk
Factor."

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.

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.  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.  The
parties are in the process of negotiating the final terms of a formal settlement
agreement.

     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.


                                       24
<PAGE>



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  December  15,  1996,  there  were   approximately   350
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 (through March 21)       $9 1/8 to $15

     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 approximately $14.5 million of the Company's Series A Preferred
Stock  which was  issued  in June 1994 and the  approximately  $4.5  million  of
outstanding  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  approximately  $123 million of the  Company's
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.

     Recent 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 $41.4 million
at December 31, 1996).  The 123,172 shares of Series C Preferred Stock issued in
the  Exchange are  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 $50 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   "Debenture
Investments".  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.  The Debenture  Investments are 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.



                                       25
<PAGE>


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, 1996, 1995, 1994, 1993 and
1992 are derived from the Company's audited consolidated  financial  statements.
The pro forma  consolidated  statements of operations and balance sheet data are
derived  from  the  unaudited  pro  forma   condensed   consolidated   financial
statements. 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)  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  Statements" 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.

<TABLE>
<CAPTION>

                                           Pro forma
                                           1996 (1)          1996            1995            1994          1993 (2)          1992
                                         -------------  --------------  --------------  --------------  -------------  -------------
<S>                                      <C>            <C>             <C>             <C>             <C>            <C>

CONSOLIDATED STATEMENTS OF  OPERATIONS
DATA:
   Revenues                              $      41,847  $     41,847    $      22,284   $       3,415   $      2,006   $      1,403
   Interest expense                             94,838        27,764           24,738              61            133            180
   Net loss (3)                               (133,630)      (27,195)         (26,915)         (7,965)        (7,886)        (3,295)
   Net loss per common share                    (12.71)        (2.62)           (3.07)          (0.86)         (0.85)         (0.40)
   Weighted average common shares
       outstanding (4)                      11,247,062    10,951,823        9,103,505      9,272,166       9,266,445      8,232,548

OTHER OPERATING DATA:
   Number of customers                             182           182              109              34             10              5
   Capital expenditures                  $      12,625  $     12,625    $       9,060   $      51,103   $     44,130   $     78,429
   Customer contract backlog (5)         $     214,887  $    214,887    $     120,612   $      39,122   $     18,185   $      9,402
   Sites (6)                                       322           322              151              57             --             --
   EBITDA (7)                            $         595  $        595    $     (15,427)  $     (14,014)  $     (9,069)  $     (6,243)

CONSOLIDATED BALANCE SHEET DATA:
   Cash and cash equivalents             $     139,664   $    42,188    $      55,112   $     11,219    $      3,404   $     7,668
   Restricted and segregated cash (8)          406,937           --              --              --               --            --
   Total assets                                928,594       358,264          389,075        340,176         271,522       204,975
   Long-term debt (less current portion)       779,283       218,237          250,669        230,175         185,294       106,821
   Limited Partners' interest in Orion
       Atlantic (9)                                 --         10,130           14,626         62,519          69,909        77,753
   Redeemable preferred stock                  111,902        20,902           20,358         14,555              --            --
   Total stockholders' (deficit) equity          2,151          (436)          26,681          3,351           8,400        14,478
   Book value per share
                                                  .19           (.04)            2.46            .49            1.33          2.36
</TABLE>

                                       26
<PAGE>


     (1)  Adjusted to reflect  the pro forma  effects of the  Transactions  (see
          "Management's  Discussion  and  Analysis of  Financial  Condition  and
          Results of  Operations - Recent  Developments"),  assuming such events
          occurred,  in the case of the  Consolidated  Statements  of Operations
          Data, on January 1, 1996 and, in the case of the Consolidated  Balance
          Sheet Data, on December 31, 1996.

     (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,  1996,  1996  (pro  forma)  1995,  1994,  1993  and 1992
          preferred stock dividends and accretion are $1.4, $9.3, $1.3, $0.6, $0
          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)  "EBITDA"  represents  earnings  before  minority  interests,  interest
          income,  interest  expense,  other  expense  (income),  income  taxes,
          depreciation  and  amortization.   EBITDA  is  commonly  used  in  the
          communications industry to analyze companies on the basis of operating
          performance,  leverage  and  liquidity.  EBITDA  is  not  intended  to
          represent cash flows for the period and should not be considered as an
          alternative  to cash  flows from  operating,  investing  or  financing
          activities  as determined  in  accordance  with GAAP.  EBITDA is not a
          measurement  under GAAP and may not be comparable  to other  similarly
          titled measures of other companies.  Other expense  (income)  includes
          gains  on  sale  of  equipment,  less  costs  of $5  million  in  1993
          associated  with  the  termination  of  the  Company's  commitment  to
          purchase a second satellite and the write-off of costs relating to the
          1995  Attempted  Financing  of $3.4  million in the fourth  quarter of
          1995.

     (8)  Restricted  and segregated  cash  represents (i) $134 million that has
          been placed in a pledged  account to fund the payment of the first six
          scheduled  payments  of interest  on the Senior  Notes.  and (ii) $273
          million that will be 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.

     (9)  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.

                                       27

<PAGE>



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

GENERAL

     Orion's 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.

     During 1996,  OrionSat was the sole general  partner in Orion  Atlantic and
Orion had a 41 2/3% equity  interest in Orion  Atlantic.  As a result of Orion's
control of Orion Atlantic during 1996, 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.  The assets and liabilities reported in
the  consolidated  balance  sheets at December  31, 1996 and  December  31, 1995
primarily pertain to Orion Atlantic.

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  $41.4  million at
December 31, 1996). The 123,172 shares of Series C Preferred Stock issued in the
Exchange are 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  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.

   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."

                                       28
<PAGE>




   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.

   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,  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.

     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 four  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 cover 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.

     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,  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  increasing net losses and negative cash flow (after  payments for capital
expenditures and interest) for the foreseeable future.

                                       29
<PAGE>




     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);  and (iii) 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 has  recently  commenced a  significant
expansion  of its  marketing  program  and expects to  continue  this  expansion
through 1997. 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  1997.   Engineering  and  technical  expenses,
consisting  principally of personnel costs and travel,  relate to TT&C,  network
monitoring,  network design and similar activities.  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.  General  and
administrative expenses consist of in-orbit insurance premiums,  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.  Specifically,   in-orbit  insurance  costs  will
increase  significantly   following  the  launches  of  Orion  2  and  Orion  3.
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 will increase  substantially  as a result of the bond
offering  completed  January 31, 1997, and will increase again after  additional
financing for Orion 2 and Orion 3 is obtained.  Such  financing will be required
substantially  in advance of the  anticipated  revenues from Orion 2 or Orion 3.
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

   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
$6.0 million compared to $10.5 million for the same period in 1995. The decrease
of $4.5 million,  or 43%, 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.

     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
$8.7 million in the year ended  December  31, 1996,  as compared to $8.5 million
for the comparable period in 1995. The increase was due to customer  engineering
functions  in support of the growth in private  communications  network  service
business.

     General and administrative  expenses.  General and administrative  expenses
were $15.1  million  for the year ended  December  31,  1996,  compared to $10.1
million for the period ended December 31, 1995. The increase of $5.0 million, or
50%, for the year ended  December 31, 1996 was primarily due to the inclusion of
the cost of in-orbit  life  insurance  for the entire  period  during 1996.  The
policy became effective in May 1995.

     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.

                                       30
<PAGE>




     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.

   YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994

     Revenue.  Services  revenue  for 1995 was $22.3  million  compared  to $3.4
million for 1994.  Revenues from private  communications  network  services were
$10.0  million  from 72  customers in 1995 and $3.4 million from 18 customers in
1994, as the number of sites in service  increased to 151 from 53. Revenues from
transmission  capacity and video distribution services were $12.3 million during
1995.  There  were no  revenues  from these  services  during  1994,  as Orion 1
commenced operations on January 20, 1995.

   OPERATING EXPENSES

     Direct  expenses.  Direct  expenses  were $10.5 million and $3.5 million in
1995 and  1994,  respectively.  The  increase  of $7.0  million,  or  199%,  was
primarily  attributable to accruals for satellite  incentives during 1995, which
were not applicable  prior to launch in November  1994,  costs  associated  with
equipment  sales  ($2.5  million  in 1995,  $0 in 1994),  and  installation  and
maintenance  costs in connection with higher volumes of customer sites placed in
service  during  1995  ($1.3  million  in 1995,  $0.5  million  in 1994).  These
increases were partially  offset by a reduction in leased  transponder  capacity
costs  as  customers  were  transferred  from  leased  capacity  to  Orion 1. No
equipment sales occurred during 1994.

     Sales and  marketing  expenses.  Sales  and  marketing  expenses  were $8.6
million in 1995,  as  compared  to $5.9  million in 1994,  an  increase  of $2.7
million or 47%. The increase is due to the hiring of additional sales personnel,
increased advertising and promotion expenses associated with increased sales and
equipment sales commissions.

     Engineering and technical expenses. Engineering and technical expenses were
$8.5 million in 1995,  as compared to $3.0 million for 1994, an increase of $5.5
million or  approximately  184%.  The  increase  is  attributable  to  increased
staffing  requirements  related to control and operation of the  satellite,  and
customer  engineering  functions  in support  of the  expansion  of the  network
services business.

     General and administrative  expenses.  General and administrative  expenses
were $10.1 million for 1995  compared to $5.1 million for 1994.  The increase of
$5.0  million or 99% was  primarily  due to the cost of in-orbit  insurance  for
Orion 1,  beginning  in May  1995,  and  other  costs  associated  with  Orion's
commencement of full commercial operations.

     Depreciation  and  amortization.  Depreciation  and  amortization was $31.4
million in 1995, an increase of $29.7  million,  as compared to $1.7 million for
1994. The increase  primarily  resulted from the commencement of depreciation of
Orion 1 upon being placed in service January 20, 1995.

     Interest.  Interest  income was $1.9  million  for 1995,  compared  to $0.4
million for the prior year.  The  increase  in  interest  income  during 1995 is
primarily a result of interest  earned on proceeds from Orion's  initial  public
offering  in  August  1995.  Interest  expense,  net  of  capitalized  interest,
increased from $0.06 million for 1994 to $24.7 million for 1995. The increase in
interest  expense  in 1995 is  attributable  to  expensing  interest  (including
commitment  fees  and  amortization  of  deferred   financing  costs)  from  the
in-service  date of Orion 1.  Prior to that  date,  substantially  all  interest
expense was capitalized as part of the cost of Orion 1.

