11-10612-shl Doc 427 Filed 03/16/12 Entered 03/16/12 16:44 ...

Jeffrey M. Swarts (Pro Se)308 South Cedar StreetDanville, OH 43014-0289(740)[email protected]

UNITED STATES BANKRUPCTY COURTSOUTHERN DISTRICT OF NEW YORK

In re:

))) Lead Case No.)) 11 CV 10613 (SHL)) 10 CV 15466 (SHL))))

TERRE STAR CORPORATION, et alTERRESTAR NETWORKS, et alDEBTORS IN POSSESSION

DERIVATIVE CLAIMSOF JEFFREY M. SWARTS

BASED UPON:

MATERIAL CONFLICTS-OF -INTERESTLEADING TO FRAUDULENT CONVEYANCES UNDER §3301

FROM OLD LORAL TO NEW LORALAND TO THE TERRESTAR ESTATES

INTRODUCTION

I'm filing this derivative claim with regard to the impending court-sponsored §363 auction of

Terrestar Corporation and Terrestar Networks, Inc in the jointly administered Terrestar bankruptcy

proceedings. I have been an investor of Terrestar since before the launch ofTS-l in July of2009. I

currently hold 30,000 common shares of Terrestar Corporation stock and assert herein derivative

claims against the Loral Space & Communications' claims as creditors of these estates.

In addition to Terrestar common stock, I have been an active investor in other satellite

industry stocks since 1999 when I first bought a small position of Loral's common stock. In the past

I have invested in and mostly lost money on Loral, Globalstar, ICO and now Terrestar. So, I have

deep and longstanding knowledge of all four bankruptcies, their fiduciaries and professional

advisors. I was also a member of the Official Loral Equity Committee during its bankruptcy.

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11-10612-shl Doc 427 Filed 03/16/12 Entered 03/16/12 16:44:38 Main Document Pg 1 of 15

I hereby declare that I am a whistleblower and assert that I am afforded legal protections

under the Loral POR as an Official Equity Committee member and, in addition, under the SEC's

recently passed Dodd-Frank Wall Street Reform and Consumer Protection Act, HR 4173 Title IX

(B) sections 922, 923 & 924.

Furthermore, under HR 4173, section 919A, the Comptroller General of the United State has

been ordered to conduct a study - "to identify and examine potential conflicts of interest that exist

between the staffs of investment banking and equity and fixed income and fixed income securities

analyst functions within the same firm; and (2) to make recommendations to Congress to protect

investors in light of such conflicts." I believe that I was a victim of similar conflicts in the Loral

bankruptcy. I believe congruent conflicts with many of the same advisors exist in the Terrestar cases,

which I believe may lead to additional violations of §3301.

Conflicts among many of the same firms representing various parties in the Terrestar

bankruptcy also held key positions as advisors in the Loral bankruptcy. These conflicts negatively

distorted the valuation of the Loral debtors and led to the fraudulent conveyance of excess value to

creditors of the Loral estates, upon the emergence from bankruptcy on November 23, 2005. Loral's

emergence occurred within the statute oflimitations, as defined in §3301 (b) as "6 years after the

commission of the offense." I suggest that this statute of limitation should be tolled commencing

with the date of the filing of the Chapter 11 petition and stay of Terrestar Networks, Inc., et al

(TSN), Case No. 10-15446, from October 19,2010 forward until resolution of my claims.

Following Confirmation in the Loral bankruptcy, a group of ad hoc shareholders of the

company, the Loral Stockholders Protective Committee (LSPC), pursued an §1144 motion in the

bankruptcy court within statutory time limits. I include here an impassioned letter to the Loral

bankruptcy court, by Tony Christ, the spokesman of the LSPC seeking relief from threatened

sanctions. Weil Gotshal, the Terrestar Unsecured Creditors' attorneys and then Loral debtors'

attorneys, subsequently threatened all of us with sanction motions. 1

Despite providing the Loral bankruptcy court with direct documentary evidence and an

internal whistleblower letter questioning the concealment of Terrestar, ICO and Echostar satellite

orders, valued well in excess of $1 billion, Weil Gotshal stonewalled requests for authentication of

the documents as well as additional witnesses and depositions of company employees. Without this

discovery, it was impossible to prove fraud based upon asset concealment, as required by §1144.

1 Exhibit A-2836_LSPC Objection to Sanctions.pdf

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Judge Drain supported the debtors in this matter and did not investigate this well-documented

concealment despite the existence of an examiner in the case who could have readily performed

investigated this misconduct by fiduciaries and associated professionals. 2 3 4 5 6 7 8 Under threat of

blistering attacks from Weil Gotshal, and with the support of Akin Gump, Wilkie Farr, and the court,

John Plum and I withdrew from the §1144 motion and its legitimate claims by equity holders. 9

In response to the first sanction motion, I resigned as a member of the LSPC. By the time

Tony Christ signed a second Stipulation and Agreement with the debtors he was acting alone and

spoke only for himself. The sanction motions from the Loral debtors can only be described as

prejudicial and predatory, chilling legitimate claims in light of the substance of the Loral documents

presented. Furthermore, following an appeal by Mr. Christ to the district court, the bankruptcy court

again allowed Mr. Christ to be threatened by the debtors' attorneys. He was coerced to sign the

second Stipulation and Agreement in bad faith and under duress - even though terms in the

document stated that it was not signed under duress. 10

During the Loral bankruptcy and class action, I repeatedly stated that I was reserving all

rights. 11 This claim is an assertion of those rights. I declare that my wife and I are owed derivative

claims offset against the unsecured claims ofLoral Space & Communications in the Terrestar

bankruptcy proceedings, based upon the previously described fraudulent transfer of equity claims to

the former creditors of Old Loral. Loral has filed an unsecured claim against the debtors for three

unpaid invoices totaling 16,512,722.01 seeking payment for TS-2, the debtors' spare satellite. 12

Another claim by Loral has been filed as an Unsecured Non-priority Claim against Terrestar's estate

in the amount of35,647,804.11. 13 I believe that portions of these claims are owed to as

compensation for the unjust losses we incurred in LORBQ (LORB) and LRLSQ (LOR) stocks.

2 Exhibit B-Weil Gotshal Letter with Whistle Blower Letter.pdf3 Exhibit C-LORL News 2005 4 11 Terrestar.pdf4 Exhibit D-LoraI2280-T~rrest;-Unr~dacted Contract.pdf5 Exhibit El- TerreStar-Statement ofWork-l.jpg, Exhibit E2- TerreStar-Statement ofWork-2.jpg6 Exhibit F-LORLyews_2005_ 4_26_ICO.pdf7 Exhibit G l-ICO-I-Master Schedule.jpg, Exhibit G2-ICO-Statement ofWork-l.jpg, Exhibit G3-ICO-Statement ofWork-2.jpg8 Exhibit H-Echostar 117W - Factory Loading - l.jpg9 Exhibit 1-2834-Jeffrey M Swarts Declaration & Objection.pdf10 Mr. Christ sued Bernard L. Schwartz in a Richmond, VA court, after opting out of the class action settlement. Hereportedly settled for an undisclosed amount in six figures.II Exhibit J-Jeffrey M Swarts - Request for Exclusion from Loral Class Action.pdf12 Exhibit K-532_Loral TS2 Contract.pdf, pg. 313 Exhibit L-97_15446-Assets & Liabilities of Terrestar Networks.pdf, pg. 69

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Although we are hopeful that Terrestar's estate will bring sufficient value in the §363 auction

to provide a distribution to common shareholders, I believe that our derivative claims against Loral

are a separate matter. I believe, based upon the actual current value of Loral, that Loral's claim

against Terrestar is yet another example of the company's former creditors seeking additional value

that rightfully belongs to the equity holders of Old Loral. Following is an analysis, which is not

comprehensive, itemizing my claims. I expect to provide further evidence to this court and to the

SEC, in a whistleblower filing, which will perfect our claims.

LORAL'S ESTIMATED VALUATION IN BANKRUPTCY

The impact of individual GEO orders on the financial viability of Space Systems/Loral

(SSIL) was and is substantial and was understood as such by all the financial advisors in Loral's

bankruptcy proceedings. Under examination, company fiduciaries, including CFO Richard

Townsend and SS/L President Patrick DeWitt, indicated that SSIL required 4-satellites/year to break

even. Any more than that exceeded the overhead of the company and contributed substantially to

EBITDA, and the company's valuation. However, an analysis of the Loral debtors' valuation in the

First Amended Plan of Reorganization submitted to the bankruptcy court on October 22, 2004, when

compared to the Fourth Amended Plan of Reorganization, submitted on June 3, 2005 does not make

any sense. A simple comparison does not indicate that an additional $750-$900 million in satellite

orders was taken in the interim. 1415

The 1st POR stated:

"For purposes of the Plan, the reorganization value (the "Reorganization Value") isestimated to range from approximately $650,000,000 to $800,000,000. (For purposes ofdetermining the estimated recoveries for creditors in Classes 4, 5 and 5A under thePlan, a compromise Reorganization Value of $777,475,000 has been used, which iswithin this range.) The Reorganization Value assumes an Effective Date of December31,2004 and reflects the going concern value of the Reorganized Debtors after givingeffect to the implementation of the Plan.

14 Exhibit M-1516-Lorall st POR-Disclosures-Main Document.pdf, pg. 7415 Exhibit N-2074-LoraI4Ih POR-Disclosures Main Document.pdf, pg. 93

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"The equity value (the "Equity Value") of the Reorganized Debtors is estimated torange from approximately $420,000,000 to $570,000,000 or from approximately$21.00 per share to $28.50 per share of New Loral Common Stock assuming a total of20,000,000 shares of common stock are issued and outstanding on the Effective Date.(For purposes of determining the estimated recoveries for creditors in Classes 4,5 and5A under the Plan, a compromise Equity Value of $547,475,000 has been used, whichis within this range.) The Equity Value reflects the difference between theReorganization Value and the total amount oflong-term net debt that is estimated to beoutstanding after giving effect to the Plan."

The 4thAmended paR stated:

"For purposes of the Plan, the reorganization value (the "Reorganization Value") isestimated to range from approximately $708,000,000 to $939,000,000. (For purposesof determining the estimated recoveries for creditors in Ltd. Class 4 and Orion Class4 under the Plan, a compromise Reorganization Value of $875,300,000 has beenused, which is within this range.) The Reorganization Value assumes an EffectiveDate of June 30, 2005 and reflects the going concern value of the ReorganizedDebtors after giving effect to the implementation of the Plan.

"The common equity value (the "Equity Value") of the Reorganized Debtors isestimated to range from approximately $388,000,000 to $619,000,000 or fromapproximately $19.40 per share to $30.95 per share of New Loral Common Stockassuming a total of20,000,000 shares of common stock are issued and outstanding onthe Effective Date. 13 (For purposes of determining the estimated recoveries forcreditors in Ltd. Class 4 and Orion Class 4 under the Plan, a compromise EquityValue of approximately $555,000,000 has been used, which is within this range.) TheEquity Value reflects the difference between the Reorganization Value and the totalamount of long-term net debt and preferred stock that is estimated to be outstandingafter giving effect to the Plan.

To summarize, the 1st paR compromise Reorganization Value, dated October 22,2004,

without the benefit of the ICO and Terrestar orders "taken" in the spring of2005, was $777,475,000.

It also did not include spare satellites for these programs, which were required by the FCC spectrum

licenses to be built and in storage within l-year of the launch and commencement of ATC

commercial service. Despite these FCC requirements, during pre-confirmation depositions, Loral

fiduciaries, citing technical and funding issues, described the ICO-2 and TS-2 spares as uncertain

and as "options". They were making these statements, under oath, despite a contemporaneous ICO

debt offering, sponsored by Jefferies and UBS, which indicated that the spares were not optional to

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capture the full value of the spectrum. 1617 The ICO debt solicitation valued ICO's spectrum at $9.8

billion. ICO's 2GHz spectrum is adjacent to Terrestar's and virtually identical.

The Loral4th POR compromise Reorganization Value was $875,300,000, with the benefit of

the ICO and TerreStar orders. In the 1st POR those orders had not yet been "taken". In other words,

about $750-$900 million in additional forecast revenues for the ICO and Terrestar orders, "taken"

between the 1st and 4th POR's only added $97,825,000 to the Reorganization Value. Judge Drain

found the Reorganization Value to be $970,000,000, without substantial values for intangible assets,

like substantial orbital slots, real estate and intellectual property assets. Judge Drain did not state a

common equity value figure that I am aware of.

The discrepancy in the Equity Value between the two plans was even more revealing. The 1st

POR Equity value was $547,475,000 versus the 4th POR Equity value, presumably with the benefit

ofthe additional GEO orders was $555,000,000, or only about $7,525,000 more - perhaps meaning

that substantial vendor financing was provided by Loral to Terrestar, ICO and Echostar. The Loral

claims exceeding $52 million against the Terrestar estate, and congruently in the DBSD bankruptcy,

indicates that Loral provided vendor financing to Terrestar and ICO, while still in bankruptcy - a

complete abdication of fiduciary duty at the time. It served an agenda of asset conversion in the

Loral bankruptcy and serves similar agendas today in the DBSD and Terrestar bankruptcies.

Avi Katz, Loral's long-time counsel throughout the late 90's, and throughout Loral's

bankruptcy, now sits on the Terrestar Networks, Inc. unsecured creditors committee. He is the

current Senior Vice President and Secretary ofLoral. Mr. Targoff, a former fiduciary of Loral and

Globalstar until the late 90's left in 1998 to form Michael B. Targoff and Company. After acting as

an agent in the Leap Wireless bankruptcy, for Dr. Rachesky and MHR Fund, Mr. Targoffreturned to

Loral in 2004 as Vice-CEO at Loral in a similar role. He is the current CEO ofLoral. Dr. Rachesky,

a former Managing Director for Carl Icahn, is the Chairman of the BOD.

Loral's Terrestar satellite program was originally contracted on July 14,2002, I-year and 1-

day prior to Loral entering Chapter 11 protection on July 15,2003. 18 The Terrestar order was not

16 Exhibit O-ICO Debt Offering, pg. 2917 Jefferies was concurrently representing the unsecured creditors committee in the Loral bankruptcy proceedings.Michael Henkin, former Vice President of Business Development at Loral was a contact in the offering and was alsoan advisor to the creditors committee, via the Jefferies representation. Loral CEO, Michael B. Targoff also has a son,Joshua, who was then employed as an attorney by Jefferies as well.18 Exhibit D-Loral2280- Terrestar-Unredacted Contract.pdf, pg. 14 of the fax: Note that the transmittal ofthisdocument from Weil Gotshal to Sonnenschein is dated August 15, 2005, post-dating the confirmation hearing by 3-weeks.

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recognized by Loral in any known news release, or other SEC filing until April 1, 2005, nearly 3

years after the original contract was signed. During the pre-petition period, prior to July 15,2003,

CEO Bernard L. Schwartz stated repeatedly that Loral had not received any orders and was seeking

asset sales to enhance shareholder value. The original rationale provided by fiduciaries for Loral' s

bankruptcy was that Intelsat demanded a Chapter 11 filing as a precondition of purchasing the North

American Telstar fleet. Management then set about using the bankruptcy to pursue its own agenda,

including using the court to launder prior asset sales to company fiduciaries at K&F Industries and

L3 Communications. The asset "sales" were facilitated and capitalized upon by the ever-present

Lehman Brothers - now disgraced and bankrupted itself, following the fmancial meltdown in 2008.

Loral concealed the Terrestar contracts, among others. Had these contracts been disclosed in

a timely manner, it would have led to much higher Discounted Cash Flow (DCF) valuations of the

company in bankruptcy. DCF's were the methodology used by all the financial advisors in the Loral

proceedings to promulgate minimal valuations to the Court. 19 Higher DCF valuations would have

led to much stronger arguments for larger and/or make-whole distributions to junior creditors and

shareholders in the case. Despite the elimination of equity in Loral's flawed plan of reorganization, I

did not sell 1170 shares of common stock or 11,250 shares of Preferred Series C stock, prior to their

elimination by the bankruptcy court. My derivative claim is based upon these facts. The current

market value of Loral proves that using DCF models for valuing a high-technology company like

Loral was deeply flawed. It represents an excessive and fraudulent transfer of value from the estate

of Old Loral to prior creditors, the Orion and Loral LTD bondholders -the majority owners of New

Loral. I believe that this transfer was fraudulent in nature and was a violation of §330 1.

Loral never defaulted on a single loan and never required debtor-in-possession financing. It

displayed few signs of insolvency other than the distressed prices of its securities, caused by an

incestuous, self-serving management. The company's liquidity position was always sufficient to

operate the businesses at SSIL and Skynet. The Loral debtors argued in the 4thpaR, before Judge

Drain, that the company was worth $708-$939 million - with a mid-point of $875.3 million. The

debtors argued, pursuant to the paR, that the new company equity value would be only $388-$619

million - with a midpoint of $555 million. In per share prices on 20,000,000 shares, the forward-

looking equity value promoted by the debtors to the Court was $19.40-$30.95. 20

19 Exhibit P-1764-Loral Examiner's Report20 Exhibit N-2074-LoraI4th POR-Disclosures Main Document, pg. 93

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LORAL'S ACTUAL REORGANIZED VALUATION

Loral emerged from bankruptcy protection on November 23,2005.21 Since then, Loral's

common stock, LORL, has traded as high as $85.16, representing a market capitalization high of

$2.61 billion. Loral is currently trading at about $70 per share and has a current market cap of about

$2.2 billion. To correct for the value of additional post-bankruptcy preferred equity investment of

$337 million, one must subtract it from the current market cap, leaving an adjusted market cap of

$1.863 billion as the actual Loral estate value in bankruptcy. This does not include direct valuation

for Skynet, which was spun-off post-emergence to the Canadian company, Telesat. 22 This market-

based valuation, when contrasted against the Loral equity deficit of$I.044 billion, published in the

Loral2004 10-K, demonstrates that the Loral debtors' estate value was fictitious -- designed to serve

a creditor and management agenda of self-enrichment.

Subtracting the Old Loral equity deficit of $1.044 billion from the current adjusted market

cap of $1.863 billion, leaves $819 million that should have been available for distribution to Old

Loral equity. The Loral preferred liquidation preference was $237 million, which subtracted from

$819 million, leaves $582 million. This remainder, attributable to the pre-petition 44 million shares

of common stock, would have provided a distribution of as much as $13.23 per common share,

minus the per share administrative costs of the bankruptcy.

Why did the debtors fabricate their estimated values? How could they have been so wrong?

The answer is quite simple. Loral's management received 6.5% in bankruptcy, with the assent of its

long-time crony creditors, represented by Akin Gump and Jefferies. The valuation differential of

$819 million, between the Loral debtors' equity deficit in the 2004 10-K and the true value shown by

the current market cap, minus the post-emergent preferred investment of $337 million, quantifies

this fraudulent transfer of significant wealth to the creditors of the Loral estate in violation of §3301.

These values go way beyond the statutory requirement of "adequate protection" for creditors in

Chapter 11 bankruptcy. At the current market valuation of the estate, all Loral claimants, including

bondholders, trade creditors, employees, ERISA claimants and preferred shareholders would have

been made whole, with a substantial distribution of as much as $13.23 per share going to common

shareholders. My derivative claims against Loral are based upon these numbers.

21 This event started the clock on the statute oflimitations defined as 6 years in §3301(b).22 Loral retains a significant equity interest in Telesat.

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LORAL'S CHAPTER 11 VALUATION HISTORY & CONFLICTS

In July of 2004 the Loral Stockholders Protective Committee filed a motion request for an

official equity committee. 23 The debtors in July of 2004 claimed that there was an equity deficit of

$937 million. The LSPC claimed an equity surplus of $879 million with a per share value of$19.92,

including make whole values for all creditors and preferred shareholders. This equity surplus

calculation is much closer to the $13.23 actual per share value, calculated using the current market

cap, than that calculated by the "professionals" at Greenhill and Jefferies, the financial advisors for

the Loral debtors and the unsecured creditors committee, respectively. Weil Gotshal and Akin Gump

both claimed that Loral was hopelessly insolvent. They beat back shareholder requests for an official

equity committee a third time in the summer of 2004, with Judge Drain again denying the motion.

The LSPC then filed a motion for an examiner. Judge Drain again denied the motion, despite

the plain reading ofthe statute. His decision was appealed to the US District Court. I made the

argument for the examiner in the bankruptcy court and before the appeals court. 24 I successfully

argued for an examiner before Judge Patterson in the US District Court and Judge Drain was

reversed. However, he did not follow the direction of Judge Patterson, limiting the examiner to

"confirmatory due diligence", which did not include intangible assets. Judge Patterson's order

specifically included provisions for valuation of the company's intangible assets, including the

orbital slots. 25 The examiner, Harrison Goldin was appointed by the US Trustee. Notwithstanding

Judge Drain's restrictions, the examiner found "that certain assumptions and the application or

weighting of the various valuation approaches resulted in a not insignificant understatement in value,

amounting in the aggregate to $281 - $463 million." 26

The examiner's valuation was not a "full-blown" valuation per Judge Drain's order, and did

not include significant "intangible" assets like orbital slots, real estate, intellectual property or

numerous concealed satellite orders. 27 On March 14,2005, before the release of the lCO and

TerreStar orders, or subsequent Echostar orders, the examiner found an estate value of$931,000,000

to $1,263,000,000, with a mid-range value of $1,072,000,000. This "understatement" of 36-60% was

23 Exhibit Q-1293-Loral-Motion for Equity Committee, pg. 69-7424 Exhibit R-Loral Examiner Appeal Hearing Transcript-12170425 Exhibit S-Examiner-US Court Order, pg. 2 & 426 Exhibit P-1764-Loral Examiner's Report, pg. 727 Exhibit T-Loral1661-Examiner Order

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extreme in a company that had originally been valued at about $770 million by the Debtors' financial

advisors, Greenhill & Company and its lead advisor, former Weil Gotshal attorney Harvey Miller. 28

The results of the examiner's valuation led directly to the appointment of an Official Equity

Committee by the US Trustee. A few weeks later, after a letter from John Bicks complaining ofthe

committee's choice oflegal advisors, she reconstituted the committee by adding two additional

preferred members. This action precipitated the resignations of Mr. Christ and his long-time

associate, Vadim Mostovoy. The new membership was largely populated by preferred investors with

extreme conflicts-of-interest vis-a-vis Loral's debtor and creditor cronies. They dictated the selection

of professionals who also had extreme conflicts, including Mr. Bicks and Sonnenschein. Neither the

US Trustee's office nor Judge Drain questioned the lack of disinterest of most of the remaining

equity committee members or the committee's professionals, nor did the US Trustee replace the

common equity committee members who had resigned, despite repeated requests from me and other

common shareholders. Once one knows the extent of these conflicts, it is clear that the outcome of

confirmation was a foregone conclusion. Not a single decision or order by Judge Drain was ever

questioned or appealed by the equity committee or its conflicted "professionals", despite the court's

demonstrable bias against equity.

Chanin, Loral's Official Equity Committee fmancial advisor, selectively disclosed prior and

current relationships with numerous interested creditors and associated corporate parties in Docket

#1949, otherwise referred to as the Belinsky Affidavit. 29 Neither the Chairman of the official equity

committee, David Kilcoyne nor I were served with the affidavit at the time. I discovered it post-

confirmation in the docket. In it Mr. Belinsky acknowledged ongoing and prior relationships with

Michael B. Targoff, CEO of Loral, and Mark H. Rachesky, Chairman of Loral, by way of his MHR

Fund Management LLC and Highland Capital - all principals of the Leap Wireless Chapter 11.

Former Loral VP and Controller, Robert V. LaPenta also was and is a Leap Wireless fiduciary. In

addition, Mr. Belinsky and Chanin had ongoing business relationships with former Loral Director

Gershon Kekst and his public relations company, Kekst and Company; and Loral Equity Committee

members, Alan Cohen, principal of York Capital Management, Neil Subin, Managing Director of

Aspen Advisors, Aspen Capital and Trendex Capital.

28 Exhibit U-Greenhill Retention Letter - Exhibit A, pgs. 8-23 of the PDF29 Exhibit V-Loral 1949-Belinsky Affidavit

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Mr. Belinsky also disclosed an ongoing relationship with Lehman Brothers, a constant

investor in Bernard Schwartz ventures over the years, including but not limited to Globalstar, K&F

and L3. Belinsky disclosed that Chanin was representing an ad hoc group of bondholders in the

Satmex insolvency proceedings. The Loral debtors were an equity holder of Satmex, reporting losses

of$51.7 million in 2003 and $25.1 in 2002. In his affidavit, Mr. Belinsky did not disclose that the

Satmex bondholders had an adversary relationship to Loral and its investors.

In his affidavit, Mr. Belinsky did not disclose that Chanin, Kekst and Company, Greenhill

and Robert D. Drain, all key parties in the Loral Chapter 11, had previously advised an investment

group led by Onex Corporation and Oaktree Capital Management in the bankruptcy buyout of

Loews Cineplex. Mr. Belinsky did not disclose that William Q. Derrough, lead financial advisor of

Jefferies for the Unsecured Creditors Committee and chaired by Mr. Rachesky, had been a prior

employee of Chanin throughout most of the 90's. There was no disclosure by Mr. Belinsky or any

other party that Mr. Derrough continued to be a principal partner of Chanin until at least mid-2004,

post-dating the sale of Loral's North American Telstar fleet in a court-sponsored sale.

There is no doubt that Mr. Belinsky's prior representation of debtor and creditor parties

should have disqualified him from representing Loral's Official Equity Committee. Neil Subin, the

defacto chairman of the equity committee insisted on Chanin's retention, with the strong support of

other Subin-dependent equity committee members and Sonnenschein attorneys, Bicks and Wolfson.

30 There is no doubt that Judge Drain, the US Trustee's Office and SEC's New York office knew of

Chanin's conflicted prior representations. However, more importantly, no government agency or

employee ever publicly questioned or objected to Chanin's retention as the financial advisor for the

Loral Official Equity Committee.

Why didn't Mr. Belinsky go to SSIL and research the company's satellite order status and

current RFP's as instructed by the equity committee? Why didn't the other equity committee

members take a more active role in overseeing the committee's professionals? Why did the equity

committee professionals latch onto "Government Orders" as equity's Holy Grail, when the company

had no recent experience providing GEO satellites to the federal government? And, even when

Sonnenschein did prosecute the government orders issue, why did the equity committee

30 Peter Wolfson, the head of Sonnenschein's bankruptcy group was and is Carl Icahn's personal attorney. Carl Icahnis the former employer of Mark Rachesky, the current Chairman ofthe BOD of Loral. John Bicks is a former attorneyand associate of Raymond L Steele, a former Director and interim CEO ofMotient, Terrestar's predecessorcorporation.

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professionals fail to discover the US DOD-Homeland Security "anchor tenant" contract on the

Terrestar satellite program, disclosed by Bernard Schwartz under oath? That would have validated

their "government contracts" arguments, but they never presented this information to the court. 31

Why didn't Sonnenschein seek an audit at SS/L to inquire about specific satellite programs

and/or RFP's that would have provided the evidence needed to convince the Court of additional

estate value? Who stood to gain when the value ofthe company was understated and what was the

mechanism by which that understatement was discovered, massaged and promoted to the bankruptcy

court during confirmation?

There is no doubt that once the equity committee was appointed that its inner workings were

almost immediately sabotaged by members who were creditor and debtor cronies. Repeated

procedural and legal errors by its professionals obfuscated their true agenda which was to undermine

equity's last remaining hope - the official equity committee. The procedural missteps were many,

but just a few examples will suffice. 1) Belinsky attempted to provide testimony for Roger Rusch,

the orbital slot expert, who was never allowed by the court to testify. 2) Belinsky cherry-picked the

valuations of the debtors' and the creditors' valuations and when caught in act of doing derivative

work, Sonnenschein did not object or provide further supporting evidence. 3) During the

Confirmation Hearing, John Bicks focused on minutia related to a relatively insignificant

government marketing budget until the court silenced him. 4) Wolfson admitted that he had never

tried a confirmation hearing before. 5) All of these "professionals" allowed Tony Christ, a pro se

litigant, to take over equity's agenda and dominate not only the depositions of fiduciaries and

creditors, but also the confirmation hearing itself, with Judge Drain's assent. 6) They never went to

SSIL to investigate its satellite order book or the company's RFP's.

The LSPC was right and the debtors and the court were wrong about the value of the estate,

as evidenced by the current Loral2010 lO-K. The current annual report lists an equity surplus of

$1.02 billion. The same "Loral professionals" at Akin Gump, Weil Gotshal and Wilkie Farr are

again running a sophisticated shell game designed to separate the legitimate owners of Terrestar, its

shareholders, including myself, from legitimate claims on the estate.

31 This "anchor tenant contracf' between Terrestar and the Federal government, referenced by Bernard L Schwartz,under oath, has yet to be disclosed in the financial press by fiduciaries of Terre star, including its President and CEO,

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TERRESTAR'S UPCOMING §363 SALE

The current §363 sale, scheduled for June, should be overseen by the court with great care. A

similar "§363 auction" for the North American Telstar fleet in the Loral bankruptcy, successfully

excluded all suitors except Intelsat and Echostar. At the time, common shareholders were excluded

by Judge Drain's confidentiality rulings from any meaningful transparency into the process. Then,

once the auction terms were set, Echostar not only did not bid, but Intelsat won a one-party

"auction" for $975 million after making a single bid. I've been to quite a few auctions in my life, but

I've never attended one where there was only one bidder and only one bid. The result was well

below the $1.5 billion contemporaneous appraisal by W.L Prichard, quoted by Bernard L. Schwartz

under oath. 32 One hopes that the Terrestar §363 auction and sale will not be similarly managed,

without any 3rd party or on-site governmental verification.

So enamored was Echostar's management in late 2003, with Loral and its technology, that

Mr. Ergen attempted to buy the entire assets of Loral for $1.85 billion, prior to the auction. The

LSPC made extensive overtures to Echostar in an effort to get them to buy the post-auction assets of

Loral. In fact, for 12-months Echostar declined to buy additional satellites from Loral, despite their

stated intent to do so. An excerpt from Echostar's 2004 lO-K follows:

"During 2004, we entered into a contract for the construction of Echo Star XI, a SpaceSystems Loral FS 1300 class DBS satellite. In connection with this agreement, weobtained an option for the construction of other additional satellites. Construction isexpected to be completed during 2007 ... " 33

On December 9, 2005, two weeks after the effective date of the Loral paR, Echostar and its

CEO, Charles Ergen, in a 13G SEC filing, declared themselves as beneficial owners of New Loral

common stock. As a percentage of class, EchoStar and Mr. Ergen received distributions of 6.8% and

7.0%, respectively. So, Echostar GEO order recognition was apparently delayed for good reason, to

the benefit of Mr. Ergen and Echostar and to the detriment of Old Loral's equity holders. I believe

that this was one piece of a complex strategy used to purposefully understate Loral' s financial

condition in bankruptcy.

Jeffrey Epstein or Chairman of the BOD, William Freeman, the former CEO of Leap Wireless from 2004-2005.32 Exhibit W-1125-Loral Transcript-102203.pdf, pg. 174.

- 13 -


In EchoStar's 2005 lO-K (F-37) the Company stated:

"During 2005 and 2004, we entered into contracts for the construction of fiveadditional SSL Ka and/or Ku expanded band satellites which are expected to becompleted during 2008."

If this is true, then why had Loral only announced three by then? It takes 2-112 years to

design, build and launch a GEO satellite. What this statement clearly shows, is that the Echostar

GEO awards predated the Loral Confirmation hearing. Subtracting 2-1/2 years from the end of 2008,

shows that the orders were taken no later at the end of June, 2005, one month prior to Confirmation,

and contemporaneous with the depositions during Confirmation of Loral's fiduciaries, Schwartz,

Townsend, Dewitt and creditor representatives, Rachesky and Derrough. The total value of those

contracts was estimated at more than $800 million on a truncated 4-year Loral 4thAmended POR

forecast of $2.2 billion. Clearly, Loral' s estimates of future revenues, including conceal ed values for

satellite construction in the Terrestar, ICO and Echostar satellite programs, upon which the entire

POR was premised, were grossly understated.

Judge Drain's oversight of these shenanigans was negligent at best. Why was he so intent

upon preserving maximum recoveries for creditors? I have previously stated that I believe he had

serious undisclosed conflicts-of-interest. While still in private practice he represented a creditor in

the first ICO bankruptcy with a claim junior to Akin Gump's client, the unsecured creditors

committee. He also represented the now bankrupt and disgraced Lehman Brothers while in private

practice, which should have, ethically, precluded him from adjudicating the Loral bankruptcy.

Lehman Brothers was the recipient of substantial assets of profitable divisions of Loral, spun off in

the late '90's. Lehman Brothers partnered with Loral fiduciaries and former fiduciaries to form K&F

Industries and L3 Communications. These conflicts have continued to muddy the waters of

subsequent bankruptcies including DBSD and here in the Terrestar proceedings. Judge Drain's

former firm, Paul, Weiss, Rifkind, Wharton & Garrison, has also represented Harbinger many times.

Harbinger and its Managing Director, Philip Falcone, are key participants in these cases and holders

of all of the debtors' securities. Lightsquared, Harbinger's privately held Satellite Company, is

expected to compete directly with the Terrestar system and yet Harbinger controls the "lease" for

one ofTSC's most valuable assets, its 1.4GHz spectrum.

33 Exhibit X-Echostar-lOK-2004-Construction.pdf

- 14-


THE VALUATION OF MY DERIVATIVE CLAIMS

I believe that the facts described above, so long in coming to light, cry out for further judicial

review of my derivative claims against Loral's claims in the Terrestar case. The Preferred Series C

shares (LORBQ) of Loral, pre-petition, had a face value of $50 per share accruing at 6% per year.

According to the 2003 Loral 10-K, dividend payments were suspended by Loral in August of 2002.

That's 8-years and 8 months ago, or 104 months. Our 11,250 shares of LORBQ had a face value of

$562,500 plus interest, which, at the contract rate of 6% simple interest, paid in arrears and

compounded annually, is currently valued at $944,863.03. My 1170 LRLSQ common shares,

calculated at the above midpoint value of $13.23 are worth $15,479.10.

I value my and my wife's total derivative claim against Loral's unsecured debt claim,

including preferred and common shares plus interest at $960,342.13. We also request additional

damages that the Court finds just and proper in punitive damages for lost investment opportunity

dating to 1999 and emotional distress to me and my wife, including the near ruin of a successful full-

time commercial art business dating to 1991.

As proof of my claims I attach contemporaneous statements from my and my wife's brokers

at the time of the erroneous elimination of our interest in the Loral estate by Judge Drain. I have

previously stated these claims in general terms in a pleading before this Court in re: TerreStar

Networks Inc., et al. Case No. 10-15446 (SHL), docket #200, captioned as "Order Denying Requests

of Jeffrey M. Swarts Signed On 11/23/2010. (Ebanks, Liza) (Entered: 11/23/2010)". Please read it

for a supplemental summary of the functional basis for my claims, reserving all rights as a defrauded

investor, and as a whistleblower with protection under the Dodd-Frank Wall Street Reform and

Consumer Protection Act. Additional detail in support of these claims will be forthcoming as

required by the Court.

~ 1;7.~rtZtvIsl Jlf.f~SwartsMay 7, 2011

Mr. Jeffrey M. Swarts (pro se)308 South Cedar StreetDanville, OH [email protected]

- 15 -


11111111111111111111111111111111111111111111111111111111111111111UNITED STATES BANKRUPTCY COURfFOR THE SOUTHERN DISTRICT OFNEWYORK

Your Claim is Scheduled As Follows:

If an amount is identified above, you have a claim,AloV' 9i .::t IJ i b scheduled by one of the Debtors as shown. (This

r scheduled amount of your claim may be anTelephone number: 7~ 0- S7<9- ~,' S" / f.:, amendment to a previously scheduled amount.) IfEmail Address: -:5".' 1'''~ r-rs So"ec", n eC you agreewith the amount and priority of your claim~--"""7"""7-;---;-....:...-...:·v:...-.;..r..;"'--:--;--7~7-;----:-~"~;-:-;:;:----:--;:--7"-:----I-----------------135 scheduled by the Debtor and you have no other

_ Name andaddresswherepayment should be sent (if differentfrom above): _. ._ 0 claim against the Debtor, you do not-need-to-file-this. ----_. Check this box if youareaware" that - proof of claim form,EXCEPTASFOLLOWS: If the

anyone else has filed a proof of claim amount shown is listed as any of DISPUTED,relating to your claim. Attach copy UNLIQUIDATED, or CONTINGENT, a proof ofof statement giving particulars. claim MUST be filed in order to receive any

distribution in respect of your claim. If you havealready filed a proof of claim in accordance with theattached instructions you need not file again.

Name of Debtor (Check Only One): Case No.~ TerreStar Corporation 11-10612o TerreStarHoldings Inc. 11-10613

'.t IO,.CI/·~f!Jif(';'C:-I ~i/cd/I/"'~ &~ V.r SS /i-

NOTE: This form should not be used to make a claim Jor an administrative expense arising after the commencement oj the case, but may be used(or purposes of asserting a claim under 11 US.c. §503(b)(9) (see Item # 6). All other requests for payment oj an administrative expense may befiled pursuant to 1J Us. C. §503.

£)cr;vt'i ft've. (J. Lq, t' I')JA-C-t:.T /Jt;. )( )(:0 I bb

o

Name of Creditor(th:person or other ep.ti~ to whom the debtor o~es money 0:property): /?:E;=r;<£~ 11Ft"A7t2iCIA 13 SWART)

Check this box to indicate that thisclaim amends a previously filedclaim. TStv P,X/L.::.--f

Court Claim Number: 20 0(Ifknown)

Name and address where notices should be sent:

•.T£Fr-I<..G:!;1' H, J;-vA-J2../:530 8" ~-c)t(TtI C:c;::.ZJ;4)2 SI;OA II.) r.LLE. '-'If .Lt'3CJ /.Ll- (,72 t''1,

Filed on:

Telephone number:o Check this box if you are the debtor

or trustee in this case.

1. Amount of Claim as ofDate Case Filed: $ . 11 tf btJ i 3 if 2 I /3 iltftu ft~ 7/ ').{)l/If all or part of your claim is secured, complete item 4 below; however, if all of your claim is unsecured, do not complete item # 4.

If all or part of your claim is entitled to priority, complete item # 5. ~% ,:nb..e..4 tsmet A-itf.< ;'1Jt,~1-)If' Check this box if claim includes interest or other charges in addition to the principal amount of claim. Attach

itemized statement of interest or charges. fJ..~Cj'p.b:l 5 Ga./5tJo 'r-51/ S; if 79, 101-=--::---:--:----::::-:--"T7-~-::-:---:-"7"--,.:m-:----*-=-- -~:-L----l":""7"'-:r;:<-----------fSpecifY the priority of the claim.2. Basis for Claim: / / 'AC,;".:; J .• N '1/' {'f/.'./.oAA / Di!/vf V4-i j'..4!-- r: S.s/ "-

(See instruction #2 on reverse side.) 0 Domestic support obligations under'"'3,.-.":'L:-a-s-t""fo-u-r-'di"'-'g""'i-ts-o""f-a-ny-nu-m-"';b-er-'b"-y-,-",:-hi:-c:-h-c-re""'d"'-it-o-r:-id:-e-ntifi""~e-s-d:-e:-b-to-r-:=================----------1 11 U.S.C. § 507( a)(I )(A) or (a)( I)(B).

o .Wages, salaries, or commissions (up3a. Debtor may have scheduled account as: to $11,725*) earned within 180 days

(See instruction #3a on reverse side.)before filing of the bankruptcy

4. Secured Claim (See instruction #4 on reverse side.) petition or cessation of the debtor'sCheck the appropriate box if your claim is secured by a lien on property or a right of setoff and provide the requested business, whichever is earlier _ 11information. U.S.C. § 507(a)(4).

o Contributions to an employee benefitplan - 11 U.S.C. § 507(a)(5).

o Up to $2,600* of deposits towardpurchase, lease, or rental of property

-- _._or..sen.tices..for..personal,...fami4r,..or --t---household use-ll U.s.C. § 507(a)(7).

o Taxes or penalties owed togovernmental units - II U.S.C. § 507(a)(8).

o Other - Specify applicable paragraphof 11 U.S.C. § 507(a)U.

o Real Estate o Motor Vehicle o Equipment o OtherNature of property or right of setoff:Describe:

Value of Property:$. Annual Interest Rate_%

.:---Amount-of arrearage-amt'uttrercharges as-of tinre-cas-efil-ed-irrclude-din--se-cured c:lalllr,-

ifany: $, _ Bas~forperfection: ~

:l96~3r:211'3Amount of Secured Claim: $ Amount Unsecured: $

6. Claim Pursuant to 11 U.S.C. § 503(b)(9): .Indicate the amount of your claim arising from the value of any goods received by the Debtor within 20 days beforeFebruary 16,2011, the date of commencement of the above cases, in which the goods have been sold to tlie Debtor in the ordi-nary course of such Debtor's business. Attach documentation supporting such claim, $

7. Credits: The amount of al1 payments on this claim has been credited for the purpose of making this proof of claim.

8. Documents: Attach redacted copies of any documents that support the claim, such as promissory notes, purchaseorders, invoices, itemized statements or running accounts, contracts, judgments, mortgages, and security a,greements.You may also attach a summary. Attach redacted copies of documents providing evidence of perfection ora security interest You may also attach a summary. (See instruction # 8 and de]inition of "redacted" on reverse side.)

DO NOT SEND ORIGINAL DOCUMENTS. ATTACHED DOCUMENTS MAY BE DESTROYED AFTERSCANNING.

If the documents are not available, please explain in an attachment.

PROOF OF CLAIM

5. Amount of Claim Entitled toPriority under 11 U.S.C. § 507(a).If any portion of your claim fallsin one of the following categories;check the box and state theamount.

Amount entitled to priority:

$._----

*Amounts are subject to adjustment on4/1/13 and every 3years thereafter withrespect to cases commenced On or afterthe date of adjustment.

Signature: The person filing this claim must sign it. Sign and print name and title, if any, of the creditor orother person authorized to file this claim and state address and telephone number if different from the noticeaddress above. Attach copy of power of attorney, if any.

FOR COURT USE ONLY5'/9Date;.w II

11-10612-shl Doc 427-1 Filed 03/16/12 Entered 03/16/12 16:44:38 Proof of Claim Pg 1 of 5

RAYMOND JAMESCLIENT NOTICE

ACTIVITY FOR: 12/20105YOUR FINANCIAL ADVISOR:

1.1 •• 1•• 11.11 •••••• 11.1 •• 111••••• 1,11.,1,1.1 •• 1PAT SWARTS IRARAYMOND JAMES & ASSOC INC CSDNPO BOX 289DANVILLE OH 43014-0289892

MARY A. LOYDOFFICE: 4WP REP #: 44Q3FIRST KNOX NATIONAL BANK1 SOUTH MAIN STREETMT. VERNON, OH 43050

Dear Client:

-Tnangesnaveoccurfed in your investrnerrttsrresuttirrq tn the--foll-owing-activity in-accoLint 572-=7-62-30:---

SYMBOl!DESCRIPTION

ACTIVITYINFORMATION

SECURITYADDED DELETED

AMOUNTCREDITED

above transaction may security is deemed worthless;a declared bankruptcy in which there is no stockholders' equity; revocation of the company's charterdue to non-payment of taxes or failure to file reports; or the rights/warrants have expired and areworthless. The nature of the change is indicated above. The security indicated in the "DELETED"column above has been removed from your portfolio. You may wish to retain a copy of this notice fortax purposes.

Requests to buy or sell securities are not accepted via e-mail. Please call your Financial Advisor toplace any trades or to request any changes. In addition, our Client Services Department at1-800-647-SERV(7378) is available to assist. (PLEASE SEE REVERSE SIDE)

Raymond James & Associates, Inc.Member New York Stock Exchange/Slpe

880 Carillon Parkway· SI. Petersburg. FL 33716

727-567-1000· www.RaymondJames.com


Account StatementRetain for Your Records

Statement Period: January 1, 2006 to January 31,2006Last Statement: December 31,2005

Rollover IRAAccount Number: 5032-4935

Going paperless is easy. Log on to:www.schwab.com/estatementsQuestions? CaI/1-800-435-4000

Banking Inquiries: Call 1-800-435-4000

Account Opened in: 2001Page 1

31/01-CN1B1902·002747·MED·43014028900997232 ·2JEFFREY M SWARTSCHARLES SCHWAB & CO INC CUSTIRA ROLLOVER308 CEDAR STPO BOX 289DANVILLE OH 43014-0289

I Total Account Value $ 0.31\

---IrC~hra-n-g-e~ln~Va~lru-e~S-u-m-m-a-ry--------------------I

Change in Value Since December 31, 2005: $ 0.01 ==Change in Value Since January 1,2006: $ 0.01 ;;;;;;;;;;;;;;;===-

;;;;;;;;;;;;;;;===

'-;:A::-c_c:-o,-::u~n-,-"t_V--,a-:-lu-::-e=-;-=s....::u:.:..:m:.:..:m..:..:-=:a:...lry,----:-:--ICash, Money Market, and Deposit Accounts $ 0.31Investments $ 0.00

'-.:R..:..:a=te=-s.=..:u=m.:..;..:mc.:..:.a=r-Ly 1

Deposit Accounts: Interest rate as of 01/31 (Z) 0.50% --;;;;;;;;;;;;;;;===--;;;;;;;;;;;;;;;~~--~--~--~----------------------------------------------------------------------I Investment Detail

Cash, Money Market, and Deposit AccountsDEPOSIT ACCOUNTS (X,Z)

Description SvmbolQuantity

loag/Sbort Price

Settle TradeDate Date Transaction Description Quantitv Price

Market Value ,.G')0

$ 0.31 000I\)

$0.311-...j~-...j0~0-...j~,.

Total

$ 0.01

ITotal Account Value

I Transaction Detail

Cash, Money Market, and Deposit Accounts Activity01/17 01/15 Bank Interest ()(,Z) BANK INT 121605-011506

Investments Activity01/18 01/18 Deemed Worthless LORAL SPAC & COMMUN NXXX

WORTHLESS EFF 11/21/05(1,170 )

Please see "Footnotes for Your Account" section for an explanation of the footnote codes and symbols on this statement.

©2004 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. CRS 22640 (0001-0386) STP10479R1-03 (12/04)

eN1 B1902·002747 97232



Statement Period: December 1, 2005 to December 31, 2005Last Statement: November 30, 2005

Roth Contributory IRAA.ccount Number: 1288-3560

Going paperless is easy. Log on to:www.schwab.comJestatementsQuestions? CaI/1-800-435-4000

Banking Inquiries: Call 1-800-4354000


30/12·PNC02007-003211-SML-430140289009941746 '1-2JEFFREY M SWARTSCHARLES SCHWAB & CO INC CUSTROTH CONTRIBUTORY IRA308 CEDAR STPO BOX 289DANVILLE OH 43014-0289 ------

Total Account Value $22.751

I_C-'-h-Oa-'-Cn:>iL9-=-e..::.;;ln..:..v..:..a:.:.:I..=ue-=-=S.=u:;cm:.:;:m..:..;:a:;cryL.- IChange in Value Since November 30, 2005: $ (17.27) ~Change in Value Since January 1, 2005: $ (1,287.40)

--=-A_C-:-c_o-:-:un:-t;;...v_a;;...l..:..u-=-e-'S;..;:.u~mc:.:m.:.:.=a'-"ry _'_ 1Cash, Money Market, and Deposit Accounts $ 22.15Investments $ 0.60

--I_R_a_te'-S-"-u'-m_m_a;;....ry.L- 1

Deposit Accounts: Interest rate as of 12/30 (Z) 0.50% _-

Investment Detail

Cash, Money Market, and Deposit AccountsDEPOSIT ACCOUNTS (X,Z)

Description SymbolQuantity

Long/Short Price Market Value .•G)0

$ 22.15 000INI\)...•.

$ 0.60 -'-0

N/A I\)0en<.•

$ 22.751

InvestmentsSYQUEST TECH INC NEWLORAL SPACE &COMM 6%PXXX

WORTHLESS EFF 11/21/05

SYQTQ 2,0002,250

LL

$ 0.0003NIA

I Total Account Value (excludes unpriced securities)

Transaction DetailSettle TradeDate Date Transaction Description Quantity Price TotalCash, Money Market, and Deposit Accounts Activity12/1612/15 Bank Interest (X,Z) BANKINT111605-121505 $ 0.01

Please see "Footnotes for Your Account" section for an explanation of the footnote codes and symbols on this statement.

©2004 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. CRS 22640 (0001-0386) STP10479R2-03 (12/04)

PNC02007·003211 941746



._-------------Statement Period: January 1, 2006 to January 31,2006

Last Statement: December31, 2005

Brokerage AccountAccount Number: 8650-0742

Going paper/ess is easy. Log on to:www.schwab.com/estatementsQuestions? Callt-800-435-4000


31101-CN181902-002747-MEO-43014028900997235 "1

JEFFREY M SWARTS &PATRICIA E SWARTS JT TEN308 CEDAR STPO BOX 289DANVILLE OH 43014-0289 -=--

Cash & Sweep Money Market FundsInvestments

$ 42.41$ 0.00

---I-C~h-a-n-ge~ln~v~a~lu-e-S~u-m-m-a-r-y---------1

Change in Value Since December 31, 2005: $ 45.00 -Change in Value Since January 1,2006: $ 45.00 _=--

I Account Value Summary

I Total Account Value $ 42_411

I Investment Detail

Cash and Money Market Funds (Sweep)CASH

Description SvmbolQuantity

Long/Shod Price

InvestmentsLORAL SPACE &COMM 6%PXXX

WORTHLESS EFF 11/21/053,000 L N/A

Market Value ,.G')0

$ 42.41 000N-..j~

N/A-..j0(1)0-..j(1)

$ 42.411,.I Total Account Value (excludes unpriced securities)

I Transaction DetailSettle TradeDate Date Transaction Description Quantitv Price TotalCash Activity01/06 09/28 Misc Credits CUST SERVICE GEST $ 45.00

.~

©2004 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. CRS 22640 (0001-0386) STP1 0479R1-03 (12/04)

CN1 81902-00274797235


1

Tony Christ (Pro Se) 6635 Kennedy Lane Falls Church, Virginia 22042 Telephone (703) 533-3077 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ) In re: ) Chapter 11 Case Nos. ) LORAL SPACE & COMMUNICATIONS LTD., et al. ) Lead Case 03-41710(RDD) ) 03-41709 (RDD) through ) 03-41728 (RDD) ) ) Debtors ) (Jointly Administered) _______________________________________________ )_____________________________

THE LSPC’S OBJECTION TO DEBTOR’S MOTION FOR SANCTIONS

The LSPC takes issue with Debtor’s portrayal at p. 2, no. 1, “that (i) this Court repeatedly has rejected the LSPC’s baseless allegations regarding Debtor misconduct and “asset minimization.” For three years up to and including the February 7, 2006 hearing the Court supported the LSPC. Recently is a better word then repeatedly.

Yet the quandary of the components of the ‘projections’ remained an unanswered enigma to the LSPC at Confirmation. Notwithstanding our dissatisfaction with the confirmation decision at year-end, the LSPC had not planned to introduce new litigation to revisit the Confirmation decision. However, during the first six months of 2006 there were a number of disclosures that refuted the projections relied upon to determine value at SS/L. I felt a duty to bring this new information to bankruptcy court since its availability at Confirmation was unknown outside of the Debtor.

Mr. Karotkin’s lawyering prevented the LSPC first in its request for limited discovery

then from supplementing the 1144 Motion with the new disclosures. The LSPC had talked to Mr. Karotkin, Debtor’s lead Counsel, encouraging him to look into the new information and his response was to successfully move the court to repress any supplementation of the 1144. His response might be in violation of his disinterestedness requirement.

When the LSPC attempted to appeal the 1144 it had withdrawn at the April 10, 2006

hearing, we did not know that you could not appeal to a higher court a matter you had withdrawn with prejudice in the bankruptcy court. Shortly thereafter the LSPC was presented with two choices: either sign the stipulation, or be brought before the Court on Mr. Karotkin’s sanctions

11-10612-shl Doc 427-2 Filed 03/16/12 Entered 03/16/12 16:44:38 Exhibit A Pg 1 of 7

2

charge. I chose to sign the stipulation that Mr. Karotkin wrote. However I had a slightly different understanding of the stipulation agreement than Mr. Karotkin. My different understanding relates to my insistence before signing the agreement that Debtor also agree to withdraw the sanctions that related to the 1144 charge with prejudice. When he agreed to do this I signed the stipulation.

The Stipulation Agreement states on page 4 at No. 1: “the 1144 Appeal and the Fee Appeal each shall be and hereby is deemed withdrawn by the LSPC, with prejudice.” When the LSPC filed its appeal based on new information, we argued it was not the 1144 deemed withdrawn with prejudice. We argued that the District Court Appeal was based on new information as well as a new focus that made it different than either the 1144 or the Disgorgement with an 1144 component. The District Court has not yet answered this question.

However, if the Court views it as an appeal, subject to the above restriction, then the Debtor is also in violation because they have agreed not to bring sanctions that relate to that specific Appeal. On page 4 at no. 3, “On the Stipulation date, (i) the Motion to Dismiss shall be withdrawn and (ii) the Sanctions Motion shall be deemed withdrawn with prejudice;”

This raises the question if the District Court views it as the same motion withdrawn with prejudice, which the LSPC is confident it will not, then how can Debtor, who also promised to withdraw the sanctions with prejudice that relate to that motion, be any less guilty of violating the stipulation that they constructed. Although the LSPC has argued it is a different charge based on new information, if not, then how can Debtor bring a sanction motion it has agreed to “withdraw with prejudice” against the same motion? The LSPC does not dispute Debtors right to bring a Sanction Motion in general, however the LSPC does dispute Debtor’s right to bring sanctions specifically against what it is has previously agreed to withdraw with prejudice.

Admittedly, there is nothing that prevents Debtor from seeking sanctions for anything it might choose at no. 3: “that nothing herein shall preclude the Reorganized Debtors from seeking sanctions against the LSPC and/or Mr. Tony Christ in respect of any future conduct, . . .”. This right exists without this affirmation in the stipulation for Debtor as well as the LSPC.

The LSPC, in light of specific dangling participles at Confirmation, when applying strict logic, felt it was their duty to file a motion that brought the new information withheld, but available in the Confirmation time frame, to further the truth and better explain an erroneous finding at Confirmation. From this frame of reference the sanction motion sought can be viewed as a further endeavor to repress information hence to darken or obfuscate the Court’s effort to establish value. The LSPC took the Court’s admonition into consideration and “thought long and hard” before filing the Motion. However the disclosure documents filed by Loral and EchoStar in 2005 revealed both significant reductions in costs and significant increases in sales that were not disclosed at Confirmation and were key to the SS/L valuation. The March depositions confirmed that the experts had not reviewed the individual Satellite contracts. I would remind the Court that in its decision it relied on the experts that ‘the experts thoroughly vetted the projections’. Apparently not. Also the Quarterly disclosures from debtor disclosed that sales were at a run rate


3

approximately 10% above projections during 2006 and increasing while audited cost at year end 2005 for SS/L were substantially less on actual 2005 sales that matched the projections. The court in valuing SS/L had to rely on the Discounted Cash Flow models because at the time there were no comparable sales therefore the evaluation was dependant overly reliant on debtors projections. In April 2006 Elana, a comparable Satellite manufacturer owned by Alcatel was sold or $2.14 billion. This sale does not compare well with the courts $230 million valuation of SS/L at Confirmation based solely on the projections and DCF evaluations of he experts. For these reasons and more the LSPC believed it had a duty and an obligation to further the truth and decided that the new information was wrongly withheld from Confirmation and would further the truth in these cases. The LSPC believed as a matter of conscious tat the new information required Judicial Review and a stipulation obtained through duress is not proper. There was other supporting information that came from disclosures and depositions in addition to the disclosure statements.

The LSPC is not filing any new motions against the Debtor, nor does it intend to, other than filings in connection with requirements and actions underway. In this context, the sanctions will accomplish nothing but pure punishment and are ineffective as a tool to repress litigation that was the intent of the Debtor. The LSPC believes that, if fully vetted, the new information would show the projections relied upon by the experts and the Court at Confirmation were clearly erroneous and significantly understated the assets of the estates. The District Court will decide whether to hear or not to hear that information. A District Court decision may moot any sanctions. Therefore to avoid conflicting decisions between courts and prevent additional litigations, if the Court is of the mind that it wants to impose sanctions it should adjourn the motion till the other litigation is completed.

Consequently, this is a personal and punitive sanction against Tony Christ. The LSPC only has such assets that its members contribute to fund its expenses. The strategy of these sanctions is to unfairly intimidate Mr. Christ, create hardship, and inhibit certain litigation from advancing to Appeal. The previous threats of sanctions similarly intimidated Mr. Swarts and Mr. Plum who upon being threatened resigned the LSPC. Hence treats have been successful in debtor’s restriction of courtroom information. Imposing an agreement that was signed in duress is not the duty of the bankruptcy court, a court of equity.

Furthermore, the scope of the fee responsibility the sanctions seek to date is for a 19-

page response signed by Mr. Karotkin and cumbersomely titled “Appellees’ Memorandum of Law In Support of Motion To Dismiss The Loral Stockholders Protective Committee’s Appeal As It Relates To A Request For Relief Under 11 U.S.C. Sec. 1144” to certain aspects of the Appeal that the Debtor alleges is subject to the stipulation. However their have been other documents submitted in connection with the Greenhill Disgorgement, in connection with the election Appeal and the Substantial Contribution Appeal and two additional documents that rehash the response to repress the new information as well as two Affidavits by Ted Tsekerides that frankly I don’t know what they relate two and if any of these are improperly billed it would wrongly go beyond the relief sought in the Sanctions Motion. It would wrongly inflate their bill and would represent punishment in excess of the alleged violation.


4

Also of import the LSPC is seeking sanctions against Weil Gotshal on grounds that they violated their disinterestedness requirement They have responded and I understand they will be submitting a Sir Reply in addition. It would be completely improper to sign the Debtor’s open-ended order allowing Weil Gotshal to bill for future matters they undertake at their order or upon other filings granting discretion in billing that could be abused. The Court has already cited debtors’ counsel for over billing and partially disgorged them on February 7, 2006.

The issue of admitting the new information to the Appeal has been briefed at District

Court and awaits a decision. It would be patently unfair to give Weil Gotshal a card de blanche to bill my family in other pleadings intended to answer other briefs before the United States District Court that have no bearing on the narrow area of the relief requested. Hence the order as written is subject to the same abuses for which the Court has already debited this Counsel in the amount of <$800,000> at final fee hearing on February 7, 2006. Furthermore the Court is a Court of equity and it is not the intent of the court to leave an open-ended order on a narrow issue that has been fully briefed. Such punishment could ruin my family financially in addition to the considerable expense and loss my family has already sustained while acting on our duty to bring forward these important issues for Judicial review. Therefore although opposed on grounds of punishing the victims if imposed they should be determined in accord with the effort to have heard the new information which is completed and not open-ended

The allegations against the Debtor of erroneous projections is a part of the Disgorgement

brief that is connected to the ‘new information,’ If the District Court determines that the evidence requires a hearing and that this aspect of the Appellant Brief is substantially different and of adequate merit wouldn’t the District Court be denying the stipulation? For the stipulation to hold doesn’t the United States District Court have to rule to not hear those aspects of the Appeal that deal with the erroneous projections charge?

To the degree that the order sought by Weil Gotshal is intended to generally inhibit or

restrict litigation it presumes on the one hand to preempt the District Court review and, fails to prevent or restrict future litigation. A broader interpretation of the sanctions agreement would wrongly presume to know in advance that such future litigation is ‘frivolous,’ ‘vexatious,’ or ‘blunder buss’ prior to its filing or even its conception and is not sought in the sanction motion. Therefore any sanction might be premature and is certainly unfair, and should be withdrawn without prejudice or denied without prejudice until such time that the District Court determines whether to hear the subject. This would prevent cross-decisions in the event that, after the review of the United States District Court, the litigation is found to have merit.

This deflection of litigation costs mocks the process of pro se Appeal that has a proud and

longstanding tradition in the United States District Court and endeavors to gain court sanctification of Debtor’s ongoing efforts to repress information. Placing this added financial burden on my family very well may accomplish Debtor’s agenda of restriction and obfuscation. The LSPC would note that any pressure on the Court to finish these cases within two years, which to the degree it exists, may have biased the court regarding reopening the case on the basis of new information withheld from Confirmation. The LSPC believes it is the duty if the Court as a Court of Equity to hear this information. The new information was not planned by the LSPC but released by the debtor and a major customer in required disclosures for 2005 and withheld


5

from Confirmation. The LSPC acted out of a duty to disclose the truth on the record even if painful to the Loral insiders or inconvenient to the bankruptcy court. Therefore we respectfully request and pray from relief from this debtor and its allegations.

RELIEF REQUESTED Given the present context that no new actions are to be filed against the Debtor, THE OBJECTIVE OF THE SANCTIONS MOTION HAS BEEN ACOMPLISHED WITH OUT ENFORCING THE HARDSHIP OF A MONETARY PUNISHMENT OF MY FAMILY. The LSPC is awaiting decisions from the District Court regarding this very matter, any sanction would be entirely punitive, imposing costs on my family, which has born the cost of a total loss of our investment, as well as the costs of self-representation throughout these cases. The Bankruptcy Court is a court of equity, and it is inequitable to punish the victims given these facts. Therefore we respectfully pray for denial of the motion.

1) I respectfully request that the relief requested be denied because the matter is before the District Court, and if the District Court should decide that the Appeal is not the same and may go forward, the bankruptcy court will have penalized the LSPC for a pleading that the District Court will hear. Furthermore if found it was the same as was withdrawn with prejudice debtor is equally in violation for bringing the same sanctions they withdrew with prejudice.

2) A decision by the United States District Court to hear the disputed parts of the subject

appeal. If for any reason the Court decides not to hear it, there will be no more costs accruing from it. Presently, there should be no more costs associated with it. If the court decides it can hear the appeal, it will mean that the Court believes it is not bound by Debtors’ claims, including the Stipulation, therefore, there should not be any future liability to me for litigating the appeal based on the new information. The Order, as written, is open-ended and allows Weil Gotshal to bill in the future on this narrow matter of the 1144. Therefore, if it is determined at this time by this Court that the LSPC should be sanctioned, the sanction should relate to the 19-page response incurred, and not other pleadings submitted on other matters. Therefore we respectfully object to a finding in support of sanctions and an open-ended order. Would request that the sanction fit the specific response in opposition to the new information and be a fixed amount the cost of that response and not other pleadings.

3) Alternatively, the LSPC respectfully requests a proper adjournment of the sanctions

motion until the outstanding matters are resolved in the District Court in that such resolution cold mute the charge that we have brought the same information and are therefore in violation with the Stipulation. The LSPC has argued that it is not the same information.


6

CONCLUSION

Mr. Karotkin’s persuasive and repetitive attacks against the LSPC should be directly contrasted to his admitted lack of personal investigation, intentional or otherwise, of the issues that underlie Mr. Karotkin’s unending attacks based on allegations against the LSPC:

THE COURT: Let me though ask you a different 22 question. I don't know, I -- when I was practicing, I worked 23 on a lot of disclosure statements, including, you know, 24 representing the Debtor and it depends sometimes how active 25 attorney is in preparing disclosure statements. What you're 1 telling me though, Mr. Karotkin, is that you all did not like 2 examine that your client about all their assets and that you 3 basically took what they gave you; is that what you're saying? 4 As far as the description of their assets? 5 MR. KAROTKIN: That's a fairly opened ended question. 6 I mean, you know, they had a lot of assets. If you're asking 7 me would I question them if they told me about the status of 8 construction of a satellite contract -- 9 THE COURT: Right. 10 MR. KAROTKIN: -- or would I take their word for it? 11 THE COURT: Right. 12 MR. KAROTKIN: I can't imagine that I would question 13 them about a status of a satellite contract.

These abusive attacks, without foundation, have gone on for three years against the pro se LSPC, which has undergone significant sacrifice and expense to attend and participate in the hearings. Mr. Karotkin’s prejudicial attitude toward equity may be a violation of his disinterestedness requirement, and is a subject in the LSPC Sanctions Motion before the United States District Court.

It should be further noted that before each and every filing by the LSPC the Court

admonished the LSPC to talk with the debtor and we did and were in every instance rebuked and resorted to filing a pleading to request the court intervention which the court was mostly reluctant to grant.

It would be inequitable in light of the fact that the LSPC intends to initiate no more

pleadings against the Debtor, and that the portions of the filing in dispute regarding the new information to be decided by the District Court have not been determined.

We include one case submitted by the debtor in their response in district court and remind the Court that we have respectfully attended over thirty hearings and any experience we have obtained has come from that experience we are still pro se and should not suffer for our dutiful response to bring forth new information for judicial review. Information that was in large part withheld from Confirmation.


7

As authority for our request for NO monetary sanctions we submit a case debtor submitted to the district court. In re Mauakolam v. Columbia Univ., 866 F.2d 53, 56 (2d Cir. 1989) a Nigerian Engineering student failed an exam question in 1979. Then in 1982 sought monetary and injunctive relief for his failure. The action was dismissed for want of prosecution by the district court in April 21, 1983. Then on April 21, 1987, four years to the day from the order dismissing the case in U.S. District Court the Nigerian submitted a motion in U.S. District Court to reopen the case. The Court found no reason to exclude the four-year delay took note of a separate civil court action on the same grievance and awarded attorney’s fees of $3,243.50 to Columbia University. On Appeal to the second circuit concluded “Plaintiffs appellent’s motion for relief from judgment was filed out of time, four years latter. We therefore find no abuse of the courts discretion to deny the motion under 60(b)(1). However we do not believe that sanctions are warranted on the facts of the case.” “Accordingly the judgment of the district court is affirmed in part and reversed in part, . . . vacate judgment as awards defendants –appellee’s fees in amount of $3,243.50.”

On its face the plaintiff seeks to involve the courts in collecting what he believes to be damages owing to his failed exam grade. Notwithstanding the baseless predicate for the complaint and the filing in circuit court and the four-year lag the second circuit did “not believe that sanctions are warranted on the fact of the case.”

Finally we remind the court that through numerous pleadings and attendances at Court

the LSPC has never been told it was frivolous by the Court and has always endeavored to respect the court to the limit of its knowledge as a pro se party in interest.

I affirm that I have served copies of this objection on the Debtor, the Creditor and the

United States District Court. Dated October 13, 2006

Respectfully Submitted,

By:_/s/ Tony Christ______________ Tony Christ (Pro Se) Spokesman The Loral Stockholders Protective Committee Falls Church, Virginia 22042


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SPACE SYSTEMS/LORAL BEGINS CONSTRUCTION OF TERRESTARSATELLITE SYSTEMSS/L Takes MSS Industry Lead with Multiple 2 GHz Programs Under Development

PALO ALTO, Calif. - April 11, 2005 - Space Systems/Loral (SS/L) today announced that it has completed designreviews of TerreStar Networks, Inc.'s geostationary satellite, TerreStar-1, and entered into the construction phase ofthe Mobile Satellite Services (MSS) program. The TerreStar satellite, together with an Ancillary Terrestrial Component(ATC), is designed to provide next-generation, 2-GHz mobile voice and data communications, monitoring andmessaging services throughout the United States.

Scheduled for delivery in 2007, TerreStar-1 has a service life of 15 years and will carry a state-of-the-art MSS payloadfeaturing a large unfurlable reflector. The satellite will be capable of generating hundreds of spot beams covering theContinental U.S., Canada, Alaska, Hawaii, Puerto Rico and the U.S. Virgin Islands. SS/L's contract with TerreStaralso includes an option for construction of a second satellite, TerreStar-2.

An FCC decision earlier this year opened the door for TerreStar Networks, and other select satellite operators, toincorporate an ATC with its satellite-delivered communications service. The previously unavailable 2-GHz frequencyband will allow MSS operators to provide advanced mobile voice and data services. These services will be enhancedby ATC technology, which allows for coverage in areas where a satellite's signal could be blocked, including urbancanyons, dense forest or other areas out of the satellite's line-of-sight.

"SS/L has taken a leadership position in the development of 2-GHz MSS satellites, which are at the heart of nextgeneration mobile services," said C. Patrick DeWitt, president, Space Systems/Loral. "Together with our experienceon other 2-GHz systems, the TerreStar award positions SS/L as the industry leader in the design and development ofsome of the world's most advanced mobile communication systems."

TerreStar-1 is based on SS/L's space-proven 1300 platform, which has an excellent record of reliable operation. Itshigh efficiency solar arrays and lightweight batteries are designed to provide uninterrupted electrical power. In all,SS/L satellites have amassed more than 1,100 years of reliable on-orbit service.

The TerreStar-1 Satellite

Headquartered in McLean, Va., TerreStar Networks Inc. is an emerging provider of advanced mobile satellite servicesin North America with plans to develop, build and operate an innovative and spectrum-efficient spot beam satellitenetwork in the 2 GHz frequency band. The TerreStar investor group includes Motient Corporation (OTC Pink Sheets:MNCP), SkyTerra Communications (OTC BB: SKYT), TMI Communications, Columbia Capital and Spectrum EquityInvestors. For more information, visit TerreStar Networks on the web at www.terrestarnetworks.com.

Space Systems/Loral, a subsidiary of Loral Space & Communications (OTCBB: LRLSQ), is a premier designer,manufacturer, and integrator of powerful satellites and satellite systems. SS/L also provides a range of relatedservices that include mission control operations and procurement of launch services. Based in Palo Alto, Calif., thecompany has an international base of commercial and governmental customers whose applications include

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LOR Logo

LOR Logo

http://www.terrestarnetworks.com

broadband digital communications, direct-to-home broadcast, defense communications, environmental monitoring,and air traffic control. SS/L is ISO 9001:2000 certified. For more information, visit www.ssloral.com.

Loral Space & Communications is a satellite communications company. In addition to Space Systems/Loral, throughits Skynet subsidiary Loral owns and operates a fleet of telecommunications satellites used to broadcast videoentertainment programming, and for broadband data transmission, Internet services and other value-addedcommunications services.

# # #

This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition, Loral Space &Communications Ltd. or its representatives have made or may make forward-looking statements, orally or in writing,which may be included in, but are not limited to, various filings made by the company with the Securities andExchange Commission, press releases or oral statements made with the approval of an authorized executive officerof the company. Actual results could differ materially from those projected or suggested in any forward-lookingstatements as a result of a wide variety of factors and conditions. These factors include those related to the filing, onJuly 15, 2003 by Loral and certain of its subsidiaries, of voluntary petitions for reorganization under chapter 11 of title11 of the United States Code in the United States District Court for the Southern District of New York and parallelinsolvency proceedings in the Supreme Court of Bermuda in which certain partners of KPMG were appointed as jointprovisional liquidators. Additional factors and conditions are also described in the section of the company's annualreport on Form 10-K for the fiscal year ended December 31, 2004, entitled "Commitments and Contingencies," andthe company's other filings with the Securities and Exchange Commission. The reader is specifically referred to thesedocuments.

Contact:John McCarthyLoral Space & Communications212/338-5345

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http://www.ssloral.com

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SPACE SYSTEMS/LORAL TO BUILD ADVANCED MOBILE SATELLITEICO's 2-GHz Mobile Communications Service to Provide Ubiquitous Coverage ThroughGeostationary MSS Satellite and ATC Technology

ICO's 2-GHz Mobile Communications Service to Provide Ubiquitous Coverage Through Geostationary MSSSatellite and ATC Technology

PALO ALTO, Calif. - April 26, 2005 - Space Systems/Loral (SS/L) today announced that it has recently signed acontract with ICO Satellite Management, LLC for the design and construction of a geostationary Mobile SatelliteServices (MSS) satellite that, together with an Ancillary Terrestrial Component (ATC), will be capable of providingmobile voice and data communications throughout the United States.

"The 2-GHz mobile systems are driving a growing segment of today's satellite manufacturing industry," said BernardL. Schwartz, chairman and CEO of Loral Space & Communications. "With ICO and other 2-GHz programs underdevelopment, SS/L has put a stake in the ground as the leading provider of these next generation mobile satellites."

ICO's GEO satellite is based on SS/L's space-proven 1300 platform, which has an excellent record of reliableoperation. Its high efficiency solar arrays and lightweight batteries are designed to provide uninterrupted electricalpower. In all, SS/L satellites have amassed almost 1,200 years of reliable on-orbit service.

ICO is one of two companies awarded licenses by the FCC to provide satellite-based communications services withATC technology in the 2-GHz frequency band. With its SS/L constructed geostationary satellite and ATC, ICO willprovide next generation mobile voice and data services, providing complete coverage regardless of the user's location.

Space Systems/Loral, a subsidiary of Loral Space & Communications (OTCBB: LRLSQ), is a premier designer,manufacturer, and integrator of powerful satellites and satellite systems. SS/L also provides a range of relatedservices that include mission control operations and procurement of launch services. Based in Palo Alto, Calif., thecompany has an international base of commercial and governmental customers whose applications includebroadband digital communications, direct-to-home broadcast, defense communications, environmental monitoring,and air traffic control. SS/L is ISO 9001:2000 certified. For more information, visit www.ssloral.com.

Loral Space & Communications is a satellite communications company. In addition to Space Systems/Loral, throughits Skynet subsidiary Loral owns and operates a fleet of telecommunications satellites used to broadcast videoentertainment programming, and for broadband data transmission, Internet services and other value-addedcommunications services.

# # #

This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition, Loral Space &Communications Ltd. or its representatives have made or may make forward-looking statements, orally or in writing,which may be included in, but are not limited to, various filings made by the company with the Securities andExchange Commission, press releases or oral statements made with the approval of an authorized executive officerof the company. Actual results could differ materially from those projected or suggested in any forward-lookingstatements as a result of a wide variety of factors and conditions. These factors include those related to the filing, onJuly 15, 2003 by Loral and certain of its subsidiaries, of voluntary petitions for reorganization under chapter 11 of title11 of the United States Code in the United States District Court for the Southern District of New York and parallelinsolvency proceedings in the Supreme Court of Bermuda in which certain partners of KPMG were appointed as jointprovisional liquidators. Additional factors and conditions are also described in the section of the company's annualreport on Form 10-K for the fiscal year ended December 31, 2004, entitled "Commitments and Contingencies," andthe company's other filings with the Securities and Exchange Commission. The reader is specifically referred to thesedocuments.

Contact:John McCarthyLoral Space & Communications212/338-5345

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LOR Logo

LOR Logo

http://www.ssloral.com

- 1 -

Jeffrey M. Swarts (Pro Se)308 South Cedar StreetDanville, OH 43014-0289 (740)-599-6516

UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK

)In re: ) Case Nos.

)LORAL SPACE & COMMUNICATIONS LTD. ) 03 CV 8262 (JES)SHAREHOLDERS’ SECURITIES LITIGATION )

))

REQUEST FOR EXCLUSIONFROM

THE CLASS ACTION SETTLEMENTDATED

OCTOBER 8, 2008

I, Jeffrey M. Swarts, a shareholder of Loral common shares, beginning in early 2000, hereby

request exclusion from the settlement contemplated by the Court, to be heard on February 26, 2009 at

1:00 p.m., unless it is delayed, rejected, modified or adjourned by the Court, pending further action.

Throughout the period of my purchases of stock, through their elimination by the bankruptcy court, the

named defendants in this class action, Bernard L. Schwartz (CEO) and Richard Townsend (CFO) were

indemnified fiduciaries of the Company. I retain all rights not explicitly surrendered herein. As

stipulated by the class action agreement, this Request for Exclusion includes trade confirmation

receipts previously forwarded to the parties on November 30, 2008. (See Claim #591)

_______________________________

/Jeffrey M. Swarts

February 6, 2009

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AKIN GUMP STRAUSS HAUER & FELD LLP One Bryant Park New York, New York 10036 (212) 872-1000 (Telephone) (212) 872-1002 (Facsimile) Ira S. Dizengoff Arik Preis Ashleigh L. Blaylock Proposed Counsel to the Debtors and Debtors in Possession

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

) In re: ) Chapter 11 ) TERRESTAR NETWORKS INC., et al.,1 ) Case No. 10-15446 (SHL) ) Debtors. ) Jointly Administered )

GLOBAL NOTES AND STATEMENT OF LIMITATIONS,

METHODS AND DISCLAIMER REGARDING DEBTORS’ SCHEDULES

OF ASSETS AND LIABILITIES AND STATEMENTS OF FINANCIAL AFFAIRS

The above-captioned debtors and debtors in possession (collectively, the “Debtors”) are filing their respective Schedules of Assets and Liabilities (the “Schedules”) and Statements of

Financial Affairs (the “Statements” and, with the Schedules, the “Schedules and Statements”) in

the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy

Court”). The Debtors, with the assistance of their advisors, prepared the Schedules and Statements in accordance with section 521 of title 11 of the United States Code (the “Bankruptcy

Code”) and Rule 1007 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”).

These Global Notes and Statements of Limitations, Methods and Disclaimer Regarding the Debtors’ Schedules of Assets and Liabilities and Statements of Financial Affairs (collectively,

the “Global Notes”) pertain to, are incorporated by reference in, and comprise an integral part of,

1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal taxpayer-

identification number, are: TerreStar New York Inc. (6394); TerreStar Networks Inc. (3931); Motient Communications Inc. (3833); Motient Holdings Inc. (6634); Motient License Inc. (2431); Motient Services Inc. (5106); Motient Ventures Holding Inc. (6191); MVH Holdings Inc. (9756); TerreStar License Inc. (6537); TerreStar National Services Inc. (6319); TerreStar Networks Holdings (Canada) Inc. (1337); TerreStar Networks (Canada) Inc. (8766) and 0887729 B.C. Ltd. (1345).

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all the Schedules and Statements. These Global Notes should be referred to and reviewed in connection with any review of the Schedules and Statements.2

The Schedules and Statements have been prepared by the Debtors’ management and are

unaudited and subject to further review and potential revision. In preparing the Schedules and Statements, the Debtors relied on financial data derived from their books and records as were available at the time of preparation. The Debtors’ management and advisors have made

reasonable efforts to ensure that they are as accurate and complete as possible under the circumstances based on information that was available to them at the time of preparation; however, subsequent information or discovery may result in material changes to the Schedules and Statements and inadvertent errors or omissions may exist, notwithstanding any such discovery or new information, however the Debtor shall not be required to update the Schedules and Statements.

Global Notes Control. In the event that the Schedules and Statements differ from the Global Notes, the Global Notes shall control.

Reservation of Rights. Nothing contained in the Schedules and Statements or these Global Notes shall constitute a waiver of any of the Debtors’ rights or an admission with respect

to their chapter 11 cases including, but not limited to, any issues involving objections to claims, substantive consolidation, equitable subordination, defenses, characterization or recharacterization of contracts, assumption or rejection of contracts under the provisions of Bankruptcy Code chapter 3 and/or causes of action arising under the provisions of Bankruptcy Code chapter 5 or any other relevant applicable laws to recover assets or avoid transfers.

Description of the Case and “as of” Information Date. On October 19, 2010 (the “Petition Date”), each of the Debtors filed a petition for relief with the Bankruptcy Court under

Bankruptcy Code chapter 11. The Debtors continue to operate their businesses as debtors in possession pursuant to Bankruptcy Code sections 1107(a) and 1108. On October 20, 2010, the Bankruptcy Court entered an order jointly administering these cases pursuant to Bankruptcy Rule 1015(b). On October 29, 2010, the United States Trustee for the Southern District of New York (the “U.S. Trustee”) appointed a statutory committee of unsecured creditors pursuant to section 1102(a)(1) of the Bankruptcy Code (the “Committee”).

Unless specifically noted otherwise, all asset values are as of September 30, 2010, and all other amounts listed in the Schedules and Statements are as of the Petition Date.

Corporate Structure. A description of the Debtors’ corporate structure is set forth in the

Declaration of Jeffrey W. Epstein, Chief Executive Officer of TerreStar Networks Inc., in Support of First Day Pleadings, which was filed on the Petition Date.

Amendment. Although reasonable efforts were made to file complete and accurate Schedules and Statements, inadvertent errors or omissions may exist. Thus, the Debtors reserve 2 These Global Notes are in addition to any specific notes contained in each Debtor’s Schedules or Statements.

The fact that the Debtors have prepared a Global Note with respect to any of the Schedules and Statements and not to others should not be interpreted as a decision by the Debtors to exclude the applicability of such Global Note to any of the Debtors’ remaining Schedules and Statements, as appropriate.


3 100295821

all rights to amend or supplement their Schedules and Statements from time to time as may be necessary or appropriate.

Basis of Presentation. For financial reporting purposes, the Debtors and certain of their non-debtor affiliates historically prepare consolidated financial statements. Unlike the consolidated financial statements, the Schedules and Statements, except where otherwise indicated, reflect the assets and liabilities of each Debtor on a non-consolidated basis. Accordingly, the totals listed in the Schedules and Statements will likely differ, at times materially, from the consolidated financial reports prepared by the Debtors for financial reporting purposes or otherwise.

Although these Schedules and Statements may, at times, incorporate information prepared in accordance with generally accepted accounting principles (“GAAP”), the Schedules

and Statements neither purport to represent nor reconcile financial statements otherwise prepared and/or distributed by the Debtors in accordance with GAAP or otherwise. To the extent that a Debtor shows more assets than liabilities, this is not an admission that the Debtor was solvent at the Petition Date or at any time prior to the Petition Date. Likewise, to the extent that a Debtor shows more liabilities than assets, this is not an admission that the Debtor was insolvent at the Petition Date or any time prior to the Petition Date.

Consolidated Accounts Payable and Disbursements System. The Debtors utilize consolidated accounts payable and disbursement systems in their day-to-day operations, the effect of which, in part, is that certain accounts payable and or payment detail is not readily available on a legal entity basis. Although efforts have been made to attribute open payable amounts to the correct legal entity, the Debtors reserve their right to modify or amend the Schedules and Statements to attribute such payable to a different legal entity, if appropriate. Payments made are listed by the entity making such payment notwithstanding that many such payments may have been made on behalf of another entity.

Confidentiality. There may be instances within the Schedules and Statements where names, addresses, or amounts have been left blank. Due to concerns of confidentiality, or concerns for privacy of an individual, the Debtors may have deemed it appropriate and necessary to avoid listing such names, addresses, and amounts. To the extent that certain addresses are withheld, the Debtors will make such address available upon reasonable request and agreement to enter into an appropriate confidentiality arrangement.

Intercompany Claims and Transfers. Receivables and payables among the Debtors in these cases (each an “Intercompany Receivable” or “Intercompany Payable”) are reported in

the Schedules. To the extent a Debtor owes an Intercompany Payable, it is reported on Schedule F as a claim of such Debtor. To the extent a Debtor has an Intercompany Receivable, it is reported on Schedule B16 as an asset of such Debtor. While the Debtors have used reasonable efforts to ensure that the proper intercompany balances are attributed to each legal entity, all rights to amend these items on the Schedules and Statements are reserved.

Intercompany transfers can be characterized in many ways. The Debtors reserve all of their rights with respect to the intercompany balances listed in the analysis, including, but not


4 100295821

limited to, the appropriate characterization of such intercompany balances and the amounts of such balances, which are still being identified by the Debtors.

The Debtors have listed all Intercompany Payables as unsecured non-priority claims on Schedule F for each applicable Debtor but reserve their rights, except as otherwise may be agreed to pursuant to a stipulation filed with the Bankruptcy Court, to later change the characterization, classification, categorization or designation of such claims, including by designating all or any portion of the amounts listed as secured.

Insiders. For purposes of the Schedules and Statements, the Debtors define “insiders”

pursuant to Bankruptcy Code section 101(31) as (a) directors, (b) officers, (c) those in control of the Debtors, (d) relatives of directors, officers, or persons in control of the Debtors, and (e) affiliates, or insiders of affiliates. Inter-company payments between the Debtors are not so listed.

Persons listed as “insiders” have been included for informational purposes only. The

Debtors do not take any position with respect to (a) such person’s influence over the control of

the Debtors, (b) the management responsibilities or functions of such individual, (c) the decision-making or corporate authority of such individual or (d) whether such individual could successfully argue that he or she is not an “insider” under applicable law, including, without

limitation, the federal securities laws, or with respect to any theories of liability or for any other purpose.

Recharacterization. The Debtors have made reasonable efforts to characterize, classify, categorize, or designate the claims, assets, executory contracts, unexpired leases and other items reported in the Schedules and Statements correctly. The Debtors reserve all rights to recharacterize, reclassify, recategorize, or redesignate items reported in the Schedules and Statements at a later time as is necessary or appropriate as additional information becomes available, including, without limitation, whether contracts listed herein were executory as of the Petition Date or remain executory postpetition and whether leases listed herein were unexpired as of the Petition Date or remain unexpired postpetition.

Consolidation of Certain Information. Information that is provided on a consolidated basis is specifically indicated in the applicable Schedules and Statements. The listing of information on a consolidated basis is not, and should not be interpreted as, an admission or view as to the appropriateness of substantive consolidation. The Debtors reserve all rights to amend or supplement their Schedules and Statements that reflect information on a consolidated basis to present such information on an unconsolidated basis as is necessary and appropriate.

Summary of Significant Reporting Policies.

a) Foreign Currency. All amounts shown in the Schedules are in U.S. Dollars, which in some cases reflects a conversion based on foreign exchange rates as of September 30, 2010.

b) Current Market Value – Net Book Value. In many instances, current market valuations are neither maintained by nor readily available to the Debtors. It would be prohibitively expensive and unduly burdensome to obtain current market valuations of the Debtors’ property interests that are not maintained or


5 100295821

readily available. Accordingly, unless otherwise indicated, the Schedules and Statements reflect the net book values as of September 30, 2010, rather than current market values, of the Debtors’ assets as of the Petition Date and may not

reflect the net realizable value. For this reason, amounts ultimately realized will vary, at some times materially, from net book value. Additionally, the amount of certain liabilities may be “unknown” or “undetermined” and thus, ultimate

liabilities may differ materially from those states in the Schedules and Statements.

c) Liabilities. Unless otherwise indicated, all liabilities are listed as of October 19, 2010.

d) Paid Claims. Pursuant to certain first-day and second-day orders issued by the Bankruptcy Court (collectively, the “First Day Orders”), the Bankruptcy Court

has authorized the Debtors to pay certain outstanding prepetition claims, such as certain employee wages and benefits claims, claims for taxes and fees, and utility claims. Although not all claims previously paid pursuant to a First Day Order will be listed in the Schedules and Statements, certain of these claims that have been paid may appear in the Schedules and Statements. Regardless of whether such claims are listed in the Schedules and Statements, to the extent that such claims are paid pursuant to an order of the Bankruptcy Court (including the First Day Orders), the Debtors reserve all rights to amend or supplement their Schedules and Statements as necessary and appropriate. Certain of the First Day Orders preserve the rights of parties in interest to dispute any amounts paid pursuant to First Day Orders. Nothing herein shall be deemed to alter the rights of any party in interest to contest a payment made pursuant to a First Day Order that preserves such right to contest.

e) Credits and Adjustments. The claims of individual creditors for, among other things, goods, products or services or taxes are listed as the amounts entered on the Debtors’ books and records and may not reflect credits, allowances or other

adjustments due from such creditors to the Debtors. The Debtors reserve all of their rights with regard to such credits, allowances and other adjustments, including the right to assert claims objections and/or setoffs with respect to the same.

f) Leases. In the ordinary course of business, certain of the Debtors may lease

property and equipment from third party lessors for use in the daily operation of their businesses. The Debtors’ obligations pursuant to the same have been listed

on Schedule F. The underlying lease agreements are listed on Schedule G. Nothing in the Schedules and Statements is or shall be construed to be an admission as to the determination of the legal status of any lease (including whether any lease is a true lease or a financing arrangement), and the Debtors reserve all rights with respect to such issues.

Excluded Assets and Liabilities. The Debtors have excluded certain categories of assets and liabilities from the Schedules and Statements such as goodwill, de minimis deposits, and accrued liabilities including, without limitation, tax accruals and accrued accounts payable. In


6 100295821

addition, the Debtors have excluded accrued salaries and employee benefits for which the Debtors have been granted authority to pay pursuant to a First Day Order or other order that may be entered by the Bankruptcy Court. Other immaterial assets and liabilities may also have been excluded.

Undetermined Amounts. The description of an amount as “unknown,” “TBD,” or

“undetermined” is not intended to reflect upon the materiality of such amount.

Estimates. To close the books and records of the Debtors as of the Petition Date and to prepare such information on a legal entity basis, the Debtors were required to make estimates, allocations and assumptions that affect the reported amounts of assets and revenue and expenses as of the Petition Date. The Debtors reserve all rights to amend the reported amounts of assets, revenue and expenses to reflect changes in those estimates and assumptions.

Totals. All totals that are included in the Schedules represent totals of all known amounts included in the Debtors’ books and records as of the Petition Date. To the extent there are

unknown or undetermined amounts, and to the extent the Debtors made post-petition payments on prepetition claims pursuant to the First Day Orders or other order of the Bankruptcy Court, the actual total may be different than the listed total.

Classifications. Listing a claim (a) on Schedule D as “secured,” (b) on Schedule E as

“priority,” (c) on Schedule F as “unsecured priority,” or (d) listing a contract or lease on

Schedule G as “executory” or “unexpired,” does not constitute an admission by the Debtors of

the legal rights of the claimant, or a waiver of the Debtors’ right to recharacterize or reclassify such claim or contract.

Claims Description. Any failure to designate a claim on a given Debtor’s Schedules as

“disputed,” “contingent,” or “unliquidated” does not constitute an admission by the Debtor that

such amount is not “disputed,” “contingent” or “unliquidated.” The Debtors reserve all rights to

dispute, or to assert any offsets or defenses to, any claim reflected on their respective Schedules on any grounds including, without limitation, amount, liability, validity, priority or classification, or to otherwise subsequently designate any claim as “disputed,” “contingent,” or “unliquidated.” Listing a claim does not constitute an admission of liability by the Debtors, and the Debtors reserve the right to amend the Schedules accordingly.

Guarantees and Other Secondary Liability Claims. The Debtors have used their best efforts to locate and identify guarantees and other secondary liability claims (collectively, the “Guarantees”) in their executory contracts, unexpired leases, secured financing, debt instruments, and other such agreements. The Debtors’ review of their contracts in such regard is

ongoing. Where such Guarantees have been identified, they have been included in the relevant Schedule for the Debtor or Debtors affected by such Guarantees. The Debtors have placed Guarantee obligations on Schedule H for both the primary obligor and the guarantor of the relevant obligation. Such Guarantees were additionally placed on Schedule D or Schedule F for each guarantor, except to the extent that such Guarantee is associated with obligations under an executory contract or unexpired lease identified on Schedule G. Further, the Debtors believe that certain Guarantees embedded in the Debtors’ executory contracts, unexpired leases, secured

financings, debt instruments, and other such agreements may have been inadvertently omitted.


7 100295821

Thus, the Debtors reserve their rights to amend the Schedules to the extent that additional Guarantees are identified. In addition, the Debtors reserve the right to amend the Schedules and Statements to recharacterize or reclassify any such contract, lease, claim, or Guarantee.

Causes of Action. The Debtors, despite their efforts, may not have listed all of their causes of action (filed or potential) against third parties as assets in the Schedules and Statements. The Debtors reserve all of their rights with respect to any causes of action they may have and neither these Global Notes nor the Schedules and Statements shall be deemed a waiver of any such causes of action.

Schedule A – Real Property. To the extent the Debtors have any ownership or possessory interest(s) arising by operation of any executory lease or any other contract, or otherwise, such has not been reported on Schedule A. The Debtors’ failure to list any rights in

real property on Schedule A should not be construed as a waiver of any such rights that may exist, whether known or unknown at this time.

Schedule B – Personal Property. Personal property owned by any of the Debtors is listed in the Schedule B for that individual Debtor. To the extent the Debtors have not been able to identify the actual physical location of certain personal property, the Debtors have reported the address of that individual Debtor’s principal place of business.

Exclusion of certain intellectual property shall not be construed as an admission that such intellectual property rights have been abandoned, terminated, assigned, expired by their terms, or otherwise transferred pursuant to a sale, acquisition, or other transaction. Conversely, the inclusion of certain intellectual property shall not be construed to be an admission that such intellectual property rights have not been abandoned, terminated, assigned, expired by their terms, or otherwise transferred pursuant to a sale, acquisition, or other transaction.

Schedule D – Creditors Holding Secured Claims. Except as otherwise agreed pursuant to a stipulation and agreed order or general order entered by the Bankruptcy Court that is or becomes final, the Debtors and/or their estates reserve the right to dispute or challenge the validity, perfection or immunity from avoidance of any lien purported to be granted or perfected in any specific asset to a creditor listed on Schedule D of any Debtor. Moreover, although the Debtors may have scheduled claims of various creditors as secured claims for informational purposes, no current valuation of the Debtors’ assets in which such creditors may have a lien has

been undertaken.

The Debtors reserve all rights to dispute or challenge the secured nature of any such creditor’s claim or the characterization of the structure of any such transaction or any document

or instrument (including, without limitation, any intercompany agreement) related to such creditor’s claim. In certain instances, a Debtor may be a co-obligor or guarantor with respect to scheduled claims of other Debtors, and no claim set forth on Schedule D of any Debtor is intended to acknowledge claims of creditors that are otherwise satisfied or discharged by other entities. The descriptions in Schedule D are intended only to be a summary. Reference to the applicable loan agreements and related documents and a determination of the creditors’

compliance with applicable law is necessary for a complete description of the collateral and the nature, extent and priority of any liens. Nothing in the Global Notes or the Schedules and


8 100295821

Statements shall be deemed a modification or interpretation of the terms of such agreements or related documents.

The claims listed on Schedule D arose or were incurred on various dates and a determination of each date upon which each claim arose or was incurred would be unduly burdensome and cost prohibitive. Accordingly, not all such dates are included for each claim. All claims listed on Schedule D, however, appear to have arisen or to have been incurred prior to the Petition Date.

Real property lessors, utility companies, and other parties that may hold security deposits have not been listed on Schedule D. The Debtors have not included on Schedule D parties that may believe their claims are secured through setoff rights, deposit posted by, or on behalf of, the Debtors, or inchoate statutory liens rights.

Under the Interim Order Under Sections 105, 361, 362, 363(c), 364(c)(1), 364(c)(2), 364(c)(3), 364(d)(1) and 364(e) and 507 of the Bankruptcy Code and Bankruptcy Rules 2002, 4001 and 9014: (I) Authorizing Debtors to Obtain Postpetition Financing; (II) Authorizing Debtors to Use Cash Collateral; (III) Granting Adequate Protection to Prepetition Secured Parties; and (IV) Scheduling a Final Hearing Pursuant to Bankruptcy Rules 4001(b) and (c), entered on October 20, 2010, the Debtors obtained interim approval of up to $18 million of the aggregate $75 million in debtor-in-possession financing. That amount is not reflected in the Schedules, as the Schedules reflect amounts incurred as of the Petition Date.

Schedule E – Creditors Holding Unsecured Priority Claims. Listing a claim on Schedule E as “unsecured priority” does not constitute an admission by the Debtors of the legal rights of the claimant. The Debtors hereby expressly reserve the right to assert that any claim listed on Schedule E, including but not limited to claims in excess of $11,725 (as applicable), does not constitute an unsecured priority claim under section 507 of the Bankruptcy Code and thus constitutes an unsecured nonpriority claim.

By interim order dated October 20, 2010, the Bankruptcy Court granted the Debtors interim authority to pay or honor certain prepetition obligations for employee wages, salaries, bonuses and other compensation, reimbursable employee expenses and employee medical and similar benefits. The Debtors have not listed on Schedule E any wage or wage-related obligations for which the Debtors have been granted authority to pay pursuant to a First Day Order or other order that may be entered by the Bankruptcy Court. The Debtors believe that all such claims have been or will be satisfied in the ordinary course during their chapter 11 cases pursuant to the authority granted in the relevant First Day Order or other order that may be entered by the Bankruptcy Court.

The claims listed on Schedule E arose or were incurred on various dates and a determination of each date upon which each claim arose or was incurred would be unduly burdensome and cost prohibitive. Accordingly, not all such dates are included for each claim. All claims listed on Schedule E, however, appear to have arisen or to have been incurred prior to the Petition Date.


9 100295821

Schedule F – Creditors Holding Unsecured Nonpriority Claims. Listing a claim on Schedule F as “unsecured nonpriority” does not constitute an admission by the Debtors of any

legal rights of the claimant. The Debtors hereby expressly reserve the right to assert that any claim listed on Schedule F does not constitute an unsecured nonpriority claim (including the right to assert that any such claim constitutes a secured or priority claim). Additionally, noting that a claim on Schedule F is “subject to setoff” does not constitute an admission by the Debtor

of the legal rights of the claimant. The Debtors hereby expressly reserve the right to assert that any claim listed on Schedule F is not subject to setoff or dispute any claim to such setoff.

The Debtors have attempted to relate all liabilities to each Debtor. However, due to the related nature of the Debtors’ businesses, debts of one Debtor may be inadvertently listed on the Schedules of another. Readers of the Schedules should review all of the Debtors’ Schedules for a

complete understanding of the unsecured debts of the Debtors.

The Debtors may have certain rights of setoff and/or recoupment with respect to the claims set forth on Schedule F. The Debtors reserve all rights to challenge such setoff and/or recoupment rights asserted. Additionally, certain creditors may assert mechanic’s, materialman’s

or other similar liens against the Debtors for amounts listed on Schedule F. The Debtors reserve their right to dispute or challenge the validity, perfection or immunity from avoidance of any lien purported to be perfected by a creditor listed on Schedule F.

Schedule F does not include certain deferred charges, deferred liabilities, accruals or general reserves. Such amounts are, however, reflected on the Debtors’ books and records as

required in accordance with GAAP. Such accruals are general estimates of liabilities and do not represent specific claims as of the Petition Date.

The claims listed on Schedule F arose or were incurred on various dates and a determination of each date upon which each claim arose or was incurred would be unduly burdensome and cost prohibitive. Accordingly, not all such dates are included for each claim. All claims listed on Schedule F, however, appear to have arisen or to have been incurred prior to the Petition Date.

Schedule G – Executory Contracts and Unexpired Leases. Although reasonable efforts have been made to ensure the accuracy of Schedule G regarding executory contracts and unexpired leases, the Debtors’ review is ongoing and inadvertent errors, omissions, or over-inclusion may have occurred.

Any and all of the Debtors’ rights, claims, and causes of action with respect to the contracts, agreements, and leases listed on Schedule G are hereby reserved and preserved, and, as such, the Debtors hereby reserve all of their rights to dispute the validity, status, or enforceability of any contracts, agreements, or leases set forth on Schedule G and to amend or supplement such Schedule as necessary.

The placing of a contract or lease onto Schedule G shall not be deemed an admission that such contract is an executory contract or unexpired lease, or that it is necessarily a binding, valid and enforceable contract. The Debtors hereby expressly reserve the right to assert that any claim


10 100295821

listed on Schedule G does not constitute an executory contract within the meaning of section 365 of the Bankruptcy Code.

The Debtors may have entered into various other types of agreements in the ordinary course of their business, such as indemnity agreements, supplemental agreements, amendments/letter agreements, and confidentiality agreements. Such documents may not be set forth in Schedule G. Moreover, the contracts, agreements, and leases listed on Schedule G may have expired or may have been modified, amended, or supplemented from time to time by various amendments, restatements, waivers, estoppels certificates, letters, or other documents, instruments, and agreements that may not be listed on Schedule G. Portions of some contracts and leases that are listed on Schedule G may have been fully performed, while other portions of the same contracts and leases may remain executory or unexpired.

Certain of the contracts, agreements, and leases listed on Schedule G may contain renewal options, guarantees of payments, options to purchase, rights of first refusal, rights to lease additional space and other miscellaneous rights. Such rights, powers, duties and obligations may not be set forth on Schedule G.

Certain of the agreements listed on Schedule G may be in the nature of conditional sales agreements or secured financings. The presence of these agreements or any other agreements on Schedule G does not constitute an admission that any such agreement is an executory contract or unexpired lease.

The Debtors reserve all of their rights, claims and causes of action with respect to the contracts and agreements listed on Schedule G, including the right to dispute or challenge the characterization or the structure of any transaction, document, or instrument. Certain executory agreements may not have been memorialized in writing and could be subject to dispute. Generally, executory agreements that are oral in nature have not been included in the Schedule. Further, the Debtors may be parties to various other agreements concerning real property, such as easements, rights of way, subordination, non-disturbance, supplemental agreements, amendments/letter agreements, title documents, consents, site plans, maps and other miscellaneous agreements. Such agreements, if any, are not set forth in Schedule G.

The Debtors have attempted to list the appropriate Debtor parties to each contract, agreement, and lease on Schedule G. However, there may be instances in which other Debtor entities that are not parties to the contracts, agreements, and leases have been the primary entities conducting business in connection with these contracts, agreements, and leases. Accordingly, the Debtors have listed certain contracts, agreements, and leases on Schedule G of the Debtor entity corresponding to the applicable contracting entity on which may, upon further review, differ from the primary entity conducting business with the counterparty to that particular contract, agreement, or lease. Additionally, certain of the contracts, agreements, and leases listed on Schedule G may have been entered into by more than one of the Debtors.

Schedule H – Co-Obligors. Although the Debtors have made every effort to ensure the accuracy of Schedule H, inadvertent errors, omissions or inclusion may have occurred. The Debtors hereby reserve all rights to dispute the validity, status or enforceability of any


11 100295821

obligations set forth on Schedule H and to further amend or supplement such Schedule as necessary.

The Debtors further reserve all rights, claims and causes of action with respect to the obligations listed on Schedule H, including the right to dispute or challenge the characterization or the structure of any transaction, document or instrument related to a creditor’s claim. The

listing of a contract, guarantee or other obligation on Schedule H shall not be deemed an admission that such obligation is binding, valid or enforceable.

Statements Question 2 – Other Income. From time to time, the Debtors may have de minimis income from sources other than the operation of business that is not provided in response to Statement Question 2.

Statements Question 3(b) and (c) – Payments to Creditors. All amounts that remain outstanding to any creditor listed on Statement Question 3 are reflected on Schedules D, E, and F as applicable. Any creditor wishing to verify any outstanding indebtedness should review those schedules.

Certain intercompany transactions are accounted for through transfers of cash to and from appropriate bank accounts in and out of the Debtors’ cash management system after certain adjustments are made to intercompany accounts receivable and accounts payable among the Debtor and its Debtor and non-Debtor affiliates. These payments and transactions have not been listed. However, readers of the Schedules and Statements wishing to verify any outstanding Intercompany Payables and Intercompany Receivables should refer to Schedules B16, D or F, as applicable.

The Debtor’s response includes payments made to such creditors who are or were

insiders only to the extent such payments were made during the time in which the creditor was an insider and only in that creditor’s capacity as insider.

Statements Question 9 – Payments Related to Debt Counseling or Bankruptcy. All payments related to debt counseling or bankruptcy made to the Debtors’ advisors are listed on the

Statements of TerreStar Networks Inc. and TerreStar Networks (Canada) Inc. and represent payments made for themselves and their affiliates, except as specifically noted on the Statements.

Statements Question 18(a) – Location of Business. The Debtors have disclosed the address of each Debtor’s main center of operations or headquarters and have not included

information regarding any related ground stations, warehousing, or storage facilities, or any other site or location where a portion of a Debtor’s business operations are conducted.

Statements Question 19(d) – Books, Records, and Financial Statements. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, TerreStar Corporation, the non-Debtor ultimate parent company of the Debtors, has filed with the U.S. Securities and Exchange Commission (the “SEC”) reports on Form 8-K, Form 10-Q, and Form 10-K. These SEC filings contain consolidated financial information relating to the Debtors. Additionally, consolidated financial information for the Debtors is posted on the company’s website at

www.terrestar.com. Because the SEC filings and the website are of public record, the Debtors do


12 100295821

not maintain records of the parties that requested or obtained copies of any of the SEC filings from the SEC or the Debtors.

In addition, the Debtors provide certain parties, such as banks, auditors, potential investors, vendors and financial advisors financial statements that may not be part of a public filing. The Debtors do not maintain complete lists to track such disclosures. As such, the Debtors have not provided lists of these parties in response to this question.

Statements Question 23 – Distributions to an Insider. Certain intercompany transactions are accounted for through transfers of cash to and from appropriate bank accounts in and out of the Debtors’ cash management system after certain adjustments are made to

intercompany accounts receivable and accounts payable among the Debtor and its Debtor and non-Debtor affiliates. These payments and transactions have not been listed. However, readers of the Schedules and Statements wishing to verify any outstanding Intercompany Payables and Intercompany Receivables should refer to Schedules B16, D or F, as applicable.

The Debtor’s response includes payments made to such creditors who are or were

insiders only to the extent such payments were made during the time in which the creditor was an insider and only in that creditor’s capacity as insider.


}bk1{Form 6. Summary of Schedules}bk{

United States Bankruptcy CourtSouthern District of New York

In re ,Debtor

Case No.

Chapter

10-15446 (SHL)

11

TerreStar Networks Inc.

B6 Summary (Official Form 6 - Summary) (12/07)

Indicate as to each schedule whether that schedule is attached and state the number of pages in each. Report the totals from Schedules A,B, D, E, F, I, and J in the boxes provided. Add the amounts from Schedules A and B to determine the total amount of the debtor’s assets.Add the amounts of all claims from Schedules D, E, and F to determine the total amount of the debtor’s liabilities. Individual debtors mustalso complete the "Statistical Summary of Certain Liabilities and Related Data" if they file a case under chapter 7, 11, or 13.

SUMMARY OF SCHEDULES

ATTACHED NO. OFNAME OF SCHEDULE ASSETS LIABILITIES OTHER(YES/NO) SHEETS

A - Real Property

B - Personal Property

C - Property Claimed as Exempt

D - Creditors Holding Secured Claims

E - Creditors Holding UnsecuredPriority Claims

F - Creditors Holding UnsecuredNonpriority Claims

G - Executory Contracts andUnexpired Leases

H - Codebtors

I - Current Income of IndividualDebtor(s)

J - Current Expenditures of IndividualDebtor(s)

Total Number of Sheets of ALL Schedules

Total Assets

Total Liabilities

(Total of Claims on Schedule E)

Software Copyright (c) 1996-2010 - Best Case Solutions - Evanston, IL - www.bestcase.com Best Case Bankruptcy

Yes

Yes

No

Yes

Yes

Yes

Yes

Yes

No

No

1 0.00

24 473,844,219.09

0

1,030,350,091.002

0.0011

313,097,720.5122

29

1

0 N/A

0 N/A

90

473,844,219.09

1,343,447,811.51


}bk1{Schedule A - Real Property}bk{

In re ,Debtor

Case No. 10-15446 (SHL)TerreStar Networks Inc.

B6A (Official Form 6A) (12/07)

Except as directed below, list all real property in which the debtor has any legal, equitable, or future interest, including all property owned as acotenant, community property, or in which the debtor has a life estate. Include any property in which the debtor holds rights and powers exercisable forthe debtor's own benefit. If the debtor is married, state whether husband, wife, both, or the marital community own the property by placing an "H," "W,""J," or "C" in the column labeled "Husband, Wife, Joint, or Community." If the debtor holds no interest in real property, write "None" under"Description and Location of Property."

Do not include interests in executory contracts and unexpired leases on this schedule. List them in Schedule G - Executory Contracts andUnexpired Leases.

If an entity claims to have a lien or hold a secured interest in any property, state the amount of the secured claim. See Schedule D. If no entityclaims to hold a secured interest in the property, write "None" in the column labeled "Amount of Secured Claim." If the debtor is an individual orif a joint petition is filed, state the amount of any exemption claimed in the property only in Schedule C - Property Claimed as Exempt.

Description and Location of Property Nature of Debtor'sInterest in Property

Husband,Wife,Joint, or

Community

Current Value ofDebtor's Interest inProperty, without

Deducting any SecuredClaim or Exemption

Amount ofSecured Claim

continuation sheets attached to the Schedule of Real Property

SCHEDULE A - REAL PROPERTY


0

None

Sub-Total > (Total of this page)0.00

Total >

(Report also on Summary of Schedules)

0.00


}bk1{Schedule B - Personal Property}bk{

In re ,Debtor


B6B (Official Form 6B) (12/07)

Except as directed below, list all personal property of the debtor of whatever kind. If the debtor has no property in one or more of the categories, placean "x" in the appropriate position in the column labeled "None." If additional space is needed in any category, attach a separate sheet properly identifiedwith the case name, case number, and the number of the category. If the debtor is married, state whether husband, wife, both, or the marital communityown the property by placing an "H," "W," "J," or "C" in the column labeled "Husband, Wife, Joint, or Community." If the debtor is an individual or a jointpetition is filed, state the amount of any exemptions claimed only in Schedule C - Property Claimed as Exempt.

Do not list interests in executory contracts and unexpired leases on this schedule. List them in Schedule G - Executory Contracts andUnexpired Leases.If the property is being held for the debtor by someone else, state that person's name and address under "Description and Location of Property."If the property is being held for a minor child, simply state the child's initials and the name and address of the child's parent or guardian, such as"A.B., a minor child, by John Doe, guardian." Do not disclose the child's name. See, 11 U.S.C. §112 and Fed. R. Bankr. P. 1007(m).

Type of PropertyNONE

Description and Location of PropertyHusband,

Wife,Joint, or

Community

Current Value ofDebtor's Interest in Property,

without Deducting anySecured Claim or Exemption

continuation sheets attached to the Schedule of Personal Property

SCHEDULE B - PERSONAL PROPERTY


4

1. Cash on hand X

2. Checking, savings or other financialaccounts, certificates of deposit, orshares in banks, savings and loan,thrift, building and loan, andhomestead associations, or creditunions, brokerage houses, orcooperatives.

See Attachment B2 - 2,633,951.00

3. Security deposits with publicutilities, telephone companies,landlords, and others.

BCI Northwood Flex, LCSalt Lake City Space - Security DepositPO Box 540478North Salt Lake City, UT 85054

- 4,957.28

Florida Power & Light CompanyCES Site - Electric DepositP.O. Box 025576Miami, FL 33102

- 195.00

Forum Financial ServicesRichardson Furniture Rental - Security Deposit275 West Campbell Rd, Suite 320Richardson, TX 75080

- 13,710.00

4. Household goods and furnishings,including audio, video, andcomputer equipment.

X

5. Books, pictures and other artobjects, antiques, stamp, coin,record, tape, compact disc, andother collections or collectibles.

X

6. Wearing apparel. X

7. Furs and jewelry. X

8. Firearms and sports, photographic,and other hobby equipment.

X

Sub-Total >(Total of this page)

2,652,813.28


B6B (Official Form 6B) (12/07) - Cont.



Wife,Joint, or

Community



Sheet of continuation sheets attachedto the Schedule of Personal Property

SCHEDULE B - PERSONAL PROPERTY(Continuation Sheet)


In re ,Debtor


9. Interests in insurance policies.Name insurance company of eachpolicy and itemize surrender orrefund value of each.

See Attachment B9 - Unknown

10. Annuities. Itemize and name eachissuer.

X

11. Interests in an education IRA asdefined in 26 U.S.C. § 530(b)(1) orunder a qualified State tuition planas defined in 26 U.S.C. § 529(b)(1).Give particulars. (File separately therecord(s) of any such interest(s).11 U.S.C. § 521(c).)

X

12. Interests in IRA, ERISA, Keogh, orother pension or profit sharingplans. Give particulars.

X

13. Stock and interests in incorporatedand unincorporated businesses.Itemize.

TerreStar National Services Inc.100% of Common Stock Ownership

- Unknown

0887729 B.C. Ltd.100% of Common Stock Ownership

- Unknown

TerreStar License Inc.100% of Common Stock Ownership

- Unknown

TerreStar Networks Holdings (Canada) Inc.33.33% of Common Stock Ownership

- Unknown

TerreStar Networks (Canada) Inc.20% of Common Stock Ownership

- Unknown

TerreStar Solutions Inc. f.k.a. 4491190 Canada Inc.46.7% of Common Stock Ownership

- Unknown

14. Interests in partnerships or jointventures. Itemize.

X

15. Government and corporate bondsand other negotiable andnonnegotiable instruments.

X

16. Accounts receivable. Intercompany Receivable - TerreStar Networks(Canada) Inc.

- 7,817,053.00

Intercompany Receivable - TerreStar Networks(Canada) Inc.

- 43,497.00


7,860,550.00

1 4





Wife,Joint, or

Community






In re ,Debtor


Intercompany Receivable - TerreStar NationalServices Inc.

- 804,867.00

Intercompany Receivable - TerreStar Corporation - 214,215.00

Intercompany Receivable - TerreStar Global Ltd - 51,475.00

17. Alimony, maintenance, support, andproperty settlements to which thedebtor is or may be entitled. Giveparticulars.

X

18. Other liquidated debts owed to debtorincluding tax refunds. Give particulars.

X

19. Equitable or future interests, lifeestates, and rights or powersexercisable for the benefit of thedebtor other than those listed inSchedule A - Real Property.

X

20. Contingent and noncontingentinterests in estate of a decedent,death benefit plan, life insurancepolicy, or trust.

X

21. Other contingent and unliquidatedclaims of every nature, includingtax refunds, counterclaims of thedebtor, and rights to setoff claims.Give estimated value of each.

X

22. Patents, copyrights, and otherintellectual property. Giveparticulars.


23. Licenses, franchises, and othergeneral intangibles. Giveparticulars.


24. Customer lists or other compilationscontaining personally identifiableinformation (as defined in 11 U.S.C.§ 101(41A)) provided to the debtorby individuals in connection withobtaining a product or service fromthe debtor primarily for personal,family, or household purposes.

X


1,070,557.00

2 4





Wife,Joint, or

Community






In re ,Debtor


25. Automobiles, trucks, trailers, andother vehicles and accessories.

X

26. Boats, motors, and accessories. X

27. Aircraft and accessories. X

28. Office equipment, furnishings, andsupplies.

See Attachment B28 - 709,111.68

29. Machinery, fixtures, equipment, andsupplies used in business.

See Attachment B29 - 443,259,858.82

30. Inventory. Inventory - Hardware - 2,573,345.94

Inventory - Hardware (Demo Sets) - 4,250.00

Inventory - Accessory - 516,319.48

Inventory - Accessory (Demo Sets) - 785.72

31. Animals. X

32. Crops - growing or harvested. Giveparticulars.

X

33. Farming equipment andimplements.

X

34. Farm supplies, chemicals, and feed. X

35. Other personal property of any kindnot already listed. Itemize.

Pre-paid Expenses - Financing Fees - 2,032,173.21

Pre-paid Expenses - Inventory - 2,754,000.00

Pre-paid Expenses - Insurance - 2,380,130.45

Pre-paid Expenses - Rent - 203,508.94

Pre-paid Expenses - Site Rent - 37,160.54

Pre-paid Expenses - Maintenance - 1,281,947.40

Pre-paid Expenses - Software - 17,524.97

Pre-paid Expenses - Financing Fees - 4,826,411.37

Pre-paid Expenses - Employee Travel Advances - 9,850.28


460,606,378.80

3 4





Wife,Joint, or

Community






In re ,Debtor


Pre-paid Expenses - Miscellaneous - 214,141.75

Leasehold Improvements - 1,439,778.26


1,653,920.01

4 4Total >

(Report also on Summary of Schedules)

473,844,219.09


Case No. 10-15446 (SHL)

DESCRIPTION AND LOCATION OF PROPERTY

LAST FOUR DIGITS OF ACCOUNT TYPE OF ACCOUNT

CURRENT VALUE OF DEBTOR'S INTEREST IN PROPERTY

SunTrust Bank 3639 Demand Deposit $1,034,160.00

Attn: Linda Jameson

8330 Boone Boulevard, 7th Floor

Vienna, VA 22182

SunTrust Bank 0296 Investment $1,362,563.00

Attn: Meylin Doram

1445 New York Ave., NW 6th Floor

Washington, DC 20005

SunTrust Bank 0000 Certificate of Deposits $237,228.00

Attn: Linda Jameson CD XXXXXXX-0676

8330 Boone Boulevard, 7th Floor CD XXXXXXX-2947

Vienna, VA 22182

$2,633,951.00

TerreStar Networks Inc.SCHEDULES OF ASSETS AND LIABILITIES

ATTACHMENT B2

(B2) Checking, Savings or Other Financial Accounts

Page 1 of 1


Case No. 10-15446 (SHL)

TYPE OF POLICY AND NAME OF INSURANCE COMPANY POLICY NUMBER TERMSURRENDER OR REFUND VALUE

Commercial Package - CanadaChubb Insurance Company of Canada 35918469 04/01/10 to 04/01/11 Unknown

Commercial Package - USGreat Northern 3535-34-47 BAL 04/01/10 to 04/01/11 Unknown

Crime/ERISAFederal 8208-1766 04/01/10 to 04/01/13 Unknown

Dental CareUnited Concordia 889446000 01/01/10 to 12/31/10 Unknown

Directors and Officers First LayerAce American Insurance Company DOX G24566717001 11/08/09 to 11/08/10 Unknown

Directors and Officers Primary LayerXL Specialty Insurance Company ELU114568-09 11/08/09 to 11/08/10 Unknown

Directors and Officers Second Layer (side A)National Union Fire Insurance Company of 01-361-36-35 11/08/09 to 11/08/10 Unknown

Pittsburgh, PA

DSO - CanadaEncon Group Inc. EIM-PV-0699 04/12/10 to 04/12/11 Unknown

Fiduciary LiabilityFederal 8141-4446 04/01/10 to 04/01/11 Unknown

Health CareAnthem Blue Cross Blue Shield 40896000 12/01/09 to 11/30/10 Unknown

Hired/Non-owned AutoGreat Northern (10)7355-12-61 04/01/10 to 04/01/11 Unknown

In-Orbit TerreStar-1 SatelliteAsia Capital Reinsurance Group Pte Ltd AE0904541 07/01/10 to 7/01/11 Unknown

Atrium Insurance Agency Limited

Brit Syndicates Limited

Chaucer Syndicates Limited

Elseco Limited

Elseco SAS

Global Aerospace Underwriting Managers Ltd

Hiscox Syndicate Ltd

Inter-Hannover

International Aerospace Insurance Co.

Kiln Europe SA

La Reunion Spatiale

Mitsui Sumitomo Insurance Co., Ltd.

Munich Reinsurance Company


ATTACHMENT B9

(B9) Interests in Insurance Policies

Page 1 of 2


Case No. 10-15446 (SHL)

TYPE OF POLICY AND NAME OF INSURANCE COMPANY POLICY NUMBER TERMSURRENDER OR REFUND VALUE


ATTACHMENT B9

(B9) Interests in Insurance Policies

Paris Re America Insurance Company

Satec SRL

Sciemus Space Ltd

Scor Global P&C

Tokio Marine & Nichido Fire Insurance Co. Ltd

Torus Insurance (Europe) Ag fka Glacier Insurance Ltd

Watkins Syndicate

XL Specialty Insurance Company

Term Life - Accidental Death and DismembermentStandard Insurance Company 01/01/10 to 12/31/10 Unknown

Life 120628A

Long Term Disability 120628C

Short Term Disability 120628B

UmbrellaFederal 7986-95-68 BAL 04/01/10 to 04/01/11 Unknown

Vision CareVision Service Plan 30001640 01/01/10 to 12/31/10 Unknown

Workers CompensationChubb Indemnity Insurance Company (11)7172-72-74 04/01/10 to 04/01/11 Unknown

Page 2 of 2


Description Country/State of

Registration Application No. Filing DateCurrent Value of Debtor's

Interest in PropertyGENUS United States 77/833,909 09/24/09 Unknown

MOBILE COMMUNICATIONS REDEFINED United States 77/277,501 09/12/07 Unknown

TERRESTAR (& Design) United States 77/300,146 10/10/07 Unknown

TERRESTAR United States 77/556,344 08/26/08 Unknown

TERRESTAR United States 77/029,351 10/25/06 Unknown

TERRESTAR GLOBAL United States 77/119,079 02/28/07 Unknown

TERRESTAR GLOBAL (& Design) United States 77/117,371 02/27/07 Unknown

TERRESTAR MEANS CONNECTED United States 77/786,014 07/21/09 Unknown

TERRESTAR MEANS STAYING CONNECTED United States 77/802,055 08/11/09 Unknown

TERRESTAR NETWORKS (& Design) United States 77/117/366 02/27/07 Unknown

GENUS Canada 1453031 09/24/09 Unknown

TERRESTAR Canada 1141175 05/17/02 Unknown

TERRESTAR (& Design) Canada 1366903 10/10/07 Unknown

TERRESTAR GLOBAL (& Design) Canada 1335344 02/14/07 Unknown

TERRESTAR MEANS CONNECTED Canada 1447991 08/12/09 Unknown

TERRESTAR MEANS STAYING CONNECTED Canada 1447992 08/12/09 Unknown

TERRESTAR NETWORKS (& Design) Canada 1335345 02/14/07 Unknown

TERRESTAR GLOBAL CTM 5627013 n/a Unknown

TERRESTAR CTM 5627005 n/a Unknown

TERRESTAR GLOBAL CTM 5721071 n/a Unknown

TERRESTAR LOGO CTM 6375984 n/a Unknown

TERRESTAR GLOBAL (& Design) Mexico 989749 n/a Unknown

TERRESTAR NETWORKS (& Design) Mexico 992991 n/a Unknown

Case No. 10-15446 (SHL)


ATTACHMENT B22

(B22) Patents, Copyrights, and Other Intellectual Property

DESCRIPTION OF PROPERTY

Page 1 of 2


Description Country/State of

Registration Application No. Filing DateCurrent Value of Debtor's

Interest in Property

Case No. 10-15446 (SHL)


ATTACHMENT B22

(B22) Patents, Copyrights, and Other Intellectual Property

DESCRIPTION OF PROPERTY

TERRESTAR NETWORKS (& Design) Mexico 1084191 n/a Unknown

TERRESTAR GLOBAL (& Design) Mexico 1084192 n/a Unknown

Page 2 of 2


Case No. 10-15446 (SHL)

CURRENT VALUE OF DEBTOR'S INTEREST IN PROPERTY

File Number Call SignSubsystem

Code FRN Status Grant Date Expiration

Date

Unknown

SESLIC2006120602100 E060430 SES 0015474026 A/C 01/13/10 01/13/25 Unknown

SESLIC2007053000732 E070098 SES 0015474026 ATPN 11/13/08 11/13/23 Unknown

SESMOD2010080501001 E070098 SES 0015474026 ATPN 09/21/10 11/13/23 Unknown

SATMOD-20090617-00070 S2633 SAT 0015474026 ATPN 06/30/09 None Unknown

A/C - Action Complete

TERRESTAR NETWORKS INC.

ATTACHMENT B23

(B23) Licenses, Franchises and Other General Intangibles

SCHEDULES OF ASSETS AND LIABILITIES

ATPN - Action Taken Public Notice

FEDERAL COMMUNICATIONS COMMISSION (“FCC”) LICENSES FOR MOBILE SATELLITE COMMUNICATION SERVICES:

DESCRIPTION AND LOCATION OF PROPERTY

License to use patents owned by ATC Technologies/SkyTerra/LightSquared

Page 1 of 1


http://licensing.fcc.gov/cgi-bin/ws.exe/prod/ib/forms/reports/swr031b.hts?q_set=V_SITE_ANTENNA_FREQ.file_numberC/File+Number/%3D/SESLIC2006120602100&prepare=&column=V_SITE_ANTENNA_FREQ.file_numberC/File+Number

http://licensing.fcc.gov/cgi-bin/ws.exe/prod/ib/forms/reports/swr031b.hts?q_set=V_SITE_ANTENNA_FREQ.file_numberC/File+Number/%3D/SESLIC2007053000732&prepare=&column=V_SITE_ANTENNA_FREQ.file_numberC/File+Number

http://licensing.fcc.gov/cgi-bin/ws.exe/prod/ib/forms/reports/swr031b.hts?q_set=V_SITE_ANTENNA_FREQ.file_numberC/File+Number/%3D/SESMOD2010080501001&prepare=&column=V_SITE_ANTENNA_FREQ.file_numberC/File+Number

http://licensing.fcc.gov/cgi-bin/ws.exe/prod/ib/forms/reports/swr031b.hts?q_set=V_SITE_ANTENNA_FREQ.file_numberC/File+Number/%3D/SATMOD2009061700070&prepare=&column=V_SITE_ANTENNA_FREQ.file_numberC/File+Number

Case No. 10-15446 (SHL)

DESCRIPTION OF PROPERTYCURRENT VALUE OF DEBTOR'S

INTEREST IN PROPERTY 151040 Office Equipment

Cisco IP Phone System $65,752.27

Kastle Security System $6,073.12

Cubicles (qty 12) $62,837.55

500KW Generator & fuel tank $46,970.00

HVAC Equipment $37,900.00

NOC UPS $8,746.25

NODE UPS $14,900.75

NODE DC Power Plant $46,969.75

Security & AV system - Dallas NOC $129,583.87

Furniture - Dallas NOC $19,518.56

Herman Miller Cubicle Panels - 9th flr $16,169.65

Kastle - Installation of Readers in Reston, VA $6,338.62

20X20 Tradeshow Booth - Atlantic Skyline $58,492.05

Test plan for Alcatel Lucent Equipment $94,502.31

Capitalized InteretTest plan fr Alcatel Lucent Eqp $43,253.57

$658,008.32

151050 Computer EquipmentNetapp Test/Development Storage $0.01

Reston Cit Server (Test/Dev) $0.01

HP Infrastructure Service (Dallas) $0.01

OSS/BSS Dev Server, 8GB RAM $0.01

NetApp FAS3020 System-ISCSI Base, OS,1G CF, R5 $0.01

ASA 5510 Appliances w/AIP-SSM-10m/swm 3 $156.09

Catalyst 3560 24 10/100/1000T+4SFP enhan $153.42

ASA 5510 Appliances w/AIP-SSM-10m/swm 3 $156.09




Server RoHS-5 Sun Fire V240 $352.92



Sun Fire T2000 Server, 8 Core 1.2Ghz Ult $1,679.63

Sun Fire T2000 Server, 8 Core 1.2Ghz Ult $1,679.62

Sun Fire T2000 Server, 4 Core 1.0GHz Ult $517.03









(B28) Office Equipment, Furnishings and Supplies

TerreStar Networks, Inc.SCHEDULES OF ASSETS AND LIABILITIES

ATTACHMENT B28

Page 1 of 2


Case No. 10-15446 (SHL)

DESCRIPTION OF PROPERTYCURRENT VALUE OF DEBTOR'S

INTEREST IN PROPERTY

(B28) Office Equipment, Furnishings and Supplies


ATTACHMENT B28


















Cisco 6506 Layer 3 Switch $7,129.78

Cisco 4507 w/ Supervisor Engines $3,459.81

Catalyst 3560 48 10/100/1000T PoE+4 SFP $803.13

DS14MK2 SHLF, 10.5TB SATA ACPS, QS,R $14,490.80

HP Z800 Workstation $6,433.13

$51,103.36

$709,111.68

Page 2 of 2


Case No. 10-15446 (SHL)

DESCRIPTION AND LOCATION OF PROPERTYCURRENT VALUE OF DEBTOR'S


151020 Network EquipmentCISCO 2851 ROUTER W/ HARDWARE $1,597.08

CISCO 3825 ROUTER W/ HARDWARE $2,318.75



CISCO ROUTER 3825 W/ HARDWARE $2,318.75

MAR 7609 CHASSIS W/HARDWARE $15,438.90

MAR 48 PORT CARD $2,040.57

MAR 48 PORT CARD $2,040.57

OAS CATALYST SWITCH W/HARDWARE $16,730.57

OAS 48 PORT CARD $2,040.57




IAR CISCO 12000 10 SLOT RTR $26,404.89

IAR CISCO 12000 10 SLOT RTR $26,404.89

IAR SIP 601 CARD $13,467.72

IAR SIP 601 CARD $13,467.72

IAR SIP 601 CARD $13,467.72

IAR SIP 601 CARD $13,467.72

IAR SPA-5XIGE CARD W/SFP-GE-S $2,822.79




MAS CATALYST 4948 W/HARDWARE $1,767.81



Spirent Test Center $30,960.24

Combine SGSN $120,796.03

DNS-DHCP $2,291.67

RNC $177,243.54

Base Station $14,570.40

Base Station $16,486.46

Charging GateWay $32,930.09

50PA-336 Attenuator assembly $19,250.27

Mock-up Flexi BTS,HSPA Adpter w/Otdr Cab $2,785.25

Mock-up Standalone Power Supply Cabinet $2,619.39

Universal Radio Communication Tester $43,716.67



Netra 240 DC Server $4,286.74





HP Proliant DL380 Server $3,342.29



ATTACHMENT B29

(B29) Machinery, Fixtures, Equipment and Supplies Used in Business

Page 1 of 11


Case No. 10-15446 (SHL)




ATTACHMENT B29







Cisco 7206 Red Line Router $5,146.93

Catalyst 4948 Switch $2,251.56

Cisco Catalyst 4500 Chasis Switch $7,484.56

ArTrac G4 Production System $5,690.33

Inter-city / Metro POP racks & installation $14,776.87

Capital Interest Inter-city/Metro POP racks&instl $105.82

Axispoint FAS3040A Storage Area Network Equipment $308,871.39

CISCO ASR1000 (Quote 3EKLR44) $161,338.78

Charging GW (1); HW / OSW $1,259,910.39

Capitalized Interest for Charging GW (1); HW / OSW $490,612.23

Dallas Metro POP Media Gateway U4 $379,805.65

Cap Interest for Dallas Metro POP Media GW U4 $83,027.58

Nokia-ACME Border Gateway HW/SW $113,999.78

Capitalized Int for Nokia-ACMEBorder Gateway HW/SW $22,790.95

Network Engineering EMS Implementation (Services) $570,865.00

Capitalized Interest NW Eng EMS Implmnt (Services) $277,533.20

Utimaco LIMS HW/SW $226,558.62

Capitalized Interest for Utimaco LIMS HW/SW $37,865.77

$4,773,729.02

151030 Lab EquipmentCisco 2811 Router w/software and Hardware $2,140.16

HLRI Hardware and Base Features $53,229.50

Media Gateway Hardware and Base Features $18,492.61

MSC Server Hardware and Base Features $58,469.07

POC2.0 Call Processor Platform HW $23,703.24

RNC (part 1 of 2 - #30000155) $60,631.71

Node B $8,824.43

Core 3GSGS PO 2939 3G SGSN SGN3 ND Configuration $24,821.73

Core FLEXI ISN SW Cfg & FISHNHPO 29394 HW Cfg $42,859.69

Card for Router - 2 Port OC48 $2,976.87

Card for Router - 8-Port $12,304.42

Card for Router - 8-Port $12,304.42

Card for Router 4-port $5,080.54

Card for Router 4-port $5,080.53

Card for Router XR 12000 Multi-Service Blade $25,799.59

Card for Router XR 12000 Multi-Service Blade $25,799.59

Card for Router - Cisco 7600 Series SPA Processor $6,946.04

Card for Router 7600 SIP 400 $3,145.57

Card for Router - 2-Port OC3/STM1 $2,599.81

ULTRASITE BASE STATION W/ OPTICAL I/F CARDS $12,355.12

TIME PROVIDER NODE CLOCK $6,089.00

Page 2 of 11


Case No. 10-15446 (SHL)




ATTACHMENT B29


SUN NETWORK ATTACHED STORAGE $8,696.95

2811 ROUTER-LAN MOBILE RADIO W/ OS $2,327.52



Router - Cisco7609 Bun Options 2PS $24,159.21

Card for Router - Cisco7609:6500 Module Opt 3 $5,966.28

Card for Router - CISCO7609:6500 Module Opt 4 $6,960.66

Card for Router - CISCO7609:6500 Module Opt4:SPA $3,152.18

Card for Router -CISCO7609:6500 Module Opt 5 Venus $14,914.67

Card for Router - 2-Port OC3/STM1 $2,599.81

Router $24,159.21

Router $24,121.04

Card for Router - Cisco Module Opt 3 $5,960.00

Card for Router - Cisco Module Opt 3 $5,960.00

Card for Router - Cisco Module Opt 4:SPA $6,946.04

Card for Router - Cisco Module Opt 4:SPA $6,960.66

Card for Router - Module Opt 4: SPA $18,066.85

Card for Router - Module Opt 4: SPA $18,028.94

Router $23,216.66

Card for Router - WS-C6509-E:6509 $5,953.75

Card for Router - WS Slot 3 Eternet $2,976.87

Router - Cisco2811-DC $1,011.14

Switch - Catalyst 4948 $3,094.96

EMPIRIX CALL ANALYZER $3,881.74

EMPIRIX HAMMER DEX $22,274.42

EMPIRIX HAMMER FX-IP $15,605.12

EMPIRIX HAMMER NXT-IP $16,673.25

EMPIRIX HAMMER NXT-IP $4,155.30

EMPIRIX NET EM GIGABITE PACKAGE $21,883.64

Nokia 0SS System $68,654.11

Nemo Outdoor Measrment System-Software $30,764.43

Flexi-ISN $64,325.76

RSA/20240/2 TP Base Unit SMU200A $18,373.60

FSU3 Spectrum analyzer $24,238.77

IAR-CISCO XR 12000 10 SLOT ROUTER W/ HW & SW $26,322.32

IAR-CISCO XR 12000 10 SLOT ROUTER W/ HW & SW $26,322.32

IAR-XR-12000 SIP 601 CARD $18,338.57

IAR-XR-12000 SIP 601 CARD $18,338.57

IAR-XR-12000 SIP 601 CARD $18,338.57

IAR-XR-12000 SIP 601 CARD $18,338.57

IAR-XR-12000 SPA-8XFE-TX CARD $2,778.57

IAR-XR-12000 SPA-8XFE-TX CARD $2,778.57

IAR-XR-12000-MSB CARD WITH SOFTWARE $24,080.95

IAR-XR-12000-MSB CARD WITH SOFTWARE $24,080.95

MAR-CISCO 7609 CHASSIS ROUTER W/ HARDWARE $22,875.05

MAR-CISCO 7609 WS-X6748-GE-TX CARD $2,778.57

MAR-CISCO 7609 WS-F6700-DFC3BXL CARD $2,778.57

Page 3 of 11


Case No. 10-15446 (SHL)




ATTACHMENT B29


MAR-CISCO 7609-SIP-400 CARD $6,483.33

MAR-CISCO 7609 SPA-2XOC3-POS CARD W/ INTRMD. REACH $2,426.62

MAR-CISCO 7609 SPA-1XOC12-POS CARD W/ INTRM. REACH $2,936.03

MAR-CISCO 7609 SVC-FWM-1-K9 CARD W/ SOFTWARE $11,576.46

MAR-CISCO 7609 CHASSIS ROUTER W/ HARDWARE $22,875.05

MAR-CISCO 7609 WS-X6748-GE-TX CARD $2,778.57

MAR-CISCO 7609 WS-F6700-DFC3BXL CARD $2,778.57

MAR-CISCO 7609-SIP-400 CARD $6,483.33

MAR-CISCO 7609 SPA-2XOC3-POS CARD W/ INTRMD. REACH $2,426.62

MAR-CISCO 7609 SPA-1XOC12-POS CARD W/ INTRM. REACH $2,936.03

MAR-CISCO 7609 SVC-FWM-1-K9 CARD W/ SOFTWARE $11,576.46

MAS-CATALYST 4948 SWITCH W/ SOFTWARE $2,791.54

MAS-CATALYST 4948 SWITCH W/ SOFTWARE $2,791.54

OAR-CISCO 7609 CHASSIS ROUTER W/ HARDWARE $22,875.05

OAR-CISCO 7609 WS-X6748-GE-TX CARD $2,778.57

OAR-CISCO 7609 WS-F6700-DF3BXL CARD $2,778.57

OAR-CISCO 7600-SIP-400 CARD $6,483.33

OAR-CISCO 7609 SPA-1XOC12-POS CARD W/ INTRM. REACH $2,936.03

OAR-CISCO 7609 SVC-FWM-1-K9 CARD W/ SOFTWARE $11,576.46

OAR-CISCO 7609 CHASSIS ROUTER W/ HARDWARE $22,875.05

OAR-CISCO 7609 WS-X6748-GE-TX CARD $2,778.57

OAR-CISCO 7609 WS-F6700-DF3BXL CARD $2,778.57

OAR-CISCO 7600-SIP-400 CARD $6,483.33

OAR-CISCO 7609 SPA-1XOC12-POS CARD W/ INTRM. REACH $2,936.03

OAR-CISCO 7609 SVC-FWM-1-K9 CARD W/ SOFTWARE $11,576.46

OAS-CATALYST 6500 9-SLOT SWITCH W/HW&4000 W AC OPT $21,670.07

OAS-CATALYST 6500 48-PORT 10/100/1000 CARD $2,778.57

OAS-CATALYST 6500 DIST FWD CARD $2,778.57



OAS-CATALYST 6500 9-SLOT SWITCH W/HW&4000 W DC OPT $22,781.50





CISCO 15454 CHASSIS SWITCH W/ HARDWARE & SOFTWARE $20,053.88

CISCO 15454 10G XFP COMPATIBLE CARD $7,409.53








CISCO 15454 OC12, IR, 1310 CARD $2,074.67

CISCO 15454 OC12, IR, 1310 CARD $2,074.67

CISCO 15454 OC12, IR, 1310 CARD $2,074.67

Page 4 of 11


Case No. 10-15446 (SHL)




ATTACHMENT B29


CISCO 15454 OC12, IR, 1310 CARD $2,074.67

CISCO 4-PRT OC-12/STM-4 POS SPA CARD W/ SHRT REACH $11,484.75

CISCO 4-PRT OC-12/STM-4 POS SPA CARD W/ SHRT REACH $11,484.75

CISCO 4-PORT OC-3/STM-1 POS SPA CARD W/ SHRT REACH $4,742.09

CISCO 4-PORT OC-3/STM-1 POS SPA CARD W/ SHRT REACH $4,742.09

CISCO 1-PRT OC48/STM16 POS/RPR SPA CRD W/SHRT REAC $7,502.14








TerreStar Lab Setup & Design $224,749.71

RNC (part 2 of 2 - #30000012) $55,245.82

Nokia 3G SGSN $24,711.85

Spirent - Abacus Test Box $80,046.10

ETB8000bt T-Berd 8000 Tester $30,579.78

Cisco Network Switch Catalyst 4948 $2,703.87

T-BERD 8000 Tester with Battery Module $21,362.05

T-BERD 8000 Tester with Battery Module $21,362.05

Lab Cabinets w/power panels $8,000.00

BAS 2 GHz Analog/Digital Transmitter $21,885.25

SYS-M4K-V1 Mu-4000 Chassis with Base MuO $17,102.68

TerreStar standard probe $36,672.20

Operations Server $55,897.73

7845 IPICS SERVER HW $4,286.71



CEETH-U1 $4,812.19

CEETH-U1 $4,955.16

HST3000MSTR $5,549.68

HST3000-ETH-P2 $5,549.68

Voyence Hardware $3,659.93

PROPSSim C8 Package 8 Channels 48 taps/c $234,044.27

PROPSim C8 Package 4 channels, 48 taps/ $180,903.80

Nemo Outdoor Measrment System & Software $18,112.50

Nemo Outdoor Measrment System & Software $18,112.50

Nokia - SO Equip Implement in Lab Environment $339,413.86

S-Band Flexi BTA, I-HSPA Adptr Prototype $44,808.00

S-Band Flexi BTA, I-HSPA Adptr Prototype $44,808.00

HLR Hardware for Lab Trial 2 $2,901.96

NETHAWK M5 TESTING HARDWARE AND SOFTWARE $70,290.46

Flexi WCDMA Dual RF Module 2 none re-ban $85,440.27

Flexi WCDMA Dual RF Module 2 none re-ban $85,440.27

G9 Converged Media Gateway $113,604.65

C3 Signaling Controller $90,290.39

Page 5 of 11


Case No. 10-15446 (SHL)




ATTACHMENT B29


Nokia Lab IMS Implementation $1,586,463.41

Mini Net $1,812,347.59

Cat 4500 Supervisor IV 2GE Console Card $4,294.89

ArTrac G4 Lab System $5,700.74

SBN Program - ESS Simulator $2,546,294.74

SBN Program - SBN Simulator $903,489.43

HP Z800 Workstation $10,476.69

G9 Active Voice Server 8B SG-a Card (Genband) $28,053.35

G9 Active Voice Server 8B SG-a Card (Genband) $28,053.35

G9 Active Voice Server 8B SG-1 Card (Genband) $29,187.95

G9 Active Voice Server 8B SG-1 Card (Genband) $29,187.95

S332A Sitemaster Spectrum Analyzer $12,892.16

Two Channel Satellite Link Emulator $53,398.70

Two Channel Satellite Link Emulator $56,838.50

Satellite Link Emulator $40,000.01

Combi SGSN $364,476.16

Capitalized Interest for Combi SGSN $160,054.62

Flexi-ISN $213,862.40

Capitalized Interest for Flexi-ISN $102,259.17

Richardson Lab - Install & Testing $28,995.80

Cap Interest forRichardson Lab - Install & Testing $9,081.39

Lab Media Gateway U4 MSS M14 w/NVS upgrade $648,077.00

Cap Interest for Lab Media GW U4 MSS M14 w/NVS upg $141,920.86

$12,340,301.92

151060 Capitalized SoftwareBW PLATFORM SW LICENSE $0.01

BW PLATFORM SW LICENSE $0.01

Software-Northbound Interface for NetAct $0.01

Hyperion SQR Server & Dev License $1,805.56

VistaInsight for Networks for SP $9,132.88

SW-T123-FULL-1Y-Full Protocol License $17,421.18

E-room (CORE) St $1,383.34

Nokia List Mgmt Server $580.57

7845 IPICS SERVER SW/ OPSVIEW $0.01



TTI002 Telecordia Granite ASI API 3 conn $6,625.17

Sr Finance Lead/Solution Architecture $187,317.77

INTEC Software License - IntermediatE $280,420.43

ArTrac G4 FMS Base License $57,300.67

NFS Software T3 (qty 3) $25,659.78

OSS/BSS Software Implementation $3,571,034.33

CISCO TCL IVR Scripting (goes w/20000065) $40,833.33

Variable Duplex Feature Support SW $458,333.33

Cap Int for Variable Duplex Feature Support SW $230,069.85

Lg Interface PDCs for SGSN $704,687.50

Page 6 of 11


Case No. 10-15446 (SHL)




ATTACHMENT B29


Capitalized Interest fr Lg Interface PDCs for SGSN $289,004.67

Transcoding Custom Development (Genband) $777,085.44

Cap Interest Transcoding Cstm Devlpmnt (Genband) $146,078.74

Nokia - GSM in bound roaming solution SW $511,180.56

Cap Interest - GSM in bound roaming solution SW $107,888.37

LIG Browser Full Upg R14-R15 (SW) $60,605.57

Capitalized Int -LIG Browser Full Upg R14-R15 (SW) $13,089.40

LIG Browser Full Upg R14-R15 (SW) $60,605.57

Capitalized Int -LIG Browser Full Upg R14-R15 (SW) $13,089.40

Charging GW 4.3 Upg to C@O w/MSS $162,184.30

Cap Int for Charging GW 4.3 Upg to C@O w/MSS $26,162.54

Hughes - Phase 1, Release 1 Chipset $17,267,687.50

Capitalized Interest Hughes - Ph 1, Rel 1 Chipset $7,665,318.93

$32,692,586.74

151090 Satellite GatewaySite Prep $395,555.56

Capitalized Interest - Site Prep $243,535.44

SBN Contract $12,188,550.00

Capitalized Interest - SBN Contract $2,623,417.93

S-BAS Contract $21,419,417.93

Capitalized Interest - S-BAS Contract $4,848,013.63

S-BSS Contract $20,775,794.41

Capitalized Interest - S-BSS Contract $10,557,051.44

$73,051,336.34

151100 Calibration Earth StationUPS - CES 2 - Canby, OR $1,888.78

Generator - CES 2 - Canby, OR $11,092.37

Enclosure - CES 2 - Canby, OR $19,044.28

Monopole - CES 2 - Canby, OR $2,776.80

Grated Platform - CES 2 - Canby, OR $14,216.27

LPG fuel system - CES 2 - Canby, OR $7,774.64

ATS - CES 2 - Canby, OR $1,714.31

H-frame telco panel - CES 2 - Canby, OR $1,483.33

HNS equipment - CES 2 - Canby, OR $79,688.37

V-Sat Installation - CES 2 - Canby, OR $16,950.06

Property Improvements - CES 2 - Canby, OR $135,622.16

Capitalized Interest - CES 2 - Canby, OR $130,297.12

UPS - CES 4 - Warden, WA $1,888.78

Generator - CES 4 - Warden, WA $11,092.37

Enclosure - CES 4 - Warden, WA $19,106.39

Monopole - CES 4 - Warden, WA $2,776.80

Grated platform - CES 4 - Warden, WA $14,216.27

LPG fuel system - CES 4 - Warden, WA $7,774.64

ATS - CES 4 - Warden, WA $1,588.38

Page 7 of 11


Case No. 10-15446 (SHL)




ATTACHMENT B29


H-frame telco panel - CES 4 - Warden, WA $1,483.33

HNS equipment - CES 4 - Warden, WA $79,688.37

V-Sat Installation - CES 4 - Warden, WA $16,207.04

Property Improvements - CES 4 - Warden, WA $124,013.59

Capitalized Interest - CES 4 - Warden, WA $123,845.88

UPS - CES 5 - Austin, NV $1,888.78

Generator - CES 5 - Austin, NV $17,153.27

Enclosure - CES 5 - Austin, NV $56,145.16

Monopole - CES 5 - Austin, NV $2,776.80

Grated platform - CES 5 - Austin, NV $14,216.27

LPG fuel system - CES 5 - Austin, NV $7,774.64

ATS - CES 5 - Austin, NV $1,244.76

H-frame telco panel - CES 5 - Austin, NV $1,483.33

HNS equipment - CES 5 - Austin, NV $79,688.37

V-Sat Installation - CES 5 - Austin, NV $17,962.00

Property Improvements - CES 5 - Austin, NV $141,753.27

Capitalized Interest - CES 5 - Austin, NV $157,616.77

HNS equipment - CES 6 -Las Vegas, NV $79,688.37

Capitalized Interest - CES 6 -Las Vegas, NV $19,741.03

UPS - CES 7 - Paragohan, UT $1,888.78

Generator - CES 7 - Paragohan, UT $11,092.37

Enclosure - CES 7 - Paragohan, UT $19,090.49

Monopole - CES 7 - Paragohan, UT $2,776.80

Grated platform - CES 7 - Paragohan, UT $14,216.27

LPG fuel system - CES 7 - Paragohan, UT $7,774.64

ATS - CES 7 - Paragohan, UT $2,023.76

H-frame telco panel - CES 7 - Paragohan, UT $1,483.33

HNS equipment - CES 7 - Paragohan, UT $79,688.37

V-Sat Installation - CES 7 - Paragohan, UT $13,851.85

Property Improvements - CES 7 - Paragohan, UT $89,981.97

Capitalized Interest - CES 7 - Paragohan, UT $104,899.56

UPS - CES 8 - San Manuel, AZ $1,888.78

Generator - CES 8 - San Manuel, AZ $11,092.37

Enclosure - CES 8 - San Manuel, AZ $18,097.15

Monopole - CES 8 - San Manuel, AZ $2,776.80

Grated platform - CES 8 - San Manuel, AZ $14,216.27

LPG fuel system - CES 8 - San Manuel, AZ $7,774.64

H-frame telco panel - CES 8 - San Manuel, AZ $1,483.33

HNS equipment - CES 8 - San Manuel, AZ $79,688.37

V-Sat Installation - CES 8 - San Manuel, AZ $14,401.50

Property Improvements - CES 8 - San Manuel, AZ $153,648.61

Capitalized Interest - CES 8 - San Manuel, AZ $138,913.42

UPS - CES 10 - Tinnie, NM $1,888.78

Generator - CES 10 - Tinnie, NM $11,092.37

Enclosure - CES 10 - Tinnie, NM $18,474.03

Monopole - CES 10 - Tinnie, NM $2,776.80

Grated platform - CES 10 - Tinnie, NM $14,216.27

Page 8 of 11


Case No. 10-15446 (SHL)




ATTACHMENT B29


LPG fuel system - CES 10 - Tinnie, NM $7,774.64

ATS - CES 10 - Tinnie, NM $1,317.76

H-frame telco panel - CES 10 - Tinnie, NM $1,483.33

HNS equipment - CES 10 - Tinnie, NM $79,688.37

V-Sat Installation - CES 10 - Tinnie, NM $18,773.65

Property Improvements - CES 10 - Tinnie, NM $141,760.19

Capitalized Interest - CES 10 - Tinnie, NM $133,522.40

UPS - CES 11 - Devil's Lake, ND $1,888.78

Generator - CES 11 - Devil's Lake, ND $17,153.27

Enclosure - CES 11 - Devil's Lake, ND $56,145.16

Monopole - CES 11 - Devil's Lake, ND $2,776.80

Grated platform - CES 11 - Devil's Lake, ND $14,216.27

LPG fuel system - CES 11 - Devil's Lake, ND $7,774.64

ATS - CES 11 - Devil's Lake, ND $1,534.79

H-frame telco panel - CES 11 - Devil's Lake, ND $1,483.33

HNS equipment - CES 11 - Devil's Lake, ND $79,688.37

V-Sat Installation - CES 11 - Devil's Lake, ND $23,356.59

Property Improvements - CES 11 - Devil's Lake, ND $154,347.76

Capitalized Interest - CES 11 - Devil's Lake, ND $165,620.71

UPS - CES 12 - Junction, TX $1,888.78

Generator - CES 12 - Junction, TX $11,092.37

Enclosure - CES 12 - Junction, TX $19,234.22

Monopole - CES 12 - Junction, TX $2,776.80

Grated platform - CES 12 - Junction, TX $14,216.27

LPG fuel system - CES 12 - Junction, TX $7,774.64

ATS - CES 12 - Junction, TX $1,639.82

H-frame telco panel - CES 12 - Junction, TX $1,483.33

HNS equipment - CES 12 - Junction, TX $79,688.37

V-Sat Installation - CES 12 - Junction, TX $11,535.65

Property Improvements - CES 12 - Junction, TX $155,110.19

Capitalized Interest - CES 12 - Junction, TX $140,038.21

UPS - CES 13 - Laredo, TX $1,888.78

Generator - CES 13 - Laredo, TX $11,092.37

Enclosure - CES 13 - Laredo, TX $19,234.21

Monopole - CES 13 - Laredo, TX $2,776.80

Grated platform - CES 13 - Laredo, TX $14,216.27

LPG fuel system - CES 13 - Laredo, TX $7,774.64

ATS - CES 13 - Laredo, TX $2,007.15

H-frame telco panel - CES 13 - Laredo, TX $1,483.33

HNS equipment - CES 13 - Laredo, TX $79,688.37

V-Sat Installation - CES 13 - Laredo, TX $13,736.00

Property Improvements - CES 13 - Laredo, TX $107,553.53

Capitalized Interest - CES 13 - Laredo, TX $114,541.28

UPS - CES 15 - Austin, IN $1,888.78

Generator - CES 15 - Austin, IN $11,092.37

Enclosure - CES 15 - Austin, IN $19,224.48

Monopole - CES 15 - Austin, IN $2,776.80

Page 9 of 11


Case No. 10-15446 (SHL)




ATTACHMENT B29


Grated platform - CES 15 - Austin, IN $14,216.27

LPG fuel system - CES 15 - Austin, IN $7,774.64

ATS - CES 15 - Austin, IN $1,101.02

H-frame telco panel - CES 15 - Austin, IN $1,483.33

HNS equipment - CES 15 - Austin, IN $79,688.37

V-Sat Installation - CES 15 - Austin, IN $11,097.62

Property Improvements - CES 15 - Austin, IN $77,403.30

Capitalized Interest - CES 15 - Austin, IN $97,365.54

UPS - CES 16 - New Iberia, LA $1,888.78

Generator - CES 16 - New Iberia, LA $11,092.37

Enclsoure 0 CES 16 - New Iberia, LA $19,417.88

Monopole - CES 16 - New Iberia, LA $2,776.80

Grated platform - CES 16 - New Iberia, LA $14,216.27

LPG fuel system - CES 16 - New Iberia, LA $7,774.64

ATS - CES 16 - New Iberia, LA $1,445.79

H-frame telco panel - CES 16 - New Iberia, LA $1,483.33

HNS equipment - CES 16 - New Iberia, LA $79,688.37

V-Sat Installation - CES 16 - New Iberia, LA $24,116.30

Property Improvements - CES 16 - New Iberia, LA $123,145.34

Capitalized Interest - CES 16 - New Iberia, LA $125,101.58

UPS - CES 18 - Independence, VA $1,888.78

Generator - CES 18 - Independence, VA $11,092.37

Enclosure - CES 18 - Independence, VA $19,060.12

Monopole - CES 18 - Independence, VA $2,776.80

Grated platform - CES 18 - Independence, VA $14,216.27

LPG fuel system - CES 18 - Independence, VA $7,774.64

ATS - CES 18 - Independence, VA $1,238.32

H-frame telco panel - CES 18 - Independence, VA $1,483.33

HNS equipment - CES 18 - Independence, VA $79,688.37

V-Sat Installation - CES 18 - Independence, VA $13,385.55

Property Improvements - CES 18 - Independence, VA $106,205.68

Capitalized Interest - CES 18 - Independence, VA $113,397.62

UPS - CES 19 - Merry Hill, NC $1,888.78

Generator - CES 19 - Merry Hill, NC $11,092.37

Enclosure - CES 19 - Merry Hill, NC $19,104.44

Monopole - CES 19 - Merry Hill, NC $2,776.80

Grated platform - CES 19 - Merry Hill, NC $14,216.27

LPG fuel system - CES 19 - Merry Hill, NC $7,774.64

ATS - CES 19 - Merry Hill, NC $2,028.37

H-frame telco panel - CES 19 - Merry Hill, NC $1,483.33

HNS equipment - CES 19 - Merry Hill, NC $79,688.37

V-Sat Installation - CES 19 - Merry Hill, NC $14,338.73

Property Improvements - CES 19 - Merry Hill, NC $94,242.10

Capitalized Interest - CES 19 - Merry Hill, NC $107,227.71

UPS - CES 20 - Miami, FL $1,888.78

Generator - CES 20 - Miami, FL $11,092.37

Enclosure - CES 20 - Miami, FL $19,224.50

Page 10 of 11


Case No. 10-15446 (SHL)




ATTACHMENT B29


Monopole - CES 20 - Miami, FL $2,776.80

Grated platform - CES 20 - Miami, FL $14,216.27

LPG fuel system - CES 20 - Miami, FL $7,774.64

ATS - CES 20 - Miami, FL $1,167.71

H-frame telco panel - CES 20 - Miami, FL $1,483.33

HNS equipment - CES 20 - Miami, FL $79,688.37

Property Improvements - CES 20 - Miami, FL $139,032.83

Capitalized Interest - CES 20 - Miami, FL $128,421.85

$5,871,436.20

151130 Communications POP

Dallas Metro POP (DF01) 987,081.69

Capitalized Interest - Dallas Metro POP (DF01) 475,808.72

$1,462,890.41

151140 BTS EquipmentFlexi WCDMA2000 BTS - Test Machine 8,069.82

S-BandFlexi BTS,HSPA Adptr w/Otdr Cbnt Prtotyp 8,698.20

Capitalized Interest fr S-BandFlexi BTS,HSPA Adptr 41,809.35

OMS Equipment 10,295.15

Capitalized Interest for OMS Equipment 3,498.11

72,370.63

151190 Satellite Under Construction TS2 $274,889,427.03

$274,889,427.03

151191 Asset Under Construction $38,105,780.53

$38,105,780.53

$443,259,858.82

Page 11 of 11


}bk1{Schedule D - Creditors Holding Secured Claims}bk{

AMOUNT OFCLAIM

WITHOUTDEDUCTINGVALUE OF

COLLATERAL

DATE CLAIM WAS INCURRED,NATURE OF LIEN, AND

DESCRIPTION AND VALUEOF PROPERTY

SUBJECT TO LIEN

CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED

Husband, Wife, Joint, or Community

HWJC

CREDITOR'S NAME AND MAILING ADDRESS

INCLUDING ZIP CODE,AND ACCOUNT NUMBER

(See instructions above.)

Account No.

Value $Account No.

Value $Account No.

Value $Account No.

Value $Subtotal

_____ continuation sheets attached (Total of this page)

UNSECUREDPORTION, IF

ANY

B6D (Official Form 6D) (12/07)

State the name, mailing address, including zip code, and last four digits of any account number of all entities holding claims secured by property of the debtor as ofthe date of filing of the petition. The complete account number of any account the debtor has with the creditor is useful to the trustee and the creditor and may be providedif the debtor chooses to do so. List creditors holding all types of secured interests such as judgment liens, garnishments, statutory liens, mortgages, deeds of trust, andother security interests.

List creditors in alphabetical order to the extent practicable. If a minor child is a creditor, the child's initials and the name and address of the child's parent or guardian, such as "A.B., a minor child, by John Doe, guardian." Do not disclose the child's name. See, 11 U.S.C. §112 and Fed. R. Bankr. P. 1007(m). If all secured creditors will not fit on this page, use the continuation sheet provided.

If any entity other than a spouse in a joint case may be jointly liable on a claim, place an "X" in the column labeled "Codebtor" ,include the entity on the appropriateschedule of creditors, and complete Schedule H - Codebtors. If a joint petition is filed, state whether the husband, wife, both of them, or the marital community may beliable on each claim by placing an "H", "W", "J", or "C" in the column labeled "Husband, Wife, Joint, or Community".

If the claim is contingent, place an "X" in the column labeled "Contingent". If the claim is unliquidated, place an "X" in the column labeled "Unliquidated". If theclaim is disputed, place an "X" in the column labeled "Disputed". (You may need to place an "X" in more than one of these three columns.)

Total the columns labeled "Amount of Claim Without Deducting Value of Collateral" and "Unsecured Portion, if Any" in the boxes labeled "Total(s)" on the lastsheet of the completed schedule. Report the total from the column labeled "Amount of Claim" also on the Summary of Schedules and, if the debtor is an individual withprimarily consumer debts, report the total from the column labeled "Unsecured Portion" on the Statistical Summary of Certain Liabilities and Related Data.

Check this box if debtor has no creditors holding secured claims to report on this Schedule D.

SCHEDULE D - CREDITORS HOLDING SECURED CLAIMS


In re ,Debtor


1

10/16/07

UCC Filing

Collateral: Leased Equipment

Data Sales Co., Inc.3450 W Burnsville PkwyBurnsville, MN 55337 - X X

Unknown UnknownUnknown05/09/07

UCC Filing

Collateral: Specific Equipment

Forum Financial Services, Inc.275 W. Campbell Road, Suite 320Richardson, TX 75080 - X X

Unknown UnknownUnknown03/13/07

UCC Filing

Collateral: Specific Equipment

IBM Credit LLC1 North Castle DriveArmonk, NY 10504 - X X

Unknown UnknownUnknown02/05/08Purchase Money Credit FacilityCollateral: First lien on TerreStar-2satellite, raw materials, work-in-process,construction agreement, insurance,books and records and all proceedsrelated thereto, as listed in the SecurityAgreement

U.S. Bank National Associationas collateral agent60 Livingston AveEP-MN-WS3CSaint Paul, MN 55107-2292

-

85,995,122.00 UnknownUnknown

85,995,122.00 0.00


B6D (Official Form 6D) (12/07) - Cont.

AMOUNT OFCLAIM

WITHOUTDEDUCTINGVALUE OF

COLLATERAL

DATE CLAIM WAS INCURRED,NATURE OF LIEN, AND

DESCRIPTION AND VALUEOF PROPERTY

SUBJECT TO LIEN

CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC

CREDITOR'S NAME AND MAILING ADDRESS


(See instructions.)

Account No.

Value $Account No.

Value $Account No.

Value $Account No.

Value $Account No.

Value $SubtotalSheet _____ of _____ continuation sheets attached to

(Total of this page)Schedule of Creditors Holding Secured Claims

UNSECUREDPORTION, IF

ANY

SCHEDULE D - CREDITORS HOLDING SECURED CLAIMS(Continuation Sheet)


In re ,Debtor


02/14/07 and 02/07/08

Senior Secured Notes

Collateral: Security interest in all assetslisted in Security Agreement

U.S. Bank National Associationas trustee60 Livingston AveSaint Paul, MN 55107-2292 X -

944,354,969.00 UnknownUnknown

944,354,969.00 0.001 1

1,030,350,091.00 0.00Total(Report on Summary of Schedules)


}bk1{Schedule E - Creditors Holding Unsecured Priority Claims}bk{

B6E (Official Form 6E) (4/10)

A complete list of claims entitled to priority, listed separately by type of priority, is to be set forth on the sheets provided. Only holders of unsecured claims entitledto priority should be listed in this schedule. In the boxes provided on the attached sheets, state the name, mailing address, including zip code, and last four digits of theaccount number, if any, of all entities holding priority claims against the debtor or the property of the debtor, as of the date of the filing of the petition. Use a separatecontinuation sheet for each type of priority and label each with the type of priority.

The complete account number of any account the debtor has with the creditor is useful to the trustee and the creditor and may be provided if the debtor chooses to doso. If a minor child is a creditor, state the child's initials and the name and address of the child's parent or guardian, such as "A.B., a minor child, by John Doe, guardian." Do not disclose the child's name. See, 11 U.S.C. §112 and Fed. R. Bankr. P. 1007(m).

If any entity other than a spouse in a joint case may be jointly liable on a claim, place an "X" in the column labeled "Codebtor," include the entity on the appropriateschedule of creditors, and complete Schedule H-Codebtors. If a joint petition is filed, state whether the husband, wife, both of them, or the marital community may beliable on each claim by placing an "H," "W," "J," or "C" in the column labeled "Husband, Wife, Joint, or Community." If the claim is contingent, place an "X" in thecolumn labeled "Contingent." If the claim is unliquidated, place an "X" in the column labeled "Unliquidated." If the claim is disputed, place an "X" in the column labeled"Disputed." (You may need to place an "X" in more than one of these three columns.)

Report the total of claims listed on each sheet in the box labeled "Subtotals" on each sheet. Report the total of all claims listed on this Schedule E in the box labeled"Total" on the last sheet of the completed schedule. Report this total also on the Summary of Schedules.

Report the total of amounts entitled to priority listed on each sheet in the box labeled "Subtotals" on each sheet. Report the total of all amounts entitled to prioritylisted on this Schedule E in the box labeled "Totals" on the last sheet of the completed schedule. Individual debtors with primarily consumer debts report this total also on the Statistical Summary of Certain Liabilities and Related Data.

Report the total of amounts not entitled to priority listed on each sheet in the box labeled "Subtotals" on each sheet. Report the total of all amounts not entitled topriority listed on this Schedule E in the box labeled "Totals" on the last sheet of the completed schedule. Individual debtors with primarily consumer debts report this total also on the Statistical Summary of Certain Liabilities and Related Data.

Check this box if debtor has no creditors holding unsecured priority claims to report on this Schedule E.

TYPES OF PRIORITY CLAIMS (Check the appropriate box(es) below if claims in that category are listed on the attached sheets)

Domestic support obligationsClaims for domestic support that are owed to or recoverable by a spouse, former spouse, or child of the debtor, or the parent, legal guardian, or responsible relative

of such a child, or a governmental unit to whom such a domestic support claim has been assigned to the extent provided in 11 U.S.C. § 507(a)(1).

Extensions of credit in an involuntary caseClaims arising in the ordinary course of the debtor's business or financial affairs after the commencement of the case but before the earlier of the appointment of a

trustee or the order for relief. 11 U.S.C. § 507(a)(3).

Wages, salaries, and commissionsWages, salaries, and commissions, including vacation, severance, and sick leave pay owing to employees and commissions owing to qualifying independent sales

representatives up to $11,725* per person earned within 180 days immediately preceding the filing of the original petition, or the cessation of business, whicheveroccurred first, to the extent provided in 11 U.S.C. § 507(a)(4).

Contributions to employee benefit plansMoney owed to employee benefit plans for services rendered within 180 days immediately preceding the filing of the original petition, or the cessation of business,

whichever occurred first, to the extent provided in 11 U.S.C. § 507(a)(5).

Certain farmers and fishermenClaims of certain farmers and fishermen, up to $5,775* per farmer or fisherman, against the debtor, as provided in 11 U.S.C. § 507(a)(6).

Deposits by individualsClaims of individuals up to $2,600* for deposits for the purchase, lease, or rental of property or services for personal, family, or household use, that were not

delivered or provided. 11 U.S.C. § 507(a)(7).

Taxes and certain other debts owed to governmental unitsTaxes, customs duties, and penalties owing to federal, state, and local governmental units as set forth in 11 U.S.C. § 507(a)(8).

Commitments to maintain the capital of an insured depository institutionClaims based on commitments to the FDIC, RTC, Director of the Office of Thrift Supervision, Comptroller of the Currency, or Board of Governors of the Federal

Reserve System, or their predecessors or successors, to maintain the capital of an insured depository institution. 11 U.S.C. § 507 (a)(9).

Claims for death or personal injury while debtor was intoxicatedClaims for death or personal injury resulting from the operation of a motor vehicle or vessel while the debtor was intoxicated from using alcohol, a drug, or

another substance. 11 U.S.C. § 507(a)(10).

* Amount subject to adjustment on 4/01/13, and every three years thereafter with respect to cases commenced on or after the date of adjustment.

continuation sheets attached

SCHEDULE E - CREDITORS HOLDING UNSECURED PRIORITY CLAIMS


In re ,Debtor


10


B6E (Official Form 6E) (4/10) - Cont.

CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC

CREDITOR'S NAME,AND MAILING ADDRESS


(See instructions.)

DATE CLAIM WAS INCURRED AMOUNT AND CONSIDERATION FOR CLAIM OF CLAIM

Account No.

Account No.

Account No.

Account No.

Account No.

SubtotalSheet _____ of _____ continuation sheets attached to(Total of this page)Schedule of Creditors Holding Unsecured Priority Claims

TYPE OF PRIORITY

AMOUNT NOTENTITLED TOPRIORITY, IF ANY

AMOUNTENTITLED TO

PRIORITY

SCHEDULE E - CREDITORS HOLDING UNSECURED PRIORITY CLAIMS(Continuation Sheet)


In re ,Debtor


Taxes and Certain Other DebtsOwed to Governmental Units

Taxes

ARIZONA DEPARTMENT OFREVENUEPO BOX 29079PHOENIX, AZ 85038 - X X X

Unknown

Unknown

UnknownTaxes

CANADA REVENUE AGENCYTAX CENTRE4695 12TH AVESHAWINIGAN-SUD, QC G9N 7S6CANADA

- X X X

Unknown

Unknown

UnknownTaxes

CITY DEPT OF FINANCEVILLAGE OF LINCOLNSHIRE1 OLDE HALF DAY RDLINCOLNSHIRE, IL 60069 - X X X

Unknown

Unknown

UnknownTaxes

CITY OF RICHARDSONTAX DEPARTMENTPO BOX 830129RICHARDSON, TX 75083 - X X X

Unknown

Unknown

UnknownTaxes

CITY OF RICHARDSON TEXAS411 WEST ARAPHO SUITE 108RICHARDSON, TX 75080 - X X X

Unknown

Unknown

Unknown

0.00 0.000.001 10


In re ,Debtor



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC



(See instructions.)


Account No.

Account No.

Account No.

Account No.

Account No.


TYPE OF PRIORITY


AMOUNTENTITLED TO

PRIORITY




Taxes

COLLIN COUNTY DEPT OF TAX ANDFINANCECOLLIN COUNTY ADMINISTRATIONBLDGPO BOX 8006MCKINNEY, TX 75070

- X X X

Unknown

Unknown

UnknownTaxes

COUNTY COMMISIONER225 N CENTER ST SUITE 301WESTMINISTER, MD 21157 - X X X

Unknown

Unknown

UnknownTaxes

COUNTY OF FAIRFAX12000 GOVERNMENT CENTER DRFAIRFAX, VA 22035 - X X X

Unknown

Unknown

UnknownTaxes

CT DEPARTMENT OF REVENUESERVICESFRANCHISE TAX BOARDPO BOX 2974HARTFORD, CT 06104

- X X X

Unknown

Unknown

UnknownTaxes

D. C. TREASURER1350 PENNSYLVANIA AVENUE, NWWASHINGTON, DC 20004 - X X X

Unknown

Unknown

Unknown

0.00 0.000.002 10


In re ,Debtor



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC



(See instructions.)


Account No.

Account No.

Account No.

Account No.

Account No.


TYPE OF PRIORITY


AMOUNTENTITLED TO

PRIORITY




Taxes

DALLAS COUNTY DEPT OFTAXATION& FINANCE500 ELM STDALLAS, TX 75202

- X X X

Unknown

Unknown

UnknownTaxes

DALLAS COUNTY TAXATTN ASSESSOR-COLLECTOR500 ELM STREETDALLAS, TX 75202 - X X X

Unknown

Unknown

UnknownTaxes

DC TREASUREROFFICE OF TAX AND REVENUEPO BOX 7792WASHINGTON, DC 20044 - X X X

Unknown

Unknown

UnknownTaxes

DC TREASUREROFFICE OF TAX AND REVENUEPO BOX 7792WASHINGTON, DC 20044 - X X X

Unknown

Unknown

UnknownTaxes

DELAWARE SECRETARY OF STATEDIVISION OF CORPORATIONSPO BOX 11728NEWARK, NJ 07101 - X X X

Unknown

Unknown

Unknown

0.00 0.000.003 10


In re ,Debtor



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC



(See instructions.)


Account No.

Account No.

Account No.

Account No.

Account No.


TYPE OF PRIORITY


AMOUNTENTITLED TO

PRIORITY




Taxes

DEPARTMENT OF TAXADMINISTRATION (DTA)FAIRFAX COUNTY GOVERNMENTCENTER STE 22312000 GOVERNMENT CENTER PKWYFAIRFAX, VA 22035

- X X X

Unknown

Unknown

UnknownTaxes

DEPARTMENT OF THE TREASURY1500 PENNSYLVANIA AVE NWWASHINGTON, DC 20220 - X X X

Unknown

Unknown

UnknownTaxes

DEPT OF TAXATION & FINANCECOLLIN COUNTY ADMINISTRATIONBLDGPO BOX 8006MCKINNEY, TX 75070

- X X X

Unknown

Unknown

UnknownTaxes

FINANCE DEPARTMENT457 E. MAIN STREETSUITE 300NEW IBERIA, LA 70560 - X X X

Unknown

Unknown

UnknownTaxes

FRANCHISE TAX BOARDSTATE OF CALIFORNIAPO BOX 942857SACREMENTO, CA 94257 - X X X

Unknown

Unknown

Unknown

0.00 0.000.004 10


In re ,Debtor



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC



(See instructions.)


Account No.

Account No.

Account No.

Account No.

Account No.


TYPE OF PRIORITY


AMOUNTENTITLED TO

PRIORITY




Taxes

IBERIA PARISH ASSESSORCOURTHOUSE300 IBERIA STREET, SUITE B-100NEW IBERIA, LA 70560 - X X X

Unknown

Unknown

UnknownTaxes

INDIANA DEPARTMENT OF REVENUEPO BOX 0595INDIANAPOLIS, IN 46206 - X X X

Unknown

Unknown

UnknownTaxes

INTERNAL REVENUE SERVICELOUISIANA REGIONAL OFFICE2600 CITIPLACE CENTREBATON ROUGE, LA 70808 - X X X

Unknown

Unknown

UnknownTaxes

INTERNAL REVENUE SERVICE199 MAIN STREETBURLINGTON, VT 05401 - X X X

Unknown

Unknown

UnknownTaxes

INTERNAL REVENUE SERVICECENTRALIZED INSOLVENCYOPERATIONPO BOX 21126PHILADELPHIA, PA 19114

- X X X

Unknown

Unknown

Unknown

0.00 0.000.005 10


In re ,Debtor



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC



(See instructions.)


Account No.

Account No.

Account No.

Account No.

Account No.


TYPE OF PRIORITY


AMOUNTENTITLED TO

PRIORITY




Taxes

INTERNAL REVENUE SERVICE500 N CAPITOL ST NWWASHINGTON, DC 20221 - X X X

Unknown

Unknown

UnknownTaxes

INTERNAL REVENUE SERVICE1320 CENTRAL PARK BLVDFREDERICKSBURG, VA 22401 - X X X

Unknown

Unknown

UnknownTaxes

INTERNAL REVENUE SERVICE230 S DEARBORN STCHICAGO, IL 60604 - X X X

Unknown

Unknown

UnknownTaxes

INTERNAL REVENUE SERVICEATTN INSOLVENCY UNIT844 KING STWILMINGTON, DE 19801 - X X X

Unknown

Unknown

UnknownTaxes

INTERNAL REVENUE SERVICE290 BROADWAYNEW YORK, NY 10007 - X X X

Unknown

Unknown

Unknown

0.00 0.000.006 10


In re ,Debtor



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC



(See instructions.)


Account No.

Account No.

Account No.

Account No.

Account No.


TYPE OF PRIORITY


AMOUNTENTITLED TO

PRIORITY




Taxes

INTERNAL REVENUE SERVICEATTN INSOLVENCY UNIT - SFREGIONAL OFFIC450 GOLDEN GATE AVESAN FRANCISCO, CA 94102

- X X X

Unknown

Unknown

UnknownTaxes

LAKE COUNTY TREASURER2293 NORTH MAIN STREETCROWN POINT, IN 46307 - X X X

Unknown

Unknown

UnknownTaxes

LOUISIANA DEPT OF REVENUEPO BOX 201BATON ROUGE, LA 70821 - X X X

Unknown

Unknown

UnknownTaxes

LOUISIANA WORKFORCECOMMISSIONPO BOX 94094BATON ROUGE, LA 70804 - X X X

Unknown

Unknown

UnknownTaxes

NEW MEXICO TAXATION & REVENUEDEPTPO BOX 25127SANTA TE, NM 87504 - X X X

Unknown

Unknown

Unknown

0.00 0.000.007 10


In re ,Debtor



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC



(See instructions.)


Account No.

Account No.

Account No.

Account No.

Account No.


TYPE OF PRIORITY


AMOUNTENTITLED TO

PRIORITY




Taxes

NORTH CAROLINA DEPT OFREVENUEPO BOX 25000RALEIGH, NC 27640 - X X X

Unknown

Unknown

UnknownTaxes

REVENUE DEPARTMENTGROUP IIP.O. BOX 201BATON ROUGE, LA 70821 - X X X

Unknown

Unknown

UnknownTaxes

SALT LAKE ASSESSOR2300 A 2001 SOUTH STATE STREETROOMSALT LAKE CITY, UT 84190 - X X X

Unknown

Unknown

UnknownTaxes

SECRETARY OF STATE600 E BOULEVARD AVENUE, DEPT108PO BOX 5513BISMARCK, ND 58606

- X X X

Unknown

Unknown

UnknownTaxes

STATE CORPORATION COMMISSIONCLERK'S OFFICEPO BOX 7607MERRIFIELD, VA 22166 - X X X

Unknown

Unknown

Unknown

0.00 0.000.008 10


In re ,Debtor



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC



(See instructions.)


Account No.

Account No.

Account No.

Account No.

Account No.


TYPE OF PRIORITY


AMOUNTENTITLED TO

PRIORITY




Taxes

STATE OF CALIFORNIA FRANCHISETAX BOARDFRANCHISE TAX BOARDPO BOX 1673SACRAMENTO, CA 95812

- X X X

Unknown

Unknown

UnknownTaxes

STATE OF CALIFORNIA FRANCHISETAX BOARDCHIEF COUNSEL: FRANCHISE TAXBOARDc/o GENERAL COUNSELPO BOX 1720 MS: A-260RANCHO CORDOVA, CA 95741

- X X X

Unknown

Unknown

UnknownTaxes

STATE OF WASHINGTONDEPARTMENT OF REVENUEPO BOX 34051SEATTLE, WA 98124 - X X X

Unknown

Unknown

UnknownTaxes

TAX ASSESSOR COLLECTOR COLLINCOUNTKENNETH K. MAUNPO BOX 8046MCKINNEY, TX 75070

- X X X

Unknown

Unknown

UnknownTaxes

TAXATION AND REVENUEDEPARTMENTPO BOX 25128SANTA FE, NM 87504 - X X X

Unknown

Unknown

Unknown

0.00 0.000.009 10


In re ,Debtor



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC



(See instructions.)


Account No.

Account No.

Account No.

Account No.

Account No.


TYPE OF PRIORITY


AMOUNTENTITLED TO

PRIORITY




Taxes

TEXAS COMPTROLLER OF PUBLICACCOUNTSATTN SUSAN COMBS111 E 17TH ST - PO BOX 13528CAPITOL STAAUSTIN, TX 78711

- X X X

Unknown

Unknown

UnknownTaxes

TEXAS STATE DISBURSEMENTCOMPTROLLER OF PUBLICACCTS/OPEN REPO BOX 13528AUSTIN, TX 78711

- X X X

Unknown

Unknown

UnknownTaxes

UNITED STATES TREASURYRAIVS TEAM - STOP 2800 FPO BOX 145500CINCINNATI, OH 45250 - X X X

Unknown

Unknown

UnknownTaxes

VIRGINIA DEPARTMENT OFTAXATIONOFFICE OF CUSTOMER SERVICESPO BOX 1115RICHMOND, VA 23218

- X X X

Unknown

Unknown

UnknownTaxes

VIRGINIA DEPT OF TAXATIONPO BOX 1777RICHMOND, VA 23218 - X X X

Unknown

Unknown

Unknown

0.00 0.000.0010 10

0.00 0.000.00Total

(Report on Summary of Schedules)



}bk1{Schedule F - Creditors Holding Unsecured Nonpriority Claims}bk{

CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC

CREDITOR'S NAME,MAILING ADDRESS



Account No.

Account No.

Account No.

Account No.

Subtotal_____ continuation sheets attached (Total of this page)

DATE CLAIM WAS INCURRED ANDCONSIDERATION FOR CLAIM. IF CLAIM

IS SUBJECT TO SETOFF, SO STATE. AMOUNT OF CLAIM

B6F (Official Form 6F) (12/07)

State the name, mailing address, including zip code, and last four digits of any account number, of all entities holding unsecured claims without priority against thedebtor or the property of the debtor, as of the date of filing of the petition. The complete account number of any account the debtor has with the creditor is useful to thetrustee and the creditor and may be provided if the debtor chooses to do so. If a minor child is a creditor, state the child's initials and the name and address of the child's parent or guardian, such as "A.B., a minor child, by John Doe, guardian." Do not disclose the child's name. See, 11 U.S.C. §112 and Fed. R. Bankr. P. 1007(m). Do not include claims listed in Schedules D and E. If all creditors will not fit on this page, use the continuation sheet provided.

If any entity other than a spouse in a joint case may be jointly liable on a claim, place an "X" in the column labeled "Codebtor," include the entity on the appropriateschedule of creditors, and complete Schedule H - Codebtors. If a joint petition is filed, state whether the husband, wife, both of them, or the marital community may beliable on each claim by placing an "H," "W," "J," or "C" in the column labeled "Husband, Wife, Joint, or Community."

If the claim is contingent, place an "X" in the column labeled "Contingent." If the claim is unliquidated, place an "X" in the column labeled "Unliquidated." If theclaim is disputed, place an "X" in the column labeled "Disputed." (You may need to place an "X" in more than one of these three columns.)

Report the total of all claims listed on this schedule in the box labeled "Total" on the last sheet of the completed schedule. Report this total also on the Summary ofSchedules and, if the debtor is an individual with primarily consumer debts, report this total also on the Statistical Summary of Certain Liabilities and Related Data.

Check this box if debtor has no creditors holding unsecured claims to report on this Schedule F.

S/N:28092-100630

SCHEDULE F - CREDITORS HOLDING UNSECURED NONPRIORITY CLAIMS


In re ,Debtor


21

xx0007 Trade Payable

ADP INC.100 NORTHWEST POINT BLVDELK GROVE VILLAGE, IL 60007

-

3,150.85


AEROTEK INC.7301 PARKWAY DRIVEHANOVER, MD 21076

-

2,213.06


ALCATEL - LUCENT3400 M/S SS01 WEST PLANOPARKWAYPLANO, TX 75082

-

990,000.00

Employment Agreement

ALEXANDRA M. FIELD12010 SUNSET HILLS ROAD, 6THFLOORRESTON, VA 20190

- X X

Unknown

995,363.91


B6F (Official Form 6F) (12/07) - Cont.

CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC




Account No.

Account No.

Account No.

Account No.

Account No.

Sheet no. _____ of _____ sheets attached to Schedule of SubtotalCreditors Holding Unsecured Nonpriority Claims (Total of this page)



SCHEDULE F - CREDITORS HOLDING UNSECURED NONPRIORITY CLAIMS(Continuation Sheet)


In re ,Debtor



AMERICAN REGISTRYFOR INTERNET NUMBERS3635 CONCORDE PRKWY, No. 200CHANTILLY, VA 20151

-

100.00


ARIZONA PUBLIC SERVICECOMPANY9657 NORTH 5TH STREET MSPHOENIX, AZ 85004

-

240.98


AT&T CORPONE AT&T WAYBEDMINISTER, NJ 07921

-

19,989.00


AT&T SERVICES, INC.F/K/A SBC SERVICES, INC.175 E. HOUSTON ST, ROOM 8-H-60SAN ANTONIO, TX 78205

-

481.23


ATC TECHNOLOGIES10802 PARKRIDGE BLVDRESTON, VA 20191

-

675,793.94

696,605.151 21



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC




Account No.

Account No.

Account No.

Account No.

Account No.






In re ,Debtor



ATC TOWER SERVICES, INC.900 CIRCLE 75 PARKWAY SUITE 300ATLANTA, GA 30339

-

1,684.71


AVITECHTURE, INC.1 EXPORT DRIVESTERLING, VA 20164

-

200.00


BCI NORTHWOOD FLEX, LLCPO BOX 540478NORTH SALT LAKE, UT 84054

-

15,634.38

x0171 Trade Payable

BELL CANADACUSTOMER PAYMENT CENTREPO BOX 3650 STATION DON MILLSTORONTO, ON CANADA M3C 3X9

-

1,794.59

x0143 Trade Payable

BELL CANADAPO BOX 9000STN DON MILLSNORTH YORK ONTARIO CANADAM3C 2X7

-

29,197.96

48,511.642 21



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC




Account No.

Account No.

Account No.

Account No.

Account No.






In re ,Debtor



CANBY TELECOM ASSOCIATION185 SE 1ST AVECANBY, OR 97013

-

784.55


CANBY UTILITY BOARD154 NW 1ST AVECANBY, OR 97013

-

73.30


CCGS HOLDINGS LLC2000 CORPORATE DR.CANONSBURG, PA 15317

-

1,451.50


CITRIX SYSTEMS INC851 WEST CYPRESS CREEK ROADFT LAUDERDALE, FL 33309

-

5,692.19


CITY OF RICHARDSON TEXAS411 WEST ARAPHO SUITE 108RICHARDSON, TX 75080

-

34,972.15

42,973.693 21



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC




Account No.

Account No.

Account No.

Account No.

Account No.






In re ,Debtor



CLECO POWER LLC2030 DONAHUE FERRY ROADPINEVILLE, LA 71360

-

230.42

x0095 Trade Payable

COMNEON GMBHSUEDWESTPARK 2-4NUREMBURG 90449

-

1,686,270.85


COMPUCOM IT SOLUTION7171 FOREST LANEDALLAS, TX 75230

-

822.97


COTNET 190, LTD680 N CARROLL AVE SUITE 130SOUTHLAKE, TX 76092

-

28,083.05


CROWN CASTLE USA INC.ATTN: TODD BAILEY2000 CORPORATE DRIVECANONSBURG, PA 15317

-

5,114.55

1,720,521.844 21



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC




Account No.

Account No.

Account No.

Account No.

Account No.






In re ,Debtor



DARIN AND LISHA A. MORTON9409 STONEY HILL LANECHARLOTTE, NC 28277

-

850.00


DATA SALES CO., INC.3450 W BURNSVILLE PARKWAYBURNSVILLE, MN 55337

-

483,988.19


DATABANK HOLDINGS400 S. AKARD STREET, SUITE 100DALLAS, TX 75202

-

81,159.25


DENNIS W. MATHESON12010 SUNSET HILLS ROAD, 6THFLOORRESTON, VA 20190

- X X

Unknown

2/7/2008Senior Exchangeable Notes

DEUTSCHE BANK NATIONAL TRUSTCOMPANY TRUST & SECURITIES XSERVICES222 S. RIVERSIDE PLAZA, 25TH FLCHICAGO, IL 60606-5808

-

178,715,631.00

179,281,628.445 21



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC




Account No.

Account No.

Account No.

Account No.

Account No.






In re ,Debtor


x0152 Trade Payable

DIRECT ENERGY REGULATORYPO BOX 340EDMONTON, AB T5J 2V6

-

258.48

Severance Agreement

DOUGLAS BRANDON12010 SUNSET HILLS ROAD, 6THFLOORRESTON, VA 20190

- X X

Unknown


DS WATERS OF AMERICA, INC.DBA CRYSTAL SPRINGS5660 NEW NORTHSIDE DRIVE, SUITE500ATLANTA, GA 30328

-

72.46


DUKE ENERGYPO BOX 1007CHARLOTTE, NC 28201

-

128.37


ELEKTROBIT, INC.22745 29TH DRIVE SE, SUI, SUITE 200 XBOTHELL, WA 98201

-

25,847,904.20

25,848,363.516 21



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC




Account No.

Account No.

Account No.

Account No.

Account No.






In re ,Debtor



FEDEXPO BOX 371461PITTSBURGH, PA 15250-7461

-

1,322.96


FLORIDA POWER & LIGHT COMPANY700 UNIVERSE BLVDJUNO BEACH, FL 33408

-

179.21


FORUM FINANCIAL SERVICE275 W. CAMPBELL ROAD, SUITE 320RICHARDSON, TX 75080

-

14,841.08


GCATS INVESTMENTS, LLCDBA GUILD COMMERCIAL ANDTELECOM7138 ENVOY COURTDALLAS, TX 75247

-

523.82


GCATS INVESTMENTS, LLC7138 ENVOY COURTDALLAS, TX 75247

-

2,524.43

19,391.507 21



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC




Account No.

Account No.

Account No.

Account No.

Account No.






In re ,Debtor



HAWK MANAGMENT104 0AK KNOLL COURTVOLO, IL 60020

-

1,150.00


HOULIHAN LOKEY HOWARD &ZUKIN, INC.1930 CENTURY PARK WESTLOS ANGELES, CA 90067-6802

-

321,812.76


HUGHES NETWORK SYSTEMS11717 EXPLORATION LANEGERMANTOWN, MD 20876

-

4,528,889.35


IKON OFFICE SOLUTIONS, INC.12005 FORD RD SUITE 300DALLAS, TX 75234

-

475.09

x0116 Trade Payable

INFINEON TECHNOLOGIESAM CAMPEON 1-12NEUBIBERG, GERMANY 85579-0000

-

2,937,180.00

7,789,507.208 21



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC




Account No.

Account No.

Account No.

Account No.

Account No.






In re ,Debtor



INTRADO INC.1601 DRY CREEK DRIVELONGMONT, CO 80503

-

62,500.00

Litigation

JAE YOUN KIMC/O HERSHKOVITZ & ASSOCIATESLLC2845 DUKE STREETALEXANDRIA, VA 22314-4512

- X X X

Unknown


JEFFREY EPSTEIN12010 SUNSET HILLS ROAD, 6THFLOORRESTON, VA 20190

- X X

Unknown


JOHN GILSENAN206 POND VIEW DRIVEBETHANY BEACH, DE 19930

-

16,138.90


KASTLE SYSTEMS LLC1501 WILSON BLVDARLINGTON, VA 22209

-

2,689.60

81,328.509 21



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC




Account No.

Account No.

Account No.

Account No.

Account No.






In re ,Debtor



KONICA MINOLTA BUSINESSSOLUTIONSPO BOX 403718ATLANTA, GA 30384

-

176.13


L. A. BRAUNAGEL8366 48TH STREET, NEDEVILS LAKE, ND 58301

-

700.00


LANDER COUNTY SEWER ANDWATERDISTRICT IIPO BOX 144AUSTIN, NV 89310

-

1,000.00


LEVEL 3 COMMUNICATIONS, LLC1025 ELDORADO BLVDBROOMFIELD, CO 80021

-

714.43


MERRILL COMMUNICATIONSONE MERRILL CIRCLEST. PAUL, MN 55108

-

8,913.05

11,503.6110 21



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC




Account No.

Account No.

Account No.

Account No.

Account No.






In re ,Debtor



MICHAEL PIERSANTE8341 ARGENT CIRCLEFAIRFAX STATION, VA 22039

-

409.20


MYERS PEST & TERMITE SERVICESPO BOX 210009BEDFORD, TX 76095

-

33.56


NETWORK CENTRIC OPS INDUSTRY1301 DEVE ST. SUITE 400NEWPORT BEACH, CA 92660

-

3,000.00


NEUSTAR46000 CENTER OAK PLAZASTERLING, VA 20165

-

12,995.32

Litigation

NEW ICO SATELLITE SERVICES, G.P.2300 CARILLON POINTKIRKLAND, WA 98033

- X X X

Unknown

16,438.0811 21



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC




Account No.

Account No.

Account No.

Account No.

Account No.






In re ,Debtor



NOKIA SIEMENS NETWORK1950 N STEMMONS FWY SUITE 5010DALLAS, TX 75207

-

1,000,008.49

x0157 Trade Payable

NORTH AMERICAN NUMBERINGPLANWELCH LLP1200-151 SLATER STREETOTTAWA, ON CANADA K1P 5H3

-

25.00


NORTH DAKOTA TELEPHONECOMPANY211 22ND ST. NWDEVILS LAKE, ND 58301

-

625.40


NUVOX COMMUNICATION2 N MAIN STGREENVILEE, SC 29601

-

634.80


OTERO COUNTY ELECTRICCOOPERATIVE IPO BOX 227CLOUDCROFT, NM 88317

-

208.43

1,001,502.1212 21



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC




Account No.

Account No.

Account No.

Account No.

Account No.






In re ,Debtor



OXFORD GLOBAL RESOURCES INC.100 CUMMINGS CENTER SUITE 206LBEVERLY, MA 01915

-

21,442.50


PA SCDUPO BOX 69112HARRISBURG, PA 17106

-

420.23


PACIFIC / ROCKY MTN POWER /PACIFIC825 NE MULTNOMAH STREET, SUITE700PORTLAND, OR 97232

-

133.28


PROSTAR SERVICES, INC.PO BOX 110209CARROLLTON, TX 75011

-

335.69


PUBLIC UTILITY DISTRIBUTORPO BOX 878EPHRAYA, WA 98823

-

59.81

22,391.5113 21



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC




Account No.

Account No.

Account No.

Account No.

Account No.






In re ,Debtor



QUALCOMM5775 MOREHOUSE DRSAN DIEGO, CA 92121

-

2,280,850.00


QUESTAR GAS COMPANY180 EAST 100 SOUTHSALT LAKE CITY, UT 84139

-

25.70


QUINN EMANUEL UQUHART &SULLIVAN, LLP865 SOUTH FIGUEROA STREET ,10TH FLLOS ANGELES, CA 90017

-

75,810.77


QWEST CORPORATION1801 CALIFORNIA ST, 25TH FLOORDENVER, CO 80202

-

4,109.36


RE&M SOLUTIONS, INC.10935 ESTATE UNIT #370DALLAS, TX 75238

-

1,168.29

2,361,964.1214 21



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC




Account No.

Account No.

Account No.

Account No.

Account No.






In re ,Debtor



RKF ENGINEERING, LLC1229 19TH STREET, NWWASHINGTON, DC 20036

-

277,792.00


ROANOKE ELECTRIC518 NC 561 WESTAHOSKIE, NC 27910

-

166.32


RUDER FINN301 EAST 57TH STREETNEW YORK, NY 10022

-

10,039.27

Trade Payable

SAFEGUARD SHREDDING6744-A GRAVEL AVENUEALEXANDRIA, VA 22310

-

144.00


SAP AMERICA, INC.3999 WEST CHESTER PIKENEWTOWN SQUARE, PA 19073

-

10,489.50

298,631.0915 21



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC




Account No.

Account No.

Account No.

Account No.

Account No.






In re ,Debtor


x0145 Trade Payable

SASK TEL210 YORK ROAD WESTYORKTON SK S3N 3N4

-

950.42


SBA TOWERS II LLCPO BOX 933730ATLANTA, GA 31193

-

1,098.72


SBA TOWERS, INC.5900 BROKEN SOUND PARKWAY, NWBOCA RATON, FL 33487

-

2,333.98


SECURITAS SECURITY SYSTEM7630 LITTLE RIVER TURNPIKEANNANDALE, VA 22003

-

1,715.20

Trade Payable

SHAFFER, WILSON, SARVER & GRAY1821 MICHAEL FARADAY DR, SUITE302RESTON, VA 20190

-

34,322.17

40,420.4916 21



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC




Account No.

Account No.

Account No.

Account No.

Account No.






In re ,Debtor



SONORAN SYSTEMS, INC.2983 EAST VAUGHN AVEGILBERT, AZ 85234

-

19,200.00

x0101 Trade Payable

SOUTH PEACE COMM5401 WEST HIGHWAY STVALLEYVIEW ALBERTA CANADA T0H3N0

-

400.00


SPACE SYSTEMS/LORAL3825 FABIAN WAYPALO ALTO, CA 94303-4604

-

35,647,804.11

Litigation

SPRINT NEXTEL CORPORATIONC/O KIRKPATRICK & LOCKHART XATTN: E. RUSNAK, D. CASE, M.MARTINWASHINGTON, DC 20006

- X X X

Unknown


STANDARD INSURANCE COMPANYPO BOX 6065PORTLAND, OR 97228

-

9,522.52

35,676,926.6317 21



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC




Account No.

Account No.

Account No.

Account No.

Account No.






In re ,Debtor



SYNIVERSE TECHNOLOGIES INC8125 HIGHWOODS PALM WAYTAMPA, FL 33647

-

9,909.82

x0118 Trade Payable

TELESAT CANADA1601 TELESAT COURTPO BOX 142OTTAWA, ON K1B 5P4

-

28,503.78

x0120 Trade Payable

TELUSP.O. BOX 7575VANCOUVER ONTARIO CANADA V6B8N9

-

3,324.60


TELX-DALLAS LLC2323 BRYANT STDALLAS, TX 75201

-

106,058.98

Intercompany Payable

TERRESTAR CORPORATION12010 SUNSET HILLS ROADRESTON, VA 20190

-

56,875,342.00

57,023,139.1818 21



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC




Account No.

Account No.

Account No.

Account No.

Account No.






In re ,Debtor



TERRESTAR GLOBAL LTD12010 SUNSET HILLS ROADRESTON, VA 20190

- X

7,500.00


TERRESTAR NETWORKS (CANADA)INC.1035 LAURIER AVE,SUITE 200MONTREAL, QUEBEC H2V 2L1CANADA

- X

91,585.00


THOMSON REUTERS195 BROADWAYNEW YORK, NY 10007

-

5,475.00


TX CHILD SUPPORT SDUPO BOX 659791SAN ANTONIO, TX 78265

-

534.46


UNITED CONCORDIA4401 DEER PATH ROADHARRISBURG, PA 17110

-

6,882.45

111,976.9119 21



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC




Account No.

Account No.

Account No.

Account No.

Account No.






In re ,Debtor



UNITED PARCEL SERVICEPO BOX 650580DALLAS, TX 75265

-

89.11


UNITED TELEPHONE COMPANY OFTHECAROLINAS100 CENTURYTEL DRIVEMONROE, LA 71203

-

1,443.96


VERIZONPO BOX 17577BALTIMORE, MD 21297

-

4,340.14

x0131 Trade Payable

VILLAGE OF DAFOEPO BOX 2427DAFOE, SK S0K 1C0

-

376.00

Severance Agreement

VINCENT LOIACONO12010 SUNSET HILLS ROAD, 6THFLOORRESTON, VA 20190

- X X

Unknown

6,249.2120 21



CODEBTOR

CONTINGENT

UNLIQUIDATED

DISPUTED


HWJC




Account No.

Account No.

Account No.

Account No.

Account No.






In re ,Debtor



VISION SERVICE PLANFILE #73785PO BOX 60000SAN FRANCISCO, CA 94160

-

2,272.18


WEBEX COMMUNICATIONS INC.3979 FREEDOM CIRCLESANTA CLARA, CA 95054

-

110.00

2,382.1821 21

313,097,720.51Total

(Report on Summary of Schedules)


}bk1{Schedule G - Executory Contracts and Unexpired Leases}bk{

In re ,Debtor


B6G (Official Form 6G) (12/07)

Describe all executory contracts of any nature and all unexpired leases of real or personal property. Include any timeshare interests. State natureof debtor's interest in contract, i.e., "Purchaser", "Agent", etc. State whether debtor is the lessor or lessee of a lease. Provide the names andcomplete mailing addresses of all other parties to each lease or contract described. If a minor child is a party to one of the leases or contracts, state the child's initials and the name and address of the child's parent or guardian, such as "A.B., a minor child, by John Doe, guardian." Do not disclose the child's name. See, 11 U.S.C. §112 and Fed. R. Bankr. P. 1007(m).

Check this box if debtor has no executory contracts or unexpired leases.

Name and Mailing Address, Including Zip Code,of Other Parties to Lease or Contract

Description of Contract or Lease and Nature of Debtor's Interest.State whether lease is for nonresidential real property.

State contract number of any government contract.

continuation sheets attached to Schedule of Executory Contracts and Unexpired Leases

SCHEDULE G - EXECUTORY CONTRACTS AND UNEXPIRED LEASES


28

0887729 B.C. Ltdfka 4506901 Canada Inc., Attn: VP of Contracts140 W Georgia St, 15th FlVancouver, BC V6E 4H8 Canada

Service Agreement

Adgraphics2393 South Dove StAlexandria, VA 22314

Purchase Agreement

ADP, Inc.One ADP BoulevardRoseland, NJ 07068

License Agreement

Alcatel Lucent USA Inc.3400 M/S Ss01 West Plano ParkwayPLANO, TX 75082

Development Agreement

Alcatel Lucent USA Inc.3400 M/S Ss01 West Plano ParkwayPlano, TX 75082


Alexandra M. Field12010 Sunset Hills Road, 6th FloorReston, VA 20190


Allied Telecom Group LLCAttn: Jarod Keren1120 20th Street, NWSuite 500 SouthWashington, DC 20036

Service Agreement

Amazon Fulfillment Services Inc.Attn: General Counsel410 Terry Avenue NorthSeattle, WA 98109

Product Purchase Agreement

American Towers Inc.116 Huntington Avenue11th floorBoston, MA 02116

License Agreement

Anthem Blue Cross Blue Shield2015 Staples Mill RdRichmond, VA 23230

Insurance Agreement





Sheet of continuation sheets attached to the Schedule of Executory Contracts and Unexpired Leases

SCHEDULE G - EXECUTORY CONTRACTS AND UNEXPIRED LEASES(Continuation Sheet)


In re ,Debtor


ArianespaceAttn: Directeur CommercialBoulevard de l'Europe91000 EVRY France

Agreement for the Launching Into GeostationaryTransfer Orbit of the TerreStar-1 Satellite

ArianespaceAttn: Directeur CommercialBoulevard de l'Europe91000 EVRY France

Service Agreement

Arsalan Mehmood12010 Sunset Hills Road, 6th FloorReston, VA 20190

Consulting Agreement

Asia Capital Reinsurance Group Pte Ltd143 Cecill Street,#10-00 Gb BuildingSingapore, 069542

Insurance Agreement

Aspen Publishers Inc.4829 Innovation WayChicago, IL 60682

Purchase Agreement

AT&T Mobility II, LLCAttn: Anthony Cohen1010 Pine Street, Room 1-E-108St. Louis, MO 63101

Marketing Agreement

AT&T Mobility LLCAttn: James R. Wilson, Associate VPInternational Partnerships and AlliancesPO Box 6463Carol Stream, IL 60197

GSM Roaming Agreement

AT&T Mobility LLCAttn: James R. Wilson, Associate VPInternational Partnerships and AlliancesPO Box 6463Carol Stream, IL 60197

GSM Roaming Agreement

ATC Technologies, LLCAttn: Michael Cannice10802 Parkridge BlvdReston, VA 20191

Intellectual Property Agreement

ATC Technologies, LLCAttn: Michael Cannice10802 Parkridge BlvdReston, VA 20191

Patent Agreement

1 28








In re ,Debtor


ATC Tower Services Inc.Attn: Contracts Manager10 Presidential WayWoburn, MA 18018

License Agreement

Atlantic Radiotelephone Inc.Attn: C.J Webber2495 NW 35th AvenueMiami, FL 33142


Atlantic Skyline4605 Brookfield Corp DriveChantilly, VA 20151

Purchase Agreement

Atrium Insurance Agency LimitedRoom 790, Lloyd'sOne Lime StreetLondon EC3M 7QD Great Britain

Insurance Agreement

Automatic Data Processing Inc. (ADP)Attn: General CounselOne ADP BoulevardRoseland, NJ 07068

License Agreement

Barcodes LLCAttn: Raul Cepeda Jr.200 West Monroe Street10th FloorChicago, IL 60606

Authorized Reseller Agreement

BCI Northwood Flex L.C.925 West 100 North Suite FPO Box 540478, Attn Randy CassidyNorth Salt Lake, UT 84054

Leases - Non-Residential Realty

Bex Voice and Data Services Inc.Attn: Greg Hutchens19119 Rogers RoadOdessa, FL 33556


Bluetooth SIG, Inc.Attn: Mike Foley, Executive Director500 108th Avenue NESuite 250Bellevue, WA 98004

Trademark License

Brit Syndicates Limited55, BishopsgateLondon Ec2N 3As, Great Britain

Insurance Agreement

2 28








In re ,Debtor


Brooks Bell Interactive, Inc.Attn: Ryan Miller, Acct Mgr/Designer510 Glenwood AveSuite 321Raleigh, NC 27603


California Network ManagementAttn: Scott Cory5716 Corsa AvenueSuite 106Westlake Village, CA 91307

Service Agreement

Chaucer Syndicates LimitedPlantation Place30 Fenchurch StreetLondon EC3M 3AD, Great Britain

Insurance Agreement

Cisco Systems Inc.170 West Tasman DriveSan Jose, CA 95134

Purchase Agreement


Purchase Agreement


Purchase Agreement

Cisco WebEx LLC.3979 Freedom CircleSanta Clara, CA 95054

Service Agreement

Communigate Systems655 Redwood HighwaySuite 275Mill Valley, CA 94941

Service Agreement

Comneon GmBHAttn: Christian Mucke, Managing DirectorAM Suedwestpark 2-4, 90449Nuremberg Germany


Comneon GmBHAttn: Thomas Lindner, Sr Dir Sales & MktSuedwestpark 2-4, D-90449Nuremberg Germany


Comneon GmBHAttn: Thomas Lindner, Sr Dir Sales & MktSuedwestpark 2-4, D-90449Nuremberg Germany

License Agreement

3 28








In re ,Debtor


Compucom It Solutions, Inc.7171 Forest LaneAttn Legal DepartmentDallas, TX 75230

Purchase Agreement

Compucom It Solutions, Inc.7171 Forest LaneAttn Legal DepartmentDallas, TX 75230

Purchase Agreement

Concepts to Execution LLC43162 Crosswind TerraceBroadlands, VA 20148

Purchase Agreement

Continental Resources Inc175 Middlesex TurnpikeBedford, MA 01730

Purchase Agreement

Continental Resources Inc.175 Middlesex TurnpikeBedford, MA 01730

Purchase Agreement

Copyright Clearance CenterAttn: Bruce Funkhouser, VP Bus Operation222 Rosewood DriveDanvers, MA 01923


Core180, Inc.Attn: Scott Murphy, Sales Director2751 Prosperity AvenueSuite 250Fairfax, VA 22031

Service Agreement

CotNet 190 Ltdc/o Cotton Wood Partners680 North Carroll AveSuite 130Southlake, TX 76092


Crown Atlantic Company, LLCAttn: Legal Department2000 Corporate DriveCanonsburg, PA 15317

License Agreement

Crown Castle Inc.Marsha Boodoo Berry6421 Congress Ave., Suite 200Boca Raton, FL 33487

Purchase Agreement

Crown Castle LLCPO Box 203112Houston, TX 77216

License Agreement

4 28








In re ,Debtor


Crown Castle South LLCAttn: Legal Department2000 Corporate DriveCanonsburg, PA 15317

License Agreement

Crown Communication Inc.Attn: Legal Department2000 Corporate DriveCanonsburg, PA 15317

License Agreement

Crown Communication Inc.Attn: Legal Department2000 Corporate DriveCanonsburg, PA 15317

License Agreement

CSC Consulting Inc.266 Second AveWaltham, MA 02451

Purchase Agreement

CT Corporation SystemAttn: Team 11015 15th Street, N.W.Suite 1000Washington, DC 20005

Registered Agent Service Agreement

Darin Morton and Lisha A. MortonAttn: Darin and Lisha A. Morton9409 Stoney Hill LaneCharlotte, NC 28277


Data Sales Co., Inc.Attn: Paul Breckner3450 West Burnsville ParkwayBurnsville, MN 55337

Waiver Agreement

Databank Holdings400 S. Akard Street, Suite 100Dallas, TX 75202

Purchase Agreement

David Marshack10540 Farnham DriveBethesda, MD 20814


DBSD North America, Inc.Attn: Timothy M. Dozois, Acting GCICO: 11700 Plaza America Dr., Ste. 1700Reston, VA 20190

Agreement

DBSD North America, Inc.Attn: Timothy M. Dozois, Acting GCICO: 11700 Plaza America Dr., Ste. 1700Reston, VA 20190

Agreement

5 28








In re ,Debtor


DBSD Satellite Services GPAttn: Legal Department11700 Plaza America DriveReston, VA 20190

Purchase Agreement

Deloitte Tax, LLPAttn: Frances Dinkins, Tax Director1750 Tysons BoulevardSuite 800McLean, VA 22102


Deloitte Tax, LLPAttn: Gregory Anderson1750 Tysons BoulevardSuite 800McLean, VA 22102


Dennis Matheson12010 Sunset Hills Road, 6th FloorReston, VA 20190


Digital Voice Systems Inc.Attn: John C. Hardwick, President orJae S. Lim, Chairman of the Bd234 Littleton RoadWestford, MA 01803

License Agreement

Douglas Brandon12010 Sunset Hills Road, 6th FloorReston, VA 20190

Severance Agreement

Downlink Technologies II, Inc.1411 LeMay Drive, Suite 207Carrollton, TX 75007

Purchase Agreement

EchoStar CorporationAttn: General Counsel90 Inverness Circle EEnglewood, CO 80112

Investor Agreement


Joint Venture Agreement


Purchase Agreement

6 28








In re ,Debtor


Elektrobit, Inc.Attn: Jani Lyrintzsis, General Manager22745 29th Drive SESuite 200Bothell, WA 98021

Master Supply Agreement



Elektrobit, Inc.Attn: Elektrobit Legal DepartmentTutkijantie 8Oulu 90570 Finland

Agreement


Common Interest and Joint Defense Agreement


Confidentiality Agreement




Evaluation Agreement


Software License Agreement


Software Development License Agreement

7 28








In re ,Debtor



License and Support Agreement


License Agreement


Purchase Agreement

Elseco LimitedLevel 2, Gate Village 8DIFC Po Box 506639Dubai, Uae

Insurance Agreement

Elseco SASLevel 2, Gate Village 8DIFC Po Box 506639Dubai, UAE

Insurance Agreement

EMC Corporation176 South StreetHopkinton, MA 01748

Agreement

EMC CorporationAttn: Jared Skinner1 River WaySuite 300Houston, TX 77056

License Agreement

Ernst and Young LLP8484 Westpark DriveMclean, VA 22102


Finnlay LLCAttn: David Marshack10540 Farnham DriveBethesda, MD 20814


Finnlay LLCAttn: David Marshack10540 Farnham DriveBethesda, MD 20814


8 28








In re ,Debtor


Flextronics Sales & Marketing(A-P) Ltd., Attn: Manny Marimuthu, DirectorAlexander House, Level 335 Cybercity, Ebene Mauritius

License Agreement

Fortinet, Inc.1090 Kifer RoadSunnyvale, CA 94086


Foster Electric Co. (Hong Kong) Ltd.41 Man Yue Street, Kaiser EstateBlock D, 12th Floor, Kowloon Hong Kong

Trademark License

GCATS Investments LLC11322 Limestone Drive, No. 8Mesquite, TX 75180

Purchase Agreement

GCATS Investments LLCDba Guild Commercial And Telecom7138 Envoy CourtDallas, TX 75247

Purchase Agreement

GCATS Investments LLCDba Guild Commercial And Telecom7138 Envoy CourtDallas, TX 75247

Purchase Agreement

GE Security Canada560 Parkside Drive Unit 410Waterloo, ON N2L 5Z4 Canada

Purchase Agreement

Genband, Inc.Attn: Shauna Martin, EVP and GC3605 East Plano ParkwaySuite 100Plano, TX 75074

Purchase Agreement

Genesys Associates, LLCdba Genesys GroupAttn: Mark Embry, Partner2600 Network Blvd, Suite 330Frisco, TX 75034


GeoSpatial Technologies, Inc.Attn: John Lim, CEO3130 South Harbor BlvdSanta Ana, CA 92704


Gibson, Dunn & Crutcher LLP1050 Connecticut Avenue, NWWashington, DC 20036


9 28








In re ,Debtor


Giesecke & Devriant America Inc.45925 Horseshoe DriveAttn: Steve Reber, CEODulles, VA 20166

Purchase Agreement

Giesecke & Devriant America Inc.45925 Horseshoe DriveAttn: Legal DepartmentDulles, VA 20166

Purchase Agreement

Giesecke & Devriant America Inc.45925 Horseshoe DriveJohn O'Malley, VP Telecom DivisionDulles, VA 20166

Purchase Agreement

Giesecke & Devriant America Inc.45925 Horseshoe DriveAttn: Steve Reber, CEODulles, VA 20166

Purchase Agreement

Giesecke & Devriant America Inc.45925 Horseshoe DriveDulles, VA 20166

Purchase Agreement

Global Aerospace Underwriting Mgrs LtdFitzwilliam House10 St Mary AxeLondon EC3A 8EQ, Great Britain

Insurance Agreement

GoDaddy.com, Inc.Attn: Legal Counsel14455 North Hayden RdSuite 219Scottsdale, AZ 85260

License Agreement

GoldenState Towers LLC2000 Corporate DriveCanonsburg, PA 15317

License Agreement

Grady Meehan12010 Sunset Hills Road, 6th FloorReston, VA 20190


Gregory Midgett12010 Sunset Hills Road, 6th FloorReston, VA 20190


Gregory Midgett12010 Sunset Hills Road, 6th FloorReston, VA 20190


10 28








In re ,Debtor


GSM AssociationDeansgrange Business ParkFourth FloorDublin Ireland

Membership Contract

Guild Commercial & Telecom ServicesAttn: David Bonlie11322 LimestoneP.O. Box 800205Balch Springs, TX 75180

Service Agreement

Harbinger Capital PartnersMaster Fund I, L.P.Attn: Peter Jensen, Vice President450 Park Avenue, 30th FloorNew York, NY 10022

Exclusivity Agreement

Harbinger Capital PartnersMaster Fund I, L.P.Attn: Jeffrey T. Kirshner, Esq555 Madison Avenue, 16th FloorNew York, NY 10022

Credit Agreement

Harbinger Capital Partners SpecialSituations Fund, L.P. andAttn: Jeffrey T. Kirshner, Esq555 Madison Avenue, 16th FloorNew York, NY 10022

Credit Agreement

Hawk ManagementAttn: Wahab Yazdani104 Oak Knoll CourtVolo, IL 60020


HGW Holding Company LPAttn: General Counsel450 Park Avenue, 30th FloorNew York, NY 10022

Customer Contract - Satellite Minutes Agreement

Hiscox Syndicate Ltd1 Great St Helen'sLondon EC3A 6HX Great Britain

Insurance Agreement

Holt Texas Ltd3302 South W. W. White RoadSan Antonio, TX 78222

Purchase Agreement

Honey Advertising, Inc.Attn: Mark Rogan, Principle241 Rushmore AveCarle Place, NY 11514

Service Agreement

11 28








In re ,Debtor


Hughes Network Systems LLC11717 Exploration LaneGermantown, MD 20876




Hughes Network Systems LLCAttn: Matthew Mohebbi, VP andJohn Grimes, Sr Dir Contracts11717 Exploration LaneGermantown, MD 20876


Hughes Network Systems LLCAttn: Mike Lohman andJohn Grimes, Sr Dir Contracts11717 Exploration LaneGermantown, MD 20876


Hughes Network Systems LLCAttn: Matthew Mohebbi, VP andJohn Grimes, Sr Dir Contracts11717 Exploration LaneGermantown, MD 20876






Hughes Network Systems LLCAttn: General Counsel11717 Exploration LaneGermantown, MD 20876

Service Agreement


Service Agreement


Waiver Agreement

12 28








In re ,Debtor



Service Agreement

IBM Credit LLCAttn: Joana ZalcmanNorth Castle DriveArmonk, NY 10504

Leases - Personal Property

ICO Global CommunicationsHoldings LimitedAttn: Timothy M. Dozois, Acting GCICO: 11700 Plaza America Dr., Ste. 1700Reston, VA 20190

Service Agreement

ICO Global Communications HoldingsLimited, et al. and ICO North America Inc.Attn: Timothy M. Dozois, Acting GCICO: 11700 Plaza America Dr., Ste. 1700Reston, VA 20190

Common Interest Agreement

IKON Financial ServicesAttn: Steven Scott1738 Bass RoadMacon, GA 31210

Leases - Personal Property

Infineon Technologies AGAttn: Head of COM SDRAm Campeon 1-12, 85579Neubiberg 11717 Germany








Infineon Technologies AGAttn: Legal DepartmentAm Campeon 1-12, 85579Neubiberg 11717 Germany


13 28








In re ,Debtor








InfoVista CorporationAttn: General Counsel12950 Worldgate DriveSuite 250Herndon, VA 20170

License Agreement

InnerCity FiberNet, LLCAttn: Dir, Bus. Dev. Dark Fiber9202 Briarcrest DriveRowlett, TX 75089

License Agreement

Intec Billing IncorporatedAttn: Wes Hargraves, CFO Americas301 Perimeter Center NorthSuite 200Atlanta, GA 30346

License Agreement


Service Agreement


Purchase Agreement


Service Agreement

14 28








In re ,Debtor


Intelsat CorporationAttn: General Counsel3400 International Drive, NWWashington, DC 20008


Intelsat CorporationAttn: General Counsel3400 International Drive NWWashington, DC 20008

Purchase Agreement

Inter-Hannover60 Fenchurch Street, 4Th FloorLondon EC3M 4AD, UK

Insurance Agreement

International Aerospace Insurance Co.1005 Mark AveCarpinteria, CA 93013

Insurance Agreement

Intrado, Inc.Attn: Legal Department and1601 Day Creed DriveLongmont, CO 80503

Service Agreement

Jakeel Consulting Inc.Attn: Ricky T. Valentine175 Waterfront Street, Suite 300National Harbor, MD 20745

Distribution Agreement

Jakeel Consulting Inc.PO Box 441707Fort Washington, MD 20749


Jeffrey Epstein12010 Sunset Hills Road, 6th FloorReston, VA 20190


Jim Marshburn12010 Sunset Hills Road, 6th FloorReston, VA 20190


K & L Microwave Inc.2250 Northwood Dr.Salisbury, MD 21801

Purchase Agreement

Kastle Systems LLC1501 Wilson BlvdArlington, VA 22209

Purchase Agreement

Kastle Systems of Texas LLC3121 Richmond AvenueHouston, TX 77098

Purchase Agreement

15 28








In re ,Debtor


Kaye Sholer LLP901 15th Street, NWWashington, DC 20005


Kelly Greer Kothmann andNatalie Jane KothmannAttn: Kelly G Kothmann1104 North Highway 377Junction, TX 76849


Kevin Cassidy12010 Sunset Hills Road, 6th FloorReston, VA 20190


Kiln Europe SA66 Rue De La Chauss E D'antin75009 Paris, France

Insurance Agreement

Koolspan, Inc.Attn: Mike Maurer4962 Fairmont AvenueBethesda, MD 20814

Purchase Agreement

LA (Tony) BraunagelPO Box 824Devils Lake, ND 58301


La Reunion Spatiale134 Rue Danton92300 Levallois-Perret, France

Insurance Agreement

Lander County SewerAttn: Legal DepartmentPO Box 144Austin, NV 89310


Larson & Toubro Infotech LtdAttn: M.V. Govindarajan,Head Bus. Ops PES, Shil - Mahape RoadPlot # EL-200 TTC Electric Zone Block IINavi Mumbai 400701 India

License Agreement

Latigo Ranch LLCAttn: Ronald H MayorPO Box 2391Roswell, NM 88202


Lenovo (United States) Inc.1009 Think Place, Bldg 500Morrisville, NC 27560

Purchase Agreement

16 28








In re ,Debtor


Level 3 Communications, LLCAttn: General Counsel1025 Eldorado BlvdBroomfield, CO 80021

Service Agreement

LightSquared LPformerly SkyTerra LPAttn: General Counsel & Dir of Contracts10802 Parkridge BlvdReston, VA 20191

Customer Contract - Satellite Minutes Agreement









M.J. Brunner Inc.Attn: Michael J. Brunner, CEO11 Stanwix Street, 5th FloorPittsburghe, PA 15222

Service Agreement

M/A-Com Inc.Attn: James Teel221 Jefferson Ridge ParkwayLynchburg, VA 24501


MCI Communications Services Inc.Attn Michael Zimmerman, Account Manager22001 Loudoun County ParkwayAshburn, VA 20147

Service Agreement

Media Management LLC1801 Royal Lane Suite 906Dallas, TX 75229

Agreement

17 28








In re ,Debtor


Mehlman Capital Strategies Inc.1750 K Street, NW 3rd FloorWashington, DC 20006


Mehlman Vogel Castagnetti Inc.1341 G Street, NW, Suite 1100Attn: Bruce MehlmanWashington, DC 20005


Meltwaters News Inc.800 W El Camino Real Suite 260Mountain View, CA 94040

Service Agreement

Meltwaters News Inc.800 W El Camino Real Suite 260Mountain View, CA 94040

Service Agreement

Mercer Human Resources Consulting1255 23rd Street NWSuite 500Washington, DC 20037


Merrill Communications LLCOne Merrill CircleSt Paul, MN 55108

Service Agreement

Mformation Technologies379 Thornall Street10th floorEdison, NJ 08837

Agreement

Micro-Ant, Inc.19 Norfolk AvenueSouth Easton, MA 02375


Mitsui Sumitomo Insurance Co. , Ltd.9 Kanda Surugadai 3 ChomeChiyoda-KuTokyo, Japan

Insurance Agreement

Mobile Frontiers LLC5032 North Carlin Springs RoadArlington, VA 22203


Mobile Mini Inc.7420 South Kyrene Road Suite 101Tempe, AZ 85283

Agreement

Mobile Satelite Ventures LP10802 Parkridge BoulevardAttn: General CounselReston, VA 20191


18 28








In re ,Debtor


Munich Reinsurance Company107 Koeniginstrasse80791 Munich, Germany

Insurance Agreement

Neustar Inc.46000 Center Oak PlaceSterling, VA 20166

Service Agreement

Neustar Inc.Attn: General Counsel46000 Center Oak PlaceSterling, VA 20166

Service Agreement

NextG - Com LimitedKnyvett House, The CausewayStaines TWI8 3BA UK

License Agreement

Nisga's Data Systems LLC12020 Sunrise Valley DriveReston, VA 20190


Nisga's Data Systems LLC21434 Falling Rock TerAshburn, VA 20148


Nokia Inc.Attn: Joe Hoerl1950N Stemmons FwySuite 5010Dallas, TX 75207

Agreement

Nokia Siemens Networks US LLCAttn: Crispin Vicars1040 Crown Pointe Parkway, Suite 900Atlanta, GA 30338

Purchase Agreement

Nokia Siemens Networks US LLCAttn: Crispin Vicars1040 Crown Pointe Parkway, Suite 900Atlanta, GA 30338

Purchase Agreement

Oracle USA Inc.Attn: Lease Administrator1001 Sunset BoulevardRocklin, CA 95767


Oxford Global Resources Inc.Attn: Luis Rietti100 Cummings Center, Suite 206LBeverly, MA 01915


19 28








In re ,Debtor


Pamela Johnson Voice Talent249 8th AvenueCramerton, NC 28032

Purchase Agreement

Paris Re America Insurance Company7501 Wisconsin Ave Ste 1360Bethesda, MD 20814

Insurance Agreement

Patni Computer Systems LtdAkruti Softech ParkMDIC Cross Road, No. 21- Andheri EastMumbai, Maharashtra, 400093 India


Patni Computer Systems LtdAkruti Softech ParkMDIC Cross Road, No. 21- Andheri EastMumbai, Maharashtra, 400093 India

License Agreement

Pepco701 Nonth St NWWashington, DC 20068

Agreement

Peter A. Sherman12010 Sunset Hills Road, 6th FloorReston, VA 20190


Pillsbury Winthrop Shaw Pittman LLP2300 N Street, NWWashington, DC 20037


Qualcomm Incorporated5775 Morehouse DriveSan Diego, CA 92121



Purchase Agreement


Purchase Agreement

Qualcomm IncorporatedAttn: Adam Schwenker5775 Morehouse DriveSan Diego, CA 92121

Purchase Agreement

Qualys Inc.1600 Bridge Parkway, Suite 201Redwood Shores, CA 94065

License Agreement

20 28








In re ,Debtor


RE&M Solutions, Inc.dba City Wide Maintenance of DallasAttn: Connie Pinnock10935 Estate Unit 370Dallas, TX 75238

Service Agreement

RedHatAttn: Michael Wood1801 Varsity DriveRaleigh, NC 27606

Subscription Agreement

Renova Data Inc.2221 Peachtree Road, Suite D506Atlanta, GA 30309

Service Agreement

Richards Layton & FingerAttn: C. Stephen BiglerOne Rodney SquarePO Box 551Wilmington, DE 19899


RKF Engineering Solutions, LLCAttn: Phillip A Rubin1229 19th Street, NWWashington, DC 20036



License Agreement



Robert W. Keltgen12010 Sunset Hills Road, 6th FloorReston, VA 20190


RSA Security, LLC174 Middlesex TurnpikeBedford, MA 01730

Purchase Agreement

Ruder Finn301 East 57Th StreetNew York, NY 10022

Service Agreement

Safeguard Privacy ProtectionServices Inc.6744-A Gravel AvenueAlexandria, VA 22310

Service Agreement

21 28








In re ,Debtor


Salesforce.com Inc.Attn: VP, FinanceThe Landmark at One Market Suite 300San Francisco, CA 94105


Salesforce.com Inc.Attn: General CounselThe Landmark at One Market Suite 300San Francisco, CA 94105


SAP America Inc.3999 West Chester PikeNewton Square, PA 19073



License Agreement


Purchase Agreement

Sarantel LimitedUnit 2, Wendel Pointe, Ryle DrivePark Earm SouthWellingbourough NN8 6BA UK


Satec SrlViale Ancona No. 223rd Floor30172 Mestre Venezia, Italy

Insurance Agreement

SBA Structures Inc.Attn: Site Administrator5900 Broken Sound Parkway, NW2nd FlBoca Raton, FL 33487

Antenna Site Agreement

SBA Towers Inc.Attn: Site Administrator5900 Broken Sound Parkway, NW2nd FlBoca Raton, FL 33487

License Agreement

Sciemus Space LtdBuilding A8Cody Technology ParkFarnborough GU14 0LX, Great Britain

Insurance Agreement

Scor Global P&C1 Avenue Du General De Gaulle92074 Paris La DefenseCedex, France

Insurance Agreement

22 28








In re ,Debtor


Securitas Security Services USA Inc.7630 Little River Turnpike, 700Annandale, VA 22003

Service Agreement

Sequoia Communications Corporation15050 Avenue of ScienceSuite 100San Diego, CA 92128

Consulting Services Agreement

SIC Consulting, LLC11718 Bowman Green Drive, Suite 220Reston, VA 20190


Simplexity LLC10790 Parkridge BoulevardSuite 200Reston, VA 20190

Business Agreement

SkyNet Satellite Communications Inc.Attn: Dave Raymond10 Fila Way, Suite No. 505Sparks, MD 21152

Agreement

SkyTerra Communications Inc.c/o HGW Holding Company, L.P.450 Park Avenue, 30th FloorNew York, NY 10022


SkyTerra LPAttn: Beth Creary10802 Parkridge BoulevardReston, VA 20190

Purchase Agreement

Skyterra LPAttn: General Counsel10802 Parkridge BoulevardReston, VA 20190

Exclusivity Agreement

SkyTerra LP and SkyTerraCommunications Inc.and HGW Holding Company LP450 Park Avenue, 30th FloorNew York, NY 10022

Satellite Minutes Agreement

SkyTerra Networks, Inc.10802 Parkridge BoulevardReston, VA 20191




23 28








In re ,Debtor






Sommers Motor Generator Salets101 Woodstock St STavistock, ON N0B 2R0 Canada

Purchase Agreement

Sonoran Systems Inc.Attn: Kevin Anderson2983 E. Vaughn AvenueGilbert, AZ 85234


Sonoran Systems Inc.Attn: David Barnes2983 E. Vaughn AvenueGilbert, AZ 85234

License Agreement

Sonoran Systems LLCAttn: Kevin Anderson2983 E. Vaughn AvenueGilbert, AZ 85234

Purchase Agreement

South Peace Electronics& Communications LtdAttn: Les Urness, Box 486Valley View T0H 3N0 AlbertaCanada


Space Systems/Loral, Inc.Attn: Stephen Smith, Contract Manager &TerreStar-1 Program Manager3825 Fabian WayPalo Alto, CA 94303

Contract for construction and delivery ofTerreStar-1 satellite


Contract for construction and delivery ofTerreStar-2 satellite

Space Systems/Loral, Inc.Attn: Stephen Smith, Contract Manager &TerreStar Program Manager3825 Fabian WayPalo Alto, CA 94303

Satellite Pucrhase and Services Contract

24 28








In re ,Debtor



Service Agreement

Space Systems/Loral, Inc.Attn: Stephen Smith, Contract Manager &TerreStar Program Manager3825 Fabian WayPalo Alto, CA 94303

Service Agreement

Spacetel Consultancy LLCDK Sachdev10289 Jones Hollow RoadVienna, VA 22182


Special Fire Systems Inc521 N Interurban StRichardson, TX 75081

Purchase Agreement

Spirent CommunicationsAttn: Legal Department26750 Aguora RoadCasablanca, CA 91302

Service Agreement

Standard Insurance Company4200 Parliament Place, Suite 550Lanham, MD 20706

Insurance Agreement

Strategic Modeling Solutions LLCAttn: Pete Bade14074 Eagle Chase CircleChantilly, VA 20151


SunTrust BankAttn: Linda Jameson25 Park Place, NEAtlanta, GA 30303

Bank Services Agreement

SWSG Construction Management Inc.1821 Michael Faraday Drive, Suite 302Reston, VA 20190

Service Agreement

Syniverse Technologies Inc.8125 Highwoods Palm WayTampa, FL 33647

Service Agreement

Telesat Canada1601 Telesat CourtOttawa, ON K1P 1H4 Canada


25 28








In re ,Debtor


Telesat Canada1601 Telesat CourtAttn: Elaine RobichaudOttawa, ON K1P 1H4 Canada


Telx Dallas LLCAttn: J. Todd Raymond, Esq.President and COO1 State Street, 21st FloorNew York, NY 10004

License Agreement

Telx Dallas LLCAttn: J. Todd Raymond, Esq.President and COO1 State Street, 21st FloorNew York, NY 10004

License Agreement

Telx Dallas LLCAttn: J. Todd Raymond, Esq.President and COO1 State Street 21st FloorNew York, NY 10004

License Agreement

Telx Dallas LLCAttn: J. Todd Raymond, Esq.President and COO1 State Street, 12th FloorNew York, NY 10004

License Agreement

TerreStar CorporationAttn: Douglas Brandon12010 Sunset Hills Road, 6th FloorReston, VA 20190

Stock Purchase Agreement

TerreStar CorporationAttn: Douglas Brandon12010 Sunset Hills Road, 6th FloorReston, VA 20190

Stock Purchase Agreement

The Telx Group Inc.Attn: J. Todd Raymond, Esq.President and COO1 State Street, 12th FloorNew York, NY 10004

License Agreement

The Telx Group Inc.Attn: J. Todd Raymond, Esq.President and COO17 State Street, 33rd FloorNew York, NY 10004

License Agreement

26 28








In re ,Debtor


Theilen LLCAttn: Anthony Lodato12587 Clover Hill DriveWest Friendship, MD 21794


Thomson Fin Corp SvcsThomson ReutersAttn: Contract Administration3 Times Square, 15th FloorNew York, NY 10036

Service Agreement

Thomson Reuters195 BroadwayNew York, NY 10007

Purchase Agreement

Tokio Marine & Nichido Fire Ins Co. Ltd2-1 Marunouchi, 1-ChomeChiyoda-KuTokyo 100-8050 Japan

Insurance Agreement

Torus Insurance (Europe) AGfka Glacier Insurance Ltd.Attn: Morten Pahle88 Leadenhall StreetLondon EC3A 3BP, Great Britain

Insurance Agreement

TotalMobile, Inc.Attn: Kent Hibbard, Mobile Solution Engr24 Lyman StreetSuite 100Westborough, MA 01581

Customer Contract - Product Trial Agreement

U.S. Department of Justice andthe U.S. Department of Homeland SecurityDepartment of Homeland Security3801 Nebraska Ave, NWWashington, DC 20528

Agreement

Unistar-Sparco Computers, Inc.Attn: Eduardo Perez7089 Ryburn DriveMillington, TN 38053

Reseller Agreement

United Concordia4401 Deer Path RdHarrisburg, PA 17110

Insurance Agreement

United Radio Inc. dba BlueStarAttn: Legal Department3345 Point Pleasant RoadHebron, KY 41048


27 28








In re ,Debtor


US Defense Information Systems AgencyAttn: GE2 / Defense InformationSystems AgencyP.O. Box 4502Arlington, VA 22204-4502


USA Tower Inc.Attn: Charles Whitehead310 US 13 & 17 SouthWindsor, NC 27983


Vincent Loiacono12010 Sunset Hills Road, 6th FloorReston, VA 20190

Severance Agreement

Vision Service PlanFella # 73785Po Box 60000San Francisco, CA 94160-3785

Insurance Agreement

Watkins SyndicateSt Helen's1 UndershaftLondon EC3A 8EE UK

Insurance Agreement

Welch and Rushe Inc.Attn: Shawna Brady391 Prince Georges BoulevardUpper Marlboro, MD 20774

Maintenance Agreement

Wells Fargo Financial Services800 Walnut Mac F4031-050Des Moines, IA 50309

Financial Leasing

Wireless Facilities Inc.Attn: Legal DepartmentBridge Pointe Corporate Center4810 Eastgate MallSan Diego, CA 92121

Service Agreement

Xl Specialty Insurance CompanyDept: RegulatoryAttn: John R Glancy505 Eagleview Blvd Suite 100Exton, PA 19341-0636

Insurance Agreement

28 28


}bk1{Schedule H - Codebtors}bk{

In re ,Debtor


B6H (Official Form 6H) (12/07)

Provide the information requested concerning any person or entity, other than a spouse in a joint case, that is also liable on any debts listedby debtor in the schedules of creditors. Include all guarantors and co-signers. If the debtor resides or resided in a community property state,commonwealth, or territory (including Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Puerto Rico, Texas, Washington, orWisconsin) within the eight year period immediately preceding the commencement of the case, identify the name of the debtor's spouse and ofany former spouse who resides or resided with the debtor in the community property state, commonwealth, or territory. Include all names usedby the nondebtor spouse during the eight years immediately preceding the commencement of this case. If a minor child is a codebtor or a creditor, state the child's initials and the name and address of the child's parent or guardian, such as "A.B., a minor child, by John Doe, guardian." Do not disclose the child's name. See, 11 U.S.C. §112 and Fed. R. Bankr. P. 1007(m).

Check this box if debtor has no codebtors.

NAME AND ADDRESS OF CODEBTOR NAME AND ADDRESS OF CREDITOR

continuation sheets attached to Schedule of Codebtors

SCHEDULE H - CODEBTORS


0

New ICO Satellite Services, G.P.2300 Carillon PointKirkland, WA 98033

Sprint Nextel Corporationc/o Kirkpatrick & LockhartAttn: E. Rusnak, D. Case, M. MartinWashington, DC 20006 Litigation

TerreStar Corporation12010 Sunset Hills Road6th FloorReston, VA 20190

Elektrobit, Inc.Attn: Jani LyrintzsisGeneral Manager22745 29th Drive SE, Suite 200Bothell, WA 98021 Various Contracts

TerreStar License Inc.12010 Sunset Hills Road6th FloorReston, VA 20190

U.S. Bank National Associationas trustee60 Livingston AveSaint Paul, MN 55107-2292 Guaranty - Senior Secured Notes

TerreStar License Inc.12010 Sunset Hills Road6th FloorReston, VA 20190

Deutsche Bank National Trust Compan222 South Riverside Plaza25th FloorChicago, IL 60606 Guaranty - Senior Exchangeable Notes

TerreStar National Services Inc.11951 Freedom Drive13th FloorReston, VA 20190


TerreStar National Services Inc.11951 Freedom Drive13th FloorReston, VA 20190

Deutsche Bank National Trust Compan2200 South Riverside Plaza25th FloorChicago, IL 60606 Guaranty - Senior Exchangeable Notes

TerreStar Networks (Canada) Inc.1035 Ave. Laurier West2nd FloorOutremont, Canada QC-H2V-2L1


TerreStar Networks Holdings(Canada) Inc.1035 Ave. Laurier West, 2nd FloorOutremont, Canada, QC-H2V-2L1



B6 Declaration (Official Form 6 - Declaration). (12/07)

United States Bankruptcy CourtSouthern District of New York

In re TerreStar Networks Inc. Case No. 10-15446 (SHL)Debtor(s) Chapter 11

DECLARATION CONCERNING DEBTOR'S SCHEDULES

DECLARATION UNDER PENALTY OF PERJURY ON BEHALF OF CORPORATION OR PARTNERSHIP

I, the Chief Financial Officer of the corporation named as debtor in this case, declare under penalty ofperjury that I have read the foregoing summary and schedules, consisting of 91 sheets, and that they are trueand correct to the best of my knowledge, information, and belief.

Date November 8, 2010 Signature /s/ Vincent LoiaconoVincent LoiaconoChief Financial Officer

Penalty for making a false statement or concealing property: Fine of up to $500,000 or imprisonment for up to 5 years or both.18 U.S.C. §§ 152 and 3571.

Software Copyright (c) 1996-2010 Best Case Solutions - Evanston, IL - bestcase.com Best Case Bankruptcy


THIS IS NOT A SOLICITATION OF ACCEPTANCE OR REJECTION OF THE PLAN. ACCEPTANCES OR REJECTIONS MAY NOT BE SOLICITED UNTIL A DISCLOSURE STATEMENT HAS BEEN APPROVED BY THE BANKRUPTCY COURT. THIS DISCLOSURE STATEMENT IS BEING SUBMITTED FOR APPROVAL BUT HAS NOT BEEN APPROVED BY THE COURT.

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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

------------------------------------------------------------x : In re : Chapter 11 Case Nos. : LORAL SPACE : LEAD CASE 03-41710 (RDD) & COMMUNICATIONS LTD., et al. : 03-41709 (RDD) through : 03-41728 (RDD) : (Jointly Administered) : Debtors. : ------------------------------------------------------------x

DISCLOSURE STATEMENT FOR DEBTORS’ FIRST AMENDED JOINT PLAN OF REORGANIZATION

UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

WEIL, GOTSHAL & MANGES LLP 767 Fifth Avenue New York, New York 10153 (212) 310-8000

Attorneys for the Debtors as Debtors and Debtors in Possession

Dated: October 22, 2004

11-10612-shl Doc 427-10 Filed 03/16/12 Entered 03/16/12 16:44:38 Exhibit M Pg 1 of 104

TABLE OF CONTENTS

Page

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I. INTRODUCTION.................................................................................................................1

A. HOLDERS OF CLAIMS ENTITLED TO VOTE........................................................2

B. VOTING PROCEDURES..........................................................................................3

C. CONFIRMATION HEARING...................................................................................3

II. OVERVIEW OF THE PLAN.................................................................................................5

III. GENERAL INFORMATION.................................................................................................9

A. OVERVIEW OF CHAPTER 11.................................................................................9

B. DESCRIPTION AND HISTORY OF BUSINESS..................................................... 10 1. The Debtors................................................................................................ 10

2. Corporate Structure ..................................................................................... 11

3. Businesses .................................................................................................. 11

a. Satellite Services............................................................................. 11

b. Satellite Manufacturing and Technology........................................... 12

4. History ....................................................................................................... 12

C. PREPETITION CAPITAL STRUCTURE................................................................ 13 1. Prepetition Bank Debt and Other Indebtedness .............................................. 13

a. Satellite Credit Agreement............................................................... 13

b. LSC Amended Credit Agreement ..................................................... 14

c. Japanese Export-Import Facility ....................................................... 14

d. Orion Indebtedness.......................................................................... 15

e. Ltd. Indebtedness ............................................................................ 15

2. Equity......................................................................................................... 15 a. Common Stock ............................................................................... 15

b. Series C Convertible Preferred Stock................................................ 15

c. Series D Convertible Preferred Stock................................................ 16

D. PREPETITION INVESTMENT IN GLOBALSTAR-RELATED ACTIVITIES.......................................................................................................... 16

E. SECURITIES LITIGATION.................................................................................... 16

F. EVENTS LEADING TO THE COMMENCEMENT OF THE CHAPTER 11 CASES............................................................................................. 17

IV. EVENTS DURING THE CHAPTER 11 CASES................................................................... 18

A. BERMUDA PROCEEDINGS.................................................................................. 18

B. APPOINTMENT OF THE CREDITORS’ COMMITTEE.......................................... 18

C. STABILIZATION OF BUSINESS........................................................................... 19


TABLE OF CONTENTS

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1. First Day Orders.......................................................................................... 19

2. Use of Cash Collateral................................................................................. 19

3. Employee Relations ..................................................................................... 20

a. Wages, Compensation and Employee Benefits .................................. 20

b. Key Employee Retention Program.................................................... 20

4. Assumption or Rejection of Executory Contracts and Unexpired Leases ........................................................................................................ 21

5. Claims Process and Bar Date........................................................................ 21 a. Schedules and Statements ................................................................ 21

b. Bar Date ......................................................................................... 21

D. INTELSAT SALE................................................................................................... 21

E. SIGNIFICANT SETTLEMENTS............................................................................. 22

1. Satellite Customers...................................................................................... 22

a. JCAB/JMA ..................................................................................... 23

b. APT............................................................................................... 23 c. DirecTV 7S..................................................................................... 24

d. MBCO............................................................................................ 25

e. XTAR ............................................................................................ 25

f. ChinaSat......................................................................................... 26

g. WildBlue ........................................................................................ 27

2. Launch Services Providers ........................................................................... 27

a. BLS and Sea Launch....................................................................... 27 b. Lockheed Martin ............................................................................. 28

F. FAILURE OF EDS................................................................................................. 28

G. NEW SATELLITE ORDERS.................................................................................. 28

1. DirecTV ..................................................................................................... 28

2. Galaxy 16 Program...................................................................................... 28

H. DEVELOPMENT OF BUSINESS PLAN AND PLAN NEGOTIATIONS.................. 29

V. THE PLAN OF REORGANIZATION.................................................................................. 29

A. STRUCTURE OF NEW LORAL............................................................................. 29 B. CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY

INTERESTS........................................................................................................... 30

1. Administrative Expense Claims .................................................................... 30

2. Compensation and Reimbursement Claims.................................................... 30


TABLE OF CONTENTS

(continued) Page

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3. Indenture Trustee Fees................................................................................. 31

4. Priority Tax Claims ..................................................................................... 32

5. Class 1 – Other Priority Claims .................................................................... 32

6. Class 2 – Secured Tax Claims ...................................................................... 32

7. Class 3 – Secured Claims ............................................................................. 33

8. Class 4 – Orion General Unsecured Claims ................................................... 33

9. Class 5 – Loral General Unsecured Claims .................................................... 34

a. Alternative A .................................................................................. 34 b. Alternative B................................................................................... 36

10. Class 5A – Ltd. General Unsecured Claims ................................................... 36

a. Alternative A .................................................................................. 37

b. Alternative B................................................................................... 37

11. Class 6 – Ltd. Preferred Stock Interests......................................................... 38

12. Class 7 – Other Equity Interests.................................................................... 38

13. Class 8 – Securities Litigation Claims ........................................................... 38 C. SECURITIES TO BE ISSUED UNDER THE PLAN ................................................ 38

1. New Loral Common Stock........................................................................... 39

2. New FSS Notes........................................................................................... 39

3. Additional New FSS Notes .......................................................................... 39

4. Subscription Rights ..................................................................................... 40

5. Options ....................................................................................................... 40

D. THE RIGHTS OFFERING...................................................................................... 41 1. Issuance of Subscription Rights.................................................................... 41

2. Exercise of Subscription Rights.................................................................... 42

3. Transfer Restriction; Revocation .................................................................. 43

4. Backstop Purchaser ..................................................................................... 43

5. Recalculation as of the Subscription Expiration Date ..................................... 43

6. Subsequent Adjustments .............................................................................. 44

E. METHOD OF DISTRIBUTION UNDER THE PLAN.............................................. 44

1. Distributions ............................................................................................... 44 2. Delivery of Distributions ............................................................................. 45

F. TIMING OF DISTRIBUTIONS UNDER THE PLAN............................................... 46

G. PROVISIONS FOR TREATMENT OF DISPUTED CLAIMS................................... 48


TABLE OF CONTENTS

(continued) Page

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1. Resolution of Disputed Claims ..................................................................... 48

2. Estimation of Disputed Claims ..................................................................... 49

H. TREATMENT OF FEES FOR JPLS UNDER THE PLAN ........................................ 49

I. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES................................................................................................................. 50


2. Survival of Certain Obligations .................................................................... 51 a. Corporate Indemnities ..................................................................... 51

b. Insurance Policies............................................................................ 52

c. Compensation and Benefit Programs ................................................ 52

3. Cure of Defaults.......................................................................................... 52

4. Assignment ................................................................................................. 52

J. THE RESTRUCTURING TRANSACTIONS........................................................... 53

K. SUBSTANTIVE CONSOLIDATION OF THE DEBTORS....................................... 54 1. Substantive Consolidation ............................................................................ 54

2. Compromise and Settlement of Certain Substantive Consolidation Issues ......................................................................................................... 54

3. Effectuation of Substantive Consolidation..................................................... 55

L. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THE PLAN...................... 56

M. IMPLEMENTATION AND EFFECT OF CONFIRMATION OF THE PLAN..................................................................................................................... 57

N. DISCHARGE AND INJUNCTION.......................................................................... 57

O. SUMMARY OF OTHER PROVISIONS OF THE PLAN.......................................... 58

1. Intercompany Claims ................................................................................... 58

a. Debtor Intercompany Claims ............................................................ 58

b. Non-Debtor Intercompany Claims .................................................... 59

2. Retiree Benefits........................................................................................... 59

3. Certificates of Incorporation and Bylaws ...................................................... 59

4. Amendment or Modification of the Plan ....................................................... 59 5. Solicitation of the Plan................................................................................. 60

6. Releases of Representatives ......................................................................... 60

7. Cancellation and Surrender of Existing Securities and Agreements................. 60

8. Section 1145 Exemption .............................................................................. 61

9. Registration Rights Agreement..................................................................... 61


TABLE OF CONTENTS

(continued) Page

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10. Revocation or Withdrawal of the Plan........................................................... 61

11. Dissolution of Statutory Committee of Unsecured Creditors........................... 61

12. Indenture Trustee as Claim Holder ............................................................... 62

13. Avoidance Actions ...................................................................................... 62

14. Reservation of Rights .................................................................................. 62

15. Effectuating Documents and Further Transactions ......................................... 62

16. Corporate Action ......................................................................................... 63

17. Exculpation................................................................................................. 63 18. Plan Supplement ......................................................................................... 63

VI. CONFIRMATION AND CONSUMMATION PROCEDURE............................................... 64

A. SOLICITATION OF VOTES................................................................................... 64

B. THE CONFIRMATION HEARING......................................................................... 64

C. CONFIRMATION.................................................................................................. 65

1. Acceptance ................................................................................................. 65

2. Unfair Discrimination and Fair and Equitable Tests....................................... 65 a. No Unfair Discrimination ................................................................ 66

b. Fair and Equitable ........................................................................... 66

3. Feasibility ................................................................................................... 66

4. Best Interests Test ....................................................................................... 67

D. CONSUMMATION................................................................................................ 68

VII. CORPORATE GOVERNANCE OF THE REORGANIZED DEBTORS................................ 69

A. DIRECTORS AND OFFICERS OF THE REORGANIZED DEBTORS..................... 69 1. New Loral Board......................................................................................... 69

2. Reorganized Debtors’ Boards....................................................................... 69

3. Officers ...................................................................................................... 69

4. Management of the Reorganized Debtors...................................................... 69

B. CONTINUATION OF EXISTING BENEFIT PLANS AND D&O INSURANCE ......................................................................................................... 70

1. Benefit Plans............................................................................................... 70

2. D&O Insurance ........................................................................................... 70 VIII. SECURITIES LAWS MATTERS........................................................................................ 70

A. BANKRUPTCY CODE EXEMPTIONS FROM REGISTRATION REQUIREMENTS.................................................................................................. 70

B. REGISTRATION RIGHTS AGREEMENT.............................................................. 73


TABLE OF CONTENTS

(continued) Page

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IX. VALUATION..................................................................................................................... 74

A. OVERVIEW........................................................................................................... 74

B. Valuation Methodology ........................................................................................... 75

1. Publicly Traded Company Analysis .............................................................. 75

2. Discounted Cash Flow Analysis ................................................................... 76

3. Precedent Transactions Analysis .................................................................. 77

X. CERTAIN RISK FACTORS TO BE CONSIDERED............................................................ 77

A. CERTAIN BANKRUPTCY LAW CONSIDERATIONS........................................... 78 1. Risk of Non-Confirmation of the Plan........................................................... 78

2. Non-Consensual Confirmation ..................................................................... 78

3. Risk of Non-Occurrence of the Effective Date............................................... 78

B. RISKS TO RECOVERY BY HOLDERS OF ORION GENERAL UNSECURED CLAIMS, LORAL GENERAL UNSECURED CLAIMS AND LTD. GENERAL UNSECURED CLAIMS...................................................... 78

1. Variances from Projections .......................................................................... 79 2. Significant Holders...................................................................................... 79

3. Lack of Trading Market............................................................................... 79

4. Dividend Policies ........................................................................................ 80

5. Competitive Conditions ............................................................................... 80

6. Governmental Regulation ............................................................................ 80

a. Export Controls ............................................................................... 80

b. Other Regulation ............................................................................. 80 7. Operational Failures .................................................................................... 81

a. Launch Failures............................................................................... 81

b. In-orbit Failures .............................................................................. 81

8. Hart-Scott-Rodino Act................................................................................. 81

9. Unforeseen Events....................................................................................... 81

10. Other Risk Factors....................................................................................... 81

XI. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN.................... 82

A. CONSEQUENCES TO THE DEBTORS.................................................................. 82 1. Cancellation of Debt.................................................................................... 83

2. Limitations on NOL Carryforwards and Other Tax Attributes ........................ 84

a. General Section 382 Limitation ........................................................ 84

b. Built-In Gains and Losses................................................................ 84


TABLE OF CONTENTS

(continued) Page

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c. Special Bankruptcy Exception .......................................................... 85

3. Alternative Minimum Tax............................................................................ 86

4. Implementation of the Restructuring Transactions ......................................... 86

5. Issuance of the New FSS Notes .................................................................... 87

B. CONSEQUENCES TO THE HOLDERS OF CERTAIN CLAIMS............................. 87

1. Gain or Loss – Generally ............................................................................. 88

2. Holders of Ltd. General Unsecured Claims that Constitute “Securities”................................................................................................. 89

3. Holders of Orion General Unsecured Claims that Constitute “Securities”................................................................................................. 90

4. Distributions in Discharge of Accrued but Unpaid Interest............................. 91

5. Ownership and Disposition of the New FSS Notes and Additional New FSS Notes........................................................................................... 91

a. Interest and Original Issue Discount ................................................. 91

b. Acquisition Premium on Additional New FSS Notes ......................... 92 c. Treatment of Certain High Yield Discount Obligations ...................... 92

6. Exercise or Lapse of the Subscription Rights................................................. 92

7. Ownership and Disposition of the New Loral Common Stock ........................ 93

8. New Loral Common Stock and New FSS Notes Held in Trust for Disputed Claims .......................................................................................... 93

9. Information Reporting and Withholding........................................................ 94

XII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN................................................................................................................................. 95

A. LIQUIDATION UNDER CHAPTER 7.................................................................... 95

B. ALTERNATIVE PLAN OF REORGANIZATION ................................................... 95

XIII. CONCLUSION AND RECOMMENDATION...................................................................... 96

EXHIBIT A Plan of Reorganization

EXHIBIT B Disclosure Statement Order

EXHIBIT C Loral’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003

EXHIBIT D Loral’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 EXHIBIT E Loral’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004

EXHIBIT F Projected Financial Information

EXHIBIT G Liquidation Analysis


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I. INTRODUCTION

Loral Space & Communications Ltd. (“Ltd.”), Loral Space & Communications Corporation (“Loral Corp.”), Loral SpaceCom Corporation (“SpaceCom”), Loral Satellite, Inc. (“Loral Satellite”), Space Systems/Loral, Inc. (“SS/L”), Loral Communications Services, Inc., Loral Ground Services, L.L.C., Loral Orion, Inc., Loral CyberStar Global Services, Inc., Loral Cyberstar GmbH, Loral CyberStar Japan, Inc., Loral CyberStar Services, Inc., Loral CyberStar Holdings, L.L.C., Loral CyberStar International, Inc., Loral Asia Pacific Satellite (HK) Limited, SS/L Export Corporation, CyberStar, L.P., CyberStar, L.L.C., Loral Skynet Network Services, Inc., and Loral Licensing Ltd. (collectively, the “Debtors” and, together with their non-debtor affiliates, “Loral”) submit this Disclosure Statement pursuant to section 1125 of title 11 of the United States Code (the “Bankruptcy Code”) to holders of equity interests in and claims against the Debtors in connection with (i) the solicitation of acceptances of the Debtors’ First Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated October 22, 2004, as the same may be amended (the “Plan”), filed by the Debtors with the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) and (ii) the hearing to consider confirmation of the Plan (the “Confirmation Hearing”) scheduled for January 31, 2005 at 10:00 a.m. (prevailing Eastern Time). Unless otherwise defined herein, all capitalized terms contained herein have the meanings ascribed to them in the Plan.

Attached as Exhibits to this Disclosure Statement are copies of the following documents:

• The Plan (Exhibit A);

• Order of the Bankruptcy Court dated [__________ __, 2004] (the “Disclosure Statement Order”) approving, among other things, this Disclosure Statement and establishing certain procedures with respect to the solicitation and tabulation of votes to accept or reject the Plan (attached without exhibits) (Exhibit B);

• Loral’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (attached without exhibits) (Exhibit C);

• Loral’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 (attached without exhibits) (Exhibit D);

• Loral’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 (attached without exhibits) (Exhibit E);

• Loral’s Projected Financial Information (Exhibit F); and

• Loral’s Liquidation Analysis (Exhibit G).

A Ballot for the acceptance or rejection of the Plan is enclosed with the Disclosure Statement submitted to the holders of Claims that the Debtors believe may be entitled to vote to accept or reject the Plan. In addition, all holders of Claims against Orion and its subsidiaries are receiving a Subscription Form for purposes of the Rights Offering described in Section V.D. of this Disclosure Statement.


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On [___________ __, 2004], after notice and a hearing, the Bankruptcy Court signed the Disclosure Statement Order, approving this Disclosure Statement as containing adequate information of a kind and in sufficient detail to enable hypothetical, reasonable investors typical of the Debtors’ creditors to make an informed judgment whether to accept or reject the Plan. APPROVAL OF THIS DISCLOSURE STATEMENT DOES NOT, HOWEVER, CONSTITUTE A DETERMINATION BY THE BANKRUPTCY COURT AS TO THE FAIRNESS OR MERITS OF THE PLAN.

The Disclosure Statement Order, a copy of which is annexed hereto as Exhibit B, sets forth in detail the deadlines, procedures and instructions for voting to accept or reject the Plan and for filing objections to confirmation of the Plan, the record date for voting purposes and the applicable standards for tabulating Ballots. In addition, detailed voting instructions accompany each Ballot. Each holder of a Claim entitled to vote on the Plan should read the Disclosure Statement, the Plan, the Disclosure Statement Order and the instructions accompanying the Ballots in their entirety before voting on the Plan. These documents contain important information concerning the classification of Claims and Equity Interests for voting purposes and the tabulation of votes. No solicitation of votes to accept the Plan may be made except pursuant to section 1125 of the Bankruptcy Code.

A. HOLDERS OF CLAIMS ENTITLED TO VOTE

Pursuant to the provisions of the Bankruptcy Code, only holders of allowed claims or equity interests in classes of claims or equity interests that are impaired and that are not deemed to have rejected the Plan are entitled to vote to accept or reject a proposed plan. Classes of claims or equity interests in which the holders of claims or equity interests are unimpaired under a chapter 11 plan are deemed to have accepted the plan and are not entitled to vote to accept or reject the plan. For a detailed description of the treatment of Claims and Equity Interests under the Plan, see Section V. of this Disclosure Statement.

Classes 2, 4, 5 and 5A of the Plan, consisting of the Secured Tax Claims, the Orion General Unsecured Claims, the Loral General Unsecured Claims and the Ltd. General Unsecured Claims, respectively, are impaired and, to the extent Claims in such Classes are Allowed Claims, the holders of such Claims will receive distributions under the Plan. As a result, holders of Claims in those Classes are entitled to vote to accept or reject the Plan. Classes 6, 7 and 8 of the Plan, consisting of the Ltd. Preferred Stock Interests, the Other Equity Interests and the Securities Litigation Claims, respectively, will not receive any distributions under the Plan. As a result, holders of Claims and Equity Interests in those Classes are conclusively presumed to have rejected the Plan. Classes 1 and 3 of the Plan, consisting of the Other Priority Claims and the Secured Claims, respectively, are unimpaired. As a result, holders of Claims in those Classes are conclusively presumed to have accepted the Plan.

The Bankruptcy Code defines “acceptance” of a plan by a class of claims as acceptance by creditors in that class that hold at least two-thirds in dollar amount and more than one-half in number of the claims that cast ballots for acceptance or rejection of the plan. For a more detailed description of the requirements for conf irmation of the Plan, see Section VI. of this Disclosure Statement.

If a Class of Claims entitled to vote on the Plan rejects the Plan, the Debtors reserve the right to amend the Plan or request confirmation of the Plan pursuant to section 1129(b) of the Bankruptcy Code or both. Section 1129(b) permits the confirmation of a plan of reorganization notwithstanding the nonacceptance of a plan by one or more impaired classes of claims or equity interests. Under that section, a plan may be confirmed by a bankruptcy court if it does not


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“discriminate unfairly” and is “fair and equitable” with respect to each nonaccepting class. For a more detailed description of the requirements for confirmation of a nonconsensual plan, see Section VI.C.2. of this Disclosure Statement.

With respect to those Classes of Claims and Equity Interests that are deemed to have rejected the Plan, i.e., Class 6 (Ltd. Preferred Stock Interests), Class 7 (Other Equity Interests) and Class 8 (Securities Litigation Claims), the Debtors currently intend to request confirmation of the Plan pursuant to section 1129(b) of the Bankruptcy Code.

B. VOTING PROCEDURES

If you are entitled to vote to accept or reject the Plan, a Ballot is enclosed for the purpose of voting on the Plan. If you hold Claims in more than one Class and you are entitled to vote Claims in more than one Class, you will receive separate Ballots, which must be used for each separate Class of Claims. Please vote and return your Ballot(s) to:

Loral Space & Communications Ltd., et al. Ballot Processing c/o Bankruptcy Services, LLC 757 Third Avenue, 3rd Floor New York, New York 10017

DO NOT RETURN YOUR NOTES OR SECURITIES WITH YOUR BALLOT.

TO BE COUNTED, YOUR BALLOT INDICATING ACCEPTANCE OR REJECTION OF THE PLAN MUST BE RECEIVED BY NO LATER THAN 4:00 P.M. (PREVAILING EASTERN TIME) ON JANUARY 24, 2005. ANY EXECUTED BALLOT RECEIVED THAT DOES NOT INDICATE EITHER AN ACCEPTANCE OR A REJECTION OF THE PLAN SHALL BE DEEMED TO CONSTITUTE AN ACCEPTANCE OF THE PLAN.

Any Claim in an impaired Class as to which an objection or request for estimation is pending or which is listed on the Schedules as unliquidated, disputed or contingent is not entitled to vote unless the holder of such Claim has obtained an order of the Bankruptcy Court temporarily allowing such Claim for the purpose of voting on the Plan.

Pursuant to the Disclosure Statement Order, the Bankruptcy Court set [____ __, 2004] as the record date for voting on the Plan. Accordingly, only holders of record as of [______ __, 2004] that otherwise are entitled to vote under the Plan will receive a Ballot and may vote on the Plan.

If you are a holder of a Claim entitled to vote on the Plan and you did not receive a Ballot, received a damaged Ballot or lost your Ballot, or if you have any questions concerning the Disclosure Statement, the Plan or the procedures for voting on the Plan, please call Bankruptcy Services, LLC at (646) 282-2500.

C. CONFIRMATION HEARING

Pursuant to section 1128 of the Bankruptcy Code, the Confirmation Hearing will be held on January 31, 2005 at 10:00 a.m. (prevailing Eastern Time) before the Honorable Robert D. Drain, Room 610, United States Bankruptcy Court for the Southern District of New York, Alexander Hamilton House, One Bowling Green, New York, New York 10004. The Bankruptcy Court has directed that objections, if any, to confirmation of the Plan be served and filed so that they are


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received on or before January 24, 2005 at 4:00 p.m. (prevailing Eastern Time) in the manner described below in Section VI.B. of the Disclosure Statement. The Confirmation Hearing may be adjourned from time to time by the Bankruptcy Court without further notice except for the announcement of the adjournment date made at the Confirmation Hearing or at any subsequent adjourned Confirmation Hearing.

THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF THE DATE HEREOF UNLESS ANOTHER TIME IS SPECIFIED HEREIN, AND THE DELIVERY OF THIS DISCLOSURE STATEMENT SHALL NOT CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION STATED SINCE THE DATE HEREOF. HOLDERS OF CLAIMS SHOULD CAREFULLY READ THIS DISCLOSURE STATEMENT IN ITS ENTIRETY, INCLUDING THE PLAN, PRIOR TO VOTING ON THE PLAN.

FOR THE CONVENIENCE OF HOLDERS OF CLAIMS AND EQUITY INTERESTS, THIS DISCLOSURE STATEMENT SUMMARIZES THE TERMS OF THE PLAN. IF ANY INCONSISTENCY EXISTS BETWEEN THE PLAN AND THE DISCLOSURE STATEMENT, THE TERMS OF THE PLAN ARE CONTROLLING. THE DISCLOSURE STATEMENT MAY NOT BE RELIED ON FOR ANY PURPOSE OTHER THAN TO DETERMINE WHETHER TO VOTE TO ACCEPT OR REJECT THE PLAN, AND NOTHING STATED HEREIN SHALL CONSTITUTE AN ADMISSION OF ANY FACT OR LIABILITY BY ANY PARTY, OR BE ADMISSIBLE IN ANY PROCEEDING INVOLVING THE DEBTORS OR ANY OTHER PARTY, OR BE DEEMED CONCLUSIVE EVIDENCE OF THE TAX OR OTHER LEGAL EFFECTS OF THE PLAN ON THE DEBTORS OR HOLDERS OF CLAIMS OR EQUITY INTERESTS. CERTAIN OF THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT, BY NATURE, ARE FORWARD-LOOKING AND CONTAIN ESTIMATES AND ASSUMPTIONS. THERE CAN BE NO ASSURANCE THAT SUCH STATEMENTS WILL BE REFLECTIVE OF ACTUAL OUTCOMES. ALL HOLDERS OF CLAIMS SHOULD CAREFULLY READ AND CONSIDER FULLY THE RISK FACTORS SET FORTH IN SECTION X. OF THIS DISCLOSURE STATEMENT BEFORE VOTING TO ACCEPT OR REJECT THE PLAN.

SUMMARIES OF CERTAIN PROVISIONS OF AGREEMENTS REFERRED TO IN THIS DISCLOSURE STATEMENT DO NOT PURPORT TO BE COMPLETE AND ARE SUBJECT TO, AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO, THE FULL TEXT OF THE APPLICABLE AGREEMENT, INCLUDING THE DEFINITIONS OF TERMS CONTAINED IN SUCH AGREEMENT.

THE DEBTORS BELIEVE THAT THE PLAN WILL ENABLE THEM TO REORGANIZE SUCCESSFULLY AND ACCOMPLISH THE OBJECTIVES OF CHAPTER 11 AND THAT ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS OF THE DEBTORS AND THEIR CREDITORS.

THE DEBTORS URGE CREDITORS TO VOTE TO ACCEPT THE PLAN. THE CREDITORS’ COMMITTEE IN THESE CASES ALSO STRONGLY ENCOURAGES ALL CREDITORS TO VOTE IN FAVOR OF THE PLAN. THE CREDITORS’ COMMITTEE WAS ACTIVELY INVOLVED IN THE FORMULATION OF THE PLAN AND BELIEVES THAT THE PLAN PROVIDES THE HIGHEST AND BEST RECOVERIES FOR THE DEBTORS’ UNSECURED CREDITORS.


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II. OVERVIEW OF THE PLAN

The following table briefly summarizes the classification and treatment of Claims and Equity Interests under the Plan:

SUMMARY OF CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS UNDER THE PLAN

Class

Type of Claim or Equity Interest

Treatment

Estimated Recovery

-- Administrative

Expense Claims Unimpaired; paid in full, in Cash, or in accordance with the terms and conditions of transactions or agreements relating to obligations incurred in the ordinary course of business during the pendency of the Reorganization Cases or assumed by the Debtors in Possession.

100%

-- Compensation and Reimbursement Claims

Unimpaired; paid in full, in Cash, in such amounts as are Allowed by the Bankruptcy Court.

100%

-- Priority Tax Claims Unimpaired; except to the extent that a holder agrees to different treatment, at the option of the Debtors, after consultation with the Creditors’ Committee, either (i) paid in full, in Cash, or (ii) paid over a six-year period from the date of assessment as provided in section 1129(a)(9)(C) of the Bankruptcy Code with interest payable at a rate of 4% per year.

100%

-- Indenture Trustee Fees

Unimpaired; paid in full, in Cash, as Administrative Expense Claims.

100%

1 Other Priority Claims

Unimpaired; paid in full, in Cash. 100%

2 Secured Tax Claims Impaired; except to the extent that a holder agrees to different treatment, at the option of the Debtors, after consultation with the Creditors’ Committee, (i) Cash in the amount equal to such Allowed Secured Tax Claim, including applicable interest as provided in section 506(b) of the Bankruptcy Code, on or as soon as reasonably practicable after the Effective Date; (ii) equal annual Cash payments beginning one year after the Effective Date in an aggregate amount equal to such Allowed Secured Tax Claim, with interest payable at a rate of 4% per annum over a six-year period, subject to the Reorganized Debtors’ option to prepay such Claim; or (iii) upon such other terms determined by the Bankruptcy Court to provide the holder of such Allowed Secured Tax Claim deferred

100%


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Class


Treatment

Estimated Recovery

Cash payments having a value, as of the Effective Date, equal to such Claim.

3 Secured Claims Unimpaired; at the sole option of the Reorganized Debtors, (i) Cash in the amount equal to 100% of the unpaid amount of such Allowed Secured Claim, (ii) the proceeds of the sale or disposition of the Collateral securing such Allowed Claim to the extent of the value of the holder’s secured interest in such Collateral, (iii) the Collateral securing such Allowed Claim, or (iv) such other distribution as necessary to satisfy the requirements of section 1124 of the Bankruptcy Code. If the Reorganized Debtors treat a Claim under clause (i) or (ii) above, the Liens securing such Claim shall be deemed released.

100%

4 Orion General Unsecured Claims 1

Impaired; (A) distribution of a Class 4 Pro Rata Share2 of (i) 8,995,845 shares of New Loral Common Stock and (ii) the New FSS Notes and (B) each holder of an Orion General Unsecured Claim may participate in a rights offering to subscribe for the Additional New FSS Notes on account of such Claim.

60.1%3

1 The Debtors estimate that the amount of Orion General Unsecured Claims will, upon the final reconciliation and resolution of all Orion General Unsecured Claims, aggregate approximately $742,400,000. 2 A “Class 4 Pro Rata Share” is the ratio (expressed as a percentage) of the amount of an Allowed Orion General Unsecured Claim to the aggregate amount of (a) all Allowed Orion General Unsecured Claims and (b) aggregate of the Disputed Claim Amounts of all Disputed Claims in Class 4. The “Disputed Claim Amount” is the estimated dollar value of a Disputed Claim pursuant to section 502(c) of the Bankruptcy Code or as otherwise agreed to between the holder of such Claim and the applicable Debtor or Reorganized Debtor, or as otherwise determined by the Bankruptcy Court, or if no such amount exists, the amount set forth as the liquidated amount of such Disputed Claim in the proof of claim filed in respect of such Claim. 3 The estimated recoveries for holders of Orion General Unsecured Claims are based upon the current estimate of the amount of Allowed Orion General Unsecured Claims (approximately $742,400,000) and the designated value of the New Loral Common Stock ($27.37 per share), which is within the range of values set forth in Section IX. of the Disclosure Statement. The designated value of the New Loral Common Stock is the result of a compromise and settlement of a number of issues between the Debtors and certain creditors pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”). See Section V.K.1 of the Disclosure Statement. To the extent that the market value of the New Loral Common Stock or the amount of Allowed Orion General Unsecured Claims varies from the amounts estimated, the recoveries of holders of Orion General Unsecured Claims may be higher or lower. See Section X. of the Disclosure Statement for more information.


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Class


Treatment

Estimated Recovery

5 Loral General

Unsecured Claims 4

Impaired; if Class 5 votes to accept the Plan,5 each holder of an Allowed Loral General Unsecured Claim will receive Alternative A described below; if Class 5 votes to reject the Plan,6 each such holder will receive Alternative B described below: Alternative A: Subject to the occurrence of an Oversubscription7 or Undersubscription,8 distribution of (1) 18,265.7 shares of New Loral Common Stock for each $1,000,000 of such holder’s Allowed Loral General Unsecured Claim, or (2) Cash in an amount equal to such holder’s Cash Subscriber Pro Rata Share9 of $30,000,000; or Alternative B: Distribution of a Class 5 Combined Pro Rata Share10 of 11,004,155 shares of New Loral Common Stock.

(A) 50% if holder elects stock or 30% if holder elects Cash11; or (B) 29.4%12

4 The Debtors estimate that the amount of Loral General Unsecured Claims will, upon the final reconciliation and resolution of all Loral General Unsecured Claims, aggregate approximately $117,000,000. 5 See Section VI. of the Disclosure Statement for a description of the requirements for confirmation of the Plan. 6 See Section VI.C.2. of the Disclosure Statement for a description of the requirements for confirmation of a nonconsensual plan of reorganization. 7 “Oversubscription” occurs when the aggregate amount of Allowed Claims of holders of Allowed Loral General Unsecured Claims electing to receive the New Loral Common Stock as provided in Subsection 4.5(a) of the Plan exceeds $17,000,000. 8 “Undersubscription” occurs when the aggregate amount of Allowed Claims of holders of Allowed Loral General Unsecured Claims electing to receive the New Loral Common Stock as provided in Subsection 4.5(a) of the Plan is less than $17,000,000. 9 A “Cash Subscriber Pro Rata Share” is, for those holders of Loral General Unsecured Claims electing or deemed to elect to receive Cash (i.e., a “Cash Subscriber”), the ratio (expressed as a percentage) of the amount of an Allowed Loral General Unsecured Claim of a Cash Subscriber to the aggregate amount of (a) all Allowed Loral General Unsecured Claims of Cash Subscribers and (b) the aggregate of the “Disputed Claim Amounts” of all Disputed Claims of Cash Subscribers in Class 5. The “Disputed Claim Amount” is the estimated dollar value of a Disputed Claim pursuant to section 502(c) of the Bankruptcy Code or as otherwise agreed to between the holder of such Claim and the applicable Debtor or Reorganized Debtor, or as otherwise determined by the Bankruptcy Court, or if no such amount exists, the amount set forth as the liquidated amount of such Disputed Claim in the proof of claim filed in respect of such Claim. 10 A “Class 5 Combined Pro Rata Share” is the ratio (expressed as a percentage) of the amount of an Allowed Loral General Unsecured Claim to the aggregate amount of (a) Allowed Loral General Unsecured Claims and Allowed Ltd. General Unsecured Claims and (b) the aggregate of (i) the Disputed Claim Amounts of all Disputed Claims in Class 5 and (ii) the Disputed Claim Amounts of all Disputed Claims in Class 5A.


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Class


Treatment

Estimated Recovery

5A Ltd. General

Unsecured Claims 13

Impaired; if Class 5 votes to accept the Plan, each holder of an Allowed Ltd. General Unsecured Claim will receive Alternative A described below; if Class 5 votes to reject the Plan, each such holder will receive Alternative B described below: Alternative A: Distribution of a Class 5A Pro Rata Share14 of 10,693,639 shares of New Loral Common Stock15; or Alternative B: Distribution of a Class 5A Combined Pro Rata Share16 of 11,004,155 shares of New Loral Common Stock.

(A) 29.0%; or (B) 29.4%17

11 Based on the current estimate of the amount of Loral General Unsecured Claims, the Debtors estimate that holders of Allowed Loral General Unsecured Claims will receive a blended recovery of Cash and New Loral Common Stock equal to approximately 33% of the amount of such Allowed Claims. 12 The estimated recoveries for holders of Loral General Unsecured Claims who elect to receive New Loral Common Stock are based upon the current estimate of the amount of Allowed Loral General Unsecured Claims (approximately $117,000,000) and the designated value of the New Loral Common Stock ($27.37 per share), which is within the range of values set forth in Section IX. of the Disclosure Statement. The designated value of the New Loral Common Stock is the result of a compromise and settlement of a number of issues between the Debtors and certain creditors pursuant to Bankruptcy Rule 9019. See Section V.K.1. of the Disclosure Statement. To the extent that the market value of the New Loral Common Stock or the amount of Allowed Loral General Unsecured Claims varies from the amounts estimated, the recoveries of holders of Loral General Unsecured Claims may be higher or lower. See Section X. of the Disclosure Statement for more information. 13 The Debtors estimate that the amount of Ltd. General Unsecured Claims will, upon the final reconcilia tion and resolution of all Ltd. General Unsecured Claims, aggregate approximately $1,011,000,000. 14 A “Class 5A Pro Rata Share” is the ratio (expressed as a percentage) of the amount of an Allowed Ltd. General Unsecured Claim to the aggregate amount of (a) Allowed Ltd. General Unsecured Claims and (b) the aggregate of the Disputed Claim Amounts of all Disputed Claims in Class 5A. The “Disputed Claim Amount” is the estimated dollar value of a Disputed Claim pursuant to section 502(c) of the Bankruptcy Code or as otherwise agreed to between the holder of such Claim and the applicable Debtor or Reorganized Debtor, or as otherwise determined by the Bankruptcy Court, or if no such amount exists, the amount set forth as the liquidated amount of such Disputed Claim in the proof of claim filed in respect of such Claim. 15 The number of shares to be distributed under Alternative A is calculated by subtracting the “Class 5 New Loral Common Stock” (310,516 shares of New Loral Common Stock) from the “New Loral Common Stock Balance” (11,004,155 shares of New Loral Common Stock). 16 A “Class 5A Combined Pro Rata Share” is the ratio (expressed as a percentage) of the amount of an Allowed Ltd. General Unsecured Claim to the aggregate amount of (a) Allowed Loral General Unsecured Claims and Allowed Ltd. General Unsecured Claims and (b) the aggregate of (i) the Disputed Claim Amounts of all Disputed Claims in Class 5 and (ii) the Disputed Claim Amounts of all Disputed Claims in Class 5A.


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Class


Treatment

Estimated Recovery

6 Ltd. Preferred Stock

Interests

Impaired; no distribution. 0%

7 Other Equity Interests


8 Securities Litigation Claims

Impaired; no distribution in accordance with section 510(b) of the Bankruptcy Code.

0%

For more detailed information regarding the classification and treatment of Claims

and Equity Interests under the Plan, see Section V. of this Disclosure Statement.

III. GENERAL INFORMATION

A. OVERVIEW OF CHAPTER 11

Chapter 11 is the principal business reorganization chapter of the Bankruptcy Code. Under chapter 11 of the Bankruptcy Code, a debtor is authorized to reorganize its business for the benefit of itself, its creditors and its equity interest holders. In addition to permitting the rehabilitation of a debtor, another goal of chapter 11 is to promote equa lity of treatment for similarly situated creditors and similarly situated equity interest holders with respect to the distribution of a debtor’s assets.

The commencement of a chapter 11 case creates an estate that is comprised of all of the legal and equitable interests of the debtor as of the commencement date. The Bankruptcy Code provides that the debtor may continue to operate its business and remain in possession of its property as a “debtor in possession.”

The consummation of a plan of reorganization is the principal objective of a chapter 11 reorganization case. A plan of reorganization sets forth the means for satisfying claims against and interests in a debtor. Confirmation of a plan of reorganization by the bankruptcy court binds the debtor, any issuer of securities under the plan, any person acquiring property under the plan and any creditor or equity interest holder of a debtor. Subject to certain limited exceptions, the order

17 The estimated recoveries for holders of Ltd. General Unsecured Claims are based upon the current estimate of the amount of Allowed Ltd. General Unsecured Claims (approximately $1,011,000,000) and the number of holders of Allowed Loral General Unsecured Claims receiving New Loral Common Stock and the designated value of the New Loral Common Stock ($27.37 per share), which is within the range of values set forth in Section IX. of the Disclosure Statement. The designated value of the New Loral Common Stock is the result of a compromise and settlement of a number of issues between the Debtors and certain creditors pursuant to Bankruptcy Rule 9019. See Section V.K.1. of the Disclosure Statement. To the extent that the market value of the New Loral Common Stock, the amount of Allowed Ltd. General Unsecured Claims, or the number of holders of Allowed Loral General Unsecured Claims receiving New Loral Common Stock varies from the amounts estimated, the recoveries of holders of Ltd. General Unsecured Claims may be higher or lower. See Section X. of the Disclosure Statement for more information.


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approving confirmation of a plan discharges a debtor from any debt that arose prior to the date of confirmation of the plan and substitutes therefor the obligations specified under the confirmed plan.

Holders of claims against and interests in a debtor are permitted to vote to accept or reject the plan. Prior to solicitin g acceptances of the proposed plan, however, section 1125 of the Bankruptcy Code requires a debtor to prepare a disclosure statement containing adequate information of a kind, and in sufficient detail, to enable a hypothetical reasonable investor to make an informed judgment regarding the plan. The Debtors are submitting this Disclosure Statement to holders of Claims against the Debtors to satisfy the requirements of section 1125 of the Bankruptcy Code.

B. DESCRIPTION AND HISTORY OF BUSINESS

1. The Debtors

The Debtors operate their businesses through a group of affiliated entities. The Debtors in these Reorganization Cases are:

Loral Space & Communications Ltd. Loral Space & Communications Corporation Loral SpaceCom Corporation Loral Satellite, Inc. Space Systems/Loral, Inc. Loral Communications Services, Inc. Loral Ground Services, L.L.C. Loral Orion, Inc. Loral CyberStar Global Services, Inc. Loral Cyberstar GmbH

Loral CyberStar Japan, Inc. Loral CyberStar Services, Inc. Loral CyberStar Holdings, L.L.C. Loral CyberStar International, Inc. Loral Asia Pacific Satellite (HK) Limited SS/L Export Corporation CyberStar, L.P. CyberStar, L.L.C. Loral Skynet Network Services, Inc. Loral Licensing Ltd.


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2. Corporate Structure

An abridged depiction of Loral’s organizational structure is set forth below. This summary does not identify all legal entities within the corporate structure.

Loral Space &

Communications Ltd.

Loral Space &

Communications Corporation

Loral Orion, Inc.Loral SpaceCom Corporation

(Loral Skynet division)

Loral Satellite, Inc.

Space Systems/Loral, Inc.

3. Businesses

Loral is one of the world’s leading satellite communications companies with substantial activities in satellite-based communications services and satellite manufacturing. Loral is a global organization with subsidiaries and affiliates throughout the United States, Latin America, Europe and Asia. Ltd. is the ultimate parent of the Loral family of companies.

Loral’s operations are organized into two segments: fixed satellite services (“FSS”) and satellite manufacturing. The FSS business is managed and operated through Loral Skynet, a division of SpaceCom. Loral’s manufacturing operations are owned and operated through SS/L, a wholly owned subsidiary of SpaceCom. Loral’s satellite products and services place it in the forefront of the satellite industry in terms of technological innovation and reliability.

a. Satellite Services

Loral’s satellite services business owns and operates a fleet of five satellites at approximately 22,000 miles above the equator in orbital positions that remain fixed with respect to a given point on earth (i.e., geosynchronous or geostationary). The satellites provide reliable, high-bandwidth services to customers in broad coverage areas and serve as the backbone for many forms of telecommunications. Loral’s satellite services business has three principal product lines:

Transponder Leasing: Loral Skynet’s heritage transponder leasing business provides a platform for the global distribution of video programming, direct-to-home video transmission, breaking news and sporting events, and broadband data services for enterprise customers.


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Network Services: Loral’s hybrid satellite and ground-based infrastructure allows for the rapid and reliable transport of content over secure private networks. Applications include one-way and two-way broadband distribution, bandwidth-on-demand, broadcast MCPC (multiple carriers per channel) platforms, and teleport services.

Professional Services: Loral’s team of network architects, engineers, program managers and satellite operations professionals provides customized services tailored to unique customer requirements for deploying satellites and network services. Such services include satellite operational services such as telemetry, tracking and control (“TT&C”), which are used by Loral to control its own satellites, as well as those of third parties, satellite construction oversight services, network architecture design, regulatory issue management and customized distribution solutions.

b. Satellite Manufacturing and Technology

SS/L is one of the world’s largest designers and manufacturers of satellites and satellite systems for commercial and government applications including satellite services, television broadcasting, high-powered direct-to-home television services, broadband communications, military communications, wireless telephony, digital satellite radio, weather monitoring and air traffic management. Since 1957, SS/L has been awarded contracts to build more than 220 satellites, and SS/L-built satellites have achieved over 1,000 years of cumulative on-orbit experience. SS/L’s customers include some of the largest satellite service providers, such as Intelsat Ltd., DirecTV Operations, LLC, EchoStar Communications Corporation, Loral Skynet, PanAmSat Corporation, Optus, APT Satellite Company Limited, SingTel, Shin Satellite Public Company Limited and Japan’s Ministry of Transport and Civil Aviation Bureau.

SS/L designs and builds satellites that provide customers with a great span of power and capability, technological superiority and flexibility. The power offered on SS/L-designed satellites ranges from six kilowatts to in excess of 20 kilowatts, and the number of transponders installed on such a satellite may be as few as one to as many as 150.

SS/L competes principally on the basis of technical excellence, reliability and pricing with The Boeing Company, Lockheed Martin Corporation, Alcatel Space, EADS Astrium and Orbital Sciences Corporation. Historically, SS/L has provided customers with satellites that significantly exceed their designated life expectancies.

Additional information on the Debtors’ operations and business segments can be found in the Form 10-K for the year 2003 (annexed hereto as Exhibit C), filed on March 15, 2004, the quarterly report on Form 10-Q for the quarter ended March 31, 2004 (annexed hereto as Exhibit D), filed on May 10, 2004, and the quarterly report on Form 10-Q for the quarter ended June 30, 2004 (annexed hereto as Exhibit E), filed on August 5, 2004, with the Securities and Exchange Commission, and are available on the SEC’s EDGAR website www.sec.gov or commercially at such websites as www.freeedgar.com. The Debtors’ operating reports are available for a fee on the Bankruptcy Court’s Electronic Case Filing System which can be found at www.nysb.uscourts.gov, the official website for the Bankruptcy Court.

4. History

Loral was incorporated on January 12, 1996 as a Bermuda exempt company and has its registered offices at Canon’s Court, 22 Victoria Street, Hamilton, HM 12, Bermuda.


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Satellite Services. Loral formed its satellite services business by acquiring the AT&T Skynet business from AT&T in March 1997 and Orion Network Services in March 1998. Loral Skynet, which manages and operates Loral’s satellite services business, began with one satellite in 1997 and grew to 10 satellites in 2001 through the acquisition of additional satellites. The placement of additional satellites in service and the expansion of its product offerings placed Loral Skynet among the fastest growing satellite operators in the world.

Satellite Manufacturing. SS/L’s roots date back to 1957 with the establishment of Philco’s Western Development Laboratory (“Philco”). Philco originally manufactured radios and televisions and then transitioned to manufacturing ground communications equipment and military satellites. During this time, Philco manufactured the world’s first active repeater satellite, Courier, which was launched in 1960 as one of the United States’s answers to Sputnik.

In order to fulfill its desire to enter the “space race,” Ford Motor Company purchased Philco in 1962 and renamed it Ford Aerospace and Communications (“Ford Aerospace”). Ford Aerospace built a highly successful series of communications satellites named the Intelsat V series, based upon a highly reliable and innovative three-axis stabilized satellite bus. Ford Aerospace also manufactured the world’s first, and still today the only, three-axis stabilized weather satellite and was active in providing various government satellites.

In 1990, Loral Corporation purchased Ford Aerospace, marking Loral’s entry into the satellite market, and renamed the satellite manufacturing business Space Systems/Loral. Throughout the 1990s, SS/L captured a significant share of the commercial satellite market, growing from $391,000,000 in revenue in 1992 to $1,430,000,000 in 1999. In 2003, SS/L’s revenue was $474,000,000 (including intercompany revenue). During those years it designed and manufactured highly successful satellites, including a series of weather satellites for the U.S. government and the Intelsat VII and Intelsat IX series.

C. PREPETITION CAPITAL STRUCTURE

As of the Commencement Date, the Debtors’ indebtedness included: (i) $966,861,000 of senior secured debt of Loral Satellite and SpaceCom and their respective subsidiaries under certain instruments described below and (ii) $1,048,402,000 of aggregate outstanding principal bond debt issued by Ltd. and Orion, as described below.

As a result of the sale to Intelsat Ltd. and Intelsat (Bermuda) Ltd. (together, “Intelsat”) of certain satellites and related assets, as more fully described in Section IV.D. hereof, on March 17, 2004, the Debtors repaid all of the $966,861,000 of senior secured debt, together with accrued and unpaid interest and fees.

1. Prepetition Bank Debt and Other Indebtedness

a. Satellite Credit Agreement

On August 5, 1999, Globalstar, L.P. (“Globalstar”), a satellite-based provider of telephone services, entered into a $500,000,000 credit agreement with a group of banks for the build-out of the Globalstar System. Globalstar’s credit facility was guaranteed by Loral Satellite and Loral SatCom Ltd., wholly owned subsidiaries of Loral, for which Loral received 3,450,000 warrants to purchase Globalstar partnership interests. The guarantee was secured by the pledge of certain assets of Loral and its subsidiaries, including the stock of the guarantors and the Telstar 6 and Telstar 7 satellites.


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In November 2000, the assets of Loral SatCom Ltd. were transferred into Loral Satellite. On November 17, 2000, Loral Satellite, Bank of America as Administrative Agent, and certain other lending parties entered into a $500,000,000 secured credit agreement (the “Sate llite Credit Agreement”) to provide for a $200,000,000 revolving credit facility and a $300,000,000 term loan. The proceeds from the $500,000,000 of loans incurred under the Satellite Credit Agreement were used by Loral Satellite to purchase all of the creditors’ interests in the loans outstanding under the Globalstar credit facility in return for terminating and releasing its guarantee. Based on third-party appraisals, management believed that the fair value of the Telstar 6 and Telstar 7 satellites were in excess of $500,000,000 and wanted to maintain control over its assets.

The indebtedness under the Satellite Credit Agreement was secured by certain assets of Loral Satellite, including the Telstar 6 and Telstar 7 satellite, as well as the payments due to Loral Satellite under a separate $500,000,000 credit facility entered into by Globalstar, L.P., an affiliate of Loral. In addition, Ltd. guaranteed Loral Satellite’s obligations under the Satellite Credit Agreement. The Satellite Credit Agreement was amended as of December 21, 2001. As part of this amendment, the lenders under the Satellite Credit Agreement received a junior lien on the assets of SpaceCom and its subsidiaries, including SS/L, that were pledged in favor of the lenders under the LSC Amended Credit Agreement (as defined below).

On March 31, 2003, the Satellite Credit Agreement was further amended to provide for certain modifications, including amendments to its financial covenants. On the Commencement Date, the principal amount outstanding under the Satellite Credit Agreement was $426,500,000.

b. LSC Amended Credit Agreement

On December 21, 2001, SpaceCom entered into an Amended and Restated Credit Agreement with Bank of America, N.A., as Administrative Agent, and certain other lender parties (the “LSC Amended Credit Agreement”). This agreement amended and restated a previously amended and restated credit agreement dated November 14, 1997 that was in the total amount of $850,000,000. The indebtedness under the LSC Amended Credit Agreement was secured by substantially all of the assets and stock of SpaceCom and its subsidiaries, including SS/L. SpaceCom’s obligations under the LSC Amended Credit Agreement were guaranteed by certain of its subsidiaries, including SS/L. The LSC Amended Credit Agreement provided for a $200,000,000 revolving credit facility expiring January 7, 2005 and a term loan of $400,000,000.

On March 31, 2003, the LSC Amended Credit Agreement (the “LSC Amendment”) was further amended to provide for, among other things, amendments to SpaceCom’s financial covenants and restrictions on SpaceCom and its subsidiaries. The lenders under the SpaceCom facilities also received a junior lien on the stock of Loral Satellite as part of this amendment. On the Commencement Date, $547,657,000 was outstanding under the LSC Amended Credit Agreement, which included letters of credit in the aggregate principal amount of $12,657,000.

c. Japanese Export-Import Facility

SS/L borrowed a total of $42,900,000 under an export-import facility (the “EX-IM Facility”) with a Japanese bank. The EX-IM Facility was fully secured by a letter of credit arrangement under the LSC Amended Credit Agreement. On the Commencement Date, the principal amount outstanding under the EX-IM Facility was $5,361,000.


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d. Orion Indebtedness

On January 31, 1997, Orion issued 11¼% senior notes due 2006 in the principal amount of $445,000,000 and 12½% senior discount notes due 2007 in the principal amount at maturity of $484,000,000 (collectively, the “Orion Stub Notes”). The Orion Stub Notes are unsecured obligations of Orion. Loral Asia Pacific Satellite (HK) Limited, a subsidiary of Orion, as well as certain other subsidiaries, guaranteed the payment of the Orion Stub Notes.

As of the Commencement Date, 11¼% senior notes in the principal amount of $36,627,000 plus accrued interest in the amount of $2,060,000 and 12½% senior discount notes in the principal amount of $49,071,000 plus accrued interest in the amount of $3,067,000 were outstanding.

On December 21, 2001, Orion issued 10% senior notes due 2006 in the aggregate principal amount of $612,704,000 (the “Orion 10% Notes” and, together with the Orion Stub Notes, the “Orion Notes”). The Orion 10% Notes are unsecured obligations of Orion. Ltd. and Loral Asia Pacific Satellite (HK) Limited, a subsidiary of Orion, guaranteed the payment of the Orion 10% Notes. The Orion 10% Notes were issued in exchange for the extinguishment of $841,000,000 principal amount of Orion Stub Notes. As part of the exchange, Ltd. issued to the holders of the Orion 10% Notes 604,299 five-year warrants to purchase Ltd. common stock at a price of $23.70 per share. The warrants were valued at $7,000,000.

On the Commencement Date, Orion 10% Notes in the principal amount of $612,704,000 was outstanding and accrued interest in the amount of $30,635,000 was due and payable.

e. Ltd. Indebtedness

On January 15, 1999, Ltd. issued 9½% senior notes due 2006 in the aggregate principal amount of $350,000,000 (the “Ltd. Notes”). The Ltd. Notes are general unsecured obligations of Ltd.

As of the Commencement Date, Ltd. Notes in the principal amount of $350,000,000 and accrued interest in the amount of $16,625,000 were outstanding.

2. Equity

a. Common Stock

Prior to the Commencement Date, Ltd.’s common stock traded on the New York Stock Exchange (the “NYSE”). On the Commencement Date, the NYSE suspended trading of Ltd.’s common stock and, on September 2, 2003, removed the securities from listing and registration. As of the Commencement Date, 44,107,782 shares of common stock were outstanding.

b. Series C Convertible Preferred Stock

The Series C Convertible Preferred Stock (the “Series C Preferred Stock”) is preferred stock of Ltd. With respect to dividend rights and rights upon liquidation, winding up and dissolution, the Series C Preferred Stock ranks equivalent to the Series D Convertible Preferred Stock (described below) and senior to or equivalent to all other existing and future series of preferred stock of Ltd. and senior to Ltd. common stock.


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As of the Commencement Date, 3,745,485 shares of Series C Preferred Stock were outstanding.

c. Series D Convertible Preferred Stock

The Series D Convertible Preferred Stock (the “Series D Preferred Stock”) is preferred stock of Ltd. With respect to dividend rights and rights upon liquidation, winding up and dissolution, the Series D Preferred Stock ranks equivalent to the Series C Convertible Preferred Stock and all other existing and future series of preferred stock of Ltd. and senior to Ltd. common stock.

As of the Commencement Date, 734,135 shares of Series D Preferred Stock were outstanding.

D. PREPETITION INVESTMENT IN GLOBALSTAR-RELATED ACTIVITIES

Prior to the Commencement Date, Loral invested in and made advances of approximately $2,000,000,000 with respect to Globalstar, Globalstar Telecommunications Limited (“GTL”), a general partner of Globalstar, and certain Globalstar service provider partnerships (the “Globalstar-Related Activities”). In 2000, Loral wrote-off on a pre-tax basis $1,700,000,000 of investments in Globalstar-Related Activities. As of June 30, 2004, Loral’s investment balance in Globalstar-Related Activities was zero.

On February 15, 2002, Globalstar and certain of its direct subsidiaries (the “Globalstar Debtors”) filed voluntary petitions under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the “Delaware Court”). On December 8, 2003, the Delaware Court approved Globalstar’s plan of reorganization (the “Globalstar Plan”). The Globalstar Plan became effective on June 29, 2004. On June 29, 2004, Globalstar was dissolved. As a result of Globalstar’s liquidation, Loral recorded equity income of $47,000,000 on the reversal of vendor financing liabilities that were non-recourse to SS/L in the event of non-payment by Globalstar.

Pursuant to the Globalstar Plan, in consideration for a $43,000,000 equity investment in Globalstar LLC, a newly formed company, Thermo Capital Partners, L.L.C. (“Thermo”) acquired an 81.25% ownership interest in Globalstar LLC. Pursuant to the Globalstar Plan, holders of certain allowed claims against the Globalstar Debtors received their pro rata distribution of the remaining membership units of Globalstar LLC, aggregating 18.75% (the “Membership Interests”), on account of such allowed claims.

Ltd. and certain of its affiliates (collectively, the “Loral Parties”) asserted claims against the Globalstar Debtors in their chapter 11 cases. In accordance with a global settlement among the Globalstar Debtors and most of their affiliates and the Loral Parties and most of their affiliates, the Loral Parties received on account of their claims against the Globalstar Debtors 237,950 Membership Interests in Globalstar LLC, representing approximately 2.7% of the membership units in Globalstar LLC.

E. SECURITIES LITIGATION

Numerous actions alleging violations of securities laws by Ltd. and certain members of Ltd.’s management were filed prior to the Commencement Date. Such actions include (i) nineteen separate purported class action lawsuits filed in the United States District Court for the Southern District of New York by various holders of securities of Globalstar Telecommunications Limited


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(“GTL”) and Globalstar against GTL, Ltd., Bernard L. Schwartz, and other defendants, which cases were consolidated into one action entitled In re Globalstar Securities Litigation, Civ. A. No. 01-1748 (SHS); (ii) seven separate purported class action lawsuits filed against Ltd., Bernard L. Schwartz, and Richard J. Townsend in the United States District Court for the Southern District of New York by various holders of common stock of Ltd., which cases were consolidated into one class action entitled In re Loral Space & Communications Ltd. Securities Litigation, Civ. A. No. 01-4388 (JGK); and (iii) W.L. Meng v. Bernard L. Schwartz & Loral Space & Communications Ltd. et al., Civ. A. No. 01-1715 (RCL) (D.D.C.). In addition, several other cases against certain members of Ltd.’s management relating to their prepetition conduct were filed after the Commencement Date. Such actions include: (i) Beleson v. Schwartz, Civ. A. No. 03-6051 (JES) (S.D.N.Y.) (consolidating Hull, et al. v. Bernard L. Schwartz, Civ. A. No. 03-7829 (JES) (S.D.N.Y.), Bryan v. Schwartz, Civ. A. No. 03-7329 (JES) (S.D.N.Y.), Pfusterer v. Schwartz, Civ. A. No. 03-6883 (JES) (S.D.N.Y.), and Beleson v. Schwartz, Civ. A. No. 03-6051 (JES) (S.D.N.Y.)); and (ii) In re Loral Space & Communications Shareholders’ Securities Litigation, Civ. A. No. 03-8262 (JES) (S.D.N.Y.), formerly captioned Christ, et al. v. Bernard L. Schwartz and Richard J. Townsend, Civ. A. No. 03-8262 (JES) (S.D.N.Y.).

By virtue of the automatic stay extant in the Reorganization Cases pursuant to section 362 of the Bankruptcy Code, all of the aforementioned suits were stayed as to Ltd. on the Commencement Date. In February 2004, the court in Meng v. Schwartz et al., Civ. A. No. 01-1715 (RCL) (D.D.C.), granted a motion to dismiss filed by defendant Bernard L. Schwartz but determined not to enter the judgment until after defendant Ltd. emerges from bankruptcy. Similarly, a motion to dismiss filed by defendants Schwartz and Townsend in In re Loral Space & Communications Ltd. Securities Litigation, Civ. A. No. 01-4388 (JGK) (S.D.N.Y.), was granted in March 2004, but the time to appeal such decision will not expire until thirty (30) days after the Effective Date.