     Other. Other expenses of $3.4 million for the year-ended  December 31, 1995
are  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 $26.9 million and $8.0 million
for 1995 and 1994,  respectively,  after deduction of the Limited  Partners' and
minority  interests'  share in the  Company's  results  of  operations  of $46.1
million and $7.4 million, respectively.

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.

                                       31
<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  $223  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. On a pro forma basis, after giving effect to the Bond
Offering,  the Convertible Debentures Offering and other related transactions as
of December 31, 1996, the Company had cash and cash  equivalents of $140 million
and restricted and segregated cash of $407 million  including $273 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 $134  million  placed in a pledged  account (to pre-fund the
first six interest payments on the Senior Notes).

     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 accreted 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.

         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  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
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)  may be converted 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.

         Orion may at any time (except during 90 days after a change in control)
redeem  all  or  part  (but  not  less  than  25% on any  one  occasion)  of the
Convertible  Debentures for cash  consideration  determined by  multiplying  the
number of shares of Common Stock  issuable upon  conversion  of the  Convertible
Debentures  by the greater of (i) the average  closing price of the Common Stock
over the 20 trading  days  preceding  the  redemption  or (ii) $17.50 per share.
Alternatively,  Orion,  in its sole  discretion,  may effect the sale  through a
public or private  offering,  of the Common  Stock  underlying  the  Convertible
Debentures or received as payment of dividends on, the  Convertible  Debentures.
In such event,  the holders of the  Convertible  Debentures  will be entitled to
receive  a price  per  share  equal to the  greater  of (a) at least  95% of the
average  closing price of the Common Stock over the preceding 20 trading days or
(b)  $17.50  per  share.  From and after the time when less than $50  million of
Notes remain outstanding,  in the event of a change of control of Orion (defined
as the acquisition by any stockholder of a majority of the voting  securities of
Orion), either Orion or any holder of the Convertible  Debentures may, within 90
days  after  such  change  of  control,  require  the  sale  of the  Convertible
Debentures,  as converted into Common Stock, to Orion for a purchase price equal
to the greater of (a) the price payable in an optional  redemption (as described
above)  and (b) the  price  paid to  holders  of Common  Stock in the  change of
control transaction.  The Indentures for the Notes contain a covenant which will
effectively prohibit Orion from honoring such right.

         The Convertible  Debentures are subordinated to all other  indebtedness
of the Company,  including the Notes. The Convertible Debentures contain minimal
covenants  and  events of  default  so long as $50  million or more of the Notes
remain outstanding,  but a more extensive set of covenants and events of default
will apply after less than $50 million of Notes are outstanding.

         Other  Indebtedness  and Other  Obligations.  At December 31, 1996, the
Company had outstanding indebtedness of approximately $7.0 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, 1996 the  Company had  obligations  of
approximately $44 million, with a present value of $22.4 million, payable to the
manufacturer  of Orion 1 through  2007 (of which $13 million was paid in January
1997 upon

                                       32
<PAGE>
the completion of the Bond Offering), and $8 million payable to a former partner
in Orion Atlantic through 1997 (of which approximately $5 million, plus interest
of approximately  $1.7 million was paid in cash in January 1997 upon the closing
of the Bond Offering).

         Current Funding  Requirements.  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 Cash.

         The in-orbit  delivered costs of the Orion 2 and Orion 3 satellites are
expected to aggregate  approximately $500 million. In addition to the $3 million
paid in the  fourth  quarter  of  1996,  Orion  will  need to make  payments  of
approximately  $98 million  ($37.3  million of which had already been paid as of
March  1,  1997),  $350  million  and  $50  million  in  1997,  1998  and  1999,
respectively. These amounts include the Company's estimate regarding the cost of
launch  insurance,  although the Company has not had material  discussions  with
potential insurers and has not received any commitment to provide 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.

         The Company  anticipates  that its existing  cash balances and payments
under the DACOM  contract will be sufficient  to meet  substantially  all of its
capital  requirements  for the  delivery  in orbit  of  Orion 2 and  Orion 3. In
connection  with the Bond Offering,  the Company  segregated $273 million of the
net proceeds to make  payments for  additional  satellites  and certain  related
costs (or to pay interest and principal on the 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 $126 million at December 31, 1996 (after  giving
effect  to the  Transactions).  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  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, 1996,  Orion had net operating  loss  carryforwards  for
federal tax purposes of  approximately  $77.7  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 such net operating loss  carryforwards,  the Company has
established a valuation  allowance for the full amount of its net operating loss
carryforwards.  Of Orion's net operating losses, approximately $58.9 million was
incurred by Orion Atlantic and allocated to Orion.  Orion Atlantic is structured
as a partnership  for U.S.  income tax  purposes.  As a result,  Orion  Atlantic
itself generally should not be subject to federal income taxation.  Instead, the
partners of Orion Atlantic, including Orion and OrionSat, will separately report
their allocable shares of Orion Atlantic's net income,  loss, gain,  deductions,
and credits,  as determined  under the allocation  provisions of the Partnership
Agreement. Orion Atlantic may, however, be subject to income tax on a portion of
its income in certain  states and other  countries  in which it has  operations.
Under the  Partnership  Agreement,  the  first $20  million  of any  losses  was
allocated to OrionSat,  and any losses in excess of that amount  generally  have
been allocated to the partners,  including Orion and OrionSat,  in proportion to
their  respective  percentage  interests.  Subsequent  to  consummation  of  the
Exchange, all losses will be allocated to Orion.

EFFECT OF INFLATION

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

                                       33
<PAGE>




EFFECT OF RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

     In March  1995,  the FASB issued  Statement  No.  121,  Accounting  for the
Impairment of  Long-Lived  Assets and for  Long-Lived  Assets to be Disposed Of,
which  requires  impairment  losses to be recorded on long-lived  assets used in
operations when indicators of impairment are present and the  undiscounted  cash
flows  estimated  to be  generated  by those  assets  are less than the  assets'
carrying amount.  Statement No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. Orion  adopted  Statement No. 121 in
the first  quarter  of 1996.  The effect of  adoption  was not  material  to its
financial condition or results of operations.

     In October 1995,  the FASB issued  Statement No. 123,  Accounting for Stock
Based  Compensation,  which is effective for awards after January 1, 1996. Orion
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
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 Orion's awards,  no compensation
expense is recognized.


                                       34
<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,  1996 and  1995,  and the  related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the three years in the period ended  December 31, 1996.  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, 1996 and 1995, and the consolidated results of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 1996, in conformity with generally accepted accounting principles.



                                ERNST & YOUNG LLP



Washington, DC
March 7, 1997


                                       35
<PAGE>



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

                                                                        December 31,               December 31,
                                                                            1996                       1995
                                                                       --------------               -------------
<S>                                                                    <C>                          <C>
Assets
Current assets:
  Cash and cash equivalents                                           $    42,187,807               $ 55,111,585
  Accounts receivable (less allowance for doubtful accounts of
    $100,000 and $278,000 at December 31, 1996 and 1995, respectively)      6,473,316                  5,189,598
  Notes receivable and accrued interest                                        78,969                    129,810
  Prepaid expenses and other current assets                                 3,504,434                  3,168,058
                                                                       --------------               -------------
Total current assets                                                       52,244,526                 63,599,051

Property and equipment, at cost:
  Land                                                                         73,911                     73,911
  Telecommunications equipment                                             25,342,528                 13,836,841
  Furniture and computer equipment                                          4,849,711                  3,395,799
  Satellite and related equipment                                         321,247,346                321,407,936
                                                                       --------------               -------------
                                                                          351,513,496                338,714,487
  Less:  accumulated depreciation                                         (68,224,957)               (32,170,865)
  Satellite construction in progress                                        4,560,844                    510,613
                                                                       --------------               -------------
  Net property and equipment                                              287,849,383                307,054,235

Deferred financing costs, net                                              12,918,233                 12,894,720
Other assets, net                                                           5,252,302                  5,527,221
                                                                       --------------               -------------
    Total assets                                                      $   358,264,444              $ 389,075,227
                                                                       ==============               =============
Liabilities and stockholders' equity (deficit) Current liabilities:
  Accounts payable                                                    $     6,411,028               $ 10,454,723
  Accrued liabilities                                                       7,653,208                  6,812,223
  Other current liabilities                                                 5,406,072                  2,111,687
  Interest payable                                                          8,583,882                  8,005,079
  Current portion of long-term debt                                        34,975,060                 28,607,110
                                                                       --------------               -------------
    Total current liabilities                                              63,029,250                 55,990,822

Long-term debt                                                            218,236,839                250,669,286
Other liabilities                                                          46,348,291                 20,698,084

Limited Partners' interest in Orion Atlantic                               10,130,058                 14,626,338
Minority interest in other consolidated entities                               54,008                     52,354
Commitments and contingencies (Note 4)
Series A 8% Cumulative  Redeemable  Convertible Preferred Stock,
  $.01 par value; 15,000 shares  authorized;  13,871 and  14,491
  shares issued and  outstanding at  December 31, 1996 and 1995,
  respectively, plus accrued dividends                                     16,097,880                 15,705,054
Series B 8% Cumulative  Redeemable  Convertible Preferred  Stock,
  $.01 par value; 5,000 shares authorized; 4,298 and 4,483 shares
  issued   and   outstanding  at  December  31,  1996  and  1995,
  respectively, plus accrued dividends                                      4,804,486                  4,652,647
Stockholders' equity (deficit):
  Common stock,  $.01 par value;  40,000,000  shares  authorized;
  11,244,665 and 11,115,965 issued, 10,985,150 and 10,856,450 out-
  standing  at  December 31, 1996  and  1995, respectively, less
  259,515 held as treasury shares (at no cost)                                112,447                    111,160
  Capital in excess of par value                                           86,932,391                 85,485,613
  Accumulated deficit                                                     (87,481,206)               (58,916,131)
                                                                       --------------               -------------
    Total stockholders' equity (deficit)                                     (436,368)                26,680,642
                                                                       --------------               -------------
    Total liabilities and stockholders' equity (deficit)              $   358,264,444              $ 389,075,227
                                                                       ==============               =============
</TABLE>

                 See notes to consolidated financial statements.