In addition, two class action lawsuits alleging breach of fiduciary duty and violations of the Employee Retirement Income Security Act of 1978 (“ERISA”) were filed after the Commencement Date by participants and beneficiaries of the Loral Savings Plan against the Loral Space & Communications Ltd. Savings Plan Administrative Committee and certain individual directors and officers. These suits, entitled Koch v. Loral Space & Communications Ltd. Savings Plan Committee, et al., Civ. A. No. 03-9729 (LTS) (S.D.N.Y.) and O’Roarke v. Loral Space & Communications Ltd. Savings Plan Administrative Committee, et al., Civ. A. No. 03-9923 (LTS) (S.D.N.Y.), have been consolidated.

F. EVENTS LEADING TO THE COMMENCEMENT OF THE CHAPTER 11 CASES

Following the demise of numerous Internet and telecommunications companies, the satellite industry experienced a significant decline beginning in 2001 and 2002. The market for telecommunications-related products, including commercial satellite capacity, weakened substantially. As evidenced by the bankruptcy cases of well-known telecommunications companies such as Global Crossing Ltd., Williams Communications Group, McLeod USA, Inc., 360Networks USA, and WinStar Communications, among others, and the well-publicized financial difficulties of telecommunication infrastructure providers such as Lucent Technologies, Nortel Ltd., and JDS Uniphase Corp., the effect of the reduction of commercial broadband business initiatives has been pervasive. The difficulties for the satellite manufacturing industry were compounded by the lack of access to capital markets by their customers due to the withdrawal of commercial banks and investment banks from the satellite industry.

Worldwide commercial satellite orders, which had been averaging above 20 per year prior to 2000, plummeted to three competitive awards in 2002. Nevertheless, SS/L had developed a record backlog of over 20 satellites under construction or to be constructed, second in the industry,


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that served as a buffer during the severe drought in orders in 2001 and 2002. Unfortunately, the downturn in satellite sales continued into 2003 as satellite operators deferred orders for replacements and expansion plans. Because SS/L does not have a base of U.S. government customers, the drop in commercial sales had a more pronounced effect on SS/L than on its competitors.

The concomitant inability of Loral’s leasing customers to access the capital markets led to the declining utilization of services by existing customers and a lack of new customers entering the market, in particular telecommunications and Internet access providers. This reduced demand produced an overabundance of transponder capacity for satellite services, which, in turn, created a severe drought in new satellite orders.

These factors, taken together, lowered prices for satellite services and reduced satellite fleet utilization, thereby negatively affecting Loral’s overall financial position. Loral’s financial condition was further affected by its significant investments in Globalstar, as well as by the rapid build-out of its own fleet of satellites for its satellite services business.

The confluence of these factors caused Loral to seek ways to revise its capital structure, including a significant reduction of its debt obligations. As an important step toward such recapitalization, Loral entered into an agreement to sell its six North American telecommunications satellites and certain related assets to Intelsat. See Section IV.D.

IV. EVENTS DURING THE CHAPTER 11 CASES

On July 15, 2003, Ltd. and 19 of its subsidiaries commenced the Reorganization Cases in the Bankruptcy Court. See Section III.A. The Debtors continue to operate their businesses and manage their properties as debtors in possession pursuant to sections 1101, 1107 and 1108 of the Bankruptcy Code.

The following is a brief description of certain major events that have occurred during the Reorganization Cases.

A. BERMUDA PROCEEDINGS

Also on July 15, 2003, Ltd. and Loral Licensing Ltd. (the “Bermudian Debtors”) filed parallel proceedings in the Supreme Court of Bermuda (the “Bermuda Court”). The Bermuda Court appointed certain principals of KPMG International as Joint Provisional Liquidators (“JPLs”) with respect to the Bermudian Debtors. The Bermuda Court granted the JPLs the power to oversee the continuation and reorganization of the Bermudian Debtors’ businesses under the control of their boards of directors and under the supervision of the Bankruptcy Court and the Bermuda Court. The JPLs have hired professionals to advise them in connection with the Bermudian Debtors’ Reorganization Cases.

B. APPOINTMENT OF THE CREDITORS’ COMMITTEE

On July 24, 2003, the United States Trustee for the Southern District of New York, pursuant to its authority under section 1102 of the Bankruptcy Code, appointed the members of the Creditors’ Committee for the Reorganization Cases.

The current members of the Creditors’ Committee are set forth below:


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Creditors’ Committee Members

HSBC Bank USA, National Association, as Indenture Trustee

Mitsubishi Electric & Electronics USA, Inc.

P. Schoenfeld Asset Management, LLC MacKay Shields, LLC MHR Fund Management LLC J.P. Morgan Trust Company, National

Association (successor to Bank One Trust Company, N.A.), as Indenture Trustee

Since that appointment, the Debtors have consulted with the Creditors’ Committee on all matters material to the administration of the Reorganization Cases. The Debtors also have discussed their business operations with the financial advisors for the Creditors’ Committee. The Creditors’ Committee has participated actively in reviewing the Debtors’ business operations, operating performance and business plan, and in negotiating the Plan.

C. STABILIZATION OF BUSINESS

During the initial stages of the Reorganization Cases, the Debtors devoted substantial efforts to stabilizing their operations and restoring customer and vendor confidence.

1. First Day Orders

On the Commencement Date, the Bankruptcy Court approved certain orders designed to minimize the disruption of the Debtors’ business operations and to facilitate their reorganization.

Case Administration Orders. These orders: (i) authorized joint administration of the Reorganization Cases, (ii) established interim compensation procedures for professionals, (iii) granted an extension of the time to file the Debtors’ Schedules, and (iv) authorized certain notice procedures.

Payments on Account of Certain Prepetition Claims. The Bankruptcy Court authorized the payment of certain prepetition: (i) sales and use taxes and regulatory fees, (ii) customs duties and customs broker charges, and (iii) obligations owed to (x) critical vendors, (y) foreign creditors and (z) common carriers and third parties that own and operate storage facilities.

Business Operations. The Bankruptcy Court authorized the Debtors to (i) continue to satisfy pre-Commencement Date premium obligations under workers’ compensation insurance policies and all other insurance policies, (ii) continue their existing centralized cash management system, (iii) maintain existing bank accounts and business forms, and (iv) continue their current investment policy.

2. Use of Cash Collateral

Substantially all of the assets of SpaceCom and Loral Satellite and their respective subsidiaries, including SS/L, were pledged as collateral security for the obligations owed to the lenders under the Satellite Credit Agreement and the LSC Amended Credit Agreement (the “Bank Lenders”). See Section III.C. Under the provisions of the Bankruptcy Code, the Debtors were not authorized to use the existing cash or cash proceeds of this collateral without either an order of the Bankruptcy Court authorizing the use of their cash collateral or the consent of their Bank Lenders. The Debtors and the Bank Lenders negotiated a cash collateral agreement prior to the Commencement Date. On the Commencement Date, the Bankruptcy Court authorized the Debtors to


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use the cash collateral to fund all operating expenses associated with their businesses in accordance with such cash collateral agreement, which included an agreed upon budget. The Bankruptcy Court approved the cash collateral agreement on an interim basis, and then after certain modifications were made, the Bankruptcy Court entered a Final Order on August 22, 2003 (the “Final Cash Collateral Order”) approving it.

Following the sale of certain assets to Intelsat and the repayment of the debt outstanding under the Satellite Credit Agreement and the LSC Amended Credit Agreement, on May 17, 2004, the Debtors, the Creditors’ Committee and the Agent for the Bank Lenders entered into a stipulation and order providing for the release of all of the Bank Lenders’ and the Agent’s liens (other than with respect to a separate cash collateral account in which the Debtors maintained cash collateral equal to 105% of the face amount of any outstanding prepetition letter of credit) and any related funds or property, and releasing the Debtors from certain provisions of the Final Cash Collateral Order, subject to certain terms and conditions set forth in the stipulation and order. See Section IV.D. below for more information about the sale of certain assets to Intelsat.

3. Employee Relations

a. Wages, Compensation and Employee Benefits

In order to facilitate the continued operation of the Debtors’ businesses in chapter 11 and the Debtors’ successful reorganization, the Bankruptcy Court authorized the Debtors to pay, in accordance with the Debtors’ prepetition practices and policies, all employee obligations such as wages, salaries, commissions, payroll taxes, social security taxes, Medicare taxes, independent contractors, temporary employees, health and welfare benefit plans (including medical, dental and other health plans, flexible spending programs, life and other insurance, and short- and long-term disability insurance), savings plans, retirement plans, paid time-off benefits, tuition reimbursements, business expense reimbursements, as well as all expenses related to the foregoing plans and programs. In addition, the Bankruptcy Court authorized financial institutions to honor and process checks and transfers related to such obligations.

b. Key Employee Retention Program

On November 26, 2003 and December 18, 2003, the Bankruptcy Court approved a key employee retention program (the “Key Employee Retention Program”), which provides for (i) retention bonus payments, not to exceed an aggregate amount of $1,000,000, to 13 employees of Loral Skynet to be paid upon the occurrence of a Triggering Event (as such term is defined in the Key Employee Retention Program) and upon a date or dates certain prior to the occurrence of a Triggering Event; (ii) retention bonus payments, not to exceed $11,500,000 (plus an additional $1,500,000 that may be disbursed in the discretion of Ltd. and SS/L within five (5) days’ notice to the Creditors’ Committee and the Agent), to 447 employees of SS/L to be paid upon the occurrence of a Triggering Event and upon a date or dates certain prior to the occurrence of a Triggering Event; (iii) retention bonus payments to 14 employees at the Debtors’ corporate headquarters (“Corporate”) to be paid upon the occurrence of a Triggering Event and upon a date or dates certain prior to a Triggering Event; (iv) enhanced severance payments to 28 Corporate employees if they are involuntarily terminated without cause or, with respect to certain SS/L employees, upon a Change of Control (as such term is defined in the Key Employee Retention Program); and (v) enhanced severance payments, not to exceed an aggregate amount of $17,300,000 to 447 SS/L employees if they are involuntarily terminated without cause.


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4. Assumption or Rejection of Executory Contracts and Unexpired Leases

As part of the efforts to reduce their operating expenses, the Debtors engaged in an analysis of their owned and leased real property and their contracts related to satellite manufacturing and services (collectively, the “Executory Contracts”). On and after the Commencement Date, the Debtors determined to assume approximately 22 Executory Contracts and to reject approximately 20 Executory Contracts. In addition, in connection with the sale of certain assets to Intelsat, the Debtors assumed and assigned to Intelsat 194 Executory Contracts. See Section IV.D. below for more information about the sale to Intelsat.

5. Claims Process and Bar Date

a. Schedules and Statements

On November 26, 2003, the Debtors filed with the Bankruptcy Court their statements of financial affairs, schedules of assets and liabilities and schedules of executory contracts and unexpired leases.

b. Bar Date

The Bankruptcy Court fixed January 26, 2004 (the “Bar Date”) as the last date by which proofs of claim must be filed in order to share in the distributions in connection with the Plan. Notice of the Bar Date and the obligation to file proofs of claim was provided as required by the Bar Date Order, including publication thereof.

Approximately 1,100 proofs of claim against the Debtors have been filed with the claims agent appointed by the Bankruptcy Court. The aggregate amount of claims filed and scheduled exceeds $10,000,000,000, including duplicative Claims. The Debtors currently are reviewing, analyzing and reconciling the filed claims and will object to a substantial portion of the filed proofs of claim.

D. INTELSAT SALE

On July 30, 2003, the Debtors filed a motion (the “Sale Motion”) seeking, among other things, (i) approval of bidding procedures and (ii) authorization and approval of the sale (the “Intelsat Sale”) of all of the Debtors’ North American telecommunications satellites and certain related assets (the “Purchased Assets”) to Intelsat pursuant to that certain Asset Purchase Agreement, dated as of July 15, 2003 and subsequently amended (as amended, the “Purchase Agreement”) among Loral Corp., SpaceCom and Loral Satellite (the “Sellers”) and Intelsat, for $1,000,000,000, subject to certain purchase price adjustments. As of July 15, 2003, the Purchased Assets consisted of four satellites then in-orbit: Telstar 5, Telstar 6, Telstar 7 and Telstar 4 (which failed in September 2003); two satellites then under construction: Telstar 13 (which was successfully launched and placed into service on September 12, 2003) and Telstar 8 (scheduled for launch in 2004); and certain related assets and liabilities. Intelsat also agreed to order a new satellite from SS/L upon consummation of the sale. An auction in respect of the Purchased Assets was held on October 20, 2003. At the conclusion of a three-day hearing on the Sale Motion, the Bankruptcy Court determined that Intelsat’s offer was the best and highest offer received by the Debtors for the Purchased Assets and approved the Intelsat Sale as a sound exercise of the Debtors’ business judgment.

On March 5, 2004, as part of an arrangement to reach agreement with Intelsat on the satisfaction of certain closing conditions, the Sellers entered into a fourth amendment to the Purchase


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Agreement. Among other things, the amendment reduced the purchase price by $20,000,000 (subject to further adjustment based on future events) to cover certain contingent liabilities relating to the Purchased Assets, reduced from $100,000,000 to $50,000,000 the deposit Intelsat was to make for its new satellite construction contract with SS/L, and provided for a dollar-for-dollar reduction in the price of this satellite if and to the extent the Telstar 4 insurance proceeds were less than $141,000,000, which proceeds were received in full by Intelsat after the closing. As part of this amendment, Intelsat agreed to pay SS/L $12,500,000 upon closing of the Intelsat Sale in full settlement and satisfaction of all remaining obligations to make certain orbital payments to SS/L under the construction contracts relating to the Purchased Assets.

On March 17, 2004, the Sellers consummated the Intelsat Sale. At closing, the Sellers received approximately $1,011,000,000, consisting of approximately $961,000,000 for the Purchased Assets, after adjustments, and $50,000,000 for an advance on the new satellite to be built for Intelsat by SS/L. The Sellers’ obligations with respect to the $50,000,000 advance are secured by the Telstar 14/Estrela do Sul-1 satellite and related assets, including insurance proceeds relating to the satellite. The Sellers used substantially all of the funds received from the Intelsat Sale to repay all $967,000,000 of the outstanding debt owed under the Satellite Credit Agreement and the LSC Amended Credit Agreement. In addition, after closing, the Sellers received from Intelsat approximately $16,000,000 to reimburse a deposit made by Loral toward the launch of Telstar 8 and an additional $4,000,000 in May 2004 as a purchase price adjustment resulting from resolution of a regulatory issue.

E. SIGNIFICANT SETTLEMENTS

1. Satellite Customers

During the course of the Reorganization Cases, the Debtors worked on numerous satellite construction projects. The following chart summarizes certain of those significant projects:

Satellite Program Customer Status

DirecTV 7S DirecTV Operations, LLC successfully launched MBSAT Mobile Broadcasting Corporation successfully launched

MTSAT-1R JCAB/JMA (see below) delivered to customer; awaiting launch

Telstar 18 Orion (see below) operational

Telstar 14/Estrela do Sul-1

SpaceCom operational; damaged during launch

Satmex 6 Satelites Mexicanos, S.A. de C.V. awaiting launch

Intelsat Americas 8 Intelsat awaiting launch XTAR-EUR XTAR LLC (see below) awaiting launch

ChinaSat 8 ChinaSat (see below)

IPStar Shin Satellite Public Company Limited

under construction

Spainsat Hisdesat, S.A. under construction

DirecTV 8 DirecTV Operations, LLC under construction


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DirecTV 9S DirecTV Operations, LLC under construction

Galaxy 16 PanAmSat under construction

Intelsat Americas 9 Intelsat under construction WildBlue I WildBlue Communications, Inc. under construction

Certain of the foregoing satellite construction projects were the subject of amendments and settlement agreements during the Reorganization Cases. Those projects are discussed below:

a. JCAB/JMA

Prior to the Commencement Date, SS/L agreed to manufacture, test and deliver to the Civil Aviation Bureau of Japan of the Ministry of Land, Infrastructure and Transport (“JCAB”) and Japan Meteorological Agency (“JMA”) (collectively, “JCAB/JMA”), a replacement satellite known as the MTSAT-1R Satellite (“MTSAT-1R”), to be used for weather observation, forecasting and air traffic safety.

On October 2, 2003, JCAB/JMA filed an order to show cause, emergency motion and adversary proceeding complaint seeking to compel SS/L to immediately assume or reject its contracts with JCAB/JMA and to enjoin SS/L from taking any action to delay completion of MTSAT-1R. The Bankruptcy Court denied JCAB/JMA’s emergency motion, and JCAB/JMA appealed the Bankruptcy Court’s decision to the United States District Court for the Southern District of New York.

After extensive negotiations and mediation, the parties settled their disputes in accordance with the terms and conditions of two comprehensive settlement agreements, dated as of January 22, 2004 (collectively, the “Stipulations”), which were approved by the Bankruptcy Court. Pursuant to the Stipulations, the parties agreed, among other things, that (i) the delivery date for MTSAT-1R would be extended from December 20, 2003 (the “Original Delivery Date”) to March 31, 2004 (the “Revised Delivery Date”), and any penalty, claim or consequence triggered by SS/L’s failure to meet the Original Delivery Date for MTSAT-1R would be discharged and waived; (ii) JCAB/JMA would accelerate the payment to SS/L of JPY¥875,509,231 (approximately USD$8,000,000); (iii) if SS/L delivered MTSAT-1R on or before the Revised Delivery Date, JCAB/JMA would also accelerate up to JPY¥705,000,000 (approximately USD$6,400,000); (iv) the amount to be paid by SS/L to JCAB/JMA in connection with SS/L’s assumption of the manufacturing contract with respect to MTSAT-1R is JPY¥165,000,000 (approximately USD$1,500,000); and (v) JCAB/JMA would withdraw its adversary complaint with prejudice, terminate its adversary proceeding with prejudice, and withdraw its appeal with prejudice.

MTSAT-1R was delivered to JCAB/JMA in Japan on or about March 21, 2004 and is awaiting launch.

b. APT

Prior to the Commencement Date, SS/L agreed to manufacture, test and deliver to APT Satellite Company Limited (“APT”), a Hong Kong company, a satellite formerly known as the “APSTAR V” satellite and currently known as the “Telstar 18” satellite (“Telstar 18”). Subsequently, Orion and APT entered into an agreement whereby Orion and APT would jointly acquire the Telstar 18 satellite and share, on a 50/50 basis, the project cost of constructing, launching and insuring the


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satellite. Under this agreement, Orion was initially to acquire 23% of the satellite in return for paying 25% of the project cost, and was to pay APT over time an additional 25% of the project cost to acquire an additional 23% interest in the satellite. At June 30, 2004, the project cost of the satellite was estimated at $230,000,000.

In August 2003, in order to expedite the receipt of necessary export licenses from the U.S. government, Orion and APT amended their various agreements to convert their arrangement from a joint ownership arrangement to a lease arrangement whereby Orion would retain title to all of Telstar 18 and APT would lease from Orion 77% of the transponder capacity on Telstar 18. The number of transponders leased to APT would be reduced over time upon repayment by Orion of the second 25% of the satellite’s project cost, ultimately to 54% of the satellite’s transponder capacity. The amendments left unchanged the cost allocation between the parties relating to the project cost of the satellite. The Bankruptcy Court approved this arrangement on October 28, 2003.

SS/L, APT and Sea Launch Limited Partnership, acting by and through its general partner, Sea Launch Company, LLC (“Sea Launch”) had previously entered into a launch services agreement for Telstar 18 providing for the launch of Telstar 18 for November 15, 2003. After the launch date was delayed several times due to a delay in the issuance of the export license from the U.S. Government, APT commenced an adversary proceeding against SS/L seeking certain injunctive relief and damages for breach of contract. In November 2003, the parties subsequently negotiated a broad settlement including assumption of certain modified executory contracts between SS/L and APT, between Orion and APT and among SS/L, APT and Sea Launch. Pursuant to the amendments to the various contracts, the parties agreed, among other things, that (i) the launch date for Telstar 18 would be extended; (ii) Orion would assume certain payments relating to the satellite that would otherwise be payable by APT in exchange for increasing its economic interest in Telstar 18 at launch from 23% to 31.5%; (iii) Orion would make certain capacity on the APSTAR IIR satellite available for use by APT without compensation for an interim period and thereafter provide APT with certain exchange rights for Ku-band capacity on Telstar 18; and (iv) SS/L and Orion would assume various prepetition agreements. APT also agreed to terminate its adversary proceeding and withdraw its complaint.

Following its launch on June 28, 2004, Telstar 18 separated from the Sea Launch Zenit-3SL rocket’s upper stage prematurely and was placed into a lower than expected transfer orbit. The satellite is operational and notwithstanding its premature separation is expected to have sufficient on-board fuel to provide it with a service life of at least 13 years.

c. DirecTV 7S

Prior to the Commencement Date, SS/L entered into a satellite construction contract for the construction of a new satellite (“DirecTV 7S”) for DirecTV Operations, LLC (together with its affiliates, “DirecTV”). On September 30, 2003, SS/L entered into two authorizations to proceed (“ATPs”) for the construction of two new satellites for DirecTV. See Section IV.G.1. In conjunction with the new ATPs, SS/L also negotiated significant concessions from DirecTV with regard to the existing DirecTV 7S satellite construction agreement. Under the amended DirecTV 7S agreement, DirecTV (i) agreed to an extended “ready to ship” delivery date, (ii) waived its right to liquidated damages for delays, and (iii) agreed to pay SS/L an additional $2,000,000 and to accelerate an orbital payment to SS/L in the amount of $13,500,000 following the launch of DirecTV 7S. On October 21, 2003, SS/L assumed the DirecTV 7S satellite manufacturing contract.


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DirecTV 7S was successfully launched on May 4, 2004.

d. MBCO

Prior to the Commencement Date, SS/L agreed and undertook to design, manufacture and deliver the One Mobile Broadcasting Satellite (the “MBSAT Satellite”) to Mobile Broadcasting Corporation (“MBCO”) to provide audio, video and data services directly to mobile users throughout Japan and Korea. In connection with SS/L’s construction of the MBSAT Satellite, SS/L is obligated to construct a ground system in Japan and to provide TT&C for the satellite. The parties subsequently agreed that SS/L would construct a remote station in Korea and provide similar TT&C in connection therewith, resulting in a $3,600,000 increase in the purchase price of the MBSAT Satellite. SS/L entered into a launch services agreement with certain Lockheed Martin entities to procure launch services for the MBSAT Satellite (the “Launch Services”) on behalf of MBCO. SS/L paid for the Launch Services, and MBCO was contractually obligated to reimburse SS/L for launch services through various milestone payments.

After SS/L began construction of the MBSAT Satellite, SS/L encountered various difficulties in construction and testing, the cumulative effect of which resulted in an inability to meet the contracted delivery schedule. In June 2004, SS/L and MBCO entered into a third amendment to the contract governing the manufacture of the MBSAT Satellite (the “Amendment”). The Amendment, among other things, (i) extended the date by which SS/L was to have delivered the MBSAT Satellite to MBCO to April 27, 2004; (ii) released SS/L from various claims; and (iii) modified certain performance specifications under the MBSAT Contract consistent with the MBSAT Satellite’s capabilities as of the date of the Amendment, thereby releasing SS/L of additional potential liability in the future.

The MBSAT Satellite was successfully launched on March 13, 2004, and was delivered to MBCO in orbit on April 27, 2004.

e. XTAR

Prior to the Commencement Date, Ltd. and Hisdesat Servicios Estrategicos, S.A. (“Hisdesat”), a consortium of Spanish companies, entered into an operating agreement to form XTAR™ LLC (“XTAR”) (the “Operating Agreement”). Ltd. subsequently assigned its 56% interest in XTAR to its wholly owned subsidiary Loral Corp., and Hisdesat owned the remaining 44% membership interest. In addition, XTAR entered into a satellite construction contract with SS/L (the “XTAR Contract”) pursuant to which SS/L agreed, among other things, to construct an X-band geostationary satellite (the “XTAR Satellite”). The XTAR Satellite has been delivered to the launch site and currently is scheduled to be launched in the fourth quarter 2004.

In order to provide additional funding to XTAR and as part of a settlement of disputes related to XTAR’s inability to satisfy its payment obligations to SS/L under the XTAR Contract, Hisdesat, SS/L and Loral Corp. have executed Amendment One to the Operating Agreement dated on or about October 2, 2003, which subsequently was approved by the Bankruptcy Court.

Pursuant to Amendment One, SS/L and XTAR agreed to compromise and settle certain existing and future invoices under the XTAR Contract. In addition, pursuant to Amendment One, SS/L (i) agreed to a reduction in amounts owed to it by XTAR, (ii) became a new member of XTAR, and (iii) was credited with an initial capital contribution to XTAR. Hisdesat in turn agreed to


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make an additional $20,000,000 of capital contributions to XTAR, to be used largely to fund remaining milestones due SS/L under the XTAR Contract.

In May 2004, Hisdesat, SS/L and Loral Corp. entered into Amendment Two to the Operating Agreement pursuant to which SS/L and Hisdesat agreed to provide an additional capital contribution to XTAR in the aggregate amount of $5,000,000, to enable XTAR to purchase ground equipment and software for the antennas that are essential to the in-orbit operation and control of the payload on the XTAR Satellite. In June 2004, the Bankruptcy Court approved (i) an additional capital contribution to XTAR in the aggregate amount of $4,000,000, of which $2,240,000 will be paid by SS/L and $1,760,000 will be paid by Hisdesat and (ii) that Hisdesat will loan to XTAR $10,787,297 in exchange for a subordinated convertible note.

More recently, the Debtors have sought the Bankruptcy Court’s approval to (i) launch the XTAR Satellite without launch insurance and (ii) make additional capital contributions of approximately $2,100,000, of which approximately $1,200,000 and $900,000 would be made by SS/L and Hisdesat, respectively. The Bankruptcy Court is expected to rule on this motion on October 28, 2004.

Upon receipt of all of the capital contributions described above, the membership interests in XTAR will be as follows: Loral Corp. 27.7%, Hisdesat 44% and SS/L 28.3%.

To the extent that the launch is further delayed, thus delaying XTAR’s commencement of service and generation of revenues, additional contributions from its members, including from the Debtors, will be required.

f. ChinaSat

In December 1998, SS/L completed construction of a satellite (“ChinaSat 8”) for the China National Postal and Telecommunications Appliances Corporation and China Telecommunications Broadcast Satellite Corporation (collectively, “ChinaSat”), pursuant to the ChinaSat 8 construction contract (the “ChinaSat 8 Contract”). The launch of ChinaSat 8 has been delayed pending SS/L’s receipt of the necessary approvals from the United States Government, and ChinaSat 8 remains in storage at SS/L’s manufacturing facility in Palo Alto, California.

Pursuant to the ChinaSat 8 Contract, SS/L agreed, among other things, to contract with a launch agency to provide the launch vehicle and related launch services for ChinaSat 8 and, in connection therewith, entered in a launch services agreement (the “LSA”) with China Great Wall Industry Corporation (“CGWIC”) to launch ChinaSat 8. In accordance with the terms of the ChinaSat 8 Contract, ChinaSat paid a deposit to SS/L toward the launch of ChinaSat 8, which amount SS/L paid to CGWIC for launch services under the LSA.

As a result of the filing of SS/L’s Reorganization Case and the delay in obtaining the export licenses, ChinaSat requested that SS/L assume the ChinaSat 8 Contract. SS/L believed that assumption of the ChinaSat 8 Contract would require SS/L to immediately deliver the satellite to ChinaSat, which it was precluded from doing without governmental approval. SS/L and ChinaSat commenced discussions in an attempt to resolve their disputes. As an intermediate step, CGWIC, SS/L and ChinaSat entered into a settlement agreement, dated as of April 9, 2004, pursuant to which ChinaSat is provided credit for the amount of the deposit previously paid by it for launch services and SS/L is relieved of all further obligations in respect of launch services, other than the obligation to provide launch support services in respect of ChinaSat 8 subject to receipt of all necessary licenses and approvals. In addition, SS/L, ChinaSat and, in respect of Chinese launch services only, CGWIC,


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agreed to negotiate promptly and in good faith to resolve any and all outstanding issues between them relating to the ChinaSat 8 program. There can be no assurance as to the results of such discussions or whether such discussions will even be successful.

g. WildBlue

Prior to the Commencement Date, SS/L and WildBlue Communications, Inc. (“WildBlue”), a start-up company seeking to provide Internet broadband services in the United States, entered into a contract pursuant to which SS/L is obligated to manufacture and deliver to WildBlue a satellite (the “WildBlue Satellite”). SS/L and WildBlue subsequently entered into an amended contract (as amended, the “WildBlue Contract”) and a security agreement pursuant to which SS/L granted to WildBlue a security interest in work-in-progress to secure SS/L’s obligations under the WildBlue Contract.

Since the commencement of its Reorganization Case, SS/L has undertaken a complete review of its executory contracts in order to determine whether it should assume or reject the terms thereof. In connection with this exercise, SS/L engaged in extensive negotiations with WildBlue with respect to the WildBlue Contract. In October 2004, the negotiations culminated in an amendment to the WildBlue Contract and second security agreement that provides for, among other things, (i) the accelerated payment by WildBlue of $15,000,000 of vendor finance payments to SS/L, (ii) an extended delivery date of the WildBlue Satellite to March 31, 2005 from July 31, 2004, (iii) a significant extension of the date by which SS/L must ship the WildBlue Satellite in order to avoid elimination of the final two milestone payments under the WildBlue Contract, and (iv) the grant to SS/L of collateral in, among other things, the WildBlue Satellite, to secure WildBlue’s obligations with respect to the balance of its vendor financing payments.

2. Launch Services Providers

Prior to the Commencement Date, SS/L entered into several long-term launch services agreements with various launch providers to secure future launches for its customers, including Loral.

a. BLS and Sea Launch

Prior to the Commencement Date, Boeing Launch Services (“BLS”) and Sea Launch entered into various agreements with SS/L to provide launch services for satellites manufactured by SS/L. Pursuant to the terms of such agreements, SS/L paid deposits to BLS for launch services under such agreements. BLS contended that under the agreements, SS/L faced termination liability to BLS of not less than $18,000,000 and that BLS’s possession of the deposits fully offset such termination liability.

SS/L, BLS and Sea Launch entered into that certain Memorandum of Agreement (“MOA”) dated as of July 2, 2003, pursuant to which (i) BLS would transfer the deposits (which, as of November 2003, totaled $22,750,000) to Sea Launch on behalf of SS/L and Sea Launch would then apply the deposits in accordance with the terms and conditions set forth under the MOA and (ii) SS/L, BLS and Sea Launch would enter into certain amendments to the agreements. Due to the commencement of the Reorganization Cases, however, as of November 2003, the parties had yet to implement the MOA. In order to resolve this dispute, the Debtors, the Agent for the Bank Lenders, the Creditors’ Committee, BLS and Sea Launch entered into that certain stipulation, agreement and order dated as of November 6, 2003, pursuant to which the parties agreed, among other things, to implement the provisions of the MOA, consistent with the requirements of the Bankruptcy Code.


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b. Lockheed Martin

Prior to the Commencement Date, SS/L had launch services agreements with certain Lockheed Martin entities (the “LM Entities”) and International Launch Services (“ILS”) which covered three launches. Prior to the Commencement Date, there was a dispute regarding the termination of the launch services agreements and the return of deposits made by SS/L.

In April 2004, SS/L commenced an adversary proceeding against ILS and the LM Entities in the Bankruptcy Court to seek recovery of $37,500,000 of deposits under the agreements and termination liability. ILS and the LM Entities filed counterclaims in the Bankruptcy Court seeking to recover termination charges of up to $54,750,000 with respect to the three terminated launches, $50,000,000 in damages for alleged losses incurred in connection with halting production of launch vehicles and $38,000,000 in lost revenue due to SS/L’s alleged failure to comply with a contractual obligation to assign the launch of another satellite to ILS. SS/L believes that these claims are without merit and intends to defend against them vigorously.

F. FAILURE OF EDS

In January 2004, the North solar array of the Telstar 14/Estrela do Sul-1 satellite (“EdS”) only partially deployed after launch, diminishing the power and life expectancy of the satellite. Currently, 15 to 17 of 41 transponders on EdS are operational. EdS’s life expectancy is now approximately seven years, as compared to a design life of 15 years. EdS is insured for partial and total losses up to a maximum of $250,000,000.

In May 2004, SS/L submitted to its insurers a claim for a total constructive loss of the satellite, seeking recovery for the full insured value of $250,000,000. Until the claim process with the insurers has been completed, there can be no assurance as to the amount of the insurance proceeds that SS/L will receive in respect of this claim.

G. NEW SATELLITE ORDERS

1. DirecTV

On September 30, 2003, SS/L entered into two ATPs for the construction of two new satellites for DirecTV: DirecTV 8 and DirecTV 9S. SS/L received an aggregate $50,000,000 deposit from DirecTV toward the construction of the DirecTV 8 and DirecTV 9S satellites. SS/L also has received a milestone payment of $17,500,000 from DirecTV for commencing the design and manufacture of such satellites.

2. Galaxy 16 Program

In October 2003, Hughes Electronics Corporation, the parent of DirecTV, acting on its own behalf or on behalf of its 81%-owned subsidiary, PanAmSat, entered into an ATP with SS/L to construct the PAS 4RR satellite, which satellite was subsequently renamed the “Galaxy 16 Satellite.” SS/L received a $25,000,000 deposit on behalf of PanAmSat toward the construction of the Galaxy 16 Satellite. SS/L also has received a milestone payment of $3,500,000 on behalf of PanAmSat for commencing the design and manufacture of the Galaxy 16 Satellite. The Bankruptcy Court approved both the fixed price satellite contract for the Galaxy 16 Satellite program and a performance guaranty by Ltd.


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H. DEVELOPMENT OF BUSINESS PLAN AND PLAN NEGOTIATIONS

After achieving stabilization of their business operations during the first few months of the Reorganization Cases, the Debtors engaged in an extensive review and evaluation of the constituent parts of their businesses in the context of formulating a long-range business plan and, eventually, a plan of reorganization.

On December 17, 2003, the Debtors presented their long-term business plan to the Creditors’ Committee. The Creditors’ Committee and its advisors engaged in an extensive due diligence process with respect to the business plan, and, as a result thereof, the Debtors and the Creditors’ Committee revised the business plan. The revised business plan incorporates, among other things, certain strategic and business initiatives, including the Debtors’ four-year financial projections and capital expenditures plan. The business plan, as revised, is premised upon two operating units: one, New FSS that includes the transponder leasing and network and professional services businesses, and the other, New SS/L that is the satellite manufacturing and design business.

Over the course of the past six months, the Debtors’ discussions with the Creditors’ Committee regarding the business plan naturally have evolved into negotiations regarding the development of a plan of reorganization. These negotiations addressed, among other things, the treatment of Claims under the Plan and the amount and form of consideration to be distributed under the Plan to holders of Allowed Orion General Unsecured Claims , Allowed Loral General Unsecured Claims and Allowed Ltd. General Unsecured Claims.

V. THE PLAN OF REORGANIZATION

The Debtors believe that (i) through the Plan, holders of Allowed Claims will obtain a greater recovery from the estates of the Debtors than the recovery that they would receive if the assets of the Debtors were liquidated under chapter 7 of the Bankruptcy Code and (ii) the Plan will afford the Debtors the opportunity and ability to continue in business as a viable going concern and preserve ongoing employment for the Debtors’ employees.

The Plan is annexed hereto as Exhibit A and forms a part of this Disclosure Statement. The summary of the Plan set forth below is qua lified in its entirety by reference to the provisions of the Plan.

Statements as to the rationale underlying the treatment of Claims under the Plan are not intended to, and shall not, waive, compromise or limit any rights, claims or causes of action in the event the Plan is not confirmed.

A. STRUCTURE OF NEW LORAL

On the Effective Date, it is contemplated there will be a new holding company (New Loral), which will hold (directly or indirectly) 100% of the stock of two operating companies (New FSS and New SS/L). New Loral will issue the New Loral Common Stock. It is anticipated that New Loral will be a public company, the stock of which will be traded on the Nasdaq or other national securities exchange. New FSS, which (either directly or through wholly owned subsidiaries) will consist of a substantial portion of the assets of Orion and Loral Skynet, will be the satellite services arm of New Loral and will continue to provide fixed satellite services and network and professional services and support. New FSS will issue the New FSS Notes and the Additional New FSS Notes to satisfy, in part, the claims of the creditors of Orion. New SS/L will be the satellite manufacturing arm of New Loral and will continue to design and manufacture satellites. For the purposes of the Plan, all


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creditors of any Debtor (other than Orion and its subsidiaries) are treated as if they have one claim against Loral, and all creditors of Orion and its subsidiaries are treated as if they have one claim against Orion. See Section V.K. below for a more detailed explanation of such substantive consolidation.

B. CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS

The Plan classifies Claims and Equity Interests separately and provides different treatment for different Classes of Claims and Equity Interests in accordance with the Bankruptcy Code. As described more fully below, the Plan provides, separately for each Class, that holders of certain Claims will receive various amounts and types of consideration, thereby giving effect to the different rights of holders of Claims and Equity Interests in each Class.

1. Administrative Expense Claims

Administrative Expense Claims are Claims constituting a cost or expense of administration of the Reorganization Cases allowed under sections 503(b) , 507(a)(1) and 1114(e) of the Bankruptcy Code. Such Claims include all actual and necessary costs and expenses of preserving the estates of the Debtors, all actual and necessary costs and expenses of operating the business of the Debtors in Possession, any indebtedness or obligations incurred or assumed by the Debtors in Possession in connection with the conduct of their business, and all cure amounts owed in respect of leases and contracts assumed by the Debtors in Possession. The Debtors estimate that the amount of Allowed Administrative Expense Claims that have not previously been paid pursuant to an order of the Bankruptcy Court will aggregate approximately $26,000,000.

Pursuant to the Plan, except to the extent that a holder of an Allowed Administrative Expense Claim agrees to a different treatment, each holder of an Allowed Administrative Expense Claim shall receive Cash in an amount equal to such Allowed Claim on the Effective Date, or as soon thereafter as is reasonably practicable; provided, however, that Allowed Administrative Expense Claims representing liabilities incurred in the ordinary course of business by the Debtors, as Debtors in Possession, or liabilities arising under loans or advances to or other obligations incurred by the Debtors, as Debtors in Possession, whether or not incurred in the ordinary course of business, shall be paid by the Debtors or the Reorganized Debtors in the ordinary course of business, consistent with past practice and in accordance with the terms and subject to the conditions of any agreements governing, instruments evidencing, or other documents relating to such transactions. Notwithstanding anything contained in the Plan, the (i) Letter of Credit Reimbursement Agreement, dated as of April 2, 2004, between SS/L, as borrower, and J.P. Morgan Chase Bank and (ii) Cash Collateral Agreement, dated as of April 2, 2004, between SS/L, as pledgor, and J.P. Morgan Chase Bank, shall continue in accordance with their terms following the Effective Date.

2. Compensation and Reimbursement Claims

Compensation and reimbursement Claims are Administrative Expense Claims for the compensation of professionals and reimbursement of expenses incurred by such professionals pursuant to sections 503(b)(2), 503(b)(3), 503(b)(4) and 503(b)(5) of the Bankruptcy Code (the “Compensation and Reimbursement Claims”). All payments to professionals for Compensation and Reimbursement Claims will be made in accordance with the procedures established by the Bankruptcy Code, the Bankruptcy Rules and the Bankruptcy Court relating to the payment of interim and final compensation for services rendered and reimbursement of expenses. The aggregate amount incurred by the Debtors in respect of compensation for services rendered and reimbursement of expenses incurred by professionals (including professionals employed by the Debtors and the


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Committee) through June 30, 2004 is approximately $26,000,000. The Bankruptcy Court will review and determine all applications for compensation for services rendered and reimbursement of expenses.

Section 503(b) of the Bankruptcy Code provides for payment of compensation to creditors, indenture trustees and other entities making a “substantial contribution” to a reorganization case, and to attorneys for and other professional advisors to such entities. The amounts, if any, which may be sought by entities for such compensation are not known by the Debtors at this time. Requests for compensation must be approved by the Bankruptcy Court after a hearing on notice at which the Debtors and other parties in interest may participate and, if appropriate, object to the allowance of any claims for compensation and reimbursement of expenses.

Pursuant to the Plan, all entities seeking an award by the Bankruptcy Court of compensation for services rendered or reimbursement of expenses incurred through and including the Confirmation Date under section 503(b)(2), 503(b)(3), 503(b)(4), or 503(b)(5) of the Bankruptcy Code (i) shall file their respective final applications for allowance of compensation for services rendered and reimbursement of expenses incurred by the date that is ninety (90) days after the Effective Date, and (ii) shall be paid in full in Cash in such amounts as are allowed by the Bankruptcy Court (A) five Business Days after the date upon which the order relating to any such Administrative Expense Claim is entered or (B) upon such other terms as may be mutually agreed upon between the holder of such an Administrative Expense Claim and the Debtors, or if on and after the Effective Date, the Reorganized Debtors. The Debtors and the Reorganized Debtors, as applicable, are authorized to pay compensation for services rendered or reimbursement of expenses incurred after the Confirmation Date and until the Effective Date in the ordinary course of business and without the need for Bankruptcy Court approval.

3. Indenture Trustee Fees

Indenture Trustee Fees are the reasonable fees and expenses, including, without limitation, reasonable attorneys’ fees and disbursements, incurred by the Indenture Trustee, whether prior to or after the Commencement Date and through the Effective Date. The Debtors estimate that the amount of Indenture Trustee Fees will aggregate approximately $750,000.

Notwithstanding any provision contained in the Plan to the contrary, all Indenture Trustee Fees shall be paid in Cash on the Effective Date by the Reorganized Debtors as Administrative Expense Claims, without the need for application to, or approval of, any court. Each Indenture Trustee is entitled to a lien or other prior ity in payment (a “Charging Lien”) arising prior to the Effective Date, pursuant to the applicable Indenture, against distributions to be made to holders of Claims of the Ltd. Notes, the Orion 10% Notes, and the Orion Stub Notes for payment of any Indenture Trustee Fees. Each Indenture Trustee’s Charging Lien will be discharged solely upon payment in full of the Indenture Trustee Fees. Nothing in the Plan shall be deemed to impair, waive or discharge the Charging Lien for any fees and expenses not paid by the Reorganized Debtors.

The Plan provides that to the extent that any Indenture Trustee provides services related to distributions pursuant to the Plan (including, but not limited to, the services referenced in Subsection 6.6(a) of the Plan), such Indenture Trustee will receive from the Reorganized Debtors, without further court approval, reasonable compensation for such services and reimbursement of reasonable expenses incurred in connection with such services. These payments will be made on terms agreed to among the Indenture Trustee and the Reorganized Debtors.


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4. Priority Tax Claims

Priority Tax Claims are Claims against any Debtor of a governmental unit of the kind entitled to priority in payment as specified in sections 502(i) and 507(a)(8) of the Bankruptcy Code. The Debtors estimate that the amount of Allowed Priority Tax Claims will aggregate approximately $2,500,000.

Pursuant to the Plan, except to the extent that a holder of an Allowed Priority Tax Claim agrees to a different treatment, each holder of an Allowed Priority Tax Claim shall receive, at the option of the Debtors, after consultation with the Creditors’ Committee, (i) Cash in an amount equal to such Allowed Priority Tax Claim on the Effective Date, or as soon thereafter as is reasonably practicable, or (ii) equal annual Cash payments commencing on the first anniversary of the Effective Date in an aggregate amount equal to such Allowed Priority Tax Claim, together with interest at a fixed annual rate equal to four percent (4%), over a perio d through the sixth (6th) anniversary of the date of assessment of such Allowed Priority Tax Claim, subject to the Reorganized Debtors’ rights at the Reorganized Debtors’ sole option to prepay the entire amount of the Allowed Priority Tax Claim. All Allowed Priority Tax Claims that are not due and payable on or before the Effective Date shall be paid in the ordinary course of business as such obligations become due.

5. Class 1 – Other Priority Claims

Other Priority Claims are Claims against any Debtor, other than Administrative Expensive Claims or Priority Tax Claims, that are entitled to priority in payment as specified in section 507(a)(3), (4), (5), (6), (7) or (9) of the Bankruptcy Code. Such Claims include, but are not limited to, Allowed unsecured Claims for certain prepetition (x) wages, salaries or commissions, including vacation, severance and sick leave pay, (y) sales commissions earned by independent contractors, or (z) contributions to an employee benefit plan. The Debtors believe that there are no outstanding Allowed Other Priority Claims.

Pursuant to the Plan, except to the extent that a holder of an Allowed Other Priority Claim has agreed to a different treatment of such Claim, each such holder shall receive, in full satisfaction of such Claim, Cash in an amount equal to such Claim, on or as soon as reasonably practicable after the later of (i) the Effective Date, (ii) the date such Claim becomes Allowed, and (iii) the date for payment provided by any agreement or understanding between the applicable Debtor or Debtors and the holder of such Claim.

6. Class 2 – Secured Tax Claims

A Secured Tax Claim is any Secured Claim that, absent its secured status, would be entitled to priority in right of payment under section 507(a)(8) of the Bankruptcy Code (determined irrespective of any time limitations therein) and including any related Secured Claim for penalties. The Debtors estimate that the amount of Allowed Secured Tax Claims will aggregate approximately $3,800,000.

Pursuant to the Plan, except to the extent that a holder of an Allowed Secured Tax Claim agrees to a different treatment, each holder of an Allowed Secured Tax Claim shall receive, at the option of the Debtors, in consultation with the Creditors’ Committee, (i) Cash in an amount equal to such Allowed Secured Tax Claim, including any interest on such Allowed Secured Tax Claim required to be paid pursuant to section 506(b) of the Bankruptcy Code, on the later of the Effective Date and the date such Allowed Secured Tax Claim becomes an Allowed Secured Tax Claim, or as soon thereafter as is practicable; (ii) equal annual Cash payments commencing on the first


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anniversary of the Effective Date in an aggregate amount equal to such Allowed Secured Tax Claim, together with interest at a fixed annual rate equal to four (4%) percent, over a period through the sixth (6th) anniversary of the Effective Date, subject to the Reorganized Debtors’ sole option to prepay the entire amount of such Allowed Secured Tax Claim; or (iii) upon such other terms determined by the Bankruptcy Court to provide the holder of such Allowed Secured Tax Claim deferred Cash payments having a value, as of the Effective Date, equal to such Allowed Secured Tax Claim.

7. Class 3 – Secured Claims

A Secured Claim is any Claim against any Debtor to the extent reflected in the Schedules or a proof of claim as a Secured Claim, which is secured by a Lien on Collateral to the extent the value of such Collateral, as determined in accordance with section 506(a) of the Bankruptcy Code, or, in the event that such Claim is subject to a permissible setoff under section 553 of the Bankruptcy Code, to the extent of such permissible setoff. The Debtors believe that there are no outstanding Allowed Secured Claims.

Pursuant to the Plan, except to the extent that a holder of an Allowed Secured Claim agrees to a different treatment, each holder of an Allowed Secured Claim shall receive, in full satisfaction of such Allowed Secured Claim, at the sole option of the Reorganized Debtors, either (i) Cash in an amount equal to one hundred percent (100%) of the amount of such Allowed Secured Claim, (ii) the proceeds of the sale or disposition of the Collateral securing such Allowed Secured Claim to the extent of the value of the holder’s secured interest in such Colla teral, (iii) the Collateral securing such Allowed Secured Claim, or (iv) such other distribution as necessary to satisfy the requirements of section 1124 of the Bankruptcy Code. In the event the Reorganized Debtors treat a Claim under clause (i) or (ii) of this Section, the Liens securing such Secured Claim shall be deemed released.

8. Class 4 – Orion General Unsecured Claims

Orion General Unsecured Claims consist of all Claims against Orion and its subsidiaries that are not Administrative Expense Claims, Priority Tax Claims, Other Priority Claims, Secured Tax Claims, Secured Claims, Debtor Intercompany Claims, Non-Debtor Intercompany Claims, or Securities Litigation Claims. Orion General Unsecured Claims include all Orion Note Claims. In general, this Class consists of trade Claims against Orion and its subsidiaries and Orion bond debt. The aggregate amount of Orion General Unsecured Claims, as reflected in proofs of claim filed by holders of Orion General Unsecured Claims or, in the event no proof of claim was filed, in the Debtors’ Schedules is $734,164,389 in bond debt and $9,332,143 in trade and general unsecured claims, excluding claims for which no amounts were specified (as in the case of Unliquidated Claims), Claims against multiple Debtors, amended Claims, duplicate Claims and guarantee Claims. For purposes of the Plan, through the substantive consolidation of Orion and its subsidiaries, Claims against Orion and its subsidiarie s are deemed one Claim against Consolidated Orion and guarantee Claims are deemed eliminated. See Section V.K. The Debtors estimate that the amount of Allowed Orion General Unsecured Claims will aggregate approximately $742,400,000. The Debtors’ estimate of Allowed Orion General Unsecured Claims is based upon an analysis of the Orion General Unsecured Claims. The ultimate resolution of Orion General Unsecured Claims could result in Allowed Orion General Unsecured Claims in amounts less than or greater than those estimated by the Debtors for purposes of this Disclosure Statement.

Pursuant to the Plan, each holder of an Allowed Orion General Unsecured Claim shall (A) receive from Orion or New FSS on each Distribution Date, in full satisfaction of such Claim, its “Class 4 Pro Rata Share” of (i) 8,995,845 shares of New Loral Common Stock and (ii) the


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New FSS Notes and (B) have the right to participate in the “Rights Offering” on account of its Orion General Unsecured Claim. A “Class 4 Pro Rata Share” is the ratio (expressed as a percentage) of the amount of an Allowed Orion General Unsecured Claim to the aggregate amount of (a) all Allowed Orion General Unsecured Claims and (b) the aggregate of the Disputed Claim Amounts of all Disputed Claims in Class 4. The “Disputed Claim Amount” is the estimated dollar value of a Disputed Cla im pursuant to section 502(c) of the Bankruptcy Code or as otherwise agreed to between the holder of such Claim and the applicable Debtor or Reorganized Debtor, or as otherwise determined by the Bankruptcy Court, or if no such amount exists, the amount set forth in the proof of claim relating to such Disputed Claim as the liquidated amount of such Disputed Claim. The “Rights Offering” is the offering of non-transferable, non-certificated rights to each holder of an Orion General Unsecured Claim to subscribe for the Additional New FSS Notes in the aggregate principal amount of $30,000,000 on the terms and subject to the conditions set forth in Section 9 of the Plan. See Section V.D. for more detailed information about the Rights Offering.

Any distribution of shares of New Loral Common Stock or New FSS Notes made to the holder of an Allowed Orion General Unsecured Claim shall be less the amount of all shares of New Loral Common Stock or New FSS Notes previously distributed to such holder on account of such Allowed Orion General Unsecured Claim.

9. Class 5 – Loral General Unsecured Claims

Loral General Unsecured Claims consist of all Claims against any Debtor that are not Administrative Expense Claims, Priority Tax Claims, Other Priority Claims, Secured Tax Claims, Secured Claims, Orion General Unsecured Claims, Ltd. General Unsecured Claims, Debtor Intercompany Claims, Non-Debtor Intercompany Claims, or Securities Litigation Claims. Loral General Unsecured Claims include trade Claims against all of the Debtors (other than Ltd. and Orion and its subsidiaries), including SS/L. The aggregate amount of Loral General Unsecured Claims, as reflected in proofs of claim filed by holders of Loral General Unsecured Claims or, in the event no proof of claim was filed, in the Debtors’ Schedules is $578,616,058, excluding Claims for which no amounts were specified (as in the case of Unliquidated Claims), Claims against multiple Debtors, amended Claims, duplicate Claims and guarantee Claims. For purposes of the Plan, through the substantive consolidation of the Debtors, Claims against multiple Debtors (excluding Orion and its subsidiaries) are deemed one Claim against the Consolidated Debtors (excluding Orion and its subsidiaries) and guarantee Claims are deemed eliminated. See Section V.K. The Debtors estimate that the amount of Allowed Loral General Unsecured Claims will aggregate approximately $117,000,000. The Debtors’ estimate of Allowed Loral General Unsecured Claims is based upon an analysis of the Loral General Unsecured Claims. The ultimate resolution of Loral General Unsecured Claims could result in Allowed Loral General Unsecured Claims in amounts less than or greater than those estimated by the Debtors for purposes of this Disclosure Statement.

Pursuant to the Plan, each holder of an Allowed Loral General Unsecured Claim shall receive Alternative A set forth below if Class 5 accepts the Plan or Alternative B set forth below if Class 5 rejects the Plan.

a. Alternative A.

(i) Election Form and Treatment of Disputed Claims. Each holder of an Allowed Loral General Unsecured Claim as of the Voting Record Date shall have the right to elect on a properly completed and timely delivered Election Form to be treated as either a “Stock Subscriber,” whereby such holder elects to receive New Loral Common Stock instead of Cash, or a “Cash Subscriber,” whereby such holder (A) elects to receive Cash instead of New Loral Common Stock or


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(B) fails to timely deliver a properly completed and timely delivered Election Form to elect to receive Cash or New Loral Common Stock. Any holder of Allowed Loral General Unsecured Claim as of the Voting Record Date who fails to properly complete and timely deliver an Election Form shall be, and shall be treated irrevocably as, a Cash Subscriber. Any holder of a Disputed Claim as of the Voting Record Date that later becomes an Allowed Loral General Unsecured Claim shall be, and shall be treated irrevocably as, a Cash Subscriber.

(ii) Distribution. Subject to the third paragraph of this Subsection V.B.9.a(ii) and the occurrence of an Oversubscription (as described below) or Undersubscription (as described below), each holder of an Allowed Loral General Unsecured Claim shall receive New Loral Common Stock or Cash on each Distribution Date, in full satisfaction of such Claim.

Pursuant to Subsection 4.5(a)(i) of the Plan, each Stock Subscriber shall receive 18,265.7 shares of New Loral Common Stock for each $1,000,000 of such holder’s Allowed Loral General Unsecured Claim. Pursuant to Subsection 4.5(a)(i) of the Plan, each Cash Subscriber shall receive Cash in an amount equal to such holder’s “Cash Subscriber Pro Rata Share” of $30,000,000. A “Cash Subscriber Pro Rata Share” is the ratio (expressed as a percentage) of the amount of an Allowed Loral General Unsecured Claim of a Cash Subscriber to the aggregate amount of (a) all Allowed Loral General Unsecured Claims of Cash Subscribers and (b) the aggregate of the Disputed Claim Amounts of all Disputed Claims of Cash Subscribers in Class 5. The “Disputed Claim Amount” is the estimated dollar value of a Disputed Claim pursuant to section 502(c) of the Bankruptcy Code or as otherwise agreed to between the holder of such Claim and the applicable Debtor or Reorganized Debtor, or as otherwise determined by the Bankruptcy Court, or if no such amount exists, the amount set forth in the proof of claim relating to such Disputed Claim as the liquidated amount of such Disputed Claim.

Notwithstanding any provision of the Plan to the contrary, in no event shall the holders of Allowed Loral General Unsecured Claims receive, in the aggregate, in excess of (A) the “Class 5 New Loral Common Stock,” which is 310,516 shares of New Loral Common Stock, and (B) Cash in the amount of $30,000,000.

(iii) Oversubscription. In the event of an Oversubscription of New Loral Common Stock, each Stock Subscriber shall receive on each Distribution Date, in full satisfaction of such Claim, (A) a number of shares of New Loral Common Stock equal to the product of (1) the Class 5 New Loral Common Stock multiplied by (2) a fraction, the numerator of which is the amount of such holder’s Allowed Loral General Unsecured Claim and the denominator of which is the aggregate amount of all Allowed Loral General Unsecured Claims held by all Stock Subscribers, and (B) Cash on account of such holder’s “Remaining Claim” in an amount equal to such holder’s pro rata share of $30,000,000 (based upon the aggregate amount of Allowed Loral General Unsecured Claims of Cash Subscribers and Remaining Cla ims of Stock Subscribers). A “Remaining Claim” is (x) the amount of a holder’s Allowed Loral General Unsecured Claim minus (y) the amount of such holder’s Allowed Claim multiplied by a fraction, the numerator of which is $17,000,000 and the denominator of which is the aggregate amount of all Allowed Loral General Unsecured Claims of all Stock Subscribers.

In the event of an Oversubscription of New Loral Common Stock, each Cash Subscriber shall receive Cash in an amount equal to such holder’s “Oversubscription Pro Rata Share” of $30,000,000. An “Oversubscription Pro Rata Share” is the ratio (expressed as a percentage) of the amount of an Allowed Loral General Unsecured Claim of a Cash Subscriber to the aggregate amount of (a) all Allowed Loral General Unsecured Claims of Cash Subscribers, (b) the aggregate of the


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Disputed Claim Amounts of all Disputed Claims of Cash Subscribers in Class 5, and (c) the Remaining Claims of Stock Subscribers.

(iv) Undersubscription. In the event of an Undersubscription of New Loral Common Stock, each Stock Subscriber shall receive on each Distribution Date, in full satisfaction of such Claim, 18,265.7 shares of New Loral Common Stock for each $1,000,000 of such holder’s Allowed Loral General Unsecured Claim.

In the event of an Undersubscription of New Loral Common Stock, each Cash Subscriber shall receive a distribution equal to (1) Cash in an amount equal to such holder’s Cash Subscriber Pro Rata Share of $30,000,000 and (2) such holder’s Cash Subscriber Pro Rata Share of the “Net Available Shares” (based upon the aggregate amount of Allowed Loral General Unsecured Claims of Cash Subscribers). The “Net Available Shares” means the number of shares of New Loral Common Stock equal to the difference between (x) the Class 5 New Loral Common Stock and (y) the aggregate number of shares of New Loral Common Stock that will be distributed to Stock Subscribers under Subsection 4.5(a)(iii)(A) of the Plan.

(v) Adjustment. In any distribution made to the holder of an Allowed Loral General Unsecured Claim under Subsection 4.5(a) of the Plan, there shall be deducted therefrom the amount of all shares of New Loral Common Stock and/or Cash previously distributed to such holder on account of such Allowed Loral General Unsecured Claim in any distribution made prior thereto.

b. Alternative B.

Each holder of an Allowed Loral General Unsecured Claim shall receive from New Loral on each Distribution Date, in full satisfaction of such Claim, its “Class 5 Combined Pro Rata Share” of the “New Loral Common Stock Balance.” The “New Loral Common Stock Balance” is 11,004,155 shares of the New Loral Common Stock. A “Class 5 Combined Pro Rata Share” is the ratio (expressed as a percentage) of the amount of an Allowed Loral General Unsecured Cla im to the aggregate amount of (i) Allowed Loral General Unsecured Claims and Allowed Ltd. General Unsecured Claims and (ii) the aggregate of (A) the Disputed Claim Amounts of all Disputed Claims in Class 5 and the Disputed Claim Amounts of all Disputed Claims in Class 5A. The “Disputed Claim Amount” is the estimated dollar value of a Disputed Claim pursuant to section 502(c) of the Bankruptcy Code or as otherwise agreed to between the holder of such Claim and the applicable Debtor or Reorganized Debtor, or as otherwise determined by the Bankruptcy Court, or if no such amount exists, the amount set forth in the proof of claim relating to such Disputed Claim as the liquidated amount of such Disputed Claim.

Any distribution of shares of New Loral Common Stock made to the holder of an Allowed Loral General Unsecured Claim shall be less the amount of all shares of New Loral Common Stock previously distributed to such holder on account of such Allowed Loral General Unsecured Claim.

10. Class 5A – Ltd. General Unsecured Claims

Ltd. General Unsecured Claims consist of all Claims against Ltd. that are not Administrative Expense Claims, Priority Tax Claims, Other Priority Claims, Secured Tax Claims, Secured Claims, Debtor Intercompany Claims, Non-Debtor Intercompany Claims, or Securities Litigation Claims. Ltd. General Unsecured Claims include all Ltd. Guaranty Claims and all Ltd. Note Claims. The aggregate amount of Ltd. General Unsecured Claims, as reflected in proofs of claim


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filed by holders of Ltd. General Unsecured Claims or, in the event no proof of claim was filed, in the Debtors’ Schedules is $366,625,000 in bond debt and $46,764,257 in trade and other general unsecured Claims , excluding Claims for which no amounts were specified (as in the case of Unliquidated Claims), Claims against mult iple Debtors, amended Claims, duplicate Claims and guarantee Claims. For purposes of the Plan, through the substantive consolidation of the Debtors, Claims against multiple Debtors (excluding Orion and its subsidiaries) are deemed one Claim against the Consolidated Debtors (excluding Orion and its subsidiaries) and guarantee Claims are deemed eliminated. See Section V.K. The Debtors estimate that the amount of Allowed Ltd. General Unsecured Claims will aggregate approximately $1,011,000,000. The Debtors’ estimate of Allowed Ltd. General Unsecured Claims is based upon an analysis of the Ltd. General Unsecured Claims. The ultimate resolution of Ltd. General Unsecured Claims could result in Allowed Ltd. General Unsecured Claims in amounts less than or greater than those estimated by the Debtors for purposes of this Disclosure Statement.

Pursuant to the Plan, each holder of an Allowed Ltd. General Unsecured Claim shall receive Alternative A set forth below if Class 5 accepts the Plan or Alternative B set forth below if Class 5 rejects the Plan.

a. Alternative A.

Pursuant to the Plan, each holder of an Allowed Ltd. General Unsecured Claim shall receive from New Loral on each Distribution Date, in full satisfaction of such Claim, its “Class 5A Pro Rata Share” of a number of shares of the New Loral Common Stock equal to 10,693,639 shares of New Loral Common Stock, which amount constitutes (i) the “New Loral Common Stock Balance” minus (ii) the “Class 5 New Loral Common Stock.” The “New Loral Common Stock Balance” is 11,004,155 shares of New Loral Common Stock, and the “Class 5 New Loral Common Stock” is 310,516 shares of New Loral Common Stock. A “Class 5A Pro Rata Share” is the ratio (expressed as a percentage) of the amount of an Allowed Ltd. General Unsecured Claim to the aggregate amount of (A) Allowed Ltd. General Unsecured Claims and (B) the aggregate of the Disputed Claim Amounts of all Disputed Claims in Class 5A. The “Disputed Claim Amount” is the estimated dollar value of a Disputed Claim pursuant to section 502(c) of the Bankruptcy Code or as otherwise agreed to between the holder of such Claim and the applicable Debtor or Reorganized Debtor, or as otherwise determined by the Bankruptcy Court, or if no such amount exists, the amount set forth in the proof of claim relating to such Disputed Claim as the liquidated amount of such Disputed Claim.

Any distribution of shares of New Loral Common Stock made to the holder of an Allowed Ltd. General Unsecured Claim shall be less the amount of all shares of New Loral Common Stock previously distributed to such holder on account of such Allowed Ltd. General Unsecured Claim.

b. Alternative B.

Pursuant to the Plan, each holder of an Allowed Ltd. General Unsecured Claim shall receive from New Loral on each Distribution Date, in full satisfaction of such Claim, its “Class 5A Combined Pro Rata Share” of the New Loral Common Stock Balance. A “Class 5A Combined Pro Rata Share” is the ratio (expressed as a percentage) of the amount of an Allowed Ltd. General Unsecured Cla im to the aggregate amount of (A) Allowed Loral General Unsecured Claims and Allowed Ltd. General Unsecured Claims and (B) the aggregate of (1) the Disputed Claim Amounts of all Disputed Claims in Class 5 and (2) the Disputed Claim Amounts of all Disputed Claims in Class 5A.


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11. Class 6 – Ltd. Preferred Stock Interests

Ltd. Preferred Stock Interests consist of any interest in the (i) $745,000,000 6% Series C Convertible Redeemable Preferred Stock (the “Series C Preferred Stock”) due 2006 of Ltd. or (ii) $400,000,000 6% Series D Convertible Redeemable Preferred Stock (the “Series D Preferred Stock”) due 2007 of Ltd. As of the Commencement Date, (i) 3,745,485 shares of Series C Preferred Stock and (ii) 734,135 shares of Series D Preferred Stock were outstanding.

Pursuant to the Plan, holders of Ltd. Preferred Stock Interests will not receive or retain any interest or property under the Plan. On the Effective Date, all Ltd. Preferred Stock Interests shall be cancelled and extinguished.

12. Class 7 – Othe r Equity Interests

Other Equity Interests consist of all common stock, warrants, options, rights to receive options and other equity issued by each of the Debtors, other than the Ltd. Preferred Stock Interests.

Pursuant to the Plan, holders of Other Equity Interests will not receive or retain any interest or property under the Plan. On the Effective Date, all Other Equity Interests shall be cancelled and extinguished (other than any Other Equity Interests held by another Debtor or Non-Debtor and subject to Section 5.3 of the Plan).

13. Class 8 – Securities Litigation Claims

The Securities Litigation Claims consist of all Claims against any Debtor, whether or not the subject of an existing lawsuit, arising from rescission of a purchase or sale of shares or notes of any of the Debtors or any affiliate of any Debtor, for damages arising from the purchase or sale of any such security, or for reimbursement, contribution, or indemnification allowed under section 502 of the Bankruptcy Code on account of any such Claim. See the discussion in Section III.E. of this Disclosure Statement for more detail.

Pursuant to the Plan, the holders of Allowed Securities Litigation Claims will not receive or retain any interest or property under the Plan on account of such Securit ies Litigation Claims. The treatment of Securities Litigation Claims under the Plan is in accordance with and gives effect to the provisions of section 510(b) of the Bankruptcy Code. Section 510(b) of the Bankruptcy Code provides that a Claim arising for damages from the purchase or sale of a security of the debtor or an affiliate of the debtor shall be subordinated to all Claims or Interests that are senior to or equal to the Claim or Interest represented by such security, except that if such security is common stock, such Claim has the same priority as common stock.

C. SECURITIES TO BE ISSUED UNDER THE PLAN

Pursuant to the Plan, New Loral and New FSS are authorized without further act or action under applicable law, regulation, order, or rule to issue the following securities: (a) the New


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Loral Common Stock, (b) the New FSS Notes, (c) the Additional New FSS Notes, (d) the Subscription Rights and (e) the Options.

In addition, the New Loral Certificate of Incorporation shall provide that 10,000,000 shares of preferred stock of New Loral may be issued from time to time in one or more series. The New Loral Board shall be authorized, within the limitations and restrictions stated in the New Loral Certificate of Incorporation, to, among other things, fix or alter the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption, the redemption price or prices, the liquidation preferences of any preferred stock, and the number of shares constituting any such series and the designation thereof, or any of them.

1. New Loral Common Stock

Pursuant to the Plan, on the Effective Date, all Equity Interests of Ltd. and all Other Equity Interests other than those held by a Debtor or a Non-Debtor will be cancelled and extinguished. As of the Effective Date, the authorized common stock of New Loral will consist of 40,000,000 shares of New Loral Common Stock, par value $.01 per share. Pursuant to the Plan, (i) an aggregate of 8,995,845 shares of New Loral Common Stock will be issued to holders of Allowed Orion General Unsecured Claims; (ii) in the event Class 5 accepts the Plan, an aggregate of 310,516 shares of New Loral Common Stock will be issued to holders of Allowed Loral General Unsecured Claims and an aggregate of 10,693,639 shares of New Loral Common Stock will be issued to holders of Allowed Ltd. General Unsecured Claims; and (iii) in the event Class 5 rejects the Plan, an aggregate of 11,004,155 shares of New Loral Common Stock will be issued to holders of Allowed Loral General Unsecured Claims and Allowed Ltd. General Unsecured Claims. The rights of holders of New Loral Common Stock will be subject to the New Loral Certificate of Incorporation and New Loral Bylaws, forms of which will be included in the Plan Supplement, and applicable Delaware law. The New Loral Common Stock issued to creditors pursuant to the Plan will be subject to dilution by shares of New Loral Common Stock issued under the New Management Stock Plan. New Loral will use its commercially reasonable efforts to cause the shares of New Loral Common Stock to be registered under Section 12 of the Securities Exchange Act of 1934, as amended, and listed on the Nasdaq market system or other national securities exchange for which it may qualify as soon as practicable after the Effective Date.

2. New FSS Notes

Pursuant to the Plan, on the Effective Date, New FSS shall issue to holders of Orion General Unsecured Claims senior secured notes in the aggregate principal amount of $200,000,000, the terms of which are governed by the New FSS Notes Indenture, dated as of the Effective Date, between New FSS and an indenture trustee to be selected by New FSS. The New FSS Notes will have a seven-year term, bearing interest at the rate of 14% per annum payable semi-annually in arrears, with the entire principal amount payable upon maturity, and will be secured by certain assets of New FSS. A portion of the interest will be payable in-kind for a limited period of time, and the New FSS Board has the discretion to pay up to 4% of the interest in-kind in years 3 through 7. The New FSS Notes Indenture shall be substantially in the form set forth in the Plan Supplement.

3. Additional New FSS Notes

Pursuant to the Plan, in connection with the offering of Subscription Rights to the holders of Orion General Unsecured Claims described in Section V.D. of the Disclosure Statement, New FSS shall issue senior secured notes in the principal amount of $30,000,000, the terms of which are governed by the New FSS Notes Indenture, dated as of the Effective Date, between New FSS and


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an indenture trustee to be selected by New FSS. The Additional New FSS Notes will have a seven-year term bearing interest at the rate of 14% per annum payable semi-annually in arrears, with the entire principal amount payable upon maturity, and will be secured by certain assets of New FSS. A portion of the interest will be payable in-kind for a limited period of time , and the New FSS Board has the discretion to pay up to 4% of the interest in-kind in years 3 through 7. The Additional New FSS Notes will have the same terms and priority as the New FSS Notes but will be guaranteed by New SS/L. The principal amount of Additional New FSS Notes shall be increased to include the Backstop Fee (as defined in Section V.D.) as provided in Section 9.6 of the Plan.

4. Subscription Rights

Pursuant to the Plan, holders of Orion General Unsecured Claims shall be entitled to Subscription Rights, which are non-transferable, non-certificated rights to subscribe for the Additional New FSS Notes in the principal amount of $30,000,000, as described in Section V.D. of the Disclosure Statement.

5. Options

The New Management Stock Plan provides for a New Management Incentive Program (the “New Management Incentive Program”) consisting of a stock option plan for the Reorganized Debtors’ management and other key employees (approximately 40 employees in the aggregate to be designated by the existing Board of Directors and approved by the Creditors’ Committee). The New Management Incentive Program will provide for Options to acquire shares of New Loral Common Stock representing up to 6.5% of the fully diluted common stock of New Loral as of the Effective Date.

The Options will have (i) a seven-year term, (ii) a four-year vesting schedule, vesting 25% per year commencing on the first anniversary of the Effective Date, and (iii) a strike price based upon a total enterprise value of consolidated New Loral of $700,000,000; provided, however, that upon the occurrence of a “Change of Control” at New Loral or a sale of all or substantially all of the assets of New Loral, all unvested Options allocated to employees will vest contemporaneously with the effectiveness of any such Change of Control or sale ; provided further, however, that upon any capital distribution to shareholders, the exercise price of all outstanding Options will be reduced by the full amount distributed on a per share basis to shareholders of New Loral. A “Change of Control” is defined as (i) the acquisition of at least 35% of the outstanding New Loral Common Stock by any person or group of affiliated persons (excluding any person who owns 20% or more of the outstanding New Loral Common Stock on the Effective Date), (ii) “incumbent directors” (including any director whose nomination is approved by a majority of the then existing incumbent directors) do not comprise a majority of the New Loral Board, (iii) a merger, consolidation, reorganization, recapitalization or similar transaction where New Loral shareholders before such transaction no longer own their proportionate interest in at least a majority of the shares in New Loral, or (iv) shareholders of New Loral approve a plan of liquidation or dissolution of New Loral, or any such plan is implemented.

Of the Options to be distributed under the New Management Incentive Program, Options to acquire .5% of the common stock of New Loral will be allocated to Michael B. Targoff, as Vice Chairman of the New Board of Directors.

Pursuant to the Plan, the New Management Stock Plan shall be and shall be deemed to be adopted by New Loral and effective as of the Effective Date. The solicitation of votes on the Plan shall include and be deemed to be a solicitation for approval of the New Management Stock Plan


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by the holders of the New Loral Common Stock. Entry of the Confirmation Order shall constitute such approval. The form of the New Management Stock Plan will be included in the Plan Supplement.

D. THE RIGHTS OFFERING

1. Issuance of Subscription Rights

Pursuant to Section 9 of the Plan, holders of Orion General Unsecured Claims have the right, but not the obligation, to participate in the Rights Offering. Each holder of an Orion General Unsecured Claim shall have a Subscription Right entitling such holder to subscribe for up to its “Additional New FSS Notes Pro Rata Share” of Additional New FSS Notes. “Additional New FSS Notes Pro Rata Share” means the ratio (expressed as a percentage) of such holder’s “Rights Participation Claim Amount” to the aggregate amount of all Rights Participation Claim Amounts, determined as of the Voting Record Date or the Subscription Expiration Date (defined below), as applicable . A “Rights Participation Claim Amount” is, (a) in the case of an Orion Note Claim, the amount of such Orion Note Claim; and (b) in the case of any Orion General Unsecured Claim other than an Orion Note Claim, (i) if no proof of claim has been timely filed with respect to such Claim and such Claim has been listed in the Debtors’ Schedules as liquidated in amount and not disputed or contingent, the amount set forth in the Schedules; (ii) if a timely proof of claim has been filed with respect to such Claim in a fixed and liquidated amount and the claim is not listed on the “Disputed Rights Offering List,” which list is annexed to the Plan as Schedule 9.1, the amount set forth in the proof of claim; (iii) if such Claim is on the Disputed Rights Offering List, the amount, if any, of such Claim set forth thereon in the column entitled “Amount,” unless the holder of such Claim has obtained an order of the Bankruptcy Court at least thirty-five (35) days prior to the Voting Record Date, otherwise determining the amount of the Claim for purposes of the Rights Offering; and (iv) other than in the circumstances described in (i), (ii) and (iii) above, the Rights Participation Claim Amount shall be zero. Notwithstanding anything contained in the Plan to the contrary, under no circumstances shall any holder of an Orion General Unsecured Claim that was not timely filed or deemed timely filed have any Rights Participation Claim Amount.

If, after the Voting Record Date but at least five (5) days prior to the Subscription Expiration Date (as defined below), a holder of an Orion General Unsecured Claim is permitted to participate in the Rights Offering as a result of a Bankruptcy Court order estimating such Claim for the purpose of determining such holder’s Rights Participation Claim Amount, such holder shall be permitted to participate in the Rights Offering to the same extent as a holder of a Rights Partic ipation Claim Amount as of the Voting Record Date.

The Rights Offering shall commence on the Subscription Commencement Date, which is (i) a Business Day determined by the Debtors after consultation with the Creditors’ Committee and (ii) a reasonable time prior to the Confirmation Hearing and the day on which the Subscription Form is mailed. The Rights Offering shall expire on the Subscription Expiration Date, which is (i) the deadline for voting on the Plan as specified in the Subscription Form, subject to the Debtors’ right to extend such date upon the consent of the Creditors’ Committee, and (ii) the final date by which a holder of an Orion General Unsecured Claim may elect to subscribe to the Rights Offering. Each holder of an Orion General Unsecured Claim intending to participate in the Rights Offering must affirmatively elect to exercise its Subscription Right(s) on or prior to the Subscription Expiration Date. After the Subscription Expiration Date, unexercised Subscription Rights shall be treated as acquired by the “Backstop Purchaser” and any exercise of such Subscription Rights by any entity other than the Backstop Purchaser shall be null and void and the Debtors shall not be obligated to honor any such purported exercise received by the Disbursing Agent after the Subscription


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Expiration Date, regardless of when the documents relating to such exercise were sent. The “Backstop Purchaser” means certain members of the Creditors’ Committee holding Orion General Unsecured Claims who purchase Additional New FSS Notes in accordance with the provisions of Section 9.6 of the Plan.

2. Exercise of Subscription Rights

Each holder of Subscription Rights shall be required to pay such holder’s Subscription Purchase Price for Additional New FSS Notes, or a lesser amount of Additional New FSS Notes, each in the face amount of $1,000, as such holder may determine, subject to rounding as provided in Section 6.10 of the Plan of Reorganization.

In order to exercise the Subscription Rights, each holder of an Orion General Unsecured Claim must: (i) return a duly completed Subscription Form to the Disbursing Agent so that such form is actually received by the Disbursing Agent on or before the Subscription Expiration Date; and (ii) pay to the Disbursing Agent (on behalf of Orion) on or before the Subscription Expiration Date such holder’s Subscription Purchase Price in accordance with the wire instructions set forth on the Subscription Form or by bank or cashier’s check delivered to the Disbursing Agent along with the Subscription Form. If, on or prior to the Subscription Expiration Date, the Disbursing Agent for any reason does not receive from a given holder of Subscription Rights both a duly completed Subscription Form and immediately available funds in an amount equal to such holder’s Subscription Purchase Price, such holder shall be deemed to have relinquished and waived its right to participate in the Rights Offering.

The payments made in accordance with the Rights Offering shall be deposited and held by the Disbursing Agent in a trust account, or similarly segregated account or accounts which shall be separate and apart from the Disbursing Agent’s general operating funds and any other funds subject to any Lien or any cash collateral arrangements and which segregated account or accounts will be maintained for the purpose of holding the money for administration of the Rights Offering until the Effective Date, or such other later date, at the option of the Reorganized Debtors, but not later than twenty (20) days after the Effective Date. The Disbursing Agent shall not use such funds for any other purpose prior to such date and shall not encumber or permit such funds to be encumbered with any Lien or similar encumbrance. Notwithstanding the foregoing, in order for a holder of an Orion General Unsecured Claim to exercise its Subscription Right, such holder must provide its instruction to its bank, broker, or other nominee or to its agent. The bank, broker, or other nominee or its agent, in turn, must then convey the instruction on a master Subscription Form, and arrange for the proper payment either through the Depository Trust Company (“DTC”) or, if DTC is unable to act as intermediary for subscription instructions and payments, by following the payment instructions outlined above.

For all purposes under Section 9 of the Plan, each holder of an Orion General Unsecured Claim is entitled to participate in the Rights Offering solely to the extent of its Rights Participation Claim Amount, if any.

Each holder of an Orion General Unsecured Claim may exercise all or any portion of such holder’s Subscription Rights pursuant to the Subscription Form but the exercise of any Subscription Rights shall be irrevocable. In order to facilitate the exercise of the Subscription Rights, on the Subscription Commencement Date, the Debtors will ma il the Subscription Form to each holder of an Orion General Unsecured Claim as of the Voting Record Date together with appropriate instructions for the proper completion, due execution and timely delivery of the Subscription Form, as well as instructions for the payment of the applicable Subscription Purchase Price for that portion of


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the Subscription Rights sought to be acquired by such holder. As promptly as practicable (and, in any event, not later than ten (10) Business Days) following the Subscription Expiration Date, the Debtors will deliver to each holder of an Orion General Unsecured Claim that has sought to exercise its Subscription Rights a written statement specifying the portion of the Subscription Rights that was validly and effectively acquired by such holder giving effect to Section 9.6 of the Plan. The Debtors, with the consent of the Creditors’ Committee, may adopt such additional detailed procedures consistent with the provisions of Section 9 of the Plan to more efficiently administer the exercise of the Subscription Rights.

All questions concerning the timeliness, viability, form and eligibility of any exercise of Subscription Rights shall be determined by the Debtors in consultation with the Creditors’ Committee, whose good faith determinations shall be final and binding. The Debtors, in their discretion reasonably exercised in good faith in consultation with the Creditors’ Committee, may waive any defect or irregularity, or permit a defect or irregularity to be corrected within such times as they may determine, or reject the purported exercise of any Subscription Rights. Subscription Forms shall be deemed not to have been received or accepted until all irregularities have been waived or cured within such time as the Debtors determine in their discretion reasonably exercised in good faith. The Debtors will use commercially reasonable efforts to give notice to any holder of an Orion General Unsecured Claim regarding any defect or irregularity in connection with any purported exercise of Subscription Rights by such holder and, with the consent of the Creditors’ Committee, may permit such defect or irregularity to be cured within such time as they may determine in good faith to be appropriate; provided, however, that neither the Debtors nor the Disbursing Agent shall incur any liability for failure to give such notification.

3. Transfer Restriction; Revocation

The Subscription Rights are not transferable separate from the Orion General Unsecured Claims that give rise to them. Any such transfer or attempted transfer will be null and void and the Debtors will not treat any purported transferee as the holder of any Subscription Rights. Once the holder of an Orion General Unsecured Claim has properly exercised its Subscription Right, such exercise will not be permitted to be revoked.

4. Backstop Purchaser

In the event any amount of Additional New FSS Notes are not subscribed for pursuant to the Rights Offering the Backstop Purchaser(s) shall pay to the Disbursing Agent, by wire transfer in immediately available funds on or prior to the Effective Date, Cash in an amount equal to the Subscription Purchase Price attributable to such amount of Additional New FSS Notes. The Disbursing Agent shall deposit such payment into the same trust account into which were deposited the Subscription Purchase Price payments of holders of Orion General Unsecured Claims on the exercise of their Subscription Rights.

In consideration for its agreement to backstop the Rights Offering, each Backstop Purchaser shall receive a negotiated share of a backstop fee aggregating $1,500,000 in principal amount of Additional New FSS Notes (the “Backstop Fee”), which notes shall be issued as part of the New FSS Notes Indenture.

5. Recalculation as of the Subscription Expiration Date

The Additional New FSS Notes Pro Rata Share shall be recalculated on the Subscription Expiration Date to account for any subsequent allowances of Orion General Unsecured


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Claims and each properly exercising holder of an Orion General Unsecured Claim under the Rights Offering shall only be entitled to purchase the amount so calculated on such date and any amounts paid by such holders in excess of the amount authorized to be purchased shall be refunded, without interest, as soon as practicable after the Effective Date.

6. Subsequent Adjustments

If, as a result of subsequent allowances of Orion General Unsecured Claims for purposes of participating in the Rights Offering, more than all of the Additional New FSS Notes subject to the Rights Offering have been subscribed for due to the exercise of the Subscription Rights, each properly exercising holder of an Orion General Unsecured Claim shall be cut back pro rata based upon the principal amount of Additional New FSS Notes properly subscribed for by such holder, and the difference between the price actually paid by such exercising holder shall be refunded, without interest, as soon as reasonably practicable after the Effective Date.

E. METHOD OF DISTRIBUTION UNDER THE PLAN

1. Distributions

All distributions of New Loral Common Stock and Cash to the creditors of the Debtors, as applicable, shall be made by the Disbursing Agent on behalf of the Reorganized Debtors, in exchange for the extinguishment of creditors’ Claims against the Debtors, as applicable. Where the applicable Reorganized Debtor (determined without regard to Section 5.1 of the Plan) is a subsidiary of New Loral, New Loral shall make a capital contribution, either directly or indirectly, to the applicable Reorganized Debtor of an amount of New Loral Common Stock or Cash to be distributed to the creditors of such Debtor, but only at such time as, and to the extent, the amounts are actually distributed to holders of Allowed Claims. Any distributions of New Loral Common Stock that revert to New Loral or are otherwise cancelled (such as to the extent any distributions have not been claimed within one year or are forfeited pursuant to Section 6.7 of the Plan) shall revest solely in New Loral, and any applicable Reorganized Debtor (other than New Loral) shall not have (nor shall it be considered to ever have had) any ownership interest in the amounts distributed.

All distributions of New FSS Notes and Additional New FSS Notes shall be made by New FSS.

At the option of the Debtors, any Cash payment to be made under the Plan may be made by a check or wire transfer.

Pursuant to Section 6.5 of the Plan, New Loral (or such other entity designated by New Loral), as Disbursing Agent, shall have no obligation to recognize any transfer of any Claims occurring after the Distribution Record Date, which is the Effective Date. New Loral and any party responsible for making distributions pursuant to Section 6.5 of the Plan shall instead be authorized and entitled to recognize and deal for all purposes under the Plan with only those record holders stated on the Claims register as of the close of business on the Distribution Record Date.

No fractional shares of New Loral Common Stock shall be distributed under the Plan. When any distribution pursuant to the Plan on account of an Allowed Claim would otherwise result in the issuance of a number of shares of New Loral Common Stock that is not a whole number, the actual distribution of shares of New Loral Common Stock shall be rounded as follows: (i) fractions of one-half (½) or greater shall be rounded to the next higher whole number and (ii) fractions of less than one-half (½) shall be rounded to the next lower whole number with no further payment or other


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distribution therefor. The total number of authorized shares of New Loral Common Stock to be distributed to holders of Allowed Claims shall be adjusted as necessary to account for the rounding provided in Section 6.9 of the Plan.

The New FSS Notes and the Additional New FSS Notes shall not be distributed in denominations of less than one thousand ($1,000) dollars. When any distribution pursuant to the Plan on account of an Allowed Claim would otherwise result in the issuance of an amount of the New FSS Notes and the Additional New FSS Notes that is not a multiple of one thousand (1,000), the actual distribution of the New FSS Notes and the Additional New FSS Notes shall be rounded as follows: (i) denominations of five hundred ($500) dollars or greater than shall be rounded up to one thousand ($1,000) dollars; and (ii) denominations less than five hundred ($500) dollars shall be rounded down to zero with no further payment therefor. The total amount of the New FSS Notes to be distributed to holders of Allowed Claims and the total amount of the Additional New FSS Notes that may be issued in connection with the Rights Offering (see Section V.D.) shall be adjusted as necessary to account for the rounding provided in Section 6.10 of the Plan.

To the extent that any Allowed Claim entitled to a distribution under the Plan consists of indebtedness and accrued but unpaid interest thereon, such distribution shall be allocated first to the principal amount of the Claim (as determined for federal income tax purposes) and then, to the extent the consideration exceeds the principal amount of the Claim, to accrued but unpaid interest.

2. Delivery of Distributions

Subject to Bankruptcy Rule 9010, all distributions to holders of Allowed Claims shall be made at the address of such holder as set forth on the Schedules filed with the Bankruptcy Court or on the books and records of the Debtors or their agents or in a letter of transmittal unless the Debtors have been notified in writing of a change of address, including, without limitation, by the filing of a proof of claim by such holder that contains an address for such holder different from the address reflected on such Schedules for such holder.

New Loral shall deliver all distributions in respect of Allowed Ltd. Note Claims, Allowed Orion 10% Note Claims and Allowed Orion Stub Note Claims to the respective Indenture Trustee under the Ltd. Notes, the Orion 10% Notes and the Orion Stub Notes or such other entity designated by the Indenture Trustee as the disbursing agent under the Ltd. Notes, Orion 10% Notes and the Orion Stub Notes. Upon delivery of the foregoing distributions to the Indenture Trustee or such designee, New Loral shall be released of all liability with respect to the delivery of such distributions. The distributions to be made under the Plan of Reorganization to holders of Allowed Note Claims shall be made to the respective Indenture Trustee or its designee, which, subject to the right of such Indenture Trustee to assert its Charging Lien against such distributions, shall transmit the distributions to the holders of such Allowed Note Claims. New Loral shall provide whatever reasonable assistance may be required by the Indenture Trustees or their designees with respect to such distributions.

As of the close of business on a Business Day that is an appropriate period of time prior to the Initial Distribution Date, (i) the claims register shall be closed, (ii) the transfer books and records as maintained by each Indenture Trustee or its agent shall be closed and (iii) any transfer of any Note Claim or any interest therein shall be prohibited. The Debtors, New Loral, and each Indenture Trustee shall have no obligation to recognize any transfer of any Note Claims occurring after the close of business after such date.


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In connection with the Plan and all instruments issued and/or distributed in connection with the Plan, any party issuing any instrument or making any distribution under the Plan, including any party described in Section 6.5 of the Plan, shall comply with all applicable withholding and reporting requirements imposed by any federal, state or local taxing authority, and all distributions under the Plan shall be subject to any such withholding or reporting requirements. Notwithstanding the above, each holder of an Allowed Claim that is to receive a distribution under the Plan shall have the sole and exclusive responsibility for the satisfaction and payment of any tax obligations imposed by any governmental unit, including income, withholding and other tax obligations, on account of such distribution. Any party issuing any instrument or making any distribution under the Plan has the right, but not the obligation, to not make a distribution until such holder has made arrangements satisfactory to such issuing or disbursing party for payment of any such tax obligations.

In the event that any distribution to any holder is returned as undeliverable, New Loral shall use reasonable efforts to determine the current address of such holder, but no distribution to such holder shall be made unless and until New Loral or New FSS, as applicable, has determined the then current address of such holder, at which time such distribution shall be made to such holder without interest; provided that such distributions shall be deemed unclaimed property under section 347(b) of the Bankruptcy Code at the expiration of one year from the Effective Date. After such date, all unclaimed property or interest in property shall revert to New Loral or New FSS, as applicable, and the Claim of any other holder to such property or interest in property shall be discharged and forever barred.

The Debtors may, but shall not be required to, setoff against any Claim (for purposes of determining the Allowed amount of such Claim on which distribution shall be made) any claims of any nature whatsoever that the Debtors may have against the holder of such Claim, but neither the failure to do so nor the allowance of any Claim under the Plan shall constitute a waiver or release by the Debtors of any such claim the Debtors may have against the holder of such Claim.

F. TIMING OF DISTRIBUTIONS UNDER THE PLAN

Unless otherwise provided under the Plan, any distributions and deliveries to be made thereunder shall occur on the Effective Date or as soon thereafter as is practicable. In the event that any payment or act under the Plan is required to be made or performed on a date that is not a Business Day, then the making of such payment or the performance of such act may be completed on or as soon as reasonably practicable after the next succeeding Business Day, but shall be deemed to have been completed as of the required date.

Notwithstanding any other provision in the Plan, if any portion of a Claim is disputed, no payment or distribution provided thereunder shall be made on account of any portion of such Disputed Claim unless and until such Disputed Claim becomes an Allowed Claim.

In the event Class 5 rejects the Plan and Alternative B under Section 4.5 of the Plan therefore is operative, the Disbursing Agent shall withhold from the New Loral Common Stock to be distributed to holders of Allowed Loral General Unsecured Claims an amount that would be distributable in respect of any disputed Loral General Unsecured Claim had such Claim been Allowed on the Effective Date, and shall hold such stock in escrow (the “Loral Disputed Claims Reserve”) pending resolution of the Disputed Claims, together with all earnings thereon (net of any expenses relating thereto, including any taxes imposed thereon or otherwise payable by the reserve).


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The Disbursing Agent shall withhold from the New Loral Common Stock and the New FSS Notes to be distributed to holders of Allowed Orion General Unsecured Claims an amount that would be distributable in respect of any disputed Orion General Unsecured Claim had such Claim been Allowed on the Effective Date, and shall hold such stock and notes in escrow (the “Orion Disputed Claims Reserve”) pending resolution of the Disputed Claims, together with all earnings thereon (net of any expenses relating thereto, including any taxes imposed thereon or otherwise payable by the reserve).

The Disbursing Agent shall withhold from the New Loral Common Stock to be distributed to holders of Allowed Ltd. General Unsecured Claims an amount that would be distributable in respect of any disputed Ltd. General Unsecured Claim had such Claim been Allowed on the Effective Date, and shall hold such stock in escrow (the “Ltd. Disputed Claims Reserve” and, together with the Loral Disputed Claims Reserve and the Orion Disputed Claims Reserve, the “Disputed Claims Reserves”) pending resolution of the Disputed Claims, together with all earnings thereon (net of any expenses relating thereto, including any taxes imposed thereon or otherwise payable by the reserve).

Any New Loral Common Stock and/or New FSS Notes reserved under Sections 7.2(b), (c) and (d) of the Plan shall be voted by the Disbursing Agent proportionally in the same manner as the other New Loral Common Stock and/or New FSS Notes, as applicable, are voted.

On the next Distribution Date after a Disputed Claim becomes an Allowed Claim, the Disbursing Agent shall distribute to the holder of such Claim, the property distributable with respect to such Claim in accordance with Sections 4.4, 4.5 and 4.6 of the Plan, as applicable, and any net earnings attributable thereto. To the extent that all or a portion of a Disputed Claim is disallowed, the holder of such Claim shall not receive any distribution on account of the portion of such Claim that is disallowed and any property withheld pending the resolution of such Claim shall be reallocated in accordance with Sections 4.4, 4.5 and 4.6 of the Plan, together with any net earnings attributable thereto.

Subject to definitive guidance from the IRS or a court of competent jurisdiction to the contrary (including the receipt by the Disbursing Agent of a private letter ruling if the Disbursing Agent so requests one, or the receipt of an adverse determination by the IRS upon audit if not contested by the Disbursing Agent), the Disbursing Agent shall (i) treat each Disputed Claims Reserve as a discrete trust for federal income tax purposes, consisting of separate and independent shares to be established in respect of each Disputed Claim, in accordance with the trust provisions of the Tax Code (section 641 et seq.), and (ii) to the extent permitted by applicable law, shall report consistent with the foregoing for state and local income tax purposes. All holders of Disputed Claims shall report, for tax purposes, consistent with the foregoing.

The Disbursing Agent may request an expedited determination of taxes of the Disputed Claims Reserves under section 505(b) of the Bankruptcy Code for all tax returns filed for or on behalf of the Disputed Claims Reserves for all taxable periods through the date of dissolution of such trust.

After such time as a Disputed Claim becomes, in whole or in part, an Allowed Claim, the holder of such Allowed Claim shall receive the distributions, if any, to which such holder is then entitled as provided in the Plan. Such distributions shall be made as soon as practicable after (i) the date that the order or judgment of the Bankruptcy Court allowing such Disputed Claim (or portion thereof) becomes a Final Order, (ii) the date on which any objection to such Disputed Claim has been withdrawn in accordance with Section 7.1 of the Plan, or (iii) the date on which such Disputed Claim


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has been settled, compromised or otherwise resolved in accordance with Section 7.1 of the Plan, but in no event more than thirty (30) days thereafter.

Pursuant to the Plan, distributions to Class 4, Class 5 and Class 5A are to be made on each Distribution Date. Such Distribution Dates include (i) the Initial Distribution Date, which is the date on or after the Effective Date that is selected by New Loral, but, in any event, is not earlier than fifteen (15) days and no more than thirty (30) days after the Effective Date, or such later date as the Bankruptcy Court may establish upon request by New Loral for cause shown; (ii) the first Business Day in the months of April, July, October and January, commencing with the first such date to occur not more than 90 days after the Effective Date ; and (iii) the Final Distribution Date, which is as follows: with respect to (A) Class 4, the Final Distribution Date is the date on or after the Initial Distribution Date and after all Disputed Claims in Class 4 have become either Allowed Claims or Disallowed Claims that is selected by New Loral, in its discretion but, in any event, is no later than thirty (30) days thereafter, or such later date as the Bankruptcy Court may establish, upon request by New Loral for cause shown; (B) Class 5, the Final Distribution Date is (1) if Alternative A under Subsection 4.5(a) of the Plan is operative, a date on or after the Initial Distribution Date and after all Disputed Claims in Class 5 have become either Allowed Claims or Disallowed Claims that is selected by New Loral, in its discretion but, in any event, is no later than thirty (30) days thereafter, or such later date as the Bankruptcy Court may establish, upon request by New Loral for cause shown, and (2) if Alternative B under Subsection 4.5(b) of the Plan is operative, a date on or after the Initial Distribution Date and after all Disputed Claims in Class 5 and Class 5A have become either Allowed Claims or Disallowed Claims that is selected by New Loral, in its discretion but, in any event, is no later than thirty (30) days thereafter, or such later date as the Bankruptcy Court may establish, upon request by New Loral for cause shown; and (C) Class 5A, the Final Distribution Date is (1) if Alternative A under Subsection 4.6(a) of the Plan is operative, a date on or after the Initial Distribution Date and after all Disputed Claims in Class 5A have become either Allowed Claims or Disallowed Claims that is selected by New Loral, in its discretion but, in any event, is no later than thirty (30) days thereafter, or such later date as the Bankruptcy Court may establish, upon request by New Loral for cause shown, and (2) if Alternative B under Subsection 4.6(b) of the Plan is operative, a date on or after the Initial Distribution Date and after all Disputed Claims in Class 5 and Class 5A have become either Allowed Claims or Disallowed Claims that is selected by New Loral, in its discretion but, in any event, is no later than thirty (30) days thereafter, or such later date as the Bankruptcy Court may establish, upon request by New Loral for cause shown.

Any distribution to the holder of an Allowed Claim in Class 4, Class 5 or Class 5A occurring on a Distribution Date subsequent to the Initial Distribution Date will be less any distribution of shares of New Loral Common Stock, New FSS Notes or Cash previously distributed to such holder on account of such Claim.

G. PROVISIONS FOR TREATMENT OF DISPUTED CLAIMS

1. Resolution of Disputed Claims

Pursuant to the Plan, the Reorganized Debtors shall be entitled to object to all Claims. Any objections to Claims shall be served and filed on or before the later of (i) one hundred twenty (120) days after the Effective Date, as such time may be extended by order of the Bankruptcy Court, and (ii) such later date as may be fixed by the Bankruptcy Court, whether fixed before or after the date specified in clause (i) above.

On and after the Effective Date, the Reorganized Debtors shall have the authority to compromise, settle, otherwise resolve, or withdraw any objections to Administrative Expense Claims


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and Claims and to compromise, settle, or otherwise resolve any disputed Administrative Expense Claims and Disputed Claims without approval of the Bankruptcy Court, other than with respect to Administrative Expense Claims relating to compensation of professionals.

To the extent that a Disputed Claim becomes an Allowed Claim after the Effective Date, the holder of such Claim shall not be entitled to any interest on such Claim.

2. Estimation of Disputed Claims

The Debtors, in consultation with the Creditors’ Committee, and the Reorganized Debtors may at any time request that the Bankruptcy Court estimate any Contingent Claim, Unliquidated Claim, or Disputed Claim pursuant to section 502(c) of the Bankruptcy Code regardless of whether any of the Debtors or the Reorganized Debtors previously objected to such Claim or whether the Bankruptcy Court has ruled on any such objection. The Bankruptcy Court will retain jurisdiction to estimate any Claim at any time during litigation concerning any objection to any Claim, including, without limitation, during the pendency of any appeal relating to any such objection. In the event that the Bankruptcy Court estimates any Contingent Claim, Unliquidated Claim, or Disputed Claim, the amount so estimated shall constitute either the Allowed amount of such Claim or a maximum limitation on such Claim, as determined by the Bankruptcy Court. If the estimated amount constitutes a maximum limitation on the amount of such Claim, the Debtors, in consultation with the Creditors’ Committee, or the Reorganized Debtors may pursue supplementary proceedings to object to the allowance of such Claim. All of the aforementioned objection, estimation, and resolution procedures are intended to be cumulative and not exclusive of one another. Claims may be estimated and subsequently compromised, settled, withdrawn, or resolved by any mechanism approved by the Bankruptcy Court.

H. TREATMENT OF FEES FOR JPLS UNDER THE PLAN

On the Effective Date, the JPL Fee and Expense Claim Reserve will be funded by New Loral in an amount sufficient to fund all of the fees and expenses of the JPLs and their retained professionals incurred and unpaid prior to the Effective Date (excluding those fees and expenses which have been disallowed by the Bermuda Court under the terms of the Fee Protocol and which are not subject to any ongoing dispute). On the Effective Date, New Loral will assume all of the obligations of the Bermudian Debtors under the Fee Protocol.

On the Effective Date, New Loral shall deposit an amount to be agreed upon by the Debtors, the Creditors’ Committee and the JPLs in a bank account in Bermuda designated by and under the sole control of the JPLs, which account shall be an interest-bearing account subject to the exclusive jurisdiction of the Bermuda Court for the payment of the JPLs and their retained professionals’ fees and expenses incurred on or after the Effective Date in the provisional liquidations, in accordance with the Fee Protocol. In the event that such JPL Fee and Expense Claims in the provisional liquidations are determined by the Bermuda Court to be less than the agreed upon amount described in the first sentence of this paragraph, any balance will be returned to New Loral.

On the Effective Date, New Loral shall deposit an amount to be agreed upon by the Debtors, the Creditors’ Committee and the JPLs in a bank account in Bermuda designated by and under the sole control of the JPLs, which account shall be an interest-bearing account subject to the exclusive jurisdiction of the Bermuda Court for the liquidations of the Bermudian Debtors (the “Bermuda Liquidation Fund”). The Bermuda Liquidation Fund will, subject to the provisions of Section 6.6(f) of the Plan of Reorganization, be used to fund the liquidation of the Bermudian Debtors; provided, however, that any provisional liquidators and, subsequently, liquidators of the


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Bermudian Debtors will be required to carry out only their statutory obligations under Bermuda law. In the event that, following the making of winding up orders in respect of the Bermudian Debtors, the JPLs do not act as provisional liquidators (and, subsequently, liquidators) of the Bermudian Debtors, the JPLs shall, upon the making of the winding up orders, transfer the Bermuda Liquidation Fund to such other person(s) so acting as provisional liquidators (and, subsequently, liquidators). Following the conclusion of the liquidations of the Bermudian Debtors under Bermuda law, any unused fees and expenses in the Bermuda Liquidation Fund and the Bermuda Contingency Fund shall be distributed to New Loral.

Upon the making of any winding up order in respect of the Bermudian Debtors, the JPLs will transfer from the Bermuda Account, free and clear of liens, claims, and encumbrances, to any provisional liquidators an amount to be agreed upon by the Debtors, the Creditors’ Committee and the JPLs on account of any unanticipated fees and expenses of the liquidations of the Bermudian Debtors (the “Bermuda Contingency Fund”). In the event that any unforeseen circumstances arise which require such provisional liquidators or liquidators to draw on the Bermuda Contingency Fund, they shall give New Loral at least seven (7) days’ prior notice of the purpose of the draw, the payee, and the amount of such draw, and New Loral shall have the option to fund such amount directly in lieu of a draw being made against the Bermuda Contingency Fund.

I. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES

The Bankruptcy Code grants the Debtors the power, subject to the approval of the Bankruptcy Court, to assume or reject executory contracts and unexpired leases. If an executory contract or unexpired lease is rejected, the counterparty to the agreement may file a claim for damages incurred by reason of the rejection. In the case of rejection of leases of real property, such damage claims are subject to certain limitations imposed by the Bankruptcy Code.


The Plan provides that pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy Code, all executory contracts and unexpired leases that exist between the Debtors and any person or entity shall be deemed rejected by the Debtors as of the Effective Date, except for any executory contract or unexpired lease (i) that has been assumed pursuant to an order of the Bankruptcy Court entered prior to the Effective Date, (ii) as to which a motion for approval of the assumption of such executory contract or unexpired lease has been filed and served prior to the Confirmation Date, or (iii) that is specifically designated as a contract or lease to be assumed on the Schedule of Assumed Contracts and Leases (Schedule 8.1), which Schedule shall be contained in the Plan Supplement; provided, however, that the Debtors, subject to the consent of the Creditors’ Committee, reserve the right, on or prior to the Confirmation Date, to amend Schedule 8.1 to delete any executory contract or unexpired lease therefrom or add any executory contract or unexpired lease thereto, in which event such executory contract(s) or unexpired lease(s) shall be deemed to be, respectively, either rejected or assumed as of the Effective Date. The Debtors shall provide notice of any amendments to Schedule 8.1 to the parties to the executory contracts and unexpired leases affected by such amendments and to the Creditors’ Committee. The listing of a document on Schedule 8.1 shall not constitute an admission by the Debtors that such document is an executory contract or an unexpired lease or that the Debtors have any liability with respect to such executory contract or unexpired lease. See Section III.B.4. of this Disclosure Statement for more information regarding executory contracts and unexpired leases that were rejected pursuant to an order of the Bankruptcy Court entered prior to the Effective Date.


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Unless otherwise specified on Schedule 8.1, each executory contract and unexpired lease listed or to be listed on Schedule 8.1 shall include any and all modifications, amendments, supplements, restatements, or other agreements made directly or indirectly by any agreement, instrument, or other document that in any manner affects such executory contract or unexpired lease, without regard to whether such agreement, instrument or other document is listed on Schedule 8.1.

A non-Debtor party to an executory contract or unexpired lease that is being rejected under the Plan may request that the Debtors assume such contract or lease by sending written notice to New Loral, which notice shall include a waiver of any defaults (including any payment defaults) and any right to any cure payment under such contract or lease. New Loral may, but shall not be obligated to, assume such contract or lease without further action of the Bankruptcy Court.

Entry of the Confirmation Order shall, subject to and upon the occurrence of the Effective Date, constitute (i) the approval, pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy Code, of the assumption of the executory contracts and unexpired leases assumed pursuant to Section 8.1 of the Plan, (ii) the extension of time, pursuant to section 365(d)(4) of the Bankruptcy Code, within which the Debtors may assume, assume and assign, or reject the executory contracts and unexpired leases specified in Section 8.1 of the Plan through the date of entry of an order approving the assumption, assumption and assignment, or rejection of such executory contracts and unexpired leases, and (iii) the approval, pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy Code, of the rejection of the executory contracts and unexpired leases assumed pursuant to Section 8.1 of the Plan.

In the event that the rejection of an executory contract or unexpired lease by the Debtors pursuant to the Plan results in damages to the other party or parties to such contract or lease, a Claim for such damages, if not heretofore evidenced by a filed proof of claim, shall be forever barred and shall not be enforceable against the Debtors or the Reorganized Debtors, or their properties or interests in property as agents, successors, or assigns, unless a proof of claim is filed with the Bankruptcy Court and served upon the attorneys for the Debtors on or before the date that is thirty (30) days after the later of (i) the Confirmation Date, (ii) notice of modification to Schedule 8.1, or (iii) such later rejection date that occurs as a result of a dispute concerning amounts necessary to cure any defaults.

2. Survival of Certain Obligations

a. Corporate Indemnities

Notwithstanding anything contained in the Plan to the contrary, unless specifically rejected by order of the Bankruptcy Court, any and all obligations of the Debtors to indemnify and reimburse persons who are or were directors, officers, agents and/or employees of the Debtors on the Commencement Date or any time thereafter against and for any obligations (including, without limitation, fees and expenses incurred by any of the members of the Board of Directors of any of the Debtors in connection with the Reorganization Cases) pursuant to articles of incorporation, codes of regulations, bylaws, applicable state law or specific agreement, or any combination of the foregoing, shall survive the confirmation of the Plan, shall remain unaffected thereby and in full force and effect as obligations of the Reorganized Debtors, and shall not be discharged in accordance with section 1141 of the Bankruptcy Code or otherwise, irrespective of whether indemnification or reimbursement is owed in connection with an event occurring before, on, or after the Commencement Date. Further, the Reorganized Debtors shall maintain insurance for the benefit of such directors, officers, agents and/or employees at levels no less favorable than those existing as of the date of entry of the Confirmation Order for a period of no less than three (3) years following the Effective Date.


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b. Insurance Policies

Notwithstanding anything contained in the Plan to the contrary, unless specifically rejected by order of the Bankruptcy Court, all of the Debtors’ insurance policies and any agreements, documents or instruments relating thereto, are treated as executory contracts under the Plan and will be assumed pursuant to the Plan, effective as of the Effective Date. Nothing contained in Section 8.8 of the Plan shall constitute or be deemed a waiver of any cause of action that the Debtors may hold against any entity, including, without limitation, the insurer under any of the Debtors’ policies of insurance.

c. Compensation and Benefit Programs

Notwithstanding anything contained in the Plan to the contrary, unless specifically rejected by order of the Bankruptcy Court, all employment and severance policies and workers’ compensation programs, and all compensation and benefit plans, policies and programs of the Debtors applicable to their present and former employees, officers, and directors, including, without express or implied limitation, all savings plans, retirement plans, supplemental retirement plans (including the Supplemental Executive Retirement Plan, as amended pursuant to the SERP Amendment), health care plans, disability plans, and life, accidental death, and dismemberment insurance plans, shall be deemed to be, and shall be treated as though they are, executory contracts that are deemed assumed under the Plan. The Debtors’ obligations under such plans, policies, and programs shall be deemed assumed pursuant to section 365(a) of the Bankruptcy Code, shall survive confirmation of the Plan, shall remain unaffected thereby, and shall not be discharged in accordance with section 1141 of the Bankruptcy Code. Any defaults existing under any of such plans, policies, and programs shall be cured promptly after they become known by the Reorganized Debtors. All severance benefits shall be treated as set forth in the Plan Supplement. The assumed plans shall be subject to modification in accordance with the terms thereof at the discretion of the New Loral Board.

3. Cure of Defaults

Except to the extent that different treatment has been agreed to by the non-debtor party or parties to any executory contract or unexpired lease to be assumed pursuant to Section 8.1 of the Plan, the Debtors shall, pursuant to the provisions of sections 1123(a)(5)(G) and 1123(b)(2) of the Bankruptcy Code and consistent with the requirements of section 365 of the Bankruptcy Code, within twenty (20) days of the Confirmation Date, file with the Bankruptcy Court and serve by first class mail on each non-debtor party to such executory contracts or unexpired leases to be assumed pursuant to Section 8.1 of the Plan, a pleading listing the cure amount as to each executory contract or unexpired lease to be assumed. The parties to such executory contracts or unexpired leases to be assumed by the Debtors shall have twenty (20) days from the date of service of such pleading to object to the cure amounts listed by the Debtors. If there are any objections filed, the Bankruptcy Court shall hold a hearing. Notwithstanding Section 8.1 of the Plan, the Debtors shall retain their rights to reject any of their executory contracts or unexpired leases that are subject to a dispute concerning amounts necessary to cure any defaults through the Effective Date.

4. Assignment

In furtherance of the Plan and in order to consummate the Restructuring Transactions provided in Section 5.3 of the Plan, on and after the Effective Date, pursuant to sections 105(a), 363 and 365 of the Bankruptcy Code, the Debtors and Reorganized Debtors may transfer and assign any of their executory contracts or unexpired leases that have not been rejected to any of their affiliates without any further act, authority or notice. Any executory contract or unexpired lease so transferred


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and assigned shall remain in full force and effect for the benefit of the transferee or assignee in accordance with its terms, notwithstanding any provision in such executory contract or unexpired lease (including those of the type described in sections 365(b)(2) of the Bankruptcy Code) that prohibits, restricts, or conditions such transfer or assignment. Any provision that prohibits, restricts or conditions the assignment or transfer of any such executory contract or unexpired lease or that terminates or modifies such executory contract or unexpired lease or allows the counterparty to such executory contract or unexpired lease to terminate, modify, recapture, impose any penalty, condition renewal or extension, or modify any term or condition upon any such transfer and assignment constitutes an unenforceable anti-assignment provision and is void and of no force or effect.

J. THE RESTRUCTURING TRANSACTIONS

Pursuant to the Plan, on the Effective Date, and in accordance with the terms of an order of the Supreme Court of Bermuda, the assets of Ltd. and Licensing Ltd. (including, without limitation, the Debtor Intercompany Claim against Loral Corp., subject to possible reduction in amount in accordance with Section 5.7 of the Plan) shall be transferred to New Loral or a wholly owned first-tier subsidiary of New Loral in exchange for the New Loral Common Stock to be distributed to holders of Allowed Claims against Ltd. and Licensing Ltd.

Contemplated Abridged Corporate Structure as of the Effective Date

(Does not identify all legal entities within the corporate structure)

New Loral

New SS/L New FSS

On or as of the Effective Date, or as soon thereafter as practicable, within the discretion of the Debtors, but subject to the consent of the Creditors’ Committee, and without further motion to or order of the Bankruptcy Court, the Debtors may, notwithstanding any other transactions described in this Section V.J. of the Disclosure Statement, merge, dissolve, transfer assets, or otherwise consolidate any of the Debtors in furtherance of the Plan (including, without limitation, into one or more newly formed, wholly owned, direct or indirect subsidiaries of New Loral). It is the current intention of the Debtors to utilize this provision to merge, dissolve, or otherwise consolidate certain of their affiliates and transfer certain executory contracts, unexpired leases, and other assets to the surviving affiliates. Any such transaction may be effected on or after the Effective Date without any further action by the stockholders or directors of any of the Debtors, the Debtors in Possession, or the Reorganized Debtors. A list of the subsidiaries that will be merged or dissolved and the assets to be transferred, will be included in the Plan Supplement, and may include: (i) the merger, dissolution or consolidation into New FSS of certain of the subsidiaries of Loral Corp. other than SS/L and its subsidiaries; and (ii) the merger, dissolution or consolidation into New SS/L of certain of the subsidiaries of SS/L.


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The tax effects of the Restructuring Transactions are set forth in Section XI. of this Disclosure Statement.

K. SUBSTANTIVE CONSOLIDATION OF THE DEBTORS

1. Substantive Consolidation

Substantive consolidation is an equitable remedy that a bankruptcy court may be asked to apply in chapter 11 cases of affiliated debtors, among other circumstances. Substantive consolidation involves the pooling of the assets and liabilities of the affected debtors. All of the debtors in the substantively consolidated group are treated as if they were a single corporate and economic entity. Consequently, a creditor of one of the substantively consolidated Debtors is treated as a creditor of the substantively consolidated group of debtors, and issues of individual corporate ownership of property and individual corporate liability on obligations are ignored.

Substantive consolidation of two or more debtors’ estates generally results in (i) the deemed consolidation of the assets and liabilities of the debtors, (ii) the deemed elimination of intercompany claims, subsidiary equity or ownership interests, multiple and duplicative creditor claims, joint and several liability claims and guarantees, and (iii) the payment of allowed claims from a common fund.

It is well established that section 105(a) of the Bankruptcy Code empowers a bankruptcy court to authorize substantive consolidation. The United States Court of Appeals for the Second Circuit, the circuit in which the Reorganization Cases are pending, has articulated a test for evaluating a request for substantive consolidation. See United Sav. Bank v. Augie/Restivo Baking Co. (In re Augie/Restivo Baking Co.), 860 F.2d 515 (2d Cir. 1988). The test, as formulated by the Second Circuit, considers “(i) whether creditors dealt with the entities as a single economic unit and did not rely on their separate identity in extending credit . . . or (ii) whether the affairs of the debtors are so entangled that consolidation will benefit all creditors.” Id. at 518. If either factor is satisfied, substantive consolidation is appropriate. In respect of the second factor, entanglement of the debtors “can justify substantive consolidation only where ‘the time and expense necessary even to attempt to unscramble [the commingled affairs is] so substantial as to threaten the realization of any net assets for all of the creditors,’ . . . or where no accurate identification and allocation of assets is possible. In such circumstances, all creditors are better off with substantive consolidation.” Id. at 519.

2. Compromise and Settlement of Certain Substantive Consolidation Issues

The terms of the Plan are the result of negotiations among the Debtors and the Creditors’ Committee, and the Plan incorporates a compromise and settlement with respect to whether the estates of each of the Debtors (other than Orion and its subsidiary Debtors) should be treated separately for purposes of making payments to holders of Claims and other related issues. The Debtors and certain members of the Creditors’ Committee that hold Loral General Unsecured Claims have differing views of the ultimate result of litigation over these issues in the event the Plan is not confirmed and such claims are pursued to judgment. Resolution of these issues is crucial to any reorganization of the Debtors and, if not resolved through compromise and settlement, may result in substantial delay and expense pending their judicial determination.

The Plan substantively consolidates the estates of the Consolidated Debtors and Consolidated Orion, respectively. The Plan also represents a compromise and settlement of issues regarding substantive consolidation raised by certain members of the Creditors’ Committee that hold Loral General Unsecured Claims, including, among other things, the Reorganization Value of the


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Reorganized Debtors, and makes special provision in the treatment of Loral General Unsecured Claims to take into account, among other things, the reliance of the holders of such claims in extending credit to SS/L and SpaceCom.

In light of the foregoing, the Debtors and the Creditors’ Committee have agreed to a compromise and settlement under which the treatment of Loral General Unsecured Claims under Alternative A in Subsection 4.5(a) of the Plan will be relatively better, as compared to the treatment under Alternative B in Subsection 4.5(a) of the Plan, than other general unsecured Claims against the Debtors. Specifically, the result was a compromise with certain holders of Loral General Unsecured Claims pursuant to which each holder of a Loral General Unsecured Claim will, if Class 5 accepts the Plan, receive (A) 18,265.7 shares of New Loral Common Stock for each $1,000,000 of such holder’s Allowed Loral General Unsecured Claim, or (B) Cash in an amount equal to such holder’s Cash Subscriber Pro Rata Share of $30,000,000. See Section V.B.9. for a more detailed description of the treatment of Loral General Unsecured Claims under the Plan.

The proposed treatment for the various Classes and the compromises and settlements embodied in the Plan give due consideration to the strengths and weaknesses of potential litigation arguments made by certain members of the Creditors’ Committee that hold Loral General Unsecured Claims, and with respect to such disputes, the distribution to any particular creditor is no better than the best possible judicial determination in favor of such creditor while being no less than the worst possible outcome if such disputes were resolved by judicial determination. Accordingly, the Debtors and the Creditors’ Committee believe the compromises embodied in the Plan are within the range of likely results in the event each issue was pursued to judgment. The Debtors also believe that the compromises and settlements adequately address the probability of success in litigation, the complexity, expense and likely duration of litigation, and are fair and equitable to the Debtors, their creditors and other parties in interest and, thus, satisfy the requirements of Bankruptcy Rule 9019 and the standards enunciated in Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424 (1968).

3. Effectuation of Substantive Consolidation

The Plan provides that entry of the Confirmation Order shall mean that, effective as of the Effective Date, (i) all assets and liabilities of the Consolidated Debtors shall be treated, for purposes of the Plan, including, without limitation, for purposes of voting, confirmation, and distribution, as though they were merged, (ii) no distributions shall be made under the Plan on account of any Equity Interest held by a Consolidated Debtor in any other Consolidated Debtor, (iii) all guarantees of any Consolidated Debtor of the obligations of any other Consolidated Debtor shall be eliminated so that any Claim against any Consolidated Debtor and any guarantee thereof executed by any other Consolidated Debtor and any joint or several liability of any of the Consolidated Debtors shall be one obligation of the Consolidated Debtors, and (iv) each and every Claim filed or to be filed in the Reorganization Cases of any of the Consolidated Debtors shall be deemed filed against the Consolidated Debtors and shall be one Claim against and obligation of the Consolidated Debtors.

The Plan further provides that entry of the Confirmation Order shall mean that, effective as of the Effective Date, (i) all assets and liabilities of Consolidated Orion shall be treated, for purposes of the Plan, including, without limitation, for purposes of voting, confirmation, and distribution, as though they were merged, (ii) no distributions shall be made under the Plan on account of any Equity Interest held by Consolidated Orion in any of Orion or its Debtor subsidiaries, (iii) all guarantees of Orion or its Debtor subsidiarie s of the obligations of any of Consolidated Orion shall be eliminated so that any Claim against Consolidated Orion and any guarantee thereof executed by Orion or its Debtor subsidiaries and any joint or several liability of any of Orion and its Debtor


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subsidiaries shall be one obligation of Consolidated Orion, and (iv) each and every Claim filed or to be filed in the Reorganization Cases of Orion or its Debtor subsidiaries shall be deemed filed against Consolidated Orion and shall be one Claim against and obligation of Consolidated Orion.

The substantive consolidation effected pursuant to Section 5.1 of the Plan shall not (other than for purposes related to funding distributions under the Plan and as set forth above in Section 5.1 of the Plan) affect: (i) the legal and organizational structure of the Debtors; (ii) pre- and post-Commencement Date guarantees, Liens, and security interests that are required to be maintained (A) in connection with executory contracts or unexpired leases that were entered into dur ing the Reorganization Cases or that have been or will be assumed or (B) pursuant to the Plan; or (iii) distributions out of any insurance policies or proceeds of such policies.

L. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THE PLAN

The occurrence of the Effective Date of the Plan is subject to the following conditions precedent:

• the Confirmation Order, in form and substance reasonably satisfactory to the Debtors and the Creditors’ Committee, shall have been entered and shall be in full force and effect and there shall not be a stay or injunction in effect with respect thereto;

• the Reorganized Debtors shall have an amount of Cash on hand that the Debtors, with the consent of the Creditors’ Committee, determine is sufficient to operate the Reorganized Debtors’ businesses;

• all actions, documents, and agreements necessary to implement the Plan, including, without limitation, all actions, documents, and agreements necessary to implement the Restructuring Transactions, shall have been effected or executed;

• the Debtors shall have received all authorizations, consents, regulatory approvals, rulings, letters, no-action letters, opinions, or documents that are determined by the Debtors and the Creditors’ Committee to be necessary to implement the Plan and that are required by law, regulation, or order;

• the New Loral Certificate of Incorporation and the Reorganized Subsidiary Debtors’ Certificates of Incorporation shall have been filed with the Secretary of State of the State of Delaware;

• each of the New Loral Certificate of Incorporation, New Loral Bylaws, Reorganized Subsidiary Debtors’ Certificates of Incorporation, Reorganized Subsidiary Debtors’ Bylaws, New Management Stock Plan, New Loral Employment Contracts, the Registration Rights Agreement and the SERP Amendment, in form and substance reasonably acceptable to the Debtors and the Creditors’ Committee, shall be in full force and effect; and

• the Subscription Expiration Date shall have occurred.


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The conditions precedent specified above may be waived in whole or in part by the Debtors and the Creditors’ Committee in their sole discretion. Any such waiver may be effected at any time, without notice or leave or order of the Bankruptcy Court, and must be in writing.

In the event the abovementioned conditions precedent have not been satisfied or waived by 120 days after the Confirmation Date, then (i) the Confirmation Order shall be vacated, (ii) no distributions under the Plan shall be made, (iii) the Debtors and all holders of Claims and Equity Interests shall be restored to the status quo ante as of the day immediately preceding the Confirmation Date as though the Confirmation Date had never occurred, and (iv) all of the Debtors’ obligations with respect to the Claims and Equity Interests shall remain unchanged, and nothing contained in the Plan shall be deemed to constitute a waiver or release of any claims by or against the Debtors or any other entity or to prejudice in any manner the rights of the Debtors, the Creditors’ Committee, or any other entity in any further proceedings involving the Debtors.

M. IMPLEMENTATION AND EFFECT OF CONFIRMATION OF THE PLAN

Upon the Effective Date, pursuant to section 1141(b) and (c) of the Bankruptcy Code, all property of the Debtors shall vest in each of the Reorganized Debtors free and clear of all Claims, Liens, encumbrances, charges, and other interests, except as provided in the Plan. The Reorganized Debtors may operate their businesses and may use, acquire, and dispose of property free of any restrictions of the Bankruptcy Code or the Bankruptcy Rules and in all respects as if there were no pending case under any chapter or provision of the Bankruptcy Code.

N. DISCHARGE AND INJUNCTION

THE RIGHTS AFFORDED IN THE PLAN AND THE PAYMENTS AND DISTRIBUTIONS TO BE MADE THEREUNDER SHALL DISCHARGE ALL EXISTING DEBTS AND CLAIMS, AND, EXCEPT AS PROVIDED IN THE PLAN WITH RESPECT TO THE OTHER EQUITY INTERESTS HELD BY DEBTORS OR NON-DEBTORS, SHALL TERMINATE ALL EQUITY INTERESTS OF ANY KIND, NATURE, OR DESCRIPTION WHATSOEVER AGAINST OR IN THE DEBTORS OR ANY OF THEIR ASSETS OR PROPERTIES TO THE FULLEST EXTENT PERMITTED BY SECTION 1141 OF THE BANKRUPTCY CODE. EXCEPT AS PROVIDED IN THE PLAN, UPON THE EFFECTIVE DATE, ALL EXISTING CLAIMS AGAINST THE DEBTORS AND EQUITY INTERESTS IN THE DEBTORS SHALL BE, AND SHALL BE DEEMED TO BE, DISCHARGED AND TERMINATED, AND ALL HOLDERS OF CLAIMS AND EQUITY INTERESTS SHALL BE PRECLUDED AND ENJOINED FROM ASSERTING AGAINST THE REORGANIZED DEBTORS, THEIR SUCCESSORS OR ASSIGNEES, OR ANY OF THEIR ASSETS OR PROPERTIES, ANY OTHER OR FURTHER CLAIM OR EQUITY INTEREST BASED UPON ANY ACT OR OMISSION, TRANSACTION, OR OTHER ACTIVITY OF ANY KIND OR NATURE THAT OCCURRED PRIOR TO THE EFFECTIVE DATE, WHETHER OR NOT SUCH HOLDER HAS FILED A PROOF OF CLAIM OR PROOF OF EQUITY INTEREST, AND WHETHER OR NOT THE FACTS OR LEGAL BASES THEREFORE WERE KNOWN OR EXISTED PRIOR TO THE EFFECTIVE DATE.

UPON THE EFFECTIVE DATE AND IN CONSIDERATION OF THE DISTRIBUTIONS TO BE MADE UNDER THE PLAN, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THE PLAN, EACH HOLDER (AS WELL AS ANY TRUSTEES AND AGENTS ON BEHALF OF EACH HOLDER) OF A CLAIM OR EQUITY INTEREST AND ANY AFFILIATE OF SUCH HOLDER SHALL BE DEEMED TO HAVE FOREVER WAIVED, RELEASED AND DISCHARGED THE DEBTORS, TO THE FULLEST EXTENT PERMITTED


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BY SECTION 1141 OF THE BANKRUPTCY CODE, OF AND FROM ANY AND ALL CLAIMS, EQUITY INTERESTS, RIGHTS, AND LIABILITIES THAT AROSE PRIOR TO THE EFFECTIVE DATE. UPON THE EFFECTIVE DATE, ALL SUCH PERSONS SHALL BE FOREVER PRECLUDED AND ENJOINED, PURSUANT TO SECTION 524 OF THE BANKRUPTCY CODE, FROM PROSECUTING OR ASSERTING ANY SUCH DISCHARGED CLAIM AGAINST OR TERMINATED EQUITY INTEREST IN THE DEBTORS.

EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THE PLAN, ALL PERSONS OR ENTITIES WHO HAVE HELD, HOLD OR MAY HOLD CLAIMS OR EQUITY INTERESTS AND ALL OTHER PARTIES IN INTEREST, ALONG WITH THEIR RESPECTIVE PRESENT OR FORMER EMPLOYEES, AGENTS, OFFICERS, DIRECTORS, PRINCIPALS AND AFFILIATES, ARE PERMANENTLY ENJOINED, UPON AND AFTER THE EFFECTIVE DATE, FROM (I) COMMENCING OR CONTINUING IN ANY MANNER ANY ACTION OR OTHER PROCEEDING OF ANY KIND WITH RESPECT TO ANY SUCH CLAIM OR EQUITY INTERESTS AGAINST THE DEBTORS OR REORGANIZED DEBTORS, (II) THE ENFORCEMENT, ATTACHMENT, COLLECTION OR RECOVERY BY ANY MANNER OR MEANS OF ANY JUDGMENT, AWARD, DECREE OR ORDER AGAINST THE DEBTORS OR REORGANIZED DEBTORS, (III) CREATING, PERFECTING, OR ENFORCING ANY ENCUMBRANCE OF ANY KIND AGAINST THE DEBTORS OR THE REORGANIZED DEBTORS OR AGAINST THE PROPERTY OR INTERESTS IN PROPERTY OF THE DEBTORS OR REORGANIZED DEBTORS, OR (IV) ASSERTING ANY RIGHT OF SETOFF, SUBROGATION OR RECOUPMENT OF ANY KIND AGAINST ANY OBLIGATION DUE FROM THE DEBTORS OR REORGANIZED DEBTORS OR AGAINST THE PROPERTY OR INTERESTS IN PROPERTY OF THE DEBTORS OR REORGANIZED DEBTORS, WITH RESPECT TO ANY SUCH CLAIM OR EQUITY INTEREST. SUCH INJUNCTION SHALL EXTEND TO ANY SUCCESSORS OF THE DEBTORS AND REORGANIZED DEBTORS AND THEIR RESPECTIVE PROPERTIES AND INTERESTS IN PROPERTIES.

Unless otherwise provided, all injunctions or stays arising under or entered during the Reorganization Cases under section 105 or 362 of the Bankruptcy Code, or otherwise, and in existence on the Confirmation Date, shall remain in full force and effect until the later of the Effective Date and the date indicated in the order providing for such injunction or stay.

Upon the entry of the Confirmation Order, all holders of Claims and Equity Interests and other parties in interest, along with their respective present or former employees, agents, officers, directors, principals and affiliates shall be enjoined from taking any actions to interfere with the implementation or consummation of the Plan.

O. SUMMARY OF OTHER PROVISIONS OF THE PLAN

The following subsections summarize certain other significant provisions of the Plan. The Plan should be referred to for the complete text of these and other provisions of the Plan.

1. Intercompany Claims

a. Debtor Intercompany Claims

All Debtor Intercompany Claims shall be reviewed by the Debtors, in consultation with the Creditors’ Committee, and the Reorganized Debtors and adjusted, continued, or discharged by the Debtors, with the consent of the Creditors’ Committee, or the Reorganized Debtors, in their sole discretion. Any such transaction may be effected on or subsequent to the Effective Date without


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any further action by the stockholders or directors of any of the Debtors, the Debtors in Possession, or the Reorganized Debtors.

b. Non-Debtor Intercompany Claims

All Non-Debtor Intercompany Claims shall be reviewed by the Debtors, in consultation with the Creditors’ Committee, and the Reorganized Debtors and adjusted, continued, or discharged by the Debtors, with the consent of the Creditors’ Committee, and the Reorganized Debtors, in their sole discretion. Any such transaction may be effected on or subsequent to the Effective Date without any further action by the stockholders or directors of any of the Debtors, the Debtors in Possession, or the Reorganized Debtors.

2. Retiree Benefits

On and after the Effective Date, pursuant to sections 1114 and 1129(a)(13) of the Bankruptcy Code, the Reorganized Debtors shall continue to pay all retiree benefits of the Debtors, for the duration of the period for which the Debtors had obligated themselves to provide such benefits and subject to the right of the Reorganized Debtors to modify or terminate such retiree benefits as permitted under section 1114 of the Bankruptcy Code.

3. Certificates of Incorporation and Bylaws

The New Loral Certificate of Incorporation, the New Loral Bylaws, the stock certificates of New Loral, the Reorganized Subsidiary Debtors’ Certificates of Incorporation, the Reorganized Subsidiary Debtors’ Bylaws, and the stock certificates of the Reorganized Debtors shall contain provisions necessary (i) to prohibit the issuance of nonvoting equity securities as required by section 1123(a)(6) of the Bankruptcy Code, subject to further amendment of such certificates of incorporation and bylaws as permitted by applicable law; (ii) to grant authority to the New Loral Board to issue 10,000,000 shares of preferred stock of New Loral in one or more series; and (iii) to effectuate the provisions of the Plan.

4. Amendment or Modification of the Plan

The Plan may be amended, modified, or supplemented by the Debtors or the Reorganized Debtors, subject to the consent of the Creditors’ Committee, in the manner provided for by section 1127 of the Bankruptcy Code or as otherwise permitted by law without additional disclosure pursuant to section 1125 of the Bankruptcy Code, except as the Bankruptcy Court may otherwise direct. After the Confirmation Date, so long as such action does not materially adversely affect the treatment of holders of Claims or Equity Interests under the Plan, the Debtors or the Reorganized Debtors, subject to the consent of the Creditors’ Committee, may institute proceedings in the Bankruptcy Court to remedy any defect or omission or reconcile any inconsistencies in the Plan or the Confirmation Order, with respect to such matters as may be necessary to carry out the purposes and effects of the Plan.

Prior to the Effective Date, the Debtors, subject to the consent of the Creditors’ Committee, may make appropriate technical adjustments and modifications to the Plan without further order or approval of the Bankruptcy Court, provided that such technical adjustments and modifications do not adversely affect in a material way the treatment of holders of Claims or Equity Interests.


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5. Solicitation of the Plan

As of and subject to the occurrence of the Confirmation Date: (i) the Debtors shall be deemed to have solicited acceptances of the Plan in good faith and in compliance with the applicable provisions of the Bankruptcy Code, including without limitation, section 1125(a) of the Bankruptcy Code, and any applicable non-bankruptcy law, rule, or regulation governing the adequacy of disclosure in connection with such solicitation and (ii) the Debtors, the members of the Creditors’ Committee, and each of their respective affiliates, agents, directors, officers, employees, advisors, and attorneys shall be deemed to have participated in good faith and in compliance with the applicable provisions of the Bankruptcy Code in the offer and issuance of any securities under the Plan, and therefore are not, and on account of such offer, issuance, and solicitation will not be, liable at any time for any violation of any applicable law, rule or regulation governing the solicitation of acceptances or rejections of the Plan or the offer and issuance of any securities under the Plan.

6. Releases of Representatives

Effective as of the Confirmation Date but subject to the occurrence of the Effective Date, and in consideration of: (a) the services provided by the present and former directors, officers, employees, affiliates, agents, financial advisors, attorneys, and representatives of the Debtors to the Debtors who acted in such capacities after the Commencement Date; (b) the services of the Creditors’ Committee; (c) the services of the Agent; (d) the services of each Indenture Trustee; and (e) the services of the JPLs, and their respective professionals in connection with the Reorganization Cases and the provisional liquidations of the Bermudian Debtors, (x) the Debtors and the Reorganized Debtors; (y) each holder of a Claim or Equity Interest that votes to accept the Plan (or is deemed to accept the Plan); and (z) to the fullest extent permissible under applicable law, as such law may be extended or integrated after the Effective Date, each holder of a Claim or Equity Interest that does not vote to accept the Plan, shall release unconditionally and forever each present or former director, officer, employee, agent, financial advisor, attorney and representative (and their respective affiliates) of the Debtors who acted in such capacity after the Commencement Date, the Creditors’ Committee, each member of the Creditors’ Committee, the Agent, the Indenture Trustees, the JPLs, and each of their respective members, officers, directors, agents, financial advisors, attorneys, employees, equity holders, parent corporations, subsidiaries, partners, affiliates and representatives from any and all claims or causes of action whatsoever in connection with, related to, or arising out of the Reorganization Cases, the pursuit of confirmation of the Plan, the consummation thereof, the administration thereof, or the property to be distributed thereunder, and the provisional liquidation of the Bermudian Debtors; provided that the foregoing shall not operate as a waiver of or release from any causes of action arising out of the willful misconduct or gross negligence of any such person or entity.

7. Cancellation and Surrender of Existing Securities and Agreements

Except as otherwise provided in the Plan, on the Effective Date, the promissory notes, share certificates, Ltd. Notes, Orion 10% Notes, Orion Stub Notes, the Indentures and other instruments evidencing any Claims or Equity Interests shall be deemed automatically cancelled without further act or action under any applicable agreement, law, regulation, order or rule, and the obligations of the Debtors under the respective agreements, indentures, and certificates of designations governing such Claims and Equity Interests shall be discharged; provided, however, that the Ltd. Notes, Orion 10% Notes, Orion Stub Notes and the Indentures shall continue in effect solely for the purposes of (i) allowing the noteholders to receive their distributions under the Plan, (ii) allowing the Indenture Trustee to make the distributions, if any, to be made on account of the Ltd. Notes, Orion 10% Notes and Orion Stub Notes and (iii) permitting each Indenture Trustee to assert its


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Charging Lien against such distributions for payment of the Indenture Trustee Fees. Section 5.4 of the Plan provides additional instructions for the surrender of the Ltd. Notes and the Orion Notes to the pertinent Indenture Trustee.

Each holder of the Ltd. Notes, Orion 10% Notes or Orion Stub Notes shall surrender such note(s) to the pertinent Indenture Trustee, or in the event such note(s) are held in the name of, or by a nominee of, the Depository Trust Company (the “DTC”), the Debtors shall seek the cooperation of the DTC to provide appropriate instructions to the pertinent Indenture Trustee. No distributions hereunder shall be made for or on behalf of any such holder unless and until such note is received by the Indenture Trustee or appropriate instructions from the DTC shall be received by the respective Indenture Trustee, or the loss, theft or destruction of such note is established to the reasonable satisfaction of the Indenture Trustee, which satisfaction may require such holder to (i) submit a lost instrument affidavit and an indemnity bond and (ii) hold the Debtors and the Indenture Trustees harmless in respect of such note and any distributions made in respect thereof. Upon compliance with Subsection 5.4(b) of the Plan by a holder of any note, such holder shall, for all purposes under the Plan, be deemed to have surrendered such note. Any holder of Ltd. Notes, Orion 10% Notes, or Orion Stub Notes that fails to surrender such note or satisfactorily explain its non-availability to the applicable Indenture Trustee within one (1) year of the Effective Date shall be deemed to have no further Claim against the Debtors, or their property or the applicable Indenture Trustee in respect of such Claim and shall not participate in any distribution hereunder, and the distribution that would have otherwise been made to such holder shall be distributed by the applicable Indenture Trustee to all holders who have surrendered their notes or satisfactorily explained their non-availability to the applicable Indenture Trustee within one (1) year after the Effective Date.

8. Section 1145 Exemption

To the maximum extent provided by section 1145 of the Bankruptcy Code and applicable nonbankruptcy law, the issuance under the Plan of the New Loral Common Stock, the New FSS Notes, the Additional New FSS Notes and the Subscription Rights will be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), and all rules and regulations promulgated thereunder.

9. Registration Rights Agreement

Each Registration Rights Holder shall have the right to become a party to the Registration Rights Agreement on the Effective Date. The Registration Rights Agreement shall be acceptable to MHR Fund Management LLC, as Registration Rights Holder.

10. Revocation or Withdrawal of the Plan

The Debtors reserve the right to revoke or withdraw the Plan prior to the Effective Date. If the Debtors take such action, the Plan shall be deemed null and void. In such event, nothing contained in the Plan shall constitute or be deemed a waiver or release of any Claims by or against the Debtors or any other person or to prejudice in any manner the rights of the Debtors or any person in any further proceedings involving the Debtors.

11. Dissolution of Statutory Committee of Unsecured Creditors

Effective thirty (30) days after the Effective Date if no appeal of the Confirmation Order is then pending, the Creditors’ Committee shall dissolve with respect to the Debtors and its members shall be released and discharged from all further authority, duties, responsibilities and


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obligations relating to the Reorganization Cases; provided, however, that the Creditors’ Committee and its professionals shall be retained with respect to (i) applications filed pursuant to sections 330 and 331 of the Bankruptcy Code and (ii) motions seeking the enforcement of the provisions of the Plan and the transactions contemplated thereunder or the Confirmation Order.

12. Indenture Trustee as Claim Holder

Consistent with Bankruptcy Rule 3003(c), the Reorganized Debtors shall recognize proofs of claim timely filed by any Indenture Trustee in respect of any Note Claims. Accordingly, any Claim, proof of which is filed by the registered or beneficial holder of a Claim, may be disallowed as duplicative of the Claim of the applicable Indenture Trustee, without any further action of the Bankruptcy Court.

13. Avoidance Actions

Pursuant to the Plan, from and after the Effective Date, the Reorganized Debtors shall have the right to prosecute any avoidance or equitable subordination or recovery actions under sections 105, 502(d), 510, 542 through 551, and 553 of the Bankruptcy Code that belong to the Debtors or Debtors in Possession.

14. Reservation of Rights

Except as provided in Section 11.8 of the Plan, nothing contained in the Plan or the Confirmation Order shall be deemed to be a waiver or the relinquishment of any rights or causes of action that the Debtors or the Reorganized Debtors may have or which the Reorganized Debtors may choose to assert on behalf of their respective estates under any provision of the Bankruptcy Code or any applicable nonbankruptcy law, including, without limitation, (i) any and all Claims against any person or entity, to the extent such person or entity asserts a crossclaim, counterclaim, and/or Claim for setoff which seeks affirmative relief against the Debtors, the Reorganized Debtors, their officers, directors, or representatives and (ii) the turnover of any property of the Debtors’ estates.

Nothing contained in the Plan or the Confirmation Order shall be deemed to be a waiver or relinquishment of any claim, cause of action, right of setoff, or other legal or equitable defense which the Debtors had immediately prior to the Commencement Date, against or with respect to any Claim left unimpaired by the Plan. The Reorganized Debtors shall have, retain, reserve, and be entitled to assert all such claims, causes of action, rights of setoff, and other legal or equitable defenses which the Debtors had immediately prior to the Commencement Date fully as if the Reorganization Cases had not been commenced, and all of the Reorganized Debtors’ legal and equitable rights respecting any Claim left unimpaired by the Plan may be asserted after the Confirmation Date to the same extent as if the Reorganization Cases had not been commenced.

15. Effectuating Documents and Further Transactions

Each of the officers of New Loral, New FSS, New SS/L and the other Reorganized Debtors is authorized, in accordance with his or her authority under the resolutions of the applicable Board of Directors, to execute, deliver, file, or record such contracts, instruments, releases, indentures, and other agreements or documents and take such actions as may be necessary or appropriate to effectuate and further evidence the terms and conditions of the Plan.


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16. Corporate Action

On the Effective Date, all matters provided for under the Plan that would otherwise require approval of the stockholders or directors of one or more of the Debtors or Reorganized Debtors, including, without limitation, the authorization to issue or cause to be issued the New Loral Common Stock, the New FSS Notes, the Subscription Rights or the Additional New FSS Notes, the issuance of the New Loral Common Stock, the New FSS Notes, the Subscription Rights and the Additional New FSS Notes, the New Management Stock Plan, the effectiveness of the New Loral Certificate of Incorporation and the New Loral Bylaws, the effectiveness of the Reorganized Subsidiary Debtors’ Certificates of Incorporation and Reorganized Subsidiary Debtors’ Bylaws, all Restructuring Transactions to be effectuated pursuant to the Plan, the election or appointment as the case may be, of directors and officers of the Reorganized Debtors, including New Loral, pursuant to the Plan and the authorization and approval of the New Loral Employment Contracts, and the qualification, of each of New Loral, New FSS and New SS/L as a foreign corporation wherever the conduct of business by such entities requires such qualification shall be deemed to have occurred and shall be in effect from and after the Effective Date pursuant to the applicable general corporation law of the states in which the Debtors or the Reorganized Debtors are incorporated, without any requirement of further action by the stockholders or directors of the Debtors or the Reorganized Debtors. On the Effective Date, or as soon thereafter as is practicable, the Reorganized Debtors, including New Loral, shall, if required, file their amended certificates of incorporation with the Secretary of State of the state in which each such entity is (or will be) organized, in accordance with the applicable general business law of each such jurisdiction.

17. Exculpation

Notwithstanding anything in the Plan to the contrary, as of the Effective Date, none of (i) the Debtors and the Debtors’ officers, directors, and employees, (ii) the Creditors’ Committee and any subcommittee thereof, (iii) the Agent, (iv) the Indenture Trustees, (v) the JPLs, (vi) the accountants, financial advisors, investment bankers, agents and attorneys for the Debtors, and (vii) the directors, officers, partners, members, agents, representatives, accountants, financial advisors, investment bankers or attorneys for any of the persons or entities described in (ii), (iii), (iv) and (v) of Section 11.7 of the Plan (but solely in their capacities as such) shall have or incur any liability for any claim, cause of action or other assertion of liability for any act taken or omitted to be taken since the Commencement Date in connection with, or arising out of, the Reorganization Cases, the formula tion, dissemination, confirmation, consummation, or administration of the Plan, or property to be distributed under the Plan, or any other act or omission in connection with the Reorganization Cases, the provisional liquidation of the Bermudian Debtors, the Plan, the Disclosure Statement or any contract, instrument, document, or other agreement related thereto; provided, however, that the foregoing shall not affect the liability of any person that otherwise would result from any such act or omission to the extent that such act or omission is determined by a Final Order to have constituted willful misconduct or gross negligence.

18. Plan Supplement

A draft form of the Plan Documents to be entered into as of the Effective Date and any other appropriate documents shall be contained in the Plan Supplement and filed with the Clerk of the Bankruptcy Court no later than ten (10) days prior to the last date by which holders of impaired Claims may vote to accept or reject the Plan. Upon its filing with the Bankruptcy Court, the Plan Supplement may be inspected in the office of the Clerk of the Bankruptcy Court during normal court hours. Documents to be included in the Plan Supplement will be posted at www.bsillc.com as they


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become available, but no later than five (5) days prior to the last date by which votes to accept or reject the Plan must be received.

VI. CONFIRMATION AND CONSUMMATION PROCEDURE

Under the Bankruptcy Code, the following steps must be taken to confirm the Plan:

A. SOLICITATION OF VOTES

In accordance with sections 1126 and 1129 of the Bankruptcy Code, the Claims in Classes 2, 4, 5 and 5A of the Plan – Secured Tax Claims, Orion General Unsecured Claims, Loral General Unsecured Claims and Ltd. General Unsecured Claims – are impaired and the holders of Allowed Claims in each of these Classes are entitled to vote to accept or reject the Plan. Classes 6, 7 and 8 – Ltd. Preferred Stock Interests, Other Equity Interests and Securities Litigation Claims, respectively – are impaired and shall not receive any distributions under the Plan. The holders of Claims or Equity Interests in such Classes are conclusively presumed to have rejected the Plan and the solicitation of acceptances with respect to such Classes is not required under section 1126(f) of the Bankruptcy Code. Claims in Classes 1 and 3 of the Plan – Other Priority Claims and Secured Claims – are unimpaired. The holders of Allowed Claims in each such Class are conclusively presumed to have accepted the Plan and the solicitation of acceptances with respect to such Classes is not required under section 1126(f) of the Bankruptcy Code.

As to the classes of claims entitled to vote on a plan, the Bankruptcy Code defines acceptance of a plan by a class of creditors as acceptance by holders of at least two-thirds in dollar amount and more than one-half in number of the claims of that class that have timely voted to accept or reject a plan.

A vote may be disregarded if the Bankruptcy Court determines, after notice and a hearing, that acceptance or rejection was not solicited or procured in good faith or in accordance with the provisions of the Bankruptcy Code.

Any creditor in an impaired Class (i) whose Claim has been listed by the Debtors in the Schedules filed with the Bankruptcy Court (provided that such Claim has not been scheduled as Disputed, Contingent or Unliquidated) or (ii) who filed a proof of claim on or before the Bar Date (January 26, 2004), or any proof of claim filed within any other applicable period of limitations or with leave of the Bankruptcy Court, which Claim is not the subject of an objection or request for estimation, is entitled to vote on the Plan.

B. THE CONFIRMATION HEARING

The Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a confirmation hearing. The Confirmation Hearing in respect of the Plan has been scheduled for January 31, 2005 at 10:00 a.m. (prevailing Eastern Time) before the Honorable Robert D. Drain, Room 610, United States Bankruptcy Court for the Southern District of New York, Alexander Hamilton House, One Bowling Green, New York, New York 10004. The Confirmation Hearing may be adjourned from time to time by the Bankruptcy Court without further notice except for an announcement of the adjourned date made at the Confirmation Hearing.

Any objection to confirmation of the Plan must be in writing, must conform to the Federal Rules of Bankruptcy Procedure, must set forth the name of the objector, the nature and amount of Claims or interests held or asserted by the objector against the particular Debtor or


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Debtors, the basis for the objection and the specific grounds therefor, and must be filed with the Bankruptcy Court, with a copy to Chambers, together with proof of service thereof, and served so as to be received by the following parties no later than 4:00 p.m. (prevailing Eastern Time) on January 24, 2005, upon (i) Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153 (Attn: Stephen Karotkin, Esq., Lori R. Fife, Esq. and Shai Y. Waisman, Esq.), attorneys for the Debtors, (ii) the Office of the United States Trustee for the Southern District of New York, 33 Whitehall Street, 21st floor, New York, New York 10004 (Attn: Pamela Lustrin , Esq.), (iii) Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019 (Attn: Tonny K. Ho, Esq.), special counsel to the Debtors, (iv) Akin Gump Strauss Hauer & Feld LLP, 590 Madison Avenue, New York, New York 10022 (Attn: David H. Botter, Esq.), attorneys for the Creditors’ Committee, and (v) Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017 (Attn: Marshall S. Huebner, Esq. and John Fouhey, Esq.), attorneys for the agent for the Debtors’ prepetition secured lenders.

Objections to confirmation of the Plan are governed by Bankruptcy Rule 9014.

C. CONFIRMATION

At the Confirmation Hearing, the Bankruptcy Court will confirm the Plan only if all of the requirements of section 1129 of the Bankruptcy Code are met. Among the requirements for confirmation of a plan are that the plan is (i) accepted by all impaired classes of claims and equity interests or, if rejected by an impaired class, that the plan “does not discriminate unfairly” and is “fair and equitable” as to such class, (ii) feasible and (iii) in the “best interests” of creditors and stockholders that are impaired under the plan.

1. Acceptance

Classes 2, 4, 5 and 5A of the Plan – Secured Tax Claims, Orion General Unsecured Claims, Loral General Unsecured Claims and Ltd. General Unsecured Claims – are impaired under the Plan and are entitled to vote to accept or reject the Plan. Classes 6, 7 and 8 of the Plan – Securities Litigation Claims, Ltd. Preferred Stock Interests and Other Equity Interests – are impaired under the Plan and shall not receive any distributions under the Plan, and, therefore, are conclusively presumed to have voted to reject the Plan. Classes 1 and 3 of the Plan – Other Priority Claims and Secured Claims – are unimpaired and, therefore, are conclusively presumed to have voted to accept the Plan.

With respect to those Classes of Claims and Equity Interests that are deemed to have rejected the Plan, i.e., Class 6 (Ltd. Preferred Stock Interests), Class 7 (Other Equity Interests) and Class 8 (Securities Litigation Claims), the Debtors currently intend to request confirmation of the Plan pursuant to section 1129(b) of the Bankruptcy Code. The Debtors reserve the right to amend the Plan in accordance with Section 14.11 of the Plan or seek nonconsensual confirmation of the Plan under section 1129(b) of the Bankruptcy Code or both with respect to any Class of Claims that is entitled to vote to accept or reject the Plan, if such Class rejects the Plan.

2. Unfair Discrimination and Fair and Equitable Tests

To obtain nonconsensual confirmation of the Plan, it must be demonstrated to the Bankruptcy Court that the Plan “does not discriminate unfairly” and is “fair and equitable” with respect to each impaired, nonaccepting Class.


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a. No Unfair Discrimination

A plan of reorganization does not “discriminate unfairly” with respect to a nonaccepting class if the value of the cash and/or securities to be distributed to the nonaccepting class is equal to, or otherwise fair when compared to, the value of the distributions to other classes the legal rights of which are the same as those of the nonaccepting class.

b. Fair and Equitable

The Bankruptcy Code provides a non-exclusive definition of the phrase “fair and equitable.” The Bankruptcy Code establishes “cram down” tests for secured creditors, unsecured creditors and equity holders, as follows:

• Secured Creditors. Each holder of an impaired secured claim either (i) retains its liens on the property, to the extent of the allowed amount of its secured claim, and receives deferred cash payments having a value, as of the effective date of the plan of reorganization, of at least the allowed amount of such claim, or (ii) has the right to credit bid the amount of its claim if its property is sold and retains its liens on the proceeds of the sale, or (iii) receives the “indubitable equivalent” of its allowed secured claim.

• Unsecured Creditors. Either (i) each impaired unsecured creditor receives or retains under the plan property of a value equal to the amount of its allowed claim or (ii) the holders of claims and interests that are junior to the claims of the dissenting class will not receive any property under the plan.

• Equity Interests. Either (i) each holder of an equity interest will receive or retain under the plan property of a value equal to the greatest of the fixed liquidation preference to which such holder is entitled, the fixed redemption price to which such holder is entitled or the value of the interest or (ii) the holder of an interest that is junior to the nonaccepting class will not receive or retain any property under the plan.

3. Feasibility

The Bankruptcy Code requires a debtor to demonstrate that confirmation of a plan is not likely to be followed by liquidation or the need for further financial reorganization. For purposes of determining whether the Plan meets this requirement, the Debtors have analyzed their ability to meet their obligations under the Plan. As part of this analysis, the Debtors have made the financial projections attached as Exhibit F hereto. Based upon the projections, the Debtors believe that they will be able to make all payments required pursuant to the Plan and, therefore, that confirmation of the Plan is not likely to be followed by liquidation or the need for further reorganization.

The financial information and projections appended to the Disclosure Statement as Exhibit F include:

• Debtors' Historical Financial Performance;

• Reorganized Debtors' Condensed Projected Pro Forma Balance Sheets as of December 31, 2004;


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• Reorganized Debtors' Projected Financial Performance.

The pro forma financial information and the projections are based on the assumption that the Plan will be confirmed by the Bankruptcy Court and, for projection purposes, that the Effective Date under the Plan will occur on December 31, 2004.

The Debtors have prepared these financial projections based upon certain assumptions that they believe to be reasonable under the circumstances. Those assumptions considered to be significant are described in the financial projections annexed hereto. The financial projections have not been examined or compiled by independent accountants. The Debtors make no representation as to the accuracy of the projections or their ability to achieve the projected results. Many of the assumptions on which the projections are based are subject to significant uncertainties. Inevitably, some assumptions will not materialize and unanticipated events and circumstances may affect the actual financial results. Therefore, the actual results achieved throughout the projection period will vary from the projected results and these variations may be material. All holders of Claims that are entitled to vote to accept or reject the Plan are urged to examine carefully all of the assumptions on which the financial projections are based in connection with their evaluation of the Plan.

4. Best Interests Test

With respect to each impaired Class of Claims and Equity Interests, confirmation of the Plan requires that each holder of a Claim or Equity Interest either (i) accept the Plan or (ii) receive or retain under the Plan property of a value, as of the Effective Date, that is not less than the value such holder would receive if the Debtors were liquidated under chapter 7 of the Bankruptcy Code. To determine what holders of Claims and Equity Interests in each impaired Class would receive if the Debtors were liquidated under chapter 7, the Bankruptcy Court must determine the dollar amount that would be generated from the liquidation of the Debtors’ assets and properties in the context of a chapter 7 liquidation case. The Cash amount that would be available for satisfaction of Claims and Equity Interests would consist of the proceeds resulting from the disposition of the unencumbered assets and properties of the Debtors, augmented by the unencumbered Cash held by the Debtors at the time of the commencement of the liquidation case. Such Cash amount would be reduced by the costs and expenses of liquidation and by such additional administrative and priority claims that might result from the termination of the Debtors’ business and the use of chapter 7 for the purposes of liquidation.

The Debtors’ costs of liquidation under chapter 7 would include the fees payable to a trustee in bankruptcy, as well as those fees that might be payable to attorneys and other professionals that such a trustee might engage. In addition, Cla ims would arise by reason of the breach or rejection of obligations incurred and leases and executory contracts assumed or entered into by the Debtors during the pendency of the Reorganization Cases. The foregoing types of Claims and other Claims that might arise in a liquidation case or result from the pending Reorganization Cases, including any unpaid expenses incurred by the Debtors during the Reorganization Cases, such as compensation for attorneys, financial advisors and accountants, would be paid in full from the liquidation proceeds before the balance of those proceeds would be made available to pay prepetition Claims.

To determine if the Plan is in the best interests of each impaired Class, the present value of the distributions from the proceeds of a liquidation of the Debtors’ unencumbered assets and properties, after subtracting the amounts attributable to the foregoing Claims, must be compared with the value of the property offered to such Classes of Claims under the Plan.


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After considering the effects that a chapter 7 liquidation would have on the ultimate proceeds available for distribution to creditors in the Reorganization Cases, including (i) the increased costs and expenses of a liquidation under chapter 7 arising from fees payable to a trustee in bankruptcy and professional advisors to such trustee, (ii) the erosion in value of assets in a chapter 7 case in the context of the expeditious liquidation required under chapter 7 and the “forced sale” atmosphere that would prevail, and (iii) the substantial increases in claims that would be satisfied on a priority basis or on parity with creditors in the Reorganization Cases, the Debtors have determined that confirmation of the Plan will provide each holder of an Allowed Claim with a recovery that is not less than such holder would receive pursuant to the liquidation of the Debtors under chapter 7.

The Debtors also believe that the value of any distributions to each Class of Allowed Claims in a chapter 7 case, including all Secured Claims, would be less than the value of distributions under the Plan because such distributions in a chapter 7 case would not occur for a substantial period of time. It is likely that distribution of the proceeds of the liquidation could be delayed for two years after the completion of such liquidation in order to resolve claims and prepare for distributions. In the likely event litigation was necessary to resolve claims asserted in the chapter 7 case, the delay could be prolonged.

The Loral Liquidation Analysis is annexed hereto as Exhibit G. The information set forth in Exhibit G provides a summary of the liquidation values of the Debtors’ assets, assuming a chapter 7 liquidation in which a trustee appointed by the Bankruptcy Court would liquidate the assets of the Debtors’ estates. Reference should be made to the Liquidation Analysis herein for a complete discussion and presentation of the Liquidation Analysis. The Liquidation Analysis was prepared by the Debtors with the assistance of Conway Del Genio Gries & Company, LLC.

Underlying the Liquidation Analysis are a number of estimates and assumptions that, although developed and considered reasonable by the Debtors’ management, are inherently subject to significant economic and competitive uncertainties and contingencies beyond the control of the Debtors and their management. The Liquidation Analysis also is based on assumptions with regard to liquidation decisions that are subject to change. Accordingly, the values reflected might not be realized if the Debtors were, in fact, to undergo such a liquidation. The chapter 7 liquidation period is assumed to be a period of one year, allowing for, among other things, the discontinuation and wind-down of operations, the sale of assets and the collection of receivables.

D. CONSUMMATION

The Plan will be consummated on the Effective Date. The Effective Date of the Plan will occur on the first Business Day on which the conditions precedent to the effectiveness of the Plan, as set forth in Section 12.1 of the Plan, have been satisfied or waived by the Debtors. For a more detailed discussion of the conditions precedent to the Plan and the consequences of the failure to meet such conditions, see Section V.L. of this Disclosure Statement.

The Plan is to be implemented pursuant to its terms, consistent with the provisions of the Bankruptcy Code.


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VII. CORPORATE GOVERNANCE OF THE REORGANIZED DEBTORS

A. DIRECTORS AND OFFICERS OF THE REORGANIZED DEBTORS

On the Effective Date, the management, control, and operation of the Reorganized Debtors shall become the general responsibility of the New Loral Board and the Reorganized Subsidiary Debtors’ Boards, as applicable.

1. New Loral Board

The members of the initial New Loral Board shall be disclosed not later than ten (10) days prior to the Confirmation Hearing. Each member of the initial New Loral Board shall serve in accordance with applicable nonbankruptcy law and the New Loral Certificate of Incorporation and New Loral Bylaws, which may be amended from time to time. The number of directors on the New Loral Board shall be determined by the Creditors’ Committee. A majority of the directors shall be “independent” (within the meaning of the rules of the Securities and Exchange Commission and Nasdaq or other national securities exchange, as applicable). The New Loral Board shall consist of the current Chief Executive Officer of the Debtors, two designees appointed by the Chief Executive Officer (both of whom will be “independent”), the Vice Chairman of New Loral, and the designees appointed by the Creditors’ Committee. The Creditors’ Committee’s designees (which shall not include the Chief Executive Officer, the Chief Executive Officer’s designees and the Vice Chairman) will comprise a majority of the New Loral Board. One or more of the Creditors’ Committee’s designees shall be permitted not to become members of the New Loral Board until two (2) days after the Effective Date or such other number of days after the Effective Date determined by the Creditors’ Committee.

2. Reorganized Debtors’ Boards

The initial Boards of Directors of the Reorganized Subsidiary Debtors, other than New Loral, shall be disclosed not later than ten (10) days prior to the Confirmation Hearing. Each of the members of such initial Reorganized Subsidiary Debtors’ Boards shall serve in accordance with applicable nonbankruptcy law and the Reorganized Subsidiary Debtors’ Certificates of Incorporation and Reorganized Subsidiary Debtors’ Bylaws, as the same may be amended from time to time.

3. Officers

Effective as of the Effective Date, New Loral, New SS/L and New FSS, as applicable, shall enter into the New Loral Employment Contracts. The officers of the Reorganized Debtors, including New Loral, shall be disclosed not later than ten (10) days prior to the Confirmation Hearing. Each of the officers shall serve in accordance with applicable nonbankruptcy law, any applicable employment agreement, the New Loral Certificate of Incorporation or the Reorganized Subsidiary Debtors’ Certificates of Incorporation, as applicable, or the New Loral Bylaws and Reorganized Subsidiary Debtors’ Bylaws, as applicable, as the same may be amended from time to time.

4. Management of the Reorganized Debtors

Chief Executive Officer. Bernard L. Schwartz will serve as the Chief Executive Officer and Chairman of the New Loral Board and will report to the New Loral Board. Mr. Schwartz will have a one-year employment contract, commencing upon the Effective Date.


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Vice Chairman. Michael B. Targoff will serve as Vice Chairman of the New Loral Board. The Vice Chairman will serve as Chairman of the Executive Committee of the New Loral Board.

Senior Management. Up to 14 individuals will serve as executives of New Loral, New SS/L or New FSS. Each such individual will receive a two-year employment contract commencing upon the Effective Date.

B. CONTINUATION OF EXISTING BENEFIT PLANS AND D&O INSURANCE

1. Benefit Plans

Pursuant to the Plan, except with respect to the SERP Amendment, all savings plans, retirement plans, health care plans, performance-based incentive plans, retention plans, workers’ compensation programs and life, disability, directors and officers liability and other insurance plans, are treated as executory contracts under the Plan and shall be assumed by the Debtors and assigned to the Reorganized Debtors under the Plan; provided, however, that all such benefit plans shall be subject to modification in accordance with the terms thereof at the discretion of the New Loral Board.

The SERP Amendment modifies the Debtors’ obligation to Bernard L. Schwartz under the SERP. All other obligations under the SERP shall be assumed by the Reorganized Debtors.

2. D&O Insurance

The Debtors have maintained and New Loral will continue to maintain insurance for the benefit of such directors, officers, agents and/or employees at levels no less favorable than those existing as of the date of entry of the Confirmation Order for a period of no less than three (3) years following the Effective Date.

VIII. SECURITIES LAWS MATTERS

A. BANKRUPTCY CODE EXEMPTIONS FROM REGISTRATION REQUIREMENTS

In reliance upon section 1145 of the Bankruptcy Code, the offer and issuance of New Loral Common Stock, the New FSS Notes, the Additional New FSS Notes and/or the Subscription Rights will be exempt from the registration requirements of the Securities Act and equivalent provisions in state securities laws. Section 1145(a) of the Bankruptcy Code generally exempts from such registration requirements the issuance of securities if the following conditions are satisfied: (i) the securities are issued or sold under a chapter 11 plan by (A) a debtor, (B) one of its affiliates participating in a joint plan with the debtor, or (C) a successor to a debtor under the plan; and (ii) the securities are issued entirely in exchange for a claim against or interest in the debtor or such affiliate, or are issued principally in such exchange and partly for cash or property. The Debtors believe that the issuance of New Loral Common Stock, the New FSS Notes, the Additional New FSS Notes and/or the Subscription Rights for Claims against the Debtors under the circumstances provided in the Plan will satisfy the requirements of section 1145(a) of the Bankruptcy Code.

The shares of New Loral Common Stock, the New FSS Notes and/or the Additional New FSS Notes to be issued pursuant to the Plan will be deemed to have been issued in a public offering under the Securities Act and, therefore, may be resold by any holder thereof without registration under the Securities Act pursuant to the exemption provided by section 4(1) thereof, unless the holder is an “underwriter” with respect to such securities, as that term is defined in section


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1145(b)(1) of the Bankruptcy Code (a “statutory underwriter”), as described below. In addition, such securities generally may be resold by the holders thereof without registration under state securities or “blue sky” laws pursuant to various exemptions provided by the respective laws of the individual states. However, holders of securities issued under the Plan are advised to consult with their own counsel as to the availability of any such exemption from registration under federal securities laws and any relevant state securities laws in any given instance and as to any applicable requirements or conditions to the availability thereof. The Subscription Rights are, by their terms, non-transferable and non-certificated.

Section 1145(b)(i) of the Bankruptcy Code defines “underwriter” for purposes of the Securities Act as one who (a) purchases a claim or interest with a view to distribution of any security to be received in exchange for the claim or interest, or (b) offers to sell securities issued under a plan for the holders of such securities, or (c) offers to buy securities issued under a plan from persons receiving such securities, if the offer to buy is made with a view to distribution of such securities and under an agreement made in connection with the plan, with the consummation of the plan, or with the offer or sale of securities under the plan, or (d) is an issuer of the securities within the meaning of Section 2(a)(11) of the Securities Act.

An entity is not an “underwriter” under Section 2(a)(11) of the Securities Act with regard to securities received under section 1145(a)(1), in “ordinary trading transactions” made on a national securities exchange or a Nasdaq market. While the Debtors anticipate that the New Loral Common Stock will be listed on an exchange or a Nasdaq market, there can be no assurances that such securities will be so listed. It is not anticipated that the New FSS Notes and the Additional New FSS Notes will be listed on any such exchange or market. What constitutes “ordinary trading transactions” within the meaning of section 1145 of the Bankruptcy Code is the subject of interpretive letters by the staff of the Securities and Exchange Commission (the “SEC”). Generally, ordinary trading transactions are those that do not involve (i) concerted activity by recipients of securities under a plan of reorganization, or by distributors acting on their behalf, in connection with the sale of such securities, (ii) use of informational documents in connection with the sale other than the disclosure statement relating to the plan, any amendments thereto, and reports filed by the issuer with the SEC under the Securities Exchange Act of 1934, or (iii) payment of specia l compensation to brokers or dealers in connection with the sale.

The term “issuer” is defined in Section 2(4) of the Securities Act; however, the reference contained in section 1145(b)(1)(D) of the Bankruptcy Code to Section 2(11) of the Securities Act purports to include as statutory underwriters all persons who, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with, an issuer of securities. “Control” (as defined in Rule 405 under the Securities Act) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise. Accordingly, an officer or director of a reorganized debtor or its successor under a plan of reorganization may be deemed to be a “control person” of such debtor or successor, particularly if the management position or directorship is coupled with ownership of a significant percentage of the voting securities of such issuer. Additionally, the legislative history of section 1145 of the Bankruptcy Code provides that a creditor who receives at least ten percent (10%) of the voting securities of an issuer under a plan of reorganization will be presumed to be a statutory underwriter within the meaning of section 1145(b)(i) of the Bankruptcy Code.

The Debtors believe that the Options to be issued as provided under the Plan will be exempt from the registration requirements of the Securities Act, pursuant to Section 4(2) of the


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Securities Act, as transactions by an issuer not involving any public offering, and equivalent exemptions in state securities laws.

Any issuance of Additional New FSS Notes to the Backstop Purchaser will not be exempt from the registration requirements of the Securities Act pursuant to Section 1145 of the Bankruptcy Code, but the Debtors believe that any such issuance to the Backstop Purchaser will be exempt pursuant to Section (4)(2) of the Securities Act, as a transaction by an issuer not involving a public offering, and equivalent exemptions in state securities laws.

To the extent that persons receive Options or persons deemed to be “underwriters” receive New Loral Common Stock, the New FSS Notes and/or the Additional New FSS Notes pursuant to the Plan (collectively , with the Backstop Purchaser, “Restricted Holders”), resales by Restricted Holders would not be exempted by section 1145 of the Bankruptcy Code from registration under the Securities Act or other applicable law. Restricted Holders may, however, be able, at a future time and under certain conditions described below, to sell securities without registration pursuant to the resale provisions of Rule 144 under the Securities Act.

Under certain circumstances, holders of New Loral Common Stock, the New FSS Notes and/or the Additional New FSS Notes deemed to be “underwriters” or holders of Options may be entitled to resell their securities pursuant to the limited safe harbor resale provisions of Rule 144 of the Securities Act, to the extent available, and in compliance with applicable state and foreign securities laws. Generally, Rule 144 of the Securities Act provides that persons who are affiliates of an issuer who resell securities will not be deemed to be underwriters if certain conditions are met. These conditions include the requirement that current public information with respect to the issuer be available, a limitation as to the amount of securities that may be sold in any three-month period, the requirement that the securities be sold in a “brokers transaction” or in a transaction directly with a “market maker” and that notice of the resale be filed with the SEC. The Debtors cannot assure, however, that adequate current public information will exist with respect to any issuer of New Loral Common Stock or Options and, therefore, that the safe harbor provisions of Rule 144 of the Securities Act will be available.

Pursuant to the Plan, certificates evidencing shares of New Loral Common Stock, the New FSS Notes or the Additional New FSS Notes received by Restricted Holders or by a holder that the Debtors determine may be an underwriter within the meaning of section 1145 of the Bankruptcy Code may bear a legend substantially in the form below:

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED.

Any person or entity entitled to receive shares of New Loral Common Stock, the New FSS Notes and/or the Additional New FSS Notes who the issuer of such securities determines to be a statutory underwriter that would otherwise receive legended securities as provided above, may instead receive certificates evidencing New Loral Common Stock, the New FSS Notes and/or the


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Additional New FSS Notes without such legend if, prior to the distribution of such securities, such person or entity (A) delivers to such issuer, (i) an opinion of counsel reasonably satisfactory to such issuer to the effect that the shares of New Loral Common Stock, the New FSS Notes and/or the Additional New FSS Notes to be received by such person or entity are not subject to the restrictions applicable to “underwriters” under section 1145 of the Bankruptcy Code and may be sold without registration under the Securities Act and (ii) a certification that such person or entity is not an “underwriter” within the meaning of section 1145 of the Bankruptcy Code or (B) (i) delivers to such issuer a certification that such person or entity will not transfer such securities in violation of the Securities Act and (ii) makes arrangement with such issuer’s transfer agent reasonably satisfactory to such issuer to have restrictions placed on the transfer on such securities customary for securities not registered under the Securities Act.

Any holder of a certificate evidencing shares of New Loral Common Stock, the New FSS Notes and/or the Additional New FSS Notes bearing such legend may present such certificate to the transfer agent for the shares of New Loral Common Stock, the New FSS Notes and/or the Additional New FSS Notes for exchange for one or more new certificates not bearing such legend or for transfer to a new holder without such legend at such time as (i) such securities are sold pursuant to an effective registration statement under the Securities Act or (ii) such holder delivers to the issuer of such securities an opinion of counsel reasonably satisfactory to such issuer to the effect that such securities are no longer subject to the restrictions applicable to “underwriters” under section 1145 of the Bankruptcy Code or (iii) such holder delivers to such issuer an opinion of counsel reasonably satisfactory to such issuer to the effect that (x) such securities are no longer subject to the restrictions pursuant to an exemption under the Securities Act and such securities may be sold without registration under the Securities Act or (y) such transfer is exempt from registration under the Securities Act, in which event the certificate issued to the transferee shall not bear such legend.

IN VIEW OF THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A RECIPIENT OF SECURITIES MAY BE AN UNDERWRITER OR AN AFFILIATE OF THE REORGANIZED DEBTORS, THE DEBTORS MAKE NO REPRESENTATIONS CONCERNING THE RIGHT OF ANY PERSON TO TRADE IN SECURITIES TO BE DISTRIBUTED PURSUANT TO THE PLAN. ACCORDINGLY, THE DEBTORS RECOMMEND THAT POTENTIAL RECIPIENTS OF SECURITIES CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY TRADE SUCH SECURITIES.

B. REGISTRATION RIGHTS AGREEMENT

Each holder or affiliated holder of an Allowed Claim (i) receiving distribution pursuant to the Plan of ten percent (10%) or greater of the New Loral Common Stock, (ii) that the Debtors, in consultation with the Creditors’ Committee, reasonably determine may be an underwriter pursuant to section 1145 of the Bankruptcy Code with respect to the New Loral Common Stock that such holder received pursuant to the Plan, (iii) that the Debtors, in consultation with the Creditors’ Committee, reasonably determine may be subject to resale restrictions on any New Loral Common Stock that such holder received pursuant to the Plan by operation of Rule 144 of the Securities Act of 1933, or (iv) that the Debtors and the Creditors’ Committee agree shall be a Registration Rights Holder shall have the right to become a party to the Registration Rights Agreement.

The Registration Rights Agreement, the form of which will be included in the Plan Supplement, shall be acceptable to MHR Fund Management LLC, as Registration Rights Holder.


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IX. VALUATION

A. OVERVIEW

The Debtors have been advised by Greenhill & Co., LLC (“Greenhill”) with respect to the value, collectively, of the Reorganized Debtors. Greenhill has undertaken its valuation analysis for the purpose of determining value available for distribution to creditors pursuant to the Plan and to analyze the relative recoveries to creditors thereunder.

For purposes of the Plan, the reorganization value (the “Reorganization Value”) is estimated to range from approximately $650,000,000 to $800,000,000. (For purposes of determining the estimated recoveries for creditors in Classes 4, 5 and 5A under the Plan, a compromise Reorganization Value of $777,475,000 has been used, which is within this range.) The Reorganization Value assumes an Effective Date of December 31, 2004 and reflects the going concern value of the Reorganized Debtors after giving effect to the implementation of the Plan.

The equity value (the “Equity Value”) of the Reorganized Debtors is estimated to range from approximately $420,000,000 to $570,000,000 or from approximately $21.00 per share to $28.50 per share of New Loral Common Stock assuming a total of 20,000,000 shares of common stock are issued and outstanding on the Effective Date. (For purposes of determining the estimated recoveries for creditors in Classes 4, 5 and 5A under the Plan, a compromise Equity Value of $547,475,000 has been used, which is within this range.) The Equity Value reflects the difference between the Reorganization Value and the total amount of long-term net debt that is estimated to be outstanding after giving effect to the Plan.

With respect to the financial projections prepared by the management of the Debtors and included as Exhibit F to this Disclosure Statement, Greenhill assumed that such projections have been reasonably prepared in good faith and on a basis reflecting the best currently available estimates and judgments of the Debtors as to the future operating and financial performance of the Reorganized Debtors. Greenhill’s estimate of Reorganization Value assumes that operating results projected by the Debtors will be achieved by the Reorganized Debtors in all material respects, including revenue growth and improvements in operating margins, earnings and cash flow. The financial performance forecast by the management of the Debtors is materially better than the recent financial performance of the Debtors. As a result, to the extent that the estimate of enterprise values is dependent upon the Reorganized Debtors performing at the levels set forth in the projections, such analysis should be considered speculative. If the business performs at levels below those set forth in the projections, such performance may have a material impact on the estimated range of values.

In preparing an estimate of Reorganization Value, Greenhill (i) reviewed certain historical financial information of the Debtors for recent years and interim periods; (ii) reviewed certain internal financial and operating data of the Debtors, including projections provided by management relating to the Debtors’ businesses and prospects; (iii) met with certain members of senior management of the Debtors to discuss operations and future prospects; (iv) reviewed publicly available financial data and considered the market value of public companies that Greenhill deemed generally comparable to the operating businesses of the Debtors; (v) considered certain economic and industry information relevant to the Debtors’ operating businesses; and (vi) conducted such other studies, analyses, inquiries and investigations as Greenhill deemed appropriate. Although Greenhill conducted a review and analysis of the Debtors’ businesses, operating assets and liabilities and the Reorganized Debtors’ business plan, Greenhill assumed and relied on the accuracy and completeness of all financial and other information furnished to it by the Debtors, as well as publicly available information.


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In addition, Greenhill did not independently verify management’s projections in connection with such estimates of Reorganization Value and Equity Value, and no independent valuations or appraisals of the Debtors were sought or were obtained in connection herewith. In the case of the Reorganized Debtors, the estimates of the Reorganization Value prepared by Greenhill represent the hypothetical reorganization value of the Reorganized Debtors. Such estimates were developed solely for the analysis of implied relative recoveries to creditors under the Plan. Such estimates reflect computations of the range of the estimated reorganization value of the Reorganized Debtors through the application of various valuation techniques and do not purport to reflect or constitute appraisals, liquidation values or estimates of the actual market value that may be realized through the sale of any securities to be issued pursuant to the Plan, which may be significantly different than the amounts set forth herein.

The value of an operating business is subject to numerous uncertainties and contingencies which are difficult to predict and will fluctuate with changes in factors affecting the financial condition and prospects of such a business. As a result, the estimate of the reorganization enterprise value of the Reorganized Debtors set forth herein is not necessarily indicative of actual outcomes, which may be significantly more or less favorable than those set forth herein. Because such estimates are inherently subject to uncertainties, neither the Debtors, Greenhill, nor any other person assumes responsibility for their accuracy. In addition, the valuation of newly issued securities is subject to additional uncertainties and contingencies, all of which are difficult to predict. Actual market prices of such securities at issuance will depend upon, among other things, prevailing interest rates, conditions in the financial markets, the anticipated holding period of securities received by prepetition creditors, some of whom may prefer to liquidate their investment rather than hold it on a long-term basis, and other factors which generally influence the prices of securities.

Greenhill’s valuation represents a hypothetical value that reflects the estimated intrinsic value of the Reorganized Debtors derived through the application of various valuation techniques. Such analysis does not purport to represent valuation levels which would be achieved in, or assigned by, the public markets for debt and equity securities or private markets for corporations. Estimates of enterprise value do not purport to be appraisals or necessarily reflect the values which may be realized if assets are sold as a going concern, in liquidation, or otherwise.

B. VALUATION METHODOLOGY

The following is a brief summary of certain financial analyses performed by Greenhill to arrive at its estimation of the Reorganization Value of the Reorganized Debtors. Greenhill performed certain procedures, including each of the financial analyses described below, and reviewed the assumptions with the management of the Debtors on which such analyses were based and other factors, including the projected financial results of the Reorganized Debtors. Greenhill’s estimate of Reorganization Value must be considered as a whole and selecting just one methodology or portions of the analysis, without considering the ana lysis as a whole, could create a misleading or incomplete conclusion as to enterprise value.

1. Publicly Traded Company Analysis

A publicly traded company analysis estimates value based on a comparison of the target company’s financial statistics with the financial statistics of public companies that are similar to the target company. The analysis establishes a benchmark for asset valuation by deriving the value of “comparable” assets, standardized using a common variable such as revenue and earnings before interest, taxes, depreciation and amortization (EBITDA). The analysis includes a detailed multi-year financial comparison of each company’s income statement, balance sheet, and cash flow statement.


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In addition, each company’s performance, profitability, margins, leverage and business trends are also examined. Based on these analyses, a number of financial multiples and ratios are calculated to gauge each company’s relative performance and valuation.

A key factor to this approach is the selection of companies with relatively similar business and operational characteristics to the target company. Criteria for selecting comparable companies for the analysis include, among other relevant characteristics, similar lines of businesses, business risks, growth prospects, maturity of businesses, market presence, size, and scale of operations. The selection of truly comparable companies is often difficult and subject to limitations due to sample size and the availability of meaningful market-based information. Therefore, pure comparable companies often do not exist. However, the underlying concept is to develop a premise for relative value, which, when coupled with other approaches, presents a foundation for determining firm value.

In performing the Comparable Public Company Analysis for the Debtors’ satellite services business, the following publicly traded companies (“FSS Peer Group”) deemed generally comparable to the Debtors’ satellite services business in one or more of the factors described above, were selected: SES Global, JSAT, Shin Satellite, Asiasat and APT Satellite.

In performing the Comparable Public Company Analysis for the Debtors’ satellite manufacturing business, the following publicly traded companies (“Manufacturing Peer Group”) deemed generally comparable to the Debtors’ manufacturing business in one or more of the factors described above, were selected: Boeing, Lockheed Martin, Northrop Gruman, General Dynamics, Alcatel, Raytheon, Astrium, Alliant Techsystems and Orbital Sciences.

2. Discounted Cash Flow Analysis

The discounted cash flow (“DCF”) valuation methodology relates the value of an asset or business to the present value of expected future cash flows to be generated by that asset or business. The DCF methodology is a “forward looking” approach that discounts the expected future cash flows by a theoretical or observed discount rate determined by calculating the average cost of debt and equity for publicly traded companies that are similar to the Debtors. This approach has two components: the present value of the projected un-levered after-tax free cash flows for a determined period and the present value of the terminal value of cash flows (representing firm value beyond the time horizon of the projections).

As the estimated cash flows, estimated discount rate and expected capital structure of the Reorganized Debtors are used to derive a potential value, an analysis of the results of such an estimate is not purely mathematical, but instead involves complex considerations and judgments concerning potential variances in the projected financial and operating characteristics of the Reorganized Debtors, as well as other factors that could affect the future prospects and cost of capital considerations for the Reorganized Debtors.

The DCF calculation was performed based on un-levered after-tax free cash flows for the projection period discounted to an Effective Date of December 31, 2004. Greenhill utilized management’s detailed financial projections for the period 2005 through 2008 as the primary input. Beginning with EBITDA, the analysis assumes the Debtor will not pay cash taxes during the projection period and subtracts estimated corporate expense allocation to calculate an un-levered net income figure. In addition, other factors affecting free cash flow are taken into account, such as the change in working capital and capital expenditures, all of which do not affect the income statement and therefore require separate adjustments in the calculation.


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In performing the calculation, Greenhill made assumptions for the weighted average cost of capital (the “Discount Rate”), which is used to value future cash flows based on the riskiness of the projections, and the EBITDA exit multiple and terminal cash flow perpetual growth rates, which are used to determine the future value of the enterprise after the end of the projected period. Greenhill used a range of discount rates between 9% and 12% for the Debtors’ fixed satellite services businesses and 12% and 15% for the Debtors’ satellite manufacturing bus iness, which reflects a number of company and market-specific factors, including business execution risk and the nature and derivation of the projections set forth in the Business Plan, as well as the cost of capital for companies that Greenhill deemed comparable.

3. Precedent Transactions Analysis

Precedent transactions analysis estimates value by examining public merger and acquisition transactions. An analysis of a company’s transaction value as a multiple of various operating statistics provides industry-wide valuation multiples for companies in similar lines of businesses to the Debtors. Transaction multiples are calculated based on the purchase price (including any debt assumed) paid to acquire companies that are comparable to the Debtors. The derived multiples are then applied to the Reorganized Debtors’ key operating statistics, to determine the total enterprise value or value to a potential strategic buyer.

In the course of determining the Reorganization Value, Greenhill evaluated various public merger and acquisition transactions that have occurred in the fixed satellite services and satellite manufacturing industries over the past several years, including the recent acquisitions of Intelsat, New Skies, and PanAmSat on the satellite services side and the acquisitions of Alcatel Space, Hughes Satellite Systems and Vertex Communications on the satellite manufacturing side of the business.

The summary set forth above does not purport to be a complete description of the analyses performed by Greenhill. The preparation of an estimate involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods in the particular circumstances and, therefore, such an estimate is not readily susceptible to summary description. In performing its analyses, Greenhill and the Debtors made numerous assumptions with respect to industry performance, business and economic conditions and other matters. The analyses performed by Greenhill are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses.

X. CERTAIN RISK FACTORS TO BE CONSIDERED

HOLDERS OF CLAIMS AGAINST THE DEBTORS SHOULD READ AND CONSIDER CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS DISCLOSURE STATEMENT (AND THE DOCUMENTS DELIVERED TOGETHER HEREWITH AND/OR INCORPORATED BY REFERENCE HEREIN), PRIOR TO VOTING TO ACCEPT OR REJECT THE PLAN. THESE RISK FACTORS SHOULD NOT, HOWEVER, BE REGARDED AS CONSTITUTING THE ONLY RISKS INVOLVED IN CONNECTION WITH THE PLAN AND ITS IMPLEMENTATION.


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A. CERTAIN BANKRUPTCY LAW CONSIDERATIONS

1. Risk of Non-Confirmation of the Plan

Although the Debtors believe that the Plan will satisfy all requirements necessary for confirmation by the Bankruptcy Court, there can be no assurance that the Bankruptcy Court will reach the same conclusion. Moreover, there can be no assurance that modifications to the Plan will not be required for confirmation or that such modifications would not necessitate the resolicitation of votes.

2. Non-Consensual Confirmation

In the event any impaired Class of Claims or Equity Interests does not accept the Plan, the Bankruptcy Court may nevertheless confirm the Plan at the Debtors’ request if at least one impaired Class has accepted the Plan (such acceptance being determined without including the vote of any “insider” in such Class) and, as to each impaired Class that has not accepted the Plan, if the Bankruptcy Court determines that the Plan “does not discriminate unfairly” and is “fair and equitable” with respect to the dissenting impaired classes. See Section VI.C.2. of this Disclosure Statement for more information about non-consensual confirmation. Because the Plan deems Class 6 (Ltd. Preferred Stock Interests), Class 7 (Other Equity Interests) and Class 8 (Securities Litigation Claims) to have rejected the Plan, these requirements must be satisfied with respect to such Classes. The Debtors believe that the Plan satisfies these requirements.

3. Risk of Non-Occurrence of the Effective Date

Although the Debtors believe that the Effective Date will occur soon after the Confirmation Date, there can be no assurance as to the timing of the Effective Date. In the event the conditions precedent described in Section V.L. of the Disclosure Statement have not been satisfied or waived by 120 days after the Confirmation Date, then (i) the Confirmation Order shall be vacated, (ii) no distributions under the Plan shall be made, (iii) the Debtors and all holders of Claims and Equity Interests shall be restored to the status quo ante as of the day immediately preceding the Confirmation Date as though the Confirmation Date had never occurred, and (iv) all of the Debtors’ obligations with respect to the Claims and Equity Interests shall remain unchanged, and nothing contained in the Plan shall be deemed to constitute a waiver or release of any claims by or against the Debtors or any other entity or to prejudice in any manner the rights of the Debtors, the Creditors’ Committee, or any other entity in any further proceedings involving the Debtors. For additional risk factors, see Loral’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, attached hereto as Exhibit C.

B. RISKS TO RECOVERY BY HOLDERS OF ORION GENERAL UNSECURED CLAIMS, LORAL GENERAL UNSECURED CLAIMS AND LTD. GENERAL UNSECURED CLAIMS

The ultimate recoveries under the Plan to holders of Allowed Orion General Unsecured Claims and Allowed Ltd. General Unsecured Claims and to holders of Allowed Loral General Unsecured Claims who elect to receive New Loral Common Stock depend upon the realizable value of the New Loral Common Stock. To the extent the actual value of the New Loral Common Stock varies from the amounts estimated, the recoveries of holders of Orion General Unsecured Claims, Loral General Unsecured Claims and Ltd. General Unsecured Claims may be higher or lower. The shares of New Loral Common Stock to be issued pursuant to the Plan are subject to a number of material risks, including, but not limited to, those specified below.


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1. Variances from Projections

The financial projections included herein are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The financial projections included in this Disclosure Statement are dependent upon the successful implementation of the Debtors’ business plan and the validity of the other assumptions contained therein. These projections reflect numerous assumptions, including confirmation and consummation of the Plan in accordance with its terms, the anticipated future performance of the Reorganized Debtors, satellite industry performance, certain assumptions with respect to competitors of the Reorganized Debtors, general business and economic conditions and other matters, many of which are beyond the control of the Reorganized Debtors. Factors that could cause actual results to differ materially include, but are not limited to, the Reorganized Debtors’ ability to operate their businesses consistent with the projections, comply with the covenants of their financing agreements, attract and retain key executives, attract and retain customers, comply with the terms of their existing satellite design, manufacturing and TT&C contracts and leases, and respond to adverse regulatory actions taken by the federal and state governments. In addition, unanticipated events and circumstances occurring subsequent to the preparation of the projections may affect the actual financial results of the Reorganized Debtors. Although the Debtors believe that the projections are reasonably attainable, variations between the actual financial results and those projected will occur and these variances may be material.

2. Significant Holders

Under the Plan, certain holders of Allowed Claims may receive distributions of the New Loral Common Stock representing in excess of five (5%) percent of the outstanding shares of the New Loral Common Stock. If holders of a significant number of shares of New Loral Common Stock were to act as a group, such holders may be in a position to control the outcome of actions requiring shareholder approval, including the election of directors.

Further, the possibility that one or more holders of a number of shares of the New Loral Common Stock may determine to sell all or a large portion of their shares in a short period of time may adversely affect the market price of the New Loral Common Stock.

3. Lack of Trading Market

New Loral will use commercially reasonable efforts to cause the New Loral Common Stock to be listed on the Nasdaq market or such other national securities exchange for which it may qualify. However, due to legal requirements, the New Loral Common Stock may not be listed on a national securities exchange or the Nasdaq market system on the Effective Date. Instead the New Loral Common Stock may trade in the over-the-counter market (the “pink sheets”), but there can be no assurance that an active trading market will develop. Accordingly, no assurance can be given that a holder of the New Loral Common Stock will be able to sell such interests in the future or as to the price at which any such sale may occur. If a trading market does exist, the New Loral Common Stock could trade at prices higher or lower than the value ascribed to such securities herein depending upon many factors including, but not limited to, the prevailing interest rates, markets for similar securities, general economic and industry conditions and the performance of, and investor expectations for, the Reorganized Debtors.


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4. Dividend Policies

Because all of the Debtors’ cash flows will be used in the foreseeable future for working capital, the Debtors do not anticipate that the Reorganized Debtors will pay dividends on the New Loral Common Stock in the near future.

5. Competitive Conditions

The Reorganized Debtors intend to reorganize around a fleet of five international satellites operated by New FSS and its subsidiaries and the satellite manufacturing business operated by New SS/L and its subsidiaries. The satellite communications and manufacturing industries are highly competitive, however.

The Reorganized Debtors face heavy competition in the transponder leasing business from companies such as PanAmSat, SES Global, New Skies, Intelsat and Eutelsat. Competition puts downward pressure on prices and may result in the reduced utilization of the Reorganized Debtors’ fleet capacity. In addition, the Reorganized Debtors face competition not only from other satellite-based providers, but also from providers of land-based data communications services, such as cable, DSL (digital subscriber line), wireless local loop and traditional telephone service providers.

Satellite manufacturers such as New SS/L have high fixed costs, and cash flow tends to be uneven. It takes two to three years to complete a satellite project and numerous assumptions are built into the estimated costs. Cash receipts are tied to the achievement of contract milestones, which depend in part on the ability of New SS/L’s subcontractors to deliver on time. In addition, the hostile environment of space in which satellites operate may lead to unexpected costs during the design, manufacture and testing of a satellite. To the extent that project costs exceed the contract price, New SS/L generally will be responsible for such cost overruns.

6. Governmental Regulation

a. Export Controls

New SS/L must contend with United States export control regulations that put it and other United States satellite manufacturers at a disadvantage when competing for foreign customers. Several of New SS/L’s large European competitors, such as Alcatel and Astrium, are not bound by the same restrictions.

b. Other Regulation

Multiple authorities regulate the Reorganized Debtors’ businesses, including the Federal Communications Commission, the International Telecommunications Union and the European Union. Regulatory authorities can modify, withdraw or impose charges or conditions upon, or deny or delay action on applications for, the licenses needed by the Reorganized Debtors, and so increase its costs. In addition, to prevent interference, the regulatory process requires potentially lengthy and costly negotiations with third parties who operate or intend to operate satellites at or near the locations of the Reorganized Debtors’ satellites.


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7. Operational Failures

a. Launch Failures

Satellite launches are risky, and some launch attempts have ended in complete or partial failure, such as the EdS failure described in Section IV.F. of this Disclosure Statement. The Reorganized Debtors may insure against such failures. The cost and availability of insurance vary depending on market conditions and the launch vehicle used. Insurance premiums are considerable and coverage typically does not extend to losses resulting from business interruption. Replacement of a lost satellite typically requires at least 24 months from contract execution to launch. Further, loss of a satellite could result in a loss of revenues and profits for the Reorganized Debtors.

b. In-orbit Failures

In-orbit damage to or loss of a satellite before the end of its expected life results from various causes, some random, including component failure, degradation of solar panels, loss of power or fuel, inability to maintain the satellite’s position, solar and other astronomical events, and space debris. Repair of satellites in space is not feasible. Satellites are built with redundant components to permit their continued operation in the event of a component failure. If these back-up components fail and the primary components cannot be restored, such satellites could lose capacity or be total losses resulting in a loss of revenues and profits. Moreover, loss of a satellite built by New SS/L could result in the loss of orbital incentive payments and the imposition of other financial penalty to New SS/L. In addition, the New FSS may be required to replace leased transponders on their satellites that do not meet operating specifications. Failure to do so may result in a payment obligation on the part of the New FSS.

8. Hart-Scott-Rodino Act

Any shares of New Loral Common Stock to be distributed under the Plan to any entity required to file a Premerger Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall not be distributed until the notification and waiting periods applicable to such entity under such Act shall have expired or been terminated.

9. Unforeseen Events

Future performance of the Reorganized Debtors is, to a certain extent, subject to general economic, financial, competitive, legisla tive, regulatory and other factors that are beyond their control. While no assurance can be provided, based upon the current level of operations and anticipated increases in revenues and cash flows described in the projections attached as Exhibit F to the Disclosure Statement, the Debtors believe that cash flow from operations and available Cash will be adequate to fund the Plan and meet their future liquidity needs.

10. Other Risk Factors

Other factors that may cause actual results to differ materially from the Debtors’ expectations include, but are not limited to, economic uncertainty, uncertainties regarding the collectibility of receivables and the ongoing war on terrorism.


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XI. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN

The following discussion summarizes certain U.S. federal income tax consequences of the implementation of the Plan to the Debtors and certain holders of Claims. The following summary does not address the U.S. federal income tax consequences to holders whose Claims are entitled to reinstatement or payment in full in Cash under the Plan (e.g., Other Priority Claims and Secured Claims) or holders whose claims or equity interests are extinguished without a distribution in exchange therefor (e.g., Securities Litigation Claims, Ltd. Preferred Stock Interests, and Other Equity Interests).

The following summary is based on the Internal Revenue Code of 1986, as amended (the “Tax Code”), Treasury Regulations promulgated thereunder, judicial decisions, and published administrative rules and pronouncements of the Internal Revenue Service (the “IRS”), all as in effect on the date hereof. Changes in such rules or new interpretations thereof may have retroactive effect and could significantly affect the U.S. federal income tax consequences described below.

The U.S. federal income tax consequences of the Plan are complex and are subject to significant uncertainties. The Debtors have not requested a ruling from the IRS or an opinion of counsel with respect to any of the tax aspects of the Plan. Thus, no assurance can be given as to the interpretation that the IRS will adopt. In addition, this summary generally does not address foreign, state or local tax consequences of the Plan, nor does it address the U.S. federal income tax consequences of the Plan to special classes of taxpayers (such as foreign taxpayers, broker-dealers, banks, mutual funds, insurance companies, financial institutions, small business investment companies, regulated investment companies, tax-exempt organizations, persons holding a Claim as part of a hedging, integrated constructive sale or straddle, and investors in pass-through entities). This summary also does not address any tax consequences to secondary purchasers of New Loral Common Stock or New FSS Notes.

ACCORDINGLY, THE FOLLOWING SUMMARY OF CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING AND ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES PERTAINING TO A HOLDER OF A CLAIM. ALL HOLDERS OF CLAIMS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS FOR THE FEDERAL, FOREIGN, STATE, LOCAL AND OTHER TAX CONSEQUENCES TO THEM AS A RESULT OF THE PLAN.

A. CONSEQUENCES TO THE DEBTORS

Loral Corp. and its direct and indirect U.S. Subsidiaries, including Orion (collectively, the “U.S. Debtors”), are members of an affiliated group of corporations for U.S. federal income tax purposes (the “U.S. Group”), of which Loral Corp. is the common parent, and have been filing a single consolidated federal income tax return. The U.S. Group reported, in respect of their taxable year ended December 31, 2003, consolidated net operating loss (“NOL”) carryforwards for U.S. federal income tax purposes of approximately $1,600,000,000 (substantially all of which is attributable to subsidiaries of Loral Corp.). The Debtors expect to utilize a portion of these NOLs to offset the taxable gain from the sale of certain assets in their taxable year ending December 31, 2004. Ltd., which is a Bermuda corporation, is not a member of the U.S. Group and, accordingly, files a separate federal income tax return with respect to its U.S. reportable income or loss. Ltd. reported, in respect of its taxable year ended December 31, 2003, NOL carryforwards for U.S. federal income tax purposes of approximately $260,000,000. In addition, the Debtors believe that the aggregate tax basis of the assets of the U.S. Group and of Ltd. exceeds, in the case of each, respectively, the aggregate


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fair market value of such assets. The amount of the Debtors’ NOL carryforwards, and the potential application of any limitations (whether new or existing) with respect to the use of such losses and NOL carryforwards, remain subject to audit and adjustment by the IRS.

As discussed below, in connection with the implementation of the Plan, the amount of the Debtors’ NOL carryforwards and certain other tax attributes (such as the tax basis of their assets) may be significantly reduced and, in certain cases, eliminated. In addition, the Debtors’ subsequent utilization of any NOL carryforwards remaining, and possibly certain other tax attributes, may be restricted following the Effective Date.

1. Cancellation of Debt

In general, the Tax Code provides that a debtor in a bankruptcy case must reduce certain of its tax attributes – such as NOL carryforwards and current year NOLs, tax credits, and tax basis in assets – by the amount of any cancellation of debt (“COD”). Where the debtor joins in the filing of a consolidated federal income tax return, applicable Treasury Regulations require, in certain circumstances, that the tax attributes of the consolidated subsidiaries of the debtor and other members of the group also be reduced. COD is the amount by which the indebtedness discharged (reduced by any unamortized discount) exceeds any consideration given in exchange therefor. Certain statutory or judicial exceptions can apply to limit the amount of COD and attribute reduction (such as where the payment of the canceled debt would have given rise to a tax deduction).

Any reduction in tax attributes does not effectively occur until the first day of the taxable year following the taxable year in which the COD is incurred and, consequently, any resulting COD does not impair the debtor’s ability to use its tax attributes (to the extent otherwise available) to reduce its tax liability, if any, otherwise resulting from the implementation of the plan. In addition, to the extent the amount of COD exceeds the tax attributes available for reduction, the remaining COD has no further effect for United States federal tax purposes. If advantageous, a debtor can elect to reduce the basis of depreciable property prior to any reduction in its NOLs or other tax attributes.

In the case of Ltd., only that portion of its liabilities that is properly allocable to a U.S. trade or business is taken into account in computing the amount of COD that is subject to U.S. federal income tax treatment. The Debtors believe that the discharge of Ltd.’s liabilities pursuant to the Plan will not result in any such COD, and thus does not require any corresponding tax attribute reduction. However, Ltd. does expect to incur approximately $55,000,000 of COD in 2004 as a result of the implementation of the court-approved plan of reorganization of Globalstar, in which Ltd. had an equity interest. The tax attribute reduction resulting from such COD would reduce the NOL carryforwards and any current year losses attributable to Ltd.’s U.S. trade or business activities, and is not currently expected to reduce the tax basis in Ltd.’s assets (although, as noted in the following paragraph, it is possible these Ltd. tax attributes will suffer further reduction as a result of COD to be realized by the U. S. Debtors).

As a result of the discharge of Claims pursuant to the Plan, the U.S. Debtors are expected to realize significant COD. The calculation of the actual amount of COD for tax purposes will include certain adjustments (as compared with the equivalent amount for financial reporting purposes), and will depend, in principal part, on the value of the New Loral Common Stock and New FSS Notes distributed in discharge of Allowed Claims. Based on a compromise Reorganization Value of the Reorganized Debtors (see Section IX. of the Disclosure Statement), it is anticipated that the U.S. Debtors will incur approximately $360,000,000 of COD as a result of the implementation of both the Plan and the court-approved plan of reorganization of Globalstar (not including additional amounts of COD attributable to Intercompany Claims between U.S. Debtors). Accordingly, it is


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anticipated that the resulting tax attribute reduction would reduce (and, in certain cases, eliminate) the NOL carryforwards attributable to the respective U.S. Debtors as of the end of the taxable year in which the Effective Date occurs, and could significantly reduce the tax basis that particular Debtors have in their assets (including any NOL carryforwards and tax basis in the assets of Ltd. to which the U.S. Debtors succeed as a result of the Restructuring Transactions). See Section XI.A.4. of the Disclosure Statement).

2. Limitations on NOL Carryforwards and Other Tax Attributes

Following the implementation of the Plan, any remaining NOL, capital loss and tax credit carryforwards and, possibly, certain other tax attributes (including current year NOLs) of the Reorganized Debtors allocable to periods prior to the Effective Date (collectively, “pre-change losses”) may be subject to limitation under section 382 of the Tax Code as a result of the change in ownership of the Reorganized Debtors. These limitations apply in addition to, and not in lieu of, the attribute reduction that results from the discharge of claims pursuant to the Plan.

Under section 382 of the Tax Code, if a corporation (or consolidated group) undergoes an “ownership change” and the corporation does not qualify for (or elects out of) the special bankruptcy exception discussed below, the amount of its pre-change losses that may be utilized to offset future taxable income is subject to an annual limitation. Such limitation also may apply to certain losses or deductions that are “built-in” (i.e., economically accrued but unrecognized) as of the date of the ownership change and that are subsequently recognized.

The issuance of the New Loral Common Stock to holders of Allowed Claims pursuant to the Plan will constitute an “ownership change” of the Debtors for these purposes.

a. General Section 382 Limitation

In general, the amount of the annual limitation to which a corporation (or consolidated group) would be subject is equal to the product of (i) the fair market value of the stock of the corporation (or, in the case of a consolidated group, the common parent) immediately before the ownership change (with certain adjustments) multiplied by (ii) the “long term tax exempt rate” in effect for the month in which the ownership change occurs (4.64% for ownership changes occurring in October 2004). For a corporation (or consolidated group) in bankruptcy that undergoes the change of ownership pursuant to a confirmed bankruptcy plan, the stock value generally is determined immediately after (rather than before) the ownership change, after giving effect to the surrender of creditors’ claims.

Any unused limitation may be carried forward, thereby increasing the annual limitation in the subsequent taxable year. However, if the corporation (or the consolidated group) does not continue its historic business or use a significant portion of its historic assets in a new business for two years after the ownership change, the annual limitation resulting from the ownership change is zero.

b. Built-In Gains and Losses

If a loss corporation (or consolidated group) has a net unrealized built-in loss at the time of an ownership change (taking into account most assets and items of “built-in” income and deductions), then generally built-in losses recognized during the following five years (up to the amount of the original net unrealized built-in loss) will be treated as pre-change losses and similarly will be subject to the annual limitation. Conversely, if the loss corporation (or consolidated group)


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has a net unrealized built-in gain at the time of an ownership change, any built-in gains recognized during the following five years (up to the amount of the original net unrealized built-in gain) generally will increase the annual limitation in the year recognized, such that the loss corporation (or consolidated group) would be permitted to use its pre-change losses against such built-in gain income in addition to its regular annual allowance. Although the rule applicable to net unrealized built-in losses generally applies to consolidated groups on a consolidated basis, certain corporations that join the consolidated group within the preceding five years may not be able to be taken into account in the group computation of net unrealized built-in loss. Such corporations would nevertheless still be taken into account in determining whether the consolidated group has a net unrealized built-in gain. Thus, a consolidated group can be considered to have both a net unrealized built-in loss and a net unrealized built-in gain. In general, a loss corporation’s (or consolidated group’s) net unrealized built-in gain or loss will be deemed to be zero unless it is greater than the lesser of (i) $10,000,000 or (ii) 15% of the fair market value of its assets (with certain adjustments) before the ownership change.

The Debtors expect that Ltd. will have a net unrealized built-in loss on the Effective Date. However, due to certain legal and factual uncertainties, it is currently unc lear whether the U.S. Group as a whole will be in a net unrealized built-in loss or built-in gain position on the Effective Date.

c. Special Bankruptcy Exception

An exception to the foregoing annual limitation rules generally applies where qualified creditors of a debtor receive, in respect of their claims, at least 50% of the vote and value of the stock of the reorganized debtor (or a controlling corporation if also in bankruptcy) pursuant to a confirmed chapter 11 plan. Under this exception, a debtor’s pre-change losses are not limited on an annual basis but, instead, are required to be reduced by the amount of any interest deductions claimed during the three taxable years preceding the effective date of the reorganization, and during the part of the taxable year prior to and including the reorganization, in respect of all debt converted into stock in the bankruptcy proceeding. Moreover, if this exception applies, any further ownership change of the debtor within a two-year period after the consummation of the chapter 11 plan will preclude the debtor’s future utilization of any pre-change losses existing at the time of the subsequent ownership change.

The receipt of the New Loral Common Stock by certain holders of Allowed Orion General Unsecured Claims and Allowed Loral General Unsecured Claims pursuant to the Plan may qualify for this exception with respect to the pre-change losses of the U.S. Group. Neither the statute nor the regulations address, however, whether this exception can be applied on a consolidated basis or only on a separate company basis. Moreover, due to certain other legal and factual uncertainties, it is unclear whether the Debtors will qualify for this exception with respect to the pre-change losses of the U.S. Group. As to the pre-change losses of Ltd., it is unlikely that the receipt of New Loral Common Stock by holders of Allowed Loral General Unsecured Claims and Orion General Unsecured Claims would qualify for this exception. Even if the Debtors do qualify for this exception, the Debtors may, if they so desire, elect not to have the exception apply and instead remain subject to the annual limitation described above. Such election would have to be made in the Debtors’ U.S. federal income tax return for the taxable year in which the change occurs. For purposes of the projected financial information, the Debtors have taken the position that their pre-change losses will be limited on an annual basis to approximately $25,000,000 under the general section 382 limitation applicable to corporations in bankruptcy discussed above. Subject to and given the underlying assumptions, the projected financial information indicates that the imposition of this annual limitation would not curtail the projected utilization of the Debtors’ pre-change losses during the period covered by the projections.


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3. Alternative Minimum Tax

In general, a U.S. alternative minimum tax (“AMT”) is imposed on a corporation’s U.S. alternative minimum taxable income at a 20% tax rate to the extent such tax exceeds the corporation’s regular federal income tax. For purposes of computing taxable income for AMT purposes, certain tax deductions and other beneficial allowances are modified or eliminated. For example, a corporation is generally not allowed to offset more than 90% of its taxable income for AMT purposes by available NOL carryforwards (as computed for AMT purposes).

In addition, if a corporation (or consolidated group) undergoes an “ownership change” within the meaning of section 382 of the Tax Code and is in a net unrealized built-in loss position (as determined for AMT purposes) on the date of the ownership change, the corporation’s (or consolidated group’s) aggregate tax basis in its assets would be reduced for certain AMT purposes to reflect the fair market value of such assets as of the change date. It is not clear whether this provision would apply even if the Debtors otherwise qualify for, and avail themselves of, the special bankruptcy exception to the annual limitation rules of section 382 discussed in the previous section.

Any AMT that a U.S. corporation pays generally will be allowed as a nonrefundable credit against its regular federal income tax liability in future taxable years when the corporation is no longer subject to AMT.

4. Implementation of the Restructuring Transactions

Pursuant to the Restructuring Transactions, Ltd. will transfer substantially all of its assets to New Loral or a wholly-owned first-tier subsidiary of New Loral in exchange for the New Loral Common Stock to be distributed to the holders of Allowed Loral General Unsecured Claims. The Debtors do not expect that Ltd. (a Bermuda corporation) will incur any U.S. or foreign income tax liability as a result of such transfer of assets.

Moreover, for U.S. federal income tax purposes, it is anticipated that the transfer of assets, followed by the distribution of the New Loral Common Stock, pursuant to the Plan will qualify as a reorganization under section 368(a)(1)(G) of the Tax Code (a so-called “G” reorganization) for U.S. federal income tax purposes. In addition to other statutory and non-statutory requirements common to tax-free reorganizations, for a transfer of assets by a corporation in bankruptcy to qualify as a “G” reorganization, (i) the debtor corporation (in our case, Ltd.) must transfer substantially all of its assets to another corporation and distribute all stock and securities received of such corporation or its parent, including to at least one stockholder or security holder of the debtor corporation, and (ii) the historic shareholders and creditors of the debtor corporation must receive, collectively, a sufficient percentage of the acquiring (or parent) corporation’s stock relative to the amount of non-stock consideration received. The Debtors believe that all of these requirements will be satisfied. Accordingly, the Debtors anticipate that the acquiring corporation will succeed to any remaining NOL carryforwards of Ltd. and Ltd.’s tax basis in the transferred assets, after taking into account any reduction in such attributes as a result of the discharge of Claims against Ltd. pursuant to the Plan, and subject to any applicable limitations on the subsequent utilization of such attributes (such as under section 382 of the Tax Code, as discussed above). As discussed above in Section XI.A.1. of the Disclosure Statement, any NOL carryforwards and tax basis in the assets of Ltd. to which the U. S. Debtors succeed as a result of the Plan could be subject to further reduction required in respect of COD recognized by the U.S. Debtors pursuant to the Plan.

Also in connection with the implementation of the Plan, the Debtors may, in their discretion, merge, dissolve, or consolidate any of the Debtors or otherwise transfer assets between or


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among the Debtors or certain of their affiliates. Should the Debtors choose to effectuate any such Restructuring Transactions, the Debtors intend to do so in a manner that would not have material adverse tax consequences.

5. Issuance of the New FSS Notes

The New FSS Notes and Additional New FSS Notes will be issued with original issue discount (“OID”). See Section XI.B.4. of the Disclosure Statement. Any such OID generally would be amortizable by New FSS utilizing the constant interest method, and deductible as interest, unless the New FSS Notes and Additional New FSS Notes are treated as applicable high yield discount obligations (“AHYDOs”) within the meaning of section 163(e)(5) of the Tax Code. A debt obligation is treated as an AHYDO if it is issued with substantial OID (meaning that there is accrued OID as of the end of the fifth year after issuance in excess of one year’s interest, both actual and imputed), has a yield to maturity of at least five percentage points over the applicable federal rate in effect for the calendar month in which such notes are issued, and has a maturity of over five years.

In the event that a debt instrument constitutes an AHYDO, the issuer’s interest deduction with respect to any OID would be deferred until paid in cash, except that such issuer’s interest deduction would be disallowed to the extent the yield to maturity on the debt instrument exceeds six percentage points over the applicable federal rate. For purposes of the projected financial information, the Debtors have taken the position that the New FSS Notes and Additional New FSS Notes will constitute AHYDOs.

B. CONSEQUENCES TO THE HOLDERS OF CERTAIN CLAIMS

Pursuant to the Plan, holders of Allowed Loral General Unsecured Claims (Class 5) will receive Cash and/or New Loral Common Stock (depending on whether the holder elects to receive stock and Class 5 accepts the Plan) in satisfaction and discharge of their Claims. Holders of Allowed Ltd. General Unsecured Claims (Class 5A) will receive shares of New Loral Common Stock in satisfaction and discharge of their Claims. Holders of Allowed Orion General Unsecured Claims (Class 4) will receive a combination of New Loral Common Stock and New FSS Notes in satisfaction and discharge of their Claims. In addition, the Plan provides that holders of Orion General Unsecured Claims will receive non-transferable Subscription Rights, entitling them to subscribe, at par, for Additional New FSS Notes. Holders of Allowed Claims in Classes 4, 5 and 5A may receive additional distributions of Cash, stock or notes after the Effective Date to the extent any Disputed Claims in such Class are subsequently disallowed.

The U.S. federal income tax treatment to a holder of a Ltd. General Unsecured Claim depends, in part, on whether such Claim constitutes a “security” of Ltd. for federal income tax purposes, and the U.S. federal income tax treatment to a holder of an Orion General Unsecured Claim may depend, in part, on whether such Claim, the New FSS Notes and, possibly, the Subscription Rights constitute “securities” of Orion for U.S. federal income tax purposes. The term “security” is not defined in the Tax Code or in the Treasury Regulations promulgated thereunder and has not been clearly defined by judicial decisions. The determination of whether a particular debt constitutes a “security” generally depends on an overall evaluation of the nature of the original debt. One of the most significant factors considered in determining whether a particular debt is a security is its original term. In general, debt obligations issued with a weighted average maturity at issuance of five years or less do not constitute securities, whereas debt obligations with a weighted average maturity at issuance of ten years or more constitute securities. In addition, the IRS recently ruled that a debt instrument with a term of two years could be a security if received in a reorganization in exchange for a former security that was in substantially the same form (including maturity date), but had a different


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interest rate. In this connection, it should be noted that the Orion Stub Notes and Orion 10% Notes were treated as securities in connection with the prospectuses pursuant to which such notes were issued, although such treatment is not binding on the IRS. For purposes of the following discussion, no assumption has been made as to whether the Ltd. General Unsecured Claims constitute “securities” of Ltd. Holders of Ltd. General Unsecured Claims and Orion General Unsecured Claims are urged to consult their tax advisors regarding the status of their Claims as “securities” of Ltd. or Orion (and, if applicable, whether the New FSS Notes and the Subscription Rights are “securities” of New FSS) for U.S. federal income tax purposes.

The following discussion assumes that the transfer of assets of Ltd. pursuant to the Restructuring Transactions will constitute a “G” reorganization for U.S. federal income tax purposes. See Section XI.A.4. In addition, the following discussion does not necessarily apply to holders who have Claims in more than one class relating to the same underlying obligation (such as where the underlying obligation serves as the basis for a primary Claim against one Debtor and a secondary liability claim against another Debtor). Such holders should consult their tax advisors regarding the effect of such dual status obligations on the federal income tax consequences of the Plan to them.

1. Gain or Loss – Generally

Other than as discussed below with respect to Ltd. General Unsecured Claims that constitute “securities” of Ltd. (see Section XI.B.2. of the Disclosure Statement) and Orion General Unsecured Claims that constitute “securities” of Orion (see Section XI.B.3. of the Disclosure Statement), the distributions to holders of Allowed Loral General Unsecured Claims, Allowed Orion General Unsecured Claims and Allowed Ltd. General Unsecured Claims in satisfaction of their Claims generally should be fully taxable transactions.

Accordingly, a holder of such an Allowed Claim generally will recognize gain or loss in an amount equal to the difference between (i) the “amount realized” by the holder in satisfaction of its Claim (other than in respect of any Claim for accrued but unpaid interest, and excluding any portion required to be treated as imputed interest due to the post-Effective Date distribution of such consideration following the resolution of any Disputed Claims in the same class) and (ii) the holder’s adjusted tax basis in its Claim (other than any Claim for accrued but unpaid interest). For a discussion of the U.S. federal income tax consequences to holders of any Claim for accrued interest, see Section XI.B.4. Generally, the “amount realized” by a holder will equal the sum of the amount of any cash, the issue price of any New FSS Notes, the fair market value of any shares of New Loral Common Stock, and possibly the fair market value of any Subscription Rights received.

Due to the possibility that a holder of an Allowed Orion General Unsecured Claim, Allowed Loral General Unsecured Claim or Allowed Ltd. General Unsecured Claim may receive additional distributions subsequent to the Effective Date in respect of any subsequently disallowed Disputed Claims or unclaimed distributions, the Tax Code may apply to treat a portion of such later distributions to such holders as imputed interest. In addition, it is possible that any loss and a portion of any gain realized by such holders may be deferred until such time as such holder has received its final distribution. It is unclear whether a holder of such an Allowed Claim who receives a distribution post-Effective Date on account of the resolution of Disputed Claims (including holders of previously Allowed Claims) that includes a Cash distribution attributable to previously paid dividends should treat such Cash distribution as an additional amount realized on such holder’s Claim or in fact as dividends. All holders of an Allowed Orion General Unsecured Claim, Allowed Loral General Unsecured Claim or Allowed Ltd. General Unsecured Claim should consult their tax advisors as to the tax consequences of the receipt of the stock or Cash subsequent to the Effective Date.


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Where gain or loss is recognized by a holder in respect of its Claim, the character of such gain or loss as long-term or short-term capital gain or loss or as ordinary income or loss will be determined by a number of factors, including the tax status of the holder, whether the Claim constitutes a capital asset in the hands of the holder and how long it has been held, whether the Claim was originally issued at a discount or was acquired at a market discount, and whether and to what extent the holder had previously claimed a bad debt deduction in respect of such Claim. A holder that purchased its Claim from a prior holder at a market discount may be subject to the market discount rules of the Tax Code. Under those rules, assuming that the holder has made no election to amortize the market discount into income on a current basis with respect to any market discount instrument, any gain recognized on the exchange of such Claim (subject to a de minimis rule) generally would be characterized as ordinary income to the extent of the accrued market discount on such Claim as of the date of the exchange.

In general, a holder’s tax basis in any New FSS Notes will equal the issue price of such notes. A holder’s tax basis in any New Loral Common Stock received in satisfaction of an Allowed Loral General Unsecured Claim or Allowed Ltd. General Unsecured Claim that does not constitute a “security” of Ltd., and in any New Loral Common Stock and, if applicable, Subscription Rights received in satisfaction of an Allowed Orion General Unsecured Claim, will equal the fair market value of the stock and the rights. A holder’s holding period for any New Loral Common Stock, New FSS Notes and, if applicable, Subscription Rights generally will begin the day following the issuance of such stock, notes and rights.

Notwithstanding the foregoing, it is possible the IRS may attempt to characterize the receipt of New Loral Common Stock, New FSS Notes and Subscription Rights in satisfaction of Claims of a holder against any subsidiary of New Loral as part of a non-recognition transaction. Such a holder would, however, be required to recognize a portion of the gain realized, but only to the extent that the holder receives consideration other than New Loral Common Stock, such as New FSS Notes. In a non-recognition transaction, the holder’s tax basis in its New Loral Common Stock would be equal to its tax basis in the Claim decreased by the value of any other consideration received and increased by the portion of any gain recognized. In addition, the holder’s holding period in the New Loral Common Stock in such case may, in whole or in part, include its holding period in its Claim. However, the Debtors believe, and the discussion herein assumes, that the satisfaction of Claims described in this paragraph should be treated as a fully taxable transaction, in which both gain and loss would be recognized.

2. Holders of Ltd. General Unsecured Claims that Constitute “Securities”

As discussed above, the transfer of Ltd.’s assets pursuant to the Plan, followed by the distribution of the New Loral Common Stock to holders of Allowed Loral General Unsecured Claims, is intended to qualify as a tax-free “G” reorganization. Accordingly, each holder of an Allowed Ltd. General Unsecured Claim that constitutes a “security” of Ltd. for U.S. federal income tax purposes generally will not recognize any loss upon the exchange of its Claim, but will recognize gain (computed as described in the preceding section), if any, only to the extent of any non-stock consideration received (e.g., possibly any Cash received attributable to previously paid dividends). The character and timing of such gain, and the potential for imputed interest in respect of post-Effective Date distributions, would be determined in accordance with the principles discussed in the preceding section. For a discussion of the U.S. federal income tax consequences of any Claim for accrued interest, see Section XI.B.4.

In general, a holder’s aggregate tax basis in any New Loral Common Stock received in satisfaction of a Ltd. General Unsecured Claim that constitutes a “security” will equal the holder’s


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aggregate adjusted tax basis in such Claim (including any Claim for accrued but unpaid interest, and excluding any portion required to be treated as imputed interest due to the post-Effective Date distribution of such consideration upon the resolution of Disputed Claims), increased by any gain recognized or interest income received in respect of such Claim, and decreased by any non-stock consideration received and any deductions claimed in respect of any previously accrued interest. In general, the holder’s holding period for any such New Loral Common Stock received will include the holder’s holding period for the Claim, except to the extent that the New Loral Common Stock was issued in respect of a Claim for accrued but unpaid interest (which will begin the day following the receipt of such interest).

3. Holders of Orion General Unsecured Claims that Constitute “Securities”

It is possible that Orion may serve as New FSS. In such event, if the New FSS Notes constitute “securities,” the distribution of the New FSS Notes and New Loral Common Stock in satisfaction of Allowed Orion General Unsecured Claims that constitute “securit ies” of Orion for U.S. federal income tax purposes would qualify as a recapitalization exchange; otherwise, the distribution generally would be a fully taxable transaction (see Section XI.B.1. of the Disclosure Statement). If the distribution qualifies as a recapitalization exchange, holders would not be entitled to recognize any loss upon the exchange of their Claims but generally would be required to recognize gain (computed in accordance with the principles discussed in Section XI.B.1 of the Disclosure Statement) to the extent of the fair market value of the New Loral Common Stock received and, if applicable, the Subscription Rights. The character and timing of such gain, the potential for imputed interest in respect of post-Effective Date distributions, and the consequences of any Claim for accrued interest would be determined in accordance with the principles discussed in Sections XI.B.1. and XI.B.4. of the Disclosure Statement.

In addition, as discussed in Section XI.A.4. of the Disclosure Statement, the Debtors may engage in certain Restructuring Transactions at their discretion. For example, it is possible that the Debtors may merge Orion into a newly formed or a pre-existing first-tier subsidiary of New Loral as of the Effective Date. In such event, the distribution of New Loral Common Stock and New FSS Notes in satisfaction of Allowed Orion General Unsecured Claims that constitute “securities” of Orion for U.S. federal income tax purposes may qualify as a tax-free “G” reorganization. Consequently, the holders of such Claims would not recognize any loss upon the exchange of their Claims, but in the event that the New FSS Notes (and possibly the Subscription Rights) do not constitute “securities,” such holders generally would recognize gain (computed in accordance with the principles discussed in Section XI.B.1 of the Disclosure Statement), if any, only to the extent of the issue price of the New FSS Notes and, if applicable, the fair market value of the Subscription Rights. The character and timing of such gain, the potential for imputed interest in respect of post-Effective Date distributions, and the consequences of any Claim for accrued interest would be determined in accordance with the principles discussed in Sections XI.B.1. and XI.B.4. of the Disclosure Statement.

Holders of Orion General Unsecured Claims are urged to consult with their tax advisors with respect to the tax consequences of the Plan to them (including with respect to the receipt of the Subscription Rights, the ownership of the New FSS Notes, and the potential for acquisition or bond premium and the possible carryover or imposition of market discount in connection with the acquisition of such notes).


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4. Distributions in Discharge of Accrued but Unpaid Interest

Pursuant to the Plan, distributions to any holder of an Allowed Claim will be allocated first to the original principal amount of such Claim as determined for federal income tax purposes, and then, to the extent the consideration exceeds such amount, to any portion of such Claim representing accrued OID or accrued but unpaid interest. However, there is no assurance that the IRS would respect such allocation for federal income tax purposes.

In general, to the extent that an amount received (Cash or stock) by a holder of debt is received in satisfaction of accrued interest or OID during its holding period, such amount will be taxable to the holder as interest income (if not previously included in the holder’s gross income). Conversely, a holder generally recognizes a deductible loss to the extent any accrued interest claimed was previously included in its gross income and is not paid in full. However, the IRS has privately ruled that a holder of a security, in an otherwise tax-free exchange, could not claim a current deduction with respect to any unpaid OID. Accordingly, it is also unclear whether, by analogy, a holder of a Claim that does not constitute a security would be required to recognize a capital loss, rather than an ordinary loss, with respect to any previously included OID that is not paid in full. Each holder is urged to consult its tax advisor regarding the allocation of consideration and the deductibility of unpaid interest for U.S. federal income tax purposes.

5. Ownership and Disposition of the New FSS Notes and Additional New FSS Notes

a. Interest and Original Issue Discount

Each holder of a New FSS Note or Additional New FSS Note (collectively, for purposes of the following discussion, the “New Notes”) generally will be required to include in its gross income any interest payable to the extent such interest constitutes qualified stated interest with respect to such note in accordance with its regular method of tax accounting. The interest on the New Notes will constitute qualified stated interest to extent of the rate that is required to be paid in Cash at least annually. In addition, the New Notes will be treated as issued with OID. In general, a debt instrument is treated as having OID to the extent its “stated redemption price at maturity” (in this case, the sum of all payments provided by the New Notes other than qualified stated interest) exceeds its “issue price,” subject to a de minimis exception.

Pursuant to the applicable Treasury Regulations, if a “substantial amount” of the New Notes issued on the Effective Date are considered issued for Cash in the Rights Offering, the “issue price” of each New Note (whether or not issued for Cash) will be the Subscription Purchase Price. If not, the “issue price” of the New Notes will depend upon whether the New Notes or, alternatively, the Orion 10% Notes and Orion Stub Notes are traded on an “established securities market” within thirty (30) days before or after the Effective Date. Pursuant to Treasury Regulations, an “established securities market” need not be a formal market. It is sufficient that the New Notes (or Orion 10% Notes and Orion Stub Notes) appear on a system of general circulation (including a computer listing disseminated to subscribing brokers, dealers or traders) that provides a reasonable basis to determine fair market value by disseminating either recent price quotations or actual prices of recent sales transactions, or that, under certain circumstances, price quotations for such notes are readily available from brokers, dealers or traders. If a substantial amount of the New Notes are traded on an established securities market, the issue price of the New Notes will be their fair market value. If a substantial amount of the Orion 10% Notes and Orion Stub Notes (but not the New Notes) are so traded, the issued price of the New Notes will be based on the fair market value of the notes surrendered by holders of Orion General Unsecured Claims (with appropriate adjustments for the


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receipt of stock in addition to New Notes). Otherwise, the issue price of the New Notes will be their stated principal amount.

Each holder generally will be required to accrue the OID in respect of the New FSS Notes received and include such amount in gross income as interest over the term of such notes based on the constant yield method (subject to the discussions of acquisition premium and certain high yield discount obligations , in the following subsections). Accordingly, each holder generally would be required to include amounts in gross income in advance of the payment of Cash in respect of such income. A holder’s tax basis in a New Note will be increased by the amount of any OID included in income and reduced by any Cash received (other than payments of qualified stated interest) made with respect to such New Note.

b. Acquisition Premium on Additional New FSS Notes

If a holder has a tax basis in any Additional New FSS Notes it acquires in the Rights Offering that exceeds the issue price of such note (as would occur if the issue price of the Additional New FSS Notes is determined based on fair market value, and the fair market value is below par), the amount of OID includable in the holder’s gross income generally is reduced in each period in proportion to the percentage of the OID represented by the excess basis. Alternatively, if a holder is willing to treat all stated interest as OID, such holder may elect to recompute the OID accruals by treating its acquisition as a purchase at original issue and applying the constant yield method. Such an election may not be revoked without the consent of the IRS.

c. Treatment of Certain High Yield Discount Obligations

As discussed in Section XI.A.5. above, certain debt instruments that are issued with substantial OID and have a maturity of over five years are treated as AHYDOs within the meaning of the Tax Code. With respect to such instruments, a portion of a corporate holder’s income with respect to such accrued OID equal to the portion, if any, for which the issuer is disallowed a deduction (see Section XI.A.5.) will be treated as a dividend for purposes of the dividend-received deduction to the extent such amount would be so treated if it had been a distribution made by the issuer with respect to its stock (that is, to the extent the issuer has sufficient earnings and profits such that a distribution in respect of stock would constitute a dividend for federal income tax purposes and, presumably, subject to certain holding period and taxable income requirements and other limitations on the dividend-received deduction). Presumably, a corporate holder’s entitlement to a dividends-received-deduction is subject to the normal holding period and taxable income requirements and other limitations applicable to dividends-received-deductions. For purposes of the projected financial information, the Debtors have taken the position that the New Notes will constitute AHYDOs.

6. Exercise or Lapse of the Subscription Rights

A holder of a Subscription Right generally will not recognize gain or loss upon the exercise of such right. A holder’s tax basis in the Additional New FSS Note received upon exercise of a Subscription Right will be equal to the sum of the holder’s tax basis in the Subscription Right (if any) and the amount paid for the Additional New FSS Note. A holder’s holding period in the Additional New FSS Note received will commence the day following its acquisition (except possibly within the context of a tax-free reorganization exchange). See Section XI.B.3. of the Disclosure Statement.

Upon the lapse of a Subscription Right, the holder generally would recognize a loss equal to its tax basis in the Subscription Right (if any). In general, such gain or loss would be a


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capital gain or loss, and would be a short term loss (unless received within the context of a tax-free reorganization exchange). See Section XI.B.3. of the Disclosure Statement.

7. Ownership and Disposition of the New Loral Common Stock

Any gain recognized by a holder of New Loral Common Stock (other than possibly stock received by holders of Claims against any indirect subsidiary of Loral Corp.) upon a subsequent taxable disposition of such stock (or any stock or property received for it in a later tax-free exchange) will be treated as ordinary income for U.S. federal income tax purposes to the extent of (i) any bad debt deductions (or additions to a bad debt reserve) claimed with respect to the Claim for which stock was received and any ordinary loss deductions incurred upon satisfaction of the Claim, less any income (other than interest income) recognized by the holder upon satisfaction of the Claim, and (ii) with respect to a cash-basis holder, also any amounts which would have been included in its gross income if the holder’s Claim had been satisfied in full but which was not included by reason of the cash method of accounting.

In addition, the Treasury Department is expected to promulgate regulations that will provide that any accrued “market discount” not treated as ordinary income upon a tax-free exchange (including a “G” reorganization or tax-free recapitalization) of market discount bonds would carry over to the nonrecognition property (in this case, the New Loral Common Stock) received in the exchange. If such regulations are promulgated and applicable to the Plan (and, likely, even without the issuance of regulations), any holder of a Ltd. General Unsecured Claim that constitutes a “security” of Ltd. which has accrued market discount would carry over such accrued market discount to any New Loral Common Stock received pursuant to the Plan, such that any gain recognized by the holder upon a subsequent disposition of such stock also would be treated as ordinary income to the extent of any accrued market discount not previously included in income. In general, a Claim will have “accrued market discount” if such Claim was acquired after its original issuance at a discount to its adjusted issue price.

8. New Loral Common Stock and New FSS Notes Held in Trust for Disputed Claims

Pursuant to the Plan, any New Loral Common Stock, New FSS Notes retained by the Disbursing Agent on account of Disputed Claims by holders of Loral General Unsecured Claims, Orion General Unsecured Claims and Ltd. General Unsecured Claims shall be held in trust (each a “Disputed Claims Reserve”) pending the resolution of such Disputed Claims.

Under section 468B(g) of the Tax Code, amounts earned by an escrow account, settlement fund or similar fund must be subject to current tax. Although certain Treasury Regulations have been issued under this section, no Treasury Regulations have as yet been promulgated to address the tax treatment of such accounts in a bankruptcy setting. Thus, depending on the facts of a particular situation, such an account could be treated as a separately taxable trust, as a grantor trust treated as owned by the holders of Disputed Claims or by the Debtor (or, if applicable, any of its successors), or otherwise. In 1999, the IRS issued proposed Treasury Regulations that, if finalized in their current form, would specify the tax treatment of reserves of the type here involved that are established after the date such Treasury Regulations become final. In general, such Treasury Regulations would tax such a reserve as a “qualified settlement fund” under Treasury Regulation sections 1.468B-1 et seq. and thus subject to a separate entity level tax. As to previously established escrows and the like, such Treasury Regulations would provide that the IRS would not challenge any reasonably, consistently applied method of taxation for income earned by the escrow or account, and any reasonably, consistently applied method for reporting such income.


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Absent definitive guidance from the IRS or a court of competent jurisdiction to the contrary (including the issuance of applicable Treasury Regulations, the receipt by the Disbursing Agent of a private letter ruling if the Disbursing Agent so requests one, or the receipt of an adverse determination by the IRS upon audit if not contested by the Disbursing Agent), the Disbursing Agent shall (i) treat each Disputed Claims Reserve as a discrete trust for federal income tax purposes, consisting of separate and independent shares to be established in respect of each Disputed Claim in the class of Claims to which such Reserve relates, in accordance with the trust provisions of the Tax Code (sections 641 et seq. of the Tax Code), and (ii) to the extent permitted by applicable law, report consistently for state and local income tax purposes. In addition, pursuant to the Plan, all parties (including holders of Disputed Claims) shall report consistently with such treatment.

Accordingly, subject to issuance of definitive guidance, the Disbursing Agent will report as subject to a separate entity level tax any amounts earned by the Disputed Claims Reserve, except to the extent such earnings are distributed by the Disbursing Agent during the same taxable year. In such event, any amount earned by the Disputed Claims Reserve that is distributed to a holder during the same taxable year will be includible in such holder’s gross income.

Distributions from the Disputed Claims Reserve will be made to holders of Disputed Claims in the Class of Claims to which such Reserve relates when such Disputed Claims are subsequently Allowed and to holders of previously Allowed Claims (whether such Claims were Allowed on or after the Effective Date) when any Disputed Claims are subsequently disallowed. Such distributions (other than amounts attributable to earnings) should be taxable to the recipient in accordance with the principles discussed above (see Section XI.B.1.).

Accordingly, each holder of a Loral General Unsecured Claim, an Orion General Unsecured Claim and a Ltd. General Unsecured Claim is urged to consult its tax advisor regarding the potential tax treatment of the Disputed Claim Reserve, distributions therefrom, and any tax consequences to such holder relating thereto.

9. Information Reporting and Withholding

All distributions to holders of Claims under the Plan are subject to any applicable tax withholding, including employment tax withholding. Under U.S. federal income tax law, interest, dividends, and other reportable payments may, under certain circumstances, be subject to “backup withholding” at the then applicable withholding rate (currently 28%). Backup withholding generally applies if the holder (a) fails to furnish its social security number or other taxpayer identification number (“TIN”), (b) furnishes an incorrect TIN, (c) fails properly to report interest or dividends, or (d) under certain circumstances, fails to provide a certified statement, signed under penalty of perjury, that the TIN provided is its correct number and that it is a United States person that is not subject to backup withholding. Backup withholding is not an additional tax but merely an advance payment, which may be refunded to the extent it results in an overpayment of tax and the appropriate information is supplied to the IRS. Certain persons are exempt from backup withholding, including, in certain circumstances, corporations and financial institutions.

In addition, from an information reporting perspective, Treasury Regulations generally require disclosure by a taxpayer on its federal income tax return of certain types of transactions in which the taxpayer participated, including, among other types of transactions, the following: (1) certain transactions that result in the taxpayer’s claiming a loss in excess of specified thresholds; and (2) certain transactions in which the taxpayer’s book-tax differences exceed a specified threshold in any tax year. Holders are urged to consult their tax advisors regarding these


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regulations and whether the transactions contemplated by the Plan would be subject to these regulations and require disclosure on the holders’ tax returns.

The foregoing summary has been provided for informational purposes only. All holders of Claims are urged to consult their tax advisors concerning the federal, state, local and foreign tax consequences applicable under the Plan.

XII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN

If the Plan is not confirmed and consummated, the Debtors’ alternatives include (i) liquidation of the Debtors under chapter 7 of the Bankruptcy Code and (ii) the preparation and presentation of an alternative plan or plans of reorganization.

A. LIQUIDATION UNDER CHAPTER 7

If no chapter 11 plan can be confirmed, the Reorganization Cases may be converted to cases under chapter 7 of the Bankruptcy Code in which a trustee would be elected or appointed to liquidate the assets of the Debtors. A discussion of the effect that a chapter 7 liquidation would have on the recoveries of holders of Claims and Equity Interests is set forth in Section VI.C.4. of the Disclosure Statement. The Debtors believe that liquidation under chapter 7 would result in, among other things, (i) smaller distributions being made to creditors than those provided for in the Plan because of additional administrative expenses attendant to the appointment of a trustee and the trustee’s employment of attorneys and other professionals, (ii) additional expenses and claims, some of which would be entitled to priority, which would be generated during the liquidation and from the rejection of leases and other executory contracts in connection with a cessation of the Debtors’ operations and (iii) the failure to realize the greater, going concern value of the Debtors’ assets.

B. ALTERNATIVE PLAN OF REORGANIZATION

If the Plan is not confirmed, the Debtors or any other party in interest could attempt to formulate a different plan of reorganization. Such a plan might involve either a reorganization and continuation of the Debtors’ business or an orderly liquidation of the Debtors’ assets. The Debtors have concluded that the Plan represents the best alternative to protect the interests of creditors and other parties in interest.

The Debtors believe that the Plan enables the Debtors to successfully and expeditiously emerge from chapter 11, preserves their business and allows creditors to realize the highest recoveries under the circumstances. In a liquidation under chapter 11 of the Bankruptcy Code, the assets of the Debtors would be sold in an orderly fashion which could occur over a more extended period of time than in a liquidation under chapter 7 and a trustee need not be appointed. Accordingly, creditors would receive greater recoveries than in a chapter 7 liquidation. Although a chapter 11 liquidation is preferable to a chapter 7 liquidation, the Debtors believe that a liquidation under chapter 11 is a much less attractive alternative to creditors because a greater return to creditors is provided for in the Plan.


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XIII. CONCLUSION AND RECOMMENDATION

The Debtors believe the Plan is in the best interests of all creditors and urges the holders of impaired Claims in Classes 2, 4, 5 and 5A to vote to accept the Plan and to evidence such acceptance by returning their Ballots so that they will be received no later than 4:00 p.m. (prevailing Eastern Time) on January 24, 2005.

Dated: October 22, 2004 New York, New York

Respectfully submitted, LORAL SPACE & COMMUNICATIONS LTD.

By: /s/ Richard J. Townsend______________________ Name: Richard J. Townsend Title: Executive Vice President, Chief Financial Officer

LORAL SPACECOM CORPORATION LORAL SPACE & COMMUNICATIONS CORPORATION LORAL SATELLITE, INC. SPACE SYSTEMS/LORAL, INC. LORAL COMMUNICATIONS SERVICES, INC. LORAL GROUND SERVICES, L.L.C. LORAL ORION, INC. LORAL CYBERSTAR GLOBAL SERVICES, INC. LORAL CYBERSTAR GMBH LORAL CYBERSTAR JAPAN, INC. LORAL CYBERSTAR SERVICES, INC. LORAL CYBERSTAR HOLDINGS, L.L.C. LORAL CYBERSTAR INTERNATIONAL, INC. LORAL ASIA PACIFIC SATELLITE (HK) LIMITED SS/L EXPORT CORPORATION CYBERSTAR, L.P. CYBERSTAR, L.L.C. LORAL SKYNET NETWORK SERVICES, INC. LORAL LICENSING LTD.

BY: LORAL SPACE & COMMUNICATIONS LTD., as agent and attorney-in-fact for each of the foregoing entities


By: /s/ Richard J. Townsend_______________ Name: Richard J. Townsend Title: Executive Vice President, Chief Financial Officer


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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

------------------------------------------------------------x : In re : Chapter 11 Case Nos. : LORAL SPACE : LEAD CASE 03-41710 (RDD) & COMMUNICATIONS LTD., et al. : 03-41709 (RDD) through : 03-41728 (RDD) : (Jointly Administered) : Debtors. : ------------------------------------------------------------x

DISCLOSURE STATEMENT FOR DEBTORS’ FOURTH AMENDED JOINT PLAN OF REORGANIZATION

UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

WEIL, GOTSHAL & MANGES LLP 767 Fifth Avenue New York, New York 10153 (212) 310-8000

Attorneys for the Debtors as Debtors and Debtors in Possession

Dated: June 3, 2005

11-10612-shl Doc 427-11 Filed 03/16/12 Entered 03/16/12 16:44:38 Exhibit N Pg 1 of 127

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I. INTRODUCTION.................................................................................................................1

A. HOLDERS OF CLAIMS ENTITLED TO VOTE........................................................2

B. VOTING PROCEDURES..........................................................................................3

C. CONFIRMATION HEARING...................................................................................4 D. BERMUDA HEARING.............................................................................................5

II. OVERVIEW OF THE PLAN.................................................................................................5

III. GENERAL INFORMATION............................................................................................... 12

A. OVERVIEW OF CHAPTER 11............................................................................... 12

B. DESCRIPTION AND HISTORY OF BUSINESS..................................................... 13

1. The Debtors................................................................................................ 13

2. Corporate Structure ..................................................................................... 14

3. Businesses .................................................................................................. 14 a. Satellite Services............................................................................. 14

b. Satellite Manufacturing and Technology........................................... 15

4. History ....................................................................................................... 16

C. PREPETITION CAPITAL STRUCTURE................................................................ 16

1. Prepetition Bank Debt and Other Indebtedness .............................................. 16

a. Satellite Credit Agreement............................................................... 16

b. LSC Amended Credit Agreement ..................................................... 17 c. Japanese Export-Import Facility ....................................................... 17

d. Orion Indebtedness.......................................................................... 18

e. Ltd. Indebtedness ............................................................................ 18

2. Equity......................................................................................................... 18

a. Common Stock ............................................................................... 18

b. Series C Convertible Preferred Stock................................................ 18

c. Series D Convertible Preferred Stock................................................ 19 D. PREPETITION INVESTMENT IN GLOBALSTAR-RELATED

ACTIVITIES.......................................................................................................... 19

E. SECURITIES LITIGATION.................................................................................... 20

F. SS/L PATENT LITIGATION.................................................................................. 21

G. EVENTS LEADING TO THE COMMENCEMENT OF THE CHAPTER 11 CASES............................................................................................. 21

IV. EVENTS DURING THE CHAPTER 11 CASES................................................................... 22

A. BERMUDA PROCEEDINGS.................................................................................. 22 B. APPOINTMENT OF THE CREDITORS’ COMMITTEE.......................................... 22


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C. APPOINTMENT OF AN EXAMINER.................................................................... 23

D. APPOINTMENT OF AN EQUITY COMMITTEE................................................... 23

E. STABILIZATION OF BUSINESS........................................................................... 24

1. First Day Orders.......................................................................................... 24 2. Use of Cash Collateral................................................................................. 24

3. Employee Relations ..................................................................................... 25

a. Wages, Compensation and Employee Benefits .................................. 25

b. Key Employee Retention Program.................................................... 25


5. Claims Process and Bar Date........................................................................ 26

a. Schedules and Statements ................................................................ 26 b. Bar Date ......................................................................................... 26

F. ASSET SALES....................................................................................................... 26

1. Intelsat Sale ................................................................................................ 26

2. dbsXmedia Sale .......................................................................................... 27

G. SIGNIFICANT SETTLEMENTS............................................................................. 28

1. Satellite Customers...................................................................................... 28

a. JCAB/JMA ..................................................................................... 29 b. APT............................................................................................... 29

c. DirecTV 7S..................................................................................... 30

d. MBCO............................................................................................ 30

e. XTAR ............................................................................................ 31

f. ChinaSat......................................................................................... 32

g. WildBlue ........................................................................................ 33

2. Launch Services Providers ........................................................................... 33 a. BLS and Sea Launch....................................................................... 33

b. Lockheed Martin ............................................................................. 34

H. FAILURE OF EDS................................................................................................. 34

I. NEW SATELLITE ORDERS.................................................................................. 35

1. DirecTV ..................................................................................................... 35

2. Galaxy 16 Program...................................................................................... 35

3. Galaxy 18 Program...................................................................................... 35

4. EchoStar XI Program................................................................................... 35 5. TerreStar Satellite System............................................................................ 36


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6. Potential New Order .................................................................................... 36

J. DEVELOPMENT OF BUSINESS PLAN AND PLAN NEGOTIATIONS.................. 36

V. THE PLAN OF REORGANIZATION.................................................................................. 37

A. STRUCTURE OF NEW LORAL............................................................................. 37 B. CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY

INTERESTS........................................................................................................... 38

1. Administrative Expense Claims .................................................................... 38

2. Compensation and Reimbursement Claims.................................................... 39

3. Indenture Trustee Fees................................................................................. 40

4. Priority Tax Claims ..................................................................................... 40

5. Other Priority Claims ................................................................................... 42

a. Ltd. Class 1 – Other Priority Claims Against the Ltd. Debtors........................................................................................... 42

b. Orion Class 1 – Other Priority Claims Against the Orion Debtors........................................................................................... 42

c. SpaceCom Class 1 – Other Priority Claims Against the SpaceCom Debtors.......................................................................... 42

d. SS/L Class 1 – Other Priority Claims Against the SS/L Debtors........................................................................................... 42

6. Secured Tax Claims ..................................................................................... 43

a. Ltd. Class 2 – Secured Tax Claims Against the Ltd. Debtors.............. 43

b. Orion Class 2 – Secured Tax Claims Against the Orion Debtors........................................................................................... 43

c. SpaceCom Class 2 – Secured Tax Claims Against the SpaceCom Debtors.......................................................................... 43

d. SS/L Class 2 – Secured Tax Claims Against the SS/L Debtors........................................................................................... 44

7. Secured Claims ........................................................................................... 44

a. Ltd. Class 3 – Secured Claims Against the Ltd. Debtors..................... 44

b. Orion Class 3 – Secured Claims Against the Orion Debtors................ 45

c. SpaceCom Class 3 – Secured Claims Against the SpaceCom Debtors........................................................................................... 45

d. SS/L Class 3 – Secured Claims Against the SS/L Debtors.................. 45

8. General Unsecured Claims ........................................................................... 45 a. Ltd. Class 4 – Ltd. General Unsecured Claims ................................... 45

b. Orion Class 4 – Orion General Unsecured Claims.............................. 46

c. SpaceCom Class 4 – SpaceCom General Unsecured Claims ............... 47


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d. SS/L Class 4 – SS/L General Unsecured Claims ................................ 48

9. Equity Interests ........................................................................................... 48

a. Ltd. Preferred Stock Interests........................................................... 48

b. Ltd. Class 7 – Ltd. Equity Interests................................................... 49 c. Orion Class 5 – Orion Equity Interests.............................................. 49

d. SpaceCom Class 5 – SpaceCom Equity Interests ............................... 49

e. SS/L Class 5 – SS/L Equity Interests ................................................ 49

10. Securities Litigation Claims ......................................................................... 49

C. SECURITIES TO BE ISSUED UNDER THE PLAN ................................................ 50

1. New Loral Common Stock........................................................................... 50

2. New Skynet Preferred Stock......................................................................... 50

3. New Skynet Notes....................................................................................... 51 4. Subscription Rights ..................................................................................... 52

5. Options ....................................................................................................... 52

D. THE RIGHTS OFFERING...................................................................................... 54

1. Issuance of Subscription Rights.................................................................... 54

2. Exercise of Subscription Rights.................................................................... 55

a. Exercise by holders of Orion General Unsecured Claims (excluding Orion Note Claims)........................................................ 55

b. Exercise by holders of Orion Note Claims ......................................... 56

3. Transfer Restriction; Revocation .................................................................. 57

4. Backstop Purchasers.................................................................................... 57

5. Recalculation as of the Subscription Expiration Date ..................................... 57

6. Subsequent Adjustments .............................................................................. 57

7. Use of Proceeds from Rights Offering .......................................................... 58

E. METHOD OF DISTRIBUTION UNDER THE PLAN.............................................. 58 1. Distributions ............................................................................................... 58

2. Delivery of Distributions ............................................................................. 59

F. TIMING OF DISTRIBUTIONS UNDER THE PLAN (INCLUDING DISPUTED CLAIMS)............................................................................................. 60

G. PROVISIONS FOR RESOLUTION AND ESTIMATION OF DISPUTED CLAIMS................................................................................................................. 62

1. Resolution of Disputed Claims ..................................................................... 62

2. Estimation of Disputed Claims ..................................................................... 62 H. TREATMENT OF FEES FOR JPLS UNDER THE PLAN ........................................ 63


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I. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES................................................................................................................. 63


2. Survival of Certain Obligations .................................................................... 65

a. Corporate Indemnities ..................................................................... 65

b. Insurance Policies............................................................................ 66

c. Compensation and Benefit Programs ................................................ 66

3. Cure of Defaults.......................................................................................... 66

4. Assignment ................................................................................................. 67

J. THE RESTRUCTURING TRANSACTIONS........................................................... 67

K. SUBSTANTIVE CONSOLIDATION OF THE DEBTORS....................................... 69 1. Substantive Consolidation ............................................................................ 69

2. Effectuation of Substantive Consolidation..................................................... 70

L. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THE PLAN...................... 71

M. IMPLEMENTATION AND EFFECT OF CONFIRMATION OF THE PLAN..................................................................................................................... 73

N. DISCHARGE AND INJUNCTION.......................................................................... 73

O. SUMMARY OF OTHER PROVISIONS OF THE PLAN.......................................... 74 1. Intercompany Claims ................................................................................... 74

a. Debtor Intercompany Claims ............................................................ 74

b. Non-Debtor Intercompany Claims .................................................... 75

2. Retiree Benefits........................................................................................... 75

3. Certificates of Incorporation and Bylaws ...................................................... 75

4. Amendment or Modification of the Plan ....................................................... 75

5. Solicitation of the Plan................................................................................. 76 6. Releases of Representatives ......................................................................... 76

7. Cancellation and Surrender of Existing Securities and Agreements................. 76

8. Section 1145 Exemption .............................................................................. 77

9. Registration Rights Agreement..................................................................... 77

10. Revocation or Withdrawal of the Plan........................................................... 77

11. Dissolution of Statutory Committees ............................................................ 78

12. Indenture Trustee as Claim Holder ............................................................... 78

13. Claims Extinguished.................................................................................... 78 14. Avoidance Actions ...................................................................................... 78

15. Reservation of Rights .................................................................................. 78


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16. Effectuating Documents and Further Transactions ......................................... 79

17. Corporate Action ......................................................................................... 79

18. Exculpation................................................................................................. 79

19. Plan Supplement ......................................................................................... 80 VI. CONFIRMATION AND CONSUMMATION PROCEDURE............................................... 80

A. SOLICITATION OF VOTES................................................................................... 80

B. THE CONFIRMATION HEARING......................................................................... 81

C. CONFIRMATION.................................................................................................. 82

1. Acceptance ................................................................................................. 82

2. Unfair Discrimination and Fair and Equitable Tests....................................... 82

a. No Unfair Discrimination ................................................................ 82

b. Fair and Equitable ........................................................................... 83 3. Feasibility ................................................................................................... 83

4. Best Interests Test ....................................................................................... 84

D. Bermuda hearing ..................................................................................................... 85

E. CONSUMMATION................................................................................................ 86

VII. CORPORATE GOVERNANCE OF THE REORGANIZED DEBTORS................................ 86

A. DIRECTORS AND OFFICERS OF THE REORGANIZED DEBTORS..................... 86

1. New Loral Board......................................................................................... 86 2. New Skynet Board ...................................................................................... 87

3. New SS/L Board......................................................................................... 87

4. Reorganized Subsidiary Debtors’ Boards ...................................................... 87

5. Officers ...................................................................................................... 87

6. Management of the Reorganized Debtors...................................................... 87

B. Certificates of incorporation and bylaws ................................................................... 88

C. CONTINUATION OF EXISTING BENEFIT PLANS AND D&O INSURANCE ......................................................................................................... 89

1. Benefit Plans............................................................................................... 89

2. D&O Insurance ........................................................................................... 89

VIII. SECURITIES LAWS MATTERS........................................................................................ 89

A. BANKRUPTCY CODE EXEMPTIONS FROM REGISTRATION REQUIREMENTS.................................................................................................. 89

B. REGISTRATION RIGHTS AGREEMENT.............................................................. 92

IX. VALUATION..................................................................................................................... 93 A. OVERVIEW........................................................................................................... 93


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B. Valuation Methodology ........................................................................................... 94

1. Publicly Traded Company Analysis .............................................................. 95

2. Discounted Cash Flow Analysis ................................................................... 95

3. Precedent Transactions Analysis .................................................................. 96 4. Examiner Report ......................................................................................... 96

X. CERTAIN RISK FACTORS TO BE CONSIDERED............................................................ 97

A. CERTAIN BANKRUPTCY LAW CONSIDERATIONS........................................... 98

1. Risk of Non-Confirmation of the Plan........................................................... 98

2. Non-Consensual Confirmation ..................................................................... 98

3. Risk of Non-Occurrence of the Effective Date............................................... 98

B. RISKS TO RECOVERY BY HOLDERS OF LTD. GENERAL UNSECURED CLAIMS AND ORION GENERAL UNSECURED CLAIMS............ 98 1. Variances from Projections .......................................................................... 99

2. Significant Ownership of Various Securities to Be Held by, and Rights of, MHR Fund Management LLC and Its Affiliates............................. 99

3. Other Significant Holders .......................................................................... 100

4. Lack of Trading Market............................................................................. 100

5. Competitive Conditions ............................................................................. 101

6. Governmental Regulation .......................................................................... 101 a. Export Controls ............................................................................. 101

b. Other Regulation ........................................................................... 101

7. Operational Failures .................................................................................. 102

a. Launch Failures............................................................................. 102

b. In-orbit Failures ............................................................................ 102

8. Hart-Scott-Rodino Act............................................................................... 102

9. Unforeseen Events..................................................................................... 102 10. Other Risk Factors..................................................................................... 102

XI. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN.................. 103

A. CONSEQUENCES TO THE DEBTORS................................................................ 103

1. Cancellation of Debt.................................................................................. 104

2. Limitations on NOL Carryforwards and Other Tax Attributes ...................... 105

a. General Section 382 Limitation ...................................................... 105

b. Built-In Gains and Losses.............................................................. 105

c. Special Bankruptcy Exception ........................................................ 106 3. Alternative Minimum Tax.......................................................................... 106


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4. Implementation of the Restructuring Transactions ....................................... 107

5. Issuance of the New Skynet Notes.............................................................. 108

B. CONSEQUENCES TO THE HOLDERS OF CERTAIN CLAIMS........................... 108

1. Gain or Loss – Generally ........................................................................... 109 2. Holders of Ltd. General Unsecured Claims that Constitute

“Securities”............................................................................................... 110

3. Holders of Orion General Unsecured Claims that Constitute “Securities”............................................................................................... 111

4. Distributions in Discharge of Accrued but Unpaid Interest........................... 112

5. Ownership and Disposition of the New Skynet Notes .................................. 112

a. Interest and Original Issue Discount ............................................... 112

b. Acquisition Premium on New Skynet Notes.................................... 113 c. Disposition of Notes...................................................................... 113

d. Treatment of Certain High Yield Discount Obligations .................... 113

6. Exercise or Lapse of the Subscription Rights............................................... 113

7. Ownership and Disposition of the New Loral Common Stock and the New Skynet Preferred Stock....................................................................... 114

8. New Loral Common Stock and New Skynet Preferred Stock Held in Trust for Disputed Claims .......................................................................... 115

9. Information Reporting and Withholding...................................................... 116

XII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN............................................................................................................................... 116

A. LIQUIDATION UNDER CHAPTER 7.................................................................. 116

B. ALTERNATIVE PLAN OF REORGANIZATION ................................................. 117

XIII. CONCLUSION AND RECOMMENDATION........................................................................1

EXHIBIT A Plan of Reorganization EXHIBIT B Disclosure Statement Order

EXHIBIT C Loral’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004

EXHIBIT D Loral’s Quarterly Report on Form 10-Q for the period ended March 31, 2005

EXHIBIT E Historical and Projected Financial Information

EXHIBIT F Liquidation Analyses


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I. INTRODUCTION

Loral Space & Communications Ltd. (“Ltd.”), Loral Space & Communications Corporation (“Loral Corp.”), Loral SpaceCom Corporation (“SpaceCom”), Loral Satellite, Inc. (“Loral Satellite”), Space Systems/Loral, Inc. (“SS/L”), Loral Communications Services, Inc., Loral Ground Services, L.L.C., Loral Orion, Inc. (“Orion”), Loral CyberStar Global Services, Inc., Loral Cyberstar GmbH, Loral CyberStar Japan, Inc., Loral CyberStar Services, Inc., Loral CyberStar Holdings, L.L.C., Loral CyberStar International, Inc., Loral Asia Pacific Satellite (HK) Limited, SS/L Export Corporation, CyberStar, L.P., CyberStar, L.L.C., Loral Skynet Network Services, Inc., and Loral Licensing Ltd. (collectively, the “Debtors” and, together with their non-debtor affiliates, “Loral”) submit this Disclosure Statement pursuant to section 1125 of title 11 of the United States Code (the “Bankruptcy Code”) to holders of equity interests in and claims against the Debtors in connection with (i) the solicitation of acceptances of the Debtors’ Fourth Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated June 3, 2005, as the same may be amended (the “Plan”), filed by the Debtors with the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”); (ii) the hearing to consider confirmation of the Plan (the “Confirmation Hearing”) scheduled for July 13, 2005 at 10:00 a.m. (prevailing Eastern Time); and (iii) the hearing in the Supreme Court of Bermuda (the “Bermuda Court”) to authorize the JPLs (as defined below) to exercise their power to take all steps necessary to implement the Plan, including the transfer of the assets of the Bermudian Debtors (as defined below) in accordance with the Plan (the “Bermuda Hearing”) scheduled for July 11, 2005 at 11:00 a.m. Bermuda Time (10:00 a.m. prevailing Eastern Time). Unless otherwise defined herein, all capitalized terms contained herein have the meanings ascribed to them in the Plan.

Attached as Exhibits to this Disclosure Statement are copies of the following documents:

• The Plan (Exhibit A);

• Order of the Bankruptcy Court dated June 3, 2005 (the “Disclosure Statement Order”) approving, among other things, this Disclosure Statement and establishing certain procedures with respect to the solicitation and tabulation of votes to accept or reject the Plan (attached without exhibits) (Exhibit B);

• Loral’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (attached without exhibits) (Exhibit C);

• Loral’s Quarterly Report on Form 10-Q for the period ended March 31, 2005 (attached without exhibits) (Exhibit D);

• Loral’s Historical and Projected Financial Information (Exhibit E); and

• Loral’s Liquidation Analyses (Exhibit F).

A Ballot for the acceptance or rejection of the Plan is enclosed with the Disclosure Statement submitted to the holders of Claims that the Debtors believe may be entitled to vote to accept or reject the Plan. In addition, certain holders of Claims against Orion and its Debtor subsidiaries are receiving a Subscription Form for purposes of the Rights Offering described in Section V.D. of this Disclosure Statement.


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On June 3, 2005, after notice and a hearing, the Bankruptcy Court signed the Disclosure Statement Order, approving this Disclosure Statement as containing adequate information of a kind and in sufficient detail to enable hypothetical, reasonable investors typical of the Debtors’ creditors to make an informed judgment whether to accept or reject the Plan. APPROVAL OF THIS DISCLOSURE STATEMENT DOES NOT, HOWEVER, CONSTITUTE A DETERMINATION BY THE BANKRUPTCY COURT AS TO THE FAIRNESS OR MERITS OF THE PLAN.

The Disclosure Statement Order, a copy of which is annexed hereto as Exhibit B, sets forth in detail the deadlines, procedures and instructions for voting to accept or reject the Plan and for filing objections to confirmation of the Plan, the record date for voting purposes and the applicable standards for tabulating Ballots. In addition, detailed voting instructions accompany each Ballot. Each holder of a Claim entitled to vote on the Plan should read the Disclosure Statement, the Plan, the Disclosure Statement Order and the instructions accompanying the Ballots in their entirety before voting on the Plan. These documents contain important information concerning the classification of Claims and Equity Interests for voting purposes and the tabulation of votes. No solicitation of votes to accept the Plan may be made except pursuant to section 1125 of the Bankruptcy Code.

A. HOLDERS OF CLAIMS ENTITLED TO VOTE

Pursuant to the provisions of the Bankruptcy Code, only holders of allowed claims or equity interests in classes of claims or equity interests that are impaired and that are not deemed to have rejected the Plan are entitled to vote to accept or reject a proposed plan. Classes of claims or equity interests in which the holders of claims or equity interests are unimpaired under a chapter 11 plan are deemed to have accepted the plan and are not entitled to vote to accept or reject the plan. For a detailed description of the treatment of Claims and Equity Interests under the Plan, see Section V. of this Disclosure Statement.

Ltd. Class 2 (Secured Tax Claims against the Ltd. Debtors), Ltd. Class 4 (Ltd. General Unsecured Claims), Orion Class 2 (Secured Tax Claims against the Orion Debtors), Orion Class 4 (Orion General Unsecured Claims), SpaceCom Class 2 (Secured Tax Claims against the SpaceCom Debtors) and SS/L Class 2 (Secured Tax Claims against the SS/L Debtors) of the Plan are impaired and, to the extent Claims in such Classes are Allowed, the holders of such Claims will receive distributions under the Plan. As a result, holders of Claims in those Classes are entitled to vote to accept or reject the Plan. Ltd. Class 5 (Ltd. Preferred Stock Interests), Ltd. Class 6 (Ltd. Equity Interests) and Ltd. Class 7 (Securities Litigation Claims) of the Plan will not receive any distributions under the Plan. As a result, holders of Claims or Equity Interests in those Classes are conclusively presumed to have rejected the Plan. Ltd. Class 1 (Other Priority Claims against the Ltd. Debtors), Ltd. Class 3 (Secured Claims against the Ltd. Debtors), Orion Class 1 (Other Priority Claims against the Orion Debtors), Orion Class 3 (Secured Claims against the Orion Debtors), Orion Class 5 (Orion Equity Interests), SpaceCom Class 1 (Other Priority Claims against the SpaceCom Debtors), SpaceCom Class 3 (Secured Claims against the SpaceCom Debtors), SpaceCom Class 4 (SpaceCom General Unsecured Claims), SpaceCom Class 5 (SpaceCom Equity Interests), SS/L Class 1 (Other Priority Claims against the SS/L Debtors), SS/L Class 3 (Secured Claims against the SS/L Debtors), SS/L Class 4 (SS/L General Unsecured Claims) and SS/L Class 5 (SS/L Equity Interests) of the Plan are unimpaired. As a result, holders of Claims or Equity Interests in those Classes are conclusively presumed to have accepted the Plan.

The Bankruptcy Code defines “acceptance” of a plan by a class of claims as acceptance by creditors in that class that hold at least two-thirds in dollar amount and more than one-half in number of the claims that cast ballots for acceptance or rejection of the plan. For a more


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detailed description of the requirements for confirmation of the Plan, see Section VI. of this Disclosure Statement.

If a Class of Claims entitled to vote on the Plan rejects the Plan, the Debtors reserve the right to amend the Plan or request confirmation of the Plan pursuant to section 1129(b) of the Bankruptcy Code or both. Section 1129(b) permits the confirmation of a plan of reorganization notwithstanding the nonacceptance of a plan by one or more impaired classes of claims or equity interests. Under that section, a plan may be confirmed by a bankruptcy court if it does not “discriminate unfairly” and is “fair and equitable” with respect to each nonaccepting class. For a more detailed description of the requirements for confirmation of a nonconsensual plan, see Section VI.C.2. of this Disclosure Statement.

With respect to those Classes of Claims and Equity Interests that are deemed to have rejected the Plan, i.e., Ltd. Class 5 (Ltd. Preferred Stock Interests), Ltd. Class 6 (Ltd. Equity Interests) and Ltd. Class 7 (Securities Litigation Claims), the Debtors currently intend to request confirmation of the Plan pursuant to section 1129(b) of the Bankruptcy Code.

B. VOTING PROCEDURES

If you are entitled to vote to accept or reject the Plan, a Ballot is enclosed for the purpose of voting on the Plan. If you hold Claims in more than one Class and you are entitled to vote Claims in more than one Class, you will receive separate Ballots, which must be used for each separate Class of Claims. Please vote and return your Ballot(s) to:

Loral Space & Communications Ltd., et al. Ballot Processing c/o Financial Balloting Group LLC 757 Third Avenue, 3rd Floor New York, New York 10017

If the return envelope provided with your Ballot was addressed to your bank or brokerage firm, please allow sufficient time for that firm to process your vote on a Master Ballot before the Voting Deadline (4:00 p.m., prevailing Eastern Time, July 8, 2005).

Do not return your notes or securities with your Ballot.

TO BE COUNTED, YOUR BALLOT INDICATING ACCEPTANCE OR REJECTION OF THE PLAN MUST BE RECEIVED BY NO LATER THAN 4:00 P.M. (PREVAILING EASTERN TIME) ON JULY 8, 2005. ANY EXECUTED BALLOT RECEIVED THAT DOES NOT INDICATE EITHER AN ACCEPTANCE OR A REJECTION OF THE PLAN SHALL NOT BE COUNTED.

Any Claim in an impaired Class as to which an objection or request for estimation is pending or which is listed on the Schedules as unliquidated, disputed or contingent is not entitled to vote unless the holder of such Claim has obtained an order of the Bankruptcy Court temporarily allowing such Claim for the purpose of voting on the Plan.

Pursuant to the Disclosure Statement Order, the Bankruptcy Court set June 2, 2005 as the record date for voting on the Plan. Accordingly, only holders of record as of June 2, 2005 that otherwise are entitled to vote under the Plan will receive a Ballot and may vote on the Plan.


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If you are a holder of a Claim entitled to vote on the Plan and you did not receive a Ballot, received a damaged Ballot or lost your Ballot, or if you have any questions concerning the Disclosure Statement, the Plan or the procedures for voting on the Plan, please call Financial Balloting Group LLC at (800) 605-8359.

C. CONFIRMATION HEARING

Pursuant to section 1128 of the Bankruptcy Code, the Confirmation Hearing will be held on July 13, 2005 at 10:00 a.m. (prevailing Eastern Time) before the Honorable Robert D. Drain, Room 610, United States Bankruptcy Court for the Southern District of New York, Alexander Hamilton House, One Bowling Green, New York, New York 10004. The Bankruptcy Court has directed that objections, if any, to confirmation of the Plan must be served and filed so that they are received on or before July 7, 2005 at 4:00 p.m. (prevailing Eastern Time) in the manner described below in Section VI.B. of the Disclosure Statement. The Confirmation Hearing may be adjourned from time to time by the Bankruptcy Court without further notice except for the announcement of the adjournment date made at the Confirmation Hearing or at any subsequent adjourned Confirmation Hearing.

THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF THE DATE HEREOF UNLESS ANOTHER TIME IS SPECIFIED HEREIN, AND THE DELIVERY OF THIS DISCLOSURE STATEMENT SHALL NOT CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION STATED SINCE THE DATE HEREOF. HOLDERS OF CLAIMS SHOULD CAREFULLY READ THIS DISCLOSURE STATEMENT IN ITS ENTIRETY, INCLUDING THE PLAN, PRIOR TO VOTING ON THE PLAN.

FOR THE CONVENIENCE OF HOLDERS OF CLAIMS AND EQUITY INTERESTS, THIS DISCLOSURE STATEMENT SUMMARIZES THE TERMS OF THE PLAN. IF ANY INCONSISTENCY EXISTS BETWEEN THE PLAN AND THE DISCLOSURE STATEMENT, THE TERMS OF THE PLAN ARE CONTROLLING. THE DISCLOSURE STATEMENT MAY NOT BE RELIED ON FOR ANY PURPOSE OTHER THAN TO DETERMINE WHETHER TO VOTE TO ACCEPT OR REJECT THE PLAN, AND NOTHING STATED HEREIN SHALL BE DEEMED CONCLUSIVE EVIDENCE OF THE TAX OR OTHER LEGAL EFFECTS OF THE PLAN ON THE DEBTORS OR HOLDERS OF CLAIMS OR EQUITY INTERESTS. AS TO CONTESTED MATTERS, HOWEVER, SUCH INFORMATION IS NOT TO BE CONSTRUED AS ADMISSIONS OR STIPULATIONS BUT RATHER AS STATEMENTS MADE IN SETTLEMENT NEGOTIATIONS. CERTAIN OF THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT, BY NATURE, ARE FORWARD-LOOKING AND CONTAIN ESTIMATES AND ASSUMPTIONS. THERE CAN BE NO ASSURANCE THAT SUCH STATEMENTS WILL BE REFLECTIVE OF ACTUAL OUTCOMES.

ALL HOLDERS OF CLAIMS SHOULD CAREFULLY READ AND CONSIDER FULLY THE RISK FACTORS SET FORTH IN SECTION X. OF THIS DISCLOSURE STATEMENT BEFORE VOTING TO ACCEPT OR REJECT THE PLAN. HOLDERS OF CLAIMS SHOULD CAREFULLY READ AND CONSIDER THE RISK FACTOR ASSOCIATED WITH SIGNIFICANT OWNERSHIP OF VARIOUS SECURITIES HELD BY AND RIGHTS OF AFFILIATES OF MHR FUND MANAGEMENT LLC AS SET FORTH IN SECTION X.B.2. OF THIS DISCLOSURE STATEMENT.

SUMMARIES OF CERTAIN PROVISIONS OF AGREEMENTS REFERRED TO IN THIS DISCLOSURE STATEMENT DO NOT PURPORT TO BE COMPLETE AND ARE


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SUBJECT TO, AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO, THE FULL TEXT OF THE APPLICABLE AGREEMENT, INCLUDING THE DEFINITIONS OF TERMS CONTAINED IN SUCH AGREEMENT.

THE DEBTORS BELIEVE THAT THE PLAN WILL ENABLE THEM TO REORGANIZE SUCCESSFULLY AND ACCOMPLISH THE OBJECTIVES OF CHAPTER 11 AND THAT ACCEPTANCE OF THE PLAN IS IN THE BEST INTERESTS OF THE DEBTORS AND THEIR CREDITORS.

THE DEBTORS URGE CREDITORS TO VOTE TO ACCEPT THE PLAN. THE CREDITORS’ COMMITTEE IN THESE CASES ALSO STRONGLY ENCOURAGES ALL CREDITORS TO VOTE IN FAVOR OF THE PLAN. THE CREDITORS’ COMMITTEE WAS ACTIVELY INVOLVED IN THE FORMULATION OF THE PLAN AND BELIEVES THAT THE PLAN PROVIDES THE HIGHEST AND BEST RECOVERIES FOR THE DEBTORS’ UNSECURED CREDITORS.

D. BERMUDA HEARING

The Bermuda Hearing will be held on July 11, 2005 at 11:00 a.m. Bermuda Time (10:00 a.m. prevailing Eastern Time) in the Bermuda Court, Hamilton, Bermuda. The Bermuda Hearing may be adjourned from time to time by the Bermuda Court without further notice except for an announcement of the adjourned date made at the Bermuda Hearing or at any subsequent adjourned Bermuda Hearing.

II. OVERVIEW OF THE PLAN

The following table briefly summarizes the classification and treatment of Claims and Equity Interests under the Plan:

SUMMARY OF CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS UNDER THE PLAN

Class


Treatment

Estimated Recovery

-- Administrative

Expense Claims against the Ltd. Debtors1

Unimpaired; paid in full, in Cash, or in accordance with the terms and conditions of transactions or agreements relating to obligations incurred in the ordinary course of business during the pendency of the Reorganization Cases or assumed by the Ltd. Debtors as Debtors in Possession.

100%

-- Priority Tax Claims against the Ltd. Debtors

Unimpaired; except to the extent that a holder agrees to different treatment, at the option of the Ltd. Debtors, after consultation with the Creditors’ Committee, either (i) paid in full, in Cash, or (ii) paid over a six-year period from the date of assessment as provided in section 1129(a)(9)(C) of the Bankruptcy

100%

1 The “Ltd. Debtors” consist of all of the Debtors other than the Orion Debtors, the SpaceCom Debtors and the SS/L Debtors.


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Class


Treatment

Estimated Recovery

Code with interest payable at a rate of 6% per year, subject to the Ltd. Debtors’ option to prepay such Claim.

-- Indenture Trustee Fees

Unimpaired; paid in full, in Cash, as Administrative Expense Claims.

100%

Ltd. Class 1

Other Priority Claims against the Ltd. Debtors


Ltd. Class 2

Secured Tax Claims against the Ltd. Debtors

Impaired; except to the extent that a holder agrees to different treatment, at the option of the Ltd. Debtors, after consultation with the Creditors’ Committee, (i) Cash in the amount equal to such Allowed Secured Tax Claim, including applicable interest as provided in section 506(b) of the Bankruptcy Code, on or as soon as reasonably practicable after the Effective Date, (ii) equal annual Cash payments beginning one year after the Effective Date in an aggregate amount equal to such Allowed Secured Tax Claim, with interest payable at a rate of 6% per annum over a six-year period, subject to the Ltd. Debtors’ option to prepay such Claim, or (iii) upon such other terms determined by the Bankruptcy Court to provide the holder of such Allowed Secured Tax Claim deferred Cash payments having a value, as of the Effective Date, equal to such Claim. If the Ltd. Debtors treat a Claim under clause (i) above, the Liens securing such Claim shall be deemed released.

100%

Ltd. Class 3

Secured Claims against the Ltd. Debtors

Unimpaired; at the sole option of the Ltd. Debtors, (i) Cash in the amount equal to 100% of the unpaid amount of such Allowed Secured Claim, (ii) the proceeds of the sale or disposition of the Collateral securing such Allowed Claim to the extent of the value of the holder’s secured interest in such Collateral, (iii) the Collateral securing such Allowed Claim, or (iv) such other distribution as necessary to satisfy the requirements of section 1124 of the Bankruptcy Code. If the Ltd. Debtors treat a Claim under clause (i) or (ii) above, the Liens securing such Claim shall be deemed released.

100%


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Class


Treatment

Estimated Recovery

Ltd. Class 4

Ltd. General Unsecured Claims

Impaired; will receive its Ltd. Class 4 Pro Rata Share2 of the New Loral Common Stock Balance.3

33.9%4

Ltd. Class 5

Ltd. Preferred Stock Interests


Ltd. Class 6

Ltd. Equity Interests


Ltd. Class 7

Securities Litigation Claims

Impaired; no distribution in accordance with section 510(b) of the Bankruptcy Code.

0%

-- Administrative Expense Claims against the Orion Debtors5

Unimpaired; paid in full, in Cash, or in accordance with the terms and conditions of transactions or agreements relating to obligations incurred in the ordinary course of business during the pendency of the Reorganization Cases or assumed by the Orion Debtors as Debtors in Possession.

100%

-- Priority Tax Claims against the Orion Debtors

Unimpaired; except to the extent that a holder agrees to different treatment, at the option of the Orion Debtors, after consultation with the Creditors’ Committee, either (i) paid in full, in Cash, or (ii) paid over a six-year period from the date of assessment as provided in section 1129(a)(9)(C) of the Bankruptcy Code with interest payable at a rate of 6% per year, subject to the Orion Debtors’ option to prepay such

100%

2 A “Ltd. Class 4 Pro Rata Share” is the ratio (expressed as a percentage) of the amount of an Allowed Ltd. General Unsecured Claim to the sum of (a) the aggregate amount of Allowed Ltd. General Unsecured Claims and (b) the aggregate of the Disputed Claim Amounts of All Disputed Claims in Ltd. Class 4. The “Disputed Claim Amount” is the estimated dollar value of a Disputed Claim pursuant to section 502(c) of the Bankruptcy Code or as otherwise agreed to between the holder of such Claim and the applicable Debtor or Reorganized Debtor, or as otherwise determined by the Bankruptcy Court, or if no such amount exists, the amount set forth as the liquidated amount of such Disputed Claim in the proof of claim filed in respect of such Claim. 3 The “New Loral Common Stock Balance” is 12,420,652 shares of New Loral Common Stock. 4 The estimated recoveries for holders of Ltd. General Unsecured Claims are based upon the current estimate of the amount of Allowed Ltd. General Unsecured Claims (approximately $1,018,000,000) and the designated value of the New Loral Common Stock ($27.75 per share), which is within the range of values set forth in Section IX. of the Disclosure Statement. To the extent that the market value of the New Loral Common Stock or the amount of Allowed Ltd. General Unsecured Claims varies from the amounts estimated, the recoveries of holders of Allowed Ltd. General Unsecured Claims may be higher or lower. See Section X. of the Disclosure Statement for more information. 5 The “Orion Debtors” consist of Orion and its Debtor subsidiaries.


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Class


Treatment

Estimated Recovery

Claim.

Orion Class 1

Other Priority Claims against the Orion Debtors


Orion Class 2

Secured Tax Claims against the Orion Debtors

Impaired; except to the extent that a holder agrees to different treatment, at the option of the Orion Debtors, after consultation with the Creditors’ Committee, (i) Cash in the amount equal to such Allowed Secured Tax Claim, including applicable interest as provided in section 506(b) of the Bankruptcy Code, on or as soon as reasonably practicable after the Effective Date , (ii) equal annual Cash payments beginning one year after the Effective Date in an aggregate amount equal to such Allowed Secured Tax Claim, with interest payable at a rate of 6% per annum over a six-year period, subject to the Orion Debtors’ option to prepay such Claim, or (iii) upon such other terms determined by the Bankruptcy Court to provide the holder of such Allowed Secured Tax Claim deferred Cash payments having a value, as of the Effective Date, equal to such Claim. If the Orion Debtors treat a Claim under clause (i) above, the Liens securing such Claim shall be deemed released.

100%

Orion Class 3

Secured Claims against the Orion Debtors

Unimpaired; at the sole option of the Orion Debtors, (i) Cash in the amount equal to 100% of the unpaid amount of such Allowed Secured Claim, (ii) the proceeds of the sale or disposition of the Collateral securing such Allowed Claim to the extent of the value of the holder’s secured interest in such Collateral, (iii) the Collateral securing such Allowed Claim, or (iv) such other distribution as necessary to satisfy the requirements of section 1124 of the Bankruptcy Code. If the Orion Debtors treat a Claim under clause (i) or (ii) above, the Liens securing such Claim shall be deemed released.

100%

Orion Class 4

Orion General Unsecured Claims6

Impaired; (A) distribution of an Orion Pro Rata Share7 of (i) 7,579,348 shares of New Loral Common Stock as of the Effective Date and (ii) the

55.5%8

6 The Debtors estimate that the amount of Orion General Unsecured Claims will, upon the final reconciliation and resolution of all Orion General Unsecured Claims, aggregate approximately $738,700,000. In addition to holding a Claim in Orion Class 4, holders of Orion 10% Note Claims also hold Claims in Ltd. Class 4 in the principal amount of $612,704,000 plus accrued interest in the


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Class


Treatment

Estimated Recovery

New Skynet Preferred Stock and (B) each holder of an Allowed Orion General Unsecured Claim may participate in a rights offering to subscribe for the New Skynet Notes on account of such Claim. (See Section V.D., below)

Orion Class 5

Orion Equity Interests

Unimpaired; unaltered. 100%

-- Administrative Expense Claims against the SpaceCom Debtors9

Unimpaired; paid in full, in Cash, or in accordance with the terms and conditions of transactions or agreements relating to obligations incurred in the ordinary course of business during the pendency of the Reorganization Cases or assumed by the SpaceCom Debtors as Debtors in Possession.

100%

-- Priority Tax Claims against the SpaceCom Debtors

Unimpaired; except to the extent that a holder agrees to different treatment, at the option of the SpaceCom Debtors, after consultation with the Creditors’ Committee, either (i) paid in full, in Cash, or (ii) paid over a six-year period from the date of assessment as

100%

amount of $30,805,396 through the Commencement Date on account of their Ltd. Guaranty Claims. As a result of holding Claims in both Classes, the estimated recovery with respect to such Claims will aggregate approximately 89.4%. Notwithstanding the allowance of the Ltd. Guaranty Claims under the Plan, the Equity Committee (as defined below) has sought to analyze whether such guaranty might be avoidable as a fraudulent transfer. 7 An “Orion Pro Rata Share” is the ratio (expressed as a percentage) of the amount of an Allowed Orion General Unsecured Claim to the sum of (a) the aggregate amount of all Allowed Orion General Unsecured Claims and (b) the Disputed Claim Amounts of all Disputed Claims in Orion Class 4. The “Disputed Claim Amount” is the estimated dollar value of a Disputed Claim pursuant to section 502(c) of the Bankruptcy Code or as otherwise agreed to between the holder of such Claim and the applicable Debtor or Reorganized Debtor, or as otherwise determined by the Bankruptcy Court, or if no such amount exists, the amount set forth as the liquidated amount of such Disputed Claim in the proof of claim filed in respect of such Claim. 8 The estimated recoveries for holders of Orion General Unsecured Claims are based upon the current estimate of the amount of Allowed Orion General Unsecured Claims (approximately $738,700,000), the designated value of the New Loral Common Stock ($27.75 per share) and the aggregate value of the New Skynet Preferred Stock ($200,000,000), which is within the range of values set forth in Section IX. of the Disclosure Statement. To the extent that the market value of the New Loral Common Stock, the New Skynet Preferred Stock or the amount of Allowed Orion General Unsecured Claims varies from the amounts estimated, the recoveries of holders of Allowed Orion General Unsecured Claims may be higher or lower. See Section X. of the Disclosure Statement for more information. 9 The “SpaceCom Debtors” consist of SpaceCom and its Debtor subsidiaries, other than SS/L and its Debtor subsidiary.


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Class


Treatment

Estimated Recovery

provided in section 1129(a)(9)(C) of the Bankruptcy Code with interest payable at a rate of 6% per year, subject to the SpaceCom Debtors’ option to prepay such Claim.

SpaceCom Class 1

Other Priority Claims against the SpaceCom Debtors


SpaceCom Class 2

Secured Tax Claims against the SpaceCom Debtors

Impaired; except to the extent that a holder agrees to different treatment, at the option of the SpaceCom Debtors, after consultation with the Creditors’ Committee, (i) Cash in the amount equal to such Allowed Secured Tax Claim, including applicable interest as provided in section 506(b) of the Bankruptcy Code, on or as soon as reasonably practicable after the Effective Date , (ii) equal annual Cash payments beginning one year after the Effective Date in an aggregate amount equal to such Allowed Secured Tax Claim, with interest payable at a rate of 6% per annum over a six-year period, subject to the SpaceCom Debtors’ option to prepay such Claim, or (iii) upon such other terms determined by the Bankruptcy Court to provide the holder of such Allowed Secured Tax Claim deferred Cash payments having a value, as of the Effective Date, equal to such Claim. If the SpaceCom Debtors treat a Claim under clause (i) above, the Liens securing such Claim shall be deemed released.

100%

SpaceCom Class 3

Secured Claims against the SpaceCom Debtors

Unimpaired; at the sole option of the SpaceCom Debtors, (i) Cash in the amount equal to 100% of the unpaid amount of such Allowed Secured Claim, (ii) the proceeds of the sale or disposition of the Collateral securing such Allowed Claim to the extent of the value of the holder’s secured interest in such Collateral, (iii) the Collateral securing such Allowed Claim, or (iv) such other distribution as necessary to satisfy the requirements of section 1124 of the Bankruptcy Code. If the SpaceCom Debtors treat a Claim under clause (i) or (ii) above, the Liens securing such Claim shall be deemed released.

100%


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Class


Treatment

Estimated Recovery

SpaceCom Class 4

SpaceCom General Unsecured Claims

Unimpaired; paid in full, in Cash in an amount equal to such Allowed Claim plus interest thereon (without any compounding) at a rate of 6% per annum for the period from the Commencement Date through the Effective Date, on or as soon as reasonably practicable after the later of (i) the Effective Date, (ii) the date such Claim becomes Allowed and (iii) the date for payment provided by any agreement or understanding between the applicable SpaceCom Debtor or SpaceCom Debtors and the holder of such Claim.

100%

SpaceCom Class 5

SpaceCom Equity Interests


-- Administrative Expense Claims against the SS/L Debtors10

Unimpaired; paid in full, in Cash, or in accordance with the terms and conditions of transactions or agreements relating to obligations incurred in the ordinary course of business during the pendency of the Reorganization Cases or assumed by the SS/L Debtors as Debtors in Possession.

100%

-- Priority Tax Claims against the SS/L Debtors

Unimpaired; except to the extent that a holder agrees to different treatment, at the option of the SS/L Debtors, after consultation with the Creditors’ Committee, either (i) paid in full, in Cash, or (ii) paid over a six-year period from the date of assessment as provided in section 1129(a)(9)(C) of the Bankruptcy Code with interest payable at a rate of 6% per year, subject to the SS/L Debtors’ option to prepay such Claim.

100%

SS/L Class 1

Other Priority Claims against the SS/L Debtors


SS/L Class 2

Secured Tax Claims against the SS/L Debtors

Impaired; except to the extent that a holder agrees to different treatment, at the option of the SS/L Debtors, after consultation with the Creditors’ Committee, (i) Cash in the amount equal to such Allowed Secured Tax Claim, including applicable interest as provided in section 506(b) of the Bankruptcy Code, on or as soon as reasonably practicable after the Effective Date, (ii) equal annual Cash payments beginning one year after the Effective Date in an aggregate amount

100%

10 The “SS/L Debtors” consist of SS/L and its Debtor subsidiary.


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Class


Treatment

Estimated Recovery

equal to such Allowed Secured Tax Claim, with interest payable at a rate of 6% per annum over a six-year period, subject to the SS/L Debtors’ option to prepay such Claim, or (iii) upon such other terms determined by the Bankruptcy Court to provide the holder of such Allowed Secured Tax Claim deferred Cash payments having a value, as of the Effective Date, equal to such Claim. If the SS/L Debtors treat a Claim under clause (i) above, the Liens securing such Claim shall be deemed released.

SS/L Class 3

Secured Claims against the SS/L Debtors

Unimpaired; at the sole option of the SS/L Debtors, (i) Cash in the amount equal to 100% of the unpaid amount of such Allowed Secured Claim, (ii) the proceeds of the sale or disposition of the Collateral securing such Allowed Claim to the extent of the value of the holder’s secured interest in such Collateral, (iii) the Collateral securing such Allowed Claim, or (iv) such other distribution as necessary to satisfy the requirements of section 1124 of the Bankruptcy Code. If the SS/L Debtors treat a Claim under clause (i) or (ii) above, the Liens securing such Claim shall be deemed released.

100%

SS/L Class 4

SS/L General Unsecured Claims

Unimpaired; paid in full, in Cash in an amount equal to such Allowed Claim plus interest thereon (without any compounding) at a rate of 6% per annum for the period from the Commencement Date through the Effective Date, on or as soon as reasonably practicable after the later of (i) the Effective Date, (ii) the date such Claim becomes Allowed and (iii) the date for payment provided by any agreement or understanding between the applicable SS/L Debtor or SS/L Debtors and the holder of such Claim.

100%

SS/L Class 5

SS/L Equity Interests


For more detailed information regarding the classification and treatment of Claims and Equity Interests under the Plan, see Section V. of this Disclosure Statement, including subsection V.K. relating to substantive consolidation.

III. GENERAL INFORMATION

A. OVERVIEW OF CHAPTER 11

Chapter 11 is the principal business reorganization chapter of the Bankruptcy Code. Under chapter 11 of the Bankruptcy Code, a debtor is authorized to reorganize its business for the


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benefit of itself, its creditors and its equity interest holders. In addition to permitting the rehabilitation of a debtor, another goal of chapter 11 is to promote equality of treatment for similarly situated creditors and similarly situated equity interest holders with respect to the distribution of a debtor’s assets.

The commencement of a chapter 11 case creates an estate that is comprised of all of the legal and equitable interests of the debtor as of the commencement date. The Bankruptcy Code provides that the debtor may continue to operate its business and remain in possession of its property as a “debtor in possession.”

The consummation of a plan of reorganization is the principal objective of a chapter 11 reorganization case. A plan of reorganization sets forth the means for satisfying claims against and interests in a debtor. Confirmation of a plan of reorganization by the bankruptcy court binds the debtor, any issuer of securities under the plan, any person acquiring property under the plan and any creditor or equity interest holder of a debtor. Subject to certain limited exceptions, the order approving confirmation of a plan discharges a debtor from any debt that arose prior to the date of confirmation of the plan and substitutes therefor the obligations specified under the confirmed plan.

Holders of claims against and interests in a debtor are permitted to vote to accept or reject the plan. Prior to soliciting acceptances of the proposed plan, however, section 1125 of the Bankruptcy Code requires a debtor to prepare a disclosure statement containing adequate information of a kind, and in sufficient detail, to enable a hypothetical reasonable investor to make an informed judgment regarding the plan. The Debtors are submitting this Disclosure Statement to holders of Claims against the Debtors to satisfy the requirements of section 1125 of the Bankruptcy Code.

B. DESCRIPTION AND HISTORY OF BUSINESS

1. The Debtors

The Debtors operate their businesses through a group of affiliated entities. The Debtors in these Reorganization Cases are:

Loral Space & Communications Ltd. Loral Space & Communications Corporation Loral SpaceCom Corporation Loral Satellite, Inc. Space Systems/Loral, Inc. Loral Communications Services, Inc. Loral Ground Services, L.L.C. Loral Orion, Inc. Loral CyberStar Global Services, Inc. Loral Cyberstar GmbH Loral CyberStar Japan, Inc. Loral CyberStar Services, Inc. Loral CyberStar Holdings, L.L.C. Loral CyberStar International, Inc. Loral Asia Pacific Satellite (HK) Limited SS/L Export Corporation CyberStar, L.P. CyberStar, L.L.C. Loral Skynet Network Services, Inc. Loral Licensing Ltd.


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2. Corporate Structure

An abridged depiction of Loral’s organizational structure is set forth below. This summary does not identify all of the Debtors or all legal entities within the corporate structure.

Loral Space &

Communications Ltd.

Loral Space &

Communications Corporation

Loral Orion, Inc.Loral SpaceCom Corporation

(Loral Skynet division)

Loral Satellite, Inc.

Space Systems/Loral, Inc.

3. Businesses

Loral is one of the world’s leading satellite communications companies with substantial activities in satellite-based communications services and satellite manufacturing. Loral is a global organization with subsidiaries and affiliates located in the United States, Latin America, Europe and Asia. Ltd. is the ultimate parent of the Loral family of companies.

Loral’s operations are organized into two segments: satellite services and satellite manufacturing. The satellite services business is managed and operated through Loral Skynet, a division of SpaceCom. Loral’s manufacturing operations are owned and operated through SS/L, a wholly owned subsidiary of SpaceCom. Loral’s satellite products and services place it in the forefront of the satellite industry in terms of technological innovation and reliability.

a. Satellite Services

Loral’s satellite services business owns and operates a fleet of four satellites at approximately 22,000 miles above the equator in orbital positions that remain fixed with respect to a given point on earth (i.e., geosynchronous or geostationary). The satellites provide reliable, high-bandwidth services to customers in broad coverage areas and serve as the backbone for many forms of telecommunications. In addition to the orbital slots within which Loral’s owned satellites operate, Loral currently has operating rights to approximately 20 other orbital slots that are governed by the rules of the various granting agencies, including the International Telecommunication Union (“ITU”) and the Federal Communications Commission. Loral’s rights to operate these slots are set to expire between 2005 and 2012. Recently , Loral’s operating rights in respect of 27 additional slots expired; these slots currently have no value and may be reclaimed by the ITU at any time.


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Loral’s satellite services business has three principal product lines:

Transponder Leasing: Loral Skynet’s heritage transponder leasing business provides a platform for the global distribution of video programming, direct-to-home video transmission, breaking news and sporting events, and broadband data services for enterprise customers.

Network Services: Loral’s hybrid satellite and ground-based infrastructure allows for the rapid and reliable transport of content over secure private networks. Applications include one-way and two-way broadband distribution, bandwidth-on-demand, broadcast SCPC (single channel per carrier) platforms, and teleport services.

Professional Services: Loral’s team of network architects, engineers, program managers and satellite operations professionals provides customized services tailored to unique customer requirements for deploying satellites and network services. Such services include satellite operational services such as telemetry, tracking and control (“TT&C”), which are used by Loral to control its own satellites, as well as those of third parties, satellite construction oversight services, network architecture design, regulatory issue management and customized distribution solutions.

b. Satellite Manufacturing and Technology

SS/L is a leading designer and manufacturer of satellites and satellite systems for commercial and government applications including satellite services, television broadcasting, high-powered direct-to-home television services, broadband communications, military communications, wireless telephony, digital satellite radio, weather monitoring and air traffic management. Since 1957, SS/L has been awarded contracts to build more than 220 satellites, and SS/L-built satellites have achieved over 1,000 years of cumulative on-orbit experience. SS/L’s customers include some of the largest satellite service providers, such as Intelsat Ltd., DirecTV Operations, LLC, EchoStar Communications Corporation and PanAmSat Corporation, as well as governmental customers such as Japan’s Ministry of Transport and Civil Aviation Bureau.

SS/L designs and builds satellites that provide customers with a great span of power and capability, technological superiority and flexibility. The power offered on SS/L-designed satellites ranges from six kilowatts to in excess of 20 kilowatts, and the number of transponders installed on such a satellite may be as few as one to as many as 150.

SS/L competes principally on the basis of superior customer value, technical excellence, reliability and pricing with The Boeing Company, Lockheed Martin Corporation, Alcatel Alenia Space, EADS Astrium and Orbital Sciences Corporation. Historically, SS/L has provided customers with satellites that significantly exceed their designated life expectancies.

Additional information on the Debtors’ operations and business segments can be found in the Form 10-K for the year 2004 (annexed hereto as Exhibit C), filed on March 14, 2005, and the Form 10-Q for the period ended March 31, 2005 (annexed hereto as Exhibit D), filed on May 10, 2005, with the Securities and Exchange Commission (“SEC”), and is available on the SEC’s EDGAR website www.sec.gov or commercially at such websites as www.freeedgar.com. The Debtors’ operating reports are available for a fee on the Bankruptcy Court’s Electronic Case Filing System which can be found at www.nysb.uscourts.gov, the official website for the Bankruptcy Court.


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4. History

Loral was incorporated on January 12, 1996 as a Bermuda exempt company and has its registered offices at Canon’s Court, 22 Victoria Street, Hamilton, HM 12, Bermuda.

Satellite Services. Loral formed its satellite services business by acquiring the AT&T Skynet business from AT&T in March 1997 and Orion Network Services in March 1998. Loral Skynet, which manages and operates Loral’s satellite services business, began with one satellite in 1997 and grew to 10 satellites in 2001 through the acquisition of additional satellites. The placement of additional satellites in service and the expansion of its product offerings placed Loral Skynet among the fastest growing satellite operators in the world.

Satellite Manufacturing. SS/L’s roots date back to 1957 with the establishment of Philco’s Western Development Laboratory (“Philco”). Philco originally manufactured radios and televisions and then transitioned to manufacturing ground communications equipment and military satellites. During this time, Philco manufactured the world’s first active repeater satellite, Courier, which was launched in 1960 as one of the United States’s answers to Sputnik.

In order to fulfill its desire to enter the “space race,” Ford Motor Company purchased Philco in 1962 and renamed it Ford Aerospace and Communications (“Ford Aerospace”). Ford Aerospace built a highly successful series of communications satellites named the Intelsat V series, based upon a highly reliable and innovative three-axis stabilized satellite bus. Ford Aerospace also manufactured the world’s first, and still today the only, three-axis stabilized weather satellite and was active in providing various government satellites.

In 1990, Loral Corporation purchased Ford Aerospace, marking Loral’s entry into the satellite market, and renamed the satellite manufacturing business Space Systems/Loral. Throughout the 1990s, SS/L captured a significant share of the commercial satellite market, growing from $391,000,000 in revenue in 1992 to $1,430,000,000 in 1999. In 2004, SS/L’s revenue was approximately $437,000,000 (including intercompany revenue). During those years it designed and manufactured highly successful satellites, including a series of weather satellites for the U.S. government and the Intelsat VII and Intelsat IX series.

C. PREPETITION CAPITAL STRUCTURE

As of the Commencement Date, the Debtors’ indebtedness included: (i) $966,861,000 of senior secured debt of Loral Satellite and SpaceCom and their respective subsidiaries under certain instruments described below and (ii) $1,048,402,000 of aggregate outstanding principal bond debt issued by Ltd. and Orion, as described below.

As a result of the sale to Intelsat Ltd. and Intelsat (Bermuda) Ltd. (together, “Intelsat”) of certain satellites and related assets, as more fully described in Section IV.F. hereof, on March 17, 2004, the Debtors repaid all of the $966,861,000 of senior secured debt, together with accrued and unpaid interest and fees.

1. Prepetition Bank Debt and Other Indebtedness

a. Satellite Credit Agreement

On August 5, 1999, Globalstar, L.P. (“Globalstar”), a satellite-based provider of telephone services, entered into a $500,000,000 credit agreement with a group of banks for the build-


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out of the Globalstar System. Globalstar’s credit facility was guaranteed by Loral Satellite and Loral SatCom Ltd., wholly owned subsidiaries of Loral, for which Loral received 3,450,000 warrants to purchase Globalstar partnership interests. The guarantee was secured by the pledge of certain assets of Loral and its subsidiaries, including the stock of the guarantors and the Telstar 6 and Telstar 7 satellites.

In November 2000, the assets of Loral SatCom Ltd. were transferred into Loral Satellite. On November 17, 2000, Loral Satellite, Bank of America as Administrative Agent, and certain other lending parties entered into a $500,000,000 secured credit agreement (the “Satellite Credit Agreement”) to provide for a $200,000,000 revolving credit facility and a $300,000,000 term loan. The proceeds from the $500,000,000 of loans incurred under the Satellite Credit Agreement were used by Loral Satellite to purchase all of the creditors’ interests in the loans outstanding under the Globalstar credit facility in return for terminating and releasing its guarantee. Based on third-party appraisals, management believed that the fair value of the Telstar 6 and Telstar 7 satellites were in excess of $500,000,000 and wanted to maintain control over its assets.