                                       36

<PAGE>



                           ORION NETWORK SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                   Year ended December 31,
                                                    -------------------------------------------------------
                                                           1996               1995              1994
                                                   ------------------   ---------------   ------------------
<S>                                                <C>                 <C>               <C>
Service revenue                                     $    41,847,292     $    22,283,882   $    3,415,053
Operating expenses:
  Direct                                                  6,024,109          10,485,745        3,503,037
  Sales and marketing                                    11,465,040           8,613,399        5,863,823
  Engineering and technical services                      8,672,943           8,539,644        3,004,144
  General and administrative                             15,089,800          10,072,429        5,058,201
  Depreciation and amortization                          36,948,158          31,403,376        1,716,019
                                                   ------------------   ---------------   ------------------
       Total operating expenses                          78,200,050          69,114,593       19,145,224
                                                   ------------------   ---------------   ------------------

Loss from operations                                    (36,352,758)        (46,830,711)     (15,730,171)

Other expense (income):
  Interest income                                        (2,313,842)         (1,924,822)        (413,435)
  Interest expense                                       27,764,126          24,738,446           60,559
  Other                                                      22,018           3,359,853          (54,737)
                                                   ------------------   ---------------   ------------------
       Total other expense (income)                      25,472,302          26,173,477         (407,613)
                                                   ------------------   ---------------   ------------------

Loss before minority interest                           (61,825,060)        (73,004,188)     (15,322,558)

Limited Partners' and minority interest in
  the net loss of Orion Atlantic and other
  consolidated entities                                  34,629,650          46,089,010        7,357,640
                                                   ------------------   ---------------   ------------------

Net loss                                                (27,195,410)        (26,915,178)      (7,964,918)

Preferred stock dividend, net of forfeitures              1,369,665           1,329,007          626,400
                                                   ------------------   ---------------   ------------------

Net loss attributable to common stockholders        $   (28,565,075)    $   (28,244,185)  $   (8,591,318)
                                                   ==================   ===============   ==================

Net loss per common share                           $         (2.62)    $        (3.07)   $        (0.86)
                                                   ==================   ===============   ==================

Weighted average common shares outstanding               10,951,823           9,103,505        9,272,166
                                                   ==================   ===============   ==================
</TABLE>

                 See notes to consolidated financial statements.


                                       37
<PAGE>



                           ORION NETWORK SYSTEMS, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>


                                                     Common Stock
                                            ------------------------------  Capital in                        Total
                                               Number of                     Excess of     Accumulated    Stockholders'
                                                Shares             Amount    Par Value       Deficit     Equity (Deficit)
                                            --------------  -------------- -------------  -------------  ----------------

<S>                                             <C>         <C>            <C>            <C>            <C>
Balance at December 31, 1993                    6,583,994   $      65,840  $  30,414,374  $ (22,080,628) $     8,399,586
  Issuance of common stock                        782,503           7,825      6,326,028             --        6,333,853
  Exercise of stock options                        31,967             319        208,131             --          208,450
  Conversion of common stock to
     redeemable preferred stock                  (352,941)         (3,529)    (2,996,471)            --       (3,000,000)

  Preferred stock dividend, net of
     forfeitures                                       --              --             --       (626,400)        (626,400)
  Net loss for 1994                                    --              --             --     (7,964,918)      (7,964,918)
                                            --------------  -------------- -------------  -------------  ----------------

Balance at December 31, 1994                    7,045,523          70,455     33,952,062    (30,671,946)       3,350,571
  Issuance of common stock                      4,002,941          40,030     50,960,330             --       51,000,360
  Exercise of stock options and warrants           67,501             675        573,221             --          573,896
  Preferred stock dividend, net of
     forfeitures                                       --              --             --     (1,329,007)      (1,329,007)
  Net loss for 1995                                    --              --             --    (26,915,178)     (26,915,178)
                                            --------------  -------------- -------------  -------------  ----------------

Balance at December 31, 1995                   11,115,965         111,160     85,485,613    (58,916,131)      26,680,642
  Conversion of preferred stock to
      common stock                                 91,071             911        804,034             --          804,945

  Issuance of stock warrants                           --              --        300,000             --          300,000
  Exercise of stock options and warrants           37,629             376        342,744             --          343,120
  Preferred stock dividend, net of                     --              --             --     (1,369,665)      (1,369,665)
       forfeitures
  Net loss for 1996                                    --              --             --    (27,195,410)     (27,195,410)
                                            --------------  -------------- -------------  -------------  ----------------

Balance at December 31, 1996                   11,244,665   $     112,447  $  86,932,391  $ (87,481,206) $      (436,368)
                                            ==============  ============== =============  =============  ================
</TABLE>

                 See notes to consolidated financial statements.


                                       38
<PAGE>



                           ORION NETWORK SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                 Year ended December 31,
                                                               -------------------------------------------------------------
                                                                    1996                  1995                  1994
                                                               ----------------      ----------------      -----------------
<S>                                                            <C>                   <C>                   <C>
Operating activities
Net loss                                                       $   (27,195,410)      $   (26,915,178)      $    (7,964,918)
Adjustments to reconcile net loss to net cash used in
  operating activities:
     Depreciation and amortization                                  36,948,158            31,403,376             1,713,117
     Amortization of deferred financing costs                        2,130,588             2,130,588                    --
     Provision for bad debts                                           919,453               277,529                    --
     Satellite incentives and accrued interest                       2,371,506             5,185,834                    --
     Limited Partners' and minority interest in the net loss
     of  Orion Atlantic and other consolidated entities            (34,629,650)          (46,089,010)           (7,352,704)
     Gain on sale of assets                                            (54,738)              (59,301)              (54,737)
     Changes in operating assets and liabilities:
       Accounts receivable                                          (2,203,171)           (4,915,257)             (426,281)
       Accrued interest                                                 50,481              (129,810)                   --
       Prepaid expenses and other current assets                      (336,376)           (3,017,782)              159,030
       Other assets                                                    (69,708)             (519,773)              321,443
       Accounts payable and accrued liabilities                     (3,621,847)            7,327,377               535,092
       Other current liabilities                                     3,296,913             3,670,988                    --
       Interest payable                                                578,803              (885,106)                   --
                                                               ----------------      ----------------      -----------------
         Net cash used in operating activities                     (21,814,998)          (32,535,525)          (13,069,958)

Investing activities
Capital expenditures                                               (12,625,444)           (8,549,799)           (3,432,286)
Deferred revenue, net                                                9,900,000                    --                    --
Satellite construction costs                                        (3,750,231)             (510,613)          (47,670,720)
Refund from satellite manufacturer                                          --             2,750,000                    --
FCC license costs                                                      (37,865)             (558,817)              (96,030)
                                                               ----------------      ----------------      -----------------
         Net cash used in investing activities                      (6,513,540)           (6,869,229)          (51,199,036)

Financing activities
Limited Partners capital contributions                              30,135,000             7,600,000             4,000,000
Redemption of limited partner interest                                      --            (4,450,000)                   --
Expenditures on debt and equity financing costs                     (2,265,291)                   --              (409,181)
Proceeds from issuance of redeemable preferred stock                        --             4,483,001            10,928,293
Proceeds from issuance of common stock and
  subscriptions, net of issuance costs                                 343,120            51,974,436             6,542,303
PPU borrowings                                                              --             2,275,000             4,375,000
Proceeds from issuance of notes payable                                     --               551,850             8,136,191
Proceeds from senior notes payable to banks                                 --            18,367,134            36,685,505
Payments of senior notes payable to banks                          (22,768,340)          (12,468,049)                   --
Payments of notes payable                                           (5,033,941)           (1,916,966)                   --
Payments on capital lease obligations                                 (755,995)             (576,727)             (252,823)
Capacity and other liabilities                                      15,750,207            17,483,733             2,101,168
Distributions to joint venture minority interest                            --               (25,904)              (22,873)
                                                               ----------------      ----------------      -----------------
         Net cash provided by financing activities                  15,404,760            83,297,508            72,083,583
                                                               ----------------      ----------------      -----------------
Net (decrease) increase in cash and cash equivalents               (12,923,778)           43,892,754             7,814,589
Cash and cash equivalents at beginning of period                    55,111,585            11,218,831             3,404,242
                                                               ----------------      ----------------      -----------------
Cash and cash equivalents at end of period                     $    42,187,807       $    55,111,585       $    11,218,831
                                                               ================      ================      =================
</TABLE>


                 See notes to consolidated financial statements.

                                       39
<PAGE>
                           ORION NETWORK SYSTEMS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. ORGANIZATION

     Orion  Network  Systems,  Inc.  (Orion)  was  incorporated  in the State of
Delaware  on  October  26,  1982  (inception)  under  the name  Orion  Satellite
Corporation,  and in January 1988,  changed its name to Orion  Network  Systems,
Inc. Orion has developed and operates an international satellite  communications
system for use in private  communications  networks to multinational  businesses
and  transmission  capacity for video and other program  distribution  services.
Orion has been  financed by private and public  equity and debt from  individual
and corporate  investors.  Orion's first  satellite  (Orion 1) was  successfully
launched on November 29, 1994.  Orion took  delivery of the Orion 1 satellite on
January 20,  1995.  In August 1995,  the Company  completed  its initial  public
offering of common stock by selling  4,000,000  common  shares at $14 per share.
Proceeds to the Company, net of underwriting discount,  aggregated approximately
$52.25 million.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION POLICY

     The consolidated  financial  statements  include the accounts of Orion, its
two wholly-owned  subsidiaries  OrionNet,  Inc. (OrionNet) and OrionSat, its 83%
owned subsidiary, Asia Pacific Space and Communications Ltd. (Asia Pacific), the
Orion  Financial  Partnership,  in which Orion holds a 50%  interest,  and Orion
Atlantic,  in which Orion  holds,  at December  31,  1996,  a 41 2/3%  ownership
interest.  Management  control and direction of Orion  Atlantic by OrionSat is a
requirement  of the FCC in order  for Orion  Atlantic  to  continue  to hold the
license  authority  received in June 1991.  OrionSat,  as the general partner of
Orion Atlantic, exercises such control through the provisions of the partnership
agreement.  The amount  reflected  in the balance  sheet as  "Limited  Partners'
interest in Orion Atlantic"  represents  amounts invested by entities other than
Orion (net of syndication  costs related to the investments)  adjusted for those
Limited  Partners'  share of operating  results.  All  significant  intercompany
accounts and transactions have been eliminated.