The indebtedness under the Satellite Credit Agreement was secured by certain assets of Loral Satellite, including the Telstar 6 and Telstar 7 satellite, as well as the payments due to Loral Satellite under the Globalstar credit facility. In addition, Ltd. guaranteed Loral Satellite’s obligations under the Satellite Credit Agreement. The Satellite Credit Agreement was amended as of December 21, 2001. As part of this amendment, the lenders under the Satellite Credit Agreement received a junior lien on the assets of SpaceCom and its subsidiaries, including SS/L, that were pledged in favor of the lenders under the LSC Amended Credit Agreement (as defined below).

On March 31, 2003, the Satellite Credit Agreement was further amended to provide for certain modifications, including amendments to its financial covenants. On the Commencement Date, the principal amount outstanding under the Satellite Credit Agreement was $426,500,000.

b. LSC Amended Credit Agreement

On December 21, 2001, SpaceCom entered into an Amended and Restated Credit Agreement with Bank of America, N.A., as Administrative Agent, and certain other lender parties (the “LSC Amended Credit Agreement”). This agreement amended and restated a previously amended and restated credit agreement dated November 14, 1997 that was in the total amount of $850,000,000. The indebtedness under the LSC Amended Credit Agreement was secured by substantially all of the assets and stock of SpaceCom and its subsidiaries, including SS/L. SpaceCom’s obligations under the LSC Amended Credit Agreement were guaranteed by certain of its subsidiaries, including SS/L. The LSC Amended Credit Agreement provided for a $200,000,000 revolving credit facility expiring January 7, 2005 and a term loan of $400,000,000.

On March 31, 2003, the LSC Amended Credit Agreement (the “LSC Amendment”) was further amended to provide for, among other things, amendments to SpaceCom’s financial covenants and restrictions on SpaceCom and its subsidiaries. The lenders under the SpaceCom facilities also received a junior lien on the stock of Loral Satellite as part of this amendment. On the Commencement Date, $547,657,000 was outstanding under the LSC Amended Credit Agreement, which included letters of credit in the aggregate principal amount of $12,657,000.

c. Japanese Export-Import Facility

SS/L borrowed a total of $42,900,000 under an export-import facility (the “EX-IM Facility”) with a Japanese bank. The EX-IM Facility was fully secured by a letter of credit


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arrangement under the LSC Amended Credit Agreement. On the Commencement Date, the principal amount outstanding under the EX-IM Facility was $5,361,000.

d. Orion Indebtedness

On January 31, 1997, Orion issued 11¼% senior notes due 2006 in the principal amount of $445,000,000 and 12½% senior discount notes due 2007 in the principal amount at maturity of $484,000,000 (collectively, the “Orion Stub Notes”). The Orion Stub Notes are unsecured obligations of Orion. Loral Asia Pacific Satellite (HK) Limited, a subsidiary of Orion, as well as certain other subsidiaries, guaranteed the payment of the Orion Stub Notes.

As of the Commencement Date, 11¼% senior notes in the principal amount of $36,627,000 plus accrued interest in the amount of $2,071,715 and 12½% senior discount notes in the principal amount of $49,071,000 plus accrued interest in the amount of $3,083,976 were outstanding.

On December 21, 2001, Orion issued 10% senior notes due 2006 in the aggregate principal amount of $612,704,000 (the “Orion 10% Notes” and, together with the Orion Stub Notes, the “Orion Notes”). The Orion 10% Notes are unsecured obligations of Orion. Ltd. and Loral Asia Pacific Satellite (HK) Limited, a subsidiary of Orion, guaranteed the payment of the Orion 10% Notes. The Orion 10% Notes were issued in exchange for the extinguishment of $841,000,000 principal amount of Orion Stub Notes. As part of the exchange, Ltd. issued to the holders of the Orion 10% Notes 604,299 five-year warrants to purchase Ltd. common stock at a price of $23.70 per share. The warrants were valued at $7,000,000.

As of the Commencement Date, Orion 10% Notes in the principal amount of $612,704,000 was outstanding and accrued interest in the amount of $30,805,396 was due and payable.

e. Ltd. Indebtedness

On January 15, 1999, Ltd. issued 9½% senior notes due 2006 in the aggregate principal amount of $350,000,000 (the “Ltd. Notes”). The Ltd. Notes are general unsecured obligations of Ltd.

As of the Commencement Date, Ltd. Notes in the principal amount of $350,000,000 and accrued interest in the amount of $16,625,000 were outstanding.

2. Equity

a. Common Stock

Prior to the Commencement Date, Ltd.’s common stock traded on the New York Stock Exchange (the “NYSE”). On the Commencement Date, the NYSE suspended trading of Ltd.’s common stock and, on September 2, 2003, removed the securities from listing and registration. As of the Commencement Date, 44,107,782 shares of common stock were outstanding.

b. Series C Convertible Preferred Stock

The Series C Convertible Preferred Stock (the “Series C Preferred Stock”) is preferred stock of Ltd. With respect to dividend rights and rights upon liquidation, winding up and dissolution, the Series C Preferred Stock ranks equivalent to the Series D Convertible Preferred Stock


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(described below) and senior to or equivalent to all other existing and future series of preferred stock of Ltd. and senior to Ltd. common stock.

As of the Commencement Date, 3,745,485 shares of Series C Preferred Stock were outstanding.

c. Series D Convertible Preferred Stock

The Series D Convertible Preferred Stock (the “Series D Preferred Stock”) is preferred stock of Ltd. With respect to dividend rights and rights upon liquidation, winding up and dissolution, the Series D Preferred Stock ranks equivalent to the Series C Convertible Preferred Stock and all other existing and future series of preferred stock of Ltd. and senior to Ltd. common stock.

As of the Commencement Date, 734,135 shares of Series D Preferred Stock were outstanding.

D. PREPETITION INVESTMENT IN GLOBALSTAR-RELATED ACTIVITIES

Prior to the Commencement Date, Loral invested in and made advances of approximately $2,000,000,000 with respect to Globalstar, Globalstar Telecommunications Limited (“GTL”), a general partner of Globalstar, and certain Globalstar service provider partnerships (the “Globalstar-Related Activities”). In 2000, Loral wrote off on a pre-tax basis approximately $1,700,000,000 of investments in Globalstar-Related Activities. As of June 30, 2004, Loral’s investment balance in Globalstar-Related Activities was zero.

On February 15, 2002, Globalstar and certain of its direct subsidiaries (the “Globalstar Debtors”) filed voluntary petitions under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the “Delaware Court”). On December 8, 2003, the Delaware Court approved Globalstar’s plan of reorganization (the “Globalstar Plan”). The Globalstar Plan became effective on June 29, 2004. On June 29, 2004, Globalstar was dissolved. As a result of Globalstar’s liquidation, Loral recorded equity income of approximately $47,000,000 on the reversal of vendor financing liabilities that were non-recourse to SS/L in the event of non-payment by Globalstar.

Pursuant to the Globalstar Plan, in consideration for a $43,000,000 equity investment in Globalstar LLC, a newly formed company, Thermo Capital Partners, L.L.C. (“Thermo”) acquired an 81.25% ownership interest in Globalstar LLC. Pursuant to the Globalstar Plan, holders of certain allowed claims against the Globalstar Debtors received their pro rata distribution of the remaining membership units of Globalstar LLC, aggregating 18.75% (the “Membership Interests”), on account of such allowed claims.

Ltd. and certain of its affiliates (collectively, the “Loral Parties”) asserted claims against the Globalstar Debtors in their chapter 11 cases. In accordance with a global settlement among the Globalstar Debtors and most of their affiliates and the Loral Parties and most of their affiliates, the Loral Parties received on account of their claims against the Globalstar Debtors 237,950 Membership Interests in Globalstar LLC, representing approximately 2.7% of the membership units in Globalstar LLC. Such Membership Interests are in a private company and the Debtors believe that the value thereof is de minimis in the context of these Reorganization Cases.


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E. SECURITIES LITIGATION

Numerous actions alleging violations of securities laws by Ltd. and certain members of Ltd.’s management were filed prior to the Commencement Date. Such actions include (i) nineteen separate purported class action lawsuits filed in the United States District Court for the Southern District of New York by various holders of securities of Globalstar Telecommunications Limited (“GTL”) and Globalstar against GTL, Ltd., Bernard L. Schwartz, and other defendants, which cases were consolidated into one action entitled In re Globalstar Securities Litigation, Civ. A. No. 01-1748 (SHS); (ii) seven separate purported class action lawsuits filed against Ltd., Bernard L. Schwartz, and Richard J. Townsend in the United States District Court for the Southern District of New York by various holders of common stock of Ltd., which cases were consolidated into one class action entitled In re Loral Space & Communications Ltd. Securities Litigation, Civ. A. No. 01-4388 (JGK); and (iii) W.L. Meng v. Bernard L. Schwartz & Loral Space & Communications Ltd. et al., Civ. A. No. 01-1715 (RCL) (D.D.C.). In addition, several other cases against certain members of Ltd.’s management relating to their prepetition conduct were filed after the Commencement Date. Such actions include: (i) Beleson v. Schwartz, Civ. A. No. 03-6051 (JES) (S.D.N.Y.) (consolidating Hull, et al. v. Bernard L. Schwartz, Civ. A. No. 03-7829 (JES) (S.D.N.Y.), Bryan v. Schwartz, Civ. A. No. 03-7329 (JES) (S.D.N.Y.), Pfusterer v. Schwartz, Civ. A. No. 03-6883 (JES) (S.D.N.Y.), and Beleson v. Schwartz, Civ. A. No. 03-6051 (JES) (S.D.N.Y.)); and (ii) In re Loral Space & Communications Shareholders’ Securities Litigation, Civ. A. No. 03-8262 (JES) (S.D.N.Y.), formerly captioned Christ, et al. v. Bernard L. Schwartz and Richard J. Townsend, Civ. A. No. 03-8262 (JES) (S.D.N.Y.).

By virtue of the automatic stay extant in the Reorganization Cases pursuant to section 362 of the Bankruptcy Code, all of the aforementioned suits were stayed as to Ltd. on the Commencement Date. In February 2004, the court in Meng v. Schwartz et al., Civ. A. No. 01-1715 (RCL) (D.D.C.), granted a motion to dismiss filed by defendant Bernard L. Schwartz but determined not to enter the judgment until after defendant Ltd. emerges from bankruptcy. Similarly, a motion to dismiss filed by defendants Schwartz and Townsend in In re Loral Space & Communications Ltd. Securities Litigation, Civ. A. No. 01-4388 (JGK) (S.D.N.Y.), was granted in March 2004, but the time to appeal such decision will not expire until thirty (30) days after the Effective Date.

In addition, two class action lawsuits alleging breach of fiduciary duty and violations of the Employee Retirement Income Security Act of 1978 (“ERISA”) were filed after the Commencement Date by participants and beneficiaries of the Loral Savings Plan against the Loral Space & Communications Ltd. Savings Plan Administrative Committee and certain individual directors and officers. These suits, entitled Koch v. Loral Space & Communications Ltd . Savings Plan Committee, et al., Civ. A. No. 03-9729 (LTS) (S.D.N.Y.) and O’Roarke v. Loral Space & Communications Ltd. Savings Plan Administrative Committee, et al., Civ. A. No. 03-9923 (LTS) (S.D.N.Y.), have been consolidated under the caption In re Loral Space ERISA Litigation, Civ. A. No. 03-9729 (LTS) (S.D.N.Y.).

Lead plaintiffs in the ERISA litigation described herein contend that the ERISA claims are not subject to subordination under section 510(b) of the Bankruptcy Code and that those Claims should therefore not be classified in Ltd. Class 7 (Securities Litigation Claims), but should instead be classified and treated as Ltd. General Unsecured Claims in Ltd. Class 4. The Debtors do not agree with this contention. It is anticipated that the issue of whether the ERISA claims are subject to subordination under section 510(b) of the Bankruptcy Code will be determined by the Bankruptcy Court, and that if the Bankruptcy Court determines that those Claims are not subject to such subordination, the ERISA claims will be classified and treated as Ltd. General Unsecured Claims.


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F. SS/L PATENT LITIGATION

In 1996, SS/L filed an action against Lockheed Martin styled Space Systems/Loral, Inc. v. Lockheed Martin Corporation, Civ. A. No. P C-96-3418 (N.D. Cal.), in which SS/L alleged that Lockheed Martin Corporation (“Lockheed Martin”) infringed certain of SS/L’s patents. By a decision rendered prior to the Commencement Date and an order subsequently entered on June 18, 2004, the United States District Court for the Northern District of California (the “California District Court”) granted summary judgment pursuant to 35 U.S.C. § 112 in favor of Lockheed Martin. On or about July 17, 2004, SS/L appealed the decision of the California District Court to the United States Court of Appeals for the Federal Circuit (the “Appeals Court”).

In April 2005, the Appeals Court reversed the California District Court’s grant of summary judgment in favor of Lockheed Martin and remanded the matter back to the trial court. Subsequent thereto, Lockheed Martin filed with the Appeals Court a petition for rehearing, which was denied on or about June 1, 2005. The proceeding before the trial court has been bifurcated into a liability phase and thereafter, if necessary, a damages phase. It is not possible at this time to predict how this litigation ultimately will be resolved. After several years of litigation, the lawsuit has been limited to an infringement claim with respect to one patent, which patent has expired.

G. EVENTS LEADING TO THE COMMENCEMENT OF THE CHAPTER 11 CASES

Following the demise of numerous Internet and telecommunications companies, the satellite industry experienced a significant decline beginning in 2001 and 2002. The market for telecommunications-related products, including commercial satellite capacity, weakened substantially. As evidenced by the bankruptcy cases of well-known telecommunications companies such as Global Crossing Ltd., Williams Communications Group, McLeod USA, Inc., 360Networks USA, and WinStar Communications, among others, and the well-publicized financial difficulties of telecommunication infrastructure providers such as Lucent Technologies, Nortel Ltd., and JDS Uniphase Corp., the effect of the reduction of commercial broadband business initiatives has been pervasive. The difficulties for the satellite manufacturing industry were compounded by the lack of access to capital markets by their customers due to the withdrawal of commercial banks and investment banks from the telecommunications industry.

Worldwide commercial satellite orders, which had been averaging above 20 per year prior to 2000, plummeted to three competitive awards in 2002. Nevertheless, SS/L had developed a record backlog of over 20 satellites under construction or to be constructed, second in the industry, that served as a buffer during the severe drought in orders in 2001 and 2002. Unfortunately, the downturn in satellite sales continued into 2003 as satellite operators deferred orders for replacements and expansion plans. Because SS/L does not have a base of U.S. government customers, the drop in commercial sales had a more pronounced effect on SS/L than on its competitors.

The concomitant inability of Loral’s leasing customers to access the capital markets led to the declining utilization of services by existing customers and a lack of new customers entering the market, in particular telecommunications and Internet access providers. This reduced demand produced an overabundance of transponder capacity for satellite services, which, in turn, created a severe drought in new satellite orders.

These factors, taken together, lowered prices for satellite services and reduced satellite fleet utilization, thereby negatively affecting Loral’s overall financial position. Loral’s financial condition was further affected by its significant investments in Globalstar, as well as by the rapid build-out of its own fleet of satellites for its satellite services business.


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The confluence of these factors caused Loral to seek ways to revise its capital structure, including a significant reduction of its debt obligations. As an important step toward such recapitalization, Loral entered into an agreement to sell its six North American telecommunications satellites and certain related assets to Intelsat. See Section IV.F.

IV. EVENTS DURING THE CHAPTER 11 CASES

On July 15, 2003, Ltd. and 19 of its subsidiaries commenced the Reorganization Cases in the Bankruptcy Court. See Section III.A. The Debtors continue to operate their businesses and manage their properties as debtors in possession pursuant to sections 1101, 1107 and 1108 of the Bankruptcy Code.

The following is a brief description of certain major events that have occurred during the Reorganization Cases.

A. BERMUDA PROCEEDINGS

Also on July 15, 2003, Ltd. and Loral Licensing Ltd. (the “Bermudian Debtors”) filed parallel proceedings (the “Bermudian Debtors’ Reorganization Cases”) in the Bermuda Court. The Bermuda Court appointed certain principals of KPMG International as Joint Provisional Liquidators (“JPLs”) with respect to the Bermudian Debtors. The Bermuda Court granted the JPLs the power to oversee the continuation and reorganization of the Bermudian Debtors’ businesses under the control of their boards of directors and under the supervision of the Bankruptcy Court and the Bermuda Court. The Bermudian Debtors’ Reorganization Cases were commenced because Bermuda is the country of incorporation of the Bermudian Debtors, and these proceedings were necessary to facilitate the coordinated reorganization of the Bermudian Debtors. The appointment of the JPLs imposed a moratorium preventing creditors from taking or continuing any legal proceedings in Bermuda against the Bermudian Debtors or their assets. The JPLs have hired professionals to advise them in connection with the Bermudian Debtors’ Reorganization Cases. There will be no claims adjudication process in the Bermudian Debtors’ Reorganization Cases. All Claims will be dealt with in accordance with the procedure under the Plan. The Bermudian Debtors will be put into liquidation as soon as practicable after the occurrence of the Effective Date of the Plan.

B. APPOINTMENT OF THE CREDITORS’ COMMITTEE

On July 24, 2003, the United States Trustee for the Southern District of New York (the “U.S. Trustee”), pursuant to its authority under section 1102 of the Bankruptcy Code, appointed the members of the Creditors’ Committee for the Reorganization Cases.

The current members of the Creditors’ Committee are set forth below:

HSBC Bank USA, National Association, as Indenture Trustee

Mitsubishi Electric Corporation

P. Schoenfeld Asset Management, LLC MacKay Shields, LLC

MHR Fund Management LLC J.P. Morgan Trust Company, National Association (successor to Bank One Trust Company, N.A.), as Indenture Trustee

Since that appointment, the Debtors have consulted with the Creditors’ Committee on all matters material to the administration of the Reorganization Cases. The Debtors also have


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discussed their business operations with the financial advisors for the Creditors’ Committee. The Creditors’ Committee has participated actively in reviewing the Debtors’ business operations, operating performance and business plan, and in negotiating the Plan.

Members of the Creditors’ Committee hold the following types of Claims: (i) Ltd. Note Claims; (ii) Orion 10% Notes Claims; (iii) Orion Stub Notes and (iv) trade claims against SS/L.

C. APPOINTMENT OF AN EXAMINER

On December 20, 2004, the Bankruptcy Court entered an order pursuant to sections 1104(c)(2) and 1106 of the Bankruptcy Code appointing an examiner (the “Examiner”). The scope of the Examiner’s duties was limited to determining whether the Debtors, including their professionals, have used customary and appropriate processes and procedures to value their assets and business for purposes of section 1129(b) of the Bankruptcy Code, or, on the contrary, have employed improper processes and procedures in order to arrive at a materially reduced valuation of their assets and businesses for purposes of section 1129(b) of the Bankruptcy Code.

By Order dated January 12, 2005, the Bankruptcy Court appointed Harrison J. Goldin as Examiner. Pursuant to the Examiner Order, the Examiner was afforded a budget of $200,000 to conduct the investigation and prepare and file with the Bankruptcy Court a statement of his findings (the “Examiner Report”). The Examiner Order further provided that the Examiner would have thirty (30) days from the date of his appointment to complete the investigation and an additional thirty (30) days to prepare and file the Examiner Report. The final Examiner Report was filed on March 14, 2005.

The Examiner Report stated that “while the Debtors’ valuation processes and procedures are generally reasonable and professionally acceptable, they do not fully capture Loral’s value.” The Examiner further suggested that an alternative value range of Loral could be between $931 million to $1,263 million excluding any potential incremental value in the Debtors’ patents, unused orbital slots and real estate. The Debtors dispute the Examiner’s suggested “alternative valuation.” The Debtors believe that the Examiner Report is materially flawed and inaccurate in its review of the enterprise valuation of Loral and that the suggested valuation range set forth in the Examiner Report is significantly overstated. See Section IX. of the Disclosure Statement for more information. Moreover, even if the Examiner Report were to be accepted, the Debtors believe the highest enterprise valuation suggested by the Examiner would still be materially less than the total amount of Allowed Claims against the Debtors. The Equity Committee (as defined below) disagrees with this statement.11

D. APPOINTMENT OF AN EQUITY COMMITTEE

Immediately following the filing of the Examiner Report, certain common shareholders of Ltd. sent a letter to the U.S. Trustee renewing their request for the appointment of an official committee of common shareholders under section 1102(a)(2) of the Bankruptcy Code and, contemporaneously therewith, filed a motion with the Bankruptcy Court seeking the same relief. Each of the common shareholders’ three previous motions for the appointment of an official equity committee was denied by the Bankruptcy Court. In addition, by letter dated March 14, 2005, certain

11 One of the bases for the Equity Committee’s disagreement is its contention that postpetition interest with respect to Allowed unsecured claims should be calculated at a lower rate. The Debtors and the Creditors’ Committee disagree with such contention.


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of Ltd.’s preferred shareholders requested that the U.S. Trustee appoint an official committee of preferred shareholders and, on March 17, 2005, filed a motion with the Bankruptcy Court seeking the same relief. By letters dated March 17, 2005, the Debtors and the Creditors’ Committee requested that the U.S. Trustee deny each of these requests. Although the Bankruptcy Court scheduled a hearing on the motions for March 30, 2005, on March 29, 2005, the U.S. Trustee appointed an official committee of equity security holders in the Reorganization Cases pursuant to section 1102(a)(2) of the Bankruptcy Code (the “Equity Committee”).

The current members of the Equity Committee are set forth below:

JDS Capital LP Aspen Advisors LLC

York Capital Management Jeffrey M. Swarts

David Kilcoyne Peleton Capital LP

Mariner Investment Group

E. STABILIZATION OF BUSINESS

During the initial stages of the Reorganization Cases, the Debtors devoted substantial efforts to stabilizing their operations and restoring customer and vendor confidence.

1. First Day Orders

On the Commencement Date, the Bankruptcy Court approved certain orders designed to minimize the disruption of the Debtors’ business operations and to facilitate their reorganization.

Case Administration Orders. These orders: (i) authorized joint admin istration of the Reorganization Cases, (ii) established interim compensation procedures for professionals, (iii) granted an extension of the time to file the Debtors’ Schedules, and (iv) authorized certain notice procedures.

Payments on Account of Certain Prepetition Claims. The Bankruptcy Court authorized the payment of certain prepetition: (i) sales and use taxes and regulatory fees, (ii) customs duties and customs broker charges, and (iii) obligations owed to (x) critical vendors, (y) foreign creditors and (z) common carriers and third parties that own and operate storage facilities.

Business Operations. The Bankruptcy Court authorized the Debtors to (i) continue to satisfy pre-Commencement Date premium obligations under workers’ compensation insurance policies and all other insurance policies, (ii) continue their existing centralized cash management system, (iii) maintain existing bank accounts and business forms, and (iv) continue their current investment policy.

2. Use of Cash Collateral

Substantially all of the assets of SpaceCom and Loral Satellite and their respective subsidiaries, including SS/L, were pledged as collateral security for the obligations owed to the lenders under the Satellite Credit Agreement and the LSC Amended Credit Agreement (the “Bank Lenders”). See Section III.C. Under the provisions of the Bankruptcy Code, the Debtors were not authorized to use the existing cash or cash proceeds of this collateral without either an order of the Bankruptcy Court authorizing the use of their cash collateral or the consent of their Bank Lenders. The Debtors and the Bank Lenders negotiated a cash collateral agreement prior to the Commencement Date. On the Commencement Date, the Bankruptcy Court authorized the Debtors to


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use the cash collateral to fund all operating expenses associated with their businesses in accordance with such cash collateral agreement, which included an agreed upon budget. The Bankruptcy Court approved the cash collateral agreement on an interim basis, and then after certain modifications were made, the Bankruptcy Court entered a Final Order on August 22, 2003 (the “Final Cash Collateral Order”) approving it.

Following the sale of certain assets to Intelsat and the repayment of the debt outstanding under the Satellite Credit Agreement and the LSC Amended Credit Agreement, on May 17, 2004, the Debtors, the Creditors’ Committee and the Agent for the Bank Lenders entered into a stipulation and order providing for the release of all of the Bank Lenders’ and the Agent’s liens (other than with respect to a separate cash collateral account in which the Debtors maintained cash collateral equal to 105% of the face amount of any outstanding prepetition letter of credit) and any related funds or property, and releasing the Debtors from certain provisions of the Final Cash Collateral Order, subject to certain terms and conditions set forth in the stipulation and order. See Section IV.F. below for more information about the sale of certain assets to Intelsat.

3. Employee Relations

a. Wages, Compensation and Employee Benefits

In order to facilitate the continued operation of the Debtors’ businesses in chapter 11 and the Debtors’ successful reorganization, the Bankruptcy Court authorized the Debtors to pay, in accordance with the Debtors’ prepetition practices and policies, all employee obligations such as wages, salaries, commissions, payroll taxes, social security taxes, Medicare taxes, independent contractors, temporary employees, health and welfare benefit plans (including medical, dental and other health plans, flexible spending programs, life and other insurance, and short- and long-term disability insurance), savings plans, retirement plans, paid time-off benefits, tuition reimbursements, business expense reimbursements, as well as all expenses related to the foregoing plans and programs. In addition, the Bankruptcy Court authorized financial institutions to honor and process checks and transfers related to such obligations.

b. Key Employee Retention Program

On November 26, 2003 and December 18, 2003, the Bankruptcy Court approved a key employee retention program (the “Key Employee Retention Program”), which provides for (i) retention bonus payments, not to exceed an aggregate amount of $1,000,000, to 13 employees of Loral Skynet to be paid upon the occurrence of a Triggering Event (as such term is defined in the Key Employee Retention Program) and upon a date or dates certain prior to the occurrence of a Triggering Event; (ii) retention bonus payments, not to exceed $11,500,000 (plus an additional $1,500,000 that may be disbursed in the discretion of Ltd. and SS/L within five (5) days’ notice to the Creditors’ Committee and the Agent), to 447 employees of SS/L to be paid upon the occurrence of a Triggering Event and upon a date or dates certain prior to the occurrence of a Triggering Event; (iii) retention bonus payments to 14 employees at the Debtors’ corporate headquarters (“Corporate”) to be paid upon the occurrence of a Triggering Event and upon a date or dates certain prior to a Triggering Event; (iv) enhanced severance payments to 28 Corporate employees if they are involuntarily terminated without cause or, with respect to certain SS/L employees, upon a Change of Control (as such term is defined in the Key Employee Retention Program); and (v) enhanced severance payments, not to exceed an aggregate amount of $17,300,000 to 447 SS/L employees if they are involuntarily terminated without cause.


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As part of the efforts to reduce their operating expenses, the Debtors engaged in an analysis of their owned and leased real property and their contracts related to satellite manufacturing and services (collectively, the “Executory Contracts”). On and after the Commencement Date, the Debtors determined to assume approximately 50 Executory Contracts and to reject approximately 20 Executory Contracts. In addition, in connection with the sale of certain assets to Intelsat, the Debtors assumed and assigned to Intelsat 194 Executory Contracts, and in connection with the sale of certain assets to dbsXmedia, Inc. (“dbsXmedia”), the Debtors assumed and assigned to dbsXmedia 23 Executory Contracts. See Section IV.F. below for more information about the sale s to Intelsat and dbsXmedia .

5. Claims Process and Bar Date

a. Schedules and Statements

On November 26, 2003, the Debtors filed with the Bankruptcy Court their statements of financial affairs, schedules of assets and liabilities and schedules of executory contracts and unexpired leases. On December 23, 2003, certain of the Debtors filed amendments to their respective Schedules.

b. Bar Date

The Bankruptcy Court fixed January 26, 2004 (the “Bar Date”) as the last date by which proofs of claim must be filed in order to share in the distributions in connection with the Plan. Notice of the Bar Date and the obligation to file proofs of claim was provided as required by the Bar Date Order, including publication thereof.

Approximately 1,100 proofs of claim against the Debtors have been filed with the claims agent appointed by the Bankruptcy Court. The aggregate amount of claims filed and scheduled exceeds $10,000,000,000, including duplicative Claims. The Debtors have engaged in an extensive review, analysis and reconciliation of the filed claims and have objected to a substantial portion of the filed proofs of claim and, in all likelihood, will continue to do so post-confirmation.

F. ASSET SALES

1. Intelsat Sale

On July 30, 2003, the Debtors filed a motion (the “Sale Motion”) seeking, among other things, (i) approval of bidding procedures and (ii) authorization and approval of the sale (the “Intelsat Sale”) of all of the Debtors’ North American telecommunications satellites and certain related assets (the “Purchased Assets”) to Intelsat pursuant to that certain Asset Purchase Agreement, dated as of July 15, 2003 and subsequently amended (as amended, the “Purchase Agreement”) among Loral Corp., SpaceCom and Loral Satellite (the “Sellers”) and Intelsat, for $1,000,000,000, subject to certain purchase price adjustments. As of July 15, 2003, the Purchased Assets consisted of four satellites then in-orbit: Telstar 5, Telstar 6, Telstar 7 and Telstar 4 (which failed in September 2003); two satellites then under construction: Telstar 13 (which was successfully launched and placed into service on September 12, 2003) and Telstar 8 (scheduled for launch in 2005); and certain related assets and liabilities. Intelsat also agreed to order a new satellite from SS/L upon consummation of the sale. An auction in respect of the Purchased Assets was held on October 20, 2003. At the conclusion of a three-day hearing on the Sale Motion, the Bankruptcy Court determined that Intelsat’s


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offer was the best and highest offer received by the Debtors for the Purchased Assets and approved the Intelsat Sale as a sound exercise of the Debtors’ business judgment.

On March 5, 2004, as part of an arrangement to reach agreement with Intelsat on the satisfaction of certain closing conditions, the Sellers entered into a fourth amendment to the Purchase Agreement. Among other things, the amendment reduced the purchase price by $20,000,000 (subject to further adjustment based on future events) to cover certain contingent liabilities relating to the Purchased Assets, reduced from $100,000,000 to $50,000,000 the deposit Intelsat was to make for its new satellite construction contract with SS/L, and provided for a dollar-for-dollar reduction in the price of this satellite if and to the extent the Telstar 4 insurance proceeds were less than $141,000,000, which proceeds were received in full by Intelsat after the closing. As part of this amendment, Intelsat agreed to pay SS/L $12,500,000 upon closing of the Intelsat Sale in full settlement and satisfaction of all remaining obligations to make certain orbital payments to SS/L under the construction contracts relating to the Purchased Assets.

On March 17, 2004, the Sellers consummated the Intelsat Sale. At closing, the Sellers received approximately $1,011,000,000, consisting of approximately $961,000,000 for the Purchased Assets, after adjustments, and $50,000,000 for an advance on the new satellite to be built for Intelsat by SS/L. The Sellers’ obligations with respect to the $50,000,000 advance are secured by the Telstar 14/Estrela do Sul-1 satellite and related assets, including insurance proceeds relating to the satellite. The Sellers used substantially all of the funds received from the Intelsat Sale to repay (i) the $426,500,000 of outstanding debt owed under the Satellite Credit Agreement, (ii) the $535,000,000 of outstanding debt owed under the LSC Amended Credit Agreement, and (iii) the $5,361,000 of outstanding debt owed under the EX-IM Facility. In addition, after closing, the Sellers received from Intelsat approximately $16,000,000 to reimburse a deposit made by Loral toward the launch of Telstar 8 and an additional $4,000,000 in May 2004 as a purchase price adjustment resulting from resolution of a regulatory issue.

2. dbsXmedia Sale

In February 2004, the Debtors determined to exit their business television (“BTV”) business, which enables customers to transmit private, corporate, one-way video broadcasts by satellite to various locations primarily within the United States and Europe, and to pursue Internet-based broadcasting, which requires significantly fewer resources to operate and manage. Accordingly, the Debtors marketed their BTV assets to a limited number of potential purchasers and, upon consideration of the two offers received to purchase the assets, determined that the offer from dbsXmedia was the better offer.

After arms’-length negotiations, the Debtors and dbsXmedia entered into that certain Asset Purchase Agreement, dated as of February 18, 2005, pursuant to which the Debtors agreed, among other things, to sell to dbsXmedia their BTV business and certain customer contracts related thereto. The purchase price under the Asset Purchase Agreement aggregated approximately $4,033,000, consisting of (i) $400,000 in cash to be paid in installments, (ii) 300,000 shares of common stock in Ariel Way, Inc., dbsXmedia’s parent company, which shares are valued as of the date hereof at approximately $33,000, and (iii) dbsXmedia’s agreement to enter a Teleport Services Agreement with Loral Skynet Network Services, Inc., pursuant to which dbsXmedia shall pay a fee of $150,000 per month for a minimum of two years, aggregating $3,600,000. dbsXmedia’s payment obligations under the Asset Purchase Agreement and the Teleport Services Agreement are guaranteed by Ariel Way up to $3,000,000 with respect to defaults by dbsXmedia during the first year after the closing of the sale and $1,500,000 with respect to defaults occurring during the second year after the closing.


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On March 22, 2005, the Bankruptcy Court entered an order approving the sale and the sale was consummated on April 21, 2005.

G. SIGNIFICANT SETTLEMENTS

1. Satellite Customers

During the course of the Reorganization Cases, the Debtors worked on numerous satellite construction projects. The following chart summarizes certain of those significant projects:


DirecTV 7S DirecTV Operations, LLC operational

MBSAT Mobile Broadcasting Corporation

operational

XTAR-EUR XTAR LLC (see below) operational MTSAT-1R JCAB/JMA (see below) successfully launched

Telstar 18 Orion (see below) operational

Telstar 14/Estrela do Sul-1

SpaceCom operational; damaged during launch

Satmex 6 Satelites Mexicanos, S.A. de C.V.

awaiting launch

Intelsat Americas 8 Intelsat awaiting launch

ChinaSat 8 ChinaSat (see below)

DirecTV 8 DirecTV Operations, LLC successfully launched

WildBlue I WildBlue Communications, Inc. construction complete; awaiting shipment to customer

iPStar Shin Satellite Public Company Limited

construction complete; awaiting shipment to customer

Spainsat Hisdesat, S.A. under construction

EchoStar XI EchoStar Orbital Corporation II under construction

DirecTV 9S DirecTV Operations, LLC under construction



Intelsat Americas 9 Intelsat under construction

TerreStar-1 TerreStar Networks, Inc. under construction ICO ICO Satellite Management, LLC in design phase

Certain of the foregoing satellite construction projects were the subject of amendments and settlement agreements during the Reorganization Cases. Those projects are discussed below:


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a. JCAB/JMA

Prior to the Commencement Date, SS/L agreed to manufacture, test and deliver to the Civil Aviation Bureau of Japan of the Ministry of Land, Infrastructure and Transport (“JCAB”) and Japan Meteorological Agency (“JMA”) (collectively, “JCAB/JMA”), a replacement satellite known as the MTSAT-1R Satellite (“MTSAT-1R”), to be used for weather observation, forecasting and air traffic safety.

On October 2, 2003, JCAB/JMA filed an order to show cause, emergency motion and adversary proceeding complaint seeking to compel SS/L to immediately assume or reject its contracts with JCAB/JMA and to enjoin SS/L from taking any action to delay completion of MTSAT-1R. The Bankruptcy Court denied JCAB/JMA’s emergency motion, and JCAB/JMA appealed the Bankruptcy Court’s decision to the United States District Court for the Southern District of New York.

After extensive negotiations and mediation, the parties settled their disputes in accordance with the terms and conditions of two comprehensive settlement agreements, dated as of January 22, 2004 (collectively, the “Stipulations”), which were approved by the Bankruptcy Court. Pursuant to the Stipulations, the parties agreed, among other things, that (i) the delivery date for MTSAT-1R would be extended from December 20, 2003 (the “Original Delivery Date”) to March 31, 2004 (the “Revised Delivery Date”), and any penalty, claim or consequence triggered by SS/L’s failure to meet the Original Delivery Date for MTSAT-1R would be discharged and waived; (ii) JCAB/JMA would accelerate the payment to SS/L of JPY¥875,509,231 (approximately USD$8,000,000); (iii) if SS/L delivered MTSAT-1R on or before the Revised Delivery Date, JCAB/JMA would also accelerate up to JPY¥705,000,000 (approximately USD$6,400,000); (iv) the amount to be paid by SS/L to JCAB/JMA in connection with SS/L’s assumption of the manufacturing contract with respect to MTSAT-1R is JPY¥165,000,000 (approximately USD$1,500,000); and (v) JCAB/JMA would withdraw its adversary complaint with prejudice, terminate its adversary proceeding with prejudice, and withdraw its appeal with prejudice.

MTSAT-1R was successfully launched on February 25, 2005.

b. APT

Prior to the Commencement Date, SS/L agreed to manufacture, test and deliver to APT Satellite Company Limited (“APT”), a Hong Kong company, a satellite formerly known as the “APSTAR V” satellite and currently known as the “Telstar 18” satellite (“Telstar 18”). Subsequently, Orion and APT entered into an agreement whereby Orion and APT would jointly acquire the Telstar 18 satellite and share, on a 50/50 basis, the project cost of constructing, launching and insuring the satellite. Under this agreement, Orion was initially to acquire 23% of the satellite in return for paying 25% of the project cost, and was to pay APT over time an additional 25% of the project cost to acquire an additional 23% interest in the satellite. Orion in turn had an agreement with SpaceCom pursuant to which SpaceCom agreed to acquire 4.75 transponders, together with a lease of an additional transponder for an approximate two-year period from the satellite’s in-service date, at a purchase price equal to 12.5% of the project cost of the satellite. At June 30, 2004, the project cost of the satellite was estimated at $230,000,000.

In August 2003, in order to expedite the receipt of necessary export licenses from the U.S. government, Orion and APT amended their various agreements to convert their arrangement from a joint ownership arrangement to a lease arrangement whereby Orion would retain title to all of Telstar 18 and APT would lease from Orion 77% of the transponder capacity on Telstar 18. The number of transponders leased to APT would be reduced over time upon repayment by Orion of the


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second 25% of the satellite’s project cost, ultimately to 54% of the satellite’s transponder capacity. The amendments left unchanged the cost allocation between the parties relating to the project cost of the satellite. The Bankruptcy Court approved this arrangement on October 28, 2003.

SS/L, APT and Sea Launch Limited Partnership, acting by and through its general partner, Sea Launch Company, LLC (“Sea Launch”) had previously entered into a launch services agreement for Telstar 18 providing for the launch of Telstar 18 for November 15, 2003. After the launch date was delayed several times due to a delay in the issuance of the export license from the U.S. Government, APT commenced an adversary proceeding against SS/L seeking certain injunctive relief and damages for breach of contract. In November 2003, the parties subsequently negotiated a broad settlement including assumption of certain modified executory contracts between SS/L and APT, between Orion and APT and among SS/L, APT and Sea Launch. Pursuant to the amendments to the various contracts, the parties agreed, among other things, that (i) the launch date for Telstar 18 would be extended; (ii) Orion would assume certain payments relating to the satellite that would otherwise be payable by APT in exchange for increasing its economic interest in Telstar 18 at launch from 23% to 31.5%; (iii) Orion would make certain capacity on the APSTAR IIR satellite available for use by APT without compensation for an interim period and thereafter provide APT with certain exchange rights for Ku-band capacity on Telstar 18; and (iv) SS/L and Orion would assume various prepetition agreements. APT also agreed to terminate its adversary proceeding and withdraw its complaint.

Following its launch on June 28, 2004, Telstar 18 separated from the Sea Launch Zenith-3SL rocket’s upper stage prematurely and was placed into a lower than expected transfer orbit. The satellite is operational and notwithstanding its premature separation is expected to have sufficient on-board fuel to provide it with a service life of at least 13 years.

c. DirecTV 7S

Prior to the Commencement Date, SS/L entered into a satellite construction contract for the construction of a new satellite (“DirecTV 7S”) for DirecTV Operations, LLC (together with its affiliates, “DirecTV”). On September 30, 2003, SS/L entered into two authorizations to proceed (“ATPs”) for the construction of two new satellites for DirecTV. See Section IV.I.1. In conjunction with the new ATPs, SS/L also negotiated significant concessions from DirecTV with regard to the existing DirecTV 7S satellite construction agreement. Under the amended DirecTV 7S agreement, DirecTV (i) agreed to an extended “ready to ship” delivery date, (ii) waived its right to liquidated damages for delays, and (iii) agreed to pay SS/L an addit ional $2,000,000 and to accelerate an orbital payment to SS/L in the amount of $13,500,000 following the launch of DirecTV 7S. On October 21, 2003, SS/L assumed the DirecTV 7S satellite manufacturing contract.

DirecTV 7S was successfully launched on May 4, 2004.

d. MBCO

Prior to the Commencement Date, SS/L agreed and undertook to design, manufacture and deliver the One Mobile Broadcasting Satellite (the “MBSAT Satellite”) to Mobile Broadcasting Corporation (“MBCO”) to provide audio, video and data services directly to mobile users throughout Japan and Korea. In connection with SS/L’s construction of the MBSAT Satellite, SS/L is obligated to construct a ground system in Japan and to provide TT&C for the satellite. The parties subsequently agreed that SS/L would construct a remote station in Korea and provide similar TT&C in connection therewith, resulting in a $3,600,000 increase in the purchase price of the MBSAT Satellite. SS/L entered into a launch services agreement with certain Lockheed Martin entities to


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procure launch services for the MBSAT Satellite (the “Launch Services”) on behalf of MBCO. SS/L paid for the Launch Services, and MBCO was contractually obligated to reimburse SS/L for launch services through various milestone payments.

After SS/L began construction of the MBSAT Satellite, SS/L encountered various difficulties in construction and testing, the cumulative effect of which resulted in an inability to meet the contracted delivery schedule. In June 2004, SS/L and MBCO entered into a third amendment to the contract governing the manufacture of the MBSAT Satellite (the “Amendment”). The Amendment, among other things, (i) extended the date by which SS/L was to have delivered the MBSAT Satellite to MBCO to April 27, 2004; (ii) released SS/L from various claims; and (iii) modified certain performance specifications under the MBSAT Contract consistent with the MBSAT Satellite’s capabilities as of the date of the Amendment, thereby releasing SS/L of additional potential liability in the future.

The MBSAT Satellite was successfully launched on March 13, 2004, and was delivered to MBCO in orbit on April 27, 2004.

e. XTAR

Prior to the Commencement Date, Ltd. and Hisdesat Servicios Estrategicos, S.A. (“Hisdesat”), a consortium of Spanish companies, entered into an operating agreement to form XTAR™ LLC (“XTAR”) (the “Operating Agreement”). Ltd. subsequently assigned its 56% interest in XTAR to its wholly owned subsidiary Loral Corp., and Hisdesat owned the remaining 44% membership interest. In addition, XTAR entered into a satellite construction contract with SS/L (the “XTAR Contract”) pursuant to which SS/L agreed, among other things, to construct an X-band geostationary satellite (the “XTAR Satellite”).

In order to provide additional funding to XTAR and as part of a settlement of disputes related to XTAR’s inability to satisfy its payment obligations to SS/L under the XTAR Contract, Hisdesat, SS/L and Loral Corp. have executed Amendment One to the Operating Agreement dated on or about October 2, 2003, which subsequently was approved by the Bankruptcy Court.

Pursuant to Amendment One, SS/L and XTAR agreed to compromise and settle certain existing and future invoices under the XTAR Contract. In addition, pursuant to Amendment One, SS/L (i) agreed to a reduction in amounts owed to it by XTAR, (ii) became a new member of XTAR, and (iii) was credited with an initial capital contribution to XTAR. Hisdesat in turn agreed to make an additional $20,000,000 of capital contributions to XTAR, to be used largely to fund remaining milestones due SS/L under the XTAR Contract.

In May 2004, Hisdesat, SS/L and Loral Corp. entered into Amendment Two to the Operating Agreement pursuant to which SS/L and Hisdesat agreed to provide an additional capital contribution to XTAR in the aggregate amount of $5,000,000, to enable XTAR to purchase ground equipment and software for the antennas that are essential to the in-orbit operation and control of the payload on the XTAR Satellite. In June 2004, the Bankruptcy Court approved (i) an additional capital contribution to XTAR in the aggregate amount of $4,000,000, of which $2,240,000 will be paid by SS/L and $1,760,000 will be paid by Hisdesat and (ii) that Hisdesat will loan to XTAR $10,787,297 in exchange for a subordinated convertible note.

In November 2004, the Bankruptcy Court approved (i) launch of the XTAR Satellite without launch insurance and (ii) additional capital contributions not to exceed approximately


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$2,140,000, of which approximately $1,200,000 and $940,000 would be made by SS/L and Hisdesat, respectively. Such contribution has not been made to date by either party.

In January 2005, Hisdesat, SS/L and Loral entered into Amendment Three to the Operating Agreement, pursuant to which SS/L and Hisdesat agreed to provide an additional $4,000,000 of capital contribution and Hisdesat agreed to make a $10,787,297 subordinated convertible loan to XTAR, as approved by the Bankruptcy Court in June 2004. Amendment Three provided Hisdesat with enhanced governance rights in XTAR in consideration for its loan, which loan, if converted by Hisdesat, would reduce SS/L’s and Loral Corp.’s aggregate interest in XTAR from 56% to 51%.

Upon receipt of all of the capital contributions described above, the membership interests in XTAR will be as follows: Loral Corp. 27.7%, Hisdesat 44% and SS/L 28.3%.

The XTAR Satellite was successfully launched on February 12, 2005. On April 14, 2005, the XTAR Satellite entered commercial service at 29 degrees East longitude, after the completion of in-orbit testing.

f. ChinaSat

In December 1998, SS/L completed construction of a satellite (“ChinaSat 8”) for the China National Postal and Telecommunications Appliances Corporation and China Telecommunications Broadcast Satellite Corporation (collectively, “ChinaSat”), pursuant to the ChinaSat 8 construction contract (the “ChinaSat 8 Contract”). The launch of ChinaSat 8 has been delayed pending SS/L’s receipt of the necessary approvals from the United States Government, and ChinaSat 8 remains in storage at SS/L’s manufacturing facility in Palo Alto, California.

Pursuant to the ChinaSat 8 Contract, SS/L agreed, among other things, to contract with a launch agency to provide the launch vehicle and related launch services for ChinaSat 8 and, in connection therewith, entered into a launch services agreement (the “LSA”) with China Great Wall Industry Corporation (“CGWIC”) to launch ChinaSat 8. In accordance with the terms of the ChinaSat 8 Contract, ChinaSat paid a deposit to SS/L toward the launch of ChinaSat 8, which amount SS/L paid to CGWIC for launch services under the LSA.

As a result of the filing of SS/L’s Reorganization Case and the delay in obtaining the export licenses, ChinaSat requested that SS/L assume the ChinaSat 8 Contract. SS/L believed that assumption of the ChinaSat 8 Contract would require SS/L to immediately deliver the satellite to ChinaSat, which it was precluded from doing without governmental approval. SS/L and ChinaSat commenced discussions in an attempt to resolve their disputes. In the interim and in furtherance of such negotiations, CGWIC, SS/L and ChinaSat entered into a settlement agreement, dated as of April 9, 2004, pursuant to which ChinaSat is provided credit for the amount of the deposit previously paid by it for launch services related to ChinaSat 8 and SS/L is relieved of all further obligations in respect of launch services, other than the obligation to provide launch support services in respect of ChinaSat 8 subject to receipt of all necessary licenses and approvals. In addition, SS/L, ChinaSat and, in respect of Chinese launch services only, CGWIC, agreed to negotiate promptly and in good faith to resolve any and all outstanding issues between them relating to the ChinaSat 8 program.

The Debtors and ChinaSat subsequently negotiated a final settlement with respect to claims asserted by ChinaSat in connection with the ChinaSat 8 program and, in February 2005, reached agreement on the terms of such settlement (the “ChinaSat Settlement”). The ChinaSat Settlement provides, among other things, that (i) SS/L’s failure to obtain the necessary approvals


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from the United States Government will not give rise to a default under the contract; (ii) the parties will continue to seek a third party buyer for ChinaSat 8; (iii) SS/L’s liability for storage and refurbishment costs is limited and the potential amount of liquidated damages for which SS/L could be liable is reduced; and (iv) ChinaSat will return to Loral Skynet two C-band transponders that were being used by ChinaSat on Telstar 10 in exchange for Ku-band capacity on Telstar 10 and Telstar 18, at a significant annual savings to Loral Skynet. In addition, in connection with the ChinaSat Settlement, SS/L, CGWIC and ChinaSat agreed that SS/L would reject the LSA without incurring any damages as a result of such rejection. On April 14, 2005, the Bankruptcy Court approved the ChinaSat Settlement and SS/L’s rejection of the LSA.

g. WildBlue

Prior to the Commencement Date, SS/L and WildBlue Communications, Inc. (“WildBlue”), a start-up company seeking to provide Internet broadband services in the United States, entered into a contract pursuant to which SS/L is obligated to manufacture and deliver to WildBlue a satellite (the “WildBlue Satellite”). SS/L and WildBlue subsequently entered into an amended contract (as amended, the “WildBlue Contract”) and a security agreement pursuant to which SS/L granted to WildBlue a security interest in work-in-progress to secure SS/L’s obligations under the WildBlue Contract.

Since the commencement of its Reorganization Case, SS/L has undertaken a complete review of its executory contracts in order to determine whether it should assume or reject the terms thereof. In connection with this exercise, SS/L engaged in extensive negotiations with WildBlue with respect to the WildBlue Contract. In October 2004, the negotiations culminated in an amendment to the WildBlue Contract and second security agreement that provides for, among other things, (i) the accelerated payment by WildBlue of $15,000,000 of vendor finance payments to SS/L (received by SS/L in October 2004) , (ii) an extended delivery date of the WildBlue Satellite to March 31, 2005 from July 31, 2004, (iii) a significant extension of the date by which SS/L must ship the WildBlue Satellite in order to avoid elimination of the final two milestone payments under the WildBlue Contract, and (iv) the grant to SS/L of collateral in, among other things, the WildBlue Satellite, to secure WildBlue’s obligations with respect to the balance of its vendor financing payments.

SS/L has completed construction of the WildBlue Satellite and it is awaiting shipment to WildBlue.

2. Launch Services Providers

Prior to the Commencement Date, SS/L entered into several long-term launch services agreements with various launch providers to secure future launches for its customers, including Loral.

a. BLS and Sea Launch

Prior to the Commencement Date, Boeing Launch Services (“BLS”) and Sea Launch entered into various agreements with SS/L to provide launch services for satellites manufactured by SS/L. Pursuant to the terms of such agreements, SS/L paid deposits to BLS for launch services under such agreements. BLS contended that under the agreements, SS/L faced termination liability to BLS of not less than $18,000,000 and that BLS’s possession of the deposits fully offset such termination liability.


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SS/L, BLS and Sea Launch entered into that certain Memorandum of Agreement (“MOA”) dated as of July 2, 2003, pursuant to which (i) BLS would transfer the deposits (which, as of November 2003, totaled $22,750,000) to Sea Launch on behalf of SS/L and Sea Launch would then apply the deposits in accordance with the terms and conditions set forth under the MOA and (ii) SS/L, BLS and Sea Launch would enter into certain amendments to the agreements. Due to the commencement of the Reorganization Cases, however, as of November 2003, the parties had yet to implement the MOA. In order to resolve this dispute, the Debtors, the Agent for the Bank Lenders, the Creditors’ Committee, BLS and Sea Launch entered into that certain stipulation, agreement and order dated as of November 6, 2003, pursuant to which the parties agreed, among other things, to implement the provisions of the MOA, consistent with the requirements of the Bankruptcy Code.

b. Lockheed Martin

Prior to the Commencement Date, SS/L had launch services agreements with certain Lockheed Martin entities (the “LM Entities”) and International Launch Services (“ILS”) which covered three launches. Prior to the Commencement Date, there was a dispute regarding the termination of the launch services agreements and the return of deposits made by SS/L.

In April 2004, SS/L commenced an adversary proceeding against ILS and the LM Entities in the Bankruptcy Court to seek recovery of $37,500,000 of deposits under the agreements and termination liability. ILS and the LM Entities filed counterclaims in the Bankruptcy Court and, on February 4, 2005, the Bankruptcy Court entered an order in the adversary proceeding dismissing two of the counterclaims asserted by ILS and the LM entities. In the two remaining counterclaims, ILS and the LM Entities are seeking to recover damages, in an unspecified amount, as a result of SS/L’s alleged failure to assign to ILS two satellite launches and $38,000,000 in lost revenue due to SS/L’s alleged failure to comply with a contractual obligation to assign the launch of another satellite to ILS. SS/L believes that the remaining counterclaims are without merit and intends to defend against them vigorously.

H. FAILURE OF EDS

In January 2004, the North solar array of the Telstar 14/Estrela do Sul-1 satellite (“EdS”) only partially deployed after launch, diminishing the power and life expectancy of the satellite. SS/L has submitted to its insurers a claim for a total constructive loss of the satellite, seeking recovery for the insured value of $250,000,000.

SS/L has reached a settlement agreement with a number of the insurers with respect to this pending insurance claim. Under this settlement, which was approved by the Bankruptcy Court on May 10, 2005, SS/L will receive 82% of each settling insurer’s respective proportion of the insured amount which would result in $205,000,000 in total proceeds to be received if all insurers agree to the settlement. In addition, under the settlement, the settling insurers waive any rights they may have to obtain title to EdS as a result of payment on the insurance claim. As of the date hereof, SS/L has received $100,040,000 of insurance proceeds pursuant to settlements under the terms approved by the Bankruptcy Court. Pursuant to the terms of the Debtors’ security agreement with Intelsat described in Section IV.F.1. hereof, $9,440,000 of such insurance proceeds, representing the remaining unearned portion of the $50,000,000 advance made by Intelsat to SS/L, have been deposited into a restricted account subject to a control agreement in favor of Intelsat. As of the date hereof, SS/L expects to receive an additional $15,375,000 from one insurer that has agreed to the settlement and an additional $22,140,000 from certain other insurers that have agreed in principle to the settlement, subject to finalizing documentation.


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As to the remaining insurers, SS/L continues to negotiate with them to reach a settlement under the terms approved by the Bankruptcy Court. There can be no assurance that SS/L will be able to obtain settlements with respect to the non-settling insurers. In the event that SS/L is unable to settle with the remaining insurers in accordance with the terms approved by the Bankruptcy Court, SS/L may need to commence appropriate action(s) against such insurers to enforce its rights. There can be no assurance that SS/L will prevail in such action(s). If SS/L negotiates a lower settlement with the remaining insurers without commencing such action(s) (which will also require Bankruptcy Court approval), SS/L may be required to refund certain amounts to those insurers that have previously settled so that no settling insurer is paying a greater percentage of its respective portion of the insured amount than any other settling insurer.

I. NEW SATELLITE ORDERS

1. DirecTV

On September 30, 2003, SS/L entered into two ATPs for the construction of two new satellites for DirecTV: DirecTV 8 and DirecTV 9S. SS/L received an aggregate $50,000,000 deposit from DirecTV toward the construction of the DirecTV 8 and DirecTV 9S satellites. SS/L also has received a milestone payment of $17,500,000 from DirecTV for commencing the design and manufacture of such satellites.

The DirecTV8 satellite was successfully launched on May 22, 2005.


In October 2003, Hughes Electronics Corporation, the parent of DirecTV, acting on its own behalf or on behalf of its 81%-owned subsidiary, PanAmSat, entered into an ATP with SS/L to construct the PAS 4RR satellite, which satellite was subsequently renamed the “Galaxy 16 Satellite.” SS/L received a $25,000,000 deposit on behalf of PanAmSat toward the construction of the Galaxy 16 Satellite. SS/L also has received a milestone payment of $3,500,000 on behalf of PanAmSat for commencing the design and manufacture of the Galaxy 16 Satellite. In June 2004, the Bankruptcy Court approved both the fixed price satellite contract for the Galaxy 16 Satellite program (the “Galaxy 16 Contract”) and a performance guaranty by Ltd.

Among other things, the Galaxy 16 Contract provides that PanAmSat has an option to purchase an additional satellite that it may exercise at any time after the effective date of the Galaxy 16 Contract until twelve months after launch of the Galaxy 16 Satellite.


Subsequent to the execution of the Galaxy 16 Contract, SS/L and PanAmSat entered into an amendment to the Galaxy 16 Contract, dated as of February 11, 2005 (the “Galaxy 16 Amendment”), pursuant to which, among other things, PanAmSat exercised its option to purchase an additional satellite (the “Galaxy 18 Satellite”). The Galaxy 16 Amendment also gives PanAmSat the option to purchase two (2) additional satellites. On March 22, 2005, the Bankruptcy Court approved the Galaxy 16 Amendment.

4. EchoStar XI Program

In December 2004, negotiations between SS/L and EchoStar culminated in an agreement for the construction of a new satellite (the “EchoStar XI Contract”). In conjunction with


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the EchoStar XI Contract, the Debtors agreed to assume several satellite construction contracts between SS/L and EchoStar and an amended and restated telemetry, tracking and control agreement (the “Amended TT&C Agreement”) between Loral Skynet and EchoStar. On March 10, 2005, the Bankruptcy Court approved the EchoStar XI Contract and the Amended TT&C Agreement, as well as the assumption of the Debtors’ various contracts with EchoStar.

5. TerreStar Satellite System

On or about July 14, 2002, SS/L and TerreStar Networks, Inc. (“TerreStar”) entered into that certain Contract Between Terrestar Networks Inc. and Space Systems/Loral, Inc. for the TerreStar 1 Satellite Program (Acceptance On-Orbit) (as amended by Amendments 1 through 5 thereto, the “Original TerreStar Contract”), pursuant to which SS/L agreed and undertook to design, manufacture and deliver to TerreStar a 2 GHz-band geostationary satellite (the “TerreStar-1 Satellite”). The design phase for the TerreStar-1 Satellite has already been completed and in April, 2005 SS/L commenced construction of the satellite.

In May 2005, SS/L and TerreStar amended and resta ted the Original TerreStar Contract (the “Amended TerreStar Contract”). In addition to TerreStar’s obligation to purchase the TerreStar-1 Satellite, pursuant to the Amended TerreStar Contract, TerreStar has an option to purchase a second satellite. The Debtors intend to file a motion with the Bankruptcy Court seeking approval of the Amended TerreStar Contract shortly.

6. Potential New Order

The Debtors currently are in the process of negotiating the terms and provisions of a new satellite construction contract with XM Satellite Radio Holdings Inc. Although the contract has not been executed and there is no assurance that it will be executed and, if necessary, approved by the Bankruptcy Court, the financial projections contained in Exhibit E hereto reflect such contract being executed.

J. DEVELOPMENT OF BUSINESS PLAN AND PLAN NEGOTIATIONS

After achieving stabilization of their business operations during the first few months of the Reorganization Cases, the Debtors engaged in an extensive review and evaluation of the constituent parts of their businesses in the context of formulating a long-range business plan and, eventually, a plan of reorganization.

On December 17, 2003, the Debtors presented their long-term business plan to the Creditors’ Committee. The Creditors’ Committee and its advisors engaged in an extensive due diligence process with respect to the business plan, and, as a result thereof, the Debtors and the Creditors’ Committee revised the business plan. The revised business plan incorporates, among other things, certain strategic and business initiatives, including the Debtors’ four-year financial projections and capital expenditures plan. The business plan, as revised, is premised upon two operating units: one, New Skynet, that includes the transponder leasing and network and professional services businesses, and the other, New SS/L, that is the satellite manufacturing and design business.

The Debtors’ discussions with the Creditors’ Committee regarding the business plan naturally evolved into negotia tions regarding the development of a plan of reorganization. In addition, the Debtors and the Creditors’ Committee have engaged in negotiations with certain creditors of SS/L and SpaceCom with respect to the terms of the Plan. These negotiations addressed, among other things, the treatment of Claims under the Plan and the amount and form of consideration


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to be distributed under the Plan to holders of Allowed Ltd. General Unsecured Claims, Allowed Orion General Unsecured Claims, Allowed SpaceCom General Unsecured Claims and Allowed SS/L General Unsecured Claims.

V. THE PLAN OF REORGANIZATION

The Debtors believe that (i) through the Plan, holders of Allowed Claims will obtain a greater recovery from the estates of the Debtors than the recovery that they would receive if the assets of the Debtors were liquidated under chapter 7 of the Bankruptcy Code and (ii) the Plan will afford the Debtors the opportunity and ability to continue in business as a viable going concern and preserve ongoing employment for the Debtors’ employees.

The Plan is annexed hereto as Exhibit A and forms a part of this Disclosure Statement. The summary of the Plan set forth below is qualified in its entirety by reference to the provisions of the Plan.

Statements as to the rationale underlying the treatment of Claims and Equity Interests under the Plan are not intended to, and shall not, waive, compromise or limit any rights, claims or causes of action in the event the Plan is not confirmed.

A. STRUCTURE OF NEW LORAL

It is contemplated that, on the Effective Date, there shall be a new holding company (New Loral), which shall own (either directly or through an intermediate holding company) all of the outstanding common stock of two subsidiaries: New Skynet and New SS/L. New Loral will issue the New Loral Common Stock. It is anticipated that New Loral will be a public company, the stock of which will be traded on the Nasdaq or other national securities exchange. New Skynet (either directly or through wholly owned subsidiaries) will be an operating company and shall own one or more operating subsidiaries including New Network Services. New Skynet will consist of all assets of Orion plus , directly or indirectly, (i) all of the equity interest in XTAR, L.L.C.; (ii) all licenses or rights to orbital slots; (iii) all of the Telstar 18 satellite transponders and equity (if any) that is not currently owned by Orion; (iv) EdS; (v) Loral Skynet do Brasil Ltda. (including all of its assets and the orbital slot license for EdS); (vi) all owned transponders on the Satmex 5 satellite owned by Satelites Mexicanos, S.A. de C.V. (“Satmex”); (vii) the joint venture rights and interests in Mabuhay Space Holdings Limited; (viii) all interests in Globalstar, L.L.C.; (ix) trademark rights relating to the satellite services business; (x) all equity in Satmex; (xi) other assets used to operate the satellites; and (xii) all of the equity interests in New Network Services. New Network Services will consist of all of Loral Skynet’s assets as well as the network services assets, other than those assets transferred to New Skynet and New SS/L. New Skynet will be the satellite services arm of New Loral and will continue to provide satellite services and, through New Network Services, network and professional services and support. New Skynet will issue the New Skynet Preferred Stock to satisfy, in part, the claims of the creditors of Orion. New Skynet will conduct a Rights Offering in respect of the New Skynet Notes. New SS/L will be an operating company and will own substantially all of the assets of SS/L, other than any assets that have been transferred as described above. New SS/L will be the satellite manufacturing arm of New Loral and will continue to design and manufacture satellites. For the purposes of the Plan, (i) all creditors of any of the Orion Debtors are treated as if they have one claim against the Orion Debtors, (ii) all creditors of any of the SpaceCom Debtors are treated as if they have one claim against the SpaceCom Debtors, (iii) all creditors of either of the SS/L Debtors are treated as if they have one claim against the SS/L Debtors and (iv) all creditors of any of the Ltd. Debtors are treated as if they have one claim against the Ltd. Debtors. See Section V.K. below for a more detailed explanation of such substantive consolidation.


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B. CLASSIFICATION AND TREATMENT OF CLAIMS AND EQUITY INTERESTS

The Plan classifies Claims and Equity Interests separately and provides different treatment for different Classes of Claims and Equity Interests in accordance with the Bankruptcy Code. As described more fully below, the Plan provides, separately for each Class, that holders of certain Claims will receive various amounts and types of consideration, thereby giving effect to the different rights of holders of Claims and Equity Interests in each Class.

1. Administrative Expense Claims

Administrative Expense Claims are Claims constituting a cost or expense of administration of the Reorganization Cases allowed under sections 503(b) , 507(a)(1) and 1114(e) of the Bankruptcy Code. Such Claims include all actual and necessary costs and expenses of preserving the estates of the Debtors, all actual and necessary costs and expenses of operating the business of the Debtors in Possession, any indebtedness or obligations incurred or assumed by the Debtors in Possession in connection with the conduct of their business, and all cure amounts owed in respect of leases and contracts assumed by the Debtors in Possession. The Debtors estimate that the amount of Allowed Administrative Expense Claims that have not previously been paid pursuant to an order of the Bankruptcy Court will aggregate approximately $25,000,000.

Ltd. Debtors. Pursuant to the Plan, except to the extent that a holder of an Allowed Administrative Expense Claim against any of the Ltd. Debtors agrees to a different treatment, each holder of an Allowed Administrative Expense Claim against any of the Ltd. Debtors shall receive Cash in an amount equal to such Allowed Claim on the Effective Date, or as soon thereafter as is reasonably practicable; provided, however, that Allowed Administrative Expense Claims against any of the Ltd. Debtors representing liabilities incurred in the ordinary course of business by any of the Ltd. Debtors, as Debtors in Possession, or liabilities arising under loans or advances to or other obligations incurred by any of the Ltd. Debtors, as Debtors in Possession, whether or not incurred in the ordinary course of business, shall be paid by the Ltd. Debtors or New Loral in the ordinary course of business, consistent with past practice and in accordance with the terms and subject to the conditions of any agreements governing, instruments evidencing, or other documents relating to such transactions.

Orion Debtors. Pursuant to the Plan, except to the extent that a holder of an Allowed Administrative Expense Claim against any of the Orion Debtors agrees to a different treatment, each holder of an Allowed Administrative Expense Claim against any of the Orion Debtors shall receive Cash in an amount equal to such Allowed Claim on the Effective Date, or as soon thereafter as is reasonably practicable; provided, however, that Allowed Administrative Expense Claims against any of the Orion Debtors representing liabilities incurred in the ordinary course of business by any of the Orion Debtors, as Debtors in Possession, or liabilities arising under loans or advances to or other obligations incurred by any of the Orion Debtors, as Debtors in Possession, whether or not incurred in the ordinary course of business, shall be paid by the Orion Debtors, New Skynet or its subsidiaries in the ordinary course of business, consistent with past practice and in accordance with the terms and subject to the conditions of any agreements governing, instruments evidencing, or other documents relating to such transactions.

SpaceCom Debtors. Pursuant to the Plan, except to the extent that a holder of an Allowed Administrative Expense Claim against any of the SpaceCom Debtors agrees to a different treatment, each holder of an Allowed Administrative Expense Claim against any of the SpaceCom Debtors shall receive Cash in an amount equal to such Allowed Claim on the Effective Date, or as soon thereafter as is reasonably practicable; provided, however, that Allowed Administrative Expense


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Claims against any of the SpaceCom Debtors representing liabilities incurred in the ordinary course of business by any of the SpaceCom Debtors, as Debtors in Possession, or liabilities arising under loans or advances to or other obligations incurred by any of the SpaceCom Debtors, as Debtors in Possession, whether or not incurred in the ordinary course of business, shall be paid by the SpaceCom Debtors, New Loral or its subsidiaries in the ordinary course of business, consistent with past practice and in accordance with the terms and subject to the conditions of any agreements governing, instruments evidencing, or other documents relating to such transactions.

SS/L Debtors. Pursuant to the Plan, except to the extent that a holder of an Allowed Administrative Expense Claim against either of the SS/L Debtors agrees to a different treatment, each holder of an Allowed Administrative Expense Claim against either of the SS/L Debtors shall receive Cash in an amount equal to such Allowed Claim on the Effective Date, or as soon thereafter as is reasonably practicable; provided, however, that Allowed Administrative Expense Claims against either of the SS/L Debtors representing liabilities incurred in the ordinary course of business by either of the SS/L Debtors, as Debtors in Possession, or liabilities arising under loans or advances to or other obligations incurred by either of the SS/L Debtors, as Debtors in Possession, whether or not incurred in the ordinary course of business, shall be paid by the SS/L Debtors or New SS/L in the ordinary course of business, consistent with past practice and in accordance with the terms and subject to the conditions of any agreements governing, instruments evidencing, or other documents relating to such transactions. Notwithstanding anything contained in the Plan, the (i) Letter of Credit Reimbursement Agreement, dated as of April 2, 2004, between SS/L, as borrower, and JPMorgan Chase Bank, N.A. and (ii) Cash Collateral Agreement, dated as of April 2, 2004, between SS/L, as pledgor, and JPMorgan Chase Bank, N.A. shall, as of the Effective Date, be amended and restated in a form to be agreed upon by SS/L and JPMorgan Chase Bank, N.A. SS/L expects that the substantive economic terms and provisions of such amended and restated agreements shall be substantially similar to the existing agreements. In addition, all obligations of SS/L under the existing agreements shall not be discharged and all liens and security interests granted in connection therewith shall remain in full force and effect notwithstanding anything to the contrary contained in the Plan.

2. Compensation and Reimbursement Claims

Compensation and reimbursement Claims are Administrative Expense Claims for the compensation of professionals and reimbursement of expenses incurred by such professionals pursuant to sections 503(b)(2), 503(b)(3), 503(b)(4) and 503(b)(5) of the Bankruptcy Code (the “Compensation and Reimbursement Claims”). All payments to professionals for Compensation and Reimbursement Claims will be made in accordance with the procedures established by the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) and the Bankruptcy Court relating to the payment of interim and final compensation for services rendered and reimbursement of expenses. The aggregate amount incurred by the Debtors in respect of compensation for services rendered and reimbursement of expenses incurred by professionals (including professionals employed by the Debtors and the Creditors’ Committee) through February 28, 2005 is approximately $47,564,000. The Bankruptcy Court will review and determine all applications for compensation for services rendered and reimbursement of expenses.

Section 503(b) of the Bankruptcy Code provides for payment of compensation to creditors, indenture trustees and other entities making a “substantial contribution” to a reorganization case, and to attorneys for and other professional advisors to such entities. The amounts, if any, which may be sought by entities for such compensation are not known by the Debtors at this time. Requests for compensation must be approved by the Bankruptcy Court after a hearing on notice at which the Debtors and other parties in interest may participate and, if appropriate, object to the allowance of any claims for compensation and reimbursement of expenses.


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Pursuant to the Plan, all entities seeking an award by the Bankruptcy Court of compensation for services rendered or reimbursement of expenses incurred through and including the Confirmation Date under section 503(b)(2), 503(b)(3), 503(b)(4), or 503(b)(5) of the Bankruptcy Code (i) shall file their respective final applications for allowance of compensation for services rendered and reimbursement of expenses incurred by the date that is ninety (90) days after the Effective Date, and (ii) shall be paid in full in Cash in such amounts as are allowed by the Bankruptcy Court (A) five Business Days after the date upon which the order relating to any such Administrative Expense Claim is entered or (B) upon such other terms as may be mutually agreed upon between the holder of such an Administrative Expense Claim and the Debtors, or if on and after the Effective Date, the Reorganized Debtors. The Debtors and the Reorganized Debtors, as applicable, are authorized to pay compensation for services rendered or reimbursement of expenses incurred after the Confirmation Date and until the Effective Date in the ordinary course of business and without the need for Bankruptcy Court approval. The applications for reimbursement of reasonable fees and expenses (x) pursuant to section 503(b) of the Bankruptcy Code of attorneys for MHR Fund Management LLC and/or its affiliates, Contrarian Capital Trade Claims, LP and Angelo, Gordon & Co., L.P. and (y) for MHR Fund Management LLC and/or its affiliates incurred in connection with the preparation and filing, including filing fees, of submissions under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 or fees and expenses associated with other regulatory filings, will be supported by the Debtors and will not be objected to by the Creditors’ Committee.

3. Indenture Trustee Fees

Indenture Trustee Fees are the compensation of the Indenture Trustee as provided by the Indentures, including, without limitation, reasonable attorneys’ fees and disbursements, incurred by the Indenture Trustee, whether prior to or after the Commencement Date and through the Effective Date. The Debtors estimate that the amount of Indenture Trustee Fees will aggregate approximately $1,300,000.

Notwithstanding any provision contained in the Plan to the contrary, all Indenture Trustee Fees shall be paid in Cash on the Effective Date by the Reorganized Debtors as Administrative Expense Claims, without the need for application to, or approval of, any court. Each Indenture Trustee is entitled to a lien or other priority in payment (a “Charging Lien”) arising prior to the Effective Date, pursuant to the applicable Indenture, against distributions to be made to holders of Claims of the Ltd. Notes, the Orion 10% Notes, and the Orion Stub Notes for payment of any Indenture Trustee Fees. Each Indenture Trustee’s Charging Lien will be discharged solely upon payment in full of the Indenture Trustee Fees. Nothing in the Plan shall be deemed to impair, waive or discharge the Charging Lien for any fees and expenses not paid by the Reorganized Debtors.

The Plan provides that to the extent that any Indenture Trustee provides services related to distributions pursuant to the Plan (including, but not limited to, the services referenced in Subsection 6.6(a) of the Plan), such Indenture Trustee will receive from the Reorganized Debtors, without further court approval, reasonable compensation for such services and reimbursement of reasonable expenses incurred in connection with such services. These payments will be made on terms agreed to among the Indenture Trustee and the Reorganized Debtors.

4. Priority Tax Claims

Priority Tax Claims are Claims against any Debtor of a governmental unit of the kind entitled to priority in payment as specified in sections 502(i) and 507(a)(8) of the Bankruptcy Code. The Debtors estimate that the amount of Allowed Priority Tax Claims will aggregate approximately $2,000,000.


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Ltd. Debtors. Pursuant to the Plan, except to the extent that a holder of an Allowed Priority Tax Claim against any of the Ltd. Debtors agrees to a different treatment, each holder of an Allowed Priority Tax Claim against any of the Ltd. Debtors shall receive, at the option of the Ltd. Debtors, after consultation with the Creditors’ Committee, (i) Cash in an amount equal to such Allowed Priority Tax Claim on the Effective Date, or as soon thereafter as is reasonably practicable, or (ii) equal annual Cash payments commencing on the first (1st) anniversary of the Effective Date in an aggregate amount equal to such Allowed Priority Tax Claim, together with interest at a fixed annual rate equal to six percent (6%), over a period through the sixth (6th) anniversary of the date of assessment of such Allowed Priority Tax Claim, subject to the Ltd. Debtors’ rights at the Ltd. Debtors’ sole option to prepay the entire amount of the Allowed Priority Tax Claim. All Allowed Priority Tax Claims against any of the Ltd. Debtors that are not due and payable on or before the Effective Date shall be paid in the ordinary course of business as such obligations become due.

Orion Debtors. Pursuant to the Plan, except to the extent that a holder of an Allowed Priority Tax Claim against any of the Orion Debtors agrees to a different treatment, each holder of an Allowed Priority Tax Claim against any of the Orion Debtors shall receive, at the option of the Orion Debtors, after consultation with the Creditors’ Committee, (i) Cash in an amount equal to such Allowed Priority Tax Claim on the Effective Date, or as soon thereafter as is reasonably practicable, or (ii) equal annual Cash payments commencing on the first (1st) anniversary of the Effective Date in an aggregate amount equal to such Allowed Priority Tax Claim, together with interest at a fixed annual rate equal to six percent (6%), over a period through the sixth (6th) anniversary of the date of assessment of such Allowed Priority Tax Claim, subject to the Orion Debtors’ rights at the Orion Debtors’ sole option to prepay the entire amount of the Allowed Priority Tax Claim. All Allowed Priority Tax Claims against any of the Orion Debtors that are not due and payable on or before the Effective Date shall be paid in the ordinary course of business as such obligations become due.

SpaceCom Debtors. Pursuant to the Plan, except to the extent that a holder of an Allowed Priority Tax Claim against any of the SpaceCom Debtors agrees to a different treatment, each holder of an Allowed Priority Tax Claim against any of the SpaceCom Debtors shall receive, at the option of the SpaceCom Debtors, after consultation with the Creditors’ Committee, (i) Cash in an amount equal to such Allowed Priority Tax Claim on the Effective Date, or as soon thereafter as is reasonably practicable, or (ii) equal annual Cash payments commencing on the first (1st) anniversary of the Effective Date in an aggregate amount equal to such Allowed Priority Tax Claim, together with interest at a fixed annual rate equal to six percent (6%), over a period through the sixth (6th) anniversary of the date of assessment of such Allowed Priority Tax Claim, subject to the SpaceCom Debtors’ rights at the SpaceCom Debtors’ sole option to prepay the entire amount of the Allowed Priority Tax Claim. All Allowed Priority Tax Claims against any of the SpaceCom Debtors that are not due and payable on or before the Effective Date shall be paid in the ordinary course of business as such obligations become due.

SS/L Debtors. Pursuant to the Plan, except to the extent that a holder of an Allowed Priority Tax Claim against either of the SS/L Debtors agrees to a different treatment, each holder of an Allowed Priority Tax Claim against either of the SS/L Debtors shall receive, at the option of the SS/L Debtors, after consultation with the Creditors’ Committee, (i) Cash in an amount equal to such Allowed Priority Tax Claim on the Effective Date, or as soon thereafter as is reasonably practicable, or (ii) equal annual Cash payments commencing on the first (1st) anniversary of the Effective Date in an aggregate amount equal to such Allowed Priority Tax Claim, together with interest at a fixed annual rate equal to six percent (6%), over a period through the sixth (6th) anniversary of the date of assessment of such Allowed Priority Tax Claim, subject to the SS/L Debtors’ rights at the SS/L Debtors’ sole option to prepay the entire amount of the Allowed Priority Tax Claim. All Allowed


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Priority Tax Claims against either of the SS/L Debtors that are not due and payable on or before the Effective Date shall be paid in the ordinary course of business as such obligations become due.

5. Other Priority Claims

Other Priority Claims are Claims, other than Administrative Expensive Claims or Priority Tax Claims, that are entitled to priority in payment as specified in section 507(a)(3), (4), (5), (6), (7) or (9) of the Bankruptcy Code. Such Claims include, but are not limited to, Allowed unsecured Claims for certain prepetition (x) wages, salaries or commissions, including vacation, severance and sick leave pay, (y) sales commissions earned by independent contractors, or (z) contributions to an employee benefit plan. The Debtors believe that there are no outstanding Allowed Other Priority Claims against any of the Debtors.

a. Ltd. Class 1 – Other Priority Claims Against the Ltd. Debtors

Pursuant to the Plan, except to the extent that a holder of an Allowed Other Priority Claim against the Ltd. Debtors has agreed to a different treatment of such Claim, each such holder shall receive, in full satisfaction of such Claim, Cash in an amount equal to such Claim, on or as soon as reasonably practicable after the later of (i) the Effective Date, (ii) the date such Claim becomes Allowed, and (iii) the date for payment provided by any agreement or understanding between the Ltd. Debtors and the holder of such Claim.

b. Orion Class 1 – Other Priority Claims Against the Orion Debtors

Pursuant to the Plan, except to the extent that a holder of an Allowed Other Priority Claim against the Orion Debtors has agreed to a different treatment of such Claim, each such holder shall receive, in full satisfaction of such Claim, Cash in an amount equal to such Claim, on or as soon as reasonably practicable after the later of (i) the Effective Date, (ii) the date such Claim becomes Allowed, and (iii) the date for payment provided by any agreement or understanding between the Orion Debtors and the holder of such Claim.

c. SpaceCom Class 1 – Other Priority Claims Against the SpaceCom Debtors

Pursuant to the Plan, except to the extent that a holder of an Allowed Other Priority Claim against the SpaceCom Debtors has agreed to a different treatment of such Claim, each such holder shall receive, in full satisfaction of such Claim, Cash in an amount equal to such Claim, on or as soon as reasonably practicable after the later of (i) the Effective Date, (ii) the date such Claim becomes Allowed, and (iii) the date for payment provided by any agreement or understanding between the SpaceCom Debtors and the holder of such Claim.

d. SS/L Class 1 – Other Priority Claims Against the SS/L Debtors

Pursuant to the Plan, except to the extent that a holder of an Allowed Other Priority Claim against the SS/L Debtors has agreed to a different treatment of such Claim, each such holder shall receive, in full satisfaction of such Claim, Cash in an amount equal to such Claim, on or as soon as reasonably practicable after the later of (i) the Effective Date, (ii) the date such Claim becomes Allowed, and (iii) the date for payment provided by any agreement or understanding between the SpaceCom Debtors and the holder of such Claim.


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6. Secured Tax Claims

A Secured Tax Claim is any Secured Claim that, absent its secured status, would be entitled to priority in right of payment under section 507(a)(8) of the Bankruptcy Code (determined irrespective of any time limitations therein), and including any related Secured Claim for penalties. The Debtors estimate that the amount of Allowed Secured Tax Claims against all of the Debtors will aggregate approximately $4,000,000.

a. Ltd. Class 2 – Secured Tax Claims Against the Ltd. Debtors

Pursuant to the Plan, except to the extent that a holder of an Allowed Secured Tax Claim against any of the Ltd. Debtors agrees to a different treatment, each holder of an Allowed Secured Tax Claim against any of the Ltd. Debtors shall receive, at the option of the Ltd. Debtors, in consultation with the Creditors’ Committee, (i) Cash in an amount equal to such Allowed Secured Tax Claim, including any interest on such Allowed Secured Tax Claim required to be paid pursuant to section 506(b) of the Bankruptcy Code, on the later of the Effective Date and the date such Allowed Secured Tax Claim becomes an Allowed Secured Tax Claim, or as soon thereafter as is practicable or (ii) equal annual Cash payments commencing on the first (1st) anniversary of the Effective Date in an aggregate amount equal to such Allowed Secured Tax Claim, together with interest at a fixed annual rate equal to six percent (6.0%), over a period through the sixth (6th) anniversary of the Effective Date, subject to the Ltd. Debtors’ sole option to prepay the entire amount of the Allowed Secured Tax Claim, or (iii) upon such other terms determined by the Bankruptcy Court to provide the holder of such Allowed Secured Tax Claim deferred Cash payments having a value, as of the Effective Date, equal to such Allowed Secured Tax Claim. In the event the Ltd. Debtors treat a Claim under clause (i) of this Section, the Liens securing such Secured Tax Claim shall be deemed released.

b. Orion Class 2 – Secured Tax Claims Against the Orion Debtors

Pursuant to the Plan, except to the extent that a holder of an Allowed Secured Tax Claim against any of the Orion Debtors agrees to a different treatment, each holder of an Allowed Secured Tax Claim against any of the Orion Debtors shall receive, at the option of the Orion Debtors, in consultation with the Creditors’ Committee, (i) Cash in an amount equal to such Allowed Secured Tax Claim, including any interest on such Allowed Secured Tax Claim required to be paid pursuant to section 506(b) of the Bankruptcy Code, on the later of the Effective Date and the date such Allowed Secured Tax Claim becomes an Allowed Secured Tax Claim, or as soon thereafter as is practicable or (ii) equal annual Cash payments commencing on the first (1st) anniversary of the Effective Date in an aggregate amount equal to such Allowed Secured Tax Claim, together with interest at a fixed annual rate equal to six percent (6.0%), over a period through the sixth (6th) anniversary of the Effective Date, subject to the Orion Debtors’ sole option to prepay the entire amount of the Allowed Secured Tax Claim, or (iii) upon such other terms determined by the Bankruptcy Court to provide the holder of such Allowed Secured Tax Claim deferred Cash payments having a value, as of the Effective Date, equal to such Allowed Secured Tax Claim. In the event the Orion Debtors treat a Claim under clause (i) of this Section, the Liens securing such Secured Tax Claim shall be deemed released.

c. SpaceCom Class 2 – Secured Tax Claims Against the SpaceCom Debtors

Pursuant to the Plan, except to the extent that a holder of an Allowed Secured Tax Claim against any of the SpaceCom Debtors agrees to a different treatment, each holder of an Allowed Secured Tax Claim against any of the SpaceCom Debtors shall receive, at the option of the SpaceCom Debtors, in consultation with the Creditors’ Committee, (i) Cash in an amount equal to


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such Allowed Secured Tax Claim, including any interest on such Allowed Secured Tax Claim required to be paid pursuant to section 506(b) of the Bankruptcy Code, on the later of the Effective Date and the date such Allowed Secured Tax Claim becomes an Allowed Secured Tax Claim, or as soon thereafter as is practicable or (ii) equal annual Cash payments commencing on the first (1st) anniversary of the Effective Date in an aggregate amount equal to such Allowed Secured Tax Claim, together with interest at a fixed annual rate equal to six percent (6.0%), over a period through the sixth (6th) anniversary of the Effective Date, subject to the SpaceCom Debtors’ sole option to prepay the entire amount of the Allowed Secured Tax Claim, or (iii) upon such other terms determined by the Bankruptcy Court to provide the holder of such Allowed Secured Tax Claim deferred Cash payments having a value, as of the Effective Date, equal to such Allowed Secured Tax Claim. In the event the SpaceCom Debtors treat a Claim under clause (i) of this Section, the Liens securing such Secured Tax Claim shall be deemed released.

d. SS/L Class 2 – Secured Tax Claims Against the SS/L Debtors

Pursuant to the Plan, except to the extent that a holder of an Allowed Secured Tax Claim against either of the SS/L Debtors agrees to a different treatment, each holder of an Allowed Secured Tax Claim against either of the SS/L Debtors shall receive, at the option of the SS/L Debtors, in consultation with the Creditors’ Committee, (i) Cash in an amount equal to such Allowed Secured Tax Claim, including any interest on such Allowed Secured Tax Claim required to be paid pursuant to section 506(b) of the Bankruptcy Code, on the la ter of the Effective Date and the date such Allowed Secured Tax Claim becomes an Allowed Secured Tax Claim, or as soon thereafter as is practicable or (ii) equal annual Cash payments commencing on the first (1st) anniversary of the Effective Date in an aggregate amount equal to such Allowed Secured Tax Claim, together with interest at a fixed annual rate equal to six percent (6.0%), over a period through the sixth (6th) anniversary of the Effective Date, subject to the SS/L Debtors’ sole option to prepay the entire amount of the Allowed Secured Tax Claim, or (iii) upon such other terms determined by the Bankruptcy Court to provide the holder of such Allowed Secured Tax Claim deferred Cash payments having a value, as of the Effective Date, equal to such Allowed Secured Tax Claim. In the event the SS/L Debtors treat a Claim under clause (i) of this Section, the Liens securing such Secured Tax Claim shall be deemed released.

7. Secured Claims

A Secured Claim is any Claim to the extent reflected in the Schedules or a proof of claim as a Secured Claim, which is secured by a Lien on Collateral to the extent of the value of such Collateral, as determined in accordance with section 506(a) of the Bankruptcy Code, or, in the event that such Claim is subject to a permissib le setoff under section 553 of the Bankruptcy Code, to the extent of such permissible setoff. The Debtors believe that there are no outstanding Allowed Secured Claims against any of the Debtors.

a. Ltd. Class 3 – Secured Claims Against the Ltd. Debtors

Pursuant to the Plan, except to the extent that a holder of an Allowed Secured Claim against any of the Ltd. Debtors agrees to a different treatment, each holder of an Allowed Secured Claim against any of the Ltd. Debtors shall receive, in full satisfaction of such Allowed Secured Claim, at the sole option of the Ltd. Debtors, either (i) Cash in an amount equal to one hundred percent (100%) of the amount of such Allowed Secured Claim, (ii) the proceeds of the sale or disposition of the Collateral securing such Allowed Secured Claim to the extent of the value of the holder’s secured interest in such Collateral, (iii) the Collateral securing such Allowed Secured Claim, or (iv) such other distribution as necessary to satisfy the requirements of section 1124 of the


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Bankruptcy Code. In the event the Ltd. Debtors treat a Claim under clause (i) or (ii) of this Section, the Liens securing such Secured Claim shall be deemed released.

b. Orion Class 3 – Secured Claims Against the Orion Debtors

Pursuant to the Plan, except to the extent that a holder of an Allowed Secured Claim against any of the Orion Debtors agrees to a different treatment, each holder of an Allowed Secured Claim against any of the Orion Debtors shall receive, in full satisfaction of such Allowed Secured Claim, at the sole option of the Orion Debtors, either (i) Cash in an amount equal to one hundred percent (100%) of the amount of such Allowed Secured Claim, (ii) the proceeds of the sale or disposition of the Collateral securing such Allowed Secured Claim to the extent of the value of the holder’s secured interest in such Collateral, (iii) the Collateral securing such Allowed Secured Claim, or (iv) such other distribution as necessary to satisfy the requirements of section 1124 of the Bankruptcy Code. In the event the Orion Debtors treat a Claim under clause (i) or (ii) of this Section, the Liens securing such Secured Claim shall be deemed released.

c. SpaceCom Class 3 – Secured Claims Against the SpaceCom Debtors

Pursuant to the Plan, except to the extent that a holder of an Allowed Secured Claim against any of the SpaceCom Debtors agrees to a different treatment, each holder of an Allowed Secured Claim against any of the SpaceCom Debtors shall receive, in full satisfaction of such Allowed Secured Claim, at the sole option of the SpaceCom Debtors, either (i) Cash in an amount equal to one hundred percent (100%) of the amount of such Allowed Secured Claim, (ii) the proceeds of the sale or disposition of the Collateral securing such Allowed Secured Claim to the extent of the value of the holder’s secured interest in such Collateral, (iii) the Collateral securing such Allowed Secured Claim, or (iv) such other distribution as necessary to satisfy the requirements of section 1124 of the Bankruptcy Code. In the event the SpaceCom Debtors treat a Claim under clause (i) or (ii) of this Section, the Liens securing such Secured Claim shall be deemed released.

d. SS/L Class 3 – Secured Claims Against the SS/L Debtors

Pursuant to the Plan, except to the extent that a holder of an Allowed Secured Claim against either of the SS/L Debtors agrees to a different treatment, each holder of an Allowed Secured Claim against either of the SS/L Debtors shall receive, in full satisfaction of such Allowed Secured Claim, at the sole option of the SS/L Debtors, either (i) Cash in an amount equal to one hundred percent (100%) of the amount of such Allowed Secured Claim, (ii) the proceeds of the sale or disposition of the Collateral securing such Allowed Secured Claim to the extent of the value of the holder’s secured interest in such Collateral, (iii) the Collateral securing such Allowed Secured Claim, or (iv) such other distribution as necessary to satisfy the requirements of section 1124 of the Bankruptcy Code. In the event the SS/L Debtors treat a Claim under clause (i) or (ii) of this Section, the Liens securing such Secured Claim shall be deemed released.

8. General Unsecured Claims

a. Ltd. Class 4 – Ltd. General Unsecured Claims

Ltd. General Unsecured Claims consist of all Claims against any of the Ltd. Debtors that are not Administrative Expense Claims, Priority Tax Claims, Other Priority Claims, Secured Tax Claims, Secured Claims, Debtor Intercompany Claims, Non-Debtor Intercompany Claims or Securities Litigation Claims. The term Ltd. General Unsecured Claim includes all Ltd. Guaranty


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Claims and all Ltd. Note Claims. Ltd. General Unsecured Claims include trade Claims against any of the Ltd. Debtors. The aggregate amount of Ltd. General Unsecured Claims, as reflected in proofs of claim filed by holders of Ltd. General Unsecured Claims or, in the event no proof of claim was filed, in the Debtors’ Schedules is approximately $1,018,000,000, excluding Claims for which no amounts were specified (as in the case of Unliquidated Claims), Claims against multiple Ltd. Debtors, amended Claims, duplicate Claims and guarantee Claims among the Ltd. Debtors. For purposes of the Plan, through the substantive consolidation of the Ltd. Debtors, Claims against any of the Ltd. Debtors are deemed one Claim against the Ltd. Debtors and guarantee Claims among the Ltd. Debtors are deemed eliminated. See Section V.K. The Debtors estimate that the amount of Allowed Ltd. General Unsecured Claims will aggregate approximately $1,018,000,000. The Debtors’ estimate of Allowed Ltd. General Unsecured Claims is based upon an analysis of the Ltd. General Unsecured Claims. The ultimate resolution of Ltd. General Unsecured Claims could result in Allowed Ltd. General Unsecured Claims in amounts less than or greater than those estimated by the Debtors for purposes of this Disclosure Statement.

Pursuant to the Plan, the Ltd. Note Claims shall be deemed Allowed Claims solely for the purposes of the Plan, in the aggregate amount of $366,625,000, representing $350,000,000 in principal amount outstanding and $16,625,000 in accrued but unpaid interest as of the Commencement Date. Each holder of an Allowed Ltd. General Unsecured Claim shall receive from New Loral on each Distribution Date, in full satisfaction of such Claim, its “Ltd. Class 4 Pro Rata Share” of the “New Loral Common Stock Balance.” A “Ltd. Class 4 Pro Rata Share” is the ratio (expressed as a percentage) of the amount of an Allowed Ltd. General Unsecured Claim to the sum of (a) the aggregate amount of all Allowed Ltd. General Unsecured Claims and (b) the aggregate of the Disputed Claim Amounts of all Disputed Claims in Ltd. Class 4. The “Disputed Claim Amount” is the estimated dollar value of a Disputed Claim pursuant to section 502(c) of the Bankruptcy Code or as otherwise agreed to between the holder of such Claim and the applicable Debtor or Reorganized Debtor, or as otherwise determined by the Bankruptcy Court, or if no such amount exists, the amount set forth in the proof of claim relating to such Disputed Claim as the liquidated amount of such Disputed Claim. The “New Loral Common Stock Balance” is 12,420,652 shares of New Loral Common Stock.


b. Orion Class 4 – Orion General Unsecured Claims

Orion General Unsecured Claims consist of all Claims against the Orion Debtors that are not Administrative Expense Claims, Priority Tax Claims, Other Priority Claims, Secured Tax Claims, Secured Claims, Debtor Intercompany Claims, Non-Debtor Intercompany Claims or Securities Litigation Claims. Orion General Unsecured Claims include all Orion Note Claims. In general, this Class consists of trade Claims against the Orion Debtors and Orion bond debt. The aggregate amount of Orion General Unsecured Claims, as reflected in proofs of claim filed by holders of Orion General Unsecured Claims or, in the event no proof of claim was filed, in the Debtors’ Schedules is approximately $734,400,000 in bond debt and approximately $4,300,000 in trade and general unsecured claims, excluding claims for which no amounts were specified (as in the case of Unliquidated Claims), Claims against multiple Orion Debtors, amended Claims, duplicate Claims and guarantee Claims among the Orion Debtors. For purposes of the Plan, through the substantive consolidation of the Orion Debtors, Claims against any of the Orion Debtors are deemed one Claim against the Orion Debtors and guarantee Claims among the Orion Debtors are deemed eliminated.


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See Section V.K. The Debtors estimate that the amount of Allowed Orion General Unsecured Claims will aggregate approximately $738,700,000. The Debtors’ estimate of Allowed Orion General Unsecured Claims is based upon an analysis of the Orion General Unsecured Claims. The ultimate resolution of Orion General Unsecured Claims could result in Allowed Orion General Unsecured Claims in amounts less than or greater than those estimated by the Debtors for purposes of this Disclosure Statement.

Pursuant to the Plan, the Orion 10% Notes Claims shall be deemed Allowed Claims solely for the purposes of the Plan in the aggregate amount of $643,509,396, representing $612,704,000 in principal amount outstanding and $30,805,396 in accrued but unpaid interest as of the Commencement Date. The Orion Stub Notes Claims shall be deemed Allowed Claims solely for the purposes of the Plan in the aggregate amount of $90,853,691, representing (i) $36,627,000 in principal amount outstanding and $2,071,715 in accrued but unpaid interest as of the Commencement Date under the 11¼% Senior Notes due 2006, and (ii) $49,071,000 in principal amount outstanding and $3,083,976 in accrued but unpaid interest as of the Commencement Date under the 12½% Senior Discount Notes due 2007. Each holder of an Allowed Orion General Unsecured Claim shall, in full satisfaction of such Claim, (A) receive on each Distribution Date its “Orion Pro Rata Share” of (i) 7,579,348 shares of New Loral Common Stock and (ii) the New Skynet Preferred Stock and (B) have the right to participate in the “Rights Offering” to the extent of such holder’s “Rights Participation Claim Amount” (as defined below). An “Orion Pro Rata Share” is the ratio (expressed as a percentage) of the amount of an Allowed Orion General Unsecured Claim to the sum of (a) the aggregate amount of all Allowed Orion General Unsecured Claims and (b) the aggregate of the Disputed Claim Amounts of all Disputed Claims in Orion Class 4. The “Disputed Claim Amount” is the estimated dollar value of a Disputed Claim pursuant to section 502(c) of the Bankruptcy Code or as otherwise agreed to between the holder of such Claim and the applicable Debtor or Reorganized Debtor, or as otherwise determined by the Bankruptcy Court, or if no such amount exists, the amount set forth in the proof of claim relating to such Disputed Claim as the liquidated amount of such Disputed Claim. The “Rights Offering” is the offering of non-transferable, non-certificated rights to each holder of an Orion General Unsecured Claim to subscribe for the New Skynet Notes in the aggregate principal amount of $120,000,000 on the terms and subject to the conditions set forth in Section 9 of the Plan. See Section V.D. for more detailed information about the Rights Offering.

Any distribution of shares of New Loral Common Stock or New Skynet Preferred Stock made to the holder of an Allowed Orion General Unsecured Claim shall be less the amount of all shares of New Loral Common Stock or New Skynet Preferred Stock previously distributed to such holder on account of such Allowed Orion General Unsecured Claim.

c. SpaceCom Class 4 – SpaceCom General Unsecured Claims

SpaceCom General Unsecured Claims consist of all Claims against any of the SpaceCom Debtors that are not Administrative Expense Claims, Priority Tax Claims, Other Priority Claims, Secured Tax Claims, Secured Claims, Debtor Intercompany Claims, Non-Debtor Intercompany Claims or Securities Litigation Claims. The aggregate amount of SpaceCom General Unsecured Claims, as reflected in proofs of claim filed by holders of SpaceCom General Unsecured Claims or, in the event no proof of claim was filed, in the Debtors’ Schedules or as estimated rejection damages is approximately $9,800,000, excluding Claims for which no amounts were specified (as in the case of Unliquidated Claims), Claims against multiple SpaceCom Debtors, amended Claims, duplicate Claims and guarantee Claims among the SpaceCom Debtors. For purposes of the Plan, through the substantive consolidation of the SpaceCom Debtors, Claims against any of the SpaceCom Debtors are deemed one Claim against the SpaceCom Debtors and guarantee Claims among the SpaceCom Debtors are deemed eliminated. See Section V.K. The Debtors


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estimate that the amount of Allowed SpaceCom General Unsecured Claims will aggregate approximately $6,100,000 (excluding cure costs). The Debtors’ estimate of Allowed SpaceCom General Unsecured Claims is based upon an analysis of the SpaceCom General Unsecured Claims. The ultimate resolution of SpaceCom General Unsecured Claims could result in Allowed SpaceCom General Unsecured Claims in amounts less than or greater than those estimated by the Debtors for purposes of this Disclosure Statement.

Pursuant to the Plan, each holder of an Allowed SpaceCom General Unsecured Claim shall receive in full satisfaction thereof Cash in an amount equal to such Allowed Claim, plus interest thereon (without any compounding) at the rate of six percent (6%) per annum for the period from the Commencement Date through the Effective Date, on or as soon as reasonably practicable after the later of (i) the Effective Date, (ii) the date such Claim becomes Allowed and (iii) the date for payment provided by any agreement or understanding between the applicable SpaceCom Debtor or SpaceCom Debtors and the holder of such Claim.

d. SS/L Class 4 – SS/L General Unsecured Claims

SS/L General Unsecured Claims consist of any Claims against either of the SS/L Debtors that are not Administrative Expense Claims, Priority Tax Claims, Other Priority Claims, Secured Tax Claims, Secured Claims, Debtor Intercompany Claims, Non-Debtor Intercompany Claims or Securities Litigation Claims. The aggregate amount of SS/L General Unsecured Claims, as reflected in proofs of claim filed by holders of SS/L General Unsecured Claims or, in the event no proof of claim was filed, in the Debtors’ Schedules or as estimated rejection damages is approximately $117,000,000, excluding Claims for which no amounts were specified (as in the case of Unliquidated Claims), Claims against multiple SS/L Debtors, amended Claims, duplicate Claims and guarantee Claims between the SS/L Debtors. For purposes of the Plan, through the substantive consolidation of the SS/L Debtors, Claims against either of the SS/L Debtors are deemed one Claim against the SS/L Debtors and guarantee Claims between the SS/L Debtors are deemed eliminated. See Section V.K. The Debtors estimate that the amount of Allowed SS/L General Unsecured Claims will aggregate approximately $96,000,000 (excluding cure costs). The Debtors’ estimate of Allowed SS/L General Unsecured Claims is based upon an analysis of the SS/L General Unsecured Claims. The ultimate resolution of SS/L General Unsecured Claims could result in Allowed SS/L General Unsecured Claims in amounts less than or greater than those estimated by the Debtors for purposes of this Disclosure Statement.

Pursuant to the Plan, each holder of an Allowed SS/L General Unsecured Claim shall receive in full satisfaction thereof Cash in an amount equal to such Allowed Claim, plus interest thereon (without any compounding) at the rate of six percent (6%) per annum for the period from the Commencement Date through the Effective Date, on or as soon as reasonably practicable after the later of (i) the Effective Date, (ii) the date such Claim becomes Allowed and (iii) the date for payment provided by any agreement or understanding between the applicable SS/L Debtor or SS/L Debtors and the holder of such Claim.

9. Equity Interests

a. Ltd. Preferred Stock Interests

Ltd. Preferred Stock Interests in Ltd. Class 5 consist of any interest in the (i) $745,000,000 6% Series C Convertible Redeemable Preferred Stock (the “Series C Preferred Stock”) due 2006 of Ltd. or (ii) $400,000,000 6% Series D Convertible Redeemable Preferred Stock (the


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“Series D Preferred Stock”) due 2007 of Ltd. As of the Commencement Date, (i) 3,745,485 shares of Series C Preferred Stock and (ii) 734,135 shares of Series D Preferred Stock were outstanding.

Pursuant to the Plan, holders of Ltd. Preferred Stock Interests will not receive or retain any interest or property under the Plan. On the Effective Date, all Ltd. Preferred Stock Interests shall be cancelled and extinguished.

b. Ltd. Class 7 – Ltd. Equity Interests

Ltd. Equity Interests consist of all common stock, warrants, options, rights to receive options and other equity issued by any of the Ltd. Debtors, other than the Ltd. Preferred Stock Interests.

Pursuant to the Plan, holders of Ltd. Equity Interests will not receive or retain any interest or property under the Plan. On the Effective Date, all Ltd. Equity Interests shall be cancelled and extinguished.

c. Orion Class 5 – Orion Equity Interests

Orion Equity Interests consist of all common stock, warrants, options, rights to receive options and other equity issued by any of the Orion Debtors.

Pursuant to the Plan, as a consequence of the transactions contemplated by Section 6.8(a) of the Plan, the Orion Equity Interests shall be unimpaired.

d. SpaceCom Class 5 – SpaceCom Equity Interests

SpaceCom Equity Interests consist of all common stock, warrants, options, rights to receive options and other equity issued by any of the SpaceCom Debtors.

Pursuant to the Plan, the SpaceCom Equity Interests will be unaltered and each holder of a SpaceCom Equity Interest shall retain its rights in such SpaceCom Equity Interest.

e. SS/L Class 5 – SS/L Equity Interests

SS/L Equity Interests consist of all common stock, warrants, options, rights to receive options and other equity issued by any of the SS/L Debtors.

Pursuant to the Plan, the SS/L Equity Interests will be unaltered and each holder of an SS/L Equity Interest shall retain its rights in such SS/L Equity Interest.

10. Securities Litigation Claims

The Securities Litigation Claims in Ltd. Class 7 consist of all Claims against any Debtor, whether or not the subject of an existing lawsuit, arising from rescission of a purchase or sale of shares or notes of any of the Debtors or any affiliate of any Debtor, for damages arising from the purchase or sale of any such security, or for reimbursement, contribution, or indemnification allowed under section 502 of the Bankruptcy Code on account of any such Claim. Securities Litigation Claims include, without limitation, any and all Claims against any Debtor asserted in the actions entitled (i) In re Globalstar Securities Litigation, Civ. A. No. 01-1748 (SHS) and (ii) In re Loral


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Space & Communications Ltd. Securities Litigation, Civ. A. No. 01-4388 (JGK). See the discussion in Section III.E. of this Disclosure Statement for more detail.

Pursuant to the Plan, the holders of Allowed Securities Litigation Claims will not receive or retain any interest or property under the Plan on account of such Securities Litigation Claims. The treatment of Securities Litigation Claims under the Plan is in accordance with and gives effect to the provisions of section 510(b) of the Bankruptcy Code. Section 510(b) of the Bankruptcy Code provides that a Claim arising for damages from the purchase or sale of a security of the debtor or an affiliate of the debtor shall be subordinated to all Claims or Interests that are senior to or equal to the Claim or Interest represented by such security, except that if such security is common stock, such Claim has the same priority as common stock.

C. SECURITIES TO BE ISSUED UNDER THE PLAN

Pursuant to the Plan, on the Effective Date, all Ltd. Equity Interests and Orion Equity Interests will be cancelled and extinguished.

Pursuant to the Plan, New Loral and New Skynet, as applicable, are authorized without further act or action under applicable law, regulation, order, or rule to issue the following securities: (a) the New Loral Common Stock, (b) the New Skynet Preferred Stock, (c) the New Skynet Notes, (d) the Subscription Rights and (e) the Options.

In addition, the New Loral Certificate of Incorporation shall provide that 10,000,000 shares of preferred stock of New Loral may be issued from time to time in one or more series. The New Loral Board shall be authorized, within the limitations and restrictions stated in the New Loral Certificate of Incorporation, to, among other things, fix or alter the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption, the redemption price or prices, the liquidation preferences of any preferred stock, and the number of shares constituting any such series and the designation thereof, or any of them.

1. New Loral Common Stock

As of the Effective Date, the authorized common stock of New Loral will consist of 40,000,000 shares of New Loral Common Stock, par value $.01 per share. Pursuant to the Plan, an aggregate of 7,579,348 shares of New Loral Common Stock will be issued to holders of Allowed Orion General Unsecured Claims. The balance of the issued shares of New Loral Common Stock will be distributed to holders of Allowed Ltd. General Unsecured Claims. The rights of holders of New Loral Common Stock will be subject to the New Loral Certificate of Incorporation and New Loral Bylaws, forms of which will be included in the Plan Supplement, and applicable Delaware law. The New Loral Common Stock issued to creditors pursuant to the Plan will be subject to dilution by shares of New Loral Common Stock issued under the New Management Stock Plan. New Loral will use its commercially reasonable efforts to cause the shares of New Loral Common Stock to be registered under Section 12 of the Securities Exchange Act of 1934, as amended, and listed on the Nasdaq market system or other national securities exchange for which it may qualify as soon as practicable after the Effective Date.

2. New Skynet Preferred Stock

The New Skynet Preferred Stock is non-convertible preferred stock of New Skynet, $0.01 par value per share, 2,000,000 shares of which shall be authorized for issuance, of which 1,000,000 shares shall be issued as of the Effective Date. The principal terms of the New Skynet


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Preferred Stock, including the voting rights of holders thereof under certain circumstances, are set forth in Exhibit A to the Plan. Pursuant to the Plan, on the Effective Date, New Skynet shall issue to holders of Orion General Unsecured Claims New Skynet Preferred Stock with an aggregate liquidation preference of $200,000,000 plus accrued but unpaid dividends (the “Liquidation Preference”). The holders of New Skynet Preferred Stock will be entitled to receive this Liquidation Preference prior to any distribution to the holders of New Skynet’s common stock. To the extent the remaining assets of New Skynet are insufficient to pay the Liquidation Preference in full to all the holders of the New Skynet Preferred Stock, then such assets will be distributed ratably to such holders in proportion to the Liquidation Preference each such holder would otherwise be entitled to receive. The New Skynet Preferred Stock will be redeemable , in whole or in part, at any time at the option of New Skynet in Cash at the Liquidation Preference. The New Skynet Preferred Stock will have an annual dividend equal to 12% of the Liquidation Preference, which shall be mandatorily payable semi-annually in Cash, in arrears; provided, however, that such dividend shall be payable in kind (i.e., in additional shares of New Skynet Preferred Stock) to the extent that the amount of such dividend payment would exceed (i) 50% of New Skynet’s 12-month EBITDA (as certified by the Chief Financial Officer of New Skynet) for the 12-month period ending as of the completed quarter that ended at least fifty (50) days prior to the date of the Dividend Determination (as defined below) of any such dividend, less (ii) the amount of interest paid in Cash on the New Skynet Notes for the applicable period; provided further, however, that before the date that the New Skynet Board would regularly declare a dividend for the relevant period, the New Skynet Board shall make the following determinations: (i) whether any portion or all of such dividend (if otherwise payable in Cash in accordance with the above) should be paid in Cash or, instead, in additional shares of New Skynet Preferred Stock (the “Dividend Determination”) and (ii) if the Dividend Determination is to pay any portion or all of such dividend in additional shares of New Skynet Preferred Stock, whether the dividend, if otherwise payable, should be paid or, instead, not be paid but accrue (the “Accrual Determination”). If the Dividend Determination is that any portion or all of the dividend be paid in Cash, then such portion or all of the dividend, as the case may be, will be payable only in Cash. If the New Skynet Board makes (x) the Dividend Determination that any portion or all of the dividend be paid in additional shares of New Skynet Preferred Stock and/or (y) the Accrual Determination to accrue and not to pay the dividend, a notice of such Dividend Determination and/or Accrual Determination, as the case may be, will be sent to holders of the New Skynet Preferred Stock. If within ten (10) Business Days following the date such notice is given to the holders of New Skynet Preferred Stock, written notice is received by New Skynet from the holders of at least two-thirds (? ) of the outstanding shares of New Skynet Preferred Stock directing that (a) the dividend be paid and not be accrued and/or (b) the entire dividend be paid in Cash and not in kind (the “Shareholders’ Notice”), then, in case of clause (a), the entire dividend will be paid and not be accrued and, in the case of clause (b), the entire dividend will be paid in Cash. If the Shareholders’ Notice is not received by New Skynet by such ten (10) Business Days period, then the dividend, or the relevant portion thereof, as the case may be, will accrue and/or be paid in shares of New Skynet Preferred Stock, as applicable. The holders of the New Skynet Preferred Stock are entitled to certain voting rights as well as certain rights upon the occurrence of a default (as more fully described in Exhibit A attached to the Plan). Transfers of the New Skynet Preferred Stock will not be allowed if such transfers would subject New Skynet to the reporting requirements of Section 12(g) of the Securities Exchange Act of 1934, as amended, as determined by the New Skynet Board.

3. New Skynet Notes

Pursuant to the Plan, in connection with the offering of Subscription Rights to the holders of Orion General Unsecured Claims described in Section V.D. of the Disclosure Statement, New Skynet shall issue senior secured notes in the principal amount of $120,000,000 plus the Backstop Fee, the terms of which are governed by the New Skynet Notes Indenture, dated as of the


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Effective Date, between New Skynet and an indenture trustee to be selected by New Skynet. The New Skynet Notes will be guaranteed by New Skynet and all of its domestic, wholly and majority owned, direct and indirect, current and future subsidiaries (the “Guarantors”) on a senior secured basis; provided, however, that in the case of any non-wholly owned subsidiary, in the event the consent of any third party is required to grant any such guaranty, New Skynet shall use its commercially reasonable efforts to obtain such consent. All of the assets of New Skynet will be direct collateral and all of the assets of each of the Guarantors will be collateral for the secured guarantees (subject, in both instances, to applicable governmental regulations); provided, however, that any pledge of the voting stock (as determined for federal income tax purposes) of a foreign subsidiary owned by New Skynet or the applicable Guarantor shall be limited to 65% of the total combined voting stock of such subsidiary. In the event that New Skynet or any Guarantor is required to obtain the consent of any third party to pledge collateral, New Skynet or the applicable Guarantor shall use its commercially reasonable efforts to obtain such consent. The other principal terms of the New Skynet Notes are set forth in Exhibit B to the Plan. The New Skynet Notes will have a ten-year term, bearing interest at the rate of 14% per annum payable semi-annually in arrears; provided, however, that to the extent such interest payment would exceed 50% of New Skynet’s 12-month EBITDA (as certified by the Chief Financial Officer of New Skynet) for the 12-month period ending as of the completed quarter that ended at least fifty (50) days prior to the Payment Determination (as defined below), such interest shall be payable in kind; provided further, however, that the New Skynet Board may determine, with respect to any interest payment, that any portion or all of such interest that would otherwise be payable in Cash will be paid in-kind and not in Cash (the “Payment Determination”) unless holders of two-thirds (? ) of the aggregate outstanding principal amount of the New Skynet Notes direct that all of the interest must be paid in Cash, in which case the interest will be paid in Cash. The New Skynet Notes shall also contain provisions regarding redemption, restrictive covenants, events of default and certain other rights and remedies as set forth in Exhibit B to the Plan. The principal amount of New Skynet Notes shall be increased to include the Backstop Fee (as defined in Section V.D.) as provided in Section 9.6 of the Plan.

4. Subscription Rights

Pursuant to the Plan, holders of Orion General Unsecured Claims shall be entitled to Subscription Rights, which are non-transferable, non-certificated rights to subscribe for the New Skynet Notes in the aggregate principal amount of $120,000,000, as described in Section V.D. of the Disclosure Statement.

5. Options

The New Management Stock Plan provides for a New Management Incentive Program (the “New Management Incentive Program”) consisting of a stock option plan for the Reorganized Debtors’ management and other key employees (approximately 40 employees in the aggregate to be designated by the existing Board of Directors and approved by the Creditors’ Committee). The New Management Incentive Program will provide for Options to acquire shares of New Loral Common Stock representing up to 6.5% of the fully diluted common stock of New Loral as of the Effective Date.

The Options will have (i) a seven-year term, (ii) a four-year vesting schedule, vesting 25% per year commencing on the first anniversary of the Effective Date, and (iii) a strike price based upon a total enterprise value of consolidated New Loral of $700,000,000; provided, however, that upon the occurrence of a “Change of Control” at New Loral or a sale of all or substantially all of the assets of New Loral, all unvested Options allocated to employees will vest contemporaneously with the effectiveness of any such Change of Control or sale ; provided further, however, that upon any


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capital distribution to shareholders, the exercise price of all outstanding Options will be reduced by the full amount distributed on a per share basis to shareholders of New Loral. A “Change of Control” is defined as (i) the acquisition of at least 35% of the outstanding New Loral Common Stock by any person or group of affiliated persons (excluding any person or group of affiliated persons who owns 20% or more of the outstanding New Loral Common Stock on the Effective Date), (ii) “incumbent directors” (including the initial directors appointed pursuant to the Plan and any director whose nomination is approved by a majority of the then existing incumbent directors) do not comprise a majority of the New Loral Board, (iii) a merger, consolidation, reorganization, recapitalization or similar transaction where New Loral shareholders before such transaction no longer own their proportionate interest in at least a majority of the shares in New Loral, or (iv) shareholders of New Loral approve a plan of liquidation or dissolution of New Loral, or any such plan is implemented. A “Change of Control” will not occur solely as a result of the reconstitution of the New Loral Board or any other transactions that will occur on the Effective Date as provided in Section 10.2 of the Plan. The Options shall have such additional terms and provisions as more fully set forth in the New Management Stock Plan, as will be included in the Plan Supplement.

The Key Employee Retention Program approved by the Court during the period of the Reorganization Cases, which provides certain enhanced severance benefits, will terminate on the Effective Date. The New Loral Employment Contract with Mr. Bernard Schwartz will provide that if Mr. Schwartz is terminated without cause or resigns with good reason prior to the expiration of the one-year term of his contract, he shall be paid severance equal to the remaining payments that would have been paid through the balance of his contract, plus $2 million. No severance shall be payable upon the expiration of the one-year term of his contract. In addition, New Loral shall purchase a one-year term life insurance policy payable to Mr. Schwartz and his estate in an amount of $11 million or such other maximum benefit amount as can be obtained for an aggregate policy premium payment not to exceed $300,000. The other New Loral Employment Contracts will provide that if, during the term of the employment agreement, the employee is terminated other than for cause or resigns for “good reason,” the employee will receive severance equal to the greate r of severance benefits for such employee under the Key Employee Retention Plan or the compensation to which such employee is entitled for the balance of the contract and all unvested options allocated to the employee will vest immediately. If the executive’s employment agreement is not renewed at the expiration of the term of such agreement, the executive may continue employment as an “at-will” employee and if subsequently terminated without cause (i) the executive will receive severance benefits consistent with pre-chapter 11 practices (i.e. – one week per year of service, plus any additional amounts at the sole discretion of the New Loral Board); and (ii) a pro rata portion (based on period of employment) of the next vesting installment of Options shall become vested and all unvested Options shall terminate on the termination date.

Of the Options to be distributed under the New Management Incentive Program, Options to acquire 6% of the common stock of New Loral will be distributed to current employees of the Debtors and Options to acquire .5% of the common stock of New Loral will be allocated to Michael B. Targoff, as Vice Chairman of the New Board of Directors. No additional Options are provided for in the New Loral Employment Contracts.

Pursuant to the Plan, the New Management Stock Plan shall be and shall be deemed to be adopted by New Loral and effective as of the Effective Date. The solicitation of votes on the Plan shall include and be deemed to be a solicitation for approval of the New Management Stock Plan by the holders of the New Loral Common Stock. Entry of the Confirmation Order shall constitute such approval. The form of the New Management Stock Plan will be included in the Plan Supplement. The principal terms of the New Management Stock Plan were approved by the Board of Directors of Ltd.


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D. THE RIGHTS OFFERING

1. Issuance of Subscription Rights

Pursuant to Section 9 of the Plan, holders of Orion General Unsecured Claims as of the Voting Record Date have the right, but not the obligation, to participate in the Rights Offering. Each holder of an Orion General Unsecured Claim shall have a Subscription Right entitling such holder to subscribe for up to its “New Skynet Notes Pro Rata Share” of New Skynet Notes. “New Skynet Notes Pro Rata Share” means the ratio (expressed as a percentage) of such holder’s “Rights Participation Claim Amount” to the aggregate amount of all Rights Participation Claim Amounts, determined as of the Subscription Expiration Date (defined below). A “Rights Participation Claim Amount” is, (a) in the case of an Orion Note Claim, the amount of such Orion Note Claim as of the Voting Record Date; and (b) in the case of any Orion General Unsecured Claim other than an Orion Note Claim, (i) if no proof of claim has been timely filed with respect to such Claim and such Claim has been listed in the Debtors’ Schedules as liquidated in amount and not disputed or contingent, the amount set forth in the Schedules; (ii) if a timely proof of claim has been filed with respect to such Claim in a fixed and liquidated amount and the claim is not listed on the “Disputed Rights Offering List,” which list is annexed to the Plan as Schedule 9.1, the amount set forth in the proof of claim; (iii) if such Claim is on the Disputed Rights Offering List, the amount, if any, of such Claim set forth thereon in the column entitled “Amount,” unless the holder of such Claim has obtained an order of the Bankruptcy Court at least five (5) days prior to the Subscription Expiration Date, otherwise determining the amount of the Claim for purposes of the Rights Offering; and (iv) other than in the circumstances described in (i), (ii) and (iii) above, the Rights Participation Claim Amount shall be zero. Notwithstanding anything contained in the Plan to the contrary, under no circumstances shall any holder of an Orion General Unsecured Claim that was not timely filed or deemed timely filed have any Rights Participation Claim Amount.

The Rights Offering shall commence on the Subscription Commencement Date, which is (i) a Business Day determined by the Debtors after consultation with the Creditors’ Committee and (ii) a reasonable time prior to the Confirmation Hearing and the day on which the Subscription Form is mailed. The Rights Offering shall expire on the Subscription Expiration Date, which is (i) the deadline for voting on the Plan as specified in the Subscription Form, subject to the Debtors’ right to extend such date upon the consent of the Creditors’ Committee, and (ii) the final date by which a holder of an Orion General Unsecured Claim may elect to subscribe to the Rights Offering. Each holder of an Orion General Unsecured Claim intending to participate in the Rights Offering must affirmatively elect to exercise its Subscription Right(s) on or prior to the Subscription Expiration Date. After the Subscription Expiration Date, unexercised Subscription Rights shall be acquired by the “Backstop Purchasers” pursuant to that certain Backstop Commitment Agreement in the form attached as Exhibit D to the Plan, executed by and among the Debtors and the Backstop Purchasers, and any exercise of such Subscription Rights by any entity other than the Backstop Purchasers shall be null and void and the Debtors shall not be obligated to honor any such purported exercise received by the Disbursing Agent after the Subscription Expiration Date, regardless of when the documents relating to such exercise were sent. The “Backstop Purchaser” means MHR Fund Management LLC and/or one or more of its affiliates and P. Schoenfeld Asset Management, LLC and/or one of its affiliates (both of which are members of the Creditors’ Committee). The “Backstop Fee” is $6,000,000 in additional principal amount of New Skynet Notes, of which MHR Fund Management LLC and/or one or more of its affiliates is entitled to 95% and P. Schoenfeld Asset Management, LLC and/or one of its affiliates is entitled to 5%. Each Backstop Purchaser shall be reimbursed for all reasonable costs and expenses incurred by the Backstop Purchasers, including the fees and expenses (i) of attorney(s) to the Backstop Purchasers and (ii) incurred in connection with the preparation and filing, including filing fees, of submissions under the Hart-Scott-Rodino Antitrust


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Improvement Act of 1976. The form (but not the amount) of the Backstop Fee may be changed by agreement among the parties. All members of the Creditors’ Committee were offered the right to act as a Backstop Purchaser. The Debtors believe the Backstop Fee is a reasonable market fee for such credit support. The New Skynet Notes have not been formally valued. The Debtors’ financial advisors believe the New Skynet Notes are likely to trade above their face amount after issuance.

2. Exercise of Subscription Rights

Each holder of Subscription Rights that exercises its Subscription Rights shall be required to pay such holder’s Subscription Purchase Price for New Skynet Notes, or a lesser amount of New Skynet Notes, each in the face amount of $1,000, as such holder may determine, subject to rounding as provided in Section 6.10 of the Plan.

For all purposes under Section 9 of the Plan, each holder of an Orion General Unsecured Claim is entitled to participate in the Rights Offering solely to the extent of its Rights Participation Claim Amount, if any.

Each holder of an Orion General Unsecured Claim may exercise all or any portion of such holder’s Subscription Rights pursuant to the procedures outlined below, as appropriate, but the exercise of any Subscription Rights shall be irrevocable.

All questions concerning the timeliness, viability, form and eligibility of any exercise of Subscription Rights shall be determined by the Debtors in consultation with the Creditors’ Committee, whose good faith determinations shall be final and binding. The Debtors, in their discretion reasonably exercised in good faith in consultation with the Creditors’ Committee, may waive any defect or irregularity, or permit a defect or irregularity to be corrected within such times as they may determine, or reject the purported exercise of any Subscription Rights. Subscription Forms and subscription instructions from the Depository Trust Company (“DTC”) shall be deemed not to have been received or accepted until all irregularities have been waived or cured within such time as the Debtors determine in their discretion reasonably exercised in good faith. The Debtors will use commercially reasonable efforts to give notice to any holder of an Orion General Unsecured Claim regarding any defect or irregularity in connection with any purported exercise of Subscription Rights by such holder and, with the consent of the Creditors’ Committee, may permit such defect or irregularity to be cured within such time as they may determine in good faith to be appropriate; provided, however, that neither the Debtors nor the Disbursing Agent shall incur any liability for failure to give such notification.

a. Exercise by holders of Orion General Unsecured Claims (excluding Orion Note Claims).

In order to exercise the Subscription Rights, each holder of an Orion General Unsecured Claim (excluding Orion Note Claims) must: (i) return a duly completed Subscription Form to the Disbursing Agent so that such form is actually received by the Disbursing Agent on or before the Subscription Expiration Date; and (ii) pay to the Disbursing Agent (on behalf of Orion) on or before the Subscription Expiration Date such holder’s Subscription Purchase Price in accordance with the wire instructions set forth on the Subscription Form or by bank or cashier’s check delivered to the Disbursing Agent along with the Subscription Form. If, on or prior to the Subscription Expiration Date, the Disbursing Agent for any reason does not receive from a given holder of Subscription Rights both a duly completed Subscription Form and immediately available funds in an amount equal to such holder’s Subscription Purchase Price, such holder shall be deemed to have relinquished and waived its right to participate in the Rights Offering.


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The payments made in accordance with the Rights Offering shall be deposited and held by the Disbursing Agent in a trust account, or similarly segregated account or accounts which shall be separate and apart from the Disbursing Agent’s general operating funds and any other funds subject to any Lien or any cash collateral arrangements and which segregated account or accounts will be maintained for the purpose of holding the money for administration of the Rights Offering until the Effective Date, or such other later date, at the option of the Reorganized Debtors, but not later than twenty (20) days after the Effective Date. The Disbursing Agent shall not use such funds for any other purpose prior to such date and shall not encumber or permit such funds to be encumbered with any Lien or similar encumbrance.

In order to facilitate the exercise of the Subscription Rights, on the Subscription Commencement Date, the Debtors will mail the Subscription Form to each holder of an Orion General Unsecured Claim (excluding Orion Note Claims) as of the Voting Record Date together with appropriate instructions for the proper completion, due execution and timely delivery of the Subscription Form, as well as instructions for the payment of the applicable Subscription Purchase Price for that portion of the Subscription Rights sought to be acquired by such holder. As promptly as practicable (and, in any event, not later than ten (10) Business Days) following the Subscription Expiration Date, the Debtors will deliver to each holder of an Orion General Unsecured Claim that has sought to exercise its Subscription Rights a written statement specifying the portion of the Subscription Rights that was validly and effectively acquired by such holder giving effect to Section 9.6 of the Plan. The Debtors, with the consent of the Creditors’ Committee, may adopt such additional detailed procedures consistent with the provisions of Section 9 of the Plan to more efficiently administer the exercise of the Subscription Rights.

If, after the Voting Record Date but at least five (5) days prior to the Subscription Expiration Date, a holder of an Orion General Unsecured Claim (excluding Orion Note Claims) is permitted to participate in the Rights Offering as a result of a Bankruptcy Court order estimating such Claim for the purpose of determining such holder’s Rights Participation Claim Amount, such holder shall be permitted to participate in the Rights Offering to the same extent as a holder of a Rights Participation Claim Amount as of the Voting Record Date.

b. Exercise by holders of Orion Note Claims .

In order for a holder of an Orion Note Claim to exercise its Subscription Right, such holder must provide its instruction to its bank, broker, or other nominee or to its agent. The bank, broker, or other nominee or its agent, in turn, must then convey the instruction through DTC’s Automated Subscription Offer Program, and arrange for the proper payment either through DTC or, if DTC is unable to act as intermediary for subscription instructions and payments, by following the payment instructions outlined above.

In order to facilitate the exercise of the Subscription Rights for holders of Orion Note Claims, on the Subscription Commencement Date, the Debtors will deliver Subscription Forms to the record holders of such Claims, including, without limitation, brokers, banks, dealers, or other agents or nominees (the “Subscription Nominees”). Each Subscription Nominee will be entitled to receive sufficient copies of the Election Form for distribution to the beneficial owners of the Orion Note Claims for whom such Subscription Nominee holds such Claims. The Subscription Nominees may use the Subscription Form provided or such other form as they may customarily use for the purpose of obtaining instructions with respect to a subscription.


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3. Transfer Restriction; Revocation

Pursuant to the Plan, the Subscription Rights are not Transferable. Any such Transfer or attempted Transfer will be null and void and the Debtors will not treat any purported transferee as the holder of any Subscription Rights. Once the holder of an Orion General Unsecured Claim has properly exercised its Subscription Right, such exercise will not be permitted to be revoked.

4. Backstop Purchasers

Any amount of New Skynet Notes that are not subscribed for pursuant to the Rights Offering shall be purchased by the Backstop Purchasers pursuant to the Backstop Commitment Agreement. The Backstop Purchasers shall pay to the Disbursing Agent, by wire transfer in immediately available funds on or prior to the Effective Date, Cash in an amount equal to the Subscription Purchase Price attributable to such amount of New Skynet Notes. The Disbursing Agent shall deposit such payment into the same trust account into which were deposited the Subscription Purchase Price payments of holders of Orion General Unsecured Claims on the exercise of their Subscription Rights.

In consideration for its agreement to backstop the Rights Offering, each Backstop Purchaser shall, subject to the Backstop Commitment Agreement, receive its share of the Backstop Fee, which notes shall be issued as part of the New Skynet Notes Indenture, and shall be reimbursed for all reasonable costs and expenses incurred by the Backstop Purchasers, including the fees and expenses (i) of attorneys for the Backstop Purchasers and (ii) incurred in connection with the preparation and filing, including filing fees, of submissions under the Hart-Scott-Rodino Antitrust Improvement Act of 1976.

5. Recalculation as of the Subscription Expiration Date

The New Skynet Notes Pro Rata Share shall be recalculated on the Subscription Expiration Date to account for any subsequent allowances or disallowances, as applicable, of Orion General Unsecured Claims and each properly exercising holder of an Orion General Unsecured Claim under the Rights Offering shall only be entitled to purchase the amount so calculated on such date and any amounts paid by such holders in excess of the amount authorized to be purchased shall be refunded, without interest, as soon as practicable after the Effective Date.

6. Subsequent Adjustments

If, as a result of subsequent allowances of Orion General Unsecured Claims for purposes of participating in the Rights Offering, more than all of the New Skynet Notes subject to the Rights Offering have been subscribed for due to the exercise of the Subscription Rights, each properly exercising holder of an Orion General Unsecured Claim shall be cut back pro rata based upon the principal amount of New Skynet Notes properly subscribed for by such holder. The difference between the price actually paid by such exercising holder and the amount of New Skynet Notes that such holder is entitled to acquire after giving effect to the cut back, if any, shall be refunded, without interest, as soon as reasonably practicable after the Effective Date.


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7. Use of Proceeds from Rights Offering

The proceeds of the Rights Offering shall be used to (i) purchase substantially all of the non-Orion satellite services assets and (ii) fund the cash portion of the distributions to be made to holders of Allowed Claims in SpaceCom Class 4 and SS/L Class 4.

On the Effective Date, or as soon thereafter as practicable, New Skynet or a subsidiary thereof shall purchase from Ltd. or its subsidiaries (including SS/L) (i) all of the equity interest in XTAR, L.L.C.; (ii) all licenses or rights to orbital slots; (iii) all of the Telstar 18 satellite transponders and equity (if any) that is not currently owned by Orion; (iv) EdS; (v) Loral Skynet do Brasil Ltda. (including all of its assets and the orbital slot license for EdS); (vi) all owned transponders on the Satmex 5 satellite owned by Satmex; (vii) the joint venture rights and interests in Mabuhay Space Holdings Limited; (viii) all interests in Globalstar, L.L.C.; (ix) trademark rights relating to the satellite services business; (x) all equity in Satmex; and (xi) other assets used to operate the satellites for an aggregate purchase price of $169,800,000 (including Cash and New Skynet common stock). The valuation prepared by Jefferies & Co., Inc., the financial advisors to the Creditors’ Committee, was used to establish such purchase price.

E. METHOD OF DISTRIBUTION UNDER THE PLAN

1. Distributions

Pursuant to the Plan, all distributions of New Loral Common Stock, New Skynet Preferred Stock and Cash to the creditors of the Debtors under the Plan, as applicable, shall be made by the Disbursing Agent on behalf of the Reorganized Debtors. Where the applicable Reorganized Debtor (determined without regard to Section 5.1 of the Plan) is a subsidiary of New Loral, New Loral shall make a capital contribution, either directly or indirectly, to the applicable Reorganized Debtor of an amount of New Loral Common Stock or Cash to be distributed to the creditors of such Debtor, but only at such time as, and to the extent, the amounts are actually distributed to holders of Allowed Claims. To the extent any Orion Debtor is a subsidiary of New Skynet, then New Skynet shall make a capital contribution, either directly or indirectly, to the applicable Reorganized Debtor of an amount of New Skynet Preferred Stock to be distributed to holders of Allowed Orion General Unsecured Claims, but only at such time as, and to the extent, the amounts are actually distributed to holders of Allowed Orion General Unsecured Claims. Any distributions of New Loral Common Stock or New Skynet Preferred Stock that revert to New Loral or New Skynet, as applicable, or are otherwise canceled (such as to the extent any distributions have not been claimed within one (1) year or are forfeited pursuant to Section 6.7 of the Plan), shall revest solely in New Loral or New Skynet, as applicable , and any applicable Reorganized Debtor (other than New Loral or New Skynet) shall not have (nor shall it be considered to ever have had) any ownership interest in the amounts distributed.

All distributions of New Skynet Notes shall be made by the applicable Indenture Trustee(s).

At the option of the Debtors, any Cash payment to be made under the Plan may be made by a check or wire transfer.

No fractional shares of New Loral Common Stock or New Skynet Preferred Stock shall be distributed under the Plan. When any distribution pursuant to the Plan on account of an Allowed Claim would otherwise result in the issuance of a number of shares of New Loral Common Stock or New Skynet Preferred Stock that is not a whole number, the actual distribution of shares of


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New Loral Common Stock or New Skynet Preferred Stock shall be rounded as follows: (i) fractions of one-half (½) or greater shall be rounded to the next higher whole number and (ii) fractions of less than one-half (½) shall be rounded to the next lower whole number with no further payment or other distribution therefor. The total number of authorized shares of New Loral Common Stock and New Skynet Preferred Stock to be distributed to holders of Allowed Claims shall be adjusted as necessary to account for the rounding provided in Section 6.9 of the Plan.

The New Skynet Notes shall not be distributed in denominations of less than one thousand dollars ($1,000). When any distribution pursuant to the Plan on account of an Allowed Claim would otherwise result in the issuance of an amount of the New Skynet Notes that is not a multiple of one thousand (1,000), the actual distribution of the New Skynet Notes shall be rounded as follows: (i) denominations of five hundred dollars ($500) or greater than shall be rounded up to one thousand dollars ($1,000); and (ii) denominations less than five hundred dollars ($500) shall be rounded down to zero with no further payment therefor. The total amount of the New Skynet Notes that may be issued in connection with the Rights Offering (see Section V.D.) shall be adjusted as necessary to account for the rounding provided in Section 6.10 of the Plan.

To the extent that any Allowed Claim entitled to a distribution under the Plan consists of indebtedness and accrued but unpaid interest thereon, such distribution shall be allocated first to the principal amount of the Claim (as determined for federal income tax purposes) and then, to the extent the consideration exceeds the principal amount of the Claim, to accrued but unpaid interest.

2. Delivery of Distributions

Subject to Bankruptcy Rule 9010, all distributions to holders of Allowed Claims shall be made at the address of such holder as set forth on the Schedules filed with the Bankruptcy Court or on the books and records of the Debtors or their agents or in a letter of transmittal unless the Debtors have been notified in writing of a change of address, including, without limitation, by the filing of a proof of claim by such holder that contains an address for such holder different from the address reflected on such Schedules for such holder.

New Loral shall deliver all distributions , including the Subscription Rights, in respect of Allowed Ltd. Note Claims, Allowed Orion 10% Note Claims and Allowed Orion Stub Note Claims, as applicable, to the respective Indenture Trustee under the Ltd. Notes, the Orion 10% Notes and the Orion Stub Notes or such other entity designated by the Indenture Trustee as the disbursing agent under the Ltd. Notes, Orion 10% Notes and the Orion Stub Notes, respectively. Upon delivery of the foregoing distributions to the Indenture Trustee or such designee, New Loral shall be released of all liability with respect to the delivery of such distributions. The distributions to be made under the Plan to holders of Allowed Note Claims shall be made to the respective Indenture Trustee or its designee, which, subject to the right of such Indenture Trustee to assert its Charging Lien against such distributions, shall transmit the distributions to the holders of such Allowed Note Claims. New Loral shall provide whatever reasonable assistance may be required by the Indenture Trustees or their designees with respect to such distributions.

Pursuant to the Plan, the Distribution Record Date with respect to all Claims except Note Claims shall be the Effective Date. On the Distribution Record Date, the claims register shall be closed and any transfer of any Claim therein shall be prohibited. The Debtors and New Loral shall have no obligation to recognize any transfer of any Claim occurring after the close of business on such date. With respect to any Note Claims, distributions under the Plan shall be made pursuant to a letter of transmittal, as described in Subsection V.O.7. below, as soon as practicable after the Effective Date.


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In connection with the Plan and all instruments issued and/or distributed in connection with the Plan, any party issuing any instrument or making any distribution under the Plan, including any party described in Section 6.5 of the Plan, shall comply with all applicable withholding and reporting requirements imposed by any federal, state or local taxing authority, and all distributions under the Plan shall be subject to any such withholding or reporting requirements. Notwithstanding the above, each holder of an Allowed Claim that is to receive a distribution under the Plan shall have the sole and exclusive responsibility for the satisfaction and payment of any tax obligations imposed by any governmental unit, including income, withholding and other tax obligations, on account of such distribution. Any party issuing any instrument or making any distribution under the Plan has the right, but not the obligation, to not make a distribution until such holder has made arrangements satisfactory to such issuing or disbursing party for payment of any such tax obligations.

In the event that any distribution to any holder is returned as undeliverable, New Loral shall use reasonable efforts to determine the current address of such holder, but no distribution to such holder shall be made unless and until New Loral, New Skynet or New SS/L, as applicable, has determined the then current address of such holder, at which time such distribution shall be made to such holder without interest; provided that such distributions shall be deemed unclaimed property under section 347(b) of the Bankruptcy Code at the expiration of one year from the Effective Date. After such date, all unclaimed property or interest in property shall revert to New Loral, New Skynet or New SS/L, as applicable, and the Claim of any other holder to such property or interest in property shall be discharged and forever barred.

The Debtors may, but shall not be required to, set off against any Claim (for purposes of determining the Allowed amount of such Claim on which distribution shall be made) any claims of any nature whatsoever that the Debtors may have against the holder of such Claim, but neither the failure to do so nor the allowance of any Claim under the Plan shall constitute a waiver or release by the Debtors of any such claim the Debtors may have against the holder of such Claim.

F. TIMING OF DISTRIBUTIONS UNDER THE PLAN (INCLUDING DISPUTED CLAIMS)

Unless otherwise provided under the Plan, any distributions and deliveries to be made thereunder shall occur on the Effective Date or as soon thereafter as is practicable. In the event that any payment or act under the Plan is required to be made or performed on a date that is not a Business Day, then the making of such payment or the performance of such act may be completed on or as soon as reasonably practicable after the next succeeding Business Day, but shall be deemed to have been completed as of the required date.

Notwithstanding any other provision in the Plan, if any portion of a Claim is disputed, no payment or distribution provided thereunder shall be made on account of any portion of such Disputed Claim unless and until such Disputed Claim becomes an Allowed Claim.

The Disbursing Agent shall withhold from the New Loral Common Stock to be distributed to holders of Allowed Ltd. General Unsecured Claims an amount that would be distributable in respect of any Disputed Ltd. General Unsecured Claim had such Claim been Allowed on the Effective Date, and shall hold such stock in escrow (the “Ltd. Disputed Claims Reserve”) pending resolution of the Disputed Claims, together with all earnings thereon (net of any expenses relating thereto, including any taxes imposed thereon or otherwise payable by the reserve).


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The Disbursing Agent shall withhold from the New Loral Common Stock and the New Skynet Preferred Stock to be distributed to holders of Allowed Orion General Unsecured Claims an amount that would be distributable in respect of any Disputed Orion General Unsecured Claim had such Claim been Allowed on the Effective Date, and shall hold such stock in escrow (the “Orion Disputed Claims Reserve” and, together with the Ltd. Disputed Claims Reserve, the “Disputed Claims Reserves”) pending resolution of the Disputed Claims, together with all earnings thereon (net of any expenses relating thereto, including any taxes imposed thereon or otherwise payable by the reserve).

Any New Loral Common Stock and/or New Skynet Preferred Stock reserved under Sections 7.2(b) and (c) of the Plan shall be voted by the Disbursing Agent proportionally in the same manner as the other New Loral Common Stock and/or New Skynet Preferred Stock, as applicable, are voted.

On the next Distribution Date after a Disputed Claim becomes an Allowed Claim, the Disbursing Agent shall distribute to the holder of such Claim, the property distributable with respect to such Claim in accordance with Sections 4.4, 4.11, 4.16 and 4.21 of the Plan, as applicable, and any net earnings attributable thereto. To the extent that all or a portion of a Disputed Claim is disallowed, the holder of such Claim shall not receive any distribution on account of the portion of such Claim that is disallowed and any property withheld pending the resolution of such Claim shall be reallocated in accordance with Sections 4.4, 4.11, 4.16 and 4.21 of the Plan, as applicable, together with any net earnings attributable thereto.

Subject to definitive guidance from the IRS or a court of competent jurisdiction to the contrary (including the receipt by the Disbursing Agent of a private le tter ruling if the Disbursing Agent so requests one, or the receipt of an adverse determination by the IRS upon audit if not contested by the Disbursing Agent), the Disbursing Agent shall (i) treat each Disputed Claims Reserve as a discrete trust for federal income tax purposes, consisting of separate and independent shares to be established in respect of each Disputed Claim, in accordance with the trust provisions of the Tax Code (section 641 et seq.), and (ii) to the extent permitted by applicable law, shall report consistent with the foregoing for state and local income tax purposes. All holders of Disputed Claims shall report, for tax purposes, consistent with the foregoing.

The Disbursing Agent may request an expedited determination of taxes of the Disputed Claims Reserves under section 505(b) of the Bankruptcy Code for all tax returns filed for or on behalf of the Disputed Claims Reserves for all taxable periods through the date of dissolution of such trust.

After such time as a Disputed Claim becomes, in whole or in part, an Allowed Claim, the holder of such Allowed Claim shall receive the distributions, if any, to which such holder is then entitled as provided in the Plan. Such distributions shall be made as soon as practicable after (i) the date that the order or judgment of the Bankruptcy Court allowing such Disputed Claim (or portion thereof) becomes a Final Order, (ii) the date on which any objection to such Disputed Claim has been withdrawn in accordance with Section 7.1 of the Plan, or (iii) the date on which such Disputed Claim has been settled, compromised or otherwise resolved in accordance with Section 7.1 of the Plan, but in no event more than thirty (30) days thereafter.

Pursuant to the Plan, distributions to Ltd. Class 4 and Orion Class 4 are to be made on each Distribution Date. Such Distribution Dates include (i) the Initial Distribution Date, which is the date on or after the Effective Date that is selected by New Loral, but, in any event, is not earlier than fifteen (15) days and no more than thirty (30) days after the Effective Date, or such later date as


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the Bankruptcy Court may establish upon request by New Loral for cause shown; (ii) the first Business Day in the months of April, July, October and January, commencing with the first such date to occur not more than 90 days after the Effective Date ; and (iii) the Final Distribution Date, which is a date on or after the Initial Distribution Date and after all Disputed Claims in Ltd. Class 4 and Orion Class 4, as applicable, have become either Allowed Claims or Disallowed Claims that is selected by New Loral, in its discretion but, in any event, is no later than thirty (30) days thereafter, or such later date as the Bankruptcy Court may establish, upon request by New Loral for cause shown.

Any distribution to the holder of an Allowed Claim in Ltd. Class 4, Orion Class 4, SpaceCom Class 4 and SS/L Class 4, as applicable, occurring on a Distribution Date subsequent to the Initial Distribution Date will be less any distribution of shares of New Loral Common Stock, New Skynet Preferred Stock or Cash previously distributed to such holder on account of such Claim.

G. PROVISIONS FOR RESOLUTION AND ESTIMATION OF DISPUTED CLAIMS

1. Resolution of Disputed Claims

Pursuant to the Plan, the Reorganized Debtors shall be entitled to object to all Claims. Any objections to Claims shall be served and filed on or before the later of (i) one hundred twenty (120) days after the Effective Date, as such time may be extended by order of the Bankruptcy Court, and (ii) such later date as may be fixed by the Bankruptcy Court, whether fixed before or after the date specified in clause (i) above.

On and after the Effective Date, the Reorganized Debtors shall have the authority to compromise, settle, otherwise resolve, or withdraw any objections to Administrative Expense Claims and Claims and to compromise, settle, or otherwise resolve any disputed Administrative Expense Claims and Disputed Claims without approval of the Bankruptcy Court, other than with respect to Administrative Expense Claims relating to compensation of professionals.

To the extent that a Disputed Claim becomes an Allowed Claim after the Effective Date, the holder of such Claim shall not be entitled to any interest on such Claim.

2. Estimation of Disputed Claims

The Debtors, in consultation with the Creditors’ Committee, and the Reorganized Debtors may at any time request that the Bankruptcy Court estimate any Contingent Claim, Unliquidated Claim, or Disputed Claim pursuant to section 502(c) of the Bankruptcy Code regardless of whether any of the Debtors or the Reorganized Debtors previously objected to such Claim or whether the Bankruptcy Court has ruled on any such objection. The Bankruptcy Court will retain jurisdiction to estimate any Claim at any time during litigation concerning any objection to any Claim, including, without limitation, during the pendency of any appeal relating to any such objection. In the event that the Bankruptcy Court estimates any Contingent Claim, Unliquidated Claim, or Disputed Claim, the amount so estimated shall constitute either the Allowed amount of such Claim or a maximum limitation on such Claim, as determined by the Bankruptcy Court. If the estimated amount constitutes a maximum limitation on the amount of such Claim, the Debtors, in consultation with the Creditors’ Committee, or the Reorganized Debtors may pursue supplementary proceedings to object to the allowance of such Claim. All of the aforementioned objection, estimation, and resolution procedures are intended to be cumulative and not exclusive of one another. Claims may be estimated and subsequently compromised, settled, withdrawn, or resolved by any mechanism approved by the Bankruptcy Court.


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H. TREATMENT OF FEES FOR JPLS UNDER THE PLAN

On the Effective Date, the JPL Fee and Expense Claim Reserve will be funded by New Loral in an amount sufficient to fund all of the fees and expenses of the JPLs and their retained professionals incurred and unpaid prior to the Effective Date (excluding those fees and expenses which have been disallowed by the Bermuda Court under the terms of the Fee Protocol and which are not subject to any ongoing dispute). On the Effective Date, New Loral will assume all of the obligations of the Bermudian Debtors and the Debtors under the Fee Protocol.

On the Effective Date, New Loral shall deposit an amount to be agreed upon by the Debtors, the Creditors’ Committee and the JPLs in a bank account in Bermuda designated by and under the sole control of the JPLs, which account shall be an interest-bearing account or equivalent subject to the exclusive jurisdiction of the Bermuda Court for the payment of the JPLs and their retained professionals’ fees and expenses incurred on or after the Effective Date in the provisional liquidations, in accordance with the Fee Protocol. In the event that such JPL Fee and Expense Claims in the provisional liquidations are determined by the Bermuda Court to be less than the agreed upon amount described in the first sentence of this paragraph, any balance will be returned to New Loral.

On the Effective Date, New Loral shall deposit approximately $25,000 in respect of each of the Bermudian Debtors in a bank account in Bermuda designated by and under the sole control of the JPLs, which account shall be an interest-bearing account subject to the exclusive jurisdiction of the Bermuda Court for the liquidations of the Bermudian Debtors (the “Bermuda Liquidation Fund”). The Bermuda Liquidation Fund will, subject to the provisions of Section 6.6(f) of the Plan, be used to fund the liquidation of the Bermudian Debtors; provided, however, that any provisional liquidators and, subsequently, liquidators of the Bermudian Debtors will be required to carry out only their statutory obligations under Bermuda law. In the event that, following the making of winding up orders in respect of the Bermudian Debtors, the JPLs do not act as provisional liquidators (and, subsequently, liquidators) of the Bermudian Debtors, the JPLs shall, upon the making of the winding up orders, transfer the Bermuda Liquidation Fund to such other person(s) so acting as provisional liquidators (and, subsequently, liquidators). Following the conclusion of the liquidations of the Bermudian Debtors under Bermuda law, any unused fees and expenses in the Bermuda Liquidation Fund and the Bermuda Contingency Fund shall be distributed to New Loral.