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,
                                     ----------------------------------
                                          1996             1995
                                     --------------   -----------------
Cash.......................          $    2,627,477   $     3,091,277
Money market funds.........              14,213,484         6,018,925
Commercial paper...........              25,346,846        34,612,175
FHLMC discount notes.......                      --        11,389,208
                                     --------------   -----------------
                                     $   42,187,807   $    55,111,585
                                     ==============   =================

The commercial paper held at December 31, 1996 matures between January and March
1997.

PROPERTY AND EQUIPMENT

     Property and equipment are carried at cost.  Depreciation  and amortization
are 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).

     In March 1995,  the  Financial  Accounting  Standards  Board (FASB)  issued
Statement No. 121,  "Accounting for the Impairment of Long-Lived  Assets and for
Long-Lived  Assets to Be Disposed Of",  which requires  impairment  losses to be
recorded on long-lived  assets used in operations  when indicators of impairment
are present and the  undiscounted  cash flows estimated to be generated by those
assets  are less  than the  assets'  carrying  amount.  Statement  No.  121 also
addresses the accounting for long-lived  assets that are expected to be disposed
of. The effect of adoption was not material.

                                       40
<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 obtaining  debt and Orion's share of
equity  financing for Orion  Atlantic are amortized  over the period the debt is
expected to be  outstanding.  Accumulated  amortization at December 31, 1996 and
1995 was $9,122,000 and $6,991,000,  respectively.  Amortization through January
1995  was  capitalized  as  part  of  the  cost  of  the  satellite.   Costs  of
approximately  $3.4 million  relating to a debt  offering  that was postponed in
November 1995 have been charged to "Other" expense.

OTHER ASSETS

     Other  assets  consist   principally  of  FCC  license  application  costs,
organization  costs and  goodwill.  The  Company  began  amortizing  FCC license
application  costs related to Orion 1 in January 1995 over the estimated  useful
life of the satellite.  Organization  costs and goodwill are amortized over five
and ten years  respectively.  Accumulated  amortization at December 31, 1996 and
1995 was $3,150,000 and $3,069,000, respectively.

INTEREST RATE MODIFICATION AGREEMENTS

     Orion  may,  from  time to  time,  enter  into  interest-rate  swap and cap
agreements to modify the interest characteristics of its outstanding debt from a
floating to a fixed-rate basis. These agreements involve the receipt of floating
rate amounts in an exchange for  fixed-rate  interest  payments over the life of
the  agreement  without an  exchange of the  underlying  principal  amount.  The
differential  to be paid or  received is accrued as  interest  rates  change and
recognized as an adjustment to interest expense related to the debt. The related
amount  payable to or  receivable  from  counterparties  is included in interest
payable.  The fair  values  of the swap  agreements  are not  recognized  in the
financial statements.

REVENUE RECOGNITION

     Orion's  revenue  results  from  providing  telecommunications  and related
services.  Revenue is recognized  as earned in the period in which  services are
provided.

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

                                               Year ended December 31,
                                           -------------------------------
                                              1996             1995
                                           -------------- ----------------
Revenues from unaffiliated customers
    United States.......................   $  21,261,980  $     8,528,736
    Europe..............................      14,571,979        8,056,146
Revenues from related parties...........       6,013,333        5,699,000
                                           -------------- ----------------
Total services revenue..................   $  41,847,292  $    22,283,882
                                           ============== ================

                                       41
<PAGE>



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


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 difference is expected to reverse.

     Following is a summary of the  components  of the net deferred tax asset at
December 31, 1996 and 1995 (in thousands):

                                                    December 31,
                                                1996             1995
                                         ----------------   ----------------
Tax benefit of temporary differences:
Net operating loss carryforward           $        29,535   $        19,463
Orion Atlantic losses..........                       182             1,237
Other..........................                     2,427             1,056
                                         ----------------   ----------------

Total..........................                    32,144            21,756
Valuation allowance............                   (32,144)          (21,756)
                                         ----------------   ----------------
Net deferred tax asset.........           $            --   $            --
                                         ================   ================

     At  December  31,  1996,  Orion  has  approximately  $77.7  million  in net
operating  loss  carryforwards  which expire at varying  dates from 2004 through
2011.  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,  the Company has established a valuation  allowance for the
full amount of its net operating loss carryforwards.

NET LOSS PER COMMON SHARE

     Net loss per common share is based on the weighted average number of common
shares  outstanding  during the  period.  Pursuant  to the  requirements  of the
Securities  and Exchange  Commission,  common  stock  issued and stock  issuable
relating to convertible preferred stock, warrants and options granted within one
year of filing the  registration  statement  relating to the  Company's  initial
public  offering of common  stock were  treated as  outstanding  for all periods
prior to the second quarter of 1995.

STATEMENTS OF CASH FLOWS

Non-cash   investing  and  financing   activities  and  supplemental  cash  flow
information includes:
<TABLE>
<CAPTION>

                                                                           December 31, 1996
                                                          --------------------------------------------------
                                                                1996             1995              1994
                                                          ---------------   ---------------  ---------------
<S>                                                      <C>               <C>              <C>
Satellite construction costs financed by notes payable    $            --   $            --  $     7,862,050
Conversion of common stock to redeemable
  preferred stock....................................
Property and equipment financed by capital leases....             482,452         2,850,766           94,323
Preferred stock dividend, net of forfeitures.........           1,369,665         1,329,007          626,400
Conversion of preferred stock to common stock........             804,945             9,000               --
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               --
Interest paid during the year, net of amounts                  20,619,316        11,312,875           45,051
capitalized..........................................
</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.

                                       42
<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 OrionSat,  the general  partner of Orion  Atlantic.  The  principal
purposes  of  Orion  Atlantic  were 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 also has 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 have agreed to lease capacity on the satellites up to an aggregate $155
million and have 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 are payable over
a  seven-year  period after the first  satellite  is 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.

     Satellite  Construction  Contract  --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 requires 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 has 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 are delayed until
payment is 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.

     Partnership and Limited Partners -- OrionSat has the primary responsibility
for the  control,  management  and  operations  of  Orion  Atlantic.  Under  the
partnership  agreement,  the limited  partners  have  rights of  approval  for a
limited  number  of  matters,  e.g.,  terms  for  acceptance  of  new  partners,
significant  budget  modifications,  and certain  borrowings.  The financing and
legal structure of Orion Atlantic restricts the use of partnership  resources to
the purposes of constructing, launching and operating the satellite system.

     Condensed balance sheet information for Orion Atlantic at December 31, 1996
and 1995 is as follows:



                                                       December 31,
                                             ----------------------------------
                                                   1996             1995
                                             ---------------   ----------------
Assets
Current assets...........................    $    14,959,986   $    14,085,169
Property and equipment, net..............        285,006,166       303,889,894
Deferred financing costs and other.......         12,773,951        16,051,517
                                             ---------------   ----------------
     Total assets........................    $   312,740,103   $   334,026,580
                                             ===============   ================

Liabilities and partnership capital
Current liabilities......................    $    59,139,777   $    52,883,250
Long-term debt and other liabilities.....        274,732,228       284,110,104
Partnership capital subject to redemption                 --                --
Partnership (deficit) capital............        (19,081,902)        1,533,226
Less:  Orion Network Systems, Inc. note..         (2,050,000)       (4,500,000)
                                             ---------------   ----------------
     Total liabilities and partnership
         capital.........................    $   312,740,103   $   334,026,580
                                             ================  ===============

                                       43
<PAGE>



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


3.  ORION ATLANTIC (CONTINUED)

         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").  Such  redemption  was 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 remain in
place  until  released by the Banks  under the Orion 1 Credit  Facility.  STET's
existing  contractual  arrangements  with Orion Atlantic have been 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 has 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  satellite  and
related equipment.

     During 1995,  Orion Atlantic  entered into  agreements with certain Limited
Partners (including the Company) under which the participating  Limited Partners
would  voluntarily  give up their  rights to receive  capacity  under their firm
capacity  agreements  through January 1996. The  participating  Limited Partners
would  continue to make  payments for such  capacity but would have the right to
receive  refunds from Orion Atlantic out of cash available after operating costs
and  payments  under the Credit  Facility.  Through  December 31, 1996 and 1995,
Orion Atlantic has received $27.7 million and $14.1 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  $6.0 million and $5.7  million in 1996 and 1995 from Limited  Partners
pursuant to the firm capacity commitments, not subject to refund.

4. COMMITMENTS AND CONTINGENCIES

     Obligations with Respect to Orion Atlantic -- Orion has certain significant
obligations to Orion Atlantic and the Limited  Partners,  including  commitments
under satellite  capacity  agreements  between Orion and Orion  Atlantic,  under
which Orion will be liable to pay Orion Atlantic  approximately $2.5 million per
year for seven years for satellite capacity and is contingently liable for up to
an  additional  $4.3  million per year for up to seven  years if Orion  Atlantic
experiences  cash flow deficits not outstanding at December 1997 commencing when
Orion Atlantic's first satellite begins commercial operations; and reimbursement
(jointly and severally  with  OrionSat)  with respect to a $10 million letter of
credit  provided by OrionSat to a limited  partner,  which is secured by 259,515
shares of Orion's  common  stock held in treasury  and cash  distributions  that
Orion and OrionSat may receive  with respect to their  partnership  interests in
Orion Atlantic.

     Orion 1 satellite  -- 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. The nine affected transponders account for
a majority of Orion Atlantic's  present  revenues.  Full service to all affected
customers  was  restored  using  redundant  equipment  on the  satellite.  Orion
Atlantic  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 Orion
Atlantic'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 Orion Atlantic would be entitled
to insurance  proceeds of approximately  $50 million and could lease replacement
capacity  and function as a reseller  with respect to such  capacity (at reduced
levels of  profitability),  the loss of capacity  would have a material  adverse
effect on Orion and on Orion Atlantic.

     Orion 2 satellite -- 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. Orion 2 will
expand the Company's  European  coverage and extend  coverage to portions of the
Commonwealth of Independent States, Latin American 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. Orion 3 will cover broad areas of the Asia
Pacific region including China, Japan,  Korea,  Southeast Asia,  Australia,  New
Zealand, Eastern Russia and Hawaii.