Upon the making of any winding up order in respect of the Bermudian Debtors, the JPLs will transfer from the Bermuda Account, free and clear of liens, claims, and encumbrances, to any provisional liquidators approximately $200,000 on account of any unanticipated fees and expenses of the liquidations of the Bermudian Debtors (the “Bermuda Contingency Fund”). In the event that any unforeseen circumstances arise which require such provisional liquidators or liquidators to draw on the Bermuda Contingency Fund, they shall give New Loral at least seven (7) days’ prior notice of the purpose of the draw, the payee, and the amount of such draw, and New Loral shall have the option to fund such amount directly in lieu of a draw being made against the Bermuda Contingency Fund.

I. TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES

The Bankruptcy Code grants the Debtors the power, subject to the approval of the Bankruptcy Court, to assume or reject executory contracts and unexpired leases. If an executory contract or unexpired lease is rejected, the counterparty to the agreement may file a claim for damages incurred by reason of the rejection. In the case of rejection of leases of real property, such damage claims are subject to certain limitations imposed by the Bankruptcy Code.


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The Plan provides that pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy Code, all executory contracts and unexpired leases that exist between the Debtors and any person or entity shall be deemed rejected by the Debtors as of the Effective Date, except for any executory contract or unexpired lease (i) that has been assumed pursuant to an order of the Bankruptcy Court entered prior to the Effective Date, (ii) as to which a motion for approval of the assumption of such executory contract or unexpired lease has been filed and served prior to the Confirmation Date, or (iii) that is specifically designated as a contract or lease to be assumed on the Schedule of Assumed Contracts and Leases (Schedule 8.1), which Schedule shall be contained in the Plan Supplement; provided, however, that the Debtors, subject to the consent of the Creditors’ Committee, reserve the right, on or prior to the Confirmation Date, to amend Schedule 8.1 to delete any executory contract or unexpired lease therefrom or add any executory contract or unexpired lease thereto, in which event such executory contract(s) or unexpired lease(s) shall be deemed to be, respectively, either rejected or assumed as of the Effective Date. The Debtors shall provide notice of any amendments to Schedule 8.1 to the parties to the executory contracts and unexpired leases affected by such amendments and to the Creditors’ Committee. The listing of a document on Schedule 8.1 shall not constitute an admission by the Debtors that such document is an executory contract or an unexpired lease or that the Debtors have any liability with respect to such executory contract or unexpired lease. The Debtors shall, within at least twenty (20) days prior to the later of (a) the hearing on the Debtors’ motion for assumption or assumption and assignment and (b) the Confirmation Hearing, file with the Bankruptcy Court and serve by first class mail on each non-Debtor party to such executory contracts or unexpired leases to be assumed pursuant to Section 8.1 of the Plan, a notice (the “Assumption Notice”) informing them that their executory contract or unexpired lease is scheduled to be assumed and the proposed cure amount, if any. Each such non-Debtor party shall have twenty (20) days from the date of service of the Assumption Notice to file and serve any objection to the proposed assumption or assumption and assignment by the Debtors. If there are any objections filed, the Bankruptcy Court shall hold a hearing on a date to be set by the Bankruptcy Court. See Section IV.E.4. of this Disclosure Statement for more information regarding executory contracts and unexpired leases that were rejected pursuant to an order of the Bankruptcy Court entered prior to the Effective Date.

Unless otherwise specified on Schedule 8.1, each executory contract and unexpired lease listed or to be listed on Schedule 8.1 shall include any and all modifications, amendments, supplements, restatements, or other agreements made directly or indirectly by any agreement, instrument, or other document that in any manner affects such executory contract or unexpired lease, without regard to whether such agreement, instrument or other document is listed on Schedule 8.1.

A non-Debtor party to an executory contract or unexpired lease that is being rejected under the Plan may request that the Debtors assume such contract or lease by sending written notice to New Loral, which notice shall include a waiver of any defaults (including any payment defaults) and any right to any cure payment under such contract or lease. New Loral may, but shall not be obligated to, assume such contract or lease without further action of the Bankruptcy Court.

Entry of the Confirmation Order shall, subject to and upon the occurrence of the Effective Date, constitute (i) the approval, pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy Code, of the assumption of the executory contracts and unexpired leases assumed pursuant to Section 8.1 of the Plan, (ii) the extension of time, pursuant to section 365(d)(4) of the Bankruptcy Code, within which the Debtors may assume, assume and assign, or reject the executory contracts and unexpired leases specified in Section 8.1 of the Plan through the date of entry of an order approving the assumption, assumption and assignment, or rejection of such executory contracts


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and unexpired leases, and (iii) the approval, pursuant to sections 365(a) and 1123(b)(2) of the Bankruptcy Code, of the rejection of the executory contracts and unexpired leases assumed pursuant to Section 8.1 of the Plan.

In the event that the rejection of an executory contract or unexpired lease by the Debtors pursuant to the Plan results in damages to the other party or parties to such contract or lease, a Claim for such damages, if not heretofore evidenced by a filed proof of claim, shall be forever barred and shall not be enforceable against the Debtors or the Reorganized Debtors, or their properties or interests in property as agents, successors, or assigns, unless a proof of claim is filed with the Bankruptcy Court and served upon the attorneys for the Debtors on or before the date that is thirty (30) days after the later of (i) the date of service of notice of the Confirmation Date, (ii) notice of modification to Schedule 8.1, or (iii) the date of service of notice of such later rejection date that occurs as a result of a dispute concerning amounts necessary to cure any defaults.

2. Survival of Certain Obligations

a. Corporate Indemnities

Notwithstanding anything contained in the Plan to the contrary, New Loral shall (unless specifically prohibited from doing so by order of the Bankruptcy Court) indemnify, hold harmless and reimburse all persons who are or were directors, officers, agents and/or employees of the Debtors on the Commencement Date or any time thereafter against and for any and all obligations incurred directly and solely in connection with In re Loral Space ERISA Litigation and In re Loral Space & Communications Ltd. Securities Litigation, up to an aggregate amount of $2,500,000 (including, without limitation, reasonable fees and expenses of counsel) to the fullest extent permitted by law and the respective articles of incorporation, certificates of incorporation, memoranda of association, codes of regulations, bylaws, applicable and binding state laws or specific agreements of the Debtors and/or Reorganized Debtors, or any combination of the foregoing, but only if and to the extent such obligations are not paid from existing directors and officers insurance. (Bernard Schwartz, in his individual capacity, will reimburse such indemnified persons for up to an additional $2,500,000 on the same basis to the extent that any such obligations exceed the $2,500,000 payable by New Loral pursuant to the immediately previous sentence.) Such indemnification shall be available to cover indemnified expenses with respect to which insurance coverage is being contested, subject to reimbursement thereof by the recipients to the extent such insurance coverage is eventually obtained. New Loral (i) shall have the right (but not the obligation) jointly with any relevant director, officer and/or employee, to defend and contest any and all directors’, officers’ and employees’ liabilities relating to the foregoing obligations, and (ii) may, and if more beneficial to New Loral, shall, take all reasonable actions to have such payments made by its insurance carriers or those of the Debtors.

Notwithstanding the foregoing, neither the Debtors nor New Loral shall have the right to agree to any settlement of any such obligations or liabilities without the consent of the relevant director, officer and/or employee, unless such director, officer and/or employee receives a full release of all liabilities and claims that are the subject of such settlement. In furtherance of the foregoing, the Reorganized Debtors shall maintain insurance for the benefit of such directors, officers, agents and/or employees at levels no less favorable than those existing as of the date of entry of the Confirmation Order for a period of no less than three years following the Effective Date. Except as expressly provided above, none of the obligations of the Debtors and/or Reorganized Debtors to indemnify, hold harmless or reimburse their respective officers, directors and employees shall survive the confirmation of the Plan.


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b. Insurance Policies

Notwithstanding anything contained in the Plan to the contrary, unless specifically rejected by order of the Bankruptcy Court, all of the Debtors’ insurance policies and any agreements, documents or instruments relating thereto, are treated as executory contracts under the Plan and will be assumed pursuant to the Plan, effective as of the Effective Date. Nothing contained in Section 8.8 of the Plan shall constitute or be deemed a waiver of any cause of action that the Debtors may hold against any entity, including, without limitation, the insurer under any of the Debtors’ policies of insurance.

c. Compensation and Benefit Programs

Notwithstanding anything contained in the Plan to the contrary, except as described in Section V.C.5 of the Disclosure Statement with respect to the Key Employee Retention Plan, unless specifically rejected by order of the Bankruptcy Court, all employment and severance policies and workers’ compensation programs, and all compensation and benefit plans, policies and programs of the Debtors applicable to their present and former employees, officers and directors, including, without express or implied limitation, all savings plans, retirement plans, supplemental retirement plans (including the Supplemental Executive Retirement Plan, as amended pursuant to the SERP Amendment),12 health care plans, disability plans, and life, accidental death, and dismemberment insurance plans, shall be deemed to be, and shall be treated as though they are, executory contracts that are deemed assumed under the Plan, and the Debtors’ obligations under such plans, policies, and programs shall be deemed assumed pursuant to section 365(a) of the Bankruptcy Code, shall survive confirmation of the Plan, shall remain unaffected thereby, and shall not be discharged in accordance with section 1141 of the Bankruptcy Code. Any defaults existing under any of such plans, policies, and programs shall be cured promptly after they become known by the Reorganized Debtors. All severance benefits, including benefits that Bernard Schwartz is entitled to receive under the SERP Amendment, shall be treated as set forth in the Plan Supplement. The assumed plans shall be subject to modification in accordance with the terms thereof at the discretion of the New Loral Board.

3. Cure of Defaults

Except to the extent that different treatment has been agreed to by the non-debtor party or parties to any executory contract or unexpired lease to be assumed pursuant to Section 8.1 of the Plan, the Debtors shall, pursuant to the provisions of sections 1123(a)(5)(G) and 1123(b)(2) of the Bankruptcy Code and consistent with the requirements of section 365 of the Bankruptcy Code, within at least twenty (20) days prior to the later of (a) the hearing on the Debtors’ motion for assumption or assumption and assignment and (b) the Confirmation Hearing, file with the Bankruptcy Court and serve by first class mail on each non-debtor party to such executory contracts or unexpired leases to be assumed pursuant to Section 8.1 of the Plan, the Assumption Notice as described in Section V.I.1 above, which shall list the cure amount as to each executory contract or unexpired lease to be assumed. The parties to such executory contracts or unexpired leases to be assumed or assumed and

12 Pursuant to the SERP Amendment, New Loral will assume all obligations under the Supplemental Executive Retirement Plan; provided, however, that the obligation under the Supplemental Executive Retirement Plan to Bernard L. Schwartz shall be reduced to $250,000 a year for his life commencing as of March 1, 2004; provided further, however, that in no event shall the payments under the Supplemental Executive Retirement Plan to Mr. Schwartz or his estate be less than $1.5 million. There shall be no survivor benefit and all other claims of Mr. Schwartz under the Supplemental Executive Retirement Plan shall be released.


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assigned by the Debtors shall have twenty (20) days from the date of service of the Assumption Notice to file and serve any objection to the cure amounts listed by the Debtors. If there are any objections filed, the Bankruptcy Court shall hold a hearing on a date to be set by the Bankruptcy Court. Notwithstanding Section 8.1 of the Plan, the Debtors shall retain their rights to reject any of their executory contracts or unexpired leases that are subject to a dispute concerning amounts necessary to cure any defaults through the Effective Date.

4. Assignment

In furtherance of the Plan and in order to consummate the Restructuring Transactions provided in Section 5.2 of the Plan, on and after the Effective Date, pursuant to sections 105(a), 363 and 365 of the Bankruptcy Code, the Debtors and Reorganized Debtors may transfer and assign any of their executory contracts or unexpired leases that have not been rejected to any of their affiliates without any further act, authority or notice. Any executory contract or unexpired lease so transferred and assigned shall remain in full force and effect for the benefit of the transferee or assignee in accordance with its terms, notwithstanding any provision in such executory contract or unexpired lease (including those of the type described in sections 365(b)(2) of the Bankruptcy Code) that prohibits, restricts, or conditions such transfer or assignment. Any provision that prohibits, restricts or conditions the assignment or transfer of any such executory contract or unexpired lease or that terminates or modifies such executory contract or unexpired lease or allows the counterparty to such executory contract or unexpired lease to terminate, modify, recapture, impose any penalty, condition renewal or extension, or modify any term or condition upon any such transfer and assignment constitutes an unenforceable anti-assignment provision and is void and of no force or effect.

J. THE RESTRUCTURING TRANSACTIONS

Pursuant to the Plan, on the Effective Date, and in accordance with the terms of an order of the Bermuda Court, the assets of Ltd. and Licensing Ltd. (including, without limitation, the Debtor Intercompany Claim against Loral Corp., subject to possible reduction in amount in accordance with Section 5.6 of the Plan) shall be transferred by the JPLs to New Loral or a wholly owned first-tier subsidiary of New Loral in exchange for the New Loral Common Stock to be distributed to holders of Allowed Claims against Ltd. and Licensing Ltd. In the event such order is not entered by the Bermuda Court, the assets of the Bermudian Debtors will not be so transferred.


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Contemplated Abridged Corporate Structure as of the Effective Date

(Does not identify all legal entities within the corporate structure)

On June 17, 2004, the United States Bankruptcy Court for the District of Delaware with jurisdiction over the chapter 11 cases of Globalstar, L.P. et al. (the “Globalstar Bankruptcy Court”) entered that certain Order Confirming the Debtors’ First Modified Fourth Amended Joint Plan Under Chapter 11 of the Bankruptcy Code (the “Globalstar Confirmation Order”). On June 29, 2004, the Globalstar Bankruptcy Court entered that certain Notice of (A) Entry of Order Confirming the Debtors’ First Modified Fourth Amended Joint Plan Under Chapter 11 of the Bankruptcy Code, (B) Occurrence of the Effective Date, (C) Deadline to File Proof of Certain Rejection Damage Claims and (D) Deadline to File Proof of Certain Administrative Claims (the “Globalstar Effective Date Notice”). Pursuant to the Globalstar Confirmation Order and the Globalstar Effective Date Notice, Ltd. is the owner by legal succession from Globalstar, L.P. of a 49% equity interest in Russian Closed Joint Stock Company “Globalstar-Space Telecommunications” (“CJSC GlobalTel”). Pursuant to the Plan, without further motion to or order of the Bankruptcy Court, (i) Ltd. will be liquidated under the laws of Bermuda, and (ii) on the Effective Date of the Plan, title to the equity interests in CJSC GlobalTel held by Ltd. shall irrevocably pass to New Loral or its affiliate designee (which shall be designated by New Loral no later than ten (10) days prior to the Effective Date of the Plan) such that New Loral or such affiliate designee shall be Ltd.’s legal successor with respect to Ltd.’s interest in the equity interest in CJSC GlobalTel. On or promptly after the Effective Date of the Plan, Ltd. shall execute and provide to New Loral any documents reasonably requested by New Loral to evidence such legal succession. CJSC GlobalTel is not related to Globalstar, L.P.

It is contemplated that, on the Effective Date, there shall be a new holding company (New Loral), which shall own (either directly or through an intermediate holding company) all of the outstanding common stock of two subsidiaries: New Skynet and New SS/L. New Skynet (either directly or through wholly owned subsidiaries) will be an operating company and shall own one or more operating subsidiaries including New Network Services. New Skynet will consist of all assets of Orion plus, directly or indirectly, (i) all of the equity interest in XTAR, L.L.C.; (ii) all licenses or rights to orbital slots; (iii) all of the Telstar 18 satellite transponders and equity (if any) that is not currently owned by Orion; (iv) EdS; (v) Loral Skynet do Brasil Ltda. (including all of its assets and

New Loral

New SS/L New Skynet

New Network Services


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the orbital slot license for EdS); (vi) all owned transponders on the Satmex 5 satellite owned by Satmex; (vii) the joint venture rights and interests in Mabuhay Space Holdings Limited; (viii) all interests in Globalstar, L.L.C.; (ix) trademark rights relating to the satellite services business; (x) all equity in Satmex; (xi) other assets used to operate the satellites; and (xii) all of the equity interests in New Network Services. New Network Services will consist of all of Loral Skynet’s assets as well as the network services assets, other than those assets transferred to New Skynet and New SS/L. New SS/L will be an operating company and will own substantially all of the assets of SS/L, other than any assets that have been transferred as described above. New SS/L will be the satellite manufacturing arm of New Loral and will continue to design and manufacture satellites. New Skynet will be the satellite services arm of New Loral and will continue to provide satellite services and, through New Network Services, network and professional services and support. New Skynet will issue the New Skynet Preferred Stock to satisfy, in part, the claims of the creditors of Orion. New Skynet will conduct a Rights Offering in respect of the New Skynet Notes.

On or as of the Effective Date, or as soon thereafter as practicable, within the discretion of the Debtors, but subject to the consent of the Creditors’ Committee, and without further motion to or order of the Bankruptcy Court, the Debtors may, notwithstanding any other transactions described in this Section V.J. of the Disclosure Statement, merge, dissolve, transfer assets, or otherwise consolidate any of the Debtors in furtherance of the Plan (including, without limitation, into one or more newly formed, wholly owned, direct or indirect subsidiaries of New Loral). It is the current intention of the Debtors to utilize this provision to merge, dissolve, or otherwise consolidate certain of their affiliates and transfer certain executory contracts, unexpired leases, and other assets to the surviving affiliates. Any such transaction may be effected, with the prior consent of the Creditors’ Committee, on or after the Effective Date without any further action by the stockholders or directors of any of the Debtors, the Debtors in Possession, or the Reorganized Debtors. A list of the subsidiaries that will be merged or dissolved and the assets to be transferred, will be included in the Plan Supplement, and may include: (i) the merger, dissolution or consolidation into New Skynet of certain of the subsidiaries of Loral Corp. other than SS/L and its subsidiaries; and (ii) the merger, dissolution or consolidation into New SS/L of certain of the subsidiaries of SS/L.

On the Effective Date, or as soon thereafter as practicable, New Skynet or a subsidiary thereof shall purchase from Ltd. or its subsidiaries (including SS/L) (i) all of the equity interest in XTAR, L.L.C.; (ii) all licenses or rights to orbital slots; (iii) all of the Telstar 18 satellite transponders and equity (if any) that is not currently owned by Orion; (iv) EdS; (v) Loral Skynet do Brasil Ltda. (including all of its assets and the orbital slot license for EdS); (vi) all owned transponders on the Satmex 5 satellite owned by Satmex; (vii) the joint venture rights and interests in Mabuhay Space Holdings Limited; (viii) all interests in Globalstar, L.L.C.; (ix) trademark rights relating to the satellite services business; (x) all equity in Satmex; and (xi) other assets used to operate the satellites for an aggregate purchase price of $169,800,000 (including Cash and New Skynet common stock).

The U.S. federal income tax consequences of certain of the Restructuring Transactions are discussed in Section XI. of this Disclosure Statement.

K. SUBSTANTIVE CONSOLIDATION OF THE DEBTORS

1. Substantive Consolidation

Substantive consolidation is an equitable remedy that a bankruptcy court may be asked to apply in chapter 11 cases of affiliated debtors, among other circumstances. Substantive consolidation involves the pooling of the assets and liabilities of the affected debtors. All of the


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debtors in the substantively consolidated group are treated as if they were a single corporate and economic entity. Consequently, a creditor of one of the substantively consolidated Debtors is treated as a creditor of the substantively consolidated group of debtors, and issues of individual corporate ownership of property and individual corporate liability on obligations are ignored.

Substantive consolidation of two or more debtors’ estates generally results in (i) the deemed consolidation of the assets and liabilities of the debtors, (ii) the deemed elimination of intercompany claims, subsidiary equity or ownership interests, multiple and duplicative creditor claims, joint and several liability claims and guarantees, and (iii) the payment of allowed claims from a common fund.

It is well established that section 105(a) of the Bankruptcy Code empowers a bankruptcy court to authorize substantive consolidation. The United States Court of Appeals for the Second Circuit, the circuit in which the Reorganization Cases are pending, has articulated a test for evaluating a request for substantive consolidation. See United Sav. Bank v. Augie/Restivo Baking Co. (In re Augie/Restivo Baking Co.), 860 F.2d 515 (2d Cir. 1988). The test, as formulated by the Second Circuit, considers “(i) whether creditors dealt with the entities as a single economic unit and did not rely on their separate identity in extending credit . . . or (ii) whether the affairs of the debtors are so entangled that consolidation will benefit all creditors.” Id. at 518. If either factor is satisfied, substantive consolidation is appropriate. In respect of the second factor, entanglement of the debtors “can justify substantive consolidation only where ‘the time and expense necessary even to attempt to unscramble [the commingled affairs is] so substantial as to threaten the realization of any net assets for all of the creditors,’ . . . or where no accurate identification and allocation of assets is possible. In such circumstances, all creditors are better off with substantive consolidation.” Id. at 519.

2. Effectuation of Substantive Consolidation

Ltd. Debtors. The Plan provides that entry of the Confirmation Order shall constitute the approval, pursuant to section 105(a) of the Bankruptcy Code, effective as of the Effective Date, of the substantive consolidation of the Ltd. Debtors for all purposes related to the Plan, including, without limitation, for purposes of voting, confirmation, and distribution. On and after the Effective Date, (i) all assets and liabilities of the Ltd. Debtors shall be treated, for purposes of the Plan, including, without limitation, for purposes of voting, confirmation, and distribution, as though they were merged, (ii) no distributions shall be made under the Plan on account of any Equity Interest held by the Ltd. Debtors in any of the Ltd. Debtors, (iii) all guarantees of any of the Ltd. Debtors of any of the Ltd. Debtors shall be eliminated so that any Claim against the Ltd. Debtors and any guarantee thereof executed by any of the Ltd. Debtors and any joint or several liability of any of the Ltd. Debtors shall be one obligation of the Ltd. Debtors and (iv) each and every Claim filed or to be filed in the Reorganization Cases of any of the Ltd. Debtors shall be deemed filed against the Ltd. Debtors and shall be one Claim against and obligation of the Ltd. Debtors.

Orion Debtors. The Plan further provides that entry of the Confirmation Order shall constitute the approval, pursuant to section 105(a) of the Bankruptcy Code, effective as of the Effective Date, of the substantive consolidation of the Orion Debtors for all purposes related to the Plan, including, without limitation, for purposes of voting, confirmation, and distribution. On and after the Effective Date, (i) all assets and liabilities of the Orion Debtors shall be treated, for purposes of the Plan, including, without limitation, for purposes of voting, confirmation, and distribution, as though they were merged, (ii) no distributions shall be made under the Plan on account of any Equity Interest held by the Orion Debtors in any of the Orion Debtors, (iii) all guarantees of any of the Orion Debtors of any of the Orion Debtors shall be eliminated so that any Claim against the Orion Debtors and any guarantee thereof executed by any of the Orion Debtors and any joint or several liability of


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any of the Orion Debtors shall be one obligation of the Orion Debtors and (iv) each and every Claim filed or to be filed in the Reorganization Cases of any of the Orion Debtors shall be deemed filed against the Orion Debtors and shall be one Claim against and obligation of the Orion Debtors.

SpaceCom Debtors. The Plan further provides that entry of the Confirmation Order shall constitute the approval, pursuant to section 105(a) of the Bankruptcy Code, effective as of the Effective Date, of the substantive consolidation of the SpaceCom Debtors for all purposes related to the Plan, including, without limitation, for purposes of voting, confirmation, and distribution. On and after the Effective Date, (i) all assets and liabilities of the SpaceCom Debtors shall be treated, for purposes of the Plan, including, without limitation, for purposes of voting, confirmation, and distribution, as though they were merged, (ii) no distributions shall be made under the Plan on account of any Equity Interest held by the SpaceCom Debtors in any of the SpaceCom Debtors, (iii) all guarantees of any of the SpaceCom Debtors of any of the SpaceCom Debtors shall be eliminated so that any Claim against the SpaceCom Debtors and any guarantee thereof executed by any of the SpaceCom Debtors and any joint or several liability of any of the SpaceCom Debtors shall be one obligation of the SpaceCom Debtors and (iv) each and every Claim filed or to be filed in the Reorganization Cases of any of the SpaceCom Debtors shall be deemed filed against the SpaceCom Debtors and shall be one Claim against and obligation of the SpaceCom Debtors.

SS/L Debtors. The Plan further provides that entry of the Confirmation Order shall constitute the approval, pursuant to section 105(a) of the Bankruptcy Code, effective as of the Effective Date, of the substantive consolidation of the SS/L Debtors for all purposes related to the Plan, including, without limitation, for purposes of voting, confirmation, and distribution. On and after the Effective Date, (i) all assets and liabilities of the SS/L Debtors shall be treated, for purposes of the Plan, including, without limitation, for purposes of voting, confirmation, and distribution, as though they were merged, (ii) no distributions shall be made under the Plan on account of any Equity Interest held by the SS/L Debtors in either of the SS/L Debtors, (iii) all guarantees of either of the SS/L Debtors of any of the SS/L Debtors shall be eliminated so that any Claim against the SS/L Debtors and any guarantee thereof executed by either of the SS/L Debtors and any joint or several liability of either of the SS/L Debtors shall be one obligation of the SS/L Debtors and (iv) each and every Claim filed or to be filed in the Reorganization Cases of either of the SS/L Debtors shall be deemed filed against the SS/L Debtors and shall be one Claim against and obligation of the SS/L Debtors.

The substantive consolidation effected pursuant to Section 5.1 of the Plan shall not (other than for purposes related to funding distributions under the Plan and as set forth in Section 5.1 of the Plan) affect: (i) the legal and organizational structure of the Debtors; (ii) pre- and post-Commencement Date guarantees, Liens, and security interests that are required to be maintained (A) in connection with executory contracts or unexpired leases that were entered into during the Reorganization Cases or that have been or will be assumed or (B) pursuant to the Plan; or (iii) distributions out of any insurance policies or proceeds of such policies.

L. CONDITIONS PRECEDENT TO EFFECTIVENESS OF THE PLAN

The occurrence of the Effective Date of the Plan is subject to the following conditions precedent:

(i) the Confirmation Order, in form and substance reasonably satisfactory to the Debtors and the Creditors’ Committee, shall have been entered and shall be in full force and effect and there shall not be a stay or injunction in effect with respect thereto;


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(ii) the Bankruptcy Court shall have entered a Confirmation Order with respect to each plan of reorganization proposed in the Plan in form and substance satisfactory to the applicable Debtors and the Creditors’ Committee;

(iii) the aggregate amount of Allowed Claims in SpaceCom Class 4 and SS/L Class 4 shall not exceed $125,000,000 (exclusive of postpetition interest);

(iv) the Debtors shall have received the insurance proceeds in respect of the EdS Satellite in an aggregate amount reasonably satisfactory to the Creditors’ Committee and the Debtors consistent with the disclosures made by the Debtors;

(v) all actions, documents, and agreements necessary to implement the Plan, including, without limitation, all actions, documents, and agreements necessary to implement the Restructuring Transactions, shall have been effected or executed;

(vi) all conditions to the Backstop Commitment Agreement shall have been satisfied or waived pursuant to the terms thereof;

(vii) the Debtors shall have received all authorizations, consents, regulatory approvals, rulings, letters, no-action letters, opinions, or documents that are determined by the Debtors and the Creditors’ Committee to be necessary to implement the Plan and that are required by law, regulation, or order;

(viii) the New Loral Certificate of Incorporation and the Reorganized Subsidiary Debtors’ Certificates of Incorporation shall have been filed with the Secretary of State of the State of Delaware;

(ix) each of the New Loral Certificate of Incorporation, the New Loral Bylaws, the New Skynet Certificate of Incorporation, the New Skynet Bylaws, the New SS/L Certificate of Incorporation, the New SS/L Bylaws, the Reorganized Subsidiary Debtors’ Certificates of Incorporation, the Reorganized Subsidiary Debtors’ Bylaws, the New Management Stock Plan, the New Loral Employment Contracts, the Registration Rights Agreement and the SERP Amendment, in form and substance acceptable to the Debtors and the Creditors’ Committee, shall be in full force and effect; and

(x) the Subscription Expiration Date shall have occurred.

The conditions precedent specified above may be waived in whole or in part by the Debtors and the Creditors’ Committee in their sole discretion, except with respect to Section V.L(vi), which may be waived only by the Backstop Purchasers, in their sole discretion, but subject to the terms of and as provided in the Backstop Commitment Agreement. Any such waiver may be effected at any time, without notice or leave or order of the Bankruptcy Court, and must be in writing.

In the event the conditions precedent specified above have not been satisfied or waived by 120 days after the Confirmation Date, then (i) the Confirmation Order shall be vacated, (ii) no distributions under the Plan shall be made, (iii) the Debtors and all holders of Claims and Equity Interests shall be restored to the status quo ante as of the day immediately preceding the Confirmation Date as though the Confirmation Date never occurred and (iv) all of the Debtors’ obligations with


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respect to the Claims and Equity Interests shall remain unchanged and nothing contained herein shall be deemed to constitute a waiver or release of any claims by or against the Debtors or any other entity or to prejudice in any manner the rights of the Debtors, the Backstop Purchasers, the Creditors’ Committee, the Equity Committee, or any other entity in any further proceedings involving the Debtors.

M. IMPLEMENTATION AND EFFECT OF CONFIRMATION OF THE PLAN

Upon the Effective Date, pursuant to section 1141(b) and (c) of the Bankruptcy Code, all property of the Debtors shall vest in each of the Reorganized Debtors free and clear of all Claims, Liens, encumbrances, charges, and other interests, except as provided in the Plan. The Reorganized Debtors may operate their businesses and may use, acquire, and dispose of property free of any restrictions of the Bankruptcy Code or the Bankruptcy Rules and in all respects as if there were no pending case under any chapter or provision of the Bankruptcy Code.

N. DISCHARGE AND INJUNCTION

THE RIGHTS AFFORDED IN THE PLAN AND THE PAYMENTS AND DISTRIBUTIONS TO BE MADE THEREUNDER SHALL DISCHARGE ALL EXISTING DEBTS AND CLAIMS, AND, EXCEPT AS PROVIDED IN THE PLAN WITH REGARD TO THE ORION EQUITY INTERESTS, SPACECOM EQUITY INTERESTS AND SS/L EQUITY INTERESTS HELD BY THE DEBTORS, SHALL TERMINATE ALL EQUITY INTERESTS, OF ANY KIND, NATURE, OR DESCRIPTION WHATSOEVER AGAINST OR IN THE DEBTORS OR ANY OF THEIR ASSETS OR PROPERTIES TO THE FULLEST EXTENT PERMITTED BY SECTION 1141 OF THE BANKRUPTCY CODE. EXCEPT AS PROVIDED IN THE PLAN, UPON THE EFFECTIVE DATE, ALL EXISTING CLAIMS AGAINST THE DEBTORS AND EQUITY INTERESTS IN THE DEBTORS SHALL BE, AND SHALL BE DEEMED TO BE, DISCHARGED AND TERMINATED, AND ALL HOLDERS OF CLAIMS AND EQUITY INTERESTS SHALL BE PRECLUDED AND ENJOINED FROM ASSERTING AGAINST THE REORGANIZED DEBTORS, THEIR SUCCESSORS OR ASSIGNEES, OR ANY OF THEIR ASSETS OR PROPERTIES, ANY OTHER OR FURTHER CLAIM OR EQUITY INTEREST BASED UPON ANY ACT OR OMISSION, TRANSACTION, OR OTHER ACTIVITY OF ANY KIND OR NATURE THAT OCCURRED PRIOR TO THE EFFECTIVE DATE, WHETHER OR NOT SUCH HOLDER HAS FILED A PROOF OF CLAIM OR PROOF OF EQUITY INTEREST, AND WHETHER OR NOT THE FACTS OR LEGAL BASES THEREFORE WERE KNOWN OR EXISTED PRIOR TO THE EFFECTIVE DATE.

UPON THE EFFECTIVE DATE AND IN CONSIDERATION OF THE DISTRIBUTIONS TO BE MADE UNDER THE PLAN, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THE PLAN, EACH HOLDER (AS WELL AS ANY TRUSTEES AND AGENTS ON BEHALF OF EACH HOLDER) OF A CLAIM OR EQUITY INTEREST AND ANY AFFILIATE OF SUCH HOLDER SHALL BE DEEMED TO HAVE FOREVER WAIVED, RELEASED AND DISCHARGED THE DEBTORS, TO THE FULLEST EXTENT PERMITTED BY SECTION 1141 OF THE BANKRUPTCY CODE, OF AND FROM ANY AND ALL CLAIMS, EQUITY INTERESTS, RIGHTS, AND LIABILITIES THAT AROSE PRIOR TO THE EFFECTIVE DATE. UPON THE EFFECTIVE DATE, ALL SUCH PERSONS SHALL BE FOREVER PRECLUDED AND ENJOINED, PURSUANT TO SECTION 524 OF THE BANKRUPTCY CODE, FROM PROSECUTING OR ASSERTING ANY SUCH DISCHARGED CLAIM AGAINST OR TERMINATED EQUITY INTEREST IN THE DEBTORS.


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EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THE PLAN, ALL PERSONS OR ENTITIES WHO HAVE HELD, HOLD OR MAY HOLD CLAIMS OR EQUITY INTERESTS AND ALL OTHER PARTIES IN INTEREST, ALONG WITH THEIR RESPECTIVE PRESENT OR FORMER EMPLOYEES, AGENTS, OFFICERS, DIRECTORS, PRINCIPALS AND AFFILIATES, ARE PERMANENTLY ENJOINED, FROM AND AFTER THE EFFECTIVE DATE, FROM (I) COMMENCING OR CONTINUING IN ANY MANNER ANY ACTION OR OTHER PROCEEDING OF ANY KIND WITH RESPECT TO ANY SUCH CLAIM OR EQUITY INTEREST AGAINST THE DEBTORS OR REORGANIZED DEBTORS, (II) THE ENFORCEMENT, ATTACHMENT, COLLECTION OR RECOVERY BY ANY MANNER OR MEANS OF ANY JUDGMENT, AWARD, DECREE OR ORDER AGAINST THE DEBTORS OR REORGANIZED DEBTORS, (III) CREATING, PERFECTING, OR ENFORCING ANY ENCUMBRANCE OF ANY KIND AGAINST THE DEBTORS OR REORGANIZED DEBTORS OR AGAINST THE PROPERTY OR INTERESTS IN PROPERTY OF THE DEBTORS OR REORGANIZED DEBTORS, OR (IV) ASSERTING ANY RIGHT OF SETOFF, SUBROGATION OR RECOUPMENT OF ANY KIND AGAINST ANY OBLIGATION DUE FROM THE DEBTORS OR REORGANIZED DEBTORS OR AGAINST THE PROPERTY OR INTERESTS IN PROPERTY OF THE DEBTORS OR REORGANIZED DEBTORS, WITH RESPECT TO ANY SUCH CLAIM OR EQUITY INTEREST. SUCH INJUNCTION SHALL EXTEND TO ANY SUCCESSORS OF THE DEBTORS AND REORGANIZED DEBTORS AND THEIR RESPECTIVE PROPERTIES AND INTEREST IN PROPERTIES.

Unless otherwise provided, all injunctions or stays arising under or entered during the Reorganization Cases under section 105 or 362 of the Bankruptcy Code, or otherwise, and in existence on the Confirmation Date, shall remain in full force and effect until the later of the Effective Date and the date indicated in the order providing for such injunction or stay.

Upon the entry of the Confirmation Order, all holders of Claims and Equity Interests and other parties in interest, along with their respective present or former employees, agents, officers, directors, principals and affiliates shall be enjoined from taking any actions to interfere with the implementation or consummation of the Plan.

Nothing in the Plan or in any order confirming the Plan shall affect, release, enjoin or impact in any way the prosecution of any violations of fiduciary obligations under ERISA of any Non-Debtor entity, including but not limited to, the claims asserted against the Non-Debtor defendants in the pending ERISA litigation.

O. SUMMARY OF OTHER PROVISIONS OF THE PLAN

The following subsections summarize certain other significant provisions of the Plan. The Plan should be referred to for the complete text of these and other provisions of the Plan.

1. Intercompany Claims

a. Debtor Intercompany Claims

All Debtor Intercompany Claims shall be reviewed by the Reorganized Debtors, in consultation with the Creditors’ Committee, and adjusted, continued, or discharged by the Reorganized Debtors, with the consent of the Creditors’ Committee, in their sole discretion. Any such transaction may be effected on or subsequent to the Effective Date without any further action by


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the stockholders or directors of any of the Debtors, the Debtors in Possession, or the Reorganized Debtors.

b. Non-Debtor Intercompany Claims

All Non-Debtor Intercompany Claims shall be reviewed by the Debtors, in consultation with the Creditors’ Committee, and the Reorganized Debtors and adjusted, continued, or discharged by the Debtors, with the consent of the Creditors’ Committee, or the Reorganized Debtors, in their sole discretion. Any such transaction may be effected on or subsequent to the Effective Date without any further action by the stockholders or directors of any of the Debtors, the Debtors in Possession, or the Reorganized Debtors.

2. Retiree Benefits

On and after the Effective Date, pursuant to sections 1114 and 1129(a)(13) of the Bankruptcy Code, the Reorganized Debtors shall continue to pay all retiree benefits of the Debtors, for the duration of the period for which the Debtors had obligated themselves to provide such benefits and subject to the right of the Reorganized Debtors to modify or terminate such retiree benefits as permitted under section 1114 of the Bankruptcy Code.

3. Certificates of Incorporation and Bylaws

The New Loral Certificate of Incorporation, the New Loral Bylaws, the stock certificates of New Loral, the New Skynet Certificate of Incorporation, the New Skynet Bylaws, the stock certificates of New Skynet, the New SS/L Certificate of Incorporation, the New SS/L Bylaws, the stock certificates of New SS/L, the Reorganized Subsidiary Debtors’ Certificates of Incorporation, the Reorganized Subsidiary Debtors’ Bylaws and the stock certificates of the Reorganized Debtors shall contain provisions necessary (i) to prohibit the issuance of nonvoting equity securities as required by section 1123(a)(6) of the Bankruptcy Code, subject to further amendment of such certificates of incorporation and bylaws as permitted by applicable law, and (ii) to effectuate the provisions of the Plan.

4. Amendment or Modification of the Plan

The Plan may be amended, modified, or supplemented by the Debtors or the Reorganized Debtors, subject to the consent of the Creditors’ Committee, in the manner provided for by section 1127 of the Bankruptcy Code or as otherwise permitted by law without additional disclosure pursuant to section 1125 of the Bankruptcy Code, except as the Bankruptcy Court may otherwise direct. After the Confirmation Date, so long as such action does not materially adversely affect the treatment of holders of Claims or Equity Interests under the Plan, the Debtors or the Reorganized Debtors, subject to the consent of the Creditors’ Committee, may institute proceedings in the Bankruptcy Court to remedy any defect or omission or reconcile any inconsistencies in the Plan or the Confirmation Order, with respect to such matters as may be necessary to carry out the purposes and effects of the Plan.

Prior to the Effective Date, the Debtors, subject to the consent of the Creditors’ Committee, may make appropriate technical adjustments and modifications to the Plan without further order or approval of the Bankruptcy Court, provided that such technical adjustments and modifications do not adversely affect in a material way the treatment of holders of Claims or Equity Interests.


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5. Solicitation of the Plan

As of and subject to the occurrence of the Confirmation Date: (i) the Debtors shall be deemed to have solicited acceptances of the Plan in good faith and in compliance with the applicable provisions of the Bankruptcy Code, including without limitation, sections 1125(a) and (e) of the Bankruptcy Code, and any applicable non-bankruptcy law, rule, or regulation governing the adequacy of disclosure in connection with such solicitation and (ii) the Debtors, the members of the Creditors’ Committee, the Backstop Purchasers, and each of their respective affiliates, agents, directors, officers, employees, advisors, and attorneys shall be deemed to have participated in good faith and in compliance with the applicable provisions of the Bankruptcy Code in the offer and issuance of any securities under the Plan, and therefore are not, and on account of such offer, issuance, and solicitation will not be, liable at any time for any violation of any applicable law, rule or regulation governing the solicitation of acceptances or rejections of the Plan or the offer and issuance of any securities under the Plan.

6. Releases of Representatives

Effective as of the Confirmation Date but subject to the occurrence of the Effective Date, and in consideration of: (a) the services provided by the present and former directors, officers, employees, affiliates, agents, financial advisors, attorneys, and representatives of the Debtors to the Debtors who acted in such capacities after the Commencement Date; (b) the services of the Creditors’ Committee and the Backstop Purchasers and their affiliates; (c) the services of the Equity Committee; (d) the services of the Agent; (e) the services of each Indenture Trustee; and (f) the services of the JPLs, and their respective professionals in connection with the Reorganization Cases and the provisional liquidations of the Bermudian Debtors, (x) the Debtors and the Reorganized Debtors; (y) each holder of a Claim or Equity Interest that votes to accept the Plan (or is deemed to accept the Plan); and (z) to the fullest extent permissible under applicable law, as such law may be extended or integrated after the Effective Date, each holder of a Claim or Equity Interest that does not vote to accept the Plan, shall release unconditionally and forever each present or former director, officer, employee, agent, financial advisor, attorney and representative (and their respective affiliates) of the Debtors who acted in such capacity after the Commencement Date, the Creditors’ Committee, each member of the Creditors’ Committee, the Backstop Purchasers, the Equity Committee, each member of the Equity Committee, the Agent, the Indenture Trustees, the JPLs, and each of their respective members, officers, directors, agents, financial advisors, attorneys, employees, equity holders, parent corporations, subsidiaries, partners, affiliates and representatives from any and all claims or causes of action whatsoever in connection with, related to, or arising out of the Reorganization Cases, the pursuit of confirmation of the Plan, the consummation thereof, the administration thereof, or the property to be distributed thereunder, and the provisional liquidation of the Bermudian Debtors; provided, that the foregoing shall not operate as a waiver of or release from any causes of action arising out of the willful misconduct or gross negligence of any such person or entity.

7. Cancellation and Surrender of Existing Securities and Agreements

Except (i) as otherwise expressly provided in the Plan, (ii) with respect to executory contracts or unexpired leases that have been assumed by the Debtors, (iii) for purposes of evidencing a right to distributions under the Plan, or (iv) with respect to any Claim that is reinstated and rendered unimpaired under the Plan, on the Effective Date, the promissory notes, share certificates, Ltd. Notes, Orion 10% Notes, Orion Stub Notes, the Indentures and other instruments evidencing any Claims or Equity Interests shall be deemed automatically cancelled without further act or action under any


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applicable agreement, law, regulation, order or rule and the obligations of the Debtors under the agreements, indentures, and certificates of designations governing such Claims and Equity Interests, as the case may be, shall be discharged; provided, however, that the Ltd. Notes, Orion 10% Notes, Orion Stub Notes and the Indentures shall continue in effect solely for the purposes of (i) allowing the noteholders to receive their distributions under the Plan, (ii) allowing the Indenture Trustee to make the distributions, if any, to be made on account of the Ltd. Notes, Orion 10% Notes and Orion Stub Notes and (iii) permitting each Indenture Trustee to assert its Charging Lien against such distributions for payment of the Indenture Trustee Fees.

Each holder of the Ltd. Notes, Orion 10% Notes or Orion Stub Notes shall surrender such note(s) to the pertinent Indenture Trustee, or in the event such note(s) are held in the name of, or by a nominee of, the DTC, the Debtors shall seek the cooperation of the DTC to provide appropriate instructions to the pertinent Indenture Trustee. No distributions hereunder shall be made for or on behalf of any such holder unless and until such note is received by the Indenture Trustee or appropriate instructions from the DTC shall be received by the respective Indenture Trustee, or the loss, theft or destruction of such note is established to the reasonable satisfaction of the Indenture Trustee, which satisfaction may require such holder to (i) submit a lost instrument affidavit and an indemnity bond and (ii) hold the Debtors and the Indenture Trustees harmless in respect of such note and any distributions made in respect thereof. Upon compliance with Subsection 5.3(b) of the Plan by a holder of any note, such holder shall, for all purposes under the Plan, be deemed to have surrendered such note. Any holder of Ltd. Notes, Orion 10% Notes, or Orion Stub Notes that fails to surrender such note or satisfactorily explain its non-availability to the applicable Indenture Trustee within one (1) year of the Effective Date shall be deemed to have no further Claim against the Debtors, or their property or the applicable Indenture Trustee in respect of such Claim and shall not participate in any distribution hereunder, and the distribution that would have otherwise been made to such holder shall be distributed by the applicable Indenture Trustee to all holders who have surrendered their notes or satisfactorily explained their non-availability to the applicable Indenture Trustee within one (1) year after the Effective Date.

8. Section 1145 Exemption

To the maximum extent provided by section 1145 of the Bankruptcy Code and applicable nonbankruptcy law, the issuance under the Plan of the New Loral Common Stock, the New Skynet Preferred Stock, the New Skynet Notes and the Subscription Rights will be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), and all rules and regulations promulgated thereunder.

9. Registration Rights Agreement

Each Registration Rights Holder that holds New Loral Common Stock, New Skynet Preferred Stock, or New Skynet Notes shall have registration rights with respect to such securities, as applicable, and shall have the right to become a party to the Registration Rights Agreement on the Effective Date. The Registration Rights Agreement shall be acceptable to MHR Fund Management LLC, in its sole discretion, as Registration Rights Holder or on behalf of its affiliates who receive any such securities.

10. Revocation or Withdrawal of the Plan

The Debtors reserve the right to revoke or withdraw the Plan prior to the Effective Date. If the Debtors take such action, the Plan shall be deemed null and void. In such event, nothing contained in the Plan shall constitute or be deemed a waiver or release of any Claims by or against the


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Debtors or any other person or to prejudice in any manner the rights of the Debtors or any person in any further proceedings involving the Debtors.

11. Dissolution of Statutory Committees

Effective thirty (30) days after the Effective Date if no appeal of the Confirmation Order is then pending, the Creditors’ Committee and the Equity Committee shall dissolve with respect to the Debtors and their respective members shall be released and discharged from all further authority, duties, responsibilities and obligations relating to the Reorganization Cases; provided, however, that the Creditors’ Committee and the Equity Committee and their respective professionals shall be retained with respect to (i) applications filed pursuant to sections 330 and 331 of the Bankruptcy Code and (ii) motions seeking the enforcement of the provisions of the Plan and the transactions contemplated thereunder or the Confirmation Order.

12. Indenture Trustee as Claim Holder

Consistent with Bankruptcy Rule 3003(c), the Reorganized Debtors shall recognize proofs of claim timely filed by any Indenture Trustee in respect of any Note Claims. Accordingly, any Claim, proof of which is filed by the registered or beneficial holder of a Claim, may be disallowed as duplicative of the Claim of the applicable Indenture Trustee, without any further action of the Bankruptcy Court.

13. Claims Extinguished

As of the Effective Date, any and all alter-ego or derivative claims accruing to the Debtors or Debtors in Possession against present or former officers and directors of the Debtors who were officers or directors of the Debtors at any time during the Reorganization Cases shall be extinguished whether or not then pending.

14. Avoidance Actions

Pursuant to the Plan, other than any releases granted in the Plan, by the Confirmation Order and by Final Order of the Bankruptcy Court, as applicable, from and after the Effective Date, the Reorganized Debtors shall have the right to prosecute any avoidance or equitable subordination or recovery actions under sections 105, 502(d), 510, 542 through 551, and 553 of the Bankruptcy Code that belong to the Debtors or Debtors in Possession.

15. Reservation of Rights

Except as provided in Section 11.9 of the Plan, nothing contained in the Plan or the Confirmation Order shall be deemed to be a waiver or the relinquishment of any rights or causes of action that the Debtors or the Reorganized Debtors may have or which the Reorganized Debtors may choose to assert on behalf of their respective estates under any provision of the Bankruptcy Code or any applicable nonbankruptcy law, including, without limitation, (i) any and all Claims against any person or entity, to the extent such person or entity asserts a crossclaim, counterclaim, and/or Claim for setoff which seeks affirmative relief against the Debtors, the Reorganized Debtors, their officers, directors, or representatives and (ii) the turnover of any property of the Debtors’ estates.

Nothing contained in the Plan or the Confirmation Order shall be deemed to be a waiver or relinquishment of any claim, cause of action, right of setoff, or other legal or equitable defense which the Debtors had immediately prior to the Commencement Date, against or with respect


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to any Claim left unimpaired by the Plan. The Reorganized Debtors shall have, retain, reserve, and be entitled to assert all such claims, causes of action, rights of setoff, and other legal or equitable defenses which the Debtors had immediately prior to the Commencement Date fully as if the Reorganization Cases had not been commenced, and all of the Reorganized Debtors’ legal and equitable rights respecting any Claim left unimpaired by the Plan may be asserted after the Confirmation Date to the same extent as if the Reorganization Cases had not been commenced.

16. Effectuating Documents and Further Transactions

Each of the officers of New Loral, New Skynet, New SS/L and the other Reorganized Debtors is authorized, in accordance with his or her authority under the resolutions of the applicable Board of Directors, to execute, deliver, file, or record such contracts, instruments, releases, indentures, and other agreements or documents and take such actions as may be necessary or appropriate to effectuate and further evidence the terms and conditions of the Plan.

17. Corporate Action

On the Effective Date, all matters provided for under the Plan that would otherwise require approval of the stockholders or directors of one or more of the Debtors or Reorganized Debtors, including, without limitation, the authorization to issue or cause to be issued the New Loral Common Stock, the New Skynet Preferred Stock, the New Skynet Notes or the Subscription Rights, the issuance of the New Loral Common Stock, the New Skynet Preferred Stock, the New Skynet Notes and the Subscription Rights, the New Management Stock Plan, the effectiveness of the New Loral Certificate of Incorporation and the New Loral Bylaws, the effectiveness of the New Skynet Certificates of Incorporation and New Skynet Bylaws, the effectiveness of the New SS/L Certificates of Incorporation and New SS/L Bylaws, the effectiveness of the Reorganized Subsidiary Debtors’ Certificates of Incorporation and Reorganized Subsidiary Debtors’ Bylaws, all Restructuring Transactions to be effectuated pursuant to the Plan, the election or appointment as the case may be, of directors and officers of the Reorganized Debtors, including New Loral, New Skynet and New SS/L, pursuant to the Plan and the authorization and approval of the New Loral Employment Contracts, and the qualification, of each of New Loral, New Skynet and New SS/L as a foreign corporation wherever the conduct of business by such entities requires such qualification shall be deemed to have occurred and shall be in effect from and after the Effective Date pursuant to the applicable general corporation law of the states in which the Debtors or the Reorganized Debtors are incorporated, without any requirement of further action by the stockholders or directors of the Debtors or the Reorganized Debtors. On the Effective Date, or as soon thereafter as is practicable, the Reorganized Debtors, including New Loral, shall, if required, file their amended certificates of incorporation with the Secretary of State of the state in which each such entity is (or will be) organized, in accordance with the applicable general business law of each such jurisdiction.

18. Exculpation

Notwithstanding anything in the Plan to the contrary, as of the Effective Date, none of (i) the Debtors and the Debtors’ officers, directors, and employees, (ii) the Creditors’ Committee and any subcommittee thereof, (iii) the Equity Committee, (iv) the Agent, (v) the Indenture Trustees, (vi) the JPLs, (vii) the accountants, financial advisors, investment bankers, agents and attorneys for the Debtors, (viii) the Backstop Purchasers and their affiliates and (ix) the directors, officers, partners, members, agents, representatives, accountants, financial advisors, investment bankers or attorneys for any of the persons or entities described in (ii), (iii), (iv), (v), (vi) and (viii) of Section 11.8 of the Plan (but solely in their capacities as such) shall have or incur any liability for any claim, cause of action or other assertion of liability for any


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act taken or omitted to be taken since the Commencement Date in connection with, or arising out of, the Reorganization Cases, the formulation, dissemination, confirmation, consummation, or administration of the Plan, or property to be distributed under the Plan, or any other act or omission in connection with the Reorganization Cases, the provisional liquidation of the Bermudian Debtors, the Plan, the Disclosure Statement or any contract, instrument, document, or other agreement related thereto; provided, however, that the foregoing shall not affect the liability of any person that otherwise would result from any such act or omission to the extent that such act or omission is determined by a Final Order to have constituted willful misconduct or gross negligence.

19. Plan Supplement

A draft form of the Plan Documents to be entered into as of the Effective Date and any other appropriate documents shall be contained in the Plan Supplement and filed with the Clerk of the Bankruptcy Court no later than ten (10) days prior to the last date by which holders of impaired Claims may vote to accept or reject the Plan. Upon its filing with the Bankruptcy Court, the Plan Supplement may be inspected in the office of the Clerk of the Bankruptcy Court during normal court hours. Documents to be included in the Plan Supplement will be posted at www.bsillc.com as they become available, but no later than five (5) days prior to the last date by which votes to accept or reject the Plan must be received.

VI. CONFIRMATION AND CONSUMMATION PROCEDURE

Under the Bankruptcy Code, the following steps must be taken to confirm the Plan:

A. SOLICITATION OF VOTES

In accordance with sections 1126 and 1129 of the Bankruptcy Code, the Claims in Ltd. Class 2 (Secured Tax Claims against the Ltd. Debtors), Ltd. Class 4 (Ltd. General Unsecured Claims), Orion Class 2 (Secured Tax Claims against the Orion Debtors), Orion Class 4 (Orion General Unsecured Claims), SpaceCom Class 2 (Secured Tax Claims against the SpaceCom Debtors) and SS/L Class 2 (Secured Tax Claims against the SS/L Debtors) of the Plan are impaired and the holders of Allowed Claims in each of these Classes are entitled to vote to accept or reject the Plan. The Claims and Equity Interests in Ltd. Class 5 (Ltd. Preferred Stock Interests), Ltd. Class 6 (Ltd. Equity Interests) and Ltd. Class 7 (Securities Litigation Claims) are impaired and shall not receive any distributions under the Plan. The holders of Claims or Equity Interests in such Classes are conclusively presumed to have rejected the Plan and the solicitation of acceptances with respect to such Classes is not required under section 1126(f) of the Bankruptcy Code. The Claims and Equity Interests in Ltd. Class 1 (Other Priority Claims against the Ltd. Debtors), Ltd. Class 3 (Secured Claims against the Ltd. Debtors), Orion Class 1 (Other Priority Claims against the Orion Debtors), Orion Class 3 (Secured Cla ims against the Orion Debtors), Orion Class 5 (Orion Equity Interests), SpaceCom Class 1 (Other Priority Claims against the SpaceCom Debtors), SpaceCom Class 3 (Secured Claims against the SpaceCom Debtors), SpaceCom Class 4 (SpaceCom General Unsecured Claims), SpaceCom Class 5 (SpaceCom Equity Interests), SS/L Class 1 (Other Priority Claims against the SS/L Debtors), SS/L Class 3 (Secured Claims against the SS/L Debtors), SS/L Class 4 (SS/L General Unsecured Claims) and SS/L Class 5 (SS/L Equity Interests) are unimpaired. The holders of Allowed Claims or Equity Interests in each such Class are conclusively presumed to have accepted the Plan and the solicitation of acceptances with respect to such Classes is not required under section 1126(f) of the Bankruptcy Code.


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As to the classes of claims entitled to vote on a plan, the Bankruptcy Code defines acceptance of a plan by a class of creditors as acceptance by holders of at least two-thirds in dollar amount and more than one-half in number of the claims of that class that have timely voted to accept or reject a plan.

A vote may be disregarded if the Bankruptcy Court determines, after notice and a hearing, that acceptance or rejection was not solicited or procured in good faith or in accordance with the provisions of the Bankruptcy Code.

Any creditor in an impaired Class (i) whose Claim has been listed by the Debtors in the Schedules filed with the Bankruptcy Court (provided that such Claim has not been scheduled as disputed, contingent or unliquidated or, if so scheduled, has otherwise been modified with the Debtors’ consent) or (ii) who filed a proof of claim on or before the Bar Date (January 26, 2004), or any proof of claim filed within any other applicable period of limitations or with leave of the Bankruptcy Court, which Claim is not the subject of an objection or request for estimation, is entitled to vote on the Plan.

B. THE CONFIRMATION HEARING

The Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a confirmation hearing. The Confirmation Hearing in respect of the Plan has been scheduled for July 13, 2005 at 10:00 a.m. (prevailing Eastern Time) before the Honorable Robert D. Drain, Room 610, United States Bankruptcy Court for the Southern District of New York, Alexander Hamilton House, One Bowling Green, New York, New York 10004. The Confirmation Hearing may be adjourned from time to time by the Bankruptcy Court without further notice except for an announcement of the adjourned date made at the Confirmation Hearing.

Any objection to confirmation of the Plan must be in writing, must conform to the Federal Rules of Bankruptcy Procedure, must set forth the name of the objector, the nature and amount of Cla ims or interests held or asserted by the objector against the particular Debtor or Debtors, the basis for the objection and the specific grounds therefor, and must be filed with the Bankruptcy Court, with a copy to Chambers, together with proof of service thereof, and served so as to be received by the following parties no later than 4:00 p.m. (prevailing Eastern Time) on July 7, 2005, upon (i) Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153 (Attn: Stephen Karotkin, Esq., Lori R. Fife, Esq. and Shai Y. Waisman, Esq.), the attorneys for the Debtors, (ii) the Office of the United States Trustee for the Southern District of New York, 33 Whitehall Street, 21st floor, New York, New York 10004 (Attn: Pamela J. Lustrin, Esq.), (iii) Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019 (Attn: Tonny K. Ho, Esq.), special counsel to the Debtors, (iv) Akin Gump Strauss Hauer & Feld LLP, 590 Madison Avenue, New York, New York 10022 (Attn: David H. Botter, Esq.), the attorneys for the Creditors’ Committee, (v) Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017 (Attn: Marshall S. Huebner, Esq. and John Fouhey, Esq.), the attorneys for the agent for the Debtors’ prepetition secured lenders, and (vi) Sonnenschein Nath & Rosenthal LLP, 1221 Avenue of the Americas, New York, New York 10020 (Attn: Peter D. Wolfson, Esq. and John A. Bicks, Esq.), the attorneys for the Equity Committee.

Objections to confirmation of the Plan are governed by Bankruptcy Rule 9014.


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C. CONFIRMATION

At the Confirmation Hearing, the Bankruptcy Court will confirm the Plan only if all of the requirements of section 1129 of the Bankruptcy Code are met. Among the requirements for confirmation of a plan are that the plan is (i) accepted by all impaired classes of claims and equity interests or, if rejected by an impaired class, that the plan “does not discriminate unfairly” and is “fair and equitable” as to such class, (ii) feasible and (iii) in the “best interests” of creditors and stockholders that are impaired under the plan.

1. Acceptance

Ltd. Class 2 (Secured Tax Claims against the Ltd. Debtors), Ltd. Class 4 (Ltd. General Unsecured Claims), Orion Class 2 (Secured Tax Claims against the Orion Debtors), Orion Class 4 (Orion General Unsecured Claims), SpaceCom Class 2 (Secured Tax Claims against the SpaceCom Debtors) and SS/L Class 2 (Secured Tax Claims against the SS/L Debtors) of the Plan are impaired and the holders of Allowed Claims in each of these Classes are entitled to vote to accept or reject the Plan. Ltd. Class 5 (Ltd. Preferred Stock Interests), Ltd. Class 6 (Ltd. Equity Interests) and Ltd. Class 7 (Securities Litigation Claims) are impaired under the Plan and shall not receive any distributions under the Plan, and, therefore, are conclusively presumed to have voted to reject the Plan. Ltd. Class 1 (Other Priority Claims against the Ltd. Debtors), Ltd. Class 3 (Secured Claims against the Ltd. Debtors), Orion Class 1 (Other Priority Claims against the Orion Debtors), Orion Class 3 (Secured Claims against the Orion Debtors), Orion Class 5 (Orion Equity Interests), SpaceCom Class 1 (Other Priority Claims against the SpaceCom Debtors), SpaceCom Class 3 (Secured Claims against the SpaceCom Debtors), SpaceCom Class 4 (SpaceCom General Unsecured Claims), SpaceCom Class 5 (SpaceCom Equity Interests), SS/L Class 1 (Other Priority Claims against the SS/L Debtors), SS/L Class 3 (Secured Claims against the SS/L Debtors), SS/L Class 4 (SS/L General Unsecured Claims) and SS/L Class 5 (SS/L Equity Interests) are unimpaired and, therefore, are conclusively presumed to have voted to accept the Plan.

With respect to those Classes of Claims and Equity Interests that are deemed to have rejected the Plan, i.e., Ltd. Class 5 (Ltd. Preferred Stock Interests), Ltd. Class 6 (Ltd. Equity Interests) and Ltd. Class 7 (Securities Litigation Claims), the Debtors currently intend to request confirmation of the Plan pursuant to section 1129(b) of the Bankruptcy Code. The Debtors reserve the right to amend the Plan in accordance with Section 14.11 of the Plan or seek nonconsensual confirmation of the Plan under section 1129(b) of the Bankruptcy Code or both with respect to any Class of Claims that is entitled to vote to accept or reject the Plan, if such Class rejects the Plan.

2. Unfair Discrimination and Fair and Equitable Tests

To obtain nonconsensual confirmation of the Plan, it must be demonstrated to the Bankruptcy Court that the Plan “does not discriminate unfairly” and is “fair and equitable” with respect to each impaired, nonaccepting Class.

a. No Unfair Discrimination

A plan of reorganization does not “discriminate unfairly” with respect to a nonaccepting class if the value of the cash and/or securities to be distributed to the nonaccepting class is equal to, or otherwise fair when compared to, the value of the distributions to other classes the legal rights of which are the same as those of the nonaccepting class.


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b. Fair and Equitable

The Bankruptcy Code provides a non-exclusive definition of the phrase “fair and equitable.” The Bankruptcy Code establishes “cram down” tests for secured creditors, unsecured creditors and equity holders, as follows:

• Secured Creditors. Each holder of an impaired secured claim either (i) retains its liens on the property, to the extent of the allowed amount of its secured claim, and receives deferred cash payments having a value, as of the effective date of the plan of reorganization, of at least the allowed amount of such claim, or (ii) has the right to credit bid the amount of its claim if its property is sold and retains its liens on the proceeds of the sale, or (iii) receives the “indubitable equivalent” of its allowed secured claim.

• Unsecured Creditors. Either (i) each impaired unsecured creditor receives or retains under the plan property of a value equal to the amount of its allowed claim or (ii) the holders of claims and interests that are junior to the claims of the dissenting class will not receive any property under the plan.

• Equity Interests. Either (i) each holder of an equity interest will receive or retain under the plan property of a value equal to the greatest of the fixed liquidation preference to which such holder is entitled, the fixed redemption price to which such holder is entitled or the value of the interest or (ii) the holder of an interest that is junior to the nonaccepting class will not receive or retain any property under the plan.

3. Feasibility

The Bankruptcy Code requires a debtor to demonstrate that confirmation of a plan is not likely to be followed by liquidation or the need for further financial reorganization. For purposes of determining whether the Plan meets this requirement, the Debtors have analyzed their ability to meet their obligations under the Plan. As part of this analysis, the Debtors have made the financial projections attached as Exhibit E hereto. Based upon the projections, the Debtors believe that they will be able to make all payments required pursuant to the Plan and, therefore, that confirmation of the Plan is not likely to be followed by liquidation or the need for further reorganization.

The financial information and projections appended to the Disclosure Statement as Exhibit E include:

• Debtors’ Historical Financial Performance;

• Reorganized Debtors’ Condensed Projected Pro Forma Balance Sheets as of June 30, 2005; and

• Reorganized Debtors’ Projected Financial Performance.

The pro forma financial information and the projections are based on the assumption that the Plan will be confirmed by the Bankruptcy Court and, for projection purposes, that the Effective Date under the Plan will occur on June 30, 2005.


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The Debtors have prepared these financial projections based upon certain assumptions that they believe to be reasonable under the circumstances. Those assumptions considered to be significant are described in the financial projections annexed hereto. The financial projections have not been examined or compiled by independent accountants. The Debtors make no representation as to the accuracy of the projections or their ability to achieve the projected results. Many of the assumptions on which the projections are based are subject to significant uncertainties. Inevitably, some assumptions will not materialize and unanticipated events and circumstances may affect the actual financial results. Therefore, the actual results achieved throughout the projection period will vary from the projected results and these variations may be material. All holders of Claims that are entitled to vote to accept or reject the Plan are urged to examine carefully all of the assumptions on which the financial projections are based in connection with their evaluation of the Plan.

4. Best Interests Test

With respect to each impaired Class of Claims and Equity Interests, confirmation of the Plan requires that each holder of a Claim or Equity Interest either (i) accept the Plan or (ii) receive or retain under the Plan property of a value, as of the Effective Date, that is not less than the value such holder would receive if the Debtors were liquidated under chapter 7 of the Bankruptcy Code. To determine what holders of Claims and Equity Interests in each impaired Class would receive if the Debtors were liquidated under chapter 7, the Bankruptcy Court must determine the dollar amount that would be generated from the liquidation of the Debtors’ assets and properties in the context of a chapter 7 liquidation case. The Cash amount that would be available for satisfaction of Claims and Equity Interests would consist of the proceeds resulting from the disposition of the unencumbered assets and properties of the Debtors, augmented by the unencumbered Cash held by the Debtors at the time of the commencement of the liquidation case. Such Cash amount would be reduced by the costs and expenses of liquidation and by such additional administrative and priority claims that might result from the termination of the Debtors’ business and the use of chapter 7 for the purposes of liquidation.

The Debtors’ costs of liquidation under chapter 7 would include the fees payable to a trustee in bankruptcy, as well as those fees that might be payable to attorneys and other professionals that such a trustee might engage. In addition, Claims would arise by reason of the breach or rejection of obligations incurred and leases and executory contracts assumed or entered into by the Debtors during the pendency of the Reorganization Cases. The foregoing types of Claims and other Claims that might arise in a liquidation case or result from the pending Reorganization Cases, including any unpaid expenses incurred by the Debtors during the Reorganization Cases, such as compensation for attorneys, financial advisors and accountants, would be paid in full from the liquidation proceeds before the balance of those proceeds would be made available to pay prepetition Claims.

To determine if the Plan is in the best interests of each impaired Class, the present value of the distributions from the proceeds of a liquidation of the Debtors’ unencumbered assets and properties, after subtracting the amounts attributable to the foregoing Claims, must be compared with the value of the property offered to such Classes of Claims under the Plan.

After considering the effects that a chapter 7 liquidation would have on the ultimate proceeds available for distribution to creditors in the Reorganization Cases, including (i) the increased costs and expenses of a liquidation under chapter 7 arising from fees payable to a trustee in bankruptcy and professional advisors to such trustee, (ii) the erosion in value of assets in a chapter 7 case in the context of the expeditious liquidation required under chapter 7 and the “forced sale” atmosphere that would prevail, and (iii) the substantial increases in claims that would be satisfied on a priority basis or on parity with creditors in the Reorganization Cases, the Debtors have determined


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that confirmation of the Plan will provide each holder of an Allowed Claim with a recovery that is not less than such holder would receive pursuant to the liquidation of the Debtors under chapter 7.

The Debtors also believe that the value of any distributions to each Class of Allowed Claims in a chapter 7 case, including all Secured Claims, would be less than the value of distributions under the Plan because such distributions in a chapter 7 case would not occur for a substantial period of time. It is likely that distribution of the proceeds of the liquidation could be delayed for two years after the completion of such liquidation in order to resolve claims and prepare for distributions. In the likely event litigation was necessary to resolve claims asserted in the chapter 7 case, the delay could be prolonged.

The Loral Liquidation Analysis is annexed hereto as Exhibit F. The information set forth in Exhibit F provides a summary of the liquidation values of the Debtors’ assets, assuming a chapter 7 liquidation in which a trustee appointed by the Bankruptcy Court would liquidate the assets of the Debtors’ estates. Reference should be made to the Liquidation Analysis herein for a complete discussion and presentation of the Liquidation Analysis. The Liquidation Analysis was prepared by the Debtors with the assistance of Conway Del Genio Gries & Company, LLC.

Underlying the Liquidation Analysis are a number of estimates and assumptions that, although developed and considered reasonable by the Debtors’ management, are inherently subject to significant economic and competitive uncertainties and contingencies beyond the control of the Debtors and their management. The Liquidation Analysis also is based on assumptions with regard to liquidation decisions that are subject to change. Accordingly, the values reflected might not be realized if the Debtors were, in fact, to undergo such a liquidation. The chapter 7 liquidation period is assumed to be a period of one year, allowing for, among other things, the discontinuation and wind-down of operations, the sale of assets and the collection of receivables.

D. BERMUDA HEARING

At the Bermuda Hearing, the JPLs will make an application for an order (the “Bermuda Order”) authorizing them to take all steps necessary to implement the Plan, including the transfer of the assets of the Bermudian Debtors. The Bermuda Hearing has been scheduled for July 11, 2005 at 11:00 a.m. Bermuda Time (10:00 a.m. prevailing Eastern Time). The Bermuda Hearing may be adjourned from time to time by the Bermuda Court without further notice except for an announcement of the adjourned date made at the Bermuda Hearing or at a subsequent adjourned Bermuda Hearing.

The Debtors and the JPLs have been advised that it is not necessary for the Bermudian Debtors to have parallel schemes of arrangement under Bermudian law (a form of statutory compromise which is similar in effect to a plan of reorganization) in order to give effect to the Plan as it relates to the Bermudian Debtors and have also been advised that the transfer of the assets of the Bermudian Debtors to New Loral must be made by the JPLs. Accordingly, at the Bermuda Hearing, the JPLs will apply to the Bermuda Court for the Bermuda Order. At the Bermuda Hearing, the Bermuda Court will only enter the Bermuda Order if it is satisfied that the Plan is in the interests of the creditors of the Bermudian Debtors and, in particular, that the return to those creditors under the Plan will be no less than they could expect to receive on a liquidation of the Bermudian Debtors.

Only creditors of the Bermudian Debtors whose Claims will not be extinguished by the Plan are entitled to be heard at the Bermuda Hearing (in person or by their Bermudian legal representatives). Any such creditor who has an objection to the Plan and wishes to oppose the JPLs’


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application at the Bermuda Hearing should file an affidavit in the Bermuda Court setting forth the name of the objector, the nature and amount of Claims or interests held or asserted by the objector against the particular Bermudian Debtor(s), the basis for the objection and the specific grounds therefor. The affidavit must be filed in the Bermuda Court at the Registry of the Supreme Court, 113 Front Street, Hamilton, Bermuda and served so as to be actually received by the following parties no later than 4:00 p.m. Bermuda Time (3:00 p.m. prevailing Eastern Time) on July 7, 2005 upon (i) the JPLs, Crown House, 4 Par-la-Ville Road, Hamilton HM08, Bermuda (Attn: Mike Morrison and Robert Ware), (ii) Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153 (Attn: Stephen Karotkin, Esq., Lori R. Fife, Esq. and Shai Y. Waisman, Esq.), the attorneys for the Debtors, (iii) Akin Gump Strauss Hauer & Feld LLP, 590 Madison Avenue, New York, New York 10022 (Attn: David H. Botter, Esq.), the attorneys for the Creditors’ Committee, and (iv) Sonnenschein Nath & Rosenthal LLP, 1221 Avenue of the Americas, New York, New York 10020 (Attn: Peter D. Wolfson, Esq. and John A. Bicks, Esq.), the attorneys for the Equity Committee.

E. CONSUMMATION

The Plan will be consummated on the Effective Date. The Effective Date of the Plan will occur on the first Business Day on which the conditions precedent to the effectiveness of the Plan, as set forth in Section 12.1 of the Plan, have been satisfied or waived by the Debtors and the Creditors’ Committee. For a more detailed discussion of the conditions precedent to the Plan and the consequences of the failure to meet such conditions, see Section V.L. of this Disclosure Statement.

The Plan is to be implemented pursuant to its terms, consistent with the provisions of the Bankruptcy Code.

VII. CORPORATE GOVERNANCE OF THE REORGANIZED DEBTORS

A. DIRECTORS AND OFFICERS OF THE REORGANIZED DEBTORS

On the Effective Date, the management, control, and operation of the Reorganized Debtors shall become the general responsibility of the New Loral Board, the New SS/L Board, the New Skynet Board and the Reorganized Subsidiary Debtors’ Boards, as applicable.

1. New Loral Board

The members of the initial New Loral Board shall be disclosed not later than ten (10) days prior to the Confirmation Hearing. Each of the members of such initial New Loral Board shall serve in accordance with applicable nonbankruptcy law and the New Loral Certificate of Incorporation and New Loral Bylaws, as the same may be amended from time to time. The New Loral Board shall be divided into three (3) classes, as nearly equal in size as permitted. Each class of directors shall generally serve a term of three (3) years, with one (1) class elected each year. However, after the Effective Date, the initial Class 1 directors shall serve a term expiring at the first (1st) succeeding annual meeting of stockholders, which shall occur not earlier than the first (1st) anniversary of the Effective Date, the initial Class 2 directors shall serve a term expiring at the second (2nd) succeeding annual meeting of stockholders, and the initial Class 3 directors shall serve a term expiring at the third (3rd) succeeding annual meeting of stockholders. The Class 1 directors shall initially consist of the Chief Executive Officer, one (1) of his designees and one (1) of the Creditors’ Committee’s designees; the Class 2 directors shall initially consist of the Vice Chairman, one (1) of the CEO’s designees and one (1) of the Creditors’ Committee’s designees; and the Class 3 directors shall initially consist of three (3) directors designated by the Creditors’ Committee. The number of directors on the New Loral Board shall be determined by the Creditors’ Committee. A majority of


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the directors shall be “independent” (within the meaning of the rules of the Securities and Exchange Commission and Nasdaq or other national securities exchange, as applicable). One or more of the Creditors’ Committee’s designees shall be permitted not to become members of the New Loral Board until two (2) days after the Effective Date or such other number of days after the Effective Date determined by the Creditors’ Committee.

The New Loral Bylaws shall provide, among other things, that the New Loral Board shall cause the board of directors of each of New Skynet and New SS/L to be the same as the New Loral Board at all times, and any amendment of such provision of the New Loral Bylaws shall require the vote of not less than 75% of the directors of New Loral.

2. New Skynet Board

Each of the members of the initial New Skynet Board shall serve in accordance with applicable nonbankruptcy law and the New Skynet Certificate of Incorporation and New Skynet Bylaws, as the same may be amended from time to time. A majority of the directors shall not be employees of New Loral or its affiliates.

3. New SS/L Board

Each of the members of the initial New SS/L Board shall serve in accordance with applicable nonbankruptcy law and the New SS/L Certificate of Incorporation and New SS/L Bylaws, as the same may be amended from time to time. A majority of the directors shall not be employees of New Loral or its affiliates.

4. Reorganized Subsidiary Debtors’ Boards

The initial Reorganized Subsidiary Debtors’ Boards shall be disclosed not later than ten (10) days prior to the Confirmation Hearing. Each of the members of such initial Reorganized Subsidiary Debtors’ Boards shall serve in accordance with applicable nonbankruptcy law and the Reorganized Subsidiary Debtors’ Certificates of Incorporation and Reorganized Subsidiary Debtors’ Bylaws, as the same may be amended from time to time.

5. Officers

Effective as of the Effective Date, New Loral, New Skynet and New SS/L, as applicable, shall enter into the New Loral Employment Contracts. The officers of the Reorganized Debtors, including New Loral, shall be disclosed not later than ten (10) days prior to the Confirmation Hearing. Each of the officers shall serve in accordance with applicable nonbankruptcy law, any applicable employment agreement, the New Loral Certificate of Incorporation, the New Skynet Certificate of Incorporation, the New SS/L Certificate of Incorporation, or the Reorganized Subsidiary Debtors’ Certificates of Incorporation, as applicable, and the New Loral Bylaws, the New Skynet Bylaws, the New SS/L Bylaws, or the Reorganized Subsidiary Debtors’ Bylaws, as applicable, as the same may be amended from time to time.

6. Management of the Reorganized Debtors

Chief Executive Officer. Bernard L. Schwartz will serve as the Chief Executive Officer and Chairman of the New Loral Board and will report to the New Loral Board. Mr. Schwartz will have a one-year employment contract, commencing upon the Effective Date.


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Non-Executive Vice Chairman. Michael B. Targoff will serve as the Non-Executive Vice Chairman of the New Loral Board. The Non-Executive Vice Chairman will serve as Chairman of the Executive Committee of the New Loral Board. Mr. Targoff, 60, is Founder of Michael B. Targoff & Co., an investment firm. Mr. Targoff joined Loral in 1981 and until 1996 held a number of positions, including general counsel. From January 1996 through January 1998, Mr. Targoff was president and chief operating officer of Loral. Mr. Targoff is Chairman of the Board of Communication Power Industries (“CPI”), and a director of Kayne Anderson MLP Investment Company (“Kayne”), ViaSat, Inc., Infocrossing, Inc., and Leap Wireless International, Inc. (“LEAP”). He is Chairman of the Audit Committee of CPI and LEAP and an audit committee member of Kayne. Mr. Targoff is also Chairman of the Board of Directors of two small private telecommunications companies. Prior to joining Loral, Mr. Targoff was a partner in the New York City law firm, Willkie Farr & Gallagher LLP.

Senior Management. In addition to Bernard Schwartz, fourteen (14) individuals, as listed on Exhibit E to the Plan, will serve as executives of New Loral, New Skynet or New SS/L. Each such individual will receive a two-year employment contract commencing upon the Effective Date.

B. CERTIFICATES OF INCORPORATION AND BYLAWS

The New Loral Certificate of Incorporation, the New Loral Bylaws, the New Skynet Certificate of Incorporation, the New Skynet Bylaws, the New SS/L Certificate of Incorporation and the New SS/L Bylaws, as applicable, shall provide that, for a period of twenty-four (24) months from the Effective Date, (i) no assets of New SS/L shall be used (including, but not limited to, by way of encumbering such assets) nor shall New SS/L provide a guarantee or other credit support in connection with any transaction or other undertaking relating to (A) a redemption of any New Skynet Preferred Stock or (B) a redemption or prepayment of any New Skynet Notes, or (C) the payment of any dividends or any other distributions to the shareholders of any of its affiliates, and (ii) without in any way limiting the foregoing clause (i), no assets of New SS/L shall be used (including, but not limited to, by way of encumbering such assets) nor shall New SS/L provide a guarantee or other credit support in connection with any transaction or otherwise, unless New SS/L receives in exchange therefor either (x) other assets having substantially equivalent value, or (y) an interest (having substantially equivalent value) in other assets, in each instance as determined by the New Loral Board. The New Loral Bylaws shall provide, among other things, that the New Loral Board shall cause the board of directors of each of New Skynet and New SS/L to be the same as the New Loral Board at all times, and any amendment of such provision of the New Loral Bylaws shall require the vote of not less than 75% of the directors of New Loral. Notwithstanding anything contained in the Plan, including Exhibit A and Exhibit B thereto, the New SS/L Certificate of Incorporation and the New SS/L Bylaws shall permit New SS/L to transfer funds to New Loral or its direct and indirect subsidiaries in the ordinary course and consistent with the past practices of the Debtors.


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C. CONTINUATION OF EXISTING BENEFIT PLANS AND D&O INSURANCE

1. Benefit Plans

Pursuant to the Plan, except with respect to the SERP Amendment, all savings plans, retirement plans, health care plans, performance-based incentive plans, retention plans, workers’ compensation programs and life, disability, directors and officers liability and other insurance plans, are treated as executory contracts under the Plan and shall be assumed by the Debtors and assigned to the Reorganized Debtors under the Plan; provided, however, that all such benefit plans shall be subject to modification in accordance with the terms thereof at the discretion of the New Loral Board.

The SERP Amendment modif ies the Debtors’ obligation to Bernard L. Schwartz under the SERP. All other obligations under the SERP shall be assumed by the Reorganized Debtors.

2. D&O Insurance

The Debtors have maintained and New Loral will continue to maintain insurance for the benefit of such directors, officers, agents and/or employees at levels no less favorable than those existing as of the date of entry of the Confirmation Order for a period of no less than three (3) years following the Effective Date.

VIII. SECURITIES LAWS MATTERS

A. BANKRUPTCY CODE EXEMPTIONS FROM REGISTRATION REQUIREMENTS

In reliance upon section 1145 of the Bankruptcy Code, the offer and issuance of the New Loral Common Stock, the New Skynet Preferred Stock, the New Skynet Notes and/or the Subscription Rights will be exempt from the registration requirements of the Securities Act and equivalent provisions in state securities laws. Section 1145(a) of the Bankruptcy Code generally exempts from such registration requirements the issuance of securities if the following conditions are satisfied: (i) the securities are issued or sold under a chapter 11 plan by (A) a debtor, (B) one of its affiliates participating in a joint plan with the debtor, or (C) a successor to a debtor under the plan; and (ii) the securities are issued entirely in exchange for a claim against or interest in the debtor or such affiliate, or are issued principally in such exchange and partly for cash or property. The Debtors believe that the issuance of the New Loral Common Stock, the New Skynet Preferred Stock, the New Skynet Notes and/or the Subscription Rights in exchange for Claims against the Debtors under the circumstances provided in the Plan will satisfy the requirements of section 1145(a) of the Bankruptcy Code.

The shares of New Loral Common Stock, the shares of New Skynet Preferred Stock and/or the New Skynet Notes to be issued pursuant to the Plan will be deemed to have been issued in a public offering under the Securities Act and, therefore, may be resold by any holder thereof without registration under the Securities Act pursuant to the exemption provided by section 4(1) thereof, unless the holder is an “underwriter” with respect to such securities, as that term is defined in section 1145(b)(1) of the Bankruptcy Code (a “statutory underwriter”), as described below. In addition, such securities generally may be resold by the holders thereof without registration under state securities or “blue sky” laws pursuant to various exemptions provided by the respective laws of the individual states. However, holders of securities issued under the Plan are advised to consult with their own counsel as to the availability of any such exemption from registration under federal securities laws and any relevant state securities laws in any given instance and as to any applicable requirements or


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conditions to the availability thereof. The Subscription Rights are, by their terms, non-transferable and non-certificated.

Section 1145(b)(i) of the Bankruptcy Code defines “underwriter” for purposes of the Securities Act as one who (a) purchases a claim or interest with a view to distribution of any security to be received in exchange for the claim or interest, or (b) offers to sell securities issued under a plan for the holders of such securities, or (c) offers to buy securities issued under a plan from persons receiving such securities, if the offer to buy is made with a view to distribution of such securities and under an agreement made in connection with the plan, with the consummation of the plan, or with the offer or sale of securities under the plan, or (d) is an issuer of the securities within the meaning of Section 2(a)(11) of the Securities Act.

An entity is not an “underwriter” under Section 2(a)(11) of the Securities Act with regard to securities received under section 1145(a)(1), in “ordinary trading transactions” made on a national securities exchange or a Nasdaq market. While the Debtors anticipate that the New Loral Common Stock will be listed on an exchange or a Nasdaq market, there can be no assurances that such securities will be so listed. It is not anticipated that the New Skynet Preferred Stock or the New Skynet Notes will be listed on any such exchange or market. What constitutes “ordinary trading transactions” within the meaning of section 1145 of the Bankruptcy Code is the subject of interpretive letters by the staff of the Securities and Exchange Commission (the “SEC”). Generally, ordinary trading transactions are those that do not involve (i) concerted activity by recipients of securities under a plan of reorganization, or by distributors acting on their behalf, in connection with the sale of such securities, (ii) use of informational documents in connection with the sale other than the disclosure statement relating to the plan, any amendments thereto, and reports filed by the issuer with the SEC under the Securities Exchange Act of 1934, or (iii) payment of special compensation to brokers or dealers in connection with the sale.

The term “issuer” is defined in Section 2(4) of the Securities Act; however, the reference contained in section 1145(b)(1)(D) of the Bankruptcy Code to Section 2(11) of the Securities Act purports to include as statutory underwriters all persons who, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with, an issuer of securities. “Control” (as defined in Rule 405 under the Securities Act) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise. Accordingly, an officer or director of a reorganized debtor or its successor under a plan of reorganization may be deemed to be a “control person” of such debtor or successor, particularly if the management position or directorship is coupled with ownership of a significant percentage of the voting securities of such issuer. Additionally, the legislative history of section 1145 of the Bankruptcy Code provides that a creditor who receives at least ten percent (10%) of the voting securities of an issuer under a plan of reorganization will be presumed to be a statutory underwriter within the meaning of section 1145(b)(i) of the Bankruptcy Code.

The Debtors believe that the Options to be issued as provided under the Plan will be exempt from the registration requirements of the Securities Act, pursuant to Section 4(2) of the Securities Act, as transactions by an issuer not involving any public offering, and equivalent exemptions in state securities laws.

Any issuance of New Skynet Notes to the Backstop Purchaser will not be exempt from the registration requirements of the Securities Act pursuant to Section 1145 of the Bankruptcy Code, but the Debtors believe that any such issuance to the Backstop Purchaser will be exempt


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pursuant to Section (4)(2) of the Securities Act, as a transaction by an issuer not involving any public offering, and equivalent exemptions in state securities laws.

To the extent that persons receive Options or persons deemed to be “underwriters” receive New Loral Common Stock, New Skynet Preferred Stock and/or the New Skynet Notes pursuant to the Plan (collectively , with the Backstop Purchaser, “Restricted Holders”), resales by Restricted Holders would not be exempted by section 1145 of the Bankruptcy Code from registration under the Securities Act or other applicable law. Restricted Holders may, however, be able, at a future time and under certain conditions described below, to sell securities without registration pursuant to the resale provisions of Rule 144 under the Securities Act.

Under certain circumstances, holders of New Loral Common Stock, New Skynet Preferred Stock and/or the New Skynet Notes deemed to be “underwriters” or holders of Options may be entitled to resell their securities pursuant to the limited safe harbor resale provisions of Rule 144 of the Securities Act, to the extent available, and in compliance with applicable state and foreign securities laws. Generally, Rule 144 of the Securitie s Act provides that persons who are affiliates of an issuer who resell securities will not be deemed to be underwriters if certain conditions are met. These conditions include the requirement that current public information with respect to the issuer be available, a limitation as to the amount of securities that may be sold in any three-month period, the requirement that the securities be sold in a “brokers transaction” or in a transaction directly with a “market maker” and that notice of the resale be filed with the SEC. The Debtors cannot assure, however, that adequate current public information will exist with respect to any issuer of New Loral Common Stock or Options and, therefore, that the safe harbor provisions of Rule 144 of the Securities Act will be available.

Pursuant to the Plan, certificates evidencing shares of New Loral Common Stock, shares of New Skynet Preferred Stock or the New Skynet Notes received by Restricted Holders or by a holder that the Debtors determine may be an underwriter within the meaning of section 1145 of the Bankruptcy Code may bear a legend substantially in the form below:

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED.

Any person or entity entitled to receive shares of New Loral Common Stock, shares of New Skynet Preferred Stock and/or the New Skynet Notes who the issuer of such securities determines to be a statutory underwriter that would otherwise receive legended securities as provided above, may instead receive certificates evidencing New Loral Common Stock, New Skynet Preferred Stock and/or the New Skynet Notes without such legend if, prior to the distribution of such securities, such person or entity (A) delivers to such issuer, (i) an opinion of counsel reasonably satisfactory to such issuer to the effect that the shares of New Loral Common Stock, the shares of New Skynet Preferred Stock and/or the New Skynet Notes to be received by such person or entity are not subject to the restrictions applicable to “underwriters” under section 1145 of the Bankruptcy Code and may be sold without registration under the Securities Act and (ii) a certification that such person or entity


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is not an “underwriter” within the meaning of section 1145 of the Bankruptcy Code or (B) (i) delivers to such issuer a certification that such person or entity will not transfer such securities in violation of the Securities Act and (ii) makes arrangement with such issuer’s transfer agent reasonably satisfactory to such issuer to have restrictions placed on the transfer on such securities customary for securities not registered under the Securities Act.

Any holder of a certificate evidencing shares of New Loral Common Stock, shares of New Skynet Preferred Stock and/or the New Skynet Notes bearing such legend may present such certificate to the transfer agent for the shares of New Loral Common Stock, shares of New Skynet Preferred Stock and/or the New Skynet Notes for exchange for one or more new certificates not bearing such legend or for transfer to a new holder without such legend at such time as (i) such securities are sold pursuant to an effective registration statement under the Securities Act or (ii) such holder delivers to the issuer of such securities an opinion of counsel reasonably satisfactory to such issuer to the effect that such securities are no longer subject to the restrictions applicable to “underwriters” under section 1145 of the Bankruptcy Code or (iii) such holder delivers to such issuer an opinion of counsel reasonably satisfactory to such issuer to the effect that (x) such securities are no longer subject to the restrictions pursuant to an exemption under the Securities Act and such securities may be sold without registration under the Securities Act or (y) such transfer is exempt from registration under the Securities Act, in which event the certificate issued to the transferee shall not bear such legend.

IN VIEW OF THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF WHETHER A RECIPIENT OF SECURITIES MAY BE AN UNDERWRITER OR AN AFFILIATE OF THE REORGANIZED DEBTORS, THE DEBTORS MAKE NO REPRESENTATIONS CONCERNING THE RIGHT OF ANY PERSON TO TRADE IN SECURITIES TO BE DISTRIBUTED PURSUANT TO THE PLAN. ACCORDINGLY, THE DEBTORS RECOMMEND THAT POTENTIAL RECIPIENTS OF SECURITIES CONSULT THEIR OWN COUNSEL CONCERNING WHETHER THEY MAY FREELY TRADE SUCH SECURITIES.

B. REGISTRATION RIGHTS AGREEMENT

Each direct or indirect holder or affiliate or group of affiliates of a holder of an Allowed Claim (i) receiving distribution pursuant to the Plan of ten percent (10%) or greater of any of the New Loral Common Stock, the New Skynet Preferred Stock or the New Skynet Notes, (ii) that the Debtors, in consultation with the Creditors’ Committee, reasonably determine may be an underwriter pursuant to section 1145 of the Bankruptcy Code with respect to the New Loral Common Stock, the New Skynet Preferred Stock or the New Skynet Notes that such holder received pursuant to the Plan, (iii) that the Debtors, in consultation with the Creditors’ Committee, reasonably determine may be subject to resale restrictions on any New Loral Common Stock, New Skynet Preferred Stock or New Skynet Notes that such holder received pursuant to the Plan by operation of Rule 144 of the Securities Act of 1933, or (iv) that the Debtors and the Creditors’ Committee agree shall be a Registration Rights Holder, shall have the right to become a party to the Registration Rights Agreement.

The Registration Rights Agreement, the form of which will be included in the Plan Supplement, shall be acceptable to MHR Fund Management LLC, in its sole discretion, as Registration Rights Holder or on behalf of its affiliates who receive any such securitie s.


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IX. VALUATION

A. OVERVIEW

The Debtors have been advised by Greenhill with respect to the value, collectively, of the Reorganized Debtors. Greenhill has undertaken its valuation analysis for the purpose of determining value available for distribution to creditors pursuant to the Plan and to analyze the relative recoveries to creditors thereunder.

For purposes of the Plan, the reorganization value (the “Reorganization Value”) is estimated to range from approximately $708,000,000 to $939,000,000. (For purposes of determining the estimated recoveries for creditors in Ltd. Class 4 and Orion Class 4 under the Plan, a compromise Reorganization Value of $875,300,000 has been used, which is within this range.) The Reorganization Value assumes an Effective Date of June 30, 2005 and reflects the going concern value of the Reorganized Debtors after giving effect to the implementation of the Plan.

The common equity value (the “Equity Value”) of the Reorganized Debtors is estimated to range from approximately $388,000,000 to $619,000,000 or from approximately $19.40 per share to $30.95 per share of New Loral Common Stock assuming a total of 20,000,000 shares of common stock are issued and outstanding on the Effective Date.13 (For purposes of determining the estimated recoveries for creditors in Ltd. Class 4 and Orion Class 4 under the Plan, a compromise Equity Value of approximately $555,000,000 has been used, which is within this range.) The Equity Value reflects the difference between the Reorganization Value and the total amount of long-term net debt and preferred stock that is estimated to be outstanding after giving effect to the Plan.

With respect to the financial projections prepared by the management of the Debtors and included as Exhibit E to this Disclosure Statement, Greenhill assumed that such projections have been reasonably prepared in good faith and on a basis reflecting the best currently available estimates and judgments of the Debtors as to the future operating and financial performance of the Reorganized Debtors. Greenhill’s estimate of Reorganization Value assumes that operating results projected by the Debtors will be achieved by the Reorganized Debtors in all material respects, including revenue growth and improvements in operating margins, earnings and cash flow. The financial performance forecast by the management of the Debtors is materially better than the recent financial performance of the Debtors. As a result, to the extent that the estimate of enterprise values is dependent upon the Reorganized Debtors performing at the levels set forth in the projections, such analysis should be considered speculative. If the business performs at levels below those set forth in the projections, such performance may have a material impact on the estimated range of values.

In preparing an estimate of Reorganization Value, Greenhill (i) reviewed certain historical financial information of the Debtors for recent years and interim periods; (ii) reviewed certain internal financial and operating data of the Debtors, including projections provided by management relating to the Debtors’ businesses and prospects; (iii) met with certain members of senior management of the Debtors to discuss operations and future prospects; (iv) reviewed publicly available financial data and considered the market value of public companies that Greenhill deemed generally comparable to the operating businesses of the Debtors; (v) considered certain economic and

13 Per share values do not include any potential impact of dilution from the exercise of unvested options to be issued under the New Management Incentive Plan. The fully diluted per share value, assuming exercise of all unvested options, would range from approximately $19.37 per share to $30.17 per share of new Loral Common Stock.


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industry information relevant to the Debtors’ operating businesses; and (vi) conducted such other studies, analyses, inquiries and investigations as Greenhill deemed appropriate. Although Greenhill conducted a review and analysis of the Debtors’ businesses, operating assets and liabilities and the Reorganized Debtors’ business plan, Greenhill assumed and relied on the accuracy and completeness of all financial and other information furnished to it by the Debtors, as well as publicly available information.

In addition, Greenhill did not independently verify management’s projections in connection with such estimates of Reorganization Value and Equity Value, and no independent valuations or appraisals of the Debtors were sought or were obtained in connection herewith. In the case of the Reorganized Debtors, the estimates of the Reorganization Value prepared by Greenhill represent the hypothetical reorganization value of the Reorganized Debtors. Such estimates were developed solely for the analysis of implied relative recoveries to creditors under the Plan. Such estimates reflect computations of the range of the estimated reorganization value of the Reorganized Debtors through the application of various valuation techniques and do not purport to reflect or constitute appraisals, liquidation values or estimates of the actual market value that may be realized through the sale of any securities to be issued pursuant to the Plan, which may be significantly different than the amounts set forth herein.

The value of an operating business is subject to numerous uncertainties and contingencies which are difficult to predict and will fluctuate with changes in factors affecting the financial condition and prospects of such a business. As a result, the estimate of the reorganization enterprise value of the Reorganized Debtors set forth herein is not necessarily indicative of actual outcomes, which may be significantly more or less favorable than those set forth herein. Because such estimates are inherently subject to uncertainties, neither the Debtors, Greenhill, nor any other person assumes responsibility for their accuracy. In addition, the valuation of newly issued securities is subject to additional uncertainties and contingencies, all of which are difficult to predict. Actual market prices of such securities at issuance will depend upon, among other things, prevailing interest rates, conditions in the financial markets, the anticipated holding period of securities received by prepetition creditors, some of whom may prefer to liquidate their investment rather than hold it on a long-term basis, and other factors which generally influence the prices of securities.

Greenhill’s valuation represents a hypothetical value that reflects the estimated intrinsic value of the Reorganized Debtors derived through the application of various valuation techniques. Such analysis does not purport to represent valuation levels which would be achieved in, or assigned by, the public markets for debt and equity securities or private markets for corporations. Estimates of enterprise value do not purport to be appraisals or necessarily reflect the values which may be realized if assets are sold as a going concern, in liquidation, or otherwise.

B. VALUATION METHODOLOGY

The following is a brief summary of certain financial analyses performed by Greenhill to arrive at its estimation of the Reorganization Value of the Reorganized Debtors. Greenhill performed certain procedures, including each of the financial analyses described below, and reviewed the assumptions with the management of the Debtors on which such analyses were based and other factors, including the projected financial results of the Reorganized Debtors. Greenhill’s estimate of Reorganization Value must be considered as a whole and selecting just one methodology or portions of the analysis, without considering the analysis as a whole, could create a misleading or incomplete conclusion as to enterprise value.


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1. Publicly Traded Company Analysis

A publicly traded company analysis estimates value based on a comparison of the target company’s financial statistics with the financial statistics of public companies that are similar to the target company. The analysis establishes a benchmark for asset valuation by deriving the value of “comparable” assets, standardized using a common variable such as revenue or EBITDA. The analysis includes a detailed multi-year financial comparison of each company’s income statement, balance sheet, and cash flow statement. Based on these analyses, a number of financial multiples and ratios are calculated to gauge each company’s relative performance and valuation.

A key factor to this approach is the selection of companies with relatively similar business and operational characteristics to the target company. Criteria for selecting comparable companies for the analysis include, among other relevant characteristics, similar lines of businesses, business risks, growth prospects, maturity of businesses, market presence, size, and scale of operations. The selection of truly comparable companies is often difficult and subject to limitations due to sample size and the availability of meaningful market-based information. Therefore, pure comparable companies often do not exist. However, the underlying concept is to develop a premise for relative value, which, when coupled with other approaches, presents a foundation for determining firm value.

In performing the Comparable Public Company Analysis for the Debtors’ satellite services business, the following publicly traded companies (“FSS Peer Group”) deemed generally comparable to the Debtors’ satellite services business in one or more of the factors described above, were selected: SES Global, PanAmSat, JSAT, New Skies Satellites, Shin Satellite, Asiasat, and APT Satellite.

In performing the Comparable Public Company Analysis for the Debtors’ satellite manufacturing business, the following publicly traded companies (“Manufacturing Peer Group”) deemed generally comparable to the Debtors’ manufacturing business in one or more of the factors described above, were selected: Boeing, Lockheed Martin, Northrop Gruman, General Dynamics, Alcatel, Raytheon, Astrium, Alliant Techsystems and Orbital Sciences.

2. Discounted Cash Flow Analysis

The discounted cash flow (“DCF”) valuation methodology relates the value of an asset or business to the present value of expected future cash flows to be generated by that asset or business. The DCF methodology is a “forward looking” approach that discounts the expected future cash flows by a theoretical or observed discount rate determined by calculating the average cost of debt and equity for publicly traded companies that are similar to the Debtors. This approach has two components: the present value of the projected un-levered after-tax free cash flows for a determined period and the present value of the terminal value of cash flows (representing firm value beyond the time horizon of the projections).

As the estimated cash flows, estimated discount rate and expected capital structure of the Reorganized Debtors are used to derive a potential value, an analysis of the results of such an estimate is not purely mathematical, but instead involves complex considerations and judgments concerning potential variances in the projected financial and operating characteristics of the Reorganized Debtors, as well as other factors that could affect the future prospects and cost of capital considerations for the Reorganized Debtors.


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The DCF calculation was performed based on un-levered after-tax free cash flows for the projection period discounted to an Effective Date of June 30, 2005. Greenhill utilized management’s detailed financial projections for the period 2005 through 2008 as the primary input. Beginning with EBITDA, the analysis assumes the Debtor will not pay cash taxes during the projection period and subtracts estimated corporate expense allocation to calculate an un-levered net income figure. In addition, other factors affecting free cash flow are taken into account, such as the change in working capital and capital expenditures, all of which do not affect the income statement and therefore require separate adjustments in the calculation.

In performing the calculation, Greenhill made assumptions for the weighted average cost of capital (the “Discount Rate”), which is used to value future cash flows based on the riskiness of the projections, and the EBITDA exit multiple and terminal cash flow perpetual growth rates, which are used to determine the future value of the enterprise after the end of the projected period. Greenhill used a range of discount rates between 9% and 11% for the Debtors’ fixed satellite services businesses and 11.5% and 13.5% for the Debtors’ satellite manufacturing business, which reflects a number of company and market-specific factors, including business execution risk and the nature and derivation of the projections set forth in the Business Plan, as well as the cost of capital for companies that Greenhill deemed comparable .

3. Precedent Transactions Analysis

Precedent transactions analysis estimates value by examining public merger and acquisition transactions. An analysis of a company’s transaction value as a multiple of various operating statistics provides industry-wide valuation multiples for companies in similar lines of businesses to the Debtors. Transaction multiples are calculated based on the purchase price (including any debt assumed) paid to acquire companies that are comparable to the Debtors. The derived multiples are then applied to the Reorganized Debtors’ key operating statistics, to determine the total enterprise value or value to a potential strategic buyer.

In the course of determining the Reorganization Value, Greenhill evaluated various public merger and acquisition transactions that have occurred in the fixed satellite services and satellite manufacturing industries over the past several years, including but not limited to the recent acquisitions of Intelsat, New Skies, and PanAmSat on the satellite services side and the acquisitions of Alcatel Space, Hughes Satellite Systems and Vertex Communications on the satellite manufacturing side of the business.

The summary set forth above does not purport to be a complete description of the analyses performed by Greenhill. The preparation of an estimate involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods in the particular circumstances and, therefore, such an estimate is not readily susceptible to summary description. In performing its analyses, Greenhill and the Debtors made numerous assumptions with respect to industry performance, business and economic conditions and other matters. The analyses performed by Greenhill are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses.

4. Examiner Report

Although the Examiner was not appointed to prepare a complete valuation of the Debtors, the Examiner Report suggested that an alternative value range of Loral could be between $931 million to $1,263 million, excluding any potential incremental value in the Debtors’ patents, unused orbital slots and real estate.


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The Debtors dispute the Examiner’s suggested “alternative valuation.” The Debtors believe that the Examiner Report is materially flawed and inaccurate and that the suggested valuation range set forth in the Examiner Report is significantly overstated for, among others, the following reasons:

• The Examiner’s calculation of Terminal Value is internally inconsistent. Initially, the Examiner used the same 1-3% growth rate used by the Debtors’ financial advisor and then inconsistently, the Examiner used an exit multiple that implies growth into perpetuity at least 3-5 times greater than the Examiner assumed in his own perpetual growth approach. The result is an unjustifiable increase in SS/L’s discounted cash flow value by approximately $90 million. Growth rates greater than 1-3% are not reflective of the commercial satellite manufacturing business.

• With respect to the Debtors’ fixed satellite services (“FSS”) business, the Examiner improperly increases his discounted cash flow by as much as $96 million by making adjustments that are inconsistent with the Debtors’ operations and which understate any reasonable estimate of the Debtors’ long-term capital requirements.

• The Examiner applies the same discount rate to XTAR as that used for the core established FSS business. This is inappropriate. Unlike the FSS satellites, XTAR is a highly specialized satellite that recently was launched. The sales program, which is aimed at national governments, is highly risky and speculative.

• The Examiner overstates the Debtors’ value by over $80 million by treating all cash on its balance sheet as available for an immediate dividend. This approach completely ignores the need for significant cash balances to effectively operate the Debtors’ businesses. By counting necessary cash as excess value, the Examiner is double counting.

• The Examiner’s statements as to non-operating assets, such as orbital slots, patents and real property are unfounded. First, the Examiner’s suggestion that there may be significant value in the Debtors’ orbital slots is premised on outdated and irrelevant comparables. Secondly, Loral has never been able to realize any significant value for its patents. Finally, the value of SS/L’s real estate already is captured in its cash flow generating capacity.

X. CERTAIN RISK FACTORS TO BE CONSIDERED

HOLDERS OF CLAIMS AGAINST THE DEBTORS SHOULD READ AND CONSIDER CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION SET FORTH IN THIS DISCLOSURE STATEMENT (AND THE DOCUMENTS DELIVERED TOGETHER HEREWITH AND/OR INCORPORATED BY REFERENCE HEREIN), PRIOR TO VOTING TO ACCEPT OR REJECT THE PLAN. THESE RISK FACTORS SHOULD NOT, HOWEVER, BE REGARDED AS CONSTITUTING THE ONLY RISKS INVOLVED IN CONNECTION WITH THE PLAN AND ITS IMPLEMENTATION.


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A. CERTAIN BANKRUPTCY LAW CONSIDERATIONS

1. Risk of Non-Confirmation of the Plan

Although the Debtors believe that the Plan will satisfy all requirements necessary for confirmation by the Bankruptcy Court, there can be no assurance that the Bankruptcy Court will reach the same conclusion. Moreover, there can be no assurance that modifications to the Plan will not be required for confirmation or that such modifications would not necessitate the resolicitation of votes.

2. Non-Consensual Confirmation

In the event any impaired Class of Claims does not accept the Plan, the Bankruptcy Court may nevertheless confirm the Plan at the Debtors’ request if at least one impaired Class has accepted the Plan (such acceptance being determined without including the vote of any “insider” in such Class) and, as to each impaired Class that has not accepted the Plan, if the Bankruptcy Court determines that the Plan “does not discriminate unfairly” and is “fair and equitable” with respect to the dissenting impaired classes. See Section VI.C.2. of this Disclosure Statement for more information about non-consensual confirmation. Because the Plan deems Ltd. Class 5 (Ltd. Preferred Stock Interests), Ltd. Class 6 (Ltd Equity Interests) and Ltd. Class 7 (Securities Litigation Claims) to have rejected the Plan, these requirements must be satisfied with respect to such Classes. The Debtors believe that the Plan satisfies these requirements.

3. Risk of Non-Occurrence of the Effective Date

Although the Debtors believe that the Effective Date will occur soon after the Confirmation Date, there can be no assurance as to the timing of the Effective Date. In the event the conditions precedent described in Section V.L. of the Disclosure Statement have not been satisfied or waived by 120 days after the Confirmation Date, then (i) the Confirmation Order shall be vacated, (ii) no distributions under the Plan shall be made, (iii) the Debtors and all holders of Claims and Equity Interests shall be restored to the status quo ante as of the day immediately preceding the Confirmation Date as though the Confirmation Date had never occurred, and (iv) all of the Debtors’ obligations with respect to the Claims and Equity Interests shall remain unchanged, and nothing contained in the Plan shall be deemed to constitute a waiver or release of any claims by or against the Debtors or any other entity or to prejudice in any manner the rights of the Debtors, the Creditors’ Committee, or any other entity in any further proceedings involving the Debtors. For additional risk factors, see Loral’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, attached hereto as Exhibit C.

B. RISKS TO RECOVERY BY HOLDERS OF LTD. GENERAL UNSECURED CLAIMS AND ORION GENERAL UNSECURED CLAIMS

The ultimate recoveries under the Plan to holders of Allowed Ltd. General Unsecured Claims and Allowed Orion General Unsecured Claims depend upon the realizable value of the New Loral Common Stock and the New Skynet Preferred Stock, as applicable. To the extent the actual value of the New Loral Common Stock and/or New Skynet Preferred Stock varies from the amounts estimated, the recoveries of holders of Allowed Ltd. General Unsecured Claim and Allowed Orion General Unsecured Claims, as applicable, may be higher or lower. The shares of New Loral Common Stock and New Skynet Preferred Stock to be issued pursuant to the Plan are subject to a number of material risks, including, but not limited to, those specified below.


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1. Variances from Projections

The financial projections included herein are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The financial projections included in this Disclosure Statement are dependent upon the successful implementation of the Debtors’ business plan and the validity of the other assumptions contained therein. These projections reflect numerous assumptions, including confirmation and consummation of the Plan in accordance with its terms, the anticipated future performance of the Reorganized Debtors, satellite industry performance, certain assumptions with respect to competitors of the Reorganized Debtors, general business and economic conditions and other matters, many of which are beyond the control of the Reorganized Debtors. Factors that could cause actual results to differ materially include, but are not limited to, the Reorganized Debtors’ ability to operate their businesses consistent with the projections, comply with the covenants of their financing agreements, attract and retain key executives, attract and retain customers, comply with the terms of their existing satellite design, manufacturing and TT&C contracts and leases, and respond to adverse regulatory actions taken by the federal and state governments. In addition, unanticipated events and circumstances occurring subsequent to the preparation of the projections may affect the actual financial results of the Reorganized Debtors. Although the Debtors believe that the projections are reasonably attainable, variations between the actual financial results and those projected will occur and these variances may be material.

2. Significant Ownership of Various Securities to Be Held by, and Rights of, MHR Fund Management LLC and Its Affiliates

Under the Plan, MHR Fund Management LLC and/or one or more of its affiliates (“MHR”), Chairman of the Creditors’ Committee, is expected to own or control, as of the Effective Date, approximately (a) 35-40% of the outstanding shares of New Loral Common Stock, (b) 36-40% of the outstanding shares of the New Skynet Preferred Stock and (c) at least 41% of the aggregate outstanding principal amount of the New Skynet Notes.

In addition, and as further set forth in Section VII.A. of the Disclosure Statement which describes the composition of the New Loral Board, the Creditors’ Committee will designate five (5) of the nine (9) initial members of the New Loral Board, one (1) of whom will serve as a Class 1 director, one (1) of whom will serve as a Class 2 director and three (3) of whom will serve as Class 3 directors. MHR will influence and may control the selection of such directors by the Committee, including designating affiliates of MHR to serve on the New Loral Board and the boards of directors of certain of its direct and indirect subsidiaries.

Furthermore, as described in Section V.D. of the Disclosure Statement, MHR is a Backstop Purchaser of 95% of the Rights Offering. As a Backstop Purchaser, MHR is required, subject to the terms and conditions of the Backstop Commitment Agreement, to purchase at least 95% of the New Skynet Notes offered in the Rights Offering that are not subscribed for pursuant to Subscription Rights. MHR is also entitled to 95% of the Backstop Fee. Moreover, as described in Section VIII.B. of the Disclosure Statement, the Registration Rights Agreement must be acceptable to MHR, in its sole discretion, as Registration Rights Holder.

Due to MHR’s ownership level of the New Loral Common Stock, the New Skynet Preferred Stock and the New Skynet Notes, MHR will be able to significantly influence the management, affairs and all matters requiring the vote or approval of holders of any of such securities. From and after the Effective Date, MHR may have interests that differ from the other security holders of New Loral and New Skynet. Pursuant to the terms of the New Skynet Preferred Stock, described in Section V.C.2. of the Disclosure Statement, if the New Skynet Board determines


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to pay a portion or all of any dividend otherwise payable in Cash, in shares of New Skynet Preferred Stock instead and/or to accrue such portion or all of such dividend, then the holders of at least two-thirds (? ) of the outstanding shares of the New Skynet Preferred Stock can, by written notice, direct that and cause such dividend to be paid in Cash rather than in kind or accrue. So long as MHR owns at least one-third (? ) of the New Skynet Preferred Stock, the holders of the New Skynet Preferred Stock would not be able to cause such dividend to be paid in Cash or not to accrue without the approval of MHR. Similarly, pursuant to the terms of the New Skynet Notes, described in Section V.C.3. of the Disclosure Statement, if the New Skynet Board determines to (i) pay a portion or all of an interest payment otherwise payable in Cash, in New Skynet Notes instead or (ii) redeem the New Skynet Notes in whole or in part during the first 48 months after the Effective Date, then the holders of at least two-thirds (? ) of the aggregate outstanding principal amount of the New Skynet Notes can, by written notice, direct and cause (i) such interest to be paid in Cash rather than in kind or (ii) such redemption not to be effected, as the case may be. So long as MHR owns at least one-third (? ) of the aggregate outstanding principal amount of the New Skynet Notes, the holders of the New Skynet Notes would not be able to cause (i) such interest to be paid in Cash or (ii) such redemption during the first 48 months after the Effective Date not to be effected, without the approval of MHR. In addition, MHR’s ownership of New Loral Common Stock, the New Skynet Preferred Stock and the New Skynet Notes may have the effect of delaying, deferring or preventing an acquisition of New Loral and/or its subsidiaries and may adversely affect the market price of such securities.

3. Other Significant Holders

Under the Plan, certain holders of Allowed Claims may receive distributions of the New Loral Common Stock or New Skynet Preferred Stock representing in excess of five (5%) percent of the outstanding shares of the New Loral Common Stock or New Skynet Preferred Stock. If holders of a significant number of shares of New Loral Common Stock or New Skynet Preferred Stock were to act as a group, such holders may be in a position to control the outcome of actions requiring shareholder approval, including the election of directors.

Further, the possibility that one or more holders of a number of shares of the New Loral Common Stock or New Skynet Preferred Stock may determine to sell all or a large portion of their shares in a short period of time may adversely affect the market price of the New Loral Common Stock or New Skynet Preferred Stock, as applicable .

4. Lack of Trading Market

New Loral will use commercially reasonable efforts to cause the New Loral Common Stock to be listed on the Nasdaq market or such other national securities exchange for which it may qualify. However, due to legal requirements, the New Loral Common Stock may not be listed on a national securities exchange or the Nasdaq market system on the Effective Date. Instead the New Loral Common Stock may trade in the over-the-counter market (the “pink sheets”), but there can be no assurance that an active trading market will develop. Accordingly, no assurance can be given that a holder of the New Loral Common Stock will be able to sell such interests in the future or as to the price at which any such sale may occur. If a trading market does exist, the New Loral Common Stock could trade at prices higher or lower than the value ascribed to such securities herein depending upon many factors including, but not limited to, the prevailing interest rates, markets for similar securities, general economic and industry conditions and the performance of, and investor expectations for, the Reorganized Debtors.

It is not contemplated that the securities of New Skynet will be registered under the Securities Act or the Securities Exchange Act of 1934 as of the Effective Date nor is it contemplated


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that the New Skynet Preferred Stock or the New Skynet Notes will be listed on a national securities exchange or the Nasdaq market system. Accordingly, there may not be an active trading market and there can be no assurance that a holder of the New Skynet Preferred Stock or the New Skynet Notes will be able to sell such interests in the future or as to the price at which any such sale may occur. If a trading market does exist, the New Skynet Preferred Stock and the New Skynet Notes could trade at prices higher or lower than the value ascribed to such securities herein depending upon many factors including, but not limited to, the prevailing interest rates, markets for similar securities, general economic and industry conditions and the performance of, and investor expectations for, the Reorganized Debtors.

5. Competitive Conditions

The Reorganized Debtors intend to reorganize around a fleet of four international satellites operated by New Skynet and its subsidiaries and the satellite manufacturing business operated by New SS/L and its subsidiaries. The satellite communications and manufacturing industries are highly competitive, however.

The Reorganized Debtors face heavy competition in the transponder leasing business from companies such as PanAmSat, SES Global, New Skies, Intelsat and Eutelsat. Competition puts downward pressure on prices and may result in the reduced utilization of the Reorganized Debtors’ fleet capacity. In addition, the Reorganized Debtors face competition not only from other satellite-based providers, but also from providers of land-based data communications services, such as cable, DSL (digital subscriber line), wireless local loop and traditional telephone service providers.

Satellite manufacturers such as New SS/L have high fixed costs, and cash flow tends to be uneven. It takes two to three years to complete a satellite project and numerous assumptions are built into the estimated costs. Cash receipts are tied to the achievement of contract milestones, which depend in part on the ability of New SS/L’s subcontractors to deliver on time. In addition, the hostile environment of space in which satellites operate may lead to unexpected costs during the design, manufacture and testing of a satellite. To the extent that project costs exceed the contract price, New SS/L generally will be responsible for such cost overruns.

6. Governmental Regulation

a. Export Controls

New SS/L must contend with United States export control regulations that put it and other United States satellite manufacturers at a disadvantage when competing for foreign customers. Several of New SS/L’s large European competitors, such as Alcatel Alenia Space and Astrium, are not bound by the same restrictions.

b. Other Regulation

Multiple authorities regulate the Reorganized Debtors’ businesses, including the Federal Communications Commission, the International Telecommunications Union and the European Union. Regulatory authorities can modify, withdraw or impose charges or conditions upon, or deny or delay action on applications for, the licenses needed by the Reorganized Debtors, and so increase its costs. In addition, to prevent interference, the regulatory process requires potentially lengthy and costly negotiations with third parties who operate or intend to operate satellites at or near the locations of the Reorganized Debtors’ satellites.


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7. Operational Failures

a. Launch Failures

Satellite launches are risky, and some launch attempts have ended in complete or partial failure, such as the EdS failure described in Section IV.H. of this Disclosure Statement. The Reorganized Debtors may insure against such failures. The cost and availability of insurance vary depending on market conditions and the launch vehicle used. Insurance premiums are considerable and coverage typically does not extend to losses resulting from business interruption. Replacement of a lost satellite typically requires at least 24 months from contract execution to launch. Further, loss of a satellite could result in a loss of revenues and profits for the Reorganized Debtors.

b. In-orbit Failures

In-orbit damage to or loss of a satellite before the end of its expected life results from various causes, some random, including component failure, degradation of solar panels, loss of power or fuel, inability to maintain the satellite’s position, solar and other astronomical events, and space debris. Repair of satellites in space is not feasible. Satellites are built with redundant components to permit their continued operation in the event of a component failure. If these back-up components fail and the primary components cannot be restored, such satellites could lose capacity or be total losses resulting in a loss of revenues and profits. Moreover, loss of a satellite built by New SS/L could result in the loss of orbital incentive payments and the imposition of other financial penalty to New SS/L. In addition, the New Skynet may be required to replace leased transponders on their satellites that do not meet operating specifications. Failure to do so may result in a payment obligation on the part of the New Skynet.

8. Hart-Scott-Rodino Act

Any shares of New Loral Common Stock to be distributed under the Plan to any entity required to file a Premerger Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall not be distributed until the notification and waiting periods applicable to such entity under such Act shall have expired or been terminated.

9. Unforeseen Events

Future performance of the Reorganized Debtors is, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond their control. While no assurance can be provided, based upon the current level of operations and anticipated increases in revenues and cash flows described in the projections attached as Exhibit E to the Disclosure Statement, the Debtors believe that cash flow from operations and available Cash will be adequate to fund the Plan and meet their future liquidity needs.

10. Other Risk Factors

Other factors that may cause actual results to differ materially from the Debtors’ expectations include, but are not limited to, economic uncertainty, uncertainties regarding the collectibility of receivables and the ongoing war on terrorism.


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XI. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN

The following discussion summarizes certain U.S. federal income tax consequences of the implementation of the Plan to the Debtors and certain holders of Claims. The following summary does not address the U.S. federal income tax consequences to holders whose Claims are unimpaired or otherwise entitled to payment in full in Cash under the Plan (e.g., Priority Claims, Secured Claims, SpaceCom General Unsecured Claims and SS/L General Unsecured Cla ims) or holders whose claims or equity interests are extinguished without a distribution in exchange therefor (e.g., Ltd. Preferred Stock Interests, Ltd. Equity Interests and Securities Litigation Claims).

The following summary is based on the Internal Revenue Code of 1986, as amended (the “Tax Code”), Treasury Regulations promulgated thereunder, judicial decisions, and published administrative rules and pronouncements of the Internal Revenue Service (the “IRS”), all as in effect on the date hereof. Changes in such rules or new interpretations thereof may have retroactive effect and could significantly affect the U.S. federal income tax consequences described below.

The U.S. federal income tax consequences of the Plan are complex and are subject to significant uncertainties. The Debtors have not requested a ruling from the IRS or an opinion of counsel with respect to any of the tax aspects of the Plan. Thus, no assurance can be given as to the interpretation that the IRS will adopt. In addition, this summary generally does not address foreign, state or local tax consequences of the Plan, nor does it address the U.S. federal income tax consequences of the Plan to special classes of taxpayers (such as foreign taxpayers, broker-dealers, banks, mutual funds, insurance companies, financial institutions, small business investment companies, regulated investment companies, tax-exempt organizations, persons holding a Claim as part of a hedging, integrated constructive sale or straddle, and investors in pass-through entities). This summary also does not address any tax consequences to secondary purchasers of New Loral Common Stock, New Skynet Preferred Stock or New Skynet Notes.

ACCORDINGLY, THE FOLLOWING SUMMARY OF CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING AND ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES PERTAINING TO A HOLDER OF A CLAIM. ALL HOLDERS OF CLAIMS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS FOR THE FEDERAL, FOREIGN, STATE, LOCAL AND OTHER TAX CONSEQUENCES TO THEM AS A RESULT OF THE PLAN.

A. CONSEQUENCES TO THE DEBTORS

Loral Corp. and its direct and indirect U.S. Subsidiaries, including Orion (collectively, the “U.S. Debtors”), are members of an affiliated group of corporations for U.S. federal income tax purposes (the “U.S. Group”), of which Loral Corp. is the common parent, and have been filing a single consolidated federal income tax return. The U.S. Group expects to report, in respect of their taxable year ended December 31, 2004, consolidated net operating loss (“NOL”) carryforwards for U.S. federal income tax purposes of approximately $1,200,000,000 (substantially all of which is attributable to subsidiaries of Loral Corp.). Ltd., which is a Bermuda corporation, is not a member of the U.S. Group and, accordingly, files a separate federal income tax return with respect to its U.S. reportable income or loss. Ltd. expects to report, in respect of its taxable year ended December 31, 2004, NOL carryforwards for U.S. federal income tax purposes of approximately $250,000,000. In addition, the Debtors believe that the aggregate tax basis of the assets of the U.S. Group and of Ltd. exceeds, in the case of each, respectively, the aggregate fair market value of such assets. The amount of the Debtors’ NOL carryforwards, and the potential application of any limitations (whether new or


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existing) with respect to the use of the Debtors’ losses and NOL carryforwards, remain subject to audit and adjustment by the IRS.

As discussed below, in connection with the implementation of the Plan, the amount of the Debtors’ NOL carryforwards and certain other tax attributes (such as the tax basis of their assets) may be significantly reduced and, possibly, eliminated. In addition, the Debtors’ subsequent utilization of any NOL carryforwards remaining, and possibly certain other tax attributes, may be restricted following the Effective Date.

1. Cancellation of Debt

In general, the Tax Code provides that a debtor in a bankruptcy case must reduce certain of its tax attributes – such as NOL carryforwards and current year NOLs, tax credits, and tax basis in assets – by the amount of any cancellation of debt (“COD”). Where the debtor joins in the filing of a consolidated federal income tax return, applicable Treasury Regulations require, in certain circumstances, that the tax attributes of the consolidated subsidiaries of the debtor and other members of the group also be reduced. COD is the amount by which the indebtedness discharged (reduced by any unamortized discount) exceeds any consideration given in exchange therefor. Certain statutory or judicial exceptions can apply to limit the amount of COD and attribute reduction (such as where the payment of the canceled debt would have given rise to a tax deduction).

Any reduction in tax attributes occurs only after the determination of tax for the taxable year in which the COD is incurred and, consequently, any resulting COD does not impair the debtor’s ability to use its tax attributes (to the extent otherwise available) to reduce its tax liability, if any, otherwise resulting in the year the COD is incurred. In addition, to the extent the amount of COD exceeds the tax attributes available for reduction, the remaining COD has no further effect for United States federal tax purposes. If advantageous, a debtor can elect to reduce the basis of depreciable property prior to any reduction in its NOLs or other tax attributes.

In the case of Ltd., only that portion of its liabilities that is properly allocable to a U.S. trade or business is taken into account in computing the amount of COD that is subject to U.S. federal income tax treatment. The Debtors believe that the discharge of Ltd.’s liabilities pursuant to the Plan will not result in any such COD, and thus does not require any corresponding tax attribute reduction (although, as noted in the following paragraph, it is possible that Ltd.’s tax attributes will suffer reduction as a result of COD to be realized by the U. S. Debtors).

As a result of the discharge of Claims pursuant to the Plan, the U.S. Debtors are expected to realize significant COD. The calculation of the actual amount of COD for tax purposes will include certain adjustments (as compared with the equivalent amount for financial reporting purposes), and will depend, in principal part, on the value of the New Loral Common Stock and New Skynet Preferred Stock distributed in discharge of Allowed Claims. Based on the compromise Reorganization Value of the Reorganized Debtors and an assumed Effective Date of June 30, 2005 (see Section IX. of the Disclosure Statement), it is anticipated that the U.S. Debtors will incur approximately $390,000,000 of COD as a result of the implementation of the Plan (not including additional amounts of COD attributable to Intercompany Claims between U.S. Debtors). Accordingly, it is anticipated that the resulting tax attribute reduction would reduce (and, possibly, eliminate) the NOL carryforwards attributable to the respective U.S. Debtors as of the end of the taxable year in which the Effective Date occurs, and could significantly reduce the tax basis that particular Debtors have in their assets (including any NOL carryforwards and tax basis in the assets of Ltd. to which the U.S. Debtors succeed as a result of the Restructuring Transactions). See Section XI.A.4. of the Disclosure Statement.


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2. Limitations on NOL Carryforwards and Other Tax Attributes

Following the implementation of the Plan, any remaining NOL, capital loss and tax credit carryforwards and, possibly, certain other tax attributes (including current year NOLs) of the Reorganized Debtors allocable to periods prior to the Effective Date (collectively, “pre-change losses”) may be subject to limitation under section 382 of the Tax Code as a result of the change in ownership of the Reorganized Debtors. These limitations apply in addition to, and not in lieu of, the attribute reduction that results from the discharge of claims pursuant to the Plan.

Under section 382 of the Tax Code, if a corporation (or consolidated group) undergoes an “ownership change” and the corporation does not qualify for (or elects out of) the special bankruptcy exception discussed below, the amount of its pre-change losses that may be utilized to offset future taxable income is subject to an annual limitation. Such limitation also may apply to certain losses or deductions that are “built-in” (i.e., economically accrued but unrecognized) as of the date of the ownership change and that are subsequently recognized.

The issuance of the New Loral Common Stock to holders of Allowed Claims pursuant to the Plan will constitute an “ownership change” of the Debtors for these purposes.

a. General Section 382 Limitation

In general, the amount of the annual limitation to which a corporation (or consolidated group) would be subject is equal to the product of (i) the fair market value of the stock of the corporation (or, in the case of a consolidated group, the common parent) immediately before the ownership change (with certain adjustments) multiplied by (ii) the “long term tax exempt rate” in effect for the month in which the ownership change occurs (4.37% for ownership changes occurring in June 2005). For a corporation (or consolidated group) in bankruptcy that undergoes the change of ownership pursuant to a confirmed bankruptcy plan, the stock value generally is determined immediately after (rather than before) the ownership change, after giving effect to the surrender of creditors’ claims.

Any unused limitation may be carried forward, thereby increasing the annual limitation in the subsequent taxable year. However, if the corporation (or the consolidated group) does not continue its historic business or use a significant portion of its historic assets in a new business for two years after the ownership change, the annual limitation resulting from the ownership change is zero.

b. Built-In Gains and Losses

If a loss corporation (or consolidated group) has a net unrealized built-in loss at the time of an ownership change (taking into account most assets and items of “built-in” income and deductions), then generally built-in losses recognized during the following five years (up to the amount of the original net unrealized built-in loss) will be treated as pre-change losses and similarly will be subject to the annual limitation. Conversely, if the loss corporation (or consolidated group) has a net unrealized built-in gain at the time of an ownership change, any built-in gains recognized during the following five years (up to the amount of the original net unrealized built-in gain) generally will increase the annual limitation in the year recognized, such that the loss corporation (or consolidated group) would be permitted to use its pre-change losses against such built-in gain income in addition to its regular annual allowance. Although the rule applicable to net unrealized built-in losses generally applies to consolidated groups on a consolidated basis, certain corporations that join the consolidated group within the preceding five years may not be able to be taken into account in the


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group computation of net unrealized built-in loss. Such corporations would nevertheless still be taken into account in determining whether the consolidated group has a net unrealized built-in gain. Thus, a consolidated group can be considered to have both a net unrealized built-in loss and a net unrealized built-in gain. In general, a loss corporation’s (or consolidated group’s) net unrealized built-in gain or loss will be deemed to be zero unless it is greater than the lesser of (i) $10,000,000 or (ii) 15% of the fair market value of its assets (with certain adjustments) before the ownership change.

The Debtors expect that the U.S. Group as a whole will be in a net unrealized built-in gain position on the Effective Date, but expect that (immediately prior to the Restructuring Transactions) Ltd. will have a net unrealized built-in loss on the Effective Date .

c. Special Bankruptcy Exception

An exception to the foregoing annual limitation rules generally applies where qualified creditors of a debtor receive, in respect of their claims, at least 50% of the vote and value of the stock of the reorganized debtor (or a controlling corporation if also in bankruptcy) pursuant to a confirmed chapter 11 plan. Under this exception, a debtor’s pre-change losses are not limited on an annual basis but, instead, are required to be reduced by the amount of any interest deductions claimed during the three taxable years preceding the effective date of the reorganization, and during the part of the taxable year prior to and including the reorganization, in respect of all debt converted into stock in the bankruptcy proceeding. Moreover, if this exception applies, any further ownership change of the debtor within a two-year period after the consummation of the chapter 11 plan will preclude the debtor’s future utilization of any pre-change losses existing at the time of the subsequent ownership change.

The receipt of the New Loral Common Stock by certain holders of Allowed Ltd. General Unsecured Claims and Allowed Orion General Unsecured Claims pursuant to the Plan may qualify for this exception with respect to the pre-change losses of the U.S. Group. Neither the statute nor the regulations address, however, whether this exception can be applied on a consolidated basis or only on a separate company basis. Moreover, due to certain other legal and factual uncertainties, it is unclear whether the Debtors will qualify for this exception with respect to the pre-change losses of the U.S. Group. As to the pre-change losses of Ltd., it is unlikely that the receipt of New Loral Common Stock by holders of Allowed Ltd. General Unsecured Claims and Orion General Unsecured Claims would qualify for this exception. Even if the Debtors do qualify for this exception, the Reorganized Debtors may, if they so desire, elect not to have the exception apply and instead remain subject to the annual limitation described above. Such election would have to be made in the Reorganized Debtors’ U.S. federal income tax return for the taxable year in which the change occurs. For purposes of the projected financial information, the Debtors have taken the position that their pre-change losses will be limited on an annual basis to approximately $32,000,000 under the general section 382 limitation applicable to corporations in bankruptcy discussed above. Subject to and given the underlying assumptions, the projected financial information indicates that the imposition of this annual limitation would not curtail the projected utilization of the Debtors’ pre-change losses during the period covered by the projections.

3. Alternative Minimum Tax

In general, a U.S. alternative minimum tax (“AMT”) is imposed on a corporation’s U.S. alternative minimum taxable income at a 20% tax rate to the extent such tax exceeds the corporation’s regular federal income tax. For purposes of computing taxable income for AMT purposes, certain tax deductions and other beneficial allowances are modified or eliminated. For


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example, a corporation is generally not allowed to offset more than 90% of its taxable income for AMT purposes by available NOL carryforwards (as computed for AMT purposes).

In addition, if a corporation (or consolidated group) undergoes an “ownership change” within the meaning of section 382 of the Tax Code and is in a net unrealized built-in loss position (as determined for AMT purposes) on the date of the ownership change, the corporation’s (or consolidated group’s) aggregate tax basis in its assets would be reduced for certain AMT purposes to reflect the fair market value of such assets as of the change date. It is not clear whether this provision would apply even if the Debtors otherwise qualify for, and avail themselves of, the special bankruptcy exception to the annual limitation rules of section 382 discussed in the previous section.

Any AMT that a U.S. corporation pays generally will be allowed as a nonrefundable credit against its regular federal income tax liability in future taxable years when the corporation is no longer subject to AMT.

4. Implementation of the Restructuring Transactions

Pursuant to the Restructuring Transactions, Ltd. will transfer substantially all of its assets to New Loral or a wholly-owned first-tier subsidiary of New Loral in exchange for the New Loral Common Stock to be distributed to the holders of Allowed Ltd. General Unsecured Claims. The Debtors do not expect that Ltd. (a Bermuda corporation) will incur any U.S. or foreign income tax liability as a result of such transfer of assets.

Moreover, for U.S. federal income tax purposes, it is anticipated that the transfer of assets, followed by the distribution of the New Loral Common Stock, pursuant to the Plan will qualify as a reorganization under section 368(a)(1)(G) of the Tax Code (a so-called “G” reorganization) for U.S. federal income tax purposes. In addition to other statutory and non-statutory requirements common to tax-free reorganizations, for a transfer of assets by a corporation in bankruptcy to qualify as a “G” reorganization, (i) the debtor corporation (in our case, Ltd.) must transfer substantially all of its assets to another corporation and distribute all stock and securities received of such corporation or its parent, including to at least one stockholder or security holder of the debtor corporation, and (ii) the historic shareholders and creditors of the debtor corporation must receive, collectively, a sufficient percentage of the acquiring (or parent) corporation’s stock relative to the amount of non-stock consideration received. The Debtors believe that all of these requirements will be satisfied. Accordingly, the Debtors anticipate that the acquiring corporation will succeed to any remaining NOL carryforwards of Ltd. and Ltd.’s tax basis in the transferred assets, after taking into account any reduction in such attributes as a result of the discharge of Claims against Ltd. pursuant to the Plan, and subject to any applicable limitations on the subsequent utilization of such attributes (such as under section 382 of the Tax Code, as discussed above), provided that in no event shall the Debtors’ aggregate tax basis in Ltd.’s assets exceed such assets’ aggregate fair market value. As discussed above in Section XI.A.1. of the Disclosure Statement, any NOL carryforwards and tax basis in the assets of Ltd. to which the U.S. Debtors succeed as a result of the Plan could be subject to further reduction in respect of COD recognized by the U.S. Debtors pursuant to the Plan.

Also in connection with the implementation of the Plan (whether before or after the Effective Date), the Debtors may merge, dissolve, or consolidate any of the Debtors or otherwise transfer assets between or among the Debtors or certain of their affiliates (including as required by 5.2(e) of the Plan), subject to the consent of the Creditors’ Committee. Should the Debtors effectuate any such Restructuring Transactions, the Debtors intend to do so in a manner that would not have material adverse tax consequences.


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5. Issuance of the New Skynet Notes

The New Skynet Notes to be issued pursuant to the Rights Offering will be issued with original issue discount (“OID”). See Section XI.B.4. of the Disclosure Statement. The deductibility of such OID (including all stated interest) is subject to the applicable high yield discount obligation (“AHYDO”) provis ions of the Tax Code. Any such OID generally would be amortizable by New Skynet utilizing the constant interest method, and deductible as interest, unless the New Skynet Notes are treated as AHYDOs. A debt obligation is treated as an AHYDO if it is issued with substantial OID (meaning that there is accrued OID as of the end of the fifth year after issuance in excess of one year’s interest, both actual and imputed), has a yield to maturity of at least five percentage points over the applicable federal rate in effect for the calendar month in which such notes are issued, and has a maturity of over five years.

In the event that a debt instrument constitutes an AHYDO, the issuer’s interest deduction with respect to any OID would be deferred until paid in cash, except that such issuer’s interest deduction would be disallowed to the extent the yield to maturity on the debt instrument exceeds six percentage points over the applicable federal rate. For purposes of the projected financial information, the Debtors have taken the position that the New Skynet Notes will constitute AHYDOs.

B. CONSEQUENCES TO THE HOLDERS OF CERTAIN CLAIMS

Pursuant to the Plan, holders of Allowed Ltd. General Unsecured Claims (Ltd. Class 4) will receive shares of New Loral Common Stock in satisfaction and discharge of their Claims. Holders of Allowed Orion General Unsecured Claims (Orion Class 4) will receive a combination of New Loral Common Stock and New Skynet Preferred Stock in satisfaction and discharge of their Claims. In addition, the Plan provides that holders of Allowed Orion General Unsecured Claims will receive non-transferable Subscription Rights, entitling them to subscribe, at par, for New Skynet Notes. Holders of Allowed Claims in Ltd. Class 4 and Orion Class 4 may receive additional distributions of common stock, or common stock and preferred stock, as applicable, after the Effective Date to the extent any Disputed Claims in such Class are subsequently disallowed.

The U.S. federal income tax treatment to a holder of a Ltd. General Unsecured Claim depends, in part, on whether such Claim constitutes a “security” of Ltd. for U.S. federal income tax purposes, and the U.S. federal income tax treatment to a holder of an Orion General Unsecured Claim depends, in part, on whether such Claim and, possibly, the Subscription Rights constitute “securities” of Orion for U.S. federal income tax purposes. The term “security” is not defined in the Tax Code or in the Treasury Regulations promulgated thereunder and has not been clearly defined by judicial decisions. The determination of whether a particular debt constitutes a “security” generally depends on an overall evaluation of the nature of the original debt. One of the most significant factors considered in determining whether a particular debt is a security is its original term. In general, debt obligations issued with a weighted average maturity at issuance of five years or less do not constitute securities, whereas debt obligations with a weighted average maturity at issuance of ten years or more constitute securities. In addition, the IRS recently ruled that a debt instrument with a term of two years could be a security if received in a reorganization in exchange for a former security that was in substantially the same form (including maturity date), but had a different interest rate. In this connection, it should be noted that the Orion Stub Notes and Orion 10% Notes were treated as “securities” for U.S. federal income tax purposes in connection with the prospectuses pursuant to which such notes were issued, although such treatment is not binding on the IRS. For purposes of the following discussion, no assumption has been made as to whether the Ltd. General Unsecured Claims constitute “securities” of Ltd. for U.S. federal income tax purposes. Holders of Ltd. General Unsecured Claims and Orion General Unsecured Claims are urged to consult their tax advisors


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regarding the status of their Claims as “securities” of Ltd. or Orion (and, if applicable, whether the Subscription Rights are “securities” of New Skynet) for U.S. federal income tax purposes.

The following discussion assumes that the transfer of assets of Ltd. pursuant to the Restructuring Transactions will constitute a “G” reorganization for U.S. federal income tax purposes. See Section XI.A.4. In addition, the following discussion does not necessarily apply to holders who have Claims in more than one class relating to the same underlying obligation (such as where the underlying obligation serves as the basis for a primary Claim against one Debtor and a secondary liability or guarantee claim against another Debtor). Such holders should consult their tax advisors regarding the effect of such dual status obligations on the federal income tax consequences of the Plan to them.

1. Gain or Loss – Generally

Other than as discussed below with respect to Ltd. General Unsecured Claims that constitute “securities” of Ltd. for U.S. federal income tax purposes (see Section XI.B.2. of the Disclosure Statement) and Orion General Unsecured Claims that constitute “securities” of Orion for U.S. federal income tax purposes (see Section XI.B.3. of the Disclosure Statement), the distributions to holders of Allowed Ltd. General Unsecured Claims and Allowed Orion General Unsecured Claims in satisfaction of their Claims generally should be fully taxable transactions.

Accordingly, a holder of such an Allowed Claim generally will recognize gain or loss in an amount equal to the difference between (i) the “amount realized” by the holder in satisfaction of its Claim (other than in respect of any Claim for accrued but unpaid interest, and excluding any portion required to be treated as imputed interest due to the post-Effective Date distribution of such consideration following the resolution of any Disputed Claims in the same class) and (ii) the holder’s adjusted tax basis in its Claim (other than any Claim for accrued but unpaid interest). For a discussion of the U.S. federal income tax consequences to holders of any Claim for accrued interest, see Section XI.B.4. Generally, the “amount realized” by a holder will equal the sum of the amount of any Cash and the fair market value of any shares of New Loral Common Stock, any shares of New Skynet Preferred Stock and possibly any Subscription Rights received.

Due to the possibility that a holder of an Allowed Ltd. General Unsecured Claim or Allowed Orion General Unsecured Claim may receive additional distributions subsequent to the Effective Date in respect of any subsequently disallowed Disputed Claims or unclaimed distributions, the Tax Code may apply to treat a portion of such later distributions to such holders as imputed interest. In addition, it is possible that any loss and a portion of any gain realized by such holders may be deferred until such time as such holder has received its final distribution. It is unclear whether a holder of such an Allowed Claim who receives a distribution post-Effective Date on account of the resolution of Disputed Claims (including holders of previously Allowed Claims) that includes a Cash distribution attributable to previously paid dividends should treat such Cash distribution as an additional amount realized on such holder’s Claim or in fact as dividends. All holders of an Allowed Ltd. General Unsecured Claim or Allowed Orion General Unsecured Claim, should consult their tax advisors as to the tax consequences of the receipt of the stock or Cash subsequent to the Effective Date.

Where gain or loss is recognized by a holder in respect of its Claim, the character of such gain or loss as long-term or short-term capital gain or loss or as ordinary income or loss will be determined by a number of factors, including the tax status of the holder, whether the Claim constitutes a capital asset in the hands of the holder and how long it has been held, whether the Claim was originally issued at a discount or was acquired at a market discount, and whether and to what


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extent the holder had previously claimed a bad debt deduction in respect of such Claim. A holder that purchased its Claim from a prior holder at a market discount may be subject to the market discount rules of the Tax Code. Under those rules, assuming that the holder has made no election to amortize the market discount into income on a current basis with respect to any market discount instrument, any gain recognized on the exchange of such Claim (subject to a de minimis rule) generally would be characterized as ordinary income to the extent of the accrued market discount on such Claim as of the date of the exchange.

A holder’s tax basis in any New Loral Common Stock received in respect of an Allowed Ltd. General Unsecured Claim that does not constitute a “security” of Ltd. for U.S. federal income tax purposes, in any New Loral Common Stock, New Skynet Preferred Stock and, if applicable, Subscription Rights received in respect of an Allowed Orion General Unsecured Claim that does not constitute a “security” of Orion for U.S. federal income tax purposes will equal the fair market value of the stock and the rights. A holder’s holding period for any New Loral Common Stock, New Skynet Preferred Stock and, if applicable, Subscription Rights generally will begin the day following the issuance of such stock and rights.

Notwithstanding the foregoing, it is possible the IRS may attempt to characterize the receipt of New Loral Common Stock, New Skynet Preferred Stock and Subscription Rights in satisfaction of Claims of a holder against any subsidiary of New Loral as part of a nonrecognition transaction. Such a holder would, however, be required to recognize a portion of the gain realized, but likely only to the extent that the holder receives consideration other than New Loral Common Stock or New Skynet Preferred Stock (e.g., Subscription Rights). In a non-recognition transaction, the holder’s aggregate tax basis in its New Loral Common Stock or New Skynet Preferred Stock, as applicable, would likely be equal to its tax basis in the Claim decreased by the value of any other consideration received and increased by the portion of any gain recognized. In such event, the holder’s holding period in the New Loral Common Stock and New Skynet Preferred Stock may, in whole or in part, include its holding period in its Claim. However, the Debtors believe, and the discussion herein assumes, that the satisfaction of Claims described in this Section XI.B.1 should be treated as a fully taxable transaction, in which both gain and loss would be recognized.

2. Holders of Ltd. General Unsecured Claims that Constitute “Securities”

As discussed above, the transfer of Ltd.’s assets pursuant to the Plan, followed by the distribution of the New Loral Common Stock to holders of Allowed Ltd. General Unsecured Claims, is intended to qualify as a “G” reorganization. Accordingly, each holder of an Allowed Ltd. General Unsecured Claim that constitutes a “security” of Ltd. for U.S. federal income tax purposes generally will not recognize any loss upon the exchange of its Claim, but will recognize gain (computed as described in the preceding section), if any, only to the extent of any non-stock consideration received (e.g., possibly any Cash received attributable to previously paid dividends). The character and timing of such gain, and the potential for imputed interest in respect of post-Effective Date distributions, would be determined in accordance with the principles discussed in the preceding section. For a discussion of the U.S. federal income tax consequences of any Claim for accrued interest, see Section XI.B.4.

In general, a holder’s aggregate tax basis in any New Loral Common Stock received in satisfaction of a Ltd. General Unsecured Claim that constitutes a “security” of Ltd. for U.S. federal income tax purposes will equal the holder’s aggregate adjusted tax basis in such Claim (including any Claim for accrued but unpaid interest, and excluding any portion required to be treated as imputed interest due to the post-Effective Date distribution of such consideration upon the resolution of Disputed Claims), increased by any gain recognized or interest income received in respect of such


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Claim, and decreased by any non-stock consideration received and any deductions claimed in respect of any previously accrued interest. In general, the holder’s holding period for any such New Loral Common Stock received will include the holder’s holding period for the Claim, except to the extent that the New Loral Common Stock was issued in respect of a Claim for accrued but unpaid interest (which will begin a new holding period).

3. Holders of Orion General Unsecured Claims that Constitute “Securities”

Pursuant to the Plan, the assets of New Skynet will include all of the assets of Orion. It is possible that Orion will itself serve as New Skynet. In such event, the distribution of New Loral Common Stock and New Skynet Preferred Stock in satisfaction of Allowed Orion General Unsecured Claims that constitute “securities” of Orion for U.S. federal income tax purposes would qualify as a recapitalization exchange. If the distribution qualifies as a recapitalization exchange, holders would not be entitled to recognize any loss upon the exchange of their Claims, but generally would be required to recognize gain (computed in accordance with the principles discussed in Section XI.B.1 of the Disclosure Statement), if any, only to the extent of the fair market value of the New Loral Common Stock received and, if applicable, the Subscription Rights (unless the Subscription Rights constitute “securities” for U.S. federal income tax purposes).

In addition, as discussed in Section XI.A.4. of the Disclosure Statement, the Debtors may engage in certain Restructuring Transactions, subject to the consent of the Creditors’ Committee. Accordingly, it is possible that the Debtors may merge Orion into New Skynet, rather than causing Orion to serve as New Skynet, as of the Effective Date. In such event, the distribution of New Loral Common Stock and New Skynet Preferred Stock in satisfaction of Allowed Orion General Unsecured Claims that constitute “securities” of Orion for U.S. federal income tax purposes may qualify as a “G” reorganization. If the distribution qualifies as a “G” reorganization, the holders of such Claims would not be entitled to recognize any loss upon the exchange of their Claims, but generally would be required to recognize gain (computed in accordance with the principles discussed in Section XI.B.1 of the Disclosure Statement), if any, only to the extent of the fair market value of the New Loral Common Stock received and, if applicable, the Subscription Rights (unless the Subscription Rights constitute “securities” for U.S. federal income tax purposes).

The character and timing of any gain recognized, the potential for imputed interest in respect of post-Effective Date distributions, and the consequences of any Claim for accrued interest would be determined in accordance with the principles discussed in Sections XI.B.1. and XI.B.4. of the Disclosure Statement.

In general, a holder’s aggregate tax basis in any nonrecognition property received in a recapitalization exchange or “G” reorganization (in this case, the New Skynet Preferred Stock and possibly the Subscription Rights) will equal the holder’s aggregate adjusted tax basis in such Claim (including any Claim for accrued but unpaid interest, and excluding any portion required to be treated as imputed interest due to the post-Effective Date distribution of such consideration upon the resolution of Disputed Claims), increased by any gain recognized or interest income received in respect of such Claim, and decreased by any taxable consideration received (e.g., such as the New Loral Common Stock) and any deductions claimed in respect of any previously accrued interest. In general, the holder’s holding period for any nonrecognition property received will include the holder’s holding period for the Claim, except to the extent such property was received in respect of a Claim for accrued but unpaid interest (which will begin a new holding period). In general, a holder’s aggregate tax basis in any other property received will equal the fair market value of such property,


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and a holder’s holding period in such property generally will begin the day following the issuance of such property.

Holders of Orion General Unsecured Claims are urged to consult with their tax advisors with respect to the tax consequences of the Plan to them (including with respect to the receipt of the Subscription Rights and the ownership of New Skynet Preferred Stock and the New Skynet Notes).

4. Distributions in Discharge of Accrued but Unpaid Interest

Pursuant to the Plan, distributions to any holder of an Allowed Claim will be allocated first to the original principal amount of such Claim as determined for federal income tax purposes, and then, to the extent the consideration exceeds such amount, to any portion of such Claim representing accrued OID or accrued but unpaid interest. However, there is no assurance that the IRS would respect such allocation for federal income tax purposes.