                                       44
<PAGE>



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


4. COMMITMENTS AND CONTINGENCIES (CONTINUED)

     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.  In December 1996, Orion received a $10 million deposit and
such amount is included in "Other  liabilities".  Orion  maintains a $10 million
letter of credit which increases as DACOM makes additional  deposits.  DACOM has
the right to terminate  the  contract at any time prior to March 31, 1997,  upon
which termination  Orion would be entitled to retain all deposited funds.  Prior
to launch, payments will be held in escrow and are subject to refund pending the
successful launch and commencement of commercial operation of Orion 3.

     Eutelsat  Lease -- In January 1993,  Orion  Atlantic  entered into a lease,
which expired in December  1994,  with one of its limited  partners  under which
Orion Atlantic leased one-half of a transponder on a EUTELSAT  satellite for use
in providing private network services prior to the operational delivery of Orion
1. The lease  required  quarterly  payments of $481,000  of which  $855,000  was
deferred by the limited  partner until March 1995. Rent under this lease totaled
$1.9 million in 1994.

     Litigation -- 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.  This initial hearing was
scheduled to take place in November 1996. On November 9, 1996, Orion and Skydata
executed a letter to settle in full the pending  litigation and arbitration.  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
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.  The
parties are in the process of documenting the final terms in a formal settlement
agreement.

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

     Other -- Orion has entered into operating  leases,  principally  for office
space.  Rent expense was $915,000,  $735,000 and $668,000 during the years ended
December 31, 1996, 1995, and 1994, respectively.

     Future minimum lease payments are as follows:

                    1997......................  $  1,073,582
                    1998......................       969,302
                    1999......................       989,640
                    2000......................        13,694
                                                ------------
                                                $  3,046,218
                                                ============


                                       45
<PAGE>



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


5. LONG-TERM DEBT

See Note 9 for  discussion  of  significant  financing  transactions  that  were
consummated on January 31, 1997.

Long-term debt at December 31, 1996 and 1995, consists of the following:


                                                     December 31,
                                            -----------------------------
                                                1996            1995
                                            ------------   --------------

Senior notes payable - banks............    $207,714,842   $  230,483,182
Note payable - TT&C Facility............       6,956,624        8,774,266
Satellite incentive obligation..........      22,373,746       20,002,240
Notes payable - STET....................       5,550,000        8,000,000
Note payable - Limited Partners.........       8,050,000        8,050,000
Other ..................................       2,566,687        3,966,708
                                            ------------   --------------

Total long-term debt....................     253,211,899      279,276,396
Less: current portion...................      34,975,060       28,607,110
                                            ------------   --------------
Long-term debt less current portion.....    $218,236,839   $  250,669,286
                                            ============   ==============



Total interest (including commitment fees and amortization of deferred financing
costs)  incurred for the years ended December 31, 1996, 1995 and 1994 was $27.8,
$26.0,  and  $27.0  million,  respectively.  Substantially  all of the  interest
incurred in 1994 was capitalized and $1.3 million was capitalized in 1995.

     Aggregate annual  maturities of long-term debt consist of the following (in
thousands):

                    1997..................      $        34,964
                    1998..................               34,422
                    1999..................               46,914
                    2000..................               43,619
                    2001..................               47,317
                    Thereafter............               45,976
                                                ---------------
                                                $       253,212
                                                ===============

     Senior Notes Payable to Banks -- In December 1991,  OrionSat,  on behalf of
Orion  Atlantic,  executed a credit  agreement  for up to $400 million of senior
debt from an international banking syndicate.  Amounts advanced under the credit
facility  are  secured  by the assets of Orion  Atlantic  and are due over seven
years in graduated  installments  beginning July 31, 1995. The credit  agreement
prohibits  the  extension  of credit by Orion  Atlantic to any  affiliate of the
partnership,  as defined.  Accordingly,  Orion  Atlantic may not loan or advance
funds to the Company or its  affiliates.  The credit  agreement  also  restricts
distributions  to the partners.  At December 31, 1996, none of Orion  Atlantic's
capital was  available  for  distribution.  The credit  facility has a number of
other  customary  covenants and  requirements,  including the Banks' approval of
significant  changes to the  construction  contract  and  increases  in budgeted
costs.  The Banks also have full  recourse to OrionSat as general  partner,  and
Orion has pledged its investment in the common stock of OrionSat and its limited
partner ownership interest to the Banks.

     Amounts  outstanding  under the credit facility bear interest at 1.75% over
the  LIBOR  (7.6% at  December  31,  1996).  Orion  Atlantic  has  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  is in place
relating  to a notional  amount  declining  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 equals or exceeds  5.5% Orion  Atlantic
pays Chase a fee equal to 3.3% per annum of the  notional  amount and receives a
payment from Chase in an amount equal to the difference between the actual LIBOR
rate and 5.5% on the notional  amount.  There was an unrealized loss at December
31, 1996 and 1995 of  approximately  $6.4 million and $4.6  million  relating to
this arrangement.

                                       46
<PAGE>



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


5.    LONG TERM DEBT (CONTINUED)

     Note Payable -- TT&C  Facility -- Orion  Atlantic  entered into a financing
arrangement with General Electric  Capital  Corporation  ("GECC") to finance the
Tracking Telemetry and Control ("TT&C") Facility. The TT&C arrangement calls for
a note payable,  the maximum  amount of which is $11 million of which up to $8.9
million is for payment to Lockheed  Martin under the  Satellite  Control  System
Contract,  with the remaining  balance available to be drawn to finance the cost
of launch  insurance  required  for the  benefit of GECC.  In June  1995,  Orion
Atlantic  accepted the TT&C Facility and Orion Atlantic  refinanced $9.3 million
from GECC as a seven-year  term loan,  payable  monthly.  Orion  Atlantic made a
mandatory  prepayment of $1 million in January 1996.  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  similar  representations,  warranties  and
covenants to those in the senior notes.

     Satellite  incentive  obligation -- 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 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.

     Notes  Payable  -- STET -- In  connection  with  the STET  Redemption,  the
Company  issued STET $8 million of  promissory  notes which bear interest at 12%
per annum.  Payments are 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.

     Notes  Payable -- Limited  Partners  -- In 1993,  Orion  Atlantic  received
commitments for Preferred  Participation  Units (PPUs)  aggregating $9.6 million
from  certain  Limited  Partners  (including  $1.5  million  from Orion  Network
Systems) for development of Orion Atlantic's network services business.  Holders
of PPUs earn  interest on aggregate  amounts drawn at the rate of 30% per annum,
of which 6% is paid and the remainder accrued,  but not paid until July 1, 1995,
at which time interest and principal  payments due are subordinated to operating
requirements   and  senior  notes  debt   service  but  are  payable   prior  to
distributions  to  Limited  Partners.  Principal  amounts  drawn are  payable on
February 1, 1999.  Principal  amounts may be prepaid without penalty on or after
January 1, 1996.  Interest payable at December 31, 1996 and 1995 is $5.9 million
and $3.5 million and is included in "Other liabilities".

6.  REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

   See Note 9 for  discussion  of  significant  equity  transactions  that  were
consummated on January 31, 1997.

   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  beginning in June 1996 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  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,  1996,  629 shares of  preferred  stock were
converted into 74,000 shares of common stock. The remaining 13,871 shares issued
are  convertible  into 1,631,882  shares of common stock and the preferred stock
underlying the options are convertible into 25,894 shares of common stock.

                                       47
<PAGE>



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


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

     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,  1996,  185 shares of preferred  stock were  converted  into 18,137
shares of common stock.

     Stockholders' Equity

     Stock  Options -- In 1987,  Orion  adopted a stock option plan.  Under this
plan,  as amended,  1,470,588  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 market  value,  as  determined by the
Board of  Directors,  on the date the option is granted.  The Board of Directors
also has granted  nonqualified options to purchase 53,341 shares of common stock
outside the plan described at prices ranging from $5.44 to $12.24 per share.

     Stock options outstanding at December 31:
<TABLE>
<CAPTION>

                                         1996             1995             1994
                                   ---------------   --------------- ----------------
<S>                                <C>       <C>     <C>       <C>   <C>       <C>
Range of exercise price........... $  8.16 - 12.24   $  5.44 - 12.24 $  5.44 - 12.24
                                   ---------------   --------------- ----------------

Outstanding of  beginning of year          971,469           804,056         871,464
Granted during year...............         122,750           380,069          37,867
Exercised.........................         (37,629)          (60,928)        (31,967)
Canceled .........................        (144,927)         (151,728)        (73,308)
                                   ---------------   --------------- ----------------
Outstanding at end of year........         911,663           971,469         804,056
                                   ===============   =============== ================
</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.  There are 558,925 shares
available  to be  granted  under the plan.  As of  December  31,  1996 and 1995,
429,265 and  356,226,  respectively,  qualified  and  nonqualified  options were
exercisable.

     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 vest 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  completes  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 1996, there were 190,000 options
granted pursuant to this plan at $8.49 to $12.53 per share.

                                       48
<PAGE>



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


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

     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: risk free interest
rate of 6.5%,  dividend yield of 0%,  volatility  factor of the expected  market
price of the Company's common stock of 68% and a weighted-average  expected life
of the option of 5.8 years. For purposes of pro forma disclosure,  the estimated
fair value of the options is  amortized  to expense  over the  options'  vesting
period.  For the years ended December 31, 1996 and 1995, the Company's pro forma
net loss and net loss per share  would  have  been  $28.0  million  or $2.68 per
share, and $27.3 million or $3.11 per share, respectively.

     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.

     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  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.

     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 warrant at the date of
issue was $300,000 and was estimated using a Black-Scholes valuation model.

     Stock  warrants  outstanding at December 31, 1996 and 1995 were 142,115 and
553,768, respectively.  Outstanding warrants are exercisable at $9.79 to $14 per
share.  Warrants  totaling  461,653  expired  during the year ended December 31,
1996. In January 1997,  British Aerospace  exercised 86,505 warrants to purchase
shares of common stock at $11.56 per share.

     The holders of  preferred  stock also hold  warrants to purchase  1,631,882
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.

     Reserve for Issuance - The Company has 24,125,482 shares of common stock at
December 31, 1996  reserved for issuance  upon  conversion  of preferred  stock,
exercise of  outstanding  stock  options and  warrants,  and common stock issued
under the stock purchase and 401(k) profit sharing plans.

7. FAIR VALUES OF FINANCIAL INSTRUMENTS

     Other than  amounts  due under the  senior  notes  payable to banks,  Orion
believes  that the carrying  amount  reported in the balance  sheet of its other
financial assets and liabilities  approximates  their fair value. The fair value
of Orion Atlantic's  senior notes payable to banks at December 31, 1996 and 1995
was  estimated to be $214.1  million and $235.1  million  based on the principal
balance  outstanding,  net of the  estimated  fair  value of the  interest  rate
modification agreement,  which approximates an implicit loss of $6.4 million and
$4.6 million,  respectively.  Credit risk exists if the counterparty is not able
to make the required  payments to Orion under these  agreements.  Orion believes
the risk to be remote.

                                       49
<PAGE>



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


8. CONDENSED FINANCIAL INFORMATION OF ORION


     The net assets, credit facilities and other resources of Orion Atlantic are
restricted to the construction and operation of the satellite system.  Presented
below are  condensed  balance  sheets of Orion  (parent  company  only basis) at
December 31, 1996 and 1995 and condensed statements of operations and cash flows
for  the  years  ended   December  31,  1996,   1995  and  1994.   All  material
contingencies,   obligations  and  guarantees  of  Orion  have  been  separately
disclosed in the preceding notes to the financial statements.

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

                                                                                   December 31,
                                                                            1996                  1995
                                                                      ---------------        ----------------
<S>                                                                    <C>                   <C>

ASSETS
Current assets:
  Cash and cash equivalents...................................         $   26,564,562        $    48,797,627
  Receivable from Orion Atlantic..............................                253,088              1,217,169
  Other current assets........................................                766,784                611,391
                                                                      ---------------        ----------------
       Total current assets...................................             27,584,434             50,626,187

Investment in and advances to subsidiaries:
  OrionNet....................................................              8,331,248              5,993,628
  OrionSat....................................................            (35,336,290)           (20,496,009)
  Asia Pacific................................................              1,397,588              1,634,048
  Orion Asia Pacific..........................................              4,324,426                     --
  Orion Atlantic..............................................              9,194,820             10,585,573
Other assets..................................................             10,590,071              6,256,742
                                                                      ---------------        ----------------
       Total assets...........................................         $   26,086,297        $    54,600,169
                                                                      ===============        ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Notes and interest payable to Orion Atlantic................         $    2,327,427        $     2,482,667
  Accounts payable and accrued liabilities....................              2,828,616              2,361,291
                                                                      ---------------        ----------------
       Total current liabilities..............................              5,156,043              4,843,958
Notes and interest payable to Orion Atlantic..................                     --              2,077,327
Other liabilities.............................................                464,256                640,541
Redeemable preferred stock....................................             20,902,366             20,357,701
Stockholders' equity (deficit)................................               (436,368)            26,680,642
                                                                      ---------------        ----------------
       Total liabilities and stockholders' equity.............         $   26,086,297        $    54,600,169
                                                                      ===============        ================
</TABLE>

                                       50

<PAGE>



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


8.  CONDENSED FINANCIAL INFORMATION OF ORION (CONTINUED)

        CONDENSED STATEMENTS OF OPERATIONS OF ORION NETWORK SYSTEMS, INC.

<TABLE>
<CAPTION>

                                                                            Year ended December 31,
                                                         ------------------------------------------------------------
                                                              1996                   1995                  1994
                                                         ---------------       ---------------       ----------------

<S>                                                      <C>                   <C>                   <C>
Services revenue.....................................    $        34,000       $            --       $            --
Operating expenses and other income:
   General and administrative........................          3,832,286             3,171,305             2,487,201
   Interest income, net..............................         (1,883,719)           (1,834,589)             (243,152)
                                                         ---------------       ---------------       ----------------
   Total operating expenses and other income.........          1,948,567             1,336,716             2,244,049
Equity in net losses of subsidiaries.................         25,280,843            25,578,462             5,720,869
Net loss.............................................    $   (27,195,410)      $   (26,915,178)      $    (7,964,918)
                                                         ===============       ===============       ================
</TABLE>




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

<TABLE>
<CAPTION>

                                                                            Year ended December 31,
                                                               1996                  1995                  1994
                                                         ----------------      ----------------      ---------------
<S>                                                      <C>                   <C>                   <C>
Net cash used in operations......................        $    (4,046,446)      $    (4,107,237)      $    (2,709,307)

Investing activities:............................
  Advances to subsidiaries.......................             (6,918,710)           (3,264,024)           (2,973,264)
  Investment in Orion Atlantic...................             (8,610,000)           (5,400,000)                   --
  Capital expenditures...........................               (504,729)             (597,698)             (771,890)
                                                         ----------------      ----------------      ---------------
  Net cash used in investing activities..........            (16,033,439)           (9,261,722)           (3,745,154)

Financing activities:
  Proceeds from issuance of redeemable preferred stock                --             4,483,001            10,928,293
  Proceeds from issuance of common stock.........                343,120            51,974,436             6,542,303
  PPU funding....................................                     --              (455,000)             (765,000)
  Repayment of notes payable.....................             (2,496,300)              (37,792)           (5,648,535)
                                                         ----------------      ----------------      ---------------
  Net cash (used in) provided by financing activities         (2,153,180)           55,964,645            11,057,061
                                                         ----------------      ----------------      ---------------
  Net (decrease) increase in cash and cash equivalents       (22,233,065)           42,595,686             4,602,600
Cash and cash equivalents at beginning of year...             48,797,627             6,201,941             1,599,341
                                                         ----------------      ----------------      ---------------
Cash and cash equivalents at end of year.........        $    26,564,562       $    48,797,627       $     6,201,941
                                                         ================      ================      ===============
</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.



                                       51

<PAGE>



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



9.  SUBSEQUENT EVENTS (UNAUDITED)

     THE EXCHANGE

     On January 31, 1997,  the Company  acquired all of the limited  partnership
interests  which it did not already  own in Orion  Atlantic.  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,  including
certain  of the  Exchanging  Partners'  rights to receive  repayment  of various
advances.  The 123,172 shares of Series C Preferred Stock issued in the Exchange
are 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  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 all its significant subsidiaries and, therefore, a
greatly simplified corporate structure.

     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 FINANCINGS

     On January 31, 1997,  the Company  completed a $710  million bond  offering
(the "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 is $ .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 net  proceeds of the Offering to the Company  were  approximately  $684
million.  Other than $134  million  placed in a pledged  account to pre-fund the
first six  interest  payments on the Senior  Notes,  the net  proceeds  from the
Offering  were used by the Company to repay the Orion 1 credit  facility and may
be used to build and launch  additional  satellites,  including  the Orion 2 and
Orion 3 satellites.

     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")  purchased $50 million and $10
million  of  the  Convertible  Debentures,   respectively   (collectively,   the
"Convertible  Debenture  Investments,"  and  together  with  the  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.

                                       52
<PAGE>



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



9.  SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)

     PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     The following pro forma condensed  consolidated  financial  statements give
effect,  as of December 31, 1996, as to the Balance Sheet,  and January 1, 1996,
as to the  Statement  of  Operations,  to  the  Exchange,  the  Merger  and  the
Financings consummated on January 31, 1997, all as described above. In addition,
the pro forma  condensed  consolidated  financial  statements give effect to the
following transactions, which were, directly or indirectly, conditions precedent
to, or result from,  the  Exchange,  the Merger and the  Financings as described
above: (i) the use of the net proceeds from the Financings to repay indebtedness
under the Orion 1 Credit Facility,  to prefund the first six scheduled  interest
payments,  and to pay interest rate hedge  breakage  costs  associated  with the
Orion 1 Credit  Facility,  (ii) the acquisition by Orion of British  Aerospace's
17%  ownership of Orion Asia Pacific for  approximately  86,000 shares of common
stock, (iii) payments of approximately $4.0 million, including accrued interest,
owed to STET, a former limited partner of Orion Atlantic, and (iv) the write-off
of deferred financing fees (such transactions  collectively with the Merger, the
Exchange, and the Financings, the "Transactions").

     The unaudited pro forma condensed  consolidated financial statements do not
purport to present the actual financial position or results or operations of the
Company had the  Transactions in fact occurred on the dates  specified,  nor are
they indicative of the results of operations that may be achieved in the future.

                 PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
                    (AMOUNTS, EXCEPT SHARE AMOUNTS, IN 000'S)
<TABLE>
<CAPTION>

                                                                                          DECEMBER 31, 1996
                                                                                         -------------------
<S>                                                                                      <C>
Assets
Current assets................................................                           $           149,720
Property and equipment, net...................................                                       320,707
Restricted and segregated cash................................                                       406,937
Deferred financing costs, net.................................                                        25,865
Other assets, net.............................................                                        25,365
                                                                                         -------------------
Total assets..................................................                           $           928,594
                                                                                         ===================

Liabilities and stockholders' equity
Current liabilities...........................................                           $            23,730
Long-term debt................................................                                       779,283
Other liabilities.............................................                                        11,528
Limited Partners' interest in Orion Atlantic..................                                            --
Redeemable preferred stock....................................                                       111,902
Stockholders' equity..........................................                                         2,151
                                                                                         -------------------
Total liabilities and stockholders' equity....................                           $           928,594
                                                                                         ===================

            PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                                                                                             YEAR ENDED
                                                                                         DECEMBER 31, 1996
                                                                                         -------------------
Services revenue..............................................                           $          41,847

Operating expenses............................................                                      82,931
Other expense (income)........................................                                      92,546
Net loss......................................................                                    (133,630)
Preferred stock dividend and accretion, net of forfeitures....                                       9,273
                                                                                         -------------------
Net loss attributable to common stockholders..................                           $        (142,903)
                                                                                         ===================
Net loss per common share.....................................                           $          (12.71)
                                                                                         ===================
Weighted average common shares outstanding....................                                  11,247,062
                                                                                         ===================
</TABLE>

                                       53
<PAGE>



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



9.  SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)

     TELEPORT EUROPE ACQUISITION

     On March 26, 1997,  Orion  acquired  German-based  Teleport  Europe GmbH, a
communications  company specializing in private satellite networks for voice and
data services.  Orion purchased the shares of Teleport Europe held by the German
companies,  Vebacom  GmbH  and RWE  Telliance  AG,  now  known  as  o.tel.o  for
approximately $9 million.