In general, to the extent that an amount received by a holder of debt is received in satisfaction of accrued interest or OID during its holding period, such amount will be taxable to the holder as interest income (if not previously included in the holder’s gross income). Conversely, a holder generally recognizes a deductible loss to the extent any accrued interest claimed was previously included in its gross income and is not paid in full. However, the IRS has privately ruled that a holder of a security, in an otherwise tax-free exchange, could not claim a current deduction with respect to any unpaid OID. Accordingly, it is also unclear whether, by analogy, a holder of a Claim that does not constitute a security would be required to recognize a capital loss, rather than an ordinary loss, with respect to any previously included OID that is not paid in full. Each holder is urged to consult its tax advisor regarding the allocation of consideration and the deductibility of unpaid interest for U.S. federal income tax purposes.

5. Ownership and Disposition of the New Skynet Notes

a. Interest and Original Issue Discount

Each holder of a New Skynet Note generally will be required to include in its gross income any interest payable to the extent such interest constitutes qualified stated interest with respect to such note in accordance with its regular method of tax accounting. The interest on the New Skynet Notes will not constitute qualified stated interest. In addition, the New Skynet Notes will be treated as issued with OID. In general, a debt instrument is treated as having OID to the extent its “stated redemption price at maturity” (in this case, the sum of all payments provided by the New Skynet Notes) exceeds its “issue price,” subject to a de minimis exception. The “issue price” of each New Skynet Note will likely be the Subscription Purchase Price, meaning that the New Skynet Notes will likely have a yield to maturity of fourteen percent (14%).

Each holder generally will be required to accrue the OID in respect of the New Skynet Notes received and include such amount in gross income as interest over the term of such notes based on the constant yield method (subject to the discussion of certain high yield discount obligations, in the following subsection). Accordingly, each holder generally would be required to include amounts in gross income in advance of the payment of Cash in respect of such income. A holder’s tax basis in a New Skynet Note will be increased by the amount of any OID included in income and reduced by any Cash received made with respect to such New Skynet Note.


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b. Acquisition Premium on New Skynet Notes

If a holder has a tax basis in any New Skynet Notes it acquires in the Rights Offering that exceeds the issue price of such note (as could occur to the extent the holder’s tax basis in the New Skynet Notes includes an amount attributable to the holder’s receipt of the Subscription Rights – see Section XI.B.6 of the Disclosure Statement below), the amount of OID includable in the holder’s gross income generally is reduced in each period in proportion to the percentage of the OID represented by the excess basis. Alternatively, if a holder is willing to treat all stated interest as OID, such holder may elect to recompute the OID accruals by treating its acquisition as a purchase at original issue and applying the constant yield method. Such an election may not be revoked without the consent of the IRS.

c. Disposition of Notes

Upon the disposition of a New Skynet Note, a holder generally will recognize taxable gain or loss (computed in accordance with the principles discussed in Section XI.B.1 of the Disclosure Statement). For these purposes, the amount realized does not include any amount attributable to accrued and unpaid interest, which will be taxable as such unless previously taken into account.

d. Treatment of Certain High Yield Discount Obligations

As discussed in Section XI.A.5. above, certain debt instruments that are issued with substantial OID and have a maturity of over five years are treated as AHYDOs within the meaning of the Tax Code. With respect to such instruments, a portion of a corporate holder’s income with respect to such accrued OID equal to the portion, if any, for which the issuer is disallowed a deduction under the AHYDO rules (see Section XI.A.5.) will be treated as a dividend for purposes of the dividend-received deduction to the extent such amount would be so treated if it had been a distribution made by the issuer with respect to its stock (that is, to the extent the issuer has sufficient earnings and profits such that a distribution in respect of stock would constitute a dividend for federal income tax purposes and, presumably, subject to certain holding period and taxable income requirements and other limitations on the dividend-received deduction). Presumably, a corporate holder’s entitlement to a dividends-received-deduction is subject to the normal holding period and taxable income requirements and other limitations applicable to dividends-received-deductions. For purposes of the projected financial information, the Debtors have taken the position that the New Skynet Notes will constitute AHYDOs.

6. Exercise or Lapse of the Subscription Rights

A holder of a Subscription Right generally will not recognize gain or loss upon the exercise of such right. A holder’s tax basis in the New Skynet Note received upon exercise of a Subscription Right will be equal to the sum of the holder’s tax basis in the Subscription Right (if any) and the amount paid for the New Skynet Note. A holder’s holding period in the New Skynet Note received will commence the day following its acquisition (except possibly within the context of a tax-free recapitalization or reorganization exchange). See Section XI.B.3. of the Disclosure Statement.

Upon the lapse of a Subscription Right, the holder generally would recognize a loss equal to its tax basis in the Subscription Right (if any). In general, such gain or loss would be a capital gain or loss, and would be a short term loss (unless received within the context of a tax-free recapitalization or reorganization exchange). See Section XI.B.3. of the Disclosure Statement.


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7. Ownership and Disposition of the New Loral Common Stock and the New Skynet Preferred Stock

The tax consequences of the ownership and disposition of shares of New Skynet Preferred Stock depend, in part, on the ultimate terms of such stock, which are partially described in Section V.C.2 of the Disclosure Statement. Accordingly, holders of Ltd. General Unsecured Claims and Orion General Unsecured Claims should consult their tax advisors regarding the tax consequences to them of the ownership and disposition of New Skynet Preferred Stock (including the possible receipt of constructive dividend income if the issue price of the preferred stock is less than its redemption or liquidation preference or in respect of any accrued but undeclared dividends).

In general, distributions on common and preferred stock will be treated first as a dividend to the extent of the issuer’s current and accumulated earnings and profits (as determined for federal income tax purposes), and then as a tax-free return of capital to the extent of the holder’s tax basis, with any excess treated as capital gain from the sale or exchange of the stock. In the case of an individual (provided that certain holding period and income requirements are met), any dividend generally should be subject to United States federal income tax at a maximum rate of 15%. In the case of a corporation (provided that certain holding period requirements are met), any dividend generally should be eligible for the dividends received deduction provided by section 243(a)(1) of the Tax Code. In addition, if a dividend distribution constitutes an “extraordinary dividend,” the benefit of the dividends received deduction to a corporate holder may be effectively reduced or eliminated by operation of the “extraordinary dividend” provisions in section 1059 of the Tax Code.

Any gain recognized by a holder of New Loral Common Stock (other than possibly stock received by holders of Claims against any indirect subsidiary of Loral Corp.) or New Skynet Preferred Stock (other than possibly stock received by holders of Claims against any indirect subsidiary of Orion) upon a subsequent taxable disposition of such stock (or any stock or property received for it in a later tax-free exchange) will be treated as ordinary income for U.S. federal income tax purposes to the extent of (i) any bad debt deductions (or additions to a bad debt reserve) claimed with respect to the Claim for which stock was received and any ordinary loss deductions incurred upon satisfaction of the Claim, less any income (other than interest income) recognized by the holder upon satisfaction of the Claim, and (ii) with respect to a cash-basis holder, also any amounts which would have been included in its gross income if the holder’s Claim had been satisfied in full but which was not included by reason of the cash method of accounting.

In addition, the U.S. Treasury Department is expected to promulgate regulations that will provide that any accrued “market discount” not treated as ordinary income upon a tax-free exchange (including a “G” reorganization or tax-free recapitalization) of market discount bonds would carry over to the nonrecognition property received in the exchange (such as, in the case of a Ltd. General Unsecured Claim, the New Loral Common Stock, and in the case of an Orion General Unsecured Claim, the New Skynet Preferred Stock and possibly the Subscription Rights). If such regulations are promulgated and applicable to the Plan (and, likely, even without the issuance of regulations), any holder of a Ltd. General Unsecured Claim or an Orion General Unsecured Claim that constitutes a “security” for U.S. federal income tax purposes of Ltd. or Orion which has accrued market discount would carry over such accrued market discount to any nonrecognition property received pursuant to the Plan, such that any gain recognized by the holder upon a subsequent disposition of such property also would be treated as ordinary income to the extent of any accrued market discount not previously included in income. In general, a Claim will have “accrued market discount” if such Claim was acquired after its original issuance at a discount to its adjusted issue price (subject to a de minimis rule), as discussed in Section XI.B.1 above.


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8. New Loral Common Stock and New Skynet Preferred Stock Held in Trust for Disputed Claims

Pursuant to the Plan, any New Loral Common Stock or New Skynet Preferred Stock retained by the Disbursing Agent on account of Disputed Claims by holders of Ltd. General Unsecured Claims and Orion General Unsecured Claims, as applicable, shall be held in trust (each a “Disputed Claims Reserve”) pending the resolution of such Disputed Claims.

Under section 468B(g) of the Tax Code, amounts earned by an escrow account, settlement fund or similar fund must be subject to current tax. Although certain Treasury Regulations have been issued under this section, no Treasury Regulations have as yet been promulgated to address the tax treatment of such accounts in a bankruptcy setting. Thus, depending on the facts of a particular situation, such an account could be treated as a separately taxable trust, as a grantor trust treated as owned by the holders of Disputed Claims or by the Debtor (or, if applicable, any of its successors), or otherwise. In 1999, the IRS issued proposed Treasury Regulations that, if finalized in their current form, would specify the tax treatment of reserves of the type here involved that are established after the date such Treasury Regulations become final. In general, such Treasury Regulations would tax such a reserve as a “qualified settlement fund” under Treasury Regulation sections 1.468B-1 et seq. and thus subject to a separate entity level tax. As to escrows and the like established prior to the effective date of the final regula tions , such Treasury Regulations would provide that the IRS would not challenge any reasonably, consistently applied method of taxation for income earned by the escrow or account, and any reasonably, consistently applied method for reporting such income.

Absent definitive guidance from the IRS or a court of competent jurisdiction to the contrary (including the issuance of applicable Treasury Regulations, the receipt by the Disbursing Agent of a private letter ruling if the Disbursing Agent so requests one, or the receipt of an adverse determination by the IRS upon audit if not contested by the Disbursing Agent), the Disbursing Agent shall (i) treat each Disputed Claims Reserve as a discrete trust for federal income tax purposes, consisting of separate and independent shares to be established in respect of each Disputed Claim in the class of Claims to which such Reserve relates, in accordance with the trust provisions of the Tax Code (sections 641 et seq. of the Tax Code), and (ii) to the extent permitted by applicable law, report consistently for state and local income tax purposes. In addition, pursuant to the Plan, all parties (including holders of Disputed Claims) shall report consistently with such treatment.

Accordingly, subject to issuance of definitive guidance, the Disbursing Agent will report as subject to a separate entity level tax any amounts earned by the Disputed Claims Reserve, except to the extent such earnings are distributed by the Disbursing Agent during the same taxable year. In such event, any amount earned by the Disputed Claims Reserve that is distributed to a holder during the same taxable year will be includible in such holder’s gross income.

Distributions from the Disputed Claims Reserve will be made to holders of Disputed Claims in the Class of Claims to which such Reserve relates when such Disputed Claims are subsequently Allowed and to holders of previously Allowed Claims (whether such Claims were Allowed on or after the Effective Date) when any Disputed Claims are subsequently disallowed. Such distributions (other than amounts attributable to earnings) should be taxable to the recipient in accordance with the principles discussed above (see Sections XI.B.1. through XI.B.3. above).

Accordingly, each holder of a Ltd. General Unsecured Claim and an Orion General Unsecured Claim is urged to consult its tax advisor regarding the potential tax treatment of the


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Disputed Claim Reserve, distributions therefrom, and any tax consequences to such holder relating thereto.

9. Information Reporting and Withholding

All distributions to holders of Claims under the Plan are subject to any applicable tax withholding, including employment tax withholding. Under U.S. federal income tax law, interest, dividends, and other reportable payments may, under certain circumstances, be subject to “backup withholding” at the then applicable withholding rate (currently 28%). Backup withholding generally applies if the holder (a) fails to furnish its social security number or other taxpayer identification number (“TIN”), (b) furnishes an incorrect TIN, (c) fails properly to report interest or dividends, or (d) under certain circumstances, fails to provide a certified statement, signed under penalty of perjury, that the TIN provided is its correct number and that it is a United States person that is not subject to backup withholding. Backup withholding is not an additional tax but merely an advance payment, which may be refunded to the extent it results in an overpayment of tax and the appropriate information is supplied to the IRS. Certain persons are exempt from backup withholding, including, in certain circumstances, corporations and financial institutions.

In addition, from an information reporting perspective, Treasury Regulations generally require disclosure by a taxpayer on its federal income tax return of certain types of transactions in which the taxpayer participated, including, among other types of transactions, the following: (1) certain transactions that result in the taxpayer’s claiming a loss in excess of specified thresholds; and (2) certain transactions in which the taxpayer’s book-tax differences exceed a specified threshold in any tax year. Holders are urged to consult their tax advisors regarding these regulations and whether the transactions contemplated by the Plan would be subject to these regulations and require disclosure on the holders’ tax returns.

The foregoing summary has been provided for informational purposes only. All holders of Claims receiving a distribution under the Plan are urged to consult their tax advisors concerning the federal, state, local and foreign tax consequences applicable under the Plan.

XII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN

If the Plan is not confirmed and consummated, the Debtors’ alternatives include (i) liquidation of the Debtors under chapter 7 of the Bankruptcy Code and (ii) the preparation and presentation of an alternative plan or plans of reorganization.

A. LIQUIDATION UNDER CHAPTER 7

If no chapter 11 plan can be confirmed, the Reorganization Cases may be converted to cases under chapter 7 of the Bankruptcy Code in which a trustee would be elected or appointed to liquidate the assets of the Debtors. A discussion of the effect that a chapter 7 liquidation would have on the recoveries of holders of Claims and Equity Interests is set forth in Section VI.C.4. of the Disclosure Statement. The Debtors believe that liquidation under chapter 7 would result in, among other things, (i) smaller distributions being made to creditors than those provided for in the Plan because of additional administrative expenses attendant to the appointment of a trustee and the trustee’s employment of attorneys and other professionals, (ii) additional expenses and claims, some of which would be entitled to priority, which would be generated during the liquidation and from the rejection of leases and other executory contracts in connection with a cessation of the Debtors’ operations and (iii) the failure to realize the greater, going concern value of the Debtors’ assets.


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B. ALTERNATIVE PLAN OF REORGANIZATION

If the Plan is not confirmed, the Debtors or any other party in interest could attempt to formulate a different plan of reorganization. Such a plan might involve either a reorganization and continuation of the Debtors’ business or an orderly liquidation of the Debtors’ assets. The Debtors have concluded that the Plan represents the best alternative to protect the interests of creditors and other parties in interest.

The Debtors believe that the Plan enables the Debtors to successfully and expeditiously emerge from chapter 11, preserves their business and allows creditors to realize the highest recoveries under the circumstances. In a liquidation under chapter 11 of the Bankruptcy Code, the assets of the Debtors would be sold in an orderly fashion which could occur over a more extended period of time than in a liquidation under chapter 7 and a trustee need not be appointed. Accordingly, creditors would receive greater recoveries than in a chapter 7 liquidation. Although a chapter 11 liquidation is preferable to a chapter 7 liquidation, the Debtors believe that a liquidation under chapter 11 is a much less attractive alternative to creditors because a greater return to creditors is provided for in the Plan.


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XIII. CONCLUSION AND RECOMMENDATION

The Debtors believe the Plan is in the best interests of all creditors and urges the holders of impaired Claims in Ltd. Class 2, Ltd. Class 4, Orion Class 2, Orion Class 4, SpaceCom Class 2 and SS/L Class 2 to vote to accept the Plan and to evidence such acceptance by returning their Ballots so that they will be received no later than 4:00 p.m. (prevailing Eastern Time) on July 8, 2005.

Dated: June 3, 2005 New York, New York

Respectfully submitted, LORAL SPACE & COMMUNICATIONS LTD.

By: /s/ Richard J. Townsend Name: Richard J. Townsend Title: Executive Vice President, Chief Financial Officer

LORAL SPACECOM CORPORATION LORAL SPACE & COMMUNICATIONS CORPORATION LORAL SATELLITE, INC. SPACE SYSTEMS/LORAL, INC. LORAL COMMUNICATIONS SERVICES, INC. LORAL GROUND SERVICES, L.L.C. LORAL ORION, INC. LORAL CYBERSTAR GLOBAL SERVICES, INC. LORAL CYBERSTAR GMBH LORAL CYBERSTAR JAPAN, INC. LORAL CYBERSTAR SERVICES, INC. LORAL CYBERSTAR HOLDINGS, L.L.C. LORAL CYBERSTAR INTERNATIONAL, INC. LORAL ASIA PACIFIC SATELLITE (HK) LIMITED SS/L EXPORT CORPORATION CYBERSTAR, L.P. CYBERSTAR, L.L.C. LORAL SKYNET NETWORK SERVICES, INC. LORAL LICENSING LTD.


By: /s/ Richard J. Townsend Name: Richard J. Townsend Title: Executive Vice President, Chief Financial Officer


CAUTIONARY NOTE:Please note that the June 30, 2005 financial infonnation in this Confidential InfonnationMemorandum was based upon preliminary financial infonnation. , 2005 financialinfonnation is in the process of being revised and updated financial infonnation will be postedon this website when available (currently anticipated to occur in mid-November 2005).

Document4

11-10612-shl Doc 427-12 Filed 03/16/12 Entered 03/16/12 16:44:38 Exhibit O Pg 1 of 79

Book

IcaConfidential Information Memorandum

July 2005

Jefferies II

'*

~~tmenl

Joint Placement Agents


PROPRIETARY AND CONFIDENTIAL

Disclaimer

This Information Memorandum (the "Memorandum ) has been prepared Memorandum is being furnished to assist ("ICO" or the "Company ), which is a wholly-owned subsidiary of ICO Global Communications (Holdings) Ltd. (theParent").

Neither the

disapproved of the transactions contemplated hereby or determined if this Any representation to the contrary is a criminal offense.

The information contained herein has been prepared to assist interested parties in making their own evaluation ofthe Company and does not purport to contain all the information that an interested party may desire. In all casesinterested parties should conduct their own investigation , analysis and evaluation of the Company and the data setforth in this Memorandum. The change. The information in this Company and other sources believed to be reliable. The Company is not subject to the reporting requirements ofthe Securities Exchange Act of 1934 , as amended, and does not file reports , proxy statements or other informationwith the Securities and , Jefferies & ("Jefferies ) and UBS Securities LLC ("UBS") do not make any representation or completeness of this Memorandum , and shall have no contained in , or for any omissions from , this Memorandum or any other written or oral communications transmittedto the recipient in the course of their evaluation of the Company. The only information that will have any legal effectand upon which an contained in a definitive agreement relating to an investment in or acquisition of the Company s equity interests

and/or assets utilized in the business of ICO. Unless explicitly stated otherwise, the financial information included inthis , reviewed or compiled by independent accountants.

By accepting this Memorandum , the recipient acknowledges and agrees that all of the information contained hereinis confidential and that the recipient will keep this information confidential and will not use this information for anypurpose other than considering their interest in purchasing securities of ICO. The recipient further agrees that it willnot copy, reproduce or distribute this Memorandum in whole or in part, and if the recipient does not wish to pursuethis matter, it will return this , together with any othermaterials relating to the Company which the recipient may have received from Jefferies or UBS, the Company orits affiliates. Any proposed actions by the recipient, which are inconsistent agreements , will require the prior written consent of the Company.

The Company reserves the right, at any time , to negotiate with one or more interested parties or to enter into adefinitive agreement with respect to , or to determine not to proceed with , any transaction , without prior notice toany other interested parties. The Company reserves the right to terminate , at any time , and for any or no reasonfurther participation by any party commitment or obligation to any interested party reviewing this Memorandum unless and until a written agreementfor the investment has been , executed , delivered and conditions to the Company s obligations thereunder have been satisfied or waived.

This Memorandum shall not constitute an offer, nor a , nor shall any Company be offered or sold , in any jurisdiction in which such an offer, solicitation or sale would be unlawful.

This Memorandum has been assembled by ICO for the purpose of providing information to interested parties. Youwill be contacted shortly with a , UBS and theCompany can establish your level of interest. The Company, with the advice of Jefferies and UBS , will determinewhich , if any, of the interested parties will be invited to continue their investigation of the Company.

Because of the confidential nature of this transaction , all communication or should be directed to Jefferies or UBS. You should not directly contact the Company or any of its directors, officersemployees, shareholders , customers, vendors, related parties , or affiliates at any time, or state regulators

license or oversee the Company or its operations.

By accepting this Memorandum , the recipient agrees that neither he nor his agents will contact the Company orany person known to be an employee or member of the Company s management, or a customer or supplier, withrespect to the information contained herein.

ICO Jefferies II '* DBS ~n:~tment



Forward Looking Statements

This Memorandum contains forward- looking statements within the meaning of the federal securities laws. Statements that are nothistorical facts, including statements beliefs and expectations, are forward-looking statements. Forward-lookingstatements include statements preceded by, followed by or that include the words "may,

" "

could," "would

" "

should

" "

believe

" "

expectanticipate

" "

plan," "estimate

" "

target

" "

project

" "

intend " or similar expressions.

Forward-looking statements are only management's beliefs and assumptions , which in turn are based on currently available information. These assumptions could proveinaccurate, which could cause actual results that differ materially from those contained in any forward-looking statement. Forward-looking statements also involve risks and uncertainties. Many of these factors are beyond ICO's ability to control or predict and suchincurrence could be material. Such factors include, but are not limited to, the following:

. ICO's 2 GHz MSS authorization is subject to significant implementation milestones

ICO is subject to significant U.S. and international governmental regulation

. ICO's expectation of increased spectrum assignment may not materialize

ICO has not yet applied for A TC authorization

. ICO's use of the 2 GHz band is subject to successful relocation of incumbent users

ICO intends to seek authorization to change its satellite orbital slot

Success of ICO's business plan depends on its ability to form strategic partnerships to develop its system under the constraints of variousregulatory requirements

ICO is a development stage company with no operating revenues

Risks associated with ICO's business plan

There are significant risks associated with launching and operating the satellite contemplated under ICO's business plan

Technological risks

ICO has no operating cash flow and will need additional liquidity to fund its operations and fully fund all necessary capital expenditures

ICO is expected to incur significant losses in the near term

Spectrum values historically have been volatile

. A

. Any

ICO may face significant competition from companies that are larger or have greater resources

ICO may not be able to develop, acquire and maintain proprietary information and intellectual property rights necessary to maintain itsoperations and future growth

ICO faces burdens relating to the recent trend toward stricter corporate governance and financial reporting standards

ICO is dependent on key personnel

Deferred tax liability

Lack of revenue generating operations

Potential tax liability

Legal proceedings and expenses

. The

The Company s substantial indebtedness could adversely affect its ability to execute its business plan and to obtain additional financing

. The

There is no public market for the Notes or for the ICO common stock issuable upon conversion , and there cannot be any assurance that amarket for the Notes or for the ICO common stock will develop

Resale of the Notes and the common stock issuable upon conversion of the Notes is restricted

Interests of holders of the Notes may conflict with the interests of the Parent's controlling stockholder

. The

ICO believes the forward- looking statements in this Memorandum are reasonable; however, you should not place undue reliance onany forward- looking statements , which are based on current expectations. Further, forward-looking statements speak only as of thedate of this Memorandum , and the Company undertakes no obligation to update publicly any of them in light of new future events.

All communications or inquiries relating to this Memorandum or to a possible transaction involving the Company must be directed toJefferies or UBS. Each circumstances.




Please direct all initial inquires to the following professionals:

Joint Placement Agents

JEFFERIES & COMPANY, INC.

520 Madison Ave., 12th Fl. New York, NY 10022 , NJ 07078

Phone: (212) 284.2300 2888Fax: (212) 284.2114 2760

Media & Communications Group Kent Warner

Managing Director(804) 423-8210

kwarner~jefferies.com

Michael HenkinSenior Vice President

(415) 229-1418mhenkin~jefferies.com

Leo ChangSenior Vice President

(212) 284-2122Ichang~jefferies.com

Dyson DrydenVice President(804) 423-8240

ddryden~jefferies.com

Charles SchillingAssociate

(212) 284-2044cschilling~jefferies.com

Peter MavrovitisAnalyst

(212) 284-8116pmavrovitis~jefferies.com

ICO

Eric MacyExecutive Vice President

(973) 912-2644emacy~jefferies.com

David PritchardManaging Director

(203) 708-5869dpritchard~jefferies.com

Robert JaworskiSenior Vice President

(212) 284-2068rjaworski~jefferies.com

Travis BlackVice President

(973) 912-2762tblack~jefferies.com

Tim Lepore

Associate(973) 912-2776

tlepore~jefferies.com

UBS INVESTMENT BANK

299 Park Ave.New York, NY 10171

Phone: (212) 821.3000Fax: (212) 821.3285

Telecom , Media andTechnology Group

Davis TerryManaging Director

(212) 821-2840davis.terry~ubs.com

Omar JaffreyManaging Director

(212) 821-5297omar.jaffrey~ubs.com

Jonathan Herbst

Executive Director(312) 525-4878

jonathan .herbst~ubs.com

Rezwan MirzaDirector

(212) 821-3093rezwan.mirza~ubs.com

Ashish DafriaAssociate Director

(312) 525-4841ashish.dafria~ubs.com

Bret OettmeierAnalyst

(212) 821-3801bret.oettmeier~ubs.com

John HollandAnalyst

(312) 525-4894john-a.holland~ubs.com

1 N. Wacker Dr.Chicago, IL 60606

Phone: (312) 525.5000Fax: (312) 554.5040

Private PlacementsGroup

Leonard Brooks IIIManaging Director

(212) 821-3065leonard.brooks~ubs.com

John KentDirector

(212) 821-3171john.kent~ubs.com

Anthony MartinoDirector

(212) 821-3318anthony.martino~ubs.com

Margaret WareAnalyst

(212) 821-4695margaret.ware~ubs.com

iii Jefferies II '* DBS ~a::ment



(This Page Intentionally Left Blank)

ICO Jefferies II '* DBS ~n::~tment


Table of Contents


Executive SummaryOverview

Transaction Summary

II. Investment Highlights

III. Offering Summary

IV. Demand and Market OpportunityAttractive Spectrum Enhances System Capabilities

Demand Drivers for ICO's Capabilities

Potential Strategic Partners

V. Potential MSS/ATC Providers

Key Potential Auctions

VI. RegulatoryBackgroundA TC Overview

2 GHz MSS Band Overview

VII. System OverviewSystem Architecture

VIII. CompanyICO North America

ICO Global Communications (Holdings) Limited

Investors

IX. Description of Notes

X. Risk

Regulatory RisksBusiness Risks

Risks Related to the Parent

Risks Related to the Notes

XI. Financial OverviewSelected Projected Financial Data

Operating and Capital Expenditures Assumptions

Historical Financial Results

XII. Glossary

ICO Jefferies II '* DBS ~a:~ment



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ICO Jefferies II '* DBS



Executive Summary

Overview

ICO North America , Inc. (" ICO" or the "Company ) is a next-generation mobile satellite serviceMSS") operator with a unique

terrestrial wireless services Commission ("FCC") has terrestrially to provide integrated mobile satellite-terrestrial service offerings. ICO is an advanced hybrid satellite-terrestrial system designed to provide voice , data and services with handsets similar to existing cellular phones. This system is expected to enableICO to operational in July 2007. ICO's business model strategic service providers who can incorporate ICO's capabilities to offer integrated satelliteand terrestrial services to their strategic partner alliances.

The Company s system will be supported by ICO has already been granted 8 MHz of spectrum and could potentially be granted up to 20MHz.

ICO is a Parent") (OTC: ICOHA), which is authorized to operate a global Medium Earth Orbit ("MEa"

satellite , together with other keyshareholders , have invested over $1.2 billion in the Parent since May 2000. This continues Craig McCaw vision of extending capabilities.

Market Opportunity

The wireless sector has been industry. With continued subscriber intensiveapplications , such growth is expected to continue in the U.S. Forecasts for anticipate:

75% increase in total wireless voice minutes of use ("MOUs

50 million new wireless subscribers; and

A four-fold increase in data revenues driven by bandwidth- intensive wirelessapplications such as pictures , video , MP3s , email and games.

As a result of this , to maintain even the current capacitylevels , wireless service providers will likely need to vastly increase their network capacity.

ICO Jefferies. '* DBS ~n::~ment



A TC Authorization

Despite MSS operators ' broad geographic coverage and emergency service capabilities , theyhave struggled to gain mass-market urban service coverage and large handset size of legacy efficient use for satellite spectrum , encourage the services and improve industry economics, in February 2003 , the FCC adopted an order givingMSS operators authority to A TC") into theirnetworks , and thus use their February 25 , 2005 , the FCC addition , in June 2005 , the last wireless carriers withdrew legal challenges to the FCC's A TCdecisions. These events ensured that consumers would offering.

The ICO MSS/ATC System

ICO intends to reaffirmation of ATC by terrestrial system (the "ICO MSS/ATCSystem ) to offer ubiquitous satellite and terrestrial wireless service throughout the U.S. TheICO MSS/ATC System is being designed to support a full set of mass-market service offeringsincluding voice, video, Internet, public safety and support any existing and future wireless protocols including GSM , COMA, OFDM and TCPIIP.In addition , the function to existing cellular phones.

lCD' integrated satellite-terrestrial service is sophisticated voice and data services to urban and rural customers , and to address growingnational security and public safety service needs by providing a redundant service offering toexisting terrestrial networks.

The Company s geostationary satellite application for U.S. coverage was approved in May2005. , on January , the contract with Space Systems/Loral , Inc. ("SS/L") for construction of the GEO satellite and iscurrently in discussions with vendors regarding the build-out of the other components of thesystem. SS/L completed

schedule to meet , SS/L has begun construction of the GEO FCC' s July 17 , 2007 deadline. The Company carriers who will leverage their existing customer bases and assets to roll-out wireless services.

lCD' s system is being designed to utilize at least the 8 MHz of granted to it by the FCC in the 2 GHz band , representing 2.4 billion MHz POPs. In addition , onJune 29 , 2005 , the FCC issued a public notice of its intent to grant an additional 5.33 MHz of 2GHz spectrum to lCD, which the Company believes it is likely to receive in the next severalmonths. The FCC also issued a separate notice to distribute an additional 6.67 MHz of 2 GHz




spectrum to ICO. As a result , the Company s aggregate spectrum holding is expected to be13.33 MHz and could be 20 MHz.

Competitive Advantages

The Company believes that its system should be able to leverage the advantages to capitalize on the growing demand for wireless services:

ICO MSS/ATC System designed to support full services

Nationwide integrated satellite-terrestrial service enabling ubiquitous coverage

Handsets similar to current cellular phones

Proximity to

terrestrial partner

Management and experience

Equity Sponsors

The Parent's significant equity Eagle River Investments) and Clayton , Dubilier & Rice. In 2000 , Eagle River led a $1.2 billioninvestment to acquire the Parent and continues Craig McCaw vision of extending

capabilities. Craig investments in S. basedprovider of wireless broadband services). Clayton , Dubilier & Rice has made totaling over $5 investment firms in the world.

ICO Jefferies II '* DBS ~n~:ment


PROPR~TARY AND CONRDENTlAL

Transaction Summary

ICO is seeking to raise $400 million in Convertible Senior Secured Notes to fund a portion ofthe costs to develop the ICO launch of a GEO satellite and a related be secured on a first-priority basis by s assets with theexception of a carve-out for a working holder s option into shares of common stock of the Company and under certain circumstanceswill be convertible at the holder s option into shares of common stock of the Parent.

Sources and Uses of Funds

The Company expects that the total funding needed to complete the MSS portion of the ICOMSS/A TC System will be , excluding interest expense. The systemis expected to be completed in July 2007. In addition , construction of a ground spare satellitewill be initiated upon execution of a strategic partnership for the terrestrial component. Thisspare satellite is estimated to cost $175 to $225 million and is year after the launch of A capital raised through this s cash requirementsthrough the third quarter of 2006.

To date , the Parent's contributions to the Company have been in the form of equity. As of July, 2005 any further contributions from the Parent will be in the form of

which will be repaid in full with the proceeds from this offering.

Sources UsesNew Convertible Senior Secured Notes.. Investment into MSS/ATC System .......... $ 325.

Escrowed Interest Fees and Expenses

Total Sources .........................................., $ 400. Total Uses

ICO Jefferies Pi '* DBS ~n:~tment



Pro Forma Capitalization

The following table sets forth the pro forma interest will be kept solely for the use of paying the first four related to this offering.

.i. . I I

As Adjusted Pro Forma

(Unaudited)326.

57.

400.400.

11. 11.

11. 411.

Cash and Cash Equivalents................... $Escrowed Interest..................................

Long-term Debt:

Convertible Senior Secured Notes.........Total Debt...... ............................... ......

Shareholders' Equity...... ........................

Total Capitalization.......... ............ ..........

(1) As adjusted for inter-company transactions.

Corporate Structure

The following chart illustrates the Company s corporate structure as of June 30, 2005.

ICO NorthAmerica, Inc.ICO"

Domicile: USA

. Issuer of Notes Offered Hereby

ICO Jefferies II '* DBS ~n:~ment



II. Investment Highlights

Potential for Up To 20 MHz of Nationwide Spectrum Offering Ubiquitous Coverage. ICOhas the already assigned ICO 8 MHz in the 2 Company to serve the entire U. , Puerto Rico and U.S. Virgin Islands , which represent approximately 300 million POPs. As a result of recent FCC actions , the Companybelieves it is likely to have 13.33 MHz (4.0 billion MHz POPs) in the next several months andcould ultimately be granted 20 MHz (6.0 billion MHz POPs).

Access to Spectrum Could Enhance Value of ICO. ICO should be an attractive partner tocommunications and media S. spectrum transactions in the 1.GHz band have established a median valuation of $1.64 per MHz POP. Using this valuationbenchmark, the value of ICO could be enhanced by $4 billion to $10 billion depending on theamount of 2 GHz spectrum ultimately assigned to ICO.

$10. $9.8 billion

$2.

$8.

g $6.

~ $4.

$0.0 I~ 8 MHz

Spectrum~ 13.33 MHz

Spectrum~ 20 MHz

Spectrum

ICO Spectrum Value, using $1.64/ MHz

Growing Demand For Wireless Capacity Drives The wireless sector has been andis expected to Analyst forecasts for the next five years anticipate:

75% increase in total wireless voice MOUs;

50 million new wireless subscribers; and

. A four-fold increase in data revenues driven by bandwidth- intensive wirelessapplications such as pictures , video, MP3s , email and games.

(1) $1.64/ MHz POP represents median valuation of recent large transactions. See section IV for additional information on spectrum

ICO Jefferies II '* DBS ~n::~ment



GHz Band Benefits. The Company s position in the 2 GHz spectrum band provides severalbenefits including:

Position adjacent to the

existing PCS networks and systems

No other service , substantially reducing thepotential for interference

Fixed spectrum range, without the need for periodic adjustment

Terrestrial Spectrum Usage Re-Affirmed by the FCC. On February 25, 2005, the FCCreaffirmed its decision to allow MSS operators to service. In June 2005, representatives of the

terminated judicial challenges to the FCC's A , effectively eliminating

regulatory uncertainty surrounding ATC policy.

First Mover Advantage. The Company is uniquely positioned to satisfy the growing demandfor wireless services. the 2 GHz band. This strategic partners.

Experienced Management ICO' s senior executives have substantial experience inthe satellite and experience on average. The senior three years. Craig Jorgens, President, has including senior level positions at Vodafone/AirTouch and Texas Pacific Group. David Bagley,Senior Corporate Development has telecommunications experience including senior level positions at SBC , Vodafone/AirTouchand IPWireless.

Senior Management Team

- -

, Industry, Experience! Position

Craig Jorgens .................................. President

David Bagley.................................... Senior Vice President, Corporate Development

Bob Day........................................... Senior Vice President, Space Systems

Suzanne Hutchings Malloy.............. Senior Vice President, Regulatory Affairs

Dennis Schmitt................................. Chief Financial Officer

ICO Jefferies.

i ICO

I Experience

'* DBS ~n:~ment



Strong Equity Sponsorship. The pioneer Craig McCaw (through Eagle River Investments) and Clayton , Dubilier & Rice. 2000 , Eagle River led a $1.2 billion investment to acquire the Parent MEO system. vision of extending wireless

communications with satellite communications with Corporation (a leading U.S. based provider of wireless broadband services). Clayton , Dubilier& Rice has made investments totaling over $5 billion to date and is one of the oldest and mostrespected private equity investment firms in the world.

fCO Jefferies II '* DBS ~a:~tment



III. Offering Summary




IV. Demand and Market Opportunity

ICO represents a unique opportunity to offer both and advanced satellite solutions. The Company s hybrid network, supported by its attractivespectrum, is expected to , including mobile carriers , cable TV, satellite TV, and satellite radio service providers , among others. Existingand potential providers of need for , increasing usage accelerating adoption of mobile video , data and other high-bandwidth data applications. Thewireless sector has been and is expected to remain among the strongest growth sectors in thecommunications industry.

Attractive Spectrum Enhances System Capabilities

The Company believes that its system , supported by up to 20 MHz of spectrum in the 2 GHzband , should be highly attractive given its proximity to PCS spectrum in the 1.9 GHz band.

PCS spectrum values have , recent large U.S. spectrumtransactions have established a 64 per Figure 4. 1 below shows the price per MHz POP paid for PCS spectrum in various sales andauctions.

Figure 4.1 - Recent Spectrum Values

$4.$4.

$4.

$3.

$3.

II..

~ $2.

:!:!

~ $2.

$1.

$1.

$0.

$0.

$4.

Auction 35 Mean 2001 2002

angular

NextWal.e

2003

NextWal.e FCC Auction 58Auction (3) Mean

Medianex. A35

2004 2005

Source: FCC filings, company press releases, SEC filings and 2002 Kagan Databook

(1) NextWave auction included NYC bought by Verizon, and two other markets in Florida bought by MetroPCS

(2) Three other valuations were submitted to the FCC ranging from $1.26 to $1. 82; these are included in the median value calculation

(3) Verizon/NextWave deal included several large markets including NYC, Los Angeles, and Philadelphia

(4) More than 70% of the licenses in Auction 58 were for markets with less than million POPs




ICO could potentially attract capabilities and capacity. As shown in Figure 4. , ICO's value could be enhanced by $4 billionto $10 billion depending on final spectrum awarded and using a valuation of $1.64 per MHzPOP (the median spectrum value established by recent large U.S. spectrum transactions inthe 1.9 GHz band).

Figure 4.2 - Spectrum Enhances ICO's Value

$10.0 I

$8.

$9.8 billion

$2.

2 $6.

~ $4.0 I

$0.

~ 8 MHz

Spectrum~ 13.33 MHz

Spectrum~ 20 MHz

Spectrum

ICO Spectrum Value, using $1.64 MHz POP

ICO Jefferies. '* DBS ~n::~ment



Demand Drivers for ICO's Capabilities

Numerous trends point to continued growth in wireless demand and valuations:

Growth in wireless subscriber base

Growth in wireless voice usage per subscriber

Rapid proliferation of bandwidth-intensive wireless data applications (e. , picturesvideo, MP3 downloads, Internet , email messages , etc.

Continued Subscriber Growth

The U.S. wireless industry has shown , a trend that isexpected to continue:

Wireless penetration expected to reach 80% by 2010

Increase of nearly 50 million subscribers

Figure 4.3 - Increasing U.S. Wireless Penetration

~ 85%

S 80%;:if!

....

CII

CII 70%D..

= 65%CII

e 60%

55%

:) 50%

79% 80%

2003 Actual

2005 2006 2007 2008 2009 2010Forecast

Source: Wall Street

ICO Jefferies II '* DBS ~n:~~ment



Despite the projected rapid growth in the U.S. wireless industry, U.S. wireless penetration willcontinue to remain below current penetration in Western Europe, as shown in Figure 4.4.

Figure 4.4 - U.S. Relatively Under-Penetrated; Significant Growth Expected

110%102%

'#. 1 00%r::

90%

80%

70%

60%

50%

Japan France Germany Italy

Source: Garlner, Inc. , 2004

Another trend contributing to wireless growth is the increasing number of users who replacetheir wireline phone with a wireless handset as their primary phone (commonly wireline substitution), a between wireline and wireless , the number ofwireless subscribers has now for the first time surpassed the number of wireline connectionsin the U.

ICO Jefferies fa '* DBS ~n:~ment



Usage Growth Per Subscriber

Demand for wireless capacity will also be fueled by increasing wireless usage per subscriber.As price , customervoice usage has demonstrated steep growth , with voice MOUs per subscriber increasing by45% from 2002 to 2004. An Figure 4.5. Wireless phones already account for a large distance callsmade and are increasingly being used as the primary phone.

Figure 4.5 - Substantial Projected Growth in Voice Minutes of Use Per Subscriber

100

004966

897:!i 900

780:::I(J)

700

:!i

5002002 2003 2004 2005 2006 2007 2008 2009 2010

Actual Projected

Source: Wall

Increasing voice MOUs per subscriber, coupled with growth in the overall subsc;riber base areexpected to result in an approximately 50% increase in overall wireless voice usage by 2010as shown in Figure 4.

Figure 4.6 - Projected Growth of Total Voice

000000

~ 2 500

~ 2 000

:;;

,;j 1500

~ 1 000

....

500

2002 Actual

2004 2005 2006 2007 Projected

2009 2010

Source: Wall Street

ICO Jefferies II '* DBS ~a:~ment



Rapidly Increasing Broadband Data Applications

The proliferation of broadband data applications should also substantially increase demand forwireless capacity. As shown in , revenues from data increase approximately four-fold between 2004 and 2008, increasing from $4.7 billion to $18.4billion. These revenues are projected to applications, such as web , games, require significantly more network capacity than voice traffic. Many of the newer features suchas downloading intensive. To meetincreasing user , carriers are accelerating

evolution-data-only (nEV-DO") and other next-generation broadband technologies, putting

additional strain on available wireless network capacity.

Figure 4.7 - Four-Fold Projected Data Revenue Growth

$20.

.-...

';" $15.::I

::-

D:: $10.III

III

II)

~ $5.

$0.

2004 2008E

Souice:Gaitiiei;20d4

...

15%

::I

10%

$18.4

........

2004 2008E

Next-Generation Wireless Applications Rapidly Emerging

Many emerging wireless applications are likely to drive demand for greater wireless capacity.

Wireless broadband - as laptops become smaller and PDAs (such as Blackberries orTreos) improve in functionality, demand for mobile wireless broadband applications isexpected to technologies and , Cingular and addition , the rising popularity of Wi-Fi and Wi-Max devices further contribute to thistrend.

Mobile broadcast - as

demand for wireless capacity is likely to increase.




Potential Strategic Partners

Increasing demand for and limited supply of wireless capacity should make ICO's serviceshighly attractive to numerous existing and strategic partnerships with current or potential wireless service providers who need to:

Augment their current system capacity

Expand their network footprint

Offer telematics and other value-added satellite-based solutions

Introduce wireless capability to their product portfolio

The Company believes that its ability to service in conjunction with a terrestrial network will be in high demand by both existing playersand new interested in partnering with ICO , including, but not limited to:

Cellular and PCS providers

Verizon Wireless

Sprint / Nextel

Cingular

- T -Mobile

Vodafone

- Others , such as Alltel and U.S. Cellular

Satellite radio providers

- XM

Sirius

Cable TV service providers

- Com

Cox

Time Warner

Cablevision

Satellite TV service providers

DirecTV

EchoStar

Wireless broadband providers

ICO Jefferies II '* DBS ~a::ment



Cellular and PCS Providers

Because of increasing bandwidth requirements , existing wireless carriers represent the mostlikely ICO partners. The advanced, hybrid network supported by nationwide spectrum in a single band to ubiquitous coverage. The proximity of ICO's spectrum to existing PCS spectrum may facilitateintegration with existing terrestrial wireless System is designed to cellular phones , but with the added capability of satellite service.

Figure 4.8 - Potential Strategic Cellular/PCS Partners

ri70nwireless

-A-'fInnt

Prominent user/acquirer of PCS spectrum

Significant financial flexibility

Continued EV-DO roll-out would require significant spectrum capacity

Strong proponent that aggregate capacity demands will increase in future

Additional spectrum would allow for aggressive expansion of wholesalingstrategy

Planned EV-DO roll-out would require significant spectrum capacity

. . . . q1 . . Least spectrum among national carriers

~ c Largest U.S. wireless operator

Planned 3G roll-out would require significant spectrum capacity

---~,~

_v_,--

vodafone

-~-~__

~__m

,~~--,.~~-~------~~--,,--- -~-~--

. World's largest carrier with strong ability to integrate acquisitions

Ideally would prefer control over nationwide U.S. carrier

C llter May be interested in expanding their services

US. Cellular. .

ICO Jefferies Pi '* DBS ~n::~tment



Available spectrum varies greatly among existing carriers. As shown in Figure 4. , Cingularhas the strongest spectrum position in the top markets, while other carriers need significantlymore spectrum to compete effectively. However, the strength of the carriers ' existing spectrumposition and their spectrum need is also related to their respective subscriber bases and theirexpected growth. As shown in , Verizon has the weakest subscriber as well as a weaker average spectrum holding in top markets.

Figure 4.9 - Relative Spectrum Position of National Wireless Carriers

AverageMHzperTop 50 BTA Average MHz -'--'Y_~"-""~~'~~M~"~' ymmn'm''''''m'~'~_'"'''~u,~'

,~",

~,w'''''"m_''~""""~~-"~,,,- ~,,~~,, 'm~~~-

-~~~--

"'--~'-~~~-~"_'''A~m~

42 MHz

59 MHz

46 MHz

J--Cingular Sprint Mobile

Nextel (1)

Mobile Sprint Nextel

Source: FCC documents and SEC filings

(1) Pro forma for proposed merger; assumes Nextel has 20 MHz in each market pro forma for its Consensus Plan.

ICO Jefferies II '* DBS ~n:::ment



Demand for wireless capacity will increase as wireless carriers add additional capacity, total voice MOUs per current MHz are increase by more than 75% by 2010 , as shown in Figure 4. 10. Growth would require the wireless nationwide to maintain the current ratio of available spectrum to MOUs. Rapid growth in datausage could also create the need for projected U.S. spectrum demand, today European nations already have an average of 250 to300 MHz of spectrum.

Figure 4.10 - Demand for Wireless Voice Capacity

. IncreasingWiteless Voice Usage...

,"--~- , ...

RequiresMoreSpectrurntoRetain Network

i Quality-, ~~._w_-,-,~-

20. 375 336

i 16.

15.

........

I 12.

e. 8.

0 4.

300

N 225::E:

:E 150

2004 2010 2004 . Current

Note: Represents the ratio of billion MOUs over 190 MHz (nationwidespectrum cUffently allocated to PCS and Cellular services).

""""'''''''''''''''''''''''',.,"....... ..................................................,-"........................................................."'......." -,................................,...,..........

Note: Spectrum required in 2010 projected based on expected 2010 MOUs

I of 3 billion and current nationwide spectrum per billion MOU of 112 MHz.




Typically, spectrum limitation problems are These areas have the same spectrum allocation as the rest of the country, even though theyhave significantly higher population and thus higher total wireless usage (as shown in Figure

11 ).

terms of wireless usage and spectrum requirements.

Figure 4.11 - Urban Networks Already Strained

100.

75.

50.

25.

Cumulati\e% of U.Population

88.4 MHz

OtherTop 10

OtherTop 50

12% 28% 57%

Source: FCC filings, company press releases, 2002 Kagan Databook

Satellite Radio Service Providers

""'"

....,.AA SATELliTE

.........,,,\

RIUS.ELlITE RADIO

Satellite radio has grown immensely over the last few years. The two largest players , XM andSirius , are locked in heated competition , utilizing 12 MHz of spectrum each in the 2320-2345MHz band. Access to lCD's system and capacity in the nearby 2 GHz band could give oneparty a decisive competitive advantage. This added capacity would allow these continue to expand their , possibly on the customers can be

facilitate these companies ' growing interest in mobile radio broadcast over cellular phones aswell as video and data path capability provided by the ICO MSS/A s system could also support thenew vehicles.

ICO Jefferies Pi '* DBS ~n::ment



Cable TV Providers

~omcast cox TlmeWarner CABLEVlSIONCOMMUNICATIONS

Cable providers are increasingly focused on "bundling" products most commonly, the so-called "triple-play" offering of fixed-voice, broadband and MSS/ATC System , cable providers could augment this current strategy to form a "quadruple-play" bundle attractive to consumers who wish to have an integrated , easy-to-use, single-bill experience.Another factor driving cable companies ' interest in wireless is competition from local telephonecompanies expanding into the cable TV play strategy could help

mitigate this threat.

Satellite TV Providers

IIUDIRECTV

ECHDBiM~

Similar to cable companies, satellite TV providers could also be interested in partnering withIca to and phone companies. In addition , the Ica providers as it strengthen their interactive service offerings.

Wireless Broadband Providers

.#N clearw re'wireless broadband

Wireless is expected to

Internet services, both on stationary and mobile bases. This trend is already evident in therising popularity of Wi-Fi and Wi-Max devices and is expected to be further enhanced by theincreasing functionality of broadband-enabled wireless PDAs and other provide wireless broadband providers with access to an advanced system and an opportunityto expand their service footprint.

ICO Jefferies Pi '* DBS



Potential Wireless Capacity Expansion

The rapid demand for wireless capacity. Carriers have historically met these demands expansion or spectrum acquisition. There are a number of new business may meet this growing demand. Beginning , carriers could have the option to improveand expand their service offering by expected to auction additional spectrum on a market by market basis. However, the timingand certainty of use remains unclear.

The Company believes that it is well positioned to satisfy market demand for wireless servicesfor the following reasons:

ICO MSS/ATC System designed to support full services

Nationwide integrated satellite-terrestrial service enabling ubiquitous coverage

Handsets similar to current cellular phones

Proximity to

terrestrial partner

ICO Jefferies tI '* DBS ~n::tment



Potential MSS/ATC Providers

In order to assist

limitations , the networks and develop the capability to offer ubiquitous national coverage. There are currentlythree ATC-eligible MSS spectrum bands authorized by the FCC: 2 GHz band , L -

Big LEO band. These bandwidth and interference issues. The 2 GHz band is attractive spectrum , up to 40 MHz allocation and lack of interference.

Figure 5. 1- Timing and Considerations for MSS/ATC Services

I MHz of Spectrum

ExpectedAvailabilitySpectrum

...",.........",...............,..,.,,".....,"""...,",...,.

2GHz

ICO North America

~~~_~N______~---

Fixed, unshared nationwide spectrumUp to 20 MHz 2007

Next to PCS bandUp to 20 MHz 2008

Subject to in-band interference

Up to 28 MHz Immediately Periodic frequency and bandwidth re-

Up to 20 MHz Indicated Interestallocation

Limited capacity

Up to 11 MHz Applied Wide up/down frequency differential

T erreStar

L - Band

MSV

Inmarsat

Big LEO

Globalstar

Iridium

ICO Jefferies Pi '* DBS ~a::ment



GHz MSS Band

The 2 GHz MSS spectrum band is composed of 40 MHz, with 20 MHz in the 2000-2020 MHzband for uplink and 20 MHz in the 2180-2200 MHz band for downlink. Currently only ICO andTMI (TerreStar) hold valid 2 GHz MSS spectrum 2005, the FCC issued a public notice of its intent to grant an 33 MHz of 2 GHzspectrum to both companies and an distribute another 6.67 MHz of 2 GHz spectrum to both , among otheroptions, and sought comment on these actions as well.

Based on current provider of ATC services in the 2 GHz band. , the first 2 GHz MSSprovider certified as operational has the right to choose where in the 40 MHz of would like to operate.

Figure 5.2 - 2 GHz MSS Spectrum Band

2 GHz MSS band Uplink20 MHz

2 GHz MSS band Downlink20 MHz

2 GHz MSS operators will be granted assignments within a fixed spectrum range. because the 2 GHz band is adjacent to the PCS band , there is no practical difference betweenpropagation for the PCS and 2 GHz band , which may facilitate the integration of the PCS and2 GHz networks.

The 2 GHz band is , cable television relayservice and local television transmission service (collectively "BAS") in the uplink (2000-2020MHz) and by commercial and private fixed wireless services ("FS") in the downlink (2180-2200MHz). In connection , the FCC has mandated that newoperators using 2 GHz spectrum pay for the as a , Inc. is

relocation of the BAS provider in the 2 GHz uplink from 2 GHz MSS licensees. MSS FS incumbents in the downlink.

ICO Jefferies II '* DBS ~n:::ment



Band

There are currently two entities that have U.S. authorization to provide MSS service in the L Band - , in any band to date, to havereceived A TC approval. FCC rules require that MSV include a peripheral device with any handset that is sold in orderto ensure that end users can communicate directly with the MSV satellite. When MSV's next-generation satellite begins operation, the existing

communicating with the satellite without the MSS system and has geographic coverage of the U.S. authorization.

The L - Band 1544 MHz and 1545-1559 MHz for uplink and1626. 1646.5 MHz and 1646. 1660.5 MHz bands for assignments for the operators within the MSS L Mexico City Memorandum of MCMoU"). This Mexico, Canada , the U.S. and Russia to this band. In addition , there are several services that operate within and adjacent to the L -Band MSS spectrum , including global positioning service ("GPS"), Aeronautical TerrestrialService , Aeronautical Mobile Satellite (Route) Service ("AMS(R)S"), Global Maritime Distressand Safety System ("GMDSS"), Search and SARSAT"), RadioAstronomy Service ("RAS") and Mobile Aeronautical Telemetry ("MATS"). These must be protected and in some cases given priority.

Figure 5.3 - Significant Interleaving and Potential Interference in L - Band

L - Band Uplink34 MHz

L - Band Downlink34 MHz 5 MHz

....

)0"""1 SARSAT

~~,

4R)"

MSV Ilnmarsat

.:;:::~:. . . . ~

.::1 GMDSS f'

cx::;,...-I.CXD(O

;. ::

I~MR)sl

MSV Ilnmarsat

I..tXC

u:xc u:;lC)

Lt)C"')

"",on '"oq--.;:t v

~~ ~

comI.OLC)U')Lt)

MSV Ilnmarsat Shared with GMDSS Exclusive for SARSAT Shared with AMS(R)S

(1) Due to confidentiality agreements in place. the exact frequency location of MSV and Inmarsat are not confirmed.




Big LEO Band

Globalstar and Iridium are both licensed and operational in the Big LEO band , however onlyGlobalstar is able to provide ATC. 1621.35 (11.MHz) and 2483. 2500 MHz (16.5 MHz), but it spectrum with other services. For instance , 1618.25-1621.35 MHz is shared with Iridium and2495-2500 MHz is shared with FS. , Globalstar can use

In 1994 , the FCC allocated the 33 MHz of spectrum to the Big LEO MSS operators. The uplinkband is adjacent to U.S. GPS and the Russian Global Navigation Satellite System ("RNSS"The downlink band is shared with and adjacent to industrial scientific and medical equipment

ISM"), BAS , electronic news gathering ("ENG") equipment and fixed microwave services. 2500 MHz, Big LEO is also adjacent to multi-point distribution service/instructional televisionfixed service ("MMDSIITFS") and fixed satellite services ("FSS"

Figure 5.4 - Big LEO Band

Big LEO Downlink16.5 MHz

''' ''''~

~Mp~n i

ITFS/\ \

\ \

FS i)C"')I.C) 00

"-

~-r- ~ CD ~-r- f"' ..

'" /

I '

......~ .. -"

I "

'" - -

I Iridium I

Denotes Globalstar s Permitted Potential ATC Spectrum (2 x 5.5 MHz)

C"')oo::tcooooo::too::t"IN

I"--COCOCOoo::too::t"IN

C"')

oo::t I.C)




Key Potential Auctions

The FCC has announced its intent to spectrum for Advanced Wireless Services over time , starting in mid 2006, but has not yetspecified an actual auction date. Another 60 MHz of spectrum is the 700 , currently estimated for 2009. This band is broadcasters who must first vacate the band and transition to digital transmission.

Figure 5.5 - Timing and Considerations for Key Potential Auctions

- -

~~~N~~_~'J MHz of

2x 45 MHz

2x 5 MHz

1x 15 MHz.m..........."","".,,...,...,.......................

60 MHz

i Ex:pe~ted'\ vaUabilitySpectrum

AWSPartial availability

beginning 2006

Difficult to get nationwide coverage

Undefined timing and guidelines

DoD incumbents must be relocated

..m Ti~i~Qm~~~~~~i~~ ..700 MHz Potentially 2009

Advanced Wireless Spectrum

('~

WS"

The FCC is mobile wireless use , labeled AWS , which can be used to offer a variety of wireless servicesincluding Third Generation ("3G") mobile broadband and advanced services. In , the spectrum at 1710-1755 and 2110-2155 MHz. The Commission plans to commence auctioningthis spectrum as early as June 2006. This spectrum will be according to the band plan. 25 MHz of AWS at 1995-2000 , 2020-2025 and 2165-2180 MHzwill be auctioned by the FCC for terrestrial wireless potential to develop handsets for both types of service at lower cost.

Portions of the 1710-1755 MHz spectrum band Federal Government entities , including the Department of Defense. In order to accommodatethese federal users and make the Report & Order, identified frequencies that will allow federal users to operations and addressed such relocation procedures. In December 2004 , the U.S. Congresspassed the Commercial Spectrum Enhancement Act, which Relocation Fund and allows federal government users to be incur in relocating to different spectrum bands.

700 MHz

The 700 MHz band consists of 60 MHz of spectrum in Blocks C and D in the Upper 700 MHzBandplan , and Blocks A, B , and E in the Lower , thesale of 700 MHz band spectrum by the federal government would start in December 2009 orwhen 85% of American households can receive digital broadcast signals (whichever is later).

ICO Jefferies m '* DBS ~n::ment



VI. Regulatory

Background

MSS systems can provide communications service in areas where it is difficult or impossibleto provide , such as areas and overcome significant signal penetration issues in densely populated urban areas , due to thefact that the satellite link is susceptible to blocking by structural MSS operators address this problem , in February 2003 , the FCC MSS operators broad assigned spectrum to operate an terrestrial service offering nationwide coverage.

The February 2003 FCC order is applicable to the 2 GHz band , the L - Band and the Big LEOband. On November 8 , 2004 , the FCC issued an order granting MSV the first authorization toprovide A TC in conjunction , 2005 , the FCCissued a revised set of A year reconsideration processexamining the use of A services). milestones relating to the construction, launch , and , whichcomprise the satellite system separately apply for A gating criteria" as a pre-conditionto applying for such an A

On May 24 , 2005 the FCC s reservation of spectrum for the provision of MSSservice from a non-geostationary-satellite-orbit ("NGSO") satellite constellation to a GEO satellite system , the proceed to apply for A an MSS satellite by July 17, 2007. The regulatory approval include specific dates by which the satellite component of the integratedsatellite and launched and operational.

To date , ICO has been granted authorization to provide mobile satellite service using 8 MHzof spectrum in the 2

covers the entire U. , Puerto Rico and U.S. Virgin Islands. On , 2005, the FCCissued a public notice of its intent to grant an additional 5.33 MHz of 2 GHz spectrum to both 2GHz MSS operators for a total of 13.33 MHz each. The FCC also distribute an additional 6.67 MHz of 2 operators , among other options, and sought comment on these actions.

ICO Jefferies Ii '* DBS ~a:tment



A TC Overview

A TC authorization based service with terrestrial wirelessservices , resulting in a hybrid MSS/ATC network designed to provide advanced services andubiquitous coverage throughout the U.S. The FCC related services, and authorization for such use is achievement of , launch andoperation of the underlying

authorization for A gating criteria" specified in FCC rules.ATC authorization requires an MSS operator to meet certain criteria and rules as summarizedin Figure 6. 1 below.

Figure 6.1 - FCC Mandated ATC Gating Criteria and Key Rules

MSS operators must be able to provide substantial satellite service to be eligible for ATC authorization:

MSS systems must be capable of providing continuous satellite service

MSS coverage requirement is all 50 states, Puerto Rico and the U.S. Virgin Islands , if technicallyfeasible

MSS operators must offer commercially available service (i.e. MSS service to the general public for afee) throughout the mandatory geographic coverage area

MSS operator can only use A TC within its satellite footprint and within its assigned spectrum

. A

Offering dual-mode MSS/ATC handsets for use with the MSS operator's service , or

Substantial showing demonstrating that the MSS operator offers an integrated MSS/A

Ground spare must be completed within one year of launch of the launch of A

. A

MSS operators can apply for A TC as an MSS licensee just prior to being operational , or earlier if an MSSoperator can demonstrate that they will meet A TC requirements

FCC expects to review the MSS operator's A TC application within 90 days of meeting A TC gating criteria

. A




The FCC has specifically rejected requests from terrestrial carriers to impose A TC services as outlined in

Figure 6.2 - ATC Restrictions by the FCC

All MSS/A TC calls must be routed through a satellite

MSS/A TC handsets must always attempt to communicate via the satellite first

MSS operators must demonstrate a technical inability to serve the proposed A condition of A TC

Additional fees for MSS operators who wish to provide A

MSS/A TC operators must dedicate a

ICO Jefferies Ii '* DBS ~n::ment



2 GHz MSS Band Overview

The FCC has made 40 MHz of spectrum available to MSS operators in the 2 GHz MSS bandof spectrum known as the S (TerreStar), Mobile Holdings , Inc. (CCHI), Boeing, Celsat America ("Celsat"), Iridium and Globalstar LP to provideS - Band MSS service , subject to each entity' ability to achieve operational milestones. These service to the public and to prevent the "warehousing" of spectrum.

Because of their inability to meet certain milestone requirements, most 2 GHz MSS providersvoluntarily relinquished their ATC authorizations. assignments of 8 MHz each. Because of the FCC's recent reclamation of MSS spectrum fromformer licensees, ICO and TMI increase. On June 29 , 2005 , the FCC issued a public notice of its intent to grant 5.33 MHz toeach current 2 GHz MSS operator and to potentially distribute an additional 6.67 MHz to eachcurrent 2 GHz MSS operator. The FCC has sought comment either is adopted is subject to further agency action.

Figure 6.3 - Historical 2 GHz Regulatory Events

Da.te I Event

July 2001 ........................ 2 GHz MSS licenses granted to , CCHI , Globalstar, Boeing, Iridium , Celsatand TMI (Terre Star)

January 2003.................. MCHI , CCHI , Globalstar and TMI (TerreStar) licenses are canceled

-~,-" ------

June 2004....................... TMI (TerreStar)'s

March 2005..................... Boeing and

April 2005........................ Celsat's license is

,-~~---

May 2005........................ ICO is for operation using a single GEO satellite instead of an NGSO constellation

June 2005....................... FCC 33 MHz to each 2 GHzMSS operator and to potentially distribute an additional 6.67 MHz to each current 2GHz MSS operator for a total of 20 MHz

ICO Jefferies II '* DBS ~n::ment



FCC MSS Milestones

The Company must meet certain FCC authorization granted by the FCC.

Figure 6.4 - ICO' s MSS System FCC MilestonesDate July 17, 2005........................................... Commence coordination for the physical operation of the satellite

September 15 2005............................... Place order for

January 15, 2006.................................... Complete bus wire harness fabrication

March 1 , 2006......................................... Begin communication panel/payload

May 1 , 2006............................................ Complete propulsion integration

July 1 , 2006............................................. Complete bus integration

July 17, 2006........................................... Complete coordination for the physical operations of the satellite, andfile any necessary modification applications

October 1 , 2006...................................... Complete main body integration

January 1 , 2007...................................... Complete reference performance test

March 1 , 2007......................................... Complete thermal vacuum test

July 1 , 2007............................................. Launch satellite

July 17, 2007........................................... Certify system as operational

ICO Jefferies II * DBS ~n:~:ment



VII. System Overview

System Architecture

lCD, together with several industry leading vendors , has begun to build an advanced , hybridsatellite-terrestrial network that integrates A designed to offer , including

voice and data communications , telematics , monitoring and messaging services, as well asother wireless , commercial, maritime, military,

security and transportation markets.

The Company is working closely with several industry leading vendors to design and build itshybrid MSS/ATC system and is on 2007 in accordance with its FCC Space Systems/Loral for the , with the contract mirroring the

prescribed milestone dates set by the FCC. fourth quarter of 2005, and is already in the process of designing gateway and ground basedequipment. lCD's dual-mode handset vendors, with the process expected to take one year.

Figure 7. 1 - ICO' s GEO MSS/ATC System

IICO GEO Satellite I

/ -! '

t:-/ '...d .,H.,..H' d' 'd "" ".",,, "Hd dO', ,.1I d. 'H d',. "'H'd' Hd""' ~H'd' H'd HHd H d'",'d

~/ "$/ "/ "

TerrestrialSegment

TerrestrialATC

Network

Mass MarketHandset Ground Processor

(~) ~.............

i~J.

~..............

Users

The ICO MSS/ATC system infrastructure is expected to include the following:

User Segment - End-user equipment

mode (satellite/cellular) services.

ICO Jefferies II * DBS ~n~:ment



Space Segment - One GEO satellite located at ). The , where the satellite "reflects

the signals between the user equipment and the gateway ground station.

Gateway Segment - Land-based transmitting/receiving station utilizing large gatewayfeederlink antennas. The gateway through high-speed interconnection links and interface between the satellite and theICO network.

Network Management Segment Circuit-switched and data-packet equipment toroute voice and data traffic between the ICO network and the terrestrial public datatelephony and mobile network. This segment is designed to dynamically manage thenetwork resources and spectrum A TC network.

Terrestrial Segment - operate the A

User Segment

ICO intends to work with a handset manufacturer and potentially one or more terrestrial ATCpartners to design and develop dual-mode (satellite and terrestrial) handsets. These mass-market handsets are expected to be lightweight and similar to existing cell

ICO believes a terrestrial mobile phones can be constructed with a relatively and minor changes to the software. These changes are per handset.

Figure 7.2 - Variations from "Standard" Wireless Phones

Dual-Mode(T errestrial Satellite) Phone

New RF Front End

Broader tuning range

2 watt power amplifier

Software changes

Minor changes to protocol stack

Low rate vocoder

Estimated additional cost of $25 per handset

ICO

Handset Schematic(1)

4.48 oz.

3.45" x 1.96" x 0.93"(1) Not drawn to scale.

Jefferies II * DBS ~:v~~tment



The ICO user handsets for , such as , telematics, maritime aeronautical depending on desired service, customer preferences, and required data rates.

Space Segment

ICO expects its advanced, high-power, ground-based beam forming capability. This enhanced design shouldsupport a variety of , including the global

system for mobile communications division multiple access OFDM , and the latest-generation packet switching technology.

lCD' s MSS/A TC system will 2020 MHz for uplink and 2180-2200MHz for downlink. All signals to and from using the feeder 25-30.00 GHz Ka-band for uplink and18. 55-18.80/19.70-20.20 GHz for downlink.

On January 10 , 2005 , ICO executed a proposed GEO satellite on a schedule operation by July 17 , 2007. contract provides for the satellite to be July 1 , 2007. received certification of completion from the FCC.

ICO Jefferies II * DBS ~n ~tment



The ICO GEO satellite design is based on a SS/L been optimized for yearservice life and a America. The satellite dry mass 300 kg, and the end-of-life power is available 4-meter fairing launch vehicles.

Figure 7.3 - ICO GEO Satellite

The ICO GEO satellite is expected to be equipped with a 48-element fed 2 GHz phased-arrayantenna capable of forming numerous user spot beams (the reference case uses 135 beams),which will enable the provisioning of continuous service coverage in the 48 contiguous statesAlaska, Hawaii, Puerto Rico, and U.S. Virgin Islands to the extent possible from satellite located at 910 west longitude. The advantage is that the same frequency (colors) canbe reused multiple times across the U.S. (the reference case uses a 13 color frequency reusescheme ).

Ice Jefferies II * DBS ~n~:ment



Figure 7.4 shows the representative ICO GEO Satellite spot beam patterns for the 135 beamreference case. The numerous spot beams , with the and amplitude of the signals transmitted by the 48 elements of the antenna. The figure alsoillustrates the use of a 13-color frequency reuse scheme.

Figure 7.4 - ICO GEO Satellite Spot Seams (shown with 13

lCD' s GEO satellite uses a bent-pipe payload architecture configuration in which the satelliteacts like a mirror to "reflect" signals (satellite transponder) between the user equipment andthe gateway ground station. In a bent-pipe system the satellite is used to relay communicationbetween the infrastructure. The terrestrial infrastructure, rather than satellite-to-satellite communicationslinks , provides the connection to the destination network or end-user. The ICO GEO satelliteis expected to operate up to a eliminate the satellite propellant mass required to do north-south that mass into satellite payload traffic capability.

ICO Jefferies II * DBS



As shown below, the majority of the continental U.S. is above the 300 elevation angle , with theexception of the extreme S. The 910

orbital location also allows for services to Alaska and Hawaii , albeit at quite low angles. Very high , provide service to Puerto Rico and the

S. Virgin Islands. High

Figure 7.5 - Elevation Angles to the 910 West Longitude Orbital Location

80.

20,

~ 40.

J::.1::

180. 140, 120,00 - tOO,East Longitude (Degrees)

-80, -60,

Gateway Segment

The ICO gateway segment bandgateway feederlink antennas, along with the required gateway baseband and gateway controlequipment necessary to based beam forming

GBBF") equipment will also be co-located with the gateway ground station.

The gateway ground station will utilize two 11-meter Ka-band feederlink antennas which willbe located far enough apart to provide site diversity to mitigate any Ka-band feederlink signaldegradation during inclement weather due to the absorption effects of rain. The gateway the gateway antennas and will command between the communications.

ICO intends to own the entire ground segment and operate or sub-contract for its operationsso as to , high , and to interconnection link with the satellite.

ICOJefferies II * DBS ~n ~tment



Network Management Segment

The ICO network segment includes the equipment needed to direct calls , route data traffic,provide monitoring and messaging services and manage the design should allow the ICO network to accommodate new pipe system coupledwith ground-based beam forming equipment services over time by upgrading only the ground-based equipment rather than the network.

The ICO record service usage for calls and data to the ICO user equipment and from the ICO user equipment to the terrestrialpublic data , telephony and mobile network.

The Network Management Center will be designed to monitor and control activity on the ICOsatellite network and will work satellite and seamlessly management centers to ensure a high degree of reliability.

ICO intends to own the entire ICO MSS/A sub-contract for its operations in order to , high quality, high services and to manage the interconnection between the terrestrial A , theICO satellite network and the terrestrial public data , telephony and mobile networks.




VIII. Company

ICO North America

ICO North America, Inc. is a next-generation MSS operator with a opportunity to offer ubiquitous satellite and terrestrial wireless services throughout the UnitedStates. The FCC has recently authorized MSS operators to use MSS spectrum terrestrially toprovide integrated mobile satellite-terrestrial service offerings. ICO is hybrid satellite-terrestrial system designed to handsets similar to existing cellular phones. This system is expected to enable ICO to offerintegrated satellite and terrestrial mobile services and is expected to be 2007. lCD's business model providers who can s capabilities to offer integrated services to their customers. ICO is actively alliances.

The Company s system will be supported by ICO has already been granted 8 MHz of spectrum and could potentially be granted up to 20MHz.

ICO is a wholly-owned subsidiary of ICO Global Communications (Holdings) Limited , which isauthorized to operate a global MEO satellite system. Wireless industry pioneer Craig McCawtogether with other key shareholders, have invested over $1.2 billion in the Parent since May2000. This investment s vision of extending wireless communicationswith satellite capabilities. Figure 8. 1 shows lCD's corporate organizational structure.

Figure 8. 1 - ICO's Corporate Ownership Structure as of June 30,

. Issuer of Notes Offered Hereby

(1) ICO North America also holds a 49% interest in the successor to Mobile Communications Holding Inc. ("MCHI") and Constellation Communications Holdings. Inc.CCHI") and believes that. at its option , may increase its ownership to tOO% in each. MCHI and CCHI are both MSS operators that are currently appealing the FCC'

revocation of their 2 GHz MSS licenses in the U,S. Court of Appeals for the D,C. Circuit


~:ment



Board of Directors

Figure 8.2 - Board of Directors

Name Position : Affiliation

Eagle River Investments

Independent

Clayton Dubilier & Rice



Craig McCaw.............................. Chairman

Donna Alderman ........................ Vice Chairman

David Wasserman...................... Director

Gerry Salemme.......................... Director

Tim Bryan................................... Director

Craig McCaw. Mr. McCaw is Communications. Since 1993, Mr. McCaw , Chief Executive Officer and amember of Eagle River , a private company formed to focus on investments in the telecommunications industry. Mr. McCaw founded Clearwire Corporation inOctober 2003 and s Chairman of the Board , CEO andPresident. Mr. McCaw was a director of , Inc. from July 1995 December 2003 and a director of XO Communications, Inc. (fo~merly

Communications, Inc.

) ("

XO"), from January 1997 until January 2002. From September 1994to July 1 997 , he was also XO's Chief Executive Officer. From 1974 to September 1994 , Mr.McCaw served as Chairman and CEO of , Inc. , which hebuilt into the nation s leading provider of cellular services in more than 100 U.S. cities, until thecompany was RadioFrame Networks , Inc. , and China Unicom Limited.

Donna Alderman. Ms. Alderman is currently Vice Chairman of ICO North America and ICOGlobal Communications and has served on the Board and numerous ICO since May 2000. Prior to that, Ms. Alderman was a founding and senior partner of MatlinPatterson Global Opportunities Fund , a private equity fund. Prior to that she was a ManagingDirector of Credit Suisse First Situations Group there. She has held leading investment banks , including Oppenheimer & Co. Inc. , Jefferies & Company, Inc. andBear Stearns. Ms. Alderman was educated at Vassar College and the J. L.Kellogg GraduateSchool of Management at Northwestern University.

'co Jefferies II * DBS ~a~:menl



David Wasserman. Mr. Wasserman is a partner at Clayton , Dubilier & Rice, Inc. and hasbeen with the firm s investment

serves on its Board of Directors. He also served as the lead s andwas a member management team on the company s transformation , led CD&R's $175 million investment inKinko s in 2002 and negotiated the $2.4 billion sale of the company to FedEx in 2004. Prior tojoining CD&R , he worked in the Principal Investment Area at Goldman , Sachs & Co. and as amanagement consultant at College and holds an M. A. degree from Harvard Business

Covansys and Culligan.

Gerry Salemme. Mr. Salemme has over 27 years of experience in the industry. He , abroadband wireless throughout the U.S. He also is a , he Corporation s Vice President of Government Affairs , directing AT&T's federal regulatory publicpolicy organization, and overseeing AT&T's s narrowband andbroadband PCS auctions. Prior to AT&T, Mr. Salemme was Senior Vice President, ExternalAffairs for

Telecommunications Policy Analyst for the U.S. House of Representatives Subcommittee onTelecommunications and Finance.

Markey of Massachusetts. Mr. Salemme earned a B.A. in Political Science and Economicsand an M.A. in Economics from Boston College.

Tim Bryan. Mr. Bryan has served on the Board of Directors of ICO Global Communicationssince October 24 , 2001. , Inc. , a Liberty affiliate , and the , Mr. Bryan has served as Director of

Clearwire Corporation since 2004. , and consultant to, thetelecommunications telecommunications businesses. Mr. Bryan previously Eagle River, Inc. , as President of Europe Communications NV ("UPC"), and asChief Financial Officer and member of the Office of the Chairman of United GlobalCom. Priorto United GlobalCom , Mr. Bryan served as Treasurer of Jones Intercable , Inc. previously served on the Board of Directors of Nextel and on the Board of Management andthe Supervisory Board of UPC.

ICO Jefferies II * DBS ~:v~:menl



Employees

ICO currently has 13 employees, the majority of which personnel. The 25 business professionals/consultants.

Figure 8.3 - Management

- , - -

NameI Industry

I Experiencei Position

Craig Jorgens ........................ President

David Bagley.......................... Senior Vice President, Corporate Development

Bob Day................................. Senior Vice President, Space Systems

Suzanne Hutchings Malloy.... Senior Vice President, Regulatory

Dennis Schmitt....................... Chief Financial Officer

IICO

I Experience

Craig Jorgens, Mr. Jorgens has telecommunications industry and has been the President of the Parent and ICO since 2002.Prior to joining ICO he was a principal in the firm of Texas Development at AirTouch s largest wireless operators

where he was responsible for mergers and acquisitions and new business development bothdomestically and investment banking. Mr. Jorgens is a graduate of Carnegie Mellon s Graduate School of Industrial Administration.

David Bagley, Senior Vice President, Corporate Mr. Bagley has been withthe Parent and ICO for three years. Prior to , he was Vice President of BusinessDevelopment for , strategic

partnering and regulatory affairs.

which acquired AirTouch in 1999. He held various on transactions Development for the Americas for Vodafone. Prior to AirTouch , Mr. Bagley spent eight yearsat SBC Communications in finance and Corporate Development positions. Mr. Bagley holds aBachelor s degree in degree in Management.

Bob Day, Senior Vice President, Space Systems. Mr. Day has been with the Parent andICO for five years. He is , procurement, deployment , and operation ofthe ICO space segment. The space segment , launch

satellite control center, and satellite operations. His areas of expertise include satellite designintegration , test, launch , operations, and system engineering. Prior to joining lCD , he was the

ICO Jefferies II * DBS ~n~:menl



Vice President of Space Technology for Teledesic.

Space and Communications where he provided system engineering leadership or served asprogram manager for integration , test and , and Business Unit Leader for Spacecraft Bachelor s degree s degree Mechanical Engineering from UCLA, and a UCLA.

Suzanne Hutchings Malloy, Senior Regulatory Prior to joining ICO, Ms. Malloyserved as Senior Regulatory Counsel for Teledesic LLC, where she directed the companylicensing and including the FCC, the U.S. State Department, and the Union (ITU). At lCD, in addition to those general filing a major satellite application , helping maintain and monitor global spectrum assets, andadvocating for ICO in major rulemaking and adjudicatory proceedings before the has also served on S. delegations to

management treaty conferences. She has also worked as an Attorney-Advisor at the FCC,where she to-country treaty negotiations , World Trade multilateral negotiations, and Commission as a , focusing to-homesatellite operators. College and graduated from Harvard Law School in 1986.

Dennis Schmitt, Chief Financial Officer. Mr. Schmitt has been with the Parent and ICO forthree years. He is responsible for all accounting and financial aspects of the to joining ICO, he was the com. His background includes expertise in the

International where he was Western Wireless where he was part of Bachelor s degree in Accountant.

ICO Jefferies II * DBS ~:v~tmenl



Facilities

Figure 8.4 - Schedule of Properties Leased

Office

S. Corporate Headquarters

Space Segment Engineering

Finance

~_AV__

___~~-,,~,

--,-~-,V_---"V_~~~.,--_._,~

Regulatory

~,~---~,--~~_._-~~--,~-----,---~---

UK Company Registered Office

ICO

i Address

3468 Mt. Diablo Blvd. , Suite B-115Lafayette, CA 94549

222 N. Sepulveda Blvd. , Suite 1770Los Angeles, CA 90245

2300 Carillon PointKirkland , WA 98033

'A_~_~~_--~_'_'A'_~~_~~

2000 Pennsylvania Ave. , NW #4400Washington , DC 20036

~-~~~--

_V,"--~~~,-'__"'mm_~_~~~

NMC Slough269 Argyll AveSlough , SL 1 4HE , UK

Jefferies II * DBS ~n:~~lmenl



ICO Global Communications (Holdings) Limited

ICO Global Communications Parent") was established in 1995 toprovide global, mobile communications

business plan was based on a service to a wide-ranging , satellite-

only users , aeronautical and maritime vessels and semi-fixed installations.

Wireless industry pioneer Craig McCaw, together with other key shareholders , has investedover $1.2 billion since acquiring the businesses out of bankruptcy in May 2000. the company established a new management team to further develop its MEO order to solve inherent weaknesses , the introduced to the FCC the concept of using MSS spectrum for ancillary would allow the company full access to urban customers , overcoming signal blockage relatedto buildings or terrain , giving ICO greater flexibility to terrestrialservices.

In February 2003, the FCC adopted an order granting MSS operators the authority to integratea terrestrial component into their company s request to develop and launch a GEO satellite covering all of North America , whichvastly improved the North America , Inc. , to focus on this compelling opportunity.

The Parent is not a public the-counter market, with a marketcapitalization of $743.5 million as of 7/15/2005. , the Parent alsoowns several other subsidiaries responsible for operating a global Medium Earth Orbit satellitesystem. The parent- level board of directors and management team (see Figures 8.5 and 8.also serve in the same capacities at the ICO North America subsidiary.

Figure 8.5 - Board of Directors

Name : Position Affiliation


Independent

Clayton Dubilier & Rice



Craig McCaw.............................. Chairman

Donna Alderman ........................ Vice Chairman

David Wasserman...................... Director

Gerry Salemme.......................... Director

Tim Bryan................................... Director

ICO Jefferies II * DBS ~n:~:menl



.. .-. . . ..-. .-

Figure 8.6 - Management

Narne

Craig Jorgens.........................

David Bagley..........................

Bob Day.................................

Suzanne Hutchings Malloy.....

Dennis Schmitt.......................

ICO

i Position, Industry i ! Experience i

President

Senior Vice President, Corporate Development

Senior Vice President, Space Systems

Senior Vice President, Regulatory Affairs

Chief Financial Officer

Jefferies II * DBS ~:v~:menl



Investors

Figure 8.7 represents significant investors in the Parent as of April 18 , 2005.

.....

, Figure 8.7 - Current Investors

Eagle River Investments LLC

Clayton , Oubilier & Rice

CUN & Co.

Mente LLC

Oetemobil Oeutsche

Public Float

All others

Total

I Shares Outstanding196 037

13,950 000

800 000

300 000

028 321

180 606

29,478 211

200,933,175

Econorniclnterest I

34.4% 69.1.4%

13.

30.

14.

(1) Eagle River Investments LLC is an investment firm formed by Craig McCaw.

(2) Mente LLC is an investment vehicle of Bill Gates.

............ ,..."

1"",,

100.

ICO Jefferies II * DBS ~:v~tmenl



IX. Description of Notes

(PROVIDED SEPARATELY)




Risk Factors

An investment in the Notes involves high degree of risk. You should carefully consider theserisk factors, together with all of the other information included or incorporated by reference inthis prospectus, before you decide to invest in the Notes. In addition to historical informationthe information in this prospectus forward-looking" statements about our futurebusiness and performance. Our actual operating results and financial performance may bevery different from what we expect as of the date of this prospectus. The risks below addresssome of the factors that may affect our future operating results and financial any of the following risks, or other risks not presently known to us or that we currently believenot to be significant, develop into actual events, then our business, financial condition, resultsof operations or prospects could be materially adversely affected.

Regulatory Risks

ICO' GHz MSS

A significant component of lCD's business service. However, under FCC regulations, ICO implementation milestones to maintain

These milestones include a successful satellite launch by July 1 , 2007 and certification thatthe system is operational by July 17 , 2007. The Company to complete any work necessary to meet its milestone schedule. ICO bases this belief on itsmanagement team s experience in developing and launching satellite systems , the terms of itssatellite manufacturing contracts with Loral and others, and the current status of its businessdevelopment progress. However, there can be no assurance that the Company will meet itsmilestones to the satisfaction of the existing FCC regulations. Moreover, particularly in light ofthe need to develop and implement a network that combines terrestrial components, this is an aggressive schedule. In the event that the Company doesnot meet a milestone , it may be deemed to be in violation of applicable FCC regulations andmay be subject to forfeiture of its loss of lCD's MSS s financial

position and results of operations , and would be an Event of situation , there is no assurance that amounts owed on the Notes.

ICO is subject to significant u.s. and international governmental regulation

lCD' s ownership and operation of satellite and wireless communication systems is subject toregulation from the ITU"), the Communications ("OFCOM"), and the U.S. FCC. , laws , policies and regulationsaffecting the response to industry developments, new technology or political considerations. Legislators orregulatory authorities in the U. , the UK and at the ITU are adopt , new variety of matters that could , directly or indirectly, affect our operations or increase the cost ofproviding services over our system.

The ITU regulates the use of radio networks to provide communications services. The use of spectrum and orbital resources by

ICO Jefferies II * DBS ~n~:menl



ICO and other satellite networks must be coordinated pursuant to the ITU's Radio Regulationsin order to avoid interference among the respective networks.

Increased competition for spectrum and orbital locations may make it difficult and costly ICO to obtain or retain the right to use the operations. In the future , the Company may not be able to coordinate its satellite operationssuccessfuUy under international telecommunications regulations and ICO may not be obtain or retain spectrum and orbital resources required to provide future services.

UK OFCOM submits and maintains ITU filings on lCD's behalf, pursuant to ICO's continuingcompliance with UK due diligence requirements , which include obligations on ICO to proceedapace with its business plans and to comply with UK OFCOM and ITU requirements related tofilings made and activities undertaken on ICO's behalf. In the event that ICO is s due requirements, OFCOM may refuse to further support ITU filings made on ICO's behalf. Thewithdrawal of support of lCD's ITU filing would have a material adverse effect on its ability todeploy its geostationary satellite system. ICO in the event its satellite causes insurance for this risk.

The U.S. FCC must authorize foreign-licensed satellite systems like ICO that seek to servethe United States. The , launch and operation ofsatellites, the use of , the licensing of earth

stations and , the

development costs and

ancillary terrestrial components is novel and without established precedent, and will requireseveral new pieces of equipment that must be approved by the FCC.

ICO' s expectation of increased spectrum assignment may not materialize

The FCC has allocated a total of 40 MHz of 2 GHz Currently, the FCC has granted ICO this spectrum. The MHz prior to December 31 , 2005, based on a FCC public comment on June 29 , 2005. Further, lCD , along with the only other remaining 2 GHzMSS licensee , has petitioned the FCC to increase its spectrum allocation to a total of 20 MHz(representing an equal split of the 40 MHz between the two FCC has also sought comment on this proposal. However, there can be no assurance at thistime that any increased spectrum assignment will be granted to ICO by the FCC.

Additionally, three of the original 2 GHz MSS licensees whose FCC are contesting this revocation through either petition to the FCC or through litigation. Theoutcome of the petition and litigation , if resulting in a favorable outcome for any or all of theselicensees, may impact the licensees whose licenses were revoked by the FCC , ICO has a minority two , with the , at , unless such

revocation is overturned.

ICO Jefferies II * DBS ~n~~lmenl



ICO has not yet applied for A TC authorization

ICO has not yet applied for ATC authorization and there can be no assurance that any suchauthorization request would be granted by the separately from any satellite authorization , and cannot be granted ATC authorization unless oruntil it has met specific milestones for seeking and , includingcertain ATC gating criteria and the requirement to maintain a ground spare satellite within oneyear of launching ATC service. ICO must also apply facilities used to , including certification of mobile licenses for terrestrial base station facilities.

ICO' s use of the GHz band is of incumbent users

lCD' s operations at 2 GHz are subject to users in the band. Nextel , another new entrant to the 2 GHz band, has pledged to relocateincumbent BAS users in ICO's 2 , and 2 relocate a much smaller number of users in the 2 GHz participation in the BAS relocation and the limited number of users in ICO's downlink bandICO believes that it can meet the FCC beginning its MSS operations. However, due to the complex nature of the BAS relocation andthe need to work closely sufficient progress in the relocation effort will delay the start of ICO's MSS operations. Anysuch delay would negatively impact ICO's financial position and results of operations.

ICO intends to seek authorization to change its satellite orbital

ICO has been authorized by the FCC to operate in an orbital slot for the positioning of its GEOsatellite at 91 degrees west longitude. This orbital slot would present coordination challengesin the operation of the different orbital slot in order to reduce or , but there can be noassurance that ICO will be authorizations, it is likely that which may feederlink spectrum for the ICO system.




Business Risks

Success of lCD' s business plan depends on its ability to form strategic partnerships

develop its system under the constraints of various regulatory requirements

lCD' s business strategy requires it to enter into strategic benefit from ICO' satellite and/or customer care and billing functions. There can be no assurances that ICO will be able to formsuch partnerships at terms , such partnerships

subject to various

terrestrial assets that may strategic relationship with ICO.

ICO is development stage company with no operating revenues

ICO is at an generatingoperations. The Company s ability to generate cash successfully execute its business plan and development. There can be implementing its business plan.

Risks associated with lCD's business plan

The Company s business plan contemplates building an integrated satellite and A Neither ICO nor any other company in the past has developed such an integrated satellite andA TC network.

in the timetable or within the total costs projected , or that it will be able to successfully sell theservices provided by such a network. suppliers to develop and deliver the satellite and other and there are no readily available substitute suppliers. Delays in the delivery or deployment ofthe satellite will be harmful to ICO.

There are significant risks associated contemplated under lCD's business plan

lCD' s business plan contemplates , exposing the inherent in satellite launch and operations , including possible delivery delays , launch failure orincorrect deployment of the which can take 24 months or longer, and to obtain other launch opportunities. Such significantdelays could s operations.

underperform , in which case the satellite may still be placed into service by using its onboardpropulsion systems to reach the desired orbital location , resulting in a life. Satellites generally are subject to significant operational risks while in orbit. include malfunctions , commonly referred to as anomalies , which can occur as a various factors , such as ' errors , problems with the power or systems of the satellites and general failures environment of space. The Parent , and

experienced difficulties in operating one satellite in the launched.

ICO Jefferies II * DBS ~a~:menl



While the Company has previous experience in expects to procure insurance for the launch and on-going operations, such insurance may notfully cover any potential loss. The Company may disruption in its satellite construction of operation. The Company may not always be able toobtain insurance at reasonable rates. The adversely affect lCD's ability to insure the launch of its satellites at premiums , if at all. Once launched , ICO may be unable to obtain and maintain its satellite , and the insurance it obtains may not cover all losses it experiences. A launch oroperational failure of the satellite may also endanger lCD's FCC authorization in the event thatsatellite services cannot be promptly or fully initiated or restored.

Technological risks

The successful development of ICO's system will require that it, together with its suppliers andpartners , develop several new systems. These include the integrated MSS and A dual direction ground based beam terrestrial equipment, and the , mass-market dual mode handset that will meet the FCC's requirements , none of which exists today. The developmentand operation of its system may also infringe on as-yet unidentified intellectual property rightsof others , which could require ICO to design around such rights, increasing development costsand potentially making the system s satellite will operate at alower signal strength than other satellites , increasing the challenge of dual mode handset.

ICO has no operating cash flow and will need additional and fully fund all necessary capital expenditures

ICO is a development stage company and does not generate any cash from operations. Theimplementation of lCD's business plan , including the construction and launch of a system and the necessary based communications system

will require significant funding, including substantial construction milestone payments for thesatellite and control system. It is unclear when , or if, the Company will be able to generatesufficient cash from operations to cover its expenses and fund capital proceeds of this offering will not be sufficient to fund lCD's expenses through deployment ofits network generating assurance that ICO will be able to find time the funds are , as a private s ability to raise funds may be limited. Moreover, terms of the Notes being issued hereby restrict lCD's abilityto incur additional indebtedness.

ICO is expected to incur

ICO does not operations. The become profitable, the Company will have difficulty obtaining funds to continue its operationsand may have insufficient cash to repay its obligations on the Notes.

Spectrum values historically have been volatile

A large part of lCD's business plan involves forming strategic partnerships and realizing valuefor its spectrum and network assets. Values that the Company may be able to realize from

ICO Jefferies II * DBS ~n:~~tmenl



such partnerships would depend in part on the value ascribed to the Company s spectrum.

There are limited valuation precedents for ICO's 2 GHz spectrum. Valuations of spectrum inother frequency bands have historically been volatile and there can be no assurance on thevalue a partner would be willing to pay ICO for its spectrum and other , tothe extent that the FCC conducts new auctions of radio spectrum that can be used for MSS ormobile terrestrial uses, or takes other action that will promote the more flexible use or greateravailability (e. , via spectrum leasing) of existing satellite or terrestrial spectrum allocationsthe availability of such additional spectrum could have a material and adverse effect on thevalue of the spectrum authorizations held by ICO.

TC spectrum access is limited by technological factors

ICO will operate with the authority to use a finite quantity of radio for communication between the satellite and the ground will not be ATC component of its , communications with the satellite may interferewith portions of the , further

diminishing the availability of spectrum for the A quantified at this time.

Any changes in control of Ica are subject to prior FCC approval

Any investment in ICO that could result in a change of control of ICO would be subject to priorFCC approval. Any such request for period prior to consummation of the change of control. There FCC approval could be obtained in a reasonably timely fashion , and the FCC could imposenew or emphasized that lCD's authorization consists of a reservation of 2 provision of mobile satellite service in the U. , and it is unlikely that the FCC will separate transfer of any related ICO authorization (e. , feeder link spectrum authorization orATC authorization).

Ica faces resources

ICO may face resources , and from the introduction of new technologies and new wireless spectrum. WhileICO plans to be one of the basedterrestrial service offerings, in parts of its business it established and well-financed competitors, including existing cellular/PCS operators who havelarge established customer bases. Many of these access to capital than ICO and have significantly more operating , due totheir larger size , many of these competitors enjoy scale benefits that are not available to ICO.ICO may also face competition from other MSS operators planning to offer integrated satelliteand ATC services. In addition , the FCC could make additional wireless spectrum available tonew or existing competitors. competitors or from new technologies and there can be no assurances how these will impactICO' s business plan.

ICO Jefferies II * DBS ~n ~tmenl



ICO may not be able to develop, acquire and maintain proprietary information andintellectual property rights necessary to maintain its operations and future growth

Success of lCD's business , in part, on its technical know-how and Company has developed or acquired significant technical knowledge in the past, there is noassurance that it can intellectual property.

ICO faces burdens relating to the recent trend toward stricter corporate governanceand financial reporting standards

New legislation or regulations that follow the trend of imposing stricter corporate governanceand financial reporting standards , including compliance with the Sarbanes-Oxley Act of 2002may impose restrictions and additional costs on ICO. Additionally, it is unclear what additionallaws or regulations may develop, and the ultimate impact of any future changes cannot bepredicted.

ICO is dependent on key personnel

lCD' s success is dependent on the performance of certain key personnel. The loss or lack ofavailability of these employees could have a material adverse effect on the ability of ICO toperform as contemplated by its business plan.

Deferred tax liability

As a result of the reorganization that separated the assets of ICO and the Parent, a subsidiaryof ICO realized a taxable gain under UK tax law, with a resulting tax liability of approximately

7 million pounds sterling. ICO believes that this tax liability will be deferred for as long as theParent owns more than 50% of ICO and lCD's capital structure remains the same. Parent hasthe right to convert its common stock of ICO to the same class of the Notes are convertible , and if it did so, or if sufficient shares were issued to holders of theNotes or others, this tax events will not occur at some time in the future.

'co Jefferies II * DBS ~n:~~lmenl



Risks Related to the Parent

Lack of Revenue Generating Operations

The Parent was restructured in a bankruptcy, and since then has had no significant operationsor revenues. It has no current plan to develop or commence any operations in the future otherthan the network being developed by ICO. It , which must befunded out of cash reserves or the proceeds (if any) of future current audited financial statements.

Potential tax liability

The Parent realized a taxable gain on the disposition of certain securities in 2003 of in excessof $300 000 000. This gain was offset by losses incurred on the abandonment of the Parent'sprior network in 2003. The Parent is currently being audited for tax year 2003 by the InternalRevenue Service. While The Parent believes that it properly treated and reported all items ofgain and loss , the effect on the Parent. Moreover, ICO could be jointly and severally liable for all of the Parent'federal income tax liabilities. Consequently, the disallowance of the deductions claimed alsocould have a material adverse effect on ICO.

Legal Proceedings and Expenses

The Parent is engaged in litigation with Boeing arising out of agreements for the developmentand launch of its MEO meritorious in this

material. Subsidiaries of the Parent had agreements with 9 operators of foreign gateways forits , and have agreements have not yet been formally terminated, and there can be no assurance that therewill not be costs associated with further terminations at the ICO level but it is not expected thatthe Parent will incur material additional costs in terminating those agreements.




Risks Related to the Notes

The Company does not generate sufficient cash to repay the Notes or to fund itsinterest obligations

As a development stage company, ICO does not generate any operational cash flow. Underthe terms of the Notes the Company meet the first four , the Company s ability to future interest generate operating cash and/or raise additional financing.

The Company s substantial indebtedness could adversely affect its ability to executeits business plan and to obtain additional financing

Following this substantial debt could have important consequences to the holders of the Notes. For exampleit could adversely affect the Company s ability to raise future financing, subject the Companyto industry conditions.

The Company may not have the ability to finance the change of control repurchaseoffer required by the indenture governing the Notes

Upon a change of control , as that term is , theCompany will be required to make an offer to purchase the Notes at par plus the coupon rateand unpaid interest , if any, to the date of purchase, and a pro rata share of the funds held inescrow to meet the Company s interest obligation through the 2nd anniversary of issuance.

The source of funds for any such repurchase would be any available cash or cash generatedfrom operations or other sources , including borrowings , sales of equity or funds provided by anew controlling person or available at the time of any change of control event to repurchase all tendered Notes pursuantto this requirement.

There is no public market for the Notes or for the conversion, and there cannot be any assurance that market for the Notes or for theICO common stock will develop

The Notes are a new issue of securities for which there is no trading does not intend to have the Notes listed on a national securities exchange. If any of the notesare traded after their initial price, depending upon , the factors including general , the Company financial condition

performance and prospects, and the prospects for s industry

generally.

The Notes are convertible from the date of issuance at any time , at the Noteholder s optioninto common stock of the Company and, under certain Parent. All of the Company s common stock is currently established market for the s common stock is not national securities exchange and trades over-the-counter with limited trading volume.

ICO Jefferies II * DBS ~a~:menl



Resale of the Notes and the common stock issuable upon conversion of the Notes

restricted

The Notes and the registered under the Securities Act or any state or foreign securities laws. Therefore , unlessthey are registered , the Notes and the common stock issuable upon conversion of the Notesmay not be Securities Act and or in a

Securities Act. Accordingly, , have a number of methods conversion of the Notes.

Interests of holders of the Notes may conflict with the of the Parent'

controlling stockholder

Eagle River and its Parent' s outstanding capital stock. As a result, Eagle River has control over the outcome ofmatters requiring stockholder approval , including:

the power to elect the Parent's directors and the directors of the Company;

amend the Company s charter or by-laws; and

adopt or prevent mergers , consolidations or the sale of all or substantially all of theCompany s assets or the assets of its subsidiaries.

Eagle River also will be able to prevent or cause a change of control relating to the Company,which may delay or prevent a change in control of the Company or cause a change in controlwhich could trigger an offer to repurchase the Notes under the terms of the Notes.

Eagle River may in the companies. Some of these companies may compete with ICO. Eagle River and its affiliatesare not obligated to advise the Company of any investment or business opportunities of whichthey are aware, and they are not restricted or prohibited from competing with the Company.

The ability to foreclose on the collateral may be limited by applicable bankruptcy lawsand on the rules and regulations of the FCC

Bankruptcy laws could prevent the disposing of the collateral securing the notes upon the occurrence of an event of default if abankruptcy proceeding is

repossesses and disposes of the collateral. Under federal bankruptcy laws , secured creditorsare prohibited from , or fromdisposing of , without bankruptcy

Moreover, bankruptcy law permits the debtor to continue to retain and to use the (and the proceeds , products , rents or profits of its collateral) so long as the secured creditor isgiven "adequate protection." The meaning adequate protection" may according to the circumstances , but it is intended in general to protect the value of the securedcreditor s interest in the collateral. The court may find "adequate protection" if the debtor payscash or grants additional security for any diminution in the value of the collateral as a result ofthe stay of repossession or disposition or any use of the collateral during the pendency of thebankruptcy case. In view of the lack of a precise definition of the term "adequate protection

ICO Jefferies II '* DBS



and the broad discretionary powers of a bankruptcy court, it is impossible to predict how longpayments under the notes could be delayed following commencement of a bankruptcy casewhether or when the collateral agent could repossess or dispose of the collateral or whetheror to what extent holders of the notes would be compensated for any delay in payment or lossof value of the collateral through the requirement of "adequate protection." Moreover, currentFCC policy prohibits the grant of a security interest in an FCC license or result, although holders of the notes will be granted a security interest in the stock of ICO'subsidiaries that hold ICO's FCC , and in the licenses and authorizations , holders of the notes will not have a direct security interest in suchlicenses and authorizations.




XI. Financial Overview

Selected Projected Financial Data($Millions)

The financial projections assume ICO completes the build-out of the MSS portion of the ICOMSS/ATC System and partners with one or more terrestrial partner(s) to fund the constructionof the spare satellite required for ATC , ICO expects the terrestrialpartner(s) to provide the Company expects that the total MSS/ATC System will be approximately $600 million, excluding interest expense. The systemis expected to be , and does not update or correct these conditions or

contained in "Forward Looking Statements Please see the data room for full statements. Fiscal Year

ensesGeneral & Administrative 10. 18. 20. 20. 20.

Satellite Operations

Satellite In-Orbit Insurance

Gateway System Operations

Network System Operations 11. 11.

Total Operating Expenses 10. 18. 34. 51.1 51.1

MSS Capital Expenditures(1)

148. 223. 187. 12. 12.

(1) MSS capital expenditures exclude the cost of a spare satellite, estimated to be $175 to $225 million.




Operating and Capital Expenditures Assumptions

Operating Expenses

Operating Expenses are mainly related to the operation , maintenance and insurance of thesatellite and network systems. expectation of thenecessary personnel and equipment in each

MSS/ATC System. The expenses are comprised of the following:

Satellite Operations includes 24-hour monitoring of the satellite system and the costsof all necessary replacement equipment. Satellite Operations ensures the health andstatus of the satellite by monitoring telemetry data and related information

Satellite In-Orbit Insurance is insurance that begins after the first year of operation(first year covered by additional satellite , launch vehicle and insurance cost

- Gateway System hour support of the ground

system. This ensures and antennas

- Network System , is the network

resources, and the interface into the satellite. Network System Operations managespersonnel that ensure proper A

The satellite operating expenses all commence in mid-2007 and are in conjunction with thelaunch of the satellite system. They are , with theexception of the Satellite In-Orbit Insurance which is paid in the second quarter of each year.




Employees and General and Administrative Expenses

General and Administrative expenses are primarily driven by the number of employees and foradvisory services used. General and Administrative is broken down by:

- Compensation and

Director and Officer InsuranceLegal and Professional Fees

- Other

General and Administrative expenses are highly s head count.

There are currently 13 employees, and the Company projects that this number will increase toapproximately 35 by the third quarter of 2006.

Capital Expenditures

Capital expenditures are used to fund the building and launch of the satellite as well as othercapital requirements needed for the satellite system , and are comprised of the following:

- ICO GEO expenditures, ground-based beam GBBF") expenditures, Launchexpenditures and expenditures based on the actual monthly payment plan as agreed upon with SpaceSystems / Loral. Additionally, the Company has budgeted for the launch vehicle. TheRisk Management component assumes a insurance

- ICO option price included in the SS/L contract. The monthly payments begin in the quarter of 2006 based on that contract

- ICO Services, Ground Equipment, User Equipment and Network

Maintenance Capital Expenditures begin in the first quarter of 2008, as all GEO Satellite andGEO System Expenditures are based on an assumption of $5.0 million per quarter.

ICO Jefferies II '* DBS ~n~:menl



Historical Financial Results

Historical Income Statement (1)

($Millions)

6 Months

Ended 6/30/05

Year Ended

12/31/04

Revenue from Affiliates

(Unaudited)

3 $

OperatinQ Expenses

General and Administrative Expenses

Expenses from Affiliates

Total Operating Loss

Interest Income

Loss (gain) on disposal of assets

Other expense (income)

Loss (income) before income taxes

(0. (0.

(1.

Income Tax Expense

Net Loss (Income)

(1) Consolidated results for all periods presented have been restated retroactively for the effect of the June 2005 mergers with Ica Satellite ServicesLimited and Ica Services Limited, accounted for as common control mergers. These results are preliminary only, and are subject to substantialadjustments in addition to normal year~nd audit adjustments.

ICO Jefferies II * DBS ~n:~~lmenl



Historical Balance Sheet (1)

($Millions)

As Adjusted As of

12/31/046/30/05

(Unaudited)

18.

19.

11. 19.

0.4

Assets

Cash and Cash Equivalents

Prepaid Expenses and Other Current Assets

Income Tax Receivable

Receivable from affiliates, net

Total Current Assets

Construction in Progress

Deposits

Total Assets

Liabilities and Shareholders' Eauitv

Accounts Payable

Accrued Payroll

Total Liabilities

Stockholders' Eauitv

Common Stock

, $.

001 par value , 100 shares authorized,

100 shares issued and outstanding at Jun 30 , 2005 & Dec 31, 2004

Additional Paid- In Capital

Accumulated Other Comprehensive Loss

Accumulated Deficit

Total Stockholders' Equity

Total Liabilities and Stockholder s Equity

47.

11.

(47.

10.9 $

11.

50.

(38.

19.

19.

(1) Consolidated results for all periods presented have been restated retroactively for the effect of the June 2005 mergers with Ica Satellite Services

Limited and Ica Services Limited, accounted for as common control mergers. These results are preliminary only, and are subject to substantialadjustments in addition to normal year-end audit adjustments.




XII. Glossary

GHz Band

Also referred to as the S - band , the 2 GHz band MSS spectrum is comprised of a total of 40MHz, with 20 MHz in the 2000-2020 MHz band for uplink and 20 MHz in the 2180-2200 MHzband for downlink. The 2 GHz is adjacent to PCS spectrum and AWS (below) in the downlink spectrum.

Advanced Wireless Services

('~

WS'? Spectrum

The FCC is mobile wireless use , labeled AWS , which can be used to offer a variety of wireless servicesincluding Third Generation ("3G") mobile broadband and advanced Auctions for AWS spectrum are proposed to start as early as 2006.

Ancillary Terrestrial Component

('~

TC'

A component to an MSS satellite system that will permit MSS operators in the 2 GHz band, L- Band and , in the air and overoceans as a part of their overall MSS service resources beyond spectrum already allocated and authorized by the FCC for MSS use.

Bandwidth

The relative range of frequencies that can be passed through a transmission medium withoutdistortion (normally with respect to one channel). Bandwidth is measured in

Base Station

Transmitter, receiver, antenna , signaling and related equipment located at each cell site.

Big LEO (Low Earth Orbit)

In 1994 , the FCC allocated the 1610-1626.5 MHz (uplink) and 2483. 2500 MHz (downlink)bands to the Big LEO MSS operators , Globalstar and Iridium. Big LEO is adjacent to GPS /RNSS and shares spectrum with RAS in the uplink band and is adjacent to BAS, ISM , ENG,FSS , MMDS /ITFS and FSS in the downlink band.

Broadcast Auxiliary Services ("BAS'

BAS includes mobile TV pickups which relay signals from a remote location , back to thestudio. Broadcast

television signals. They can be , orbetween two points , such as a main studio and an auxiliary studio.

Cell

A physical area in which radio frequency ("RF") coverage is provided by a base station.

ICO Jefferies II * DBS ~a~tmenl



Cell Splitting

The process of creating more coverage and capacity in a wireless than one cell site cover a area , with lower power MHz and thus offers the ability to reuse larger geographic coverage area , such as a city or MT

Code Division Multiple Access ("COMA'

CDMA is a scrambled transmission of the encoded speech over the air and reassembles the the speechto its original format. The analog) and more efficient use of spectrum.

Digital

Describes a method of distinct electronic or

transmission and switching technologies employ a , distinct pulses torepresent information , as opposed to the continuously variable analog signal.

Dual-Mode Handset

Refers to a handset capable of operation in both satellite and terrestrial networks.

Electronic News Gathering ("ENG' ) Equipment

ENG originally referred to the use of point-to-point terrestrial microwave signals to backhaulthe remote signal to the news studio , however, in modern news operations it also SNG (satellite news gathering) and DSNG (digital satellite news refers to the technical means of gathering audio and video. ENG downlink band in the spectrum below 2483.5 MHz.

EV-

Evolution Data Only or Evolution Data Optimized , is a wireless radio broadband data protocolbeing adopted by many CDMA mobile phone providers as part of the EV-DO can support more complex data-oriented wireless applications.

Federal Communications Commission ("FCC'

The directly responsible to Congress. 1934 and is television , wire , satellite and cable.




Fixed Microwave Services ("FS'

Terrestrial microwaves for point-to-point communications to and from fixed-facilities.

Fixed Satellite Services ("FSS'

A satellite service which uses more satellites are used.

Frequency

A specified band or range within the overall spectrum of used as a channel for sending or receiving , the term is used todescribe the rights granted by license from a governing body such as the FCC to operate aradio-communications system using that band in a specified geographic location.

Ground Based Beam Forming ("GBBF'

GBBF is the method of processing the satellite can form many spot beams. GBBF offers many satellite antenna. First, a Second , the number of independent beams can be much greater on the ground than can bepossibly placed on-board a expanded , if needed , after the Finally, the beamforming algorithms can evolve and improve with technology, if beamformingis accomplished on the ground. All of these factors yield a greatly increased satellite return oninvestment.

Geostationary Earth Orbit (itGEO' ? also known as Geostationary-satellite-orbit (itGSO'

The orbit matches the always appear in the same 200 milesabove the earth. This type of satellite such as longer , incremental global coverage region by region , easy terrestrial interoperability and broadcast / dispatch functionality.

GPS (Global Positioning System)

GPS is a earth and their approximately 12 000 miles above the surface and make two complete orbits every 24 hours.The GPS satellites continuously transmit digital radio signals that contain data on the satelliteslocation and the exact time to the earth-bound receivers.

'co Jefferies II * DBS ~n ~tmenl



Industrial, Scientific and Medical ("ISM') Equipment

The term ISM is scientific or medical environments. For example , a microwave oven would qualify as an ISM.

Band

The L - Band is the general 2 GHz. The L - Band spectrum range is 1525-1544 MHz and 1545-1559 MHz for 1646.MHz and 1646. 1660.5 MHZ for uplinks.

Low Earth Orbit ("LEO') Satellite Network

The satellite orbit is not 750 miles above the Usually, such a network will have 30-66 global satellites in a "constellation." Globalstar andIridium both use a LEO constellation configuration.

Medium Earth Orbit ("MEO') Satellite Network

The 000 to 12 500 configuration of about 8-12 satellites. An adjacent to the L - Band spectrum below 1610

Megahertz ("MHz

One million Hertz. One million cycles per second. Used to

MHz POPs

A MHz POP is s spectrum, measured , and

multiplying it by the population.

Minutes of Use (liMO Us

A unit of measure used by connection time.

Mobile Earth Terminals (liMETs

In satellite communications systems , the mobile equipment of handsets used to communicatewith the satellite.

ICO Jefferies II

'*

::~lmenl



Mobile Satellite Services ("MSS"

MSS is stations and one or more space stations , or between space stations used by this service; or(2) between mobile earth stations , by means of one or more space stations. This service mayalso include feeder links necessary for its operation.

Mobile Satellite Ventures ("MSV'

A 49% owned subsidiary of Motient Corporation , MSV is currently developing a system in theL - Band.

MP3

The most produces the highest sound quality for a given bit rate.

Non-Geostationary Satellite Orbit ("NGSO'

An NGSO system is one in which the satellite is not in a geostationary earth orbit, and cancontinue to move relative to the user and gateways.

Orthogonal Frequency Division Multiplexing ("OFDM'

A technology that transmits multiple signals simultaneously over a single transmission path atprecise frequencies, such as a cable or wireless system.

Personal Communications Service ("PCS' ? Band

PCS encompasses a wide variety of mobile, portable and ancillary communications to communications offerings that serve individuals and businesses , and can be integrated with avariety of competing categories: (1) broadband , (2) narrowband, and (3) adjacent to the 2 GHz uplink band in the 1850-1990 and 1930-1990 MHz spectrum.

Personal Digital Assistants ("PDAs

Consumer electronic , act as positioning system ("GPS") devices , and run multimedia software.

Satellite Radio Service

A service that features the delivery by satellite of digital audio signals directly to cars and othermobile users equipped with a very small receiving antenna. The service is in many respectsthe radio analogue to DSS TV systems. Sirius Satellite Radio two operational satellite DARS providers in the U.

ICO Jefferies II * DBS ~n ~tmenl



Site

The system. configuration with call hand-off between base stations , base stations are located so that thecoverage areas of individual stations overlap to facilitate continuous coverage.

Spectrum

A term generally applied to radio frequencies.

Subscriber

The user of an , a subscriber, in other cases one client includes multiple subscribers.

Switching

The , where automatically controlled, monitored and handed off from one cell site to another, and in whichcalls are interconnected with the landline network or other terrestrial wireless networks.

Time Division Duplexing ("TDD'

TDD separates in time the downstream and upstream uses a single frequency for both downstream and upstream traffic. , TDD providesadvantages such as , simplicity,

channel reciprocity and dynamic resource allocations.

Third Generation 3G' Broadband Services

Key features of compatibility of services, use of small pocket terminals

Internet and other multimedia applications , and a wide range of services and terminals. Most3G systems are expected to have the capability to support circuit and packet data at high bitrates, , support of

multimedia services /

mobiles and report it to both the network and the mobile terminal.

Wireless Broadband

Transmission facilities that have Capable of carrying numerous voice , video and data channels simultaneously.



UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ---------------------------------------------------------X IN RE: Chapter 11 LORAL SPACE & COMMUNICATIONS Case No. : 03-41710 (RDD) LTD., ET AL., Debtors. Jointly Administered -------------------------------------------------------X STATEMENT OF HARRISON J. GOLDIN,

THE COURT – APPOINTED EXAMINER IN THE LORAL SPACE & COMMUNICATIONS LTD. BANKRUPTCY PROCEEDING March 14, 2005

1

11-10612-shl Doc 427-13 Filed 03/16/12 Entered 03/16/12 16:44:38 Exhibit P Pg 1 of 59

By an order dated December 20, 2004 (the “Examiner Order”), the United States

Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”)

approved the appointment of an examiner pursuant to section 1106(b) of the United

States Code, 11 U.S.C. 101 et seq (the “Bankruptcy Code”) in the Chapter 11 case of

Loral Space & Communications Ltd., et al. (“Loral”) to investigate and prepare and file

a statement, within 60 days of the Court’s approval of his or her appointment by the

United States Trustee as contemplated under section 1104(d) of the Bankruptcy Code, as

to whether the Debtors, including their professionals, “… have used customary and

appropriate processes and procedures to value their assets and businesses for purposes of

section 1129(b) of the Bankruptcy Code ….” The Examiner Order directed that the

Examiner not conduct his or her own “full blown” valuation of the Debtors’ assets and

businesses, but authorized him, at his discretion, to conduct “confirmatory due diligence”

as to valuation issues. See Examiner Order at p.2. On January 12, 2005 the Bankruptcy

Court approved the application of the United States Trustee for the appointment of

Harrison J. Goldin as Examiner in the Chapter 11 case of Loral Space &

Communications Ltd., et al, pursuant to 11 U.S.C. 1104(d).

Mr. Goldin and his staff (together “the Examiner”) commenced the examination

on January 13, 2005 and concluded the investigative portion of the Examiner’s work on

February 11, 2005 (the “Investigation Period”). During the Investigation Period the

Examiner met in person and/or spoke via the telephone with: (i) members of Loral’s

management; (ii) representatives of Greenhill & Co., LLC, a financial advisor to Loral

(“Greenhill”); (iii) Debtors’ counsel, Weil Gotshal & Manges LLP; (iv) a representative

2


of Conway Del Genio Gries & Co., LLC, a financial advisor to Loral; (v) representatives

of Jefferies & Co., financial advisor (“Jefferies”) to the Loral Official Creditors

Committee (the “Creditors Committee”); (vi) Creditors Committee counsel, Akin, Gump,

Strauss, Hauer & Feld LLP; and (vii) representatives of the Loral Stockholders

Protective Committee (the “Stockholders Committee”).

The Examiner met with or discussed issues relevant to the examination and/or the

space communications industry with various other parties, including professionals (i) in

the telecommunications industry; (ii) involved in or knowledgeable about the issues in

the Loral cases; (iii) in the insurance industry; and (iv) in the investment community.

The Examiner also reviewed and analyzed a large quantity of documents and other

material, including, but not limited to:

• Publicly available financial information on Loral, its competitors and customers;

• Information from the Loral case dockets - particularly as to asset and enterprise

valuation;

• Valuation materials and supporting documentation provided by Loral’s financial

advisors;

• Multiple iterations of Loral’s business plan for 2005 and post-reorganization;

• Materials provided by the Stockholders Committee on or related to Loral’s

historical financial performance, the space communications industry and

valuation issues;

• The Second Amended Plan of Reorganization and Disclosure Statement for Loral;

3


• Research analyst and industry trade group reports on Loral and the space

communications industry;

• Pro-forma and estimated financial information on Loral provided by its

management;

• Appraisals and other valuation materials pertaining to certain space and terrestrial

assets provided by Loral; and,

• Industry information obtained from management.

As directed by the Examiner Order, in conducting the investigation the Examiner

relied primarily on information gleaned in discussions with or materials provided by (i)

Loral management; (ii) Loral’s advisors; and (iii) representatives of the Stockholders

Committee. The Examiner also met with and obtained information from other parties

active in the Loral cases; for instance, discussions with the Creditors Committee’s

professionals facilitated the Examiner’s accelerated grasp of the salient issues in the Loral

case, consistent with the timeframe for the examination directed by the Bankruptcy

Court. By the same token, the Debtors’ management and financial and legal advisors

were uniformly responsive to the Examiner’s requests for information and fully

cooperative in elucidating the approach taken in the development of the valuation.

Members of the Stockholders Committee were equally helpful in directing the Examiner

to useful industry information and resources.

On February 28, 2005 the Examiner delivered his draft Statement and Supplement

to the Statement (the “Draft Statement”) to (i) counsel to the Debtors; (ii) counsel to the

4


Creditors Committee; and, (iii) representatives of the Stockholders Committee. During

the subsequent two week period the Examiner discussed the Draft Statement with

members of Loral’s management, Greenhill, Jefferies and representatives of the

Stockholders Committee. After considering the substance of those discussions and the

written comments to the Draft Statement received from Greenhill and the representatives

of the Stockholders Committee, the Examiner modified his analysis and preliminary

conclusions to reflect that input.

The information the Examiner reviewed and analyzed during the Investigation

Period (including the Examiner’s confirmatory due diligence) and obtained in the

aforementioned discussions and the written comments on his Draft Statement has led the

Examiner to certain conclusions as to Loral and the processes and procedures its

management and advisors utilized in valuing the Debtors’ assets and businesses. The

Examiner’s observations, findings and analyses are incorporated in the Supplement to

Statement of the Examiner, annexed hereto. The Supplement summarizes the Examiner’s

review, analysis and confirmatory due diligence and, based thereon, discusses additional

value that could be attributed to the Debtors’ businesses and assets. A summation as to

the Examiner’s conclusions follows:

• While the Debtors’ valuation processes and procedures are generally reasonable

and professionally acceptable, they do not fully capture Loral’s value;

• The Examiner’s charge did not cover his independent verification of the extent to

which the Debtors’ valuation may have been affected by their experience in

5


attempting to sell certain of Loral’s assets and businesses, particularly the SS/L

business unit;

• The Examiner’s review was based on a straightforward application of the

standard valuation methodologies, without regard to certain non-formulaic

factors or other variables that the Examiner could not verify independently,

which the Debtors indicate affected their valuation;

• While the space communications and commercial satellite building businesses

experienced softness, they have started to recover from the significant

telecommunications broadband capacity expansion that characterized the industry

in the late 1990s;

• Its bankruptcy filing adversely affected Loral’s satellite building business, even

though it has received orders to build a number of new satellites since entering

Chapter 11;

• The appropriate valuation of Loral is calculated by determining the enterprise

value of each of its operating business units,* but giving consideration to the

benefits of operating as part of a larger enterprise, and adding to their sum its

other assets, including cash;

• The value of Loral’s significant non-operating assets was not captured in the

Debtors’ valuation incorporated in its Plan Disclosure Statement. They include (i)

licensed, but unoccupied, orbital slots; (ii) intellectual property; and (iii) real

estate;

* After allocating shared overhead expenses.

6


• The value of the Debtors’ unoccupied orbital slots may be substantially greater

than indicated in the Debtors’ valuation;

• The Debtors did not undertake to value their patent portfolio separately,

apparently because, in their view, with the patents deployed in their operations,

such value is already reflected in overall enterprise value. Moreover, the Debtors

apparently do not currently plan to license their patents to generate royalties. The

Examiner believes, though, that a purchaser of the business would evaluate the

potential of the patent portfolio to generate licensing royalties and that such

potential would be part of the purchase price. He concluded, however, that such

an evaluation was beyond the scope of the Examiner Order and, therefore,

performed no such evaluation, nor was one possible in the time allotted; and,

• The Examiner recognizes that the values of the non-operating assets may be

affected by present limitations on Loral’s ability to realize on or monetize them.

As directed by the Bankruptcy Court in the Examiner Order, the Examiner did not

perform a “full blown” independent valuation of the Debtors’ businesses and assets.

Rather, he tested and evaluated the Debtors’ application of standard valuation

methodologies and the impact of certain key assumptions and performed confirmatory

due diligence. In that connection, he reviewed Loral’s advisors’ work product and

supporting documentation and analysis. Based on this review, the Examiner concluded

that certain assumptions and the application or weighting of the various valuation

approaches resulted in a not insignificant understatement in value, amounting in the

aggregate to $281 - $463 million. The most significant elements of this incremental value

7


relate to (i) the Debtors’ approach in valuing the SS/L business unit; (ii) the consideration

of cash and working assets in the Debtors’ valuation conclusions; and (iii) the selective

application of valuation techniques. At the time the Debtors’ prepared their valuation

certain information incorporated into the Examiner’s analysis was not available; the

Examiner did not consider it appropriate to ignore this information in his performance of

confirmatory due diligence. The impact of updating comparable market information and

the successful XTAR launch represents approximately $60 million in value.

Although brief, the time available for the examination was adequate for its scope,

relating to a review and assessment of the processes and procedures employed by the

Debtors and their advisors in valuing Loral’s core business units. However, particularly

considering the nature and complexity of certain of the non-operating assets, as to them,

the examination had to be more limited.

Dated: New York, New York

March 14, 2005

/s/ Harrison J. Goldin Harrison J. Goldin, Examiner Loral Space & Communications Ltd.

Goldin Associates, L.L.C. 400 Madison Avenue New York, New York 10022

8


LORAL SPACE & COMMUNICATIONS LTD.SUPPLEMENT TO

STATEMENT OF THE EXAMINER

Harrison J. Goldin, Examiner

March 14, 2005

EXHIBIT


2

DISCLAIMER

This Supplement has been prepared solely for the purpose stated herein and should not be used for any other purpose. The analysis and conclusions set forth herein respecting Loral Space & Communications Ltd. (“Loral”) are applicable only as of the date specified herein and are not intended to represent the Examiner's observations as to Loral at any other time. The conclusions are necessarily based on financial, economic, market and other conditions as exist and can be evaluated as of the date hereof. Any changes in these conditions could materially alter the conclusions expressed in this Supplement. The conclusions contained herein represent the Examiner’s professional opinion based on the information available to himas of the date hereof. However, the information is not a guarantee of, and should not be relied on to determine, the actual price at which Loral or any of its assets might be sold.

In the course of his analysis the Examiner received and relied on information, in the form of written and verbal communications and electronic media reports, relating to the operating and financial performance of Loral, provided by Loral and its representatives, including Loral’s financial advisors and others. The Examiner assumes no responsibility for the information provided by Loral and its representatives or any other third party, and has not verified independently its accuracy or completeness. In addition, the Examiner relied on estimates and projections furnished by Loral and its representatives. Actual events or results may differ materially from the estimates and projections and the effect of such differences on the analysis and conclusions contained in this Supplement may be material. The Examiner assumes no obligation to revise or update this Supplement on the basis of any information that may subsequently come to his attention, including any actual future operating results of Loral.

This Supplement is not intended as and does not purport to provide investment, accounting, tax or legal advice. Recipients of this Supplement should consult their own financial, accounting, tax, legal and other professional advisors.


3

TABLE OF CONTENTS

I. Introduction……………………………………………………….…… 4II. Overview and Conclusions …………………………………………… 7III. SS/L ……………………………………...…………………………… 12IV. FSS …………………………………………………….……………… 23V. XTAR …………………………………….…………………………… 33VI. Other Assets ………………………………………………………...… 36VII. Assets for Additional Consideration …………………………………. 39VIII. Conclusions …………………………………………………….……... 43IX. Appendix ………………………………………………………..…….. 45


INTRODUCTION


5

IntroductionPURPOSE OF SUPPLEMENT

• By Order dated January 12, 2005, Harrison J. Goldin (“Examiner”) was appointed Examiner in In re: Loral Space & Communications Ltd., et al.

• The Examiner was directed “to determine whether the Debtors, including their professionals, have used customary and appropriate processes and procedures to value [Loral’s] assets and businesses for purposes of section 1129(b) of the Bankruptcy Code, or, on the contrary, have employed improper processes and procedures in order to arrive at a materially reduced valuation of [Loral’s] assets and businesses for purposes of section 1129(b) of the Bankruptcy Code.…” Order Appointing Examiner and Specifying Examiner’s Duties, dated December 20, 2004 at p. 4.

• The Examiner was directed further “not [to] conduct his or her own ‘full blown’valuation of the Debtors’ assets and businesses….” Id.

• The Examiner was authorized, in his discretion, to conduct “confirmatory due diligence” as to valuation issues. Id.

• The Examiner was also directed to circulate a draft of his report among relevant parties for their review and comment and to render his final report thereafter, reflecting such modifications as he might consider appropriate.

• This Supplement reflects the Examiner’s review of the processes and procedures the Debtors and their professionals used to value the assets of Loral Space & Communication Ltd. and its subsidiaries (collectively, “Loral” and together with their advisors, “Debtors”), as presented in the Debtors’ Disclosure Statement dated December 5, 2004.


6

IntroductionPURPOSE OF SUPPLEMENT

• As part of his confirmatory due diligence respecting the Debtors’ valuation analysis, the Examiner reviewed both certain of the Debtors’ assumptions and their impact on the Debtors’ conclusions as to value.

• To the extent the Debtors’ methodologies and their application do not reflect Loral’s value accurately, the results of the Examiner’s confirmatory due diligence are reported herein.

• The Debtors’ valuation processes and procedures are generally reasonable and professionally acceptable. However, the Debtors’ selective application of valuation techniques and methodologies significantly affects their conclusions as to value. Under the heading “Additional Considerations,” the Examiner presents the results of his confirmatory due diligence which derive from the application of standard valuation techniques and methodologies that more fully capture Loral’s value.

– In the aggregate, the Debtors’ selective application of valuation techniques and methodologies result in a not insignificant understatement of value.

• The Examiner’s confirmatory due diligence as to the Debtors’ valuation reflects updated market data and performance information. These updates that reflect new information should not by themselves be construed as implying criticism as to the Debtors’ valuation processes and procedures; the information was not available when the Debtors performed their valuation.


OVERVIEW AND CONCLUSIONS


8

Overview and ConclusionsDESCRIPTION OF BUSINESS AND VALUATION APPROACH

• The Debtors generally view Loral as comprising distinct business units.

• Space Systems/Loral (“SS/L”) is the Debtors’ satellite manufacturing unit.

• Fixed Satellite Services (“FSS”) operates several satellites, utilization of which is leased to third parties.

• XTAR, LLC (“XTAR”), a joint venture with the Spanish government, owns a recently launched satellite.

• In reviewing the valuation of the Debtors’operations, the Examiner distinguished among these units.

– To be sure, each of these units comprises one or more distinct legal entities (in whole or in part).

– Nonetheless, with the division of value among these legal entities beyond the scope of the Examiner’s investigation, it focused solely on the combined value of Loral.

• To test the Debtors’ valuation, the Examiner performed confirmatory due diligence on certain of the Debtors’ assets separately:

– Cash– Insurance receivables relating to EdS– Net Operating Losses (“NOLs”)

• Several other assets may contain additional value:

– Orbital Slots– Land

• The Examiner’s test of the Debtors’valuation processes and procedures relates to the Debtors’ business plan of August 3, 2004 (the same forecast on which the Disclosure Statement relies).

• The Examiner’s analysis is as of December 31, 2004, with information updated through March 10, 2005.


9

Overview and ConclusionsDESCRIPTION OF BUSINESS AND VALUATION APPROACH

• While the Debtors’ valuation processes and procedures are generally reasonable and professionally acceptable, the Examiner noted several respects in which the Debtors’ work does not fully capture Loral’s value.

• The Debtors assign a negative value to SS/L; the Examiner’s confirmatory due diligence suggests substantial value for this business.

– The Debtors’ analysis assumes that SS/L will continue to have cash outflows in perpetuity to fund previously received deposits; in fact, the cash flows relating to deposits net to zero over time (i.e., once a steady-state has occurred).

– Further, while the Debtors performed a discounted cash flows analysis, they did not apply multiples analyses (a common and accepted valuation methodology) to SS/L.

• The Examiner’s confirmatory due diligence suggests that the value of FSS is also greater than the Debtors indicate.

– The public markets now value businesses such as FSS more highly than when the Debtors undertook their valuation.

– According to the Debtors’ projections, FSS will grow faster than its peers, a fact not fully reflected in the Debtors’ multiples analysis.

• The successful launch of XTAR has materially mitigated a large risk; as a result, XTAR’s value has appreciated.

• As discussed in detail infra, Loral’s cash on hand is not reflected in the Debtors’valuation.


10

Overview and ConclusionsVALUATION APPROACH

• In a number of instances, the Debtors seem to have adjusted the conclusions they derived from the application of standard valuation methodologies. The reason appears to be their conviction that such conclusions did not fully reflect non-formulaic factors, the omission of which, in their view, distort the value of Loral (or its individual business units) in the current market environment.

• Clearly, it is for the Bankruptcy Court to determine whether value for plan distribution purposes should reflect the Debtors’ earnings potential or simply the current value the market might attribute to them while the Debtors are still under the cloud of Chapter 11.*

• Certain of the differences in approach and value between the Debtors and the alternatives presented by the Examiner reflect this dichotomy.

* Cf. Consolidated Rock Products Co. v. Du Bois, 312 U.S. 510 (1941)


11

Overview and ConclusionsCONCLUSION

• For the reasons discussed herein, the Examiner’s confirmatory due diligence suggests that the value range of Loral could reasonably exceed the value range in the Disclosure Statement by $281 MM to $463 MM.

Notes: Throughout this Supplement, values are in millions of dollars, unless otherwise noted. Due to rounding, tables may not foot. Midrange value is the valuation implied by the midpoints of the various assumed variables and may not be the midpoint of the low and high valuations.

Low Mid High Low Mid High

SS/L* (116) (111) (103) 98 130 173 FSS 323 356 388 343 405 500 XTAR* 104 114 124 154 165 178 Cash and Insurance Proceeds* 234 235 236 266 277 288 NOLs* 100 121 140 65 84 110 Eliminations Per Debtors (5) (5) (5) (5) (5) (5) Orbital Slots, etc. Per Debtors 10 15 19 10 15 19

Total Loral 650 725 800 931 1,072 1,263 Incremental Value + 281 + 347 + 463

Debtors' Valuation Alternative

* The Debtors' valuation of SS/L includes SS/L, 56% of XTAR, the Insurance Proceeds and substantially all of the NOLs; each of these items is broken out and classified separately here.


SS/L


13

SS/LDEBTORS’ APPROACH

• The Debtors value SS/L solely through a discounted cash flow analysis (“DCF”).

• In general, DCF values a target company at the present value of its discounted projected cash flows.

• Typically, cash flows are projected on the assumption that a company is a full taxpayer, financed entirely by equity; cash flows are then discounted to their present value, using the target company’s after-tax weighted average cost of capital (“WACC”).

– The discount rate assumes the company has an optimal capital structure and that interest payments are tax-deductible.

• Because Loral does not expect to be a taxpayer in the forecast period, the Debtors’ discounted cash flows assume no tax payments, with a discount rate that reflects no tax benefit deriving from debt.

– As a result, cash flows are higher; but the resulting higher valuation is partially offset by the higher discount rate.

• DCF assumes that a company is sold or otherwise monetized at the end of the forecast period for a value (“Exit Value”) that derives from (i) an assumed perpetual constant growth in cash flows or (ii) multiples analyses (discussed infra).

• The Debtors rely solely on a perpetual growth model to calculate SS/L’s Exit Value.

– This Exit Value is calculated by dividing projected annual cash flows by the excess of the discount rate over the perpetual growth rate.


14

SS/L

ASSESSMENT OF DEBTORS’ APPROACH

• The Debtors’ exclusion of taxes from the calculation of cash flows is an appropriate way to reflect the value of Loral’s NOL (assuming the NOL is sufficient to insulate Loral from taxes for the foreseeable future).

– However, the Debtors’ calculations do not reflect certain limitations on the usages of NOLs, which are discussed infra.

• For reasons discussed infra, the Examiner believes the NOL is most appropriately valued separately.

– Accordingly, as part of his confirmatory due diligence the Examiner tested values based on both the cash flows and WACC of a full taxpayer.

• The Debtors calculate SS/L’s cost of equity (a component, along with the cost of debt, of WACC) by referring to a group of comparable publicly-traded companies; the Examiner finds both the approach and the companies selected to be reasonable.

– The cost of equity, calculated according to the Capital Assets Pricing Model, is driven by a company’s beta—a measure of risk as compared to the market.

• In the Debtors’ view, the optimal capital structure for SS/L incorporates no debt; while the Examiner has not verified independently that the Debtors are correct in this regard, the Debtors’ view does not appear to be unreasonable.

• However, the discount rate the Debtors apply is higher than their calculated cost of equity, which seems to reflect a company-specific risk premium of 1.25% to 3.25% the Debtors added to the imputed cost of equity; the Examiner cannot validate independently the appropriateness of the forgoing.

• The Debtors’ calculation of WACC, as well as an example of a possible alternative calculation prepared by the Examiner, together with the value implications of each, follow.


15

SS/L


Risk Free Rate 4.10% Risk Free Rate1 4.46%Market Risk Premium 7.00% Market Risk Premium2 7.20%Debt Spread over Treasury 2.50% Debt Spread over Treasury 2.50%Tax Rate 0% Tax Rate 40%Observed Unlevered Beta 0.95 Observed Unlevered Beta 0.87

Debt/Capital

Debt/Equity

Levered Beta

Cost of Equity WACC

Debt/Capital

Debt/Equity

Levered Beta

Cost of Equity WACC

0% 0% 0.95 10.74% 10.74% 0% 0% 0.87 10.72% 10.72%25% 33% 1.26 12.95% 11.36% 25% 33% 1.04 11.98% 10.03%50% 100% 1.90 17.37% 11.99% 50% 100% 1.39 14.48% 9.33%

1 10 year US Treasury bond at 3/10/052 Ibbotson Associates 2004 Yearbook

Debtors' Calculation Alternative

14.00% 13.00% 12.00% 11.75% 10.75% 9.75%Low Mid High Low Mid High

3% High (111) (107) (103) 3% High (103) (96) (88) 2% Mid (114) (111) (107) 2% Mid (107) (102) (95) 1% Low (116) (114) (111) 1% Low (110) (106) (101) Pe

rpet

ual

Gro

wth

R

ate

Debtors' Valuation(Excludes NOLs)

Alternative DCF(Excludes NOLs)

Discount Rate

Perp

etua

l G

row

th

Rat

e

Discount Rate


16

SS/L


• In calculating the Exit Value for SS/L, the Debtors apply the perpetual growth model to 2009 projected cash flows (projected by applying the perpetual growth rate to 2008 cash flows).

• As shown below, the Debtors’ forecast of 2008 (and by extension, 2009) cash flows reflects a nearly $22 MM cash outflow due to changes in working capital.

– The Debtors’ valuation assumes that this cash outflow continues annually in perpetuity.

• The net cash outflows in 2008 result entirely from the use of deposits received in prior years; in fact, while the use of deposits accounts for over $31 MM of cash outflows in 2008, other working capital lines contribute nearly $10 MM of cash inflows that year.

• Although the receipt and use of deposits may produce cash outflows or inflows in any given year, the net effect over all years (once a steady-state has occurred) should be zero.

• Accordingly, the Examiner believes the reference year for perpetual growth should be based on (i) a zero change in deposits and (ii) working capital (excluding deposits) changes equating to their average over the projection period (approximately $5 MM annually).

• This adjustment to the Exit Value yields the following value range for SS/L:

2005 2006 2007 2008

Change in Deposits - 105.1 - 65.9 + 42.0 - 31.3Change in Other Balance Sheet Accounts - 16.0 - 1.2 - 11.1 + 9.6

Change In Working Capital - 121.1 - 67.1 + 30.9 - 21.7

Average Change in Other Balance Sheet Accounts - 4.7

11.75% 10.75% 9.75%Low Mid High

3% High 43 73 114 2% Mid 26 51 83 1% Low 12 33 60 Pe

rpet

ual

Gro

wth

R

ate

Alternative DCF(Excludes NOLs, Exit Value Adjusted)

Discount Rate


17

SS/LADDITIONAL CONSIDERATIONS

• Companies are typically valued by the application of a combination of (i) DCF and (ii) multiples analyses; the Debtors value SS/L solely on the basis of DCF.

• A multiples analysis values a company as a multiple of certain financial metrics (e.g., earnings).

– Such multiples derive from (i) the market multiples for public companies that are comparable to the target and/or (ii) the multiple implied by change of control transactions (also known as precedent transactions) in which companies similar to the target have been acquired.

• The Debtors did not utilize a multiples analysis, apparently because (i) SS/L’s 2004 earnings are not indicative of steady-state earnings and/or (ii) of a lack of similar companies to review (or companies embodying similarities are more diversified).

• SS/L’s exceptionally low earnings in 2004 are not indicative of its ongoing value.

– As an offset, the multiples analyses can be applied to 2004, 2005 and 2006 earnings, as well as to the present value of 2008 earnings (which represent steady-state earnings).

– Reference to multiples for each of several years helps to control for the broad assumptions that underlie a multiples analysis, including that comparable companies will grow at a similar rate.

– 2005 and 2006 multiples for the comparable companies derive from I/B/E/S estimates, a widely accepted index.

– In applying precedent transaction multiples to future years, the Examiner assumed that the ratio of each year’s forward multiple to the trailing multiple is the same as the ratio of that year’s comparable companies multiple to the 2004 comparable companies multiple.


18


• The Debtors utilized an appropriate group of comparable companies to determine WACC.

– These comparable companies are as applicable to a multiples analysis as they are to a calculation of WACC.

– Accordingly, the Examiner applied the valuation implied by the earnings multiples of these companies in analyzing the Debtors’ valuation of SS/L.

• In addition, the Debtors compiled an appropriate list of precedent transactions, which constitute an indicator of precedent transaction multiples.

• To be sure, the factors which apparently led the Debtors not to utilize a multiples analysis can compromise its efficacy; nonetheless, a multiples analysis approach should not be ignored in the assessment of value.

– An underweighting of a multiples analysis relative to DCF can adjust for the fact that the universe of companies available for comparison may not be fully comparable to SS/L.

– For example, a 40% weight for multiples analyses and a 60% for a DCF can compensate for the foregoing under these circumstances.


19


• As part of his confirmatory due diligence, the Examiner tested the Debtors’ valuation of SS/L by referencing three sets of customary and commonly applied multiples: (i) total enterprise value (“TEV”) to earnings before interest, tax, depreciation and amortization (“EBITDA”); (ii) TEV to earnings before interest and tax (“EBIT”); and (iii) equity price to net income.

– Referencing these three metrics mitigates a potential weakness of multiples analyses—the assumption that companies have identical capital structures and accounting policies and similar capital budgeting decision making; the various multiples (particularly when applied in combination) tend to adjust for the differences across companies as to these factors.

• The Examiner did not apply multiples to any negative measures of earnings; values calculated on such a basis are, in standard practice, considered “not meaningful” to a valuation.

• Because SS/L holds unusually large deposits against future work, the Examiner considers it appropriate to reduce the value implied by a multiples analysis by the amount that such deposits exceed their steady-state level—approximately $140 MM.

– This adjustment is inherently incorporated in the DCF model, as the cash flows therein reflect the depletion of these excess deposits.

• The potential value of SS/L as suggested by the Examiner’s test, using multiples analyses and incorporating the foregoing assumptions, follows.


20



TEV/EBITDA2004* 9.7x 10.2x 10.7x 6.6 64 67 71 16.7%2005 8.5x 9.0x 9.5x 13.5 115 122 128 16.7%2006 7.7x 8.2x 8.7x 12.8 99 105 111 16.7%PV 2008 9.6x 10.1x 10.6x 43.4 416 438 459 16.7%

TEV/EBITPV 2008 12.4x 13.4x 14.4x 30.4 379 409 440 16.7%

P/EPV 2008 21.3x 22.8x 24.3x 18.3 388 416 443 16.7%

Comparable Cos. Value 243 259 275

*2004 EBITDA is adjusted to reflect normalized corpoate overhead, equal to 2005 overhead


TEV/EBITDA2004* 9.5x 10.0x 10.5x 6.6 63 66 69 16.7%2005 8.3x 8.8x 9.3x 13.5 112 119 126 16.7%2006 7.5x 8.0x 8.5x 12.8 97 103 109 16.7%PV 2008 9.4x 9.9x 10.4x 43.4 407 429 451 16.7%

TEV/EBITPV 2008 13.0x 14.0x 15.0x 30.4 396 427 457 16.7%

P/EPV 2008 16.5x 18.0x 19.5x 18.3 302 329 357 16.7%

Prec. Trans. Value 230 246 262

*2004 EBITDA is adjusted to reflect normalized corpoate overhead, equal to 2005 overhead

SS/L Statistics Weight

Comparable Companies

Precedent Transactions

Reference Range Implied Value

Implied ValueReference Range SS/L Statistics Weight

Low Mid High

Comparable Cos. Value 243 259 275 50%Prec. Trans. Value 230 246 262 50%

Weighted Average 236 252 268Less: Excess Deposits - 145 - 143 - 141

Multiples Analysis 92 109 127

WeightImplied Value

Weighted Average of Multiples Analyses


21


• For consistency, multiples analyses should be incorporated into the calculation of Exit Value under the DCF analysis.

• In calculating Exit Value, only final year (2008) earnings are appropriate for multiples calculations; a trailing multiple is applied to these earnings.

• Again for consistency, the Examiner would weight the Exit Values derived under a perpetual growth approach at 60% and under the multiples analysis at 40%.

11.75% 10.75% 9.75%Low Mid High

103 144 203

Discount Rate

Alternative DCF

Low Mid High Weight

Comparable Companies 623 663 703 50%Precedent Transactions 579 619 659 50%

Multiples Analyses 601 641 681

Low Mid High Weight

Multiples Analyses 601 641 681 40%Perpetual Growth 233 290 380 60%

Weighted Average 380 430 500

Alternative Exit Value (Undiscounted) for DCF--Multiples Analyses

Alternative Exit Value (Undiscounted) for DCF--Combined


22

SS/LVALUE RECONCILIATION

• Based on the foregoing, the Examiner’s confirmatory due diligence suggests that a reasonable valuation of SS/L is between $98 MM and $173 MM, with a midrange value of $130 MM.

Supporting calculations can be found in Appendix.Calculations of impact are cumulative.

Low Mid High

Debtors' Valuation 261$ 298$ 335$

Separate Treatment of Insurance Proceeds - 234 - 235 - 236Separate Treatment of XTAR - 47 - 52 - 56Separate Treatment of NOLs - 96 - 122 - 146Adjusted Debtors' Valuation (116) (111) (103)

Change in Discount Rate + 6 + 9 + 15Change of Perpetual Growth Exit Value + 122 + 153 + 202Value of Pure DCF 12 51 114

Use Of Multiples Analysis + 32 + 23 + 5Multiples Analysis in Exit Value + 55 + 56 + 53Alternative Value of SS/L 98$ 130$ 173$ --Diff. From Adjusted Debtors' Valuation + 215 + 241 + 275

Assessment of Debtors'

Approach

Additional Considerations

Grouping Adjustments


FSS


24

FSSDEBTORS’ APPROACH

• The Debtors value FSS through a combination of multiples analyses (including a comparable public company analysis and a precedent transaction analysis) and a DCF.

• The multiples analyses are given twice the weight of the DCF.

• In performing multiples analyses the Debtors utilize (i) the comparable company metric of TEV to 2005 EBITDA and (ii) the precedent transaction multiple of TEV to the last twelve months EBITDA.

– The Debtors apply both metrics to projected 2005 EBITDA.

• As with SS/L, in developing their DCF valuation the Debtors assume no taxes paid during the projection period, as well as a tax rate of zero in deriving WACC.

• To formulate the Exit Value for the DCF, the Debtors apply a multiples analysis to 2008 EBITDA, but do not reflect a perpetual growth Exit Value.


25

FSS


• The Debtors appropriately applied a comparable company multiple of TEV to EBITDA as of September, 2004.

– As discussed infra, additional earnings multiples applied to additional years would present a clearer picture of value.

• Market valuations relating to the comparable public companies changed materially from the time the Debtors performed their analysis. As part of his confirmatory due diligence, the Examiner updated this analysis to include trades as of March 10, 2005.

– One company, New Skies, was acquired subsequent to the Debtors’ valuation date; since it no longer exists as a separate comparable public company, it is excluded from the Examiner’s analysis.

• The Debtors also value FSS by using a multiples analysis based on precedent transactions.

• Generally, in a precedent transaction analysis a trailing multiple is derived and applied to the corresponding trailing statistic for the target company. In this case, the Debtors applied a trailingvaluation multiple to a forward operating statistic, 2005 EBITDA.

– In the Debtors’ apparent view, 2004 EBITDA does not adequately reflect ongoing EBITDA.

• In the Examiner’s view, it is appropriate to apply a trailing multiple to a proxy for a trailing operating statistic (such as the present value of FSS’s 2005 EBITDA), if (as here) the actual statistic would produce an unwarranted distortion.


26

FSS



TEV/2005 EBITDA

Debtors' Valuation 6.3x 6.6x 6.8x 43.4 273 284 295

Alternative* 6.0x 7.0x 8.0x 43.4 260 304 347

* Reflects impact of updated market multiples.


TEV/EBITDA

Debtors' Valuation 6.2x 7.2x 8.2x 43.4 269 312 356

Alternative** 7.0x 7.5x 8.0x 39.5 276 296 316

** Midrange value represents the mean of observed data.





FSS Statistic

FSS Statistic


27

FSS


• In addition to using multiples analyses, the Debtors value FSS through a DCF analysis.

• As noted, Loral does not expect to be a taxpayer in the forecast period; accordingly, the Debtors’ discounted cash flows assume no tax payments and the discount rate reflects no tax benefit from debt.

• As noted elsewhere in this Supplement (see pp. 14 and 38), the Examiner believes the NOLs are better analyzed separately; accordingly, he has estimated cash flows for FSS on an after tax basis.

• As part of his confirmatory due diligence, the Examiner applied an updated trailing multiple (i.e., the average of the trailing comparable companies multiple and trailing precedent transaction multiple) to 2008 EBITDA to derive the Exit Value, using a multiples analysis.

• Under the DCF analysis described above, the Examiner’s confirmatory due diligence compares the following values for FSS :

•As in the Examiner’s review of the Debtors’ valuation of SS/L, the Examiner updated the calculation of WACC for FSS to incorporate an updated calculation of the cost of equity and to include the impact of taxes. Including taxes in the calculation of WACC largely offsets the increase in WACC associated with the higher cost of equity. Therefore, this adjustment does not materially impact valuation.

11.0% 10.0% 9.0%Low Mid High

## 11.0% 10.0% 9.0%7.0x High ## 481 496 512 6.5x Mid ## 453 468 483 6.0x Low ## 426 439 453

Discount Rate

Debtors' DCF(Exit Value by Multiples Analyses)

Exit

Mul

tiple

11.0% 10.0% 9.0%Low Mid High## 11.0% 10.0% 9.0%

8.25x High ## 550 568 586 7.75x Mid ## 522 539 557 7.25x Low ## 495 511 527

Discount Rate

Exit

Mul

tiple

Alternative DCF(Exit Value by Multiples Analyses)


28

FSSADDITIONAL CONSIDERATIONS

• To account for company-specific earnings growth among comparable companies, a multiples analysis should be applied to several years of earnings, such as 2004, 2005 and 2006, as well as the present value of 2008.