10.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following is a summary of the quarterly  results of operations  for the
years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>

                                        MARCH 31              JUNE 30             SEPTEMBER 30        DECEMBER 31
                                    ---------------       ---------------       ----------------     ----------------
                                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                 <C>                   <C>                   <C>                   <C>
1996
  Revenues......................    $         7,646       $        10,123       $        12,247       $        11,831
  Loss from operations..........            (10,155)               (8,963)               (7,151)              (10,084)
  Loss before minority interest.            (16,985)              (14,637)              (12,985)              (17,218)
  Net loss......................             (7,251)               (6,760)               (5,796)               (7,388)
  Net loss per share............             (0.70)                (0.65)                (0.55)                (0.72)

1995
  Revenues......................    $         2,508       $         5,238       $         6,201       $         8,336
  Loss from operations..........            (11,891)              (12,038)              (13,525)               (9,377)
  Loss before minority interest.            (15,978)              (18,248)              (19,186)              (19,592)
  Net loss......................             (5,996)               (6,991)               (6,998)               (6,930)
  Net loss per share............             (0.64)                (0.75)                (0.78)                (0.67)
</TABLE>

                                       54

<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

<TABLE>
<CAPTION>
                                                                                     TERM EXPIRES
         NAME             AGE                  POSITION WITH ORION                   (DIRECTORS)
----------------------  -------  -----------------------------------------------  ------------------
<S>                      <C>     <C>                                                    <C>
Gustave M. Hauser.....    68     Chairman, Director                                      1998

W. Neil Bauer.........    50     President and Chief Executive Officer.                  1999
                                 Director (Principal Executive Officer)
David J. Frear........    40     Vice President, Chief Financial Officer                  --
                                 and Treasurer (Principal Financial Officer
                                 and Principal Accounting Officer)
Richard H. Shay.......    56     Vice President, Corporate and Legal Affairs,             --
                                 and Secretary
Denis Curtin..........    58     Senior Vice President, Orion Satellite                   --
                                 Corporation and General Manager,
                                 Engineering and Satellite Operations
Han C. Giner..........    58     Vice President of Orion and President,                   --
                                 Orion Asia Pacific Corporation, Vice President
                                 of Orion
Richard J. Brekka.....    36     Director                                                1997
Warren B. French, Jr..    73     Director                                                1997
Barry Horowitz........    53     Director                                                1998
Sidney S. Kahn........    60     Director                                                1999
John G. Puente........    67     Director                                                1998
W. Anthony Rice.......    45     Director                                                1997
John V. Saeman........    61     Director                                                1998
Robert M. Van Degna...    53     Director                                                1999
</TABLE>




                                       55

<PAGE>



ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)

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 and Treasurer of Orion since January 1994.  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 and a Vice
President since April 1992. 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,  OrionSat  and General  Manager,
Engineering and Satellite Operations. 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 Asia Pacific  Corporation,  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.

     Richard J.  Brekka has been a director  of Orion  since June 1994.  He is a
Managing Director of CIBC Wood Gundy Capital  ("CIBC-WG"),  the merchant banking
division of Canadian  Imperial  Bank of Commerce  ("CIBC") and is a Director and
the  President  of CIBC Wood Gundy  Ventures,  Inc.,  an indirect  wholly  owned
subsidiary  of CIBC . 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. Mr. French is a director 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

                                       56
<PAGE>



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.

     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 1997 annual meeting of stockholders. 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.

     Three directors,  Messrs. Rice, Brekka and Van Degna, were elected pursuant
to  agreements  with each of British  Aerospace,  CIBC and Fleet,  respectively,
which terminated in August 1995 when the Common Stock became publicly traded.

COMMITTEES OF THE BOARD OF DIRECTORS

         Orion's Committee on Audit,  Corporate  Responsibility  and Ethics (the
"Audit  Committee")  is composed of Messrs.  Van Degna,  (Chairman),  Hauser and
Kahn, all of whom are non-management Directors. The Company also has a committee
on Human Resources and Compensation (the  ("Compensation  Committee"),  which is
composed  of Messrs.  Brekka  (Chairman),  French and Van  Degna,  an  Executive
Committee composed of Messrs.  Puente (Chairman),  Hauser,  Kahn, Saeman and Van
Degna, a Finance Committee composed of Messrs. Kahn (Chairman),  Hauser, Saeman,
Brekka,  Rice and Puente and a Nominating  Committee composed of Messrs.  Saeman
(Chairman),  French  and  Puente.  The  information  under  the  caption  "Board
Committees"  in the  Company's  definitive  proxy  statement to be filed for its
Annual  Meeting  of  Stockholders  to be  held  on  May  22,  1997  (the  "Proxy
Statement") is hereby incorporated  herein by reference.  The Proxy Statement is
being  prepared and will be filed with the  Securities  and Exchange  Commission
pursuant to Regulation 14A, and furnished to the Company's  Stockholders,  on or
about April 15, 1997.

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


                                       57
<PAGE>



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.

ITEMS  11, 12 AND 13.

     The  information  called  for  by  Part  III  (Items  11,  12  and  13)  is
incorporated  herein by reference from the material  included under the captions
"Nominees for Election," "Executive Officers," "Executive Compensation and Other
Information"  (but  excluding  the Human  Resources and  Compensation  Committee
Report on Executive  Compensation),  "Security  Ownership of Certain  Beneficial
Owners",   "Security  Ownership  of  Management,"  and  "Compensation  Committee
Interlocks and Insider Participation in the Proxy Statement. The Proxy Statement
is being prepared and will be filed with the Securities and Exchange  Commission
pursuant to Regulation 14A, and furnished to the Company's  Stockholders,  on or
about April 15, 1997.

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, 1996 and 1995

          Consolidated Statements of Operations - Years ended December 31, 1996,
          1995 and 1994

          Consolidated  Statements  of Changes in  Stockholders'  Equity - Years
          ended December 31, 1996, 1995, and 1994

          Consolidated Statements of Cash Flows - Years ended December 31, 1996,
          1995 and 1994

          Notes to Consolidated Financial Statements - December 31, 1996


     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.


                                       58
<PAGE>



<TABLE>
<CAPTION>

      Exhibit
      Number                                                Description

<S>                   <C>
       1.1            Form of  Underwriting  Agreement.  (Incorporated  by  reference  to  exhibit  number  1.1 in  Registration
                      Statement No. 333-19167 on Form S-1 of Orion Network Systems, Inc.)*

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

       3.2            Amended and Restated Bylaws of Orion Newco  Services,  Inc.  (Incorporated  by reference to exhibit number
                      3.2 in  Registration  Statement on Form 8-B of Orion Newco  Services,  Inc.  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 of Orion Network Systems, Inc.)*

       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 of Orion Network Systems, Inc.)*

       3.5            Certificate of Incorporation of Orion Satellite Corporation.  (Incorporated by reference to exhibit number
                      3.5 in Registration Statement No. 333-19167 on Form S-1 of Orion Network Systems, Inc.)*

       3.6            Bylaws of Orion Satellite  Corporation.  (Incorporated  by reference to exhibit number 3.6 in Registration
                      Statement No. 333-19167 on Form S-1 of Orion Network Systems, Inc.)*

       3.7            Certificate of Limited  Partnership of International  Private Satellite  Partners,  L.P.  (Incorporated by
                      reference to exhibit  number 3.7 in  Registration  Statement  No.  333-19167 on Form S-1 of Orion  Network
                      Systems, Inc.)*

       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 in Registration  Statement No. 333-19167
                      on Form S-1 of Orion Network Systems, Inc.)*

       3.9            Certificate  of  Incorporation  of OrionNet,  Inc.  (Incorporated  by  reference to exhibit  number 3.9 in
                      Registration Statement No. 333-19167 on Form S-1 of Orion Network Systems, Inc.)*

       3.10           Bylaws of OrionNet,  Inc.  (Incorporated by reference to exhibit number 3.10 in Registration Statement No.
                      333-19167 on Form S-1 of Orion Network Systems, Inc.)*

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

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

       3.13           Certificate of Incorporation  OrionNet Finance  Corporation.  (Incorporated by reference to exhibit number
                      3.13 in Registration Statement No. 333-19167 on Form S-1 of Orion Network Systems, Inc.)*

       3.14           Bylaws  of  Orion  Net  Finance  Corporation.  (Incorporated  by  reference  to  exhibit  number  3.14  in
                      Registration Statement No. 333-19167 on Form S-1 of Orion Network Systems, Inc.)*

       3.15           Certificate of Incorporation of Asia Pacific Space and Communications,  Ltd. (Incorporated by reference to
                      exhibit number 3.15 in Registration Statement No. 333-19167 on Form S-1 of Orion Network Systems, Inc.)*

       3.16           Bylaws of Asia Pacific Space and  Communications,  Ltd.  (Incorporated by reference to exhibit number 3.16
                      in Registration Statement No. 333-19167 on Form S-1 of Orion Network Systems, Inc.)*

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

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

                                       59

<PAGE>




      Exhibit
      Number                                        Description

       4.1            Form of Senior Note  Indenture and Form of Note included  therein.  (Incorporated  by reference to exhibit
                      number 4.1 in Registration Statement No. 333-19167 on Form S-1 of Orion Network Systems, Inc.)*

       4.2            Form of Senior Discount Note Indenture and Form of Note included  therein.  (Incorporated  by reference to
                      exhibit number 4.2 in Registration Statement No. 333-19167 on Form S-1 of Orion Network Systems, Inc.)*

       4.3            Form of Collateral  Pledge and Security  Agreement.  (Incorporated  by reference to exhibit  number 4.3 in
                      Registration Statement No. 333-19167 on Form S-1 of Orion Network Systems, Inc.)*

       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 in Registration Statement No. 333-19167 on Form
                      S-1 of Orion Network Systems, Inc.)*

       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 of Orion Network Systems, Inc.)*

       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 of Orion Network Systems, Inc.)*

       4.8            Forms of Certificates 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 of Orion Newco  Services,  Inc.  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 From
                      S-4 of Orion Newco Services, Inc.)*

       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 of Orion Newco Services, Inc.)*

       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 of Orion Newco Services, Inc.)*

       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 of Orion Network Systems, Inc.)*

       10.1           Second Amended and Restated  Purchase  Agreement,  dated September 26, 1991  ("Satellite  Contract") by and
                      between OrionSat 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 on Orion Network Systems, Inc.)*

       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  OrionSat 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 of Orion Newco Services, Inc.)*

                                                               60
<PAGE>




      Exhibit
      Number                                              Description

       10.3           Ground Support System Agreement,  dated as of August 2, 1991, by and between Orion Atlantic and Telespazio
                      S.p.A.  [CONFIDENTIAL  TREATMENT  HAS BEEN  GRANTED  FOR  PORTIONS  OF THIS  DOCUMENT.]  (Incorporated  by
                      reference to exhibit  number 10.25 in  Registration  Statement  No.  33-80518 on Form S-1 of Orion Network
                      Systems, Inc.)*

       10.4           Italian  Facility  and  Services  Agreement,  dated as of August 2,  1991,  by and  between  OrionSat  and
                      Telespazio S.p.A. as amended by the amendment thereto, dated March 19, 1994.  [CONFIDENTIAL  TREATMENT HAS
                      BEEN  GRANTED FOR PORTIONS OF THESE  DOCUMENTS].  (Incorporated  by  reference to exhibit  number 10.26 in
                      Registration statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.)*

       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 of Orion Network Systems, Inc.)*

       10.6           Credit  Agreement,  dated as of November 23, 1993,  by and between  Orion  Atlantic,  OrionSat 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 of Orion Network Systems, Inc.)*

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

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

       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 of Orion Network Systems, Inc.)*

       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 of Orion Network Systems, Inc.)*

       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 of Orion Network Systems, Inc.)*

       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 of
                      Orion Network Systems, Inc.)*

       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 of Orion Network Systems, Inc.)*

       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 of Orion Network Systems, Inc.)*

                                                               61
<PAGE>




      Exhibit
      Number                                       Description

       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          Volume  Purchase  Agreement,  dated  January 18,  1995,  by and  between  the  Company  and  Dornier  GmbH.
                      [CONFIDENTIAL  TREATMENT  HAS BEEN GRANTED FOR PORTIONS OF THIS  DOCUMENT.]  (Incorporated  by reference to
                      exhibit number 10.66 in Registration Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.)*

       10.17          Product Development,  License and Marketing Agreement,  dated January 18, 1995, by and between the Company
                      and Dornier GmbH.  [CONFIDENTIAL TREATMENT HAS BEEN GRANTED FOR PORTIONS OF THIS DOCUMENT.]  (Incorporated
                      by reference to exhibit number 10.65 in Orion's Registration Statement No. 33-80518 on Form S-1.)*

       10.18          Sales Representation Agreement,  dated as of June 8, 1995, by and between Nortel Dasa Network Systems GmbH
                      & Co. KG and Orion  Atlantic.  [CONFIDENTIAL  TREATMENT  HAS BEEN GRANTED FOR PORTIONS OF THIS  DOCUMENT.]
                      (Incorporated  by reference to exhibit number 10.70 in Registration  Statement No. 33-80518 on Form S-1 of
                      Orion Network Systems, Inc.)*

       10.19          Orion 2 Spacecraft  Purchase  Contract,  dated January 29, 1997 between  Orion  Atlantic and Matra Marconi
                      Space.  [CONFIDENTIAL  TREATMENT  HAS BEEN  REQUESTED  FOR  PORTIONS OF THIS  DOCUMENT.  THE  CONFIDENTIAL
                      PORTIONS HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE COMMISSION.]

       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 of Orion Network Systems, Inc.)*

       10.21          Purchase Contract, dated December 4, 1991, by and between OrionNet, Inc., Shenandoah Valley Leasing Company
                      and MCI  Telecommunications  Corporation.  {CONFIDENTIAL  TREATMENT  HAS BEEN  GRANTED  FOR PORTION OF THIS
                      DOCUMENT.]  (Incorporated  by reference to exhibit number 10.30 in  Registration  Statement No. 33-80518 on
                      Form S-1 of Orion  Network  Systems,  Inc.)*  10.22  Amended and  Restated  Partnership  Agreement of Orion
                      Financial  Partnership,  dated as of April 15, 1994,  by and between  OrionNet  and  Computer  Leasing Inc.
                      ("CLI").  (Incorporated by reference to exhibit number 10.44 in Registration Statement No. 33-80518 on Form
                      S-1 of Orion Network Systems, Inc.)*

       10.23          Continuing  Guaranty,  dated as of April 15,  1994,  of the Company of  obligations  of  OrionNet  Finance
                      Corporation.  (Incorporated by reference to exhibit number 10.45 in Registration Statement No. 33-80518 on
                      Form S-1 of Orion Network Systems, Inc.)*

       10.24          Release of  Continuing  Guaranty,  dated as of December  29,  1994,  by the Orion  Financial  Partnership.
                      (Incorporated  by reference to exhibit number 10.46 in Registration  Statement No. 33-80518 on Form S-1 of
                      Orion Network Systems, Inc.)*

       10.25          Confirmation  of Continuing  Guaranty,  dated as of December 29, 1994, of the Company of the obligation of
                      OFC.  (Incorporated  by reference to exhibit number 10.47 in  Registration  Statement No. 33-80518 on Form
                      S-1 of Orion Network Systems, Inc.)*

       10.26          Continuing  Guarantee,  dated as of December 29, 1994, by Lessor Capital  Funding  Limited  Partnership in
                      favor of Orion Financial  Partnership,  (Incorporated by reference to exhibit number 10.48 in Registration
                      Statement No. 33-80518 on Form S-1 of Orion Network Systems, Inc.)*

       10.27          Master  Lease  Agreement,  dated as of April  15,  1994,  by and  between  OrionNet  and  Orion  Financial
                      Partnership.  (Incorporated by reference to exhibit number 10.49 in Registration Statement No. 33-80518 on
                      Form S-1 of Orion Network Systems, Inc.)*

                                                               62
<PAGE>




      Exhibit
      Number                                    Description

       10.28          Collateral  Assignment  and Pledge and Security  Agreement,  dated April 22, 1994,  by and between CLI and
                      Orion Financial Partnership.  (Incorporated by reference to exhibit number 10.50 in Registration Statement
                      No. 33-80518 on Form S-1 of Orion Network Systems, Inc.)*

       10.29          Purchase Agreement,  dated as of April 22, 1994, by and between OrionNet and Orion Financial  Partnership.
                      (Incorporated  by reference to exhibit number 10.51 in Registration  Statement No. 33-80518 on Form S-1 of
                      Orion Network Systems, Inc.)*

       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 of Orion Network
                      Systems, Inc.)*

       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 of
                      Orion Network Systems, Inc.)*

       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 of
                      Orion Network Systems, Inc.)*

       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 of Orion Network Systems, Inc.)*

       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 of Orion Network Systems, Inc.)*

       10.35          Purchase Agreement,  dated as of June 19, 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 of Orion Network Systems, Inc.)*

       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 of Orion Network Systems, Inc.)*

       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
                      REQUESTED  FOR  PORTIONS OF THESE  DOCUMENTS.  THE  CONFIDENTIAL  PORTIONS  HAVE BEEN  REDACTED  AND FILED
                      SEPARATELY WITH THE COMMISSION.]

       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 of Orion Newco  Services,
                      Inc.)*

       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 of Orion Newco  Services,
                      Inc.)*

       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 of Orion Network Systems, Inc.)*

       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 of Orion Network Systems, Inc.)*

                                                               63

<PAGE>




      Exhibit
      Number                                        Description

       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 of Orion Newco Services, Inc.)*

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

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

       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 of Orion Network Systems, Inc.)*

       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 of Orion Network Systems, Inc.)*

       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
                      of Orion Network Systems, Inc.)*

       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 of Orion Network Systems, Inc.)*

       10.50          First  Amendment to the Italian  Facility and Services  Agreement  dated November 21, 1995, by and between
                      Orion Atlantic and Nuova  Telespazio.  (Incorporated by reference to exhibit number 10.7 in Current Report
                      on Form 8-K dated November 21, 1995 of Orion Network Systems, Inc.)*

       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 in
                      Registration Statement No. 333-19795 on form S-4 of Orion Newco Services. Inc.)*

       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.]*

       12.1           Statement Regarding Computation of Ratio of Earnings to Fixed Charges.

       21.1           List of  subsidiaries  of Orion.  (Incorporated  by  references  to exhibit  number  21.1 in  Registration
                      Statement on Form 8-B of Orion Newco Services, Inc. filed with the Commission on January 31, 1997.)*

       23.1           Consent of Ernst & Young LLP


            *  Exhibits incorporated by reference.

</TABLE>
                                                              64
<PAGE>




         (b)    Reports on Form 8-K filed in the fourth quarter of 1996:

                Current  Report on Form 8-K dated  December  20, 1996  reporting
execution of the Exchange Agreement.. The Company also filed a Current Report on
Form 8-K on February 14, 1997 reporting consummation of the Exchange.

         (c)    Exhibits

                None.

         (d)    Financial Statement Schedule

                None.

                                                               65
<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.
<TABLE>
<CAPTION>
<S>                                                                             <C>
                                                                                            Orion Network Systems, Inc.
                                                                                ---------------------------------------------------
                                                                                                   (Registrant)


Date:  March___, 1997                                                                            /s/ W. Neil Bauer
                                                                                ---------------------------------------------------
                                                                                             W. Neil Bauer, President
                                                                                        Chief Executive Office and Director
                                                                                           (Principal Executive Office)


Date:  March ___, 1997                                                                          /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


</TABLE>

                                       66
<PAGE>
<TABLE>
<CAPTION>



                                    GLOSSARY

ORION, THE EXCHANGING PARTNERS AND CERTAIN CREDITORS:
<S>                                 <C>
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.

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
                                    OrionSat is the general partner, which owns Orion 1.

                                       67
<PAGE>



                              GLOSSARY (continued)

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

OrionSat.........................   Orion Satellite Corporation, a Delaware corporation and wholly owned subsidiary of Orion.

Partners.........................   The partners in Orion Atlantic,  consisting of OrionSat, as the general partner, and the Limited
                                    Partners (including 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.

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.

                                       68
<PAGE>
                              GLOSSARY (continued)

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.

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.

                                       69
</TABLE>