– Reference to several years captures the value that derives from FSS’s growth rates, projected to exceed its peers’ growth rates.

• For the reasons discussed supra (see p. 19), a multiples analysis should be applied, using three measures of earnings (to the extent not negative): EBITDA, EBIT and net income.

– For consistency, this method should also be the basis for deriving the Exit Value for DCF.


TEV/EBITDA2004 7.1x 7.6x 8.1x 39.5 280 300 320 16.7%2005 6.5x 7.0x 7.5x 43.4 282 304 326 16.7%2006 5.7x 6.2x 6.7x 57.6 328 357 386 16.7%PV 2008 7.2x 7.7x 8.2x 62.8 449 480 512 16.7%

TEV/EBITPV 2008 17.1x 18.1x 19.1x 20.7 353 373 394 16.7%

P/EPV 2008 20.3x 21.8x 23.3x 9.4 421 435 449 16.7%

Comp. Cos. Value 352 375 398


TEV/EBITDA2004 7.0x 7.5x 8.0x 39.5 276 296 316 20.0%2005 6.4x 6.9x 7.4x 43.4 278 300 322 20.0%2006 5.6x 6.1x 6.6x 57.6 324 352 381 20.0%PV 2008 6.7x 7.2x 7.7x 62.8 421 452 484 20.0%

TEV/EBITPV 2008 16.7x 17.7x 18.7x 20.7 346 367 387 20.0%

Prec. Trans. Value 329 353 378

2004 EBITDA is the present value of 2005 EBITDA.


FSS Statistic Weight




FSS Statistic Weight

Low Mid High



Alternative Multiples Analyses

Implied ValueWeight


29


• Moreover, while the Debtors utilize only a multiples analysis in calculating Exit Value under DCF, in the Examiner’s view, a weighted average of perpetual growth and a multiples analysis would be appropriate.

– Given the regularity and predictability of cash flows, the Examiner believes the perpetual growth calculation should be overweighted slightly (60%).

• In applying the perpetual growth analysis, the terminal year free cash flow should reflect steady-state cash flows.

– To estimate steady-state cash flows, annual capital expenditures should be equated in the high case to their arithmetic mean during the projection period ($33.4 MM) and in the low case to the Debtors’estimation of annual depreciation ($53.0 MM).

– As with SS/L, working capital changes should continue at their average rate over the projection period.

Low Mid High Weight


Multiples Analyses 475 507 539

Low Mid High Weight

Multiples Analyses 475 507 539 40%Perpetual Growth 276 467 786 60%


Alternative Exit Value (Undiscounted) for DCF--Multiples Analyses

Alternative Exit Value (Undiscounted) for DCF--Combined


30

FSSASSESSMENT OF DEBTORS’ APPROACH

• Under the DCF analysis described above, the Debtors derive the following values for FSS; the result of the Examiner’s confirmatory due diligence follows, too:

11.0% 10.0% 9.0% 11.0% 10.0% 9.0%Low Mid High Low Mid High

11.0% 10.0% 9.0% ## Low Mid High426 468 512 3.0% High ##

2.0% Mid ##1.0% Low ##

11.0% 10.0% 9.0% 11.0% 10.0% 9.0%Low Mid High Low Mid High11.0% 10.0% 9.0% ## 11.0% 10.0% 9.0%

409 443 480 3.0% High ## 329 472 671 2.0% Mid ## 301 422 584 1.0% Low ## 279 383 519

Low assumes capex equals depreciation in perpetuityHigh assumes capex in perpetuity equals average over forecastMid assumes capex is average of the high and low

Perp

etua

l G

row

th

Rate

Perp

etua

l G

row

th

Rat

e

Alternative DCF(Exit Value by

Perpetual Growth)

Debtors' DCF(Exit Value by

Perpetual Growth)

None

Discount Rate

Discount Rate

Alternative DCF(Exit Value by Multiples

Analyses)

Debtors' DCF (Exit Value by Multiples

Analyses)

Discount Rate

Discount Rate

WeightLow Mid High

Multiples Analysis Exit Value 426 468 512 100%Perpetual Growth Exit Value - - - 0%


WeightLow Mid High

Multiples Analysis Exit Value 409 443 480 50%Perpetual Growth Exit Value 279 422 671 50%


Implied Value

Alternative Weighted Average DCF

Debtors' Weighted Average DCF

Implied Value


31


• The Debtors weight their valuations of FSS as follows: multiples analyses, 2/3 and DCF, 1/3.• In the Examiner’s view, for a business, such as FSS, which is characterized by reasonably

predictable future cash flows and earnings growth rates that are materially different from its peers, the DCF method more fully captures the business’s value and should be given more weight (60%) in the determination of value than the multiples analyses (40%).

Low Mid High

Multiples Analysis 341 364 388 40%DCF 344 433 576 60%


Alternative Valuation of FSS

Implied ValueWeight


32

FSSVALUE RECONCILIATION

• Based on the foregoing, the Examiner’s confirmatory due diligence suggests that a reasonable valuation range for FSS is $343 MM to $500 MM, with a midrange of $405 MM.

Supporting calculations can be found in Appendix.Calculations of impact are cumulative.

Low Mid High

Debtors' Valuation 323$ 355$ 388$

Updated Comparable Companies Multiple - 4 + 7 + 17Application of Precedent Transaction Multiple to Trailing Earnings + 2 - 6 - 13Use of Updated EBITDA Multiple in DCF + 23 + 24 + 25Subtotal 344 380 416

Use of Multiple Years and Earnings Metrics for Multiples + 20 + 11 + 2Use of Perpetual Growth Rate in DCF - 22 - 4 + 32Weighting of DCF and Multiples Analysis + 1 + 18 + 50Alternative Value of FSS 343$ 405$ 500$ --Diff. From Debtors' Valuation + 20 + 50 + 113

Assessment of Debtors'

Approach

Additional Considerations


XTAR


34

XTARDEBTORS’ APPROACH

• XTAR is a joint venture between Loral and the Spanish government, with the satellite involved having been launched successfully on February 12, 2005.

• While the Debtors declined to insure the launch, they have insured the satellite in orbit. The expense associated with this in-orbit insurance is included in the business plan and projections.

• The Debtors value the XTAR business on the basis of a DCF approach, discounting the distributable cash flows over the life of the business plan.

• The Debtors assume a range of discount rates of 16% to 19%—substantially higher than the rates used for FSS.

• The Debtors’ higher discount rates appear to reflect their view of the risk associated with, among other things, a potential launch failure.

– Of course, the risk of a potential launch failure no longer exists.


35

XTAR


• The Debtors’ approach to valuing XTAR by discounting the distributable cash flows over the business plan period is reasonable.

– A multiples analysis is less relevant due to the predictable cash flows once the satellite is in orbit.

• In the Examiner’s view, a reasonable discount of cash flows for the venture is 9% to 11% per annum, consistent with the WACC for FSS.

• The approximately $28 MM in project debt should be netted against the enterprise value to arrive at a value for Loral’s 56% share of the equity.

• To a significant extent, the difference between the Debtors’ valuation and the alternative tested by the Examiner is attributable to the risk of a launch failure; that risk was obviated subsequent to the date of the Debtors’ valuation.

Low Mid High

Debtors' Valuation 105 114 124

Alternative 154 165 178


OTHER ASSETS


37

Other AssetsCASH AND INSURANCE PROCEEDS

• The Debtors attribute no value to the approximately $82 MM of cash (net of certain accelerated receipts) held by Loral, because Loral needs the cash (or some portion thereof) to fund operations.

• Each of the aforementioned valuation techniques assumes cash will be added separately to the valuation; failure to do so unwarrantedly reduces value.

– In calculating multiples for a multiples analysis, the Debtors and the Examiner each exclude cash from the definition of TEV; as a result, cash must be treated as an additional asset when applying the multiples analyses.

– The DCF analysis imposes a charge on Loral’s value for the use of this cash.

– Furthermore, in testing the valuation using multiples analyses, the Examiner specifically reduced SS/L’s valuation to offset the large liabilities associated with advance cash payments.

• Additionally, the Debtors anticipate receiving the proceeds of a $250 MM insurance policy relating to the Estrela do Sul-1 satellite (“EdS”).

– EdS only partially deployed after its launch in January, 2004, diminishing the power and life expectancy of the satellite; SS/L has submitted a claim to its insurers for the total constructive loss of the satellite.

– The Debtors’ valuation allows for the recovery of the full present value (estimated to be $235 MM) of this claim; this valuation appears reasonable.

• The Examiner has been advised that the incremental cost for Loral to exit Chapter 11 (e.g., unpaid administrative expenses) will be between $30 MM and $50 MM.

Low Mid High

Cash on Hand* 82 82 82 PV of EdS Proceeds 234 235 236 Costs to Exit (50) (40) (30)

Net Cash Value 266 277 288 *Actual 12/31/04 cash less deposits received ahead of forecast.


38

Other AssetsNOLS

• Loral has in recent years accumulated substantial NOLs.

• Subject to certain limitations, these NOLs can be used to offset taxable income in future years.

– The availability of such an offset is, inter alia, (i) reduced by any cancellation of debt income and (ii) subject to an annual limitation based on Loral’s equity valuation when it emerges from bankruptcy.

– The Debtors’ DCF analysis does not fully capture these limitations.

• Because taxes are a charge to a company’s equity owners, the value of NOLs is calculated by using a present value based on the company’s required return on equity.

• Although the Debtors’ DCF valuations capture the value of Loral’s NOLs in part, multiples analyses do not capture the tax shield benefits.

– A better approach, therefore, is to value the NOLs separately.

– Further, the Debtors’ technique is prone to overstate the value of the NOLs, as it does not adjust for limitations on their use.

• Based on the Examiner’s assessment, as reflected in this Supplement, the NOLs contribute $65 MM to $110 MM of value to Loral.

Low Mid High

Discount Rate 12.00% 11.00% 10.00%Value Excluding NOLs 866 988 1,153

NOLs Value 65 84 110


ASSETS FOR ADDITONAL CONSIDERATION


40

Assets for Additional ConsiderationORBITAL SLOTS

• The Examiner understands that the Debtors recently held rights to 45 orbital slots; the Debtors are utilizing seven of these slots and have returned (or intend to return) 26 of these slots to regulatory authorities.

• Twelve orbital slots remain unused by the Debtors, representing permits to provide coverage over (i) North America (six slots), (ii) Europe and Africa (five slots) and (iii) Asia (one slot).

• The Debtors value these slots, in the aggregate, in a range of $10 MM to $19 MM, based on management’s estimate of less than $1 MM to $2.5 MM per slot.

• The following factors, inter alia, may affect the value of an orbital slot:

– The position of the slot and the demand for telecommunications services in areas which correspond to that position;

– The ability of the holder of a slot to raise the capital to exploit the slot or, in the absence of an ability to raise capital, find an appropriate partner to exploit the slot;

– The general availability of substitute/alternative telecommunications services; and

– Regulations governing the transferability of such slots.


41

Assets for Additional ConsiderationORBITAL SLOTS

• The Examiner reviewed certain public documents and observed the following:

– In 1996, a Direct Broadcast Satellite (“DBS”) license sold for $682.5 MM.

– New Skies, another fixed satellite provider, agreed not to bring a satellite into use in its 120˚8’ W. longitude location in exchange for a $32 MM payment.

– In 1999, the Debtors acquired the right to use the orbital slot at 63˚ W. longitude (EdS slot) for approximately $20 MM.

• The six unused orbital slots over North America are geographically similar to the above orbital slots.

– The Examiner understands that two of these slots (96.5˚ W. longitude and 123.5˚W. longitude) require certain additional regulatory approvals prior to their utilization.

• Three DBS licenses for orbital slots over the Pacific Ocean (175˚ W. longitude, 166˚ W. longitude and 157˚ W. longitude) were sold in 2004 for an aggregate $12.2 MM.

• One appropriate technique that constitutes a more rigorous approach to valuing an orbital slot is to calculate the excess of (i) a DCF analysis of the value of a satellite in a certain slot over (ii) the cost to construct and launch such a satellite.

• The Debtors’ valuation may be understated; a more rigorous analytical approach to valuing the orbital slots is warranted.

– Such an analysis would address both the value of the slots and the extent to which this value may be included in the valuation of FSS.

• The scope of the Order governing the Examiner’s appointment does not provide for an analysis of each of the unused orbital slots.


42

Assets for Additional ConsiderationLAND

• Incremental value to that calculated by the Debtors could derive from Loral’s company-owned real estate (both SS/L and FSS).

• FSS also has a company-owned redundant tracking telemetry and control facility in Petaluma, California. The value of this property is apparently embedded in the Debtors’ operational valuation of FSS.

– The Examiner understands the Debtors are attempting to sell this property and that from the indications of interest they have received this property is immaterial to Loral’s value.

• The SS/L research and development facility in Palo Alto, California comprises approximately nine buildings, including office, research and manufacturing facilities, totaling 563,000 square feet on 28 acres.

– The Debtors’ analysis includes this real estate in the operational value of SS/L, apparently because of an assumption that it is integral to SS/L’s operations; the analysis does not address the possibility of selling the well-located Palo Alto facility and relocating to a less valuable site.

– A site appraisal in November, 2003 estimated the value of the land and buildings at $52 million. Recent independent commercial real estate market reports indicate this value may have increased.

– To be sure, the highly technical nature of activities at the Palo Alto facility may limit the ability to derive any incremental value from this property.


CONCLUSIONS


44

ConclusionsCONCLUSION

• The Debtors’ valuation approach and techniques are generally reasonable and professionally acceptable. However, the Debtors applied certain common valuation methodologies selectively.

• For the reasons discussed herein, the Examiner’s confirmatory due diligence suggests that Loral’s value range could reasonably be estimated at between approximately $931 MM and $1.26 BN, exceeding the value range in the Disclosure Statement by $281 MM to $463 MM.

• This value assessment excludes any potential incremental value in Loral’s orbital slots and real estate.


SS/L* (116) (111) (103) 98 130 173 FSS 323 356 388 343 405 500 XTAR* 104 114 124 154 165 178 Cash and Insurance Proceeds* 234 235 236 266 277 288 NOLs* 100 121 140 65 84 110 Eliminations Per Debtors (5) (5) (5) (5) (5) (5) Orbital Slots, etc. Per Debtors 10 15 19 10 15 19

Total Loral 650 725 800 931 1,072 1,263 Incremental Value + 281 + 347 + 463

Debtors' Valuation Alternative

* The Debtors' valuation of SS/L includes SS/L, 56% of XTAR, the Insurance Proceeds and substantially all of the NOLs; each of these items is broken out and classified separately here.


APPENDIX


46

APPENDIX

SS/L VALUE RECONCILIATION

ComparableCompanies

PrecedentTransactions Combined Weight Value Weight

Debtors' Valuation - - - 0% 261 100% 261 Separate Treatment of Insurance Proceeds - - - 0% 27 100% 27 - 234Separate Treatment of XTAR - - - 0% (20) 100% (20) - 47Separate Treatment of NOLs - - - 0% (116) 100% (116) - 96Change in Discount Rate - - - 0% (110) 100% (110) + 6Change of Perpetual Growth Exit Value - - - 0% 12 100% 12 + 122Use Of Multiples Analysis 99 85 92 40% 12 60% 44 + 32Multiples Analysis in Exit Value 99 85 92 40% 103 60% 98 + 55

Impact

Support for SS/L Reconciliation (Low)

Multiples DCF SS/LValue


47

APPENDIX


ComparableCompanies


Debtors' Valuation - - - 0% 298 100% 298 Separate Treatment of Insurance Proceeds - - - 0% 63 100% 63 - 235Separate Treatment of XTAR - - - 0% 11 100% 11 - 52Separate Treatment of NOLs - - - 0% (111) 100% (111) - 122Change in Discount Rate - - - 0% (102) 100% (102) + 9Change of Perpetual Growth Exit Value - - - 0% 51 100% 51 + 153Use Of Multiples Analysis 116 103 109 40% 51 60% 74 + 23Multiples Analysis in Exit Value 116 103 109 40% 144 60% 130 + 56

Multiples DCF SS/LValue Impact

Support for SS/L Reconciliation (Mid)


48

APPENDIX


ComparableCompanies


Debtors' Valuation - - - 0% 335 100% 335 Separate Treatment of Insurance Proceeds - - - 0% 99 100% 99 - 236Separate Treatment of XTAR - - - 0% 43 100% 43 - 56Separate Treatment of NOLs - - - 0% (103) 100% (103) - 146Change in Discount Rate - - - 0% (88) 100% (88) + 15Change of Perpetual Growth Exit Value - - - 0% 114 100% 114 + 202Use Of Multiples Analysis 134 120 127 40% 114 60% 119 + 5Multiples Analysis in Exit Value 134 120 127 40% 203 60% 173 + 53

Support for SS/L Reconciliation (High)

Multiples DCF SS/LValue Impact


49

APPENDIX

FSS VALUE RECONCILIATION

ComparableCompanies


Debtors' Valuation 273 269 271 67% 426 33% 323 Updated Comparable Companies Multiple 260 269 265 67% 426 33% 318 - 4Application of Precedent Transaction Multiple to Trailing Earnings 260 276 268 67% 426 33% 321 + 2Use of Updated EBITDA Multiple in DCF 260 276 268 67% 495 33% 344 + 23Use of Multiple Years and Earnings Metrics for Multiples 352 329 341 67% 409 33% 363 + 20Use of Perpetual Growth Rate in DCF 352 329 341 67% 344 33% 342 - 22Weighting of DCF and Multiples Analysis 352 329 341 40% 344 60% 343 + 1

Support for FSS Reconciliation (Low)

Multiples DCF FSS

Value Impact


50

APPENDIX


ComparableCompanies


Debtors' Valuation 284 312 298 67% 468 33% 355 Updated Comparable Companies Multiple 304 312 308 67% 468 33% 361 + 7Application of Precedent Transaction Multiple to Trailing Earnings 304 296 300 67% 468 33% 356 - 6Use of Updated EBITDA Multiple in DCF 304 296 300 67% 539 33% 380 + 24Use of Multiple Years and Earnings Metrics for Multiples 375 353 364 67% 443 33% 391 + 11Use of Perpetual Growth Rate in DCF 375 353 364 67% 433 33% 387 - 4Weighting of DCF and Multiples Analysis 375 353 364 40% 433 60% 405 + 18

Support for FSS Reconciliation (Mid)

Multiples DCF FSS

Value Impact


51

APPENDIX


ComparableCompanies


Debtors' Valuation 295 356 326 67% 512 33% 388 Updated Comparable Companies Multiple 347 356 352 67% 512 33% 405 + 17Application of Precedent Transaction Multiple to Trailing Earnings 347 316 331 67% 512 33% 392 - 13Use of Updated EBITDA Multiple in DCF 347 316 331 67% 586 33% 416 + 25Use of Multiple Years and Earnings Metrics for Multiples 398 378 388 67% 480 33% 419 + 2Use of Perpetual Growth Rate in DCF 398 378 388 67% 576 33% 450 + 32Weighting of DCF and Multiples Analysis 398 378 388 40% 576 60% 500 + 50

Support for FSS Reconciliation (High)

Multiples DCF FSS

Value Impact


1

Tony Christ (Pro Se) Jeffrey M. Swarts (Pro Se) 6635 Kennedy Lane 308 South Cedar Street Falls Church, Virginia 22042 Danville, OH 43014-0289 Telephone (703)-533-3077 (740)-599-6516 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ) In re: ) Chapter 11 Case Nos. ) LORAL SPACE & COMMUNICATIONS LTD., et al. ) Lead Case 03-41710(RDD) ) 03-41709 (RDD) through ) 03-41728 (RDD) ) ) Debtors ) (Jointly Administered) _______________________________________________ )_____________________________ A MOTION BROUGHT BY THE LORAL STOCKHOLDERS PROTECTIVE COMMITTEE (“THE COMMITTEE”), HOLDING ABOUT 1,784,000 SHARES, OR 4% OF THE OUTSTANDING COMMON, TO APPOINT AN OFFICIAL SHAREHOLDERS COMMITTEE AND EXAMINER TO APPRAISE THE MARKET VALUE OF LORAL ASSETS; IN THE INTEREST OF LORAL STOCKHOLDERS, TONY CHRIST, INDIVIDUALLY, AND AS CUSTODIAN FOR BRIAN AND KATELYN CHRIST, CASEY CRAWFORD, TOMMY ORNDORFF, JEFFREY M. SWARTS, NOAH COHEN, DAVE KILCOYNE, VADIM MOSTOVOY, DR. DANIEL REED, AND ALL LORAL SHAREHOLDERS, AS A MATTER OF INTEREST. We stand before the court with information that, in total, presents significant evidence that runs

contrary to the purported balance sheet insolvency reported by Loral and its related Companies

in these proceedings, as well as information that outlines a pattern of self-dealing on the part of

Bernard Schwartz and others. Furthermore, we believe it has become extremely difficult to

demonstrate value when the management of the Debtor has been silent regarding the Debtor's

values since the beginning of the bankruptcy filing. We believe that, at this stage, the values of

the Debtor are not readily available in GAPP formatted accounts contained in disclosure

11-10612-shl Doc 427-14 Filed 03/16/12 Entered 03/16/12 16:44:38 Exhibit Q Pg 1 of 74

2

documents, as required to reach the precision that restructuring demands. The Loral Stockholders

Protective Committee (The Committee) respectfully requests standing as an Equity Committee to

better assist and encourage the Company to maximize its assets. The advocacy system, where

competing interests examine and cross-examine is the basis of the Anglo-Saxon legal system.

Without a committee to represent the equity owners of Loral, the Court will be hearing only one

side of the argument, all of whose members benefit if they can eliminate the equity owners. This

is not fair. We represent all Equity as a matter of interest. A recovery to the Common will ensure

a full recovery to the Preferred.

The Shareholders' "Catch-22"

The shareholders who have undertaken to present this motion to the Court, on behalf of all

holders of Loral Equity, are not lawyers. We are hobbled by a curious paradox, or "Catch 22". If

we were able to hire experts and lawyers, the Creditors attorneys will argue that we are

adequately represented, as they did when Mr. Wolfson represented the Preferred Shareholders in

Court. However, if we do not hire experts and attorneys, then these same counsels for the

creditors will argue that we have not fully complied with the Court's observation that "the burden

of proof is on the shareholders" to show the need for an Official Committee. And, they will use

various legalistic procedural and evidentiary tactics to undermine our presentation.

The motive of either argument is the same, to deny a complete and balanced consideration to

shareholder arguments to secure an Official Shareholders Committee. However, as officers of the

Court, even they must concede, that this paradox puts The Committee in the unenviable position

of Sisyphus; forever rolling the evidence and legal arguments boulder up the hill, only to have

the Debtor's and Creditors' attorneys roll it back down by stating that the shareholders are not

qualified and that their procedures and evidence are inadequate.

The shareholders represented by this motion to the Court have taken great time and effort to raise

funds for our intellectual property expert, in the absence of adequate counsel to represent our

interests. Mr. Yetnikoff has helped us in an unpaid, peripheral role, by answering a few

questions, but he has asserted that he is not currently representing us at this time. We have


3

undertaken this monumental task, or so it seems to the non-professional, in order to comply with

the Court's expectation that we must demonstrate that all prongs of the official committee statute

requirements are fulfilled. Prior to this submission Tony Christ prepared all documents for The

Committee on a Pro Se basis. Mr. Christ, and Jeff Swarts, working together, in the absence of

legal counsel, have prepared this document, also Pro Se.

We have striven at great expense of time and effort to provide a factual basis to our presentation,

where adequate documentation exists, and as we have been able to uncover it. In the absence of

full documentation, where we have drawn conclusions, or stated opinions, we have attempted to

qualify our arguments in those terms. But, do to the complexity of the subject matter, and our

own lack of professional expertise in the preparation of such documents, we recognize that our

document may not be perfect. We beg the Court's patience in this regard. We ask that the Court

consider the substantial truths of our arguments and admit that there will be errors contained in

our pleading. As owners of these estates, we have exercised our rights to speak on these assets

and the conditions surrounding their ownership.

The formalization of an Equity Committee will allow us to retain proper and adequate legal

representation. The Debtor, and the Creditors, who opposed the formation of an Equity

Committee at our December 2, 2003 hearing, should be precluded from challenging our

testimony on grounds of authority or legal form. We admit that we are outgunned by an army of

antagonists, without a place at the table. However, we should not be unduly disadvantaged by the

effects of prior arguments and judgements to deny us adequate counsel, when it is precisely that

which we seek the Court's support for. This Court is the only hope for those who invested in the

common stock of Loral.

(The remainder of this page intentionally left blank.)


4

TABLE OF CONTENTS

Table of Contents _______________________________________________ 5 I. Introduction _______________________________________________ 5-9 II. Motion to Re-Evaluate Loral's Assets ________________________ 10-15 ___ 1. Shareholders Asset Valuation Committee_____________________ 10 ___ 2. The Debtor is Not Hopelessly Insolvent ____________________ 10-12 ___ 3. Section 1102 - Adequate Representation ___________________ 12-13 ___ 4. Section 1102 - Complexity of Case ________________________ 13-14 ___ 5. Cost vs. Adequate Representation ________________________ 14-15 ___ 6. No Gift to Equity is Requested______________________________ 15 III. Preferred Shareholders Are Also Served________________________ 16 IV. The Context and History of the Bankruptcy __________________ 17-46 ___ 1. The Debt is Adequately Represented_________________________ 17 ___ 2. Equity is Not Represented_______________________________ 17-19 ___ 3. Original Valuation of Loral is Inadequate _________________ 19-20 ___ 4. Book Value vs. Market Value ____________________________ 20-21 ___ 5. Evaluating the Need for Bankruptcy ______________________ 21-23 ___ 6. The Assets Lack an Unconflicted Advocate_________________ 23-24 ___ 7. Management's Motive is to Eliminate the Common_____________ 25 ___ 8. Loral's Bankruptcy was a Fraudulent Filing _______________ 25-30 ___ 9. The Senior Financial Officer Covenant ____________________ 30-31 __ 10. Lockheed Martin's Loral Strategy________________________ 31-33 __ 11. Legal Preparation of the Debtor_____________________________ 33 __ 12. Financial Arguments to the Chapter 11____________________ 33-34 __ 13. Bernard Schwartz has a Conflict of Interest___________________ 35 __ 14. Bernard Schwartz's Corporate Affiliations_________________ 36-39 __ 15. K&F Industries, Inc. ___________________________________ 39-44 __ 16. Globalstar ____________________________________________ 44-46 V. Valuation of the Estates of the Debtor ________________________ 47-65 ___ 1. Introduction __________________________________________ 47-49 ___ 2. Property, Plant and Equipment __________________________ 49-54 ___ 3. Research and Development______________________________ 54-55 ___ 4. Intellectual Property ___________________________________ 55-62 ___ 5. Real Estate ___________________________________________ 62-63 ___ 6. The Preferred Shareholders Debt Exchange___________________ 63 ___ 7. Intangible Assets _________________________________________ 63 ___ 8. In-Orbit Failures by Competitors ___________________________ 64 ___ 9. In-Orbit Failures by Loral ______________________________ 64-65 __ 10. Market Forecast Data _____________________________________ 65 VI. Concluding Statement ____________________________________ 66-67 VII. Exhibit List _______________________________________________ 68 VIII. Financial Schedules_____________________________________ 69-71 ___ 1. Balance Sheet _________________________________________ 69-72 ___ 2. Property, Plant and Equipment & Notes___________________ 73-74


5

I - INTRODUCTION We believe that due to a history of self-dealing and conflicts of interest, the Debtor and

Creditor’s Committee, respectfully, do not have incentive to represent shareholders and only

pretend to pursue the Court's purpose of maximizing the estates of the Debtor. We believe that

management is substantially tainted as a result of its past misconduct. We believe that in order to

cover up its prior self-dealing, self-enriching, asset converting, surreptitious actions,

management is using this bankruptcy proceeding, in collusion with the Creditors and others, to

defraud the common shareholders by transferring the Company's assets to new ownership. We

believe that the evidence presented will show that the assets are significantly understated. Only

Equity, as a matter of interest, is enabled to pursue the maximization of the Debtors' estates for

the benefit and cure of a large scope of claimants. In this regard only Equity is consistent with

the Court's intent and purpose, to maximize the values of Loral.

The Committee will show that conditions cited by the Court in Docket #1219, pg. 126-137,

either do not exist or have been sufficiently addressed, such that an Equity Committee is

warranted at this time. The Committee strongly believes that there is significant evidence, which

suggests that this issuer is NOT insolvent. The value of the business and technologies of the

Company are esoteric and complex, such that they require a diligent advocate to draw them out.

We believe that the misapplication of accounting convention, along with complacency and

concealment, on the part of the Debtor have created the disclosure document appearance of

insolvency, when in fact, the company not only is solvent, but has significant value.

The Committee will argue that it has uncovered the following significant values and through an

initial evaluation found:

(1) The improper addition to debt of $214 Million, categorized as a deferred gain on

debt exchange.

(2) Hundreds of unvalued patents of the company when evaluated by an expert are

valued at $511.5 Million.


6

(3) That the value of a newly developed, next generation GEO satellite design, the

LS 20.20 has been omitted from the consolidated schedules and should be, at the

very least, valued at the approximate cost of development. We believe a

reasonable estimate of this valuation to be $400 Million.

(4) That the 13 FCC authorized orbital-slots or locations owned by the company are

valued at least at $33.5 Million each for a total of $435.5 Million.

(5) That the 28 ITU orbital-slot filings have value to the company, and that most will

likely be authorized and should be valued at least at the cost to prosecute them

with the ITU.

(6) That depreciated Land & Buildings have appreciated and bear a value greater

than their pre-depreciated cost by at least $112.453 Million.

(7) That Equipment, Furnishings and Fixtures with a pre-depreciated cost of at least

$294 Million, has been depreciated at least 70% and is most likely worth what it

cost. However, to be conservative in our estimates, we will reduce 50% of the

estimated depreciation for a reduction of $100 Million of depreciation, or an

increase of $100 Million to assets.

The quantifiable market value increase of the Company resulting from the above-adjusted values

is $878,882,000, representing equity of 19.92 per common share.

Furthermore, The Committee will present the following significant going concern values that

will not be quantified for balance sheet purposes:

(1) A Loss-Carry Forward of $3 Billion, which will serve to shelter future

earnings.

(2) Debt owed as well as a royalty participation in the new Globalstar.

(3) Investments in Satmex, XTAR, among others.

(4) Loral has a commercial satellite market reputation that exceeds that of,

Boeing and Lockheed Martin, the company's strongest domestic competitors.

(5) Undeclared insurance money, which is greater than asset value, to be received

from Estrela do Sul-1.


7

(6) Loral's market is recovering and should begin to outstrip capacity by the end

of the decade. Customers will very likely order new satellites within the next

year or two in anticipation of this trend.

(7) MUOS - a $2 Billion government contract to be awarded soon. This will

incorporate technologies developed for the new LS 20.20 GEO design.

(8) New applications, for example-Boeing is using Loral-built Satellites for its

Connexion In-Flight Internet service.

(9) An Engineering, technical and support staff whose expertise is virtually

irreplaceable within the context of an ongoing business. A start-up business

would find it almost impossible to replicate this asset.

(10) The recently reported, but undated, acquisition of more than 50 plasma

thruster patents from International Space Technologies, by Loral and Snecma

Moteurs in a joint venture. These patents were previously unreported in the

Schedules of Assets and Liabilities submitted to the Court in November of

2003.

The Committee will show that under 1102, there is no adequate representation for Equity. The

Creditors have a conflict that in order to maximize their holdings in the reconstructed Loral; their

goal is to eliminate all other claimants. The Debtors, desirous of maintaining their jobs, power

and ownership, have acted to minimize assets of the estate to maximize, if nothing else, their

bargaining position with the Creditors. In the real world context of this proceeding, only Equity

holders stand as maximizers of the estate and are unnecessarily restricted by not having

Committee status. If granted, it remains the sole interest of Equity, with the help of professionals,

to maximize the estate's assets.

The products and varied companies at issue before the court are complex. Loral does not make

washing machines or air conditioners; it makes high technology space communications products.

These state-of-the-art products have required massive capital investments in intellectual

property, software, hardware, manufacturing, and tooling, as well as sophisticated engineering,

technical and commercial management capabilities, to succeed. The stored value of these

investments, which are often recorded as balance sheet liabilities during the build out of the


8

Company's products, is difficult to quantify in the absence of proactive management efforts to do

so.

The complexity of the varied interwoven corporate webs and structures, and the Bermuda

Domicile, are unusual for a Company with less than $1 Billion in annual sales. There are thirty-

two separate corporate entities involved in the Chapter 11, not including other entities that were

previously bought, sold or invested in. It is a daunting task indeed to try to make sense of this

complex corporate architecture. It is even more perplexing to attempt to assign a corporate

purpose to it.

The timing for an Official Equity Committee is correct, in that Equity should participate in the

reorganization following the close of the Intelsat sale. The sale has been numerically reported

and all documents referring to value, that were submitted last December, have been reviewed.

On the eve of submission of the reorganization plan it is imperative, for the purpose of

maximizing these estates, that Equity, as an untainted advocate for Loral, be empowered to

precisely measure the values in these diverse estates.

The cost of an Equity Committee when compared to the benefit, will be no more than a rounding

error. The Preferred Shareholders have managed to retain Mr. Wolfson to represent them in some

capacity, but the Common remains without proper legal representation. Support from the Court

for Equity representation would devote adequate resources to Equity, therefore allowing full

disclosure and proper measurement of all of Loral's assets. Respectfully, some cost savings could

be gleaned by refocusing this process on maximizing these estates as opposed to the superficial

posture of a feud between the Creditors and the Debtor. Reducing what appears to be an

excessive presence of the Debtor and Creditor attorneys in the Court could also accumulate cost

savings. After all, the Equity residue, as promoted by Loral's insiders before the Chapter 11

filing, is being used to fund them, and is an area that cries out for investigation.

The Committee has struggled to organize sufficiently to pay John McCormack, the Patent

Attorney, and Michael Yetnikoff who has worked on contingency thus far, by employing a

"pass-the-hat" method of financing with minimal success, which is unsustainable through the


9

reorganization. The Committee, acting without the official status and financial benefits that the

Debtor and Creditors enjoy, is unable to retain adequately qualified estate examiners to fully

determine the estate's value. What is expensive and uneven representation for individual

shareholders, is a minimal direct cost to the estate. We believe that the Court will agree that the

values identified by the Committee’s efforts, are good faith evidence supporting Official

Committee status, and will more than offset the nominal incremental costs to the estate.

The Committee believes, that in the foreseeable future, Loral may experience a cash crunch, and

that the Court's support requested herein, will significantly mitigate the recent trend of negative

operating results. In this regard time is of the essence. Aside from a detailed asset evaluation,

The Committee believes that official committee status, and its attendant higher profile, will

provide positive oversight and asset preservation of the Company's estates.

Finally, The Committee fully realizes that the preparation of the arguments presented herein was

compiled by the sweat of Loral's shareholders, who are the lawful owner of this issuer, not legal

representatives. We pray the Court will grant us adequate latitude to present our case.



10

II. MOTION TO RE-EVALUATE LORAL'S ASSETS 1. SHAREHOLDERS ASSET VALUATION COMMITTEE The Stockholders Protective Committee ("the Committee"), representing about 4% of the

outstanding common, believes that it has developed reasonable evidence to provide the Court

with justification for the appointment of an Official Equity Committee. We believe that a

reconsideration of valuation, both with regard to previous asset valuations and asset omissions

will provide the needed foundation for a recovery to Equity. We simply want a seat at the table.

We also have developed persuasive evidence gleaned from the issuer's disclosures, market and

publicly available data, as well as expert testimony in support of significantly higher valuations

within Loral. We believe that this motion fully addresses the preponderance of the Court's

concerns regarding the fulfillment of conditions for an Official Shareholders Committee, and that

all relevant prongs (Docket #1219, pg. 126-137) of the statute are satisfied by the following

current conditions. Therefore, there is sufficient question regarding value to warrant an Official

Shareholders Committee.

2. THE DEBTOR IS NOT HOPELESSLY INSOLVENT This evidence will strongly challenge the notion that Loral is "Hopelessly Insolvent", and that

the company is, in fact, substantially solvent. The evidence presented supports a recovery to

equity in the range of $400-$900 Million, and may be larger upon thorough investigation. We

believe that the evidence substantially exceeds the Court's prior expectation of a di minimus

recovery.

Why hasn't this evidence been previously presented? We believe that an answer to this question

lies in the complexity of the technical, financial and commercial data, along with accounting

conventions and current requirements. In addition, neither the Creditors nor the Debtor have

shown any proactive effort to disclose the Company's off balance sheet assets, which have

heretofore been hidden to the Court. We believe that management's unconscionable reliance on

book values, coupled with balance sheet understatements and omissions, has seriously impaired


11

prior analyses. Loral management has also avoided quantifying substantial evidence of a

significantly improving satellite market and the positive effects this will bring to the Company.

In Docket #1219, Mr. Wolfson, attorney for the Preferred Shareholders argues, persuasively:

"Well, your Honor, the Creditors' Committee has, and numerous other parties in interest, have, very sophisticated, very high paid financial advisers, and not one of them has given you an affidavit that this company is hopelessly insolvent, and I find that very telling; the debtor has not said that they are hopelessly insolvent, and we're pointing out now that this was their argument. The creditor committees' argument was, 'look at the book balance sheet, the book balance sheet shows that they are insolvent.' It's not the case… "…And again, the debtor [is] not focused, the only parties that are asserting that the company is hopelessly insolvent is the Creditors Committee and the U.S. Trustee and both of them, for that proposition, relied solely on two things, one is the Debtor, it's publicly reported book values, and secondly, the trading prices of the bonds… "…And I would like to address that point. I would like to hand to the court -- first, the committee has acknowledged that since the filing of this petition, the bonds have traded up. I don't think there's any dispute based on publicly available information, that the Loral Orion 10 percent senior notes are presently trading somewhere around 75 cents, and the Loral 9 and a half-percent senior notes are trading at around 40 cents… "... And if Your Honor were to look at the historical bond chart that I handed out, as of December of '01, if you were to take a look at the December '01 historical balance sheet which shows up on page 2 of that last handout; at that time the company was reporting, in 12/01, a shareholder positive equity of a billion three, and the bonds were trading very close to where they are trading today."

In the same hearing Mr. Rothman, attorney for the Debtor, stated:

"The issue is whether or not they have carried their burden, their burden of proving that there's a substantial likelihood of mining a full recovery by equity. They haven't put in one iota of proof in order to carry that burden, nor could they."


12

The Stockholders Protective Committee believes that we have reasonable evidence that the

company's assets have been badly undervalued, consciously by the Debtor and as a function of

accounting requirements. The Debtor has accomplished this asset minimization through a series

of balance sheet manipulations, inappropriate application of depreciation on costs, book values

and simple, but glaring, line-item omissions, which do not match the simple known facts of

Loral's business interests. We intend to provide reasonable evidence of a likely distribution to

Equity in part by using expert testimony, Loral's own balance sheets, information about Loral's

assets garnered from other corporate sources, and market values currently published within the

satellite industry.

3. SECTION 1102 - ADEQUATE REPRESENTATION The Court stated in Docket #1219, as a matter of law that, "what the statute actually says.

Section 1102 --1102(a)(2) provides that the court may provide for the appointment of additional

committees if it is necessary to ensure adequate representation of equity."

At the very least, following the discussion in SECTION IV, we believe that the Court will have

to conclude that the common shareholders are not adequately represented. We ask the Court's

indulgence in carefully considering the enclosed arguments and statements of fact when

considering whether either the Creditors Committee or the Debtor could adequately represent the

shareholders. If the Court finds positive value, current Equity would receive ownership in the

restructured company. Such ownership would reduce the holdings of the Creditors. Decision-

makers for the Debtor are compelled to make a deal with the Creditors, who will be substantial

owners. There is no interest on either part to represent Equity, and as the Stockholders Protective

Committee will demonstrate, there is ample evidence of substantially more than a di minimus

recovery, especially in light of the recent upturn in business and the cash balance. Certainly it is

almost unheard of for a bankrupt company to not only not require debtor-in-possession

financing, but to have $181 Million (based on the May Operating Report) in available cash, in a

recovering market.


13

No one has forwarded the argument in support of the understated, or off balance sheet assets.

The debtor has recently stated in its 1st quarter 10Q, that the Equity will be extinguished during

restructuring. Since the bankruptcy filing, the Debtor has not shown any indication of either

defending or disclaiming that this issuer's equity is adequate and not defunct. Therefore, the

Court should appoint an Equity Committee so that it might fair-handedly consider the argument

in light of the improving business outlook for Loral, and in light of the forthcoming arguments in

support of re-valuing the debtor's estate.

4. SECTION 1102 - COMPLEXITY OF THE CASE Certainly, there has been no argument presented in the Court that maintains that Loral's

bankruptcy does not present a high degree of complexity. This is true to such a degree that in

most cases only professionals have the capacity and resources to fully appreciate the intricacies

of Loral's financial structure, its technology and its markets. Loral capital investments in

technology over the years have been huge and represent stored value in the assets, which

mitigate losses recorded in recent years. Even Loral's own management and staff, who are as

adept at their business as any similar organization in the world, has made a long series of

mistakes and missteps in light of the complexity of the business. The Debtor's business and

corporate structure is so complex that the due diligence of the most conscientious shareholders

has proven inadequate to the task.

Certainly, the recent incorporation in Delaware of Shenendoah Systems, LLC, in advance of an

attempted sale by the Debtor's management, of Loral intellectual property assets, suggests an

unnecessary level of complexity. The fact is that Shenendoah is an unlicensed business in Los

Altos, CA, and that its "location" consists of little more than a P.O. Box at Mail Boxes Etc. This

suggests an unnecessary level of complexity designed to obscure the true value of Loral's assets.

One must also ask why, on the eve of the reorganization, the plasma thruster joint venture, with

Snecma and Fakel Experimental Design Bureau, was suddenly announced by Loral. It's a

reasonable assertion that the plasma thrusters, made possible by that joint venture, were

incorporated into the MBSAT satellite, where they are now being tested, more than two years


14

ago during the design phase. Was Snecma used to obscure ownership of these critical properties?

Why has Loral just published a news release describing the joint venture, when Snecma did so

on June 20, 2003? There is no mention of Snecma in Loral's 2003-10K.

The purposeful intra- and inter-company complexity of Loral's business relationships is so

extreme so as to make due diligence, even by the world's most sophisticated financial advisors,

moot. And yet, it was this complexity that lent an appearance of legitimacy to Loral as a prime

repository for investor dollars prior to the declaration of Chapter 11.

5. COST VS. ADEQUATE REPRESENTATION As one adds layers of representation to an already complex case, the burden to the estate and the

various litigants increases. This is a reasonable observation and one that the courts must be

cognizant of in the interest of the economy of time and money. However, the Stockholders

Protective Committee will demonstrate that there is no de facto representation for common

shareholders. We will demonstrate that management is already serving its perceived new owners,

and that the Unsecured Creditors are composed of no entities that have an interest in retaining

Equity, even if truth is victimized in the process. We will demonstrate that, as a matter of

interest, only Equity will purposefully maximize the Company's assets.

In fact, the shareholders, to a great degree, helped build Loral by providing financing and

guidance when asked for it by management. Past and present shareholders have provided

massive amounts of money to develop the technology of the Company and to build out its

significant assets. In addition, shareholders have borne the costs of management's errors, and for

shareholders to ask minimal support from the Court and the Debtor's estate to investigate

valuation issues is by no means outside the bounds of the pragmatic.

Furthermore, management and the Unsecured Creditors should consider the cost of continuing

and extensive litigation following reorganization. Perhaps a more considered and equitable

approach to Equity during the reorganization process would diffuse many of the class-action

lawsuits currently in process. Perhaps the Debtor should weigh the cost of litigation and


15

disruption of its emergent, restructured business, as well as the long-term advantage of a fairly

treated constituency that could bolster the new owner's standing in the industry and its own

equity position.

6. NO GIFT TO EQUITY IS REQUESTED We believe that the following arguments will convince the Court, and the other constituencies

represented therein, that the assets have been poorly represented and that management has

betrayed one of its most fundamental duties, to protect and enhance shareholder value. We

believe, as Bernard Schwartz strongly claimed, prior to the Chapter 11 filing, that "there is a

residual value". We believe that the same valuation rules that applied prior to the filing should

apply now, post-petition…that market value is the value that best approximates true worth of an

asset.

We also believe that, with each passing day, the satellite market improves and with it, so too

does Loral's value as a going concern. The Committee asks not for a gift from the debtor or the

creditor constituencies, but rather a fundamental right of property: to have it independently

appraised. We ask that the Court provide for the exercise of this right, in the form of an

additional committee, to oversee an independent appraisal by experts familiar with the satellite

industry, high technology engineering, intellectual property and real estate valuation. In this

instance the Court would oversee a fair valuation of the assets.



16

III. PREFERRED SHAREHOLDERS ARE ALSO SERVED As the Court has already ruled, the Preferred Shareholders are already adequately represented.

They are well organized, well funded and well represented by Mr. Wolfson who has argued

persuasively before the Court in an honorable manner. However, the Preferred Shareholders are

hobbled by a reliance on the same inadequate quarterly operating results, as well as incomplete

book-based valuations, that the Common Shareholders are. This two-pronged approach to

valuation does not adequately represent the reality of the Debtor's business; it obfuscates it by

ignoring other inherent and previously undisclosed asset valuations.

The Preferred Shareholders, do not, as a matter of interest, need to be directly represented by an

Official Committee, if the Common Shareholders are. Any value that accrues to the Common, by

virtue of a more realistic valuation, will transfer as well to the Preferred Shareholders. Indeed,

though the Preferred stand ahead of the Common in the absolute priority rule, our interest is the

same: to bring a viable, vibrant company out of bankruptcy so that all constituencies may share

in the prosperity that will ensue in an improving market and company. Therefore, we ask the

Court to approve an additional committee in the interest of all Equity, Preferred as well as

Common Shareholders.



17

IV. THE CONTEXT AND HISTORY OF THE BANKRUPTCY 1. THE DEBT IS ADEQUATELY REPRESENTED The Secured Creditors have been paid with the proceeds of the North American Telstar sale to

Intelsat, so, they are no longer at issue. The Unsecured Creditors are adequately represented and

have an advocate in the law. They are protected by the "absolute priority rule". They each

zealously guard their claims, whose values were carefully quantified before they entered into

transactions with the debtor pre-petition. By law, they have priority status behind the Secured

Creditors and are represented by professional counsel, funded the Debtor's treasury.

The Creditors are unlikely to shift from an argument of balance sheet insolvency because added

participation of other claimant groups will mean that they will have to forego some ownership in

the restructured company. Although both Equity and Creditors want to preserve Loral's assets,

the difference is in when each group wants the assets properly valued. Equity holders believe, as

the current owners of the assets, that they have a fundamental right to have them thoroughly and

professionally valued now. The Creditors, on the other hand, would like to see the assets valued

later in the market so they can extract a larger return on their investment, absent current

ownership.

The irony for Equity, regarding the Unsecured Creditors' position, is that in the pursuit of

maximizing their reimbursement, the Creditors are forced to the position of minimizing valuation

in order to eliminate or minimize Equity's participation in the reorganized company. To this end

they have employed a convoluted series of procedural and evidentiary strategies to deny and

subvert adequate representation for equity. It is difficult as a shareholder to see how this

approach serves justice.

2. EQUITY IS NOT REPRESENTED Valuation issues are central to the just resolution of Loral's Chapter 11 case and any

reorganization that is ultimately approved by the Court. The perceived value of Loral, based on

balance sheet solvency, has already had a profound effect on the value of its equity as well as the


18

lack of representation of Equity in the current proceedings. All stakeholders are critically aware

that it is the balance between assets and liabilities, which will determine who gets what as the

Loral bankruptcy case proceeds.

Clearly, the Creditors are well organized, well represented and can easily quantify their claims.

The shareholders, on the other hand, have a more daunting task, to provide substantial evidence

of market value in the absence of proactive management involvement. Management is, in fact,

badly conflicted in the representation of the current owners of the company. Management

understands, following the filing for Chapter 11, that pleasing the debtholders, who expect to

hold a majority interest in the reorganized company, has become the key to their continued

employment and control. The Committee believes that management advocacy of the Equity is

thus substantially conflicted.

It is a fact that the detailed Assets and Liabilities schedules were not posted in the Court records

until late November, 2003, four and one half months after Chapter 11 was declared. That did not

bode well for those who presented motions for an Official Shareholder's Committee in

September and again in early December of 2003. The Court and Equity advocates had to rely on

management's consolidated balance sheets prior to those postings on and around November 26,

2003. Any attempt to correlate the detailed schedules with the consolidated balance sheet is

indeed a formidable task. This is particularly true when the Creditors' counsel argues strenuously

against any attempt to even quote consolidated balance sheet statement found in the debtor's

10Q. (Docket #1219, transcript of December 2, 2003.)

Why are the Debtor and the Creditors so calcified regarding their positions of insolvency? Would

the Debtor and the Creditors take this position if they were maximizing these estates? Is their

position reflective of those operating the Debtor? If so, how has it manifested in the disclosures

of this issuer? How can Equity repatriate and exercise its lawful property rights?

In the absence of significant resources to hire experts, Common Shareholders wonder how they

can present "reasonable evidence" of a recovery to the Common, as stipulated by the Court, if

they cannot reference line items published by management in the 10Q. Furthermore, if Equity


19

advocates are not allowed to substitute market-derived values for those line items, and present an

alternative consolidation of those values, how can there be any possibility of demonstrating a

meaningful recovery? Are Equity advocates simply supposed to present a litany of ad hoc

arguments without attempting to correlate them with existing, published consolidated

statements? How could that satisfy the Court's expectation that the Movants have the "burden of

proof"?

The Committee must ask the Court's indulgence to refer to Loral's consolidated financial

statements with the same freedom that the Creditors refer to them as evidence of the company's

"insolvency". These statements should not be accepted as gospel, impervious to debate. To be

denied the right to vigorously question and comment upon the values quoted therein is to deny

measured debate on a highly contentious issue. Equity simply asks for the latitude to present its

case and let the Court rule.

3. THE ORIGINAL VALUATION OF LORAL WAS INADEQUATE The Committee has twice moved that the Court appoint an Official Shareholders Committee. The

first time occurred in September, prior to the publishing of detailed schedules of Assets and

Liabilities. The second time a Committee was requested was in early December, just a week after

the posting of the Schedules to PACER and prior to the close of the Intelsat sale. The terms of

the Intelsat sale contained numerous contingencies that could have effected whether it closed at

all, and if it did, the absolute dollar amounts rendered to Loral for its North American Telstar

fleet, following the closing. Prior to close, there was also an in-orbit failure of Telstar 4, built by

Lockheed Martin, that complicated the outcome of the agreed upon sale. These variables made it

very difficult to quantify the effects of the sale on the consolidated balance sheets and further

complicated the values of Loral's remaining FSS assets.

Clearly, the fact that the sale had not closed when prior Official Shareholders Committee

motions were put forward, presented significant uncertainty and ambiguity to valuation. This

made it more difficult for Equity to entertain and present specific arguments of "reasonable

evidence" of a recovery. However, the sale has now closed and we are now in possession of the


20

Debtor's first quarterly report since the completion of the Intelsat asset sale. We also have a 10Q

from Intelsat that more fully quantifies the elements of the sale. (Exhibit 1: Intelsat 2004-10Q -

Sale Details)

In addition, the Committee has spent considerable time and effort in identifying and evaluating

concealed Loral assets for the purpose of determining truer and more correct values than the

incomplete, minimized values promulgated by the Debtor's management.

4. BOOK VALUE VS. MARKET VALUE The Committee believes that asset valuation has been, at best, an afterthought on the part of

Loral's management since filing the petition for bankruptcy. At worst, there has been a conscious

attempt to undervalue company assets in service of management's perception of the new post-

petition majority interest…the Unsecured Creditors. In fact, management's admission in the

general notes in each of the Asset and Liability Schedules, in which the Patent Portfolio, among

other assets, is listed, states that "it would be prohibitively expensive and unduly burdensome to

obtain current market valuations of the Debtor's property interests." If management cannot

provide its own "expert appraisal" of the assets it controls, how can any other party rise to that

standard, let alone correlate it with the consolidated balance sheets?

Ironically, where management, in the second page of Docket #639, disclaims responsibility for

the "expensive and unduly burdensome" nature of providing accurate market valuations, for its

assets, it follows with an additional 345 pages of asset and liability listings and multiple

additional schedules for each business unit. It buries and fractures the obviously valuable Patent

Portfolio in very large, multiple legal documents of conceptually unrelated assets and liabilities.

Management had no problem applying market values to many of these assets, which included

cars, trucks, tools and fixtures, all at highly depreciated rates. But, they present no values, known

to the committee, for business critical assets like R&D, intellectual property and orbital slots.

How can these post-petition postures by management, that ignore or minimize business critical

assets, be reconciled with years of documented statements concerning high market values of


21

Loral and its varied assets? How have the pre-petition descriptions such as the "beach front

property" of Loral's orbital slots, and the "state-of-the-art" technology of its patent portfolio,

suddenly become unknown, unvalued assets, post-petition? Certainly, most shareholders have

become entombed in the stock by relying on past press releases and representations by

management detailing the high market value of these and other "intangible" assets.

Book value is virtually useless when providing a meaningful appraisal of any asset, except

perhaps for tax purposes. Who would sell their house for what local property tax collectors value

it? Justice demands that experts properly appraise Loral's assets.

In the absence of a thorough and complete valuation, the Protective Committee can only present

reasonable arguments for market value based upon competitive market information and existing

line items from the company's own SEC disclosures. These comments will not be complete,

however, with the appointment of an Official Shareholders Committee more questions will be

answered with a higher degree of accuracy, and we are convinced that a meaningful recovery to

Equity will ensue.

One of the first actions of the Official Shareholders Committee would be to hire experts to

examine the market values of our company's assets, since "our management" is either unable or

unwilling to perform this function. Management has been eerily silent on the value of many

business critical assets, arguments that it used to great effect, pre-petition, to entice shareholders

to invest in the Company. A central goal of the Committee is to provide independent analysis

and transparency to the valuation process, among other issues.

5. EVALUATING THE NEED FOR BANKRUPTCY It is difficult to understand management's insistence on pursuing the Intelsat sale given the

Chapter 11 condition that was purportedly required by Intelsat's management. Immediately prior

to the filing the market was being fed a seductive brew of desirability of the issuer by its

management. What was gained? We were told repeatedly by management in the year preceding

the Chapter 11 filing that asset sales would be pursued to "de-leverage" the company and


22

"enhance shareholder value". We were also repeatedly told that cash was adequate to pay all

obligations until the downturn in business reversed. It is difficult to see how the rushed Intelsat

sale benefited the company in light of the prerequisite Chapter 11 filing.

Certainly, Loral's present financial health has improved from the 18 months preceding the filing.

By filing for Chapter 11, the company accelerated payment of all of its debt from several years in

many cases to the date of the filing. In essence, though the absolute amount of the debt did not

change, by making it "immediately payable", management lost control of its other options. The

surprise filing destroyed the market value of the equity. It is difficult to understand how this

"enhanced shareholder value".

Prior to the filing, investors were told that there was sufficient cash to fund operations through

"March of 2004". Up until the date of filing on July 15, 2003 management insisted that there was

sufficient cash to pay obligations. On that day Mr. Schwartz told investors that Intelsat

demanded a Chapter 11 filing in order to effect the purchase of the North American Telstar fleet

from Loral Skynet. He used this rationale, as justification for the filing, despite the fact that the

$1.1 Billion in proceeds disclosed in the original sale terms would have paid all the scheduled

debt payments through the end of 2005, two and one-half years later and more than a year and

one-half from now.

Total Debt - $2,245 Million (From Loral 2002-10K) (Including Fixed and Variable Rate) ___2003___2004___2005___2006___2007___After ____132____161____837___1029_____86_____.3

Of course, we now know that the deal closed at $ 975,601,000, net of liabilities, which still

would have paid the debt well into 2005, without requiring any interim contribution. (Intelsat

2004-10Q-March)


23

The loss of significant cash flow from the forced and immediate sale of the North American

Telstar assets greatly diminished the company's ability to pay the remaining debt. The timing of

the sale was unwise and the bankruptcy filing was unnecessary.

Equity holders can only scratch their heads trying to understand how the pre-petition "market-

valued assets" not only did not enhance "shareholder value", but that the remaining assets are

now valued post-petition by the company at depreciated minimums, rather than market value. It

seems to members of the Protective Committee that instead of the shareholders having the

"burden of proof" as stipulated by the Court, that the onus should be on management to prove

that the assets are now only worth what they are carried on the books for.

6. THE ASSETS LACK AN UNCONFLICTED ADVOCATE The Stockholders Protective Committee would like to reiterate the predator creditors' role in this

proceeding, and underscore how their reliance and refuge in the letter of the law has led to the

unearned and unjust transfer in ownership and inversion of many bankrupt debtors. By focusing

on narrow accounting valuations, and month-to-month operating results, they focus the Court's

attention on the negative. If the assets are inadequate, then the law allows for the exclusion of

equity. This insures their complete control. By forming agreements with management, they

cement their asset conversion and collective control. This Debtor/Creditor union leaves Equity

inadequately represented. However, the law does not allow for the understatement of assets.

Neither the Debtor nor the Creditors are situated, as a matter of interest, to represent

shareholders. This condition is confirmed by the Debtor's and the Creditors' recent actions, as is

the lack of Equity representation.

When one learns the identities of the Unsecured Creditors, it is not surprising that their

antagonism to the common runs so deep. Mark Reschefsky, a Carl Icahn prodigy, controls the

creditors. His predatory methods of asset conversion can be gleaned from his past.

The Court's present codified lack of oversight of the composition, cost and intent of bondholders

relies, in part, on efficient markets hypothesis, which states that markets will clear when groups


24

with different risk tolerances provide liquidity. Therefore, the action of providing liquidity is

valued highly by the courts. However, this logic is not correctly applied when predators take

control of debt unless; (1) both the debt sellers as well as debt buyers have equal information,

which they seldom if ever do; and (2) both debt sellers and debt buyers bear the costs of their

actions, which is not the case herein. Since the real world does not comport with the assumptions

that are requisite to the theory, then the application of the theory affords unintended safe harbor

to actors with deleterious motives. When predator bondholders purchase bonds with superior

information, from mutual funds or institutions who must sell because their charters do not allow

for owning debt in bankruptcy, then an important condition of the theory is violated. When the

decision-makers for creditors do not bear the costs of their actions another important condition is

further violated. Therefore, since neither information is complete, nor ownership vested, huge

unintended transfers occur owing wrongly to unintended consequences of the bankruptcy laws.

In reality, markets are rarely cleared by groups with different risk tolerances as the law assumes.

The Protective Committee believes the conditions of the hypothesis do not exist in Loral's case

and therefore the market transaction is in reality an unjust and unearned transfer. It is in the

interests of the best-organized and funded constituency in the Chapter 11 proceedings, the

Unsecured Creditors, to use procedural strategies to subvert a thorough and independent analysis

of the assets to secure their intended asset conversion. However, the assets have no current

advocate beyond a fully informed management, which has stated that it is not inclined to

proactively have them properly appraised. This is a management who enthusiastically embraced

market values pre-petition, when in public markets to build Loral, but now avoids them

altogether in an effort to convert ownership.

It is also difficult to discern any movement in the Court proceedings, toward appraising the

market value of the assets, on the part of the Bermuda Joint Provisional Liquidators. Should they

not be overseeing this rather critical process? Where are they and what are they doing? What

value have they provided to the Court proceedings for the rather substantial sums (at least

$150,000 thus far according to the Court records) that have been directed toward them by the

debtor? Could this money have bought their loyalty to the agenda of eliminating old Equity and


25

inverting their holdings? What could an Official Shareholders Committee have done with those

sums? The rather obvious answer to the Stockholders Protective Committee is simply, "A lot."

7. MANAGEMENT'S MOTIVE IS TO ELIMINATE THE COMMON It is obvious to anyone who has closely followed Loral recently, that management is terribly

conflicted in its advocacy of the current owners of the Company. Any objective analysis of the

exercise of their fiduciary duties over the past year or so would place them in the company of the

recent managements of Enron, Worldcom, Adelphia and Global Crossing. People in such

positions will rarely satisfy all their constituencies, but where honest errors in judgement lapse

into actions of questionable legality, then the courts have a duty to citizens to step in and take a

more proactive control of the process.

8. LORAL'S BANKRUPTCY WAS A FRADULENT FILING On its May operating statement, as recently released, the Debtor is showing an increase in its

cash position to $181 Million. Yet, for the last year, the Company has been in Chapter 11

Bankruptcy. Estimated bond payments for this year would have been about $144 Million and the

actual expenses of bankruptcy have run about $50 Million leaving a $94 Million deficit, which

could be paid for out of current cash of $181 Million, leaving a total of $87 Million. This raises

the interesting question. Why did the Company file?

Management's stated purpose for the Chapter 11 was that Intelsat required it as a prerequisite to

purchasing the North American Satellites. However, if this is true, then why, just a month before,

did the Company obtain shareholder support for a reverse split of its common shares for the

purpose of preserving its New York Stock Exchange listing? The NYSE listing was in jeopardy

because the stock had dropped below $1 per share and was trading at about $.30 per share. Could

it be that this low value was based upon the market perception, following the financial disaster of

Globalstar, that Bernard Schwartz was not a capable steward of Loral's Equity either? Could it

also be that investors saw the extent of Mr. Schwartz's contradictory statements and valued the

Equity according to their suspicions?


26

By mid-May of 2003, and following the 10:1 reverse split, the stock technically returned to $3

per share. The outstanding shares had been reduced from about 440M to 44M shares. On May

14, 2003, quarterly results were announced and Loral held an investor conference call. Following

are excerpts from the Q&A:

Mr. Bernard Schwartz said at that time, "We ended the quarter with cash of $102 million and are

maintaining our guidance for the year at $65 million . . .With respect to liquidity we expect to

meet our guidance of $65 million in cash at year end."

During the same call on May 14, 2003, Mr. Schwartz was asked whether the restructuring of

Loral's balance sheet would be accomplished through asset sales or would it require a Chapter 11

bankruptcy?

He said, "We are looking for the viability of asset sales on an individual basis. If we meet our

plan this year we will be able to manage until the market turns around." And, later in the

interview he said, "That what we are doing with the New York Stock Exchange reverse split and

some of the other things we have done in the company is to buy time until the market turns

around. The difference between Loral and some of these other telecommunications companies,

that unfortunately have gone the bankruptcy route, is that some of them never had revenues."

And, later in the same interview, "There's real enterprise value to both the SS/L and the FSS

business. We believe there is more value there than the combined debt of the company. So there

is a balance of residue, a residue equity value."

In the Annual Shareholders Meeting, May 29, 2003, conference call, Mr. Schwartz received the

votes he asked for regarding the reverse split. He also spent an extensive period of time talking

up the business, making expansive statements that conveyed a sense of well being. In that

conference call, just six weeks prior to the filing, he said, "This is a company with value,

irrespective of the stock price. There are a lot of reasons why the stock price is what it is, but it

still has great value." (Exhibit 2: Conference Call Transcript)


27

At the same meeting Mr. Schwartz also said, "Similarly, our fixed satellite services backlog is a

healthy $1.4 billion - more than three times current annual FSS revenue. Although the

expectation for fixed satellite services growth was not achieved last year, the FSS segment did

produce EBITDA of $219 million and significant cash flow — its strong business fundamentals

overcoming weak external economic conditions." And, later, "We wish to thank our shareholders

for passing the proposals with respect to the reverse stock split and increase in the authorized

shares. We believe our listing on the New York Stock Exchange is a valuable resource for the

shareholders and for the company. The reverse split allows us to restore our compliance with all

of the Exchange’s criteria for membership."

Mr. Schwartz went on to describe the source of Loral's over-leveraged situation, "The other part

of our over-leverage was caused by our investment policy in our fixed satellite service fleet. Six

years ago, we had one satellite and today we have seven, going to 10 later this year. That took an

enormous amount of capital and caused part of the leverage problem we have today, but that was

an investment that was not without value. The amount of value that we created, real value,

merchandisable valuable, the amount of value in the fixed satellite service business is far in

excess in the investment that we made in it…

"…By the way, the profitability and the cash flow from those assets are very, very good. I would

say that our North American satellite fleet is the gem of the industry, are generally the satellites

we have work well, make profits and generate cash flow. They all would be sought after by other

companies and we may have to use some of those satellites to de-leverage. I’m hopeful that we

can maintain as much of the fleet as possible so that we survive going into the future, and be able

to take advantage when the turn comes, but don’t for a minute equate the stock price, which is

relevant to all of us, with the question that we do not have value in the asset investments that we

made…Those investments, particularly, in the fixed satellite service segment, are far in excess of

our investment and our book value.

"…I would say that the North American fleet is unique and very, very special and if we would

consider selling that it would be at a value to us that would be very profitable, far above the


28

book value and if we utilize it to de-leverage and it were a good proposition, the Board, I would

assume, vote for that."

In the Q&A, Mr. Schwartz was specifically asked, "When you’re selling a satellite, are you also

going to sell the slots?" He stated, "Yes. That’s the way we go and that [the orbital slots] would

be factored into the price. We’re examining several alternatives, all of them good options for the

Company, which we believe if we’re successful in executing the whole plan, we will be able to

emerge with a balanced debt position with a proper creditworthy relationship to our earnings and

with an opportunity to grow in the businesses."

On June 30th, just two weeks before the filing, another press release in which the company stated,

"Loral Space & Communications (NYSE: LOR) announced today that it has collected

approximately $55 million from Intelsat representing an acceleration of a receivable for agreed-

upon milestone performance payments. Called orbital incentives, these payments were to have

been paid by Intelsat to Loral over a 12-year period based on the continued good performance of

the Series VII and Series IX satellites manufactured for Intelsat by Loral."

Also on June 30th, Loral issued an extremely positive news release in which a long-standing,

potentially serious lawsuit by Alcatel was settled for $13 Million. The potential damages could

have been as much as $350 Million and arbitration had previously ruled in favor of Alcatel. The

settlement was a great relief to investors.

On July 1st, 2003, Mr. Schwartz said, "The Company is up-to-date with payments to its note

holders and its banks, and could still have made June payments without the $55 million it

received from Intelsat, which it worked for in partnership with Alcatel." Mr. Schwartz further

said on July 1, "I think we are beginning to see activity among customers and interest that there

may be a turn around soon…"

On July 8th, one week before the Chapter 11 filing, Loral published extremely positive news

about a new contract. The release was entitled, "Space Systems/Loral awarded $103 Million

contract to build critical power Systems for the International Space Station."


29

The above statements were false or misleading because they failed to disclose that Loral was in

negotiations for the sale of six of its satellites to Intelsat and that Intelsat was demanding that

Loral file Chapter 11 bankruptcy in order to close the deal. Mr. Schwartz purposely failed to

disclose this critical, time sensitive information, obfuscating the issue with a combination of

positive news releases and misleading comments in the Reuters interview. Mr. Schwartz

carefully constructed a misleading impression that left the stockholders of Loral believing that

the Company was "on plan", and that Loral was not only up-to-date in its payments, but was not

in any danger of default.

Mr. Schwartz fraudulently omitted critical information by focusing his comments on being ready

for a recovery in Loral's business. He strongly stated that the Company was not contemplating a

Chapter 11 filing by contrasting it positively to telecommunications companies that had.

Certainly, the combination of these positive releases, along with the highly questionable Chapter

11 filing, raises eyebrows about the legality of management's actions during the period leading

up to the bankruptcy. Due to the company's illegal concealment, Equity had no idea that an

impending bankruptcy filing was in the works. Many lawsuits are currently exploring these

issues. (Exhibit 3: Loral 2004-10Q-Lawsuits)

Why then did Intelsat "insist" on the Chapter 11 filing? Loral management claims it was unaware

of this condition until just before the deal was made. However, well placed, credible sources

employed at the time within SSL, have stated that accounts payable was ordered in March of

2003 to stop paying vendors. That was four months before the bankruptcy filing and nearly three

months before the annual shareholders meeting at the end of May.

On July 15th, 2003, the Associated Press reported that: "Bernard L. Schwartz, Loral's chairman

and chief executive, said Loral reluctantly agreed to file for bankruptcy at Intelsat's urging,

because doing so will make it more difficult for a bondholders to block the sale of the six

satellites. 'It's a blow not to have been able to manage the reversal in the business world that we


30

were not able to manage without hurting stockholders.' Schwartz said in an interview, "I feel

very concerned and saddened."

Loral's management made no effort to discuss the sale with the Company's shareholders at the

Annual Shareholders Meeting on May 29, 2003, let alone ask them to vote on the sale. They

certainly knew of Intelsat's Chapter 11 filing prerequisite by then. They clearly had the

opportunity to discuss the sale with shareholders and propose a proxy vote on the issue.

It also extremely ironic that Intelsat's CEO Conny Kullman presented a proxy vote to its

shareholders in order to get their approval of the North American Telstar purchase. Intelsat's

"$1.1bn bid for six satellites from Loral represented prime 'beachfront properties' for Intelsat and

that they were 'surgically' selected from Loral’s portfolio of assets, and would come completely

unencumbered by debt, or other complications. 'They are exactly the bits and pieces we needed,'

he said. 'We can integrate the [Loral] business quickly, perfectly fitting them in with our overall

timeline.' Kullman made his comments at the company’s half-yearly results presentation, using

the occasion to urge shareholders to urgently send in their Proxy approval cards, warning them

that a non-returned card would automatically be registered as a ‘Negative’ vote on the deal. The

6 satellites all have orbital slots looking at the USA."

Why couldn't Loral's shareholders have been afforded the same consideration of a vote with

regard to the future of their company that Intelsat's shareholders were?

9. THE SENIOR FINANCIAL OFFICER COVENANT It is also of great interest that the Loral 2003-10Q filed for the first quarter stated:

"On March 31, 2003, Loral entered into amendments of its Loral SpaceCom and Loral Satellite credit facilities which, among other changes, amended its financial performance covenants. At March 31, 2003, the Company was in compliance with all of the covenants and conditions under its various lending and funding arrangements and believes that it will continue to meet these covenants and conditions through at least March 31, 2004, except that the Company was not in compliance with a requirement under the LSC and Loral Satellite credit facilities to hire a senior financial


31

officer by May 15, 2003. The Company believes, however, that it will be able to comply with this requirement within the applicable grace period."

By July 15, 2003, the date of the Chapter 11 filing, Loral had still not yet complied with the

condition to hire a senior financial officer. Why? Could it be that the company's internal

accounting system was so compromised as to betray the convoluted machinations of its

architects? And furthermore, how can this management be counted on to provide unvarnished,

complete and truthful values for the Company's assets when they would not even comply with a

simple term of their own secured debt agreement, to hire a Senior Financial Officer? Could the

desire of the Company to not expose its books to a financial officer explain the Chapter 11 filing

and hasty sale to Intelsat that paid off the Secured debt, thereby extinguishing this requirement?

10. LOCKHEED MARTIN'S LORAL STRATEGY As a matter of record, Lockheed Martin was and is a major owner of Intelsat (24%) and at the

Chapter 11 filing date was also a major equity owner of the Debtor, Loral (10.5%). Lockheed

Martin may have directed Intelsat management to require the Chapter 11 filing of Loral. What

agenda beneficial to Lockheed Martin would that action satisfy?

Lockheed Martin has assembled a team that is competing for one of the largest military satellite

programs in history, the Mobile User Objective System, or MUOS, as it is commonly known.

The contract, slated to be awarded in June of 2004, will have an estimated worth of $6 Billion,

with $2 Billion in satellite content. Lockheed Martin is teamed with General Dynamics, and

Boeing. Competing against the Lockheed team is the Raytheon team, which includes Loral,

NGST, Astro Aerospace, and Honeywell, with Loral to provide the satellite content, likely based

on the LS 1300 Bus.

It is apparent that Lockheed Martin had strong motivation to undermine the financial stability of

Loral prior to the Chapter 11 filing based solely on the MUOS contract worth. At the time of the

Chapter 11 filing, the worth of Lockheed's Loral stock was only about $14 Million, while a

MUOS contract award would bring in several billion in revenues. Lockheed went after Loral's

equity ownership with every means at its disposal in an effort to destabilize the Company.


32

Following the Loral bankruptcy filing, within two days, the stock declined from a little less than

$3 per share to $ .30 per share, for a 90% drop in value. This negated the stated purpose of the

dramatic 10:1 reverse split of just a few weeks prior…to retain the NYSE listing. The company

was promptly delisted from the exchange and forced to trade on "The Pink Sheets". This

dramatic decline is further evidence of the misinformation campaign that preceded the filing.

Upon the announcement of bankruptcy, on the morning of July 15, Lockheed Martin commenced

unloading its stock, presumably at the market, until it had eliminated its entire position of more

than 10% of the outstanding shares in Loral common stock.

It is highly unlikely that Loral's management did not know of the imminent bankruptcy filing

prior to the misleading announcements that occurred during the preceding 30 days. The size and

complexity of the initial filing belies that interpretation. It is equally unlikely that Lockheed

Martin did not know about the Chapter 11 bankruptcy filing prior to the morning of July 15. In

addition, it is very doubtful that Lockheed Martin would have sold their entire holdings without

meetings and approvals, commencing on the morning it was announced unless it had known of

the filing in advance. Such activities press the insider trading laws to the limit of legality and

perhaps beyond.

However, Intelsat was not the only potential buyer for the North American Satellites. Echostar

and DirecTV were also very interested, as later events verified. Telesat, of Canada, had also been

developing ground support capability for Loral's LS-1300 bus. Telesat could reasonably have

bought one or more of the North American Telstar fleet, following well-publicized and

significant in-orbit power losses of the Anik-F1 (built by Boeing) and Nimiq 2 (built by

Lockheed Martin). Both failures have led to significant, decreased transponder availability and

shortened satellite life. Had Telesat bid on one or more of Loral's North American Telstars, it is

unlikely that they would have demanded a Chapter 11 filing as precondition for a sale.

PanAmSat, DirecTV or Echostar also would not have had any incentive to attempt to bankrupt

Loral as Lockheed Martin did.


33

Lockheed Martin seriously disadvantaged the Raytheon/Loral team in its effort to win the

MUOS contract, by selling its stock precipitously following the Chapter 11 filing, which they

likely encouraged or demanded. Furthermore, because of the sale, Lockheed also became the

single largest de facto owner of Loral's North American Telstar fleet by virtue of its controlling

equity ownership in Intelsat.

Upon the completion of the sale of the NA Telstar fleet to Intelsat, the satellite depreciation

number for Loral was reduced by about a paltry $25 Million per satellite. Is it reasonable that this

aging fleet is only 20% depreciated? In other disclosure documents, over $250 Million had been

depreciated for the Telstar fleet. Should current depreciation be further refined to reflect the sale

to Intelsat?

11. LEGAL PREPARATION OF THE DEBTOR More telling evidence of Loral management's duplicity came to light on the first day of the

Chapter 11 filing, July 15, 2003. According to the Court transcript, provided in Docket #1217,

Stephen Karotkin, of Weil, Gotshal & Manges, LLP, the attorney for the Debtor, presented a

large binder of documents that day to the Court. The binder was complex enough to require

multiple tabbed dividers and extensive explanatory testimony. The binder contained at least 23

tabulated dividers and Mr. Karotkin spent what appears to be, all afternoon and more than 50

pages of transcript, explaining the general contents of the binder, among other business, to the

Court. The transcript PDF file of the July 15, 2003 hearing was created on August 13, 2003, but

there is no evidence, known to The Committee, that it was posted to PACER until more than 9

months later on May 26, 2004.

Inquiring minds can only ask how a voluminous legal brief like that, presented to the Court on

the Chapter 11 filing date, could have been created in a few short weeks time, even by a small

army of attorneys. How is it possible that Mr. Schwartz was ignorant of these legal activities,

while he was simultaneously convincing shareholders to approve a reverse split and releasing

dubiously positive corporate news to the financial press in the weeks leading up to the

bankruptcy filing? And, further, if the legal brief was in preparation weeks before the Chapter 11


34

filing, how long before that had Mr. Schwartz been planning the bankruptcy and misleading

investors?

12. FINANCIAL ARGUMENTS TO THE CHAPTER 11 Since the Chapter 11 filing, Loral has been ahead of its pre-petition predictions regarding cash

flow, cash in hand and business acceleration. In general, it could be argued that a Chapter 11

bankruptcy filing is prudent if a company's management knows a financial crunch is coming.

However, Loral is now almost a year into the bankruptcy proceedings, and on the recent Monthly

Operating Statement, "Cash and Cash Equivalents" grew from $132 Million in the five week

period "February 23, 2004 to March 31, 2004" to $177 Million in the three week period from

"April 1, 2004 to April 23, 2004". In the four week period from April 24, 2004 to May 21,2004,

cash increased another $4 Million and the per share loss declined dramatically from <0.55> to

<0.32>. One has to wonder how the shortened reporting period affected the accumulation of

cash. Why do the periods vary so much in length, from one month to the next, especially now,

when management is due to present its reorganization plan to the Court.

Had Chapter 11 not been declared, even more cash would be available when the expenses of

bankruptcy are factored in, more than enough to support the debt. Furthermore, if the market

value of the debt is an indicator of corporate health, it is telling that the debt is trading at higher

levels than in it did in 2001, 2002 and 2003, when Loral was balance sheet solvent.

One also has to ask that if business is improving so markedly, why has the "Contracts-in-

Process" line item dropped from $118 Million in the March report to $89 Million in the May

report? Could it be that management did not aggressively negotiate "front-loaded" payment

schedules on the new GEO orders? To whose advantage would back-loaded payment schedules

be? Isn't this an area that should be investigated to insure that management has not deviated from

GAPP required recognition upon work completed for new satellite projects?

Back-loaded payments would cause a "loss" to appear on monthly statements. Given the contract

amount of typical GEO orders, one would expect monthly cash flow numbers, even in the design


35

phase, to be in the $10 Million range per order. But, month after month, almost one year from

when the deposit on the Intelsat order was announced, and many months following the additional

DirecTV (2) and PanAmSat orders, we see satellite manufacturing revenues continuing to

languish in the low to mid $20 Millions. There should also be several final payments flowing

into the financial statements for the recent successful launches and in-orbit testing of MBSAT

and DIRECTV-7S. Where are those payments?

One must also ask, "Are intra-company receivables are being collected and forwarded to

corporate accounts in a timely manner?" Given the complexity of Loral's corporate structure, it

would be a relatively simple accounting task to slow down billing on receivables at the

subsidiary level in order to help present an appearance of balance sheet insolvency to the Court

and the public. What, if any, controls are in place to prevent this sort of operating report

manipulation?

One thing is certain. There was adequate funding to have spent the last year out of bankruptcy.

With the magnitude of the sale of the North American Telstar fleet, there was adequate funding

through the middle of 2006, given the pre-petition debt structure. Even a prudent conservative

management would not file a Chapter 11 bankruptcy 3 years before it is needed. This, and other

evidence, strongly suggests that Intelsat, Lockheed Martin and Loral managements were

operating collusively on hidden agendas in negotiating the Chapter 11 route for Loral. In total,

these facts and interpretations strongly support the contention that the bankruptcy was not only

deceptive and disastrous to the public equity, but that it was unnecessary.

These actions are consistent with past actions from these same groups when public ownership

was converted to private ownership. Events surrounding K&F Industries and Globalstar are just

two examples where Loral's management effected similar transfers of wealth from public to

private ownership.



36

13. BERNARD SCHWARTZ HAS A CONFLICT OF INTEREST Bernard Schwartz, CEO of Loral, has a long history of self-dealing behavior. It has made him a

very rich man with personal assets in the $100's of millions. However, Mr. Schwartz has not and

is not acting alone. Nepotism and cronyism have been key elements of his personal agenda of

public asset conversion and self-enrichment. By contrast, those same patterns of behavior also

lead to serious questions about the "integrity" with which he has exercised his fiduciary duties to

shareholders. These behaviors have been well documented and while they may not be, in

themselves, strictly illegal, they do raise serious doubts about his and the Board of Directors'

fitness to "adequately represent" shareholder interests within the context of the current Loral

Chapter 11 proceedings. With the shameless disclosures of wealth transfers by Loral's most

senior management, one can only wonder what has not been disclosed.

In the following pages, the Stockholders Protective Committee will quote public and media

documents as evidence of duplicitous and possibly illegal self-enriching behavior on the part of

Mr. Schwartz.

Loral BOD's fitness to serve the shareholders also comes into very serious doubt, by association

with Mr. Schwartz, and especially in light of the handpicked nature of its members. In the

following pages we will present various documents, that, when carefully scrutinized, leave little

doubt as to the cross-corporate web of questionable, and possibly illegal relationships and actions

that have facilitated Mr. Schwartz's self-serving management practices and obfuscated due

diligence efforts by shareholders, both pre-petition and post-petition. Whether or not Mr.

Schwartz's and the BOD's actions have risen to the level of securities fraud and conspiracy is for

a criminal court to decide. However, the presentation of the following reasonable evidence to this

Court should leave little doubt as to Mr. Schwartz's lack of integrity and fitness to provide

"adequate representation" to shareholders.

14. BERNARD SCHWARTZ'S CORPORATE AFFILIATIONS Mr. Schwartz has had a storied career in the eyes of some observers. Over the years his presence

in the financial press has been one of great notoriety and controversy. His tenure at Loral, as


37

Chairman and CEO, spans more than three decades of corporate growth, transformation and

collapse, from 1972 to the present. He has also served in similar capacities at K&F Industries,

since 1989, and Globalstar, since its creation in 1991 until May of 2001.

Mr. Schwartz served as a Director of Reliance Group Holdings, Inc., whose bankruptcy in June

of 2001 represented assets of $12.6 Billion and was one of the largest bankruptcies in U.S.

history. That bankruptcy preceded Globalstar's bankruptcy by just seven months and was

contemporaneous with Mr. Schwartz's resignation from the Chairman and CEO positions at

Globalstar. Mr. Schwartz's hand picked successor at Globalstar was Olof Lundberg, the former

Chairman and CEO who presided over prior bankruptcies of Inmarsat and ICO. Mr. Lundberg

made it a hat trick in declaring the bankruptcy of Globalstar and managed the proceedings until

ICO failed in its bid for the distressed assets. He resigned shortly thereafter.

Mr. Schwartz has also served as a director on the boards of Loral Cyberstar, Inc., Satelites

Mexicanos, S.A. de C.V., and First Data Corporation. In addition, in the past he has served as

Vice Chairman of the Board of Directors of Lockheed Martin Corporation. He knows the

executive staff at Lockheed Martin very well.

Mr. Schwartz and Directors of Loral and Globalstar are currently the defendants in numerous

class action lawsuits. These are itemized in current SEC disclosure statements by Loral. The

lawsuits are being vigorously pursued and several motions for dismissal by Mr. Schwartz's

attorneys have been denied in the courts. (Exhibit 3: Loral 2004-10Q-Lawsuits)

It is also significant that "the primary insurer under Loral's directors and officers liability

insurance policy has denied coverage for the case filed by Loral shareholders under the policy

and, on March 24, 2003, filed a lawsuit in the Supreme Court of New York County seeking a

declaratory judgment upholding its coverage position."

Not surprisingly, Loral and other defendants have challenged this denial of coverage. Taken

independently, the cited lawsuits could be interpreted as extreme reactions on the part of

disgruntled shareholders. But, looked at collectively, along with the denial of liability insurance


38

coverage, it is strong evidence of, at best, fiduciary neglect, and at worst, securities fraud and

conspiracy. The conditions and actions that led to Loral's bankruptcy could be viewed through

the rose-colored glasses of difficult market conditions in a complex and unforgiving business.

However, when correlated with prior actions in other businesses and business units, the

repetition of the pattern is damning.

Mr. Schwartz has had many business partners over the years, but none has been more

pervasively present in his deals than Lehman Brothers. The investment firm has carried "Buy"

ratings on companies that Mr. Schwartz has led, in many instances after other analysts lowered

ratings or even dropped coverage of their stocks. This was true for both Loral and Globalstar. For

example, in December of 2001, William Kidd, a Lehman Brothers' analyst, issued a "Strong

Buy" rating on Globalstar despite a 90% drop in the stock price from two years earlier. He said,

“The perspective of the company is greatly different. You’re no longer worried about where

they’re going to get the money next quarter to survive.” Unfortunately, despite Mr. Kidd's

"highly regarded" optimism, the company's stock lost another 90% of its value. Little did most

investors understand the extent of the incestuous relationship between Mr. Schwartz and Lehman

Brothers.

Both Mr. Schwartz and Lehman Brothers received impressive side bar press in a Business Week

article of April 21, 2003, entitled, "Plugging into the Networked War", by Diane Brady. (Exhibit

4: Business Week Article) She wrote:

"Lanza mastered his game plan while spending 15 years as president of Loral Corp. (LOR),

under the legendary dealmaker Bernard Schwartz. Lanza helped Schwartz -- a major Democratic

Party donor who once made headlines for allegedly selling sensitive missile technology to China

-- transform the New York company from a floundering defense firm to a leading-edge

conglomerate. They acquired 25 companies before a chunk of Loral itself was bought by

Lockheed in 1996. Lanza did a stint as an executive vice-president there -- an experience that

insiders say was frustrating for the entrepreneurial executive. He soon arranged a deal to buy out

10 Lockheed divisions to form L-3 -- which stands for Lanza, LaPenta, and Lehman Brothers

Inc., the investment bank that helped raise the $525 million to get L-3 off the ground…"


39

"…Lanza and his supporters have circled the wagons in the company's defense. Schwartz,

Lanza's former boss and an L-3 investor (he declines to disclose his stake), says: 'It's very hard to

defend oneself against innuendo.'" Indeed.

What Mr. Schwartz failed to reveal in that interview, among many things, was that Robert

LaPenta had been the Principle Accounting Officer, Vice President and Controller at Loral while

the Company's investment in K&F Industries was undergoing some remarkable transformations.

In the Business Week interview Bernard Schwartz also failed to mention that his nephew,

Kenneth M. Schwartz, during the formation of K&F from 1987 onward for some time, served as

the Corporate Director of Internal Audit for Loral Corporation. (K&F Industries: 1997-10K)

And, in the same document:

"On April 22, 1996, Lockheed Martin acquired the defense electronics and systems integration businesses of Loral Corporation which included the Akron, Ohio facility. The various occupancy and service agreements affecting the Akron, Ohio facility will remain in full force and effect. K&F will continue to reimburse Lockheed Martin for real property occupancy, and costs relating to shared easements and services."

15. K&F INDUSTRIES, INC. The existence of K&F Industries dates back to 1987, when a hostile takeover attempt of

Goodyear, by British financier Sir James Goldsmith, forced Goodyear to assume $2.6 Billion in

debt and sell off its non-tire business units, including the aerospace assets. As part of that process

Loral, headed by Bernard Schwartz, bought Goodyear Aerospace for $640 Million.

Subsequently, Mr. Schwartz and Lehman Brothers purchased the Aircraft Braking Division in

1989, with Loral conveniently providing a total of $65.4 million of the money in the form of

14.75% Convertible Debentures. (K&F: 1995-10K) The Aircraft Braking Division became the

main business unit of K&F Industries. The company lost money in its early years as revenues

declined from $300 Million in 1990 to $226 Million in 1994.


40

The details of that financing are in many respects convoluted and contradictory. The Committee

has attempted to understand this conundrum of financing and refinancing. The following

quotation from the K&F's 1993-10K, the earliest on-line SEC filing for the company, describes

Mr. Schwartz's first involvement of Loral to fund the privatization of K&F. It states:

(d) 14.75% Convertible Debentures - On April 27, 1989, the Company issued $30 million aggregate principal amount of 14.75% Convertible Debentures to Loral Corporation ("Loral") which mature on April 15, 2004 (the "Convertible Debentures") and pay interest semiannually on October 15 and April 15. At any time prior to April 15, 1997, the Company may, at its option, pay interest through the issuance of additional Convertible Debentures. In accordance with an amendment to the Credit Agreement, interest will continue to be paid in additional debentures until all outstanding obligations under the Credit Agreement have been paid in full or a substantial portion is refinanced; the interest rate was increased to 15.35% with a future change to 16.25% unless cash interest is paid with the April 15, 1997 interest payment. For any given six month period that the Company pays interest in cash, the applicable interest rate is 14.75%.

From 1990 through 1994, interest accumulated, and owed Loral, totaled $31.429 Million as

stated in the 1994-10K. The scheduled interest "payments" were made as follows:

Non-cash interest - Convertible Debentures 8,443(1994) 7,282(1993) 6,213(1992) 5,237(1991) 4,245(1990)

It is unclear whether the sum of interest payments, $31.429 Million, was added to a principal

amount of $30 Million or a principal amount of $65.4 Million. However, in all those years K&F

never posted a profit, no cash benefit accrued to Loral's shareholders, and the interest was always

paid in additional Convertible Debentures.

On September 2, 1994, Loral exchanged the $65.4 Million principal amount of the Convertible

Debentures held by Loral for $12.76 Million in cash and 22.5% of equity. Loral was added to the

list of stockholders and following the conversion, K&F's stockholders consisted of Bernard

Schwartz (27.12%), Lehman Brothers (48.17%), CBC Capital Partners (2.21%) and Loral

Corporation (22.50%).


41

It is noteworthy that the initial purchase was executed in part with Loral's issue of a debenture to

its wholly owned subsidiary, such that Mr. Schwartz and Lehman Brothers owned about 97% of

the subsidiary. (K&F: 1994-10K) What consideration if any, that Mr. Schwartz and Lehman

Brothers provided to Loral at the time of the initial transaction is unknown to The Committee.

However, on at least two occasions they have re-leveraged the company to take huge amounts of

cash out at dividend tax rates as a low 15%.

The Committee has been unable to piece together all the details of the original transaction, as the

SEC online documents for neither company extend backward in time past 1990. What we do

know is that after 5 years of holding the Debentures, during which no cash interest was actually

paid to Loral, Loral ended up with $12.76 Million and 22.5% ownership of K&F. At that point

Bernard Schwartz and Lehman Brothers had used their fiduciary positions and Loral's money to

gain control of K&F.

K&F's sales "strategy" in the early years was to sell "original wheel and brake equipment below

cost as an investment in a new airframe which is expected to be recovered through the

subsequent sale of replacement parts. These commercial investments (losses) are recognized

when original equipment is shipped." So, while Loral was still a partner in the venture, the

company was operating at a loss, by design. These losses supported an argument for a lower

value. In 1996 Mr. Schwartz sold the Aerospace division to Lockheed Martin Tactical Defense

Systems. Later that year, Lanza and LaPenta, both former executives at Loral, and Lehman

Brothers, bought 10 divisions from Lockheed Martin to form L-3.

"In April 1996, Loral Space & Communications Ltd. ('Loral Space') [which then owned 22.5%

of the outstanding capital stock of K&F] granted options to certain officers and employees [read

Bernard Schwartz] of K&F to purchase 265,000 [shares] of Loral Space common stock at $10.50

per share. Such exercise price was equal to the market price at grant date."

"On October 15, 1997, the Company [K&F] completed a recapitalization that consisted of the

refinancing of existing indebtedness and the repurchase of a portion of its outstanding stock." In

the recapitalization 64% of the outstanding stock of K&F was purchased by the company by


42

borrowing money from itself in the amount of $230.2 Million. This increased K&F's debt from

$293 Million to $520 Million. The same method of huge cash transfer from the company was

repeated at the end of 2002 to pay Mr. Schwartz and Lehman Brothers large dividends. This

modus operandi illustrates the pattern of asset conversion.

In other words, a private company was drawn out of Loral, a public corporation, financed in part

by Loral, to benefit Mr. Schwartz and Lehman Brothers. Then the debt held by Loral in K&F

was converted to equity, and later bought out in a recapitalization, thereby eliminating Loral's

interest in K&F, just prior to the company becoming profitable.

In the late 90's K&F started showing surprisingly healthy profits on stable revenues of about

$350 Million per year. Its fortunes improved so much that in 2002 K&F Industries paid the

partners, Mr. Schwartz and Lehman Brothers, a dividend of $100 Million each. Today, Loral

could use that money. These actions of self-dealing and enrichment were accomplished by

fiduciaries who, over time, violated their responsibilities and apparently defrauded Loral.

Bernard Schwartz and Lehman Brothers, through their manipulation of Loral's money,

transferred K&F Industries ownership to themselves, at the expense of Loral's shareholders.

While Mr. Schwartz was foregoing his salary at Loral, in a noble gesture of encouragement to its

shareholders, he had a very generous compensation package at K&F. His salary and bonus totals

for 2001, 2002 and 2003 were $7.5 Million, $6.8 Million and $4.9 Million, respectively, not

including the $100 Million dividend in 2002.

How was Mr. Schwartz able to effect these massive transfers of wealth from a public company to

his own personal accounts? His allies, Lanza and LaPenta, at Loral, exerted tight control over

operations and accounting, and his nephew, Kenneth M. Schwartz, as Director of Loral's Audit

Committee, assured that no internal "discrepancies" came to light. Lehman Brothers was there

with readily available financing and positive stock analyst commentary in the financial press

whenever a new venture bubbled up from the simmering corporate stew. There has never been

even a scintilla of controversy surrounding the Loral BOD's allegiance to Bernard Schwartz.


43

As Chairman and CEO of K&F, and with the ongoing symbiotic relationship with Lehman

Brothers, as well as a BOD composed to a great degree of family and others with interests in

other Schwartz ventures, he readily and systematically controlled both sides of the asset transfer

equation. He also receives "$200,000/month compensation to him and persons or expenses

designated by him in exchange for acting as directors or providing advisory services" to the

company, i.e. he is given corporate funds which he uses to persuade members of the BOD to see

things his way. (K&F 2002-10K)

Even a cursory look at K&F's BOD is a revelation: (Directors with known current or past conflicts of interest are in bold type.) DIRECTOR NAME AGE POSITION(S) SINCE ---------------------------------------------------------------------------------------------------------------------------- Bernard L. Schwartz*......................…… 77 Chairman of the Board 1989

and Chief Executive Officer [Mr. Schwartz is Chairman and CEO of Loral, and was Chairman and CEO of Globalstar]

David J. Brand**..........................……… 41 Director 1997 [Mr. Brand is the Managing Director of

Lehman Brothers. L-3 Communications is a client.] Herbert R. Brinberg*......................……….. 77 Director 1989 Robert B. Hodes*..........................……… 77 Director 1997

[Mr. Hodes is also a Director of Loral, and a Counsel for Willkie Farr & Gallagher, who represent Loral in the Chapter 11 proceedings.]

Ronald H. Kisner*.........................…… 54 Director and Secretary 1989 [Mr. Kisner is married to Mr. Schwartz's niece.] John R. Paddock*..........................…… 49 Director 1989 [Mr. Paddock is married to Mr. Schwartz's daughter.] A. Robert Towbin***.......................… 67 Director 1989

[Mr. Towbin is a former Director of Globalstar; Managing Director of Lehman Brothers, Chairman of the European Advisory Board of The Blackstone Group, which advised Globalstar on its Chapter 11; Co-Chairman of C.E. Unterberg, Towbin, which provided investment banking and underwriting services to Globalstar and GTL.]

Alan H. Washkowitz**......................… 62 Director 1989 [Mr. Washkowitz is a Managing Director at Lehman Brothers and a director at L-3 Communications.]

Donald E. Fogelsanger.....................……….. 77 Vice Chairman Kenneth M. Schwartz.......................…… 51 President and Chief Operating Officer [Mr. Kenneth Schwartz is Mr. Bernard Schwartz's nephew.] Dirkson R. Charles........................…………. 39 Chief Financial Officer


44

Lest we forget, Mr. Schwartz also had some sweetheart deals with Loral for K&F. Since the

formation of K&F, Loral has been providing rental space and other services for nominal

amounts. The incestuous relationships between the two companies still exist. From the 2002-

10K, "Payments to Loral Space were $0.3 million, $0.5 million and $0.6 million for the years

ended December 31, 2002, 2001 and 2000, respectively."

The period from 1987 through 1997 was keynoted by a fee-ridden decade of financing and

refinancing for both Loral and K&F Industries. During that period the entire ownership of K&F

Industries migrated from Loral to Mr. Schwartz and Lehman Brothers.

There can be little doubt that while exercising his fiduciary duties to himself at K&F, Mr.

Schwartz has been abusive of shareholders rights at Loral. The extended period of this behavior

underscores the degree to which Loral's Equity has been a victim. But let's not forget to look at

the situation from his point of view. After all, as Mr. Schwartz stated in the Business Week

interview, "It's very hard to defend oneself against innuendo."

16. GLOBALSTAR Volumes could be written about the meteoric fall of Globalstar. It remains the most ambitious

commercial space project in history, for its scientific and technical complexity, along with some

of the most convoluted and internally conflicted commercial and financial corporate

relationships ever imagined. One must give Mr. Schwartz his due for having conceived such a

singularly noble undertaking, having brought the technical, scientific and financial personnel to

the table and inspired them to actually accomplish what could not even have been dreamed just a

few years ago.

Mr. Schwartz formed Globalstar in ’91, took the company public in 1995, and in 1996 he sold

off Loral’s defense assets. In the face of numerous setbacks, Loral, Qualcomm and other partners

were able to launch the Globalstar satellite constellation, build the ground infrastructure and

design and build phones that worked with a high degree of availability and reliability anywhere


45

they had a line of site with a satellite. The phones also had separate cellular capability and could

be used for data transmission.

In addition to his role at Loral and K&F, Mr. Schwartz, as Chairman and CEO of Globalstar,

borrowed massive amounts of money to pay for satellites, launch services, phones, gateways and

CDMA programming. He used vendor-financing arrangements in exchange for equity in

Globalstar to a point where Loral still owns more than 40% of the bankrupt company's stock. Of

course all this came at a price, $1500 for a phone and over $1/minute for connection time.

Of course, there was a great deal of salesmanship involved and Mr. Schwartz excelled at

managing the media and his message. In 1999, he stated on national TV, "Our immediate order is

for 340,000 instruments, and we hope to be able to have at least 130,000 out by December, and

by the middle of next year in the many hundreds of thousands." More than a year later the

company had only sold 21,300 phones. (Exhibit 5: CNN Interview)

The numbers betrayed the dream and the business plan. As it became apparent that subscriber

numbers would not reach a point that would make the business plan viable, Mr. Schwartz again

failed to level with investors in a timely manner. He massaged the numbers and parsed his

statements in such a way so as to leave the impression that Globalstar was "on plan". And,

predictably, the lawsuits mounted when it became apparent to investors that Mr. Schwartz had

gone well-beyond parsing.

Olof Lundberg was hired to clean up the mess, and in relatively short order he filed for Chapter

11, but by then it was too late for Loral's equity in the company, and even the debt that it held. If

Mr. Schwartz had simply been honest with investors from the beginning, regarding the faltering

venture, Loral shareholders would still have held the entire debt claim. As it stands, Mr.

Schwartz negotiated away almost half of Loral's Debt Claims for indemnity. Loral's Class 5 Debt

Claims have been reduced to $459.6 Million from $879.6 Million. The Class 4 debt is impaired

and worth $52.4 Million.


46

In the original Globalstar contract, Loral was also allowed 50% of government contracts. The

reorganization plan reduced that to 25%, and even that is in doubt at last report.

*(Recent reports indicate that Globalstar is headed for Chapter 7 and that Loral will receive $47

Million of equity income related to that event in 2004. Wouldn't this be a worthy news release on

the part of Loral? Instead we get June 10th news of Robert Prevaux being named Vice President

of Business Development.)

Not only did Mr. Schwartz mismanage Globalstar and mislead its investors, in doing so, he did

the same to Loral and its investors, and, as events demonstrate, he continues to do so post-

petition. Nevertheless, Loral will still gain as the restructured Globalstar approaches break even,

as Mr. Schwartz admitted at the Annual Shareholders meeting on May 29, 2003, just six weeks

before the Chapter 11 filing. He said:

"Yes, Loral is an owner, after the conversion of our debt into equity on a proportionate basis, so we’ll have an equity interest, a small one, maybe five to six-percent. We will have in addition to that, however, some significant operating investments in Globalstar. We retain the equity participation in several of the key distributors of Globalstar, the territorial agents. We retain a percentage - an equity interest in the government work for Globalstar and we, hopefully, will be the supplier of additional satellites when the current generation needs replacing." (Exhibit 2: Conference Call Transcript)

Mr. Schwartz mismanaged Globalstar and K&F responsibilities to Loral's investors to the tune of

more than $1 Billion. Now as the coup-de-grace he intends to finish Loral's common through a

faulty and fraudulent valuation of the company's assets and liabilities. At most, in the opinion of

The Committee, he will try to trade indemnity with the Creditors, yet again, for the remaining

assets of the company, and the elimination of the common equity is central to that strategy.



47

V. VALUATION OF THE ESTATES OF THE DEBTOR 1. INTRODUCTION This section has been complicated by the fact that the debtor will not answer our normal

questions that relate to their filings. While consolidated statements are valuable tools for

evaluating a company as an investment, they have limited use when posing valuation questions.

A one line item on a consolidated financial statement is usually comprised of a large number of

items, which it is impossible to probe with exactness to verify that a single item is properly

appraised. It is also impossible to determine whether omissions have occurred in a consolidated

line item. Certainly, if items are not included in the Court schedules of Assets and Liabilities, or

are listed with "Unknown" valuations, then we know that the consolidated financial statements,

as reported, are inadequate.

An alternative to active involvement of the Debtor, in a detailed summation, is a less direct

method of subtraction. For example, if we are given sum D of A+B+C, where C is an unknown,

we know that removing any of those single items will make D a smaller number. However, if we

know, through comparative research, that A+B is larger than D, then we know that D is a bad

number. If, through questioning the debtor, we can get the value of C, then we can derive an

accurate number, D2. Applied over a range of line items in question, this method can be used to

develop a more accurate valuation. And, although this analysis does not yield the precision of an

exact sum, it can yield a reasonable doubt regarding the adequacy of the asset valuation by the

debtor.

The Committee’s discussion of value can be viewed as a four-pronged presentation in which

common elements are presented in different value contexts. We will begin by discussing the

assets of the company to the fullest of our ability, after which we will attempt to make certain

inferences regarding unrecorded values within each asset group. We will then cumulate our

findings to show the magnitude of the assets that based on our information we believe to be

present in the market value of the estates of this debtor.


48

The Court is keenly aware of the complexity of the Debtor's products, services, and its tangible

and intangible assets. This complexity in our view, when carefully evaluated in its many aspects

presents a store of uncaptured value.

The conceptual framework through which we intend to view the various values of the estates of

the debtor are the following:

(1) Those applications of generally accepted accounting principles, (“U.S. GAPP”)

including a statement of position, SOP 90-7, which requires a presentation of

pre-petition and post-petition liabilities, that because of accounting requirements

conceal assets. For example, depreciation of an asset that may have appreciated

such as real estate.

(2) Areas where a one line item does not make sense; where the logical components

of the item total significantly more or less than the reported item.

(3) Reported accounting numbers that convey a different value when determining

market values. For example, the Preferred Stockholders objection to $214

Million of debt exchange, which is added to bond debt but it is not a debt

obligation. Loral exchanged shares for bonds at a discount when compared to the

bond par-offering price. To add these numbers to the debt of the Company is a

fiction.

(4) Assets omitted or not included in the financial statements.

Some of the areas of consideration reflect conventional under-valuation on the balance sheet.

Other items, it might be argued, reflect the Company's bias, or at least indifference toward the

understatement, or omission, of the Company's assets. Most of the numbers used in this

discussion of value will be drawn from either the Monthly Operating Statement for the period,

April 24 to May 21, 2004, or from the debtor’s first quarter 10Q.

On page 2, of the monthly operating balance sheet, we notice the following numbers. (A)

Current cash of $181 Million for the period. This is partly explained by the bulge in a one line

liability titled "Customer advances and billings in excess of costs and profits" which was written

in at <$320.579 Million> a liability because we are being told it is money received in advance of


49

work. This is counter intuitive because if we received this cash in advance of work, one would

not expect contracts-in-progress continued to decline from 117M in the April report to 89M in

the May report. In addition given the information by year-end, that the debtor had received

contracts for 4 GEO Satellites, one would further expect a ramp up in contracts-in-progress. Are

receivables being minimized in order to serve an agenda of asset minimization?

2. PROPERTY, PLANT AND EQUIPMENT Much of our concern lies within a category carried on the Monthly statement as Property, Plant

& Equipment that contains a net value of $937 Million. Some detail of these values is disclosed

under Note 8, entitled Property, Plant & Equipment in the 1st Quarter, 10Q. There are a few

items that we dispute because they do not reflect the value of the company correctly and they are

understated on the debtor’s balance sheet. There are other assets that should be included in this

schedule, but strangely, are not.

(A) The total amount that the Company has reduced its assets through depreciation is <$677.989

Million>. This cumulative depreciation figure is overstated. If an asset has appreciated the pro

rata depreciation should reduce depreciation by the same amount it was increased owing to that

item. Thus the appreciation should be added to value.

(B) Land & Land improvements are a primary suspect of under valuation. Real estate in many

areas where Company facilities are located has substantially appreciated. It would not be

surprising if the value of the Company's Buildings and Land were two to three times the cost.

The Company's Costs for Land & Land Improvements is $24.827 Million and $87.576 Million

for a total of $112.403 Million. The current accumulated value needs to be reduced by the

portion accrued from Land & Land Improvements.

(C) This is also true for the one-liner Equipment, Furniture & Fixtures $293.728 Million. Based

upon similar information, we believe that at least 70% of this asset has been depreciated

wrongly. Much of the equipment are specialty tools used to build Loral satellites. We believe

that the company's engineers and others developed some of these tools uniquely for Loral. They


50

would include specialty casting, machining, electronics and composites tooling. It would also

include specialized testing equipment, such as vacuum chambers, sensors and sophisticated

hardware and software. Depreciation on such key tools would span a much longer period than air

conditioners, for instance, which may be fully depreciated over 5 years. The specialty tools have

undoubtedly retained their value and may have a market worth that is more than their original

cost. The Committee believes the market value of this equipment would entail a significant

reversal of depreciation that may be in excess of $100M.

(D) This leaves the one-line item titled "Satellites in-orbit" of $1,008,799,000. This includes 4

GEO Satellites and a 5th (Estrela do Sul-1), which was likely damaged during the launch by

Boeing's Sea Launch service. The line item should not include a 6th, Telstar 18, that was due to

be launched by Boeing's Sea Launch service in late June, 2004. If Telstar 18 is not included,

since it is fully constructed, but not yet launched, where is its value recorded? It should logically

be listed in the "Contracts in Progress" line item. But, that line item is only valued at $142.734

Million, or about half the value of a new state-of-the-art LS 1300S satellite. The $142.734

Million "Contracts in Progress" line item is about what one would have expected for a ramp up

to build Loral's 4 new GEO orders, but the number is not big enough to include the new orders

and Telstar 18. The Committee must conclude that Telstar 18 is in the Satellites-in-orbit line item

or simply omitted from the schedule, by virtue of being between categories. The opinion of The

Committee is that it is in neither the Contracts-in-progress nor the Satellites in-orbit line items.

Estrela do Sul-1 currently has only 10-14 of 41 transponders functioning and its operational life

has been shortened to 6 from a design life of 15 years. Following is a calculation of the value of

the remaining transponders:

ESTRELA DO SUL-1 VALUATION: 10-14 Operating Transponders = 12 (Average) Operating Transponders/Total Transponders = Current Transponder Availability 12/41 = 29% Current Transponder Availability Expected Satellite Life/Design Life = % Life 6/15 = 40% of Design Life


51

Transponder Availability X Design Life = Transponder Capacity Years .29 X .40 = 11.6% Designed Transponder Years $250M (Insurance) - (11.6% X $250M) = Expected Claim $250M - $29M = $227 Million

This works out to only 11% of its intended life time capacity. Therefore, the Company, which

insured this Satellite for $250 Million, should receive about $227 Million claim for non-

functioning insured capacity. The difference between money received and cost should be

credited to the balance sheet.

The Committee does not believe that the value of Estrela do Sul-1 is fully represented in the

Assets and Liabilities consolidated financial schedules. The $250 Million value for Estrela do

Sul-1 should be in the Satellites in-orbit line, until the insurance is paid. At that time the value of

the remaining transponders would stay there, but the insured claim ($227 Million) would move

to the Assets schedule, on the Insurance Proceeds Receivable line.

Included in the "Satellites in-orbit" figure is $298.4 Million for satellite transponder rights,

which include "piggyback" arrangements in which Loral provided some vendor financing in

return for reserving a number of transponders on satellites built for customers. Examples of this

are Satmex and XSTAR. That leaves a $710.399 Million value for the 4 remaining Telstars and

the 13 remaining orbital slots. It is unclear whether management has included Estrela do Sul-1 in

the "Satellites in-orbit" figure, although one would presume they have. If it has been included,

then, the $710,399,000 figure should be reduced by at least its insured value of $250 Million, to

show $460,399,000 for the fully operational 4 Telstars and the 13 orbital slots. According to the

Intelsat line-item valuation, this number should be closer to $600 Million as the remaining

Telstars are younger, in general, than those sold. In addition, although Telstar 18 has not yet been

launched, The Committee requests that the Debtor inform the Court where its value has been

recorded in the Consolidated Financial Schedules. The Committee can't find it.

If the company has only included the value of the operational transponders for Estrela do Sul-1

satellite in its "Satellites in-orbit" number, then there should be a corresponding entry elsewhere


52

in the Asset Schedule under "Insurance Proceeds Receivable" line item. But that line item for

2004 is blank. It does show $122.77 Million for the 2003 insurance proceeds. Therefore, one

must conclude that management has included the insured value of $250 Million of Estrela do

Sul-1, in the "Satellites in-orbit" number, reducing it by that amount, and the remaining in-orbit

assets are therefore valued at $460.399 Million. However, this number makes no sense at all

when correlated with the information published by Intelsat in their recent 2004-10Q, in which

the North American Telstar purchase from Loral was detailed. In that document Intelsat

published the following data:

(Exhibit 1: Intelsat 2004-10Q-Sale Details) (in Millions) Insurance receivable $ 141.000 Satellites 633.823 Other assets 18.019 Customer relationships 47.748 Orbital locations 200.880 Deferred revenue <61.388> Accounts payable and accrued liabilities <4.481> ----------------------------------------------------------------------------------- Total cash consideration, net of assumed liabilities $ 975.601

In order to get a more accurate representation of the Loral "Property, Plant and Equipment"

schedule line-item, "Satellites in-orbit" it could be reasonably be expanded as follows:

Satellites in-orbit (in Millions) Transponder Rights 298.400 Estrela do Sul-1 250.000 Orbital Slots 435.500 4 International Telstars 600.000 Telstar 18 250.000 ----------------------------------------------------------------------------------- Total 1,833.900

Furthermore, the committee does not believe that any depreciation should be applied in

"Satellites in-orbit" line item, since the Debtor provides a separate Depreciation line-item at the

bottom of the Property, Plant and Equipment schedule. One hopes that management has not


53

"erroneously" applied depreciation in the line item of assets, and then again in the "Accumulated

depreciation and amortization" line item at the bottom of the schedule.

The 6 orbital slots in the deal were valued at $200.88 Million by both Loral and Intelsat in the

recent sale. Loral owns 13 remaining authorized orbital slots worldwide, yet there is no evidence

that the value of these slots is on the balance sheet. They are not listed in the Court schedules of

Assets and Liabilities. The slots sold to Intelsat are in the North American Market, which is the

biggest market in the world, but it is also suffering from overcapacity.

Most of Loral’s remaining slots are in the international markets that have been touted by

management as growth markets. Therefore, Loral’s remaining orbital slots should be valued at

least as much as those sold to Intelsat, or $33.5 Million per slot, for a total of $435.5 Million.

This is close to the above number of value of the remaining in-orbit assets, which factor out

Estrela del Sul-1 and piggyback transponder rights, of $460,399,000. This means, that the

remaining 4 young, healthy Telstars, in international growing markets, and the yet to be

launched, Telstar 18, are only being valued by management at about $25 Million! The

conclusion is that the orbital slots, a value of at least $435.5 Million, are simply not on the

balance sheet.

This simply does not make any sense, especially when one considers their prominence in the

Loral 2000 Annual Report. Page 9 of that Report is a full-page illustration in which the

specifications of more than 40 orbital slots are listed, including their locations, contemporaneous

and planned occupancy. (Exhibit 6: Orbital Slots) The illustration is headed by the title, "Loral

Orbital Slots", and a paragraph containing the following description:

"Loral and its partners in the Loral Global Alliance own a portfolio of space assets that includes ten high-performance satellites and the rights to more than 40 orbital slots. These locations, like beachfront property, have excellent views and are finite in number, making them, in effect, prime real estate which can be developed to yield substantial returns."

Interestingly, the "assets" of the 2000 Annual Report, to the best of The Committee's knowledge,

are not listed or valued in the Debtors Schedules of Assets and Liabilities as submitted to the

Court in late November of 2003. It is simply unconscionable that these assets have not been


54

listed or valued by the Debtor, and could well prosecuted as fraudulent omissions. And, lest the

argument is put forward, that the remaining orbital slots are not as valuable, it is a fact that

several of them could serve the North American market. In addition, Pegasus has recently valued

its two orbital slots at $50 Million each, New Skies recently completed a transaction in which

one of its slots was valued at $32 Million, and Cablevision has valued its DBS slot, similar to one

of Loral's, at $175-$220 Million.

One should consider one more item when valuing orbital slots. Loral is already well into the

licensing process for more than two dozen additional slots from the ITU. Many will undoubtedly

be authorized and bring additional significant value to the company. At the very least, the costs

to pursue authorization of those slots should be added to the assets, in addition to a reasonable

factor representing the probability of authorization, multiplied times the average expected market

value of an authorized slot. The Committee has not included a line item for these ITU controlled

Orbital Slots in its consolidated schedules. However, these should be carefully measured and

added to any final valuation of the Company.

3. RESEARCH AND DEVELOPMENT (R&D) Research and Development, whether expensed or capitalized, is a future asset subject to broad

interpretations among analysts within the market's Technology Sector. Over time, this cost yields

new methods, new products and new technologies. Often times, companies that spend heavily on

R&D, itemize those expenses so that investors can segregate them from general expenses. R&D

expense is a measure of future expected value. The higher the expense, the greater the future

expected value. An estimate of R&D expense, on a developed product, may overstate or

understate the future value of a product over time.

Loral spends very heavily on R&D, but does not separate the annual cost so that investors can

estimate its future benefit. It is, therefore, difficult to arrive at a precise number of the value of

the Company's R&D component. However, The Committee believes that Loral has significant

value in its developed technology, both in patented and non-patented proprietary designs, created

over the past three decades by virtue of its R&D expense. Clearly, Loral's Research and


55

Development (R&D) assets are a key component of its business, but the Debtor has not valued

them, as known to The Committee, in the Schedules of Assets and Liabilities presented to the

Court. Surely, Loral's R&D expenses over the years, represent a significant asset that should be

quantified by these proceedings. After all, the Company has been showcasing its technologically

prowess to investors for years as a means of attracting dollars to the Company.

When a company has a premier satellite design, like the LS 1300 family of products, it is a

culmination of years of effort and investment. The latest hybrid, the LS 1300S, represents not

only evolutionary incremental improvements of the technology from the bottom-up, but also

incorporates revolutionary technologies from the top-down. Loral's revolutionary LS 20.20

satellite is a new design, which was completed as the satellite market began to experience serious

overcapacity around the years 2000-2001. However, many of the LS 20.20's new technologies,

like plasma thrusters, improved solar panels, electrical capacity, batteries and deployable thermal

radiators have found their way into the highly-regarded LS 1300 architecture. Certainly, all of

these, and many other technological improvements, patents and designs, have real value and

should be measured and properly applied to the asset/liability equation.

4. INTELLECTUAL PROPERTY (A) Patents: A significant item, listed with an "Unknown" and therefore "0" value in the

Debtor's Assets and Liabilities Schedules, is the value of more than 500 patents and patents

pending in the US and internationally, owned and developed by Loral. These patents support the

LS 1300, as well as a new trademark, the LS 20.20, which relates to a new generation GEO

architecture. The Committee has retained an expert to present an initial estimate of valuation of

these holdings, which are not on the balance sheet. His name is John McCormack of Kolisch

Hartwell, 260 Sheridan Ave., Suite 200, Palo Alto, California 94306, Phone: (650) 325-8673.

Mr. McCormack has had a long career in the field of patent law, is an adjunct professor of law at

the University of Oregon School of Law and Northwestern School of Law of Lewis & Clark

College, where he teaches patent law and intellectual property licensing. He is one of the few

trademark attorneys to have argued before the United States Supreme Court and he has written


56

on patent litigation between Loral and Lockheed Martin on GEO specific intellectual property.

(Exhibit 7: John McCormack)

Loral describes its patent portfolio as follows:

Inventing the Future - Patents The wealth of talent and intellect in the company cannot be overstated; Space Systems/Loral (SS/L) is a true work in progress, building a future without bounds. SS/L fosters an environment here that encourages creativity. Within the company’s impressive portfolio are patents in these key satellite and spacecraft technology areas:

?? Communications (electronics and systems) ?? Attitude control and stationkeeping ?? Spacecraft batteries ?? Spacecraft power control systems ?? Antennas ?? RF filters and oscillators (standard and super-conducting) ?? Phased array antennas (standard and with anti-jam capability) ?? Thermal-control techniques (including heat pipes) ?? Satellite payloads for mobile communications and wireless telephones ?? Plasma thrusters ?? Specialized assembly and inspection technology

(http://www.ssloral.com/html/aboutssl/patents.html)

Mr. McCormack has conducted an initial estimate of the worth of Loral's patents, and has valued

them at $511,500,000. (Exhibit 8: Valuation Estimate of Patents)

This estimate was based upon patents as described in the Debtor's Schedules of Assets and

Liabilities and may, or may not include the recently reported acquisition of more than 50 plasma

thruster patents from International Space Technologies, Inc., jointly by SS/L and Snecma

Moteurs. These thrusters are currently being tested on MBSAT and are working as designed to

allow standard satellite maneuvers in space.

It is surprising that the news release describing this major development in Loral's intellectual

property portfolio, suddenly appeared, on June 28, 2004, only a couple weeks following our


57

prior submission of this motion to the Court, in which we discussed the Company's intellectual

property valuation. It is particularly troublesome when one realizes that Snecma disclosed this

key joint venture in a news release dated a year earlier, on June 20, 2003, just three weeks before

the bankruptcy filing. And, despite the timing of this disclosure by Snecma, there was no

mention of the joint venture in Loral's 2003-10K or in other Loral news releases known to The

Committee. (Exhibit 14: Snecma Joint Venture)

We see the disparity in timing of these news releases as further evidence of Loral management

duplicitous program of asset minimization; and, further, as strong evidence that an Official

Shareholders Committee will provide the oversight necessary to uncover previously undisclosed

assets in other areas as well.

(B) Shenendoah Systems, LLC: Interestingly, the $511.5 Million estimate of the patent

portfolio's worth by John McCormack, is very strangely at odds with the Debtor's attempt to sell

33-35 "outdated" patents to Shenendoah Systems, LLC for terrestrial use. In Court Docket

#1062, the Debtor describes Shenendoah as a Delaware corporation, with an office at 171 Main

St. #271, Los Altos, California 94022. In fact, Shenendoah did not "incorporate" until

10/31/2003, on Halloween, just five months before the offer was presented to the Court. Perhaps

April 1st would have been a more appropriate registration date for the "company".

The $175,000-$185,000 offer for the patents, as reported in Docket #1062, seemed incredibly

low, below even the cost to prosecute them. The Debtor stated in the Court document, on Page 5,

that:

"SS/L therefore approached a small community of logical third-parties about licensing or buying the Purchased Patents for terrestrial uses. This initiative led to discussions with various parties. Shenendoah, an entity that, with its affiliates, is skilled in the resale and licensing of patents, and one other party were the only entities that engaged in serious discussions with respect to the Purchased Patents. Shenendoah was the only party ultimately willing to enter into negotiations. After good faith, arms-length negotiations, Shenendoah offered to buy the Purchased Patents. As a result, SS/L seeks to sell, and Shenendoah seeks to purchase, all right, title and interest in and to the Patents for an aggregate purchase price of $175,000…"


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It is surprising that the Debtor would want to sell these patents for terrestrial uses. If one looks at

the description of the patents, almost all of them have to do with satellite technology. Following

is a partial list of patents offered by the Debtor in the sale to Shenendoah.

4,725,024 - Method for spinning up a three-axis controlled spacecraft. 4,746,976 - Stat sightings by satellite for image navigation. 4,767,084 - Autonomous Stationkeeping for three-axis stabilized spacecraft. 4,848,706 - Spacecraft attitude control using coupled thrusters. 5,326,054 - Apogee at constant time-of-day equatorial (ACE) orbit. 5,359,280 - Bilateral power converter for a satellite power system. 5,422,647 - Mobile communication satellite payload.

Why would a company interested in buying patents for terrestrial use want to buy patents

relating to satellite technology? The Committee would greatly appreciate a cogent explanation of

this discrepancy from the Debtor's management.

It is also surprising, following a little investigation, that the city of Los Altos has no business

license registered for Shenendoah Systems, LLC. Attempts to call the company or locate an

Internet web address have been unsuccessful. All attempts to locate a physical address have

turned up only a mailbox address, #271, with only the anonymous label attached, per the Docket,

of "Managing Director". One can only wonder what purpose would be served by management's

desire to sell a group of "outdated" satellite patents to what appears to be a "non-existent"

corporate entity for use in terrestrial applications. Regardless, it appears that Docket #1062 is an

attempt to devalue Loral's Patent Portfolio using a business tactic commonly called a "shill".

Certainly, Shenendoah, which at the time of the offer, had only existed for a few months, and has

no physical address or normal contact information, can hardly be described as "an entity that,

with its affiliates, is skilled in the resale and licensing of patents." What affiliates? What skills

does it present? What patents has Shenendoah licensed? A search of the US Patent Office

database did not turn up a single reference to the company. It appears, just based on this one

paragraph, that this Debtor submission to the Court is riven with perjurious statements.

Furthermore, if the Patent Portfolio is so "valueless" as Docket #1062 would seem to indicate,

why would the Debtor go to such lengths to minimize it? Why would the Debtor take such legal


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risks to sell a portion of it under fraudulent terms if it were not a major concern in their flawed

valuation of the assets?

(C) Trademarks: In addition to its patents, Loral holds about 210 trademarks, registered and

pending, in jurisdictions worldwide. These should be valued for at least the costs related to their

development and prosecution, rather than the "Unknown" and therefore "0" value placed on them

in the Debtor's Assets and Liabilities Schedules.

(D) LS 20.20: Also of great import to shareholders is the Company's development of a new

generation satellite bus, the LS 20.20, or LS 2020 as it is sometimes referred to. This design has

been reported to have cost "$100's Million to develop", and yet we find no line item for its value

in the Debtor's Schedules of Assets and Liabilities…none. And yet, if one happens to have a

Loral Annual Report from 2000, the following description can be found on pages 18-19:

"Over the last couple of years, a new application has emerged - broadband via satellite. While this represents a very small part of the commercial satellite business today, it promises to be an important source of growth for the future. SS/L is targeting its research and development efforts at this market, and we have emerged as the leader in satellites designed specifically for this application. "To address this new market SS/L will offer a new satellite design, which we call 20.20. The 20.20 will be larger and more complex than current satellites, and it will be equipped with new capabilities. It will transmit with as much as 30 kilowatts (kW) of electrical power, compared to an average of 11kW of power on satellites ordered from SS/L in 2000. All modern satellites, not just the 20.20, require more and more power; generating, storing and dissipating that power are dominant considerations in spacecraft platform design. "The 20.20's spot beam antennas will enable it to limit the transmission of an Internet page, for instance, to a single metropolitan area. This in turn lets the radio frequency be reused to send a different page to a different metropolitan are. The productivity gain from frequency reuse is obvious. "Some of the technological advances that will be incorporated into the 20.20 will be used on a transitional spacecraft - the 1300S - immediately, such as the Telstar 8 satellite, now under construction.


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"With its greater size and weight, the 20.20 is being developed to take advantage of the capabilities of a new generation of more powerful launchers that will become available in 2002."

An article in the January 22, 2001 issue of Space and Tech Digest expands upon this description.

(Exhibit 9: LS 20.20) The article describes a state-of-the-art new satellite bus and describes a

new Loral marketing effort to find customers for a large, highly modularized, short lead-time

architecture that competes directly with Boeing Satellite Systems BSS 702 and Alcatel Space’s

Spacebus 3000. Impressive new technology "includes more capable solar panels, higher-capacity

batteries and an improved ion-propulsion system [plasma thrusters] to control the satellite’s

position in orbit."

An argument can be made that in a market plagued by overcapacity, larger more powerful

satellites are difficult to justify economically. However, a fact rarely mentioned in these

arguments is that the main issue is not so much initial cost, but longevity. Not only is the LS

20.20 more powerful, but it, and others similar to it, will last a lot longer in orbit than older

designs, and therefore will not need to be replaced as often. And, since these large designs carry

many more transponders than prior designs, the cost per transponder year is significantly less

over the design life of the satellite.

However, while the market is suffering from overcapacity, SS/L has transferred many of the

most mission-critical technologies from the LS 20.20 to the latest variants of the LS 1300S bus.

For example plasma thrusters are now incorporated into the designs of Telstar 8, MBSAT and

iPSTAR. They permit extended in-orbit station keeping, by replacing bi-propellant thrusters with

plasma thrusters, which use the inert gas Xenon, to create the thrust to move the satellite. These

Hall-effect thrusters, that use electrical power collected and stored by the satellite's solar panels

and batteries, to ionize and accelerate Xenon to create the thrust to move the satellite. This

increases the amount of propellant a satellite can be launched with, thereby increasing its life or,

alternatively, the size of its payload.

The article on the LS 20.20 also describes a power system with twice the capacity of the LS

1300. The LS 20.20's "real estate" allows the modular installation of as many as 150


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transponders, or about double what is currently possible on the LS 1300S. And, the modular

construction allows the installation of "off-the-shelf" components, quickly and less expensively,

thus shortening the typical lead times between the order, production and final deployment of a

GEO satellite.

It is curious that Loral started a marketing effort in 2001 to sell the new design, but one wonders

why is there so little emphasis on the design in the Company's press releases, analysts' news

letters, or other marketing and advertising literature? Curiously, no value to this design is

included in the bankruptcy filings of the Debtor, despite its obvious worth. Nor is any value

assigned to the obvious franchise value of the LS 1300 bus design. What profit has been derived

from the impressive sales of the LS 1300 over the years has been offset by Management's

investment in the LS 20.20, among other R&D efforts. For Management to now implicitly argue

that these designs are not valuable, by virtue of their exclusion from the Assets and Liabilities

Schedules, is duplicitous in the extreme.

The LS 20.20 would be an excellent solution for the Department of Defense MUOS project.

Consideration of its design, and others like it, may be one reason why the award of the contract

has been delayed, and why Boeing, which has designed a similar large satellite, was recently

added to the Lockheed Martin team competing with Raytheon/Loral. Not only would the LS

20.20 provide greater longevity, but it would also provide a lower cost per transponder year and

spot beam broadband capabilities, which would be of great value in the current national security

context.

The Committee believes that the LS 20.20 design should be valued as an asset with a valuation

of at least the cost to develop it. We believe this value, because of the size, complexity and

innovative features included in the design, should be, at least, valued incrementally more than an

LS 1300 satellite, or in the $350-$450 Million range. We have used the average number of $400

Million as a line item in our Consolidated Financial Schedules. If the Debtor can provide an

alternative and actual cost-to-develop number, we would be pleased to include it instead.

5. REAL ESTATE VALUATION


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Loral has significant real estate holdings in some of the most desirable location in the world.

These holding have been valued at depreciated minimums without regard to the appreciation

these properties have undoubtedly experienced since their acquisition. What justification can be

given for not valuing real estate in such locations, when there is undoubtedly a significant

database of comparable properties?

Loral Skynet owns three telemetry, tracking and control stations covering approximately 66,000

square feet on 212 acres in Hawley, PA and Three Peaks, CA and on three leased acres in

Richmond, CA. In addition Skynet owns seven acres of land, including 8,000 square feet of land

in Mt. Jackson, VA. It also leases a large number of similar facilities and offices in a number of

worldwide locations.

SS/L is located on some of the most expensive, prime real estate in America, Palo Alto, CA.,

where typical properties have appreciated 4-5 fold over the past two decades as the demand for

Silicon Valley industrial property has outstripped even the most exaggerated growth forecasts.

SS/L's research, production and testing are accomplished in facilities on the Palo Alto campus,

covering about 583,000 square feet on 23 acres. The Company also leases a similar area in a

number of other locations, including Menlo Park and Mountain View, along with Kent, WA.

Loral Orion owns earth stations in Hawaii, Hawley, Pa, Arlington, VA, and Milan, Italy.

Loral SpaceCom lists land and buildings in Hawley, PA, Petaluma, CA and Richmond, CA.

The Committee believes that the valuations of these properties should be carefully quantified by

the Court to insure that real estate assets are logically derived from market values in their

respective areas. In addition, many of the leases recorded by Loral, worldwide, are in locations

where other Loral subsidiaries own land or buildings, so those leases should be carefully

scrutinized to be sure that intra-company lease arrangements are fully valued at the market.

There are also other lease arrangements, which have been grandfathered in, from prior corporate


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relationships, such as those with K&F and Lockheed Martin, that should be carefully analyzed

with regard to their true worth.

6. LORAL ORION BOND EXCHANGE OVERSTATES DEBT Loral offered the holders of Orion bonds an exchange for new bonds bearing a lower interest

rate. The new bonds were issued at face amount and were exchanged for bonds that had declined

in value. The difference between the declined value and the par value on the old bonds is

currently carried as a (deferred gain on debt exchange) in amount of $214 Million. This is

original issue discount and is not a liability for the Debtor. Therefore, the amount of

indebtedness should be reduced by $214 Million.

7. INTANGIBLE ASSETS There are additional intangibles which are generally agreed will accrue to value. They are 1) The

Loss-Carry Forward of over $3,000,000,000, and 2) The values of a royalty on Globalstar’s

revenue. This condition may now be in the process of change, but Loral's share of Globalstar was

recently estimated at just under 4% of the company and 25% of government contracts. The

government contracts issue is particularly persuasive, in that the Federal Government has already

used the system for Homeland Security-type applications and as non-essential communication

for troops in Iraq to call home. NASA has also invested significant time and resources to develop

a wireless, satellite-based IP system that can utilize the system for naval and aviation

applications. The return will be significant in absolute dollars following the Globalstar

restructuring.



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8. IN-ORBIT FAILURES BY COMPETITORS Finally it is expected in the satellite community that future satellite orders will migrate to Loral

because of the high quality and reliability of its satellite architectures, when compared to its

competition. Recent major in-orbit failures of Lockheed built satellites have included Loral's

Telstar 4 and Telesat's Nimiq 2. Of the 31 most recent in-orbit failures Boeing has been the

manufacturer of almost half. In a July 22, 2003 issue of Space News, (Exhibit 10: In-Orbit

Failures Article) an article, "In-Orbit Failures, Manufacturing Problems Haunt Boeing", by Sam

Silverstein carried a telling quotation:

"An insurance industry source said the continuing in-orbit problems with Boeing satellites, which date back to 1998, have severely compromised the company's credibility. The source said insurance underwriters likely will exclude XIPS coverage from new policies or renewals of existing policies for Boeing satellites. "The source expressed skepticism that the latest version of the XIPS technology will fare any better than its predecessors. 'This is costing Boeing dearly. Their credibility is shot,' the source said."

So, Loral's position in the satellite manufacturing market is solidifying. Certainly, the fact that

the Company has received 4 GEO orders, since Chapter 11 was declared, is testament to the

perceived value of Loral products. Loral's high value products did not just happen by accident.

Despite a lengthy downturn in the industry, the company has been able to retain key personnel

and is prepared for the market turnaround that is just now starting. Loral's engineering, technical

and support staff is second to none and itself brings significant intangible and unrecorded value

to the Company.

9. IN-ORBIT FAILURES BY LORAL The Estrela do Sul-1 failure has already been discussed, and it is very likely, that it was damaged

during the launch from Boeing's Sea Launch facility. As reported there was a significant acoustic

event, accompanied by transient accelerations, 77 seconds into the launch. This event has been

attributed, with a high degree of probability, to a failure of the fairing in Boeing's launch vehicle.

Attempts to unfold the damaged solar wing of the satellite were unsuccessful and have led to a


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low power scenario, and shortened life, as a result. Like all satellite manufacturers, Loral-built

satellites have had other recent minor solar string power losses. Nonetheless, Loral's low failure

rate is one of the industry's best.

10. MARKET FORECAST DATA FUTRON, a satellite market research firm located in Bethesda, MD, periodically publishes

comprehensive information about the satellite market and industry. Two datasheet Exhibits are

attached that indicate market share for various manufacturers worldwide. Last year, Loral was

responsible for 4% of the launches globally. This year, based upon the April report, SS/L has

already posted 25% of the launches, as strong indicator of resurgent business and a viable Loral.

(Exhibit 11: Launch Data-2003, Exhibit 12: Launch Data-2004)

Also attached is a market-forecast report for the coming 8-10 years. Overcapacity continues to

plague the FSS industry, but there are significant signs of improvement, particularly in the

Defense sector. Loral has taken a proactive approach in addressing this change in focus by

vigorously pursuing the sector, particularly with regard to the MUOS project, which is to be

awarded any day and will provide $300 hundred million in the first year of production, slated for

2004 or 2005. Additional funds, for a total of $2 Billion for the MUOS contract will flow for

satellite content over the next 6-8 years. (Exhibit 13: SAT2004)

Therefore, one can conclude that the business case for Loral is improving dramatically because

of the company's focus on producing high quality, state of the art equipment and services.



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VI. CONCLUDING STATEMENT The Loral Stockholders Protective Committee has stood before the court on three previous

occasions, two of which the Committee requested the court to appoint an Official Equity

Committee and it was turned down. This time is different. We have appeared before the court

with substantial evidence of value both on and off the balance sheet of the Debtor. We have

specifically identified assets, which heretofore were not measured. These include: A) R&D

valuation of patents, trademarks and designs, B) satellite value recording inconsistencies of

Estrela do Sul-1 and Telstar 18, C) orbital slot valuation omissions, D) depreciation over-

reporting on tools and equipment and possible underreporting for sale, E) real estate depreciated

book value vs. market appreciation.

We have shown a pattern of behavior on the part of Loral’s key decision-makers, over multiple

companies, that confirms an agenda of asset conversion and self-enrichment. The internal

mismanagement of the Company strands the shareholders without representation. These actions

show a violator's pattern of self-enrichment, cronyism, nepotism, concealment of assets,

conversion of assets and outright fraud.

These patterns of behavior are most clearly shown in the K&F Industries transactions from 1989

through 1996. In those multiple, obfuscating transactions, the Debtor provided financing in the

amount of $65.4 Million in Convertible Debentures so that Loral's CEO, Bernard Schwartz et al,

could form K&F Industries. That the interest of $31.4 Million in interest, due Loral, as of 1994,

was paid with the additional non-cash issuance of Convertible Debentures, which in turn

converted to Class B stock in 1994. Mr. Schwartz, et al, were then permitted to "buy out" the

Equity interest of Loral in 1996, which, in a few short years, provided a windfall profit for

Schwartz, et al. Mr. Schwartz, as Chairman of both Loral and K&F, used Loral to issue $65.4

Million in financing, and over time, transferred significant assets to himself and others at the

expense of Loral.

A Committee representing the interests of the current owners of the issuer would be the only

committee in evidence working to maximize the values of the estates of the debtor and to satisfy

the Court's mission. The Debtor and the Unsecured Creditors appear to be colluding on


67

fundamentally dishonest agendas, which are affirmed by past actions. The Creditors want to

maximize their ownership, and are willing to sacrifice truth in an effort to minimize the values of

the estates of this Debtor, so they can exclude other possible owners. The Debtor has neither

defended its values nor operated in a manner that would indicate preservation of assets, either

pre-petition, or during the bankruptcy proceedings.

An equity committee should be granted. We respectfully request that the Court grant an order for

one without delay. Time is of the essence to save Loral from the corrupting control of its

management. Upon approval, the shareholders of this issuer will promptly and frugally act to

conduct adequate investigation and evaluation into the various properties and businesses of the

debtor to determine completely, the values of the estates of this debtor. The Committee is

committed to transparency in all of Loral's financial affairs and is not beholden to other hidden

agendas. Upon the establishment of an Official Shareholder Committee, we will gladly accept

the direction of the Court with respect to timing, scope and discovery.

Submitted on July 7, 2004, THE STOCKHOLDERS PROTECTIVE COMMITTEE



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VII. EXHIBIT LIST

Exhibit 1: Intelsat 2004-10Q - Sale Details Exhibit 2: Conference Call Transcript Exhibit 3: Loral 2004-10Q-Lawsuits Exhibit 4: Business Week Article Exhibit 5: CNN Interview including Schwartz Exhibit 6: Orbital Slots Exhibit 7: John McCormack Exhibit 8: Valuation Estimate of Patents Exhibit 9: LS 20.20 Exhibit 10: In-Orbit Failures Article Exhibit 11: Launch Data-2003 Exhibit 12: Launch Data-2004 Exhibit 13: SAT2004 Exhibit 14: Snecma Joint Venture



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VIII. APPENDIX - FINANCIAL SCHEDULES 1. BALANCE SHEET - ORIGINAL Loral 2004-10Q-1 (Not Revised) (In thousands, except par values, Unaudited) March 31, 2004 December 31, 2003 ASSETS Current assets: Cash and cash equivalents $ 132,234 $ 141,644 Accounts receivable, net 18,142 22,969 Contracts-in-process 117,394 62,063 Inventories 41,255 42,456 Insurance proceeds receivable (Estrela del Sol-1Claim?) — 122,770 *Should be here, or in Property Plant & Equipment Other current assets 29,820 36,004 ------------------------------------------------------------------------------------------------------------------------ Total current assets 338,845 427,906 Property, plant and equipment, net 953,958 1,828,282 Long-term receivables 76,142 70,749 Investments in and advances to affiliates 50,618 46,674 Deposits 9,000 9,000 Other assets 46,020 73,130 ------------------------------------------------------------------------------------------------------------------------ Total assets $ 1,474,583 $ 2,455,741 ------------------------------------------------------------------------------------------------------------------------



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LIABILITIES AND SHAREHOLDERS’ DEFICIT Liabilities not subject to compromise: Current liabilities: Accounts payable $ 24,922 $ 50,656 Accrued employment costs 22,885 23,532 Customer advances and billings in excess of costs and profits 320,579 239,225 Deferred gain on sale of assets (Note 4) 20,982 — Accrued interest and preferred dividends — 1,319 Income taxes payable 5,965 269 Other current liabilities 22,906 9,870 ------------------------------------------------------------------------------------------------------------------------- Total current liabilities 418,239 324,871 Pension and other post-retirement liabilities 15,822 10,983 Long-term liabilities 46,783 66,947 ------------------------------------------------------------------------------------------------------------------------- Total liabilities not subject to compromise 480,844 402,801 Liabilities subject to compromise (Note 11) 1,928,360 2,906,095 Minority interest 2,428 2,515 Commitments and contingencies (Notes 2, 9, 11, 12, and 15) ------------------------------------------------------------------------------------------------------------------------- Shareholders’ deficit: Common stock, $.10 par value 4,413 4,413 Paid-in capital 3,392,829 3,392,829 Treasury stock, at cost (3,360) (3,360) Unearned compensation (148) (168) Retained deficit (4,251,172) (4,171,536) Accumulated other comprehensive loss (79,611) (77,848) ------------------------------------------------------------------------------------------------------------------------- Total shareholders’ deficit (937,049) (855,670) ------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders’ deficit $ 1,474,583 $ 2,455,741



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1. BALANCE SHEET - AMENDED BY THE COMMITTEE ASSETS March 31, 2004 December 31, 2003 (In thousands, except par values, Unaudited) Current assets: Cash and cash equivalents $ 132,234 $ 141,644 Accounts receivable, net 18,142 22,969 Contracts-in-process 117,394 62,063 Inventories 41,255 42,456 Insurance proceeds receivable — 122,770 Other current assets 29,820 36,004 ------------------------------------------------------------------------------------------------------------------------ Total current assets 338,845 427,906 Property, plant and equipment, net (Revised) 1,206,461(6)(14) 2,079,274(6) Long-term receivables 76,142 70,749 Investments in and advances to affiliates 50,618 46,674 Orbital Slots (Revised) 435,500(4) 435,500(4) LS 20.20 (Revised) 400,000(8) 400,000(8) Patents and Trademarks (Revised) 511,500(5) 511,500(5) Deposits 9,000 9,000 Other assets 46,020 73,130 ------------------------------------------------------------------------------------------------------------------------ Total assets (Revised) $ 3,074,086(7) $ 4,053,733(7) ------------------------------------------------------------------------------------------------------------------------



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LIABILITIES-AMENDED Liabilities not subject to compromise: Current liabilities: Accounts payable $ 24,922 $ 50,656 Accrued employment costs 22,885 23,532 Customer advances and billings in excess of costs and profits 320,579 239,225 Deferred gain on sale of assets (Note 4) 20,982 — Accrued interest and preferred dividends — 1,319 Income taxes payable 5,965 269 Other current liabilities 22,906 9,870 --------------------------------------------------------------------------------------------------------------------- Total current liabilities 418,239 324,871 Pension and other post-retirement liabilities 15,822 10,983 Long-term liabilities 46,783 66,947 --------------------------------------------------------------------------------------------------------------------- Total liabilities not subject to compromise 480,844 402,801 Liabilities subject to compromise (Revised) 1,714,360(10) 2,692,095(10) --------------------------------------------------------------------------------------------------------------------- Total Liabilities (Revised) 2,195,204(11) 3,094,896(11) Shareholders’ Equity: Common stock, $.10 par value 4,413 4,413 Paid-in capital 3,392,829 3,392,829 Treasury stock, at cost (3,360) (3,360) Unearned compensation (148) (168) Retained deficit (4,251,172) (4,171,536) Accumulated other comprehensive loss (79,611) (77,848) --------------------------------------------------------------------------------------------------------------------- Total Shareholders’ Equity (Revised) 878,882 (12) 958,837(12) --------------------------------------------------------------------------------------------------------------------- Equity per Share (Revised) 19.92 21.73 --------------------------------------------------------------------------------------------------------------------- Total Assets and Liabilities (Revised) 5,269,290(13) 7,148,629(13)



73

PROPERTY, PLANT AND EQUIPMENT - ORIGINAL Loral 2004-10Q-1 (Not Revised) March 31, December 31, 2004 2003 (In thousands) Land and land improvements(Disputed) $ 24,827 $ 24,827 Buildings 87,576 86,065 Leasehold improvements 17,000 16,995 Satellites in-orbit (Disputed) 1,008,799 1,454,511 (including satellite transponder rights of $298.4 million) Satellites under construction (Disputed) 142,734 707,453 Earth stations 32,969 59,303 Equipment, furniture and fixtures 293,728 290,257 Other construction in progress 24,312 24,728 1,631,945 2,664,139 Accumulated depreciation and amortization (Disputed#6) (677,987 ) (835,857 ) $ 953,958 $ 1,828,282 On March 17, 2004 the Company sold its North American satellites and related assets (see Note 2). In January 2004, the Company’s Telstar 14/ Estrela do Sul-1 satellite only partially deployed its North solar array after launch. At the end of March 2004, the satellite began commercial service with the capability to operate between 10 and 14 transponders of the 41 transponders on the satellite. The life of the satellite is now expected to be approximately six years (design life 15 years). During March 2004, the Company recorded an impairment charge of $12 million to reduce the carrying value of the satellite and related assets to the expected proceeds from insurance. The carrying value of Telstar 14/ Estrela do Sul-1 and related assets at March 31, 2004 was $250 million, which is substantially included in satellites in-orbit. It is insured for partial and total losses up to a maximum of $250 million.



74

PROPERTY, PLANT AND EQUIPMENT - AMENDED Loral Space &Communications LTD: 2004-10Q1 (Revised Line-Items are Highlighted) March 31, December 31, 2004 2003 (In thousands) Land and land improvements* (Disputed) $ 49,754 $ 49,754 Buildings* (Disputed) 175,152 172,130 Leasehold improvements 17,000 16,995 Satellites in-orbit (Disputed) 1,008,799 1,454,511 (including satellite transponder rights of $298.4 million) Satellites under construction (Disputed) 142,734 707,453 Earth stations 32,969 59,303 Equipment, furniture and fixtures 293,728 290,257 Other construction in progress 24,312 24,728 1,744,448 (4) 2,775,131(4) Accumulated depreciation and amortization <537,987>(1,2,9,15) <695,857>(1,2,9,15) (Disputed#6) $ 1,206,461 (3) $ 2,079,274(3) Notes: *Total net Property, Plant and Equipment Land and Buildings are assumed to have doubled in value, given an appreciation of 7% per annum over 10 years. (1) Depreciation will be reduced by $40 Million to offset the estimate of depreciation taken that unnecessarily

devalued Land and Buildings, which have doubled in price. (2) Depreciation will be reduced by $100 Million to properly reflect the values of equipment furniture and

fixtures. (3) Property, Plant and Equipment increases to reflect market value. (4) Most orbital slots are in growth markets and are valued at the same $33.5 Million per slot that Intelsat paid.

(Exhibit: Intelsat 2004-10Q - Sale Details) (5) Patents and Trademarks are valued at their estimated worth. (6) The net Property, Plant and Equipment number goes to the Asset's Section. (7) New Total Assets are adjusted for market value. (8) Cost to develop the LS 20.20 is estimated to be $350-$450 Million. The average number has been used. (9) The reduction in depreciation fairly reflects the appreciation in real estate, as well as the fact that the tools and

equipment to produce state-of-the-art satellites, including design analysis tools, sensors, vacuum chambers, casting tools, machining tools, composites tools, lifting tools, electronics assembly etc.

(10) This figure has been reduced by $214 Million. (11) This figure was calculated by adding total liabilities not subject to compromise. (12) Arrived at by subtracting Total Liabilities from Assets (13) Arrived at by adding Total Liabilities and Assets. (14) On the Company's statement this line item includes 435,500 (Orbital Slots), 400,000 (LS 20.20) and 511,500

(Patents and Trademarks). We have broken this out on The Committee's statement for clarity. (15) The decline in depreciation of 107,870 from year-end until March of 2004 largely reflects the sale of 5 Telstar

satellites, (not including Telstar 4) 3 of which are "aging". Earlier disclosure documents suggest that the depreciation on those satellites was about $100 Million higher. If correct this would lead to an additional overstatement of depreciation and an understatement of assets.


1 4CHJLORM Motions 1 UNITED STATES DISTRICT COURT 1 SOUTHERN DISTRICT OF NEW YORK 2 ------------------------------x 2 3 IN RE: LORAL SPACE & COMMUNICATIONS, Ltd., 3 Debtor 4 LORAL SPACE & COMMUNICATIONS, Ltd., 4 LORAL STOCKHOLDERS PROTECTIVE COMMITTEE, 5 TONY CHRIST, 5 JEFFREY M. SWARTS, 6 7 Appellants, 8 8 v. 04 Civ. 8645 RPP 9 10 10 LORAL SPACE & COMMUNICATIONS, Ltd., 11 11 Appellee. 12 12 ------------------------------x 13 14 15 December 17, 2004 15 9:40 a.m. 16 17 18 Before: 18 19 HON. ROBERT P. PATTERSON, JR., 19 20 District Judge 21 22 23 24 25 SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300

11-10612-shl Doc 427-15 Filed 03/16/12 Entered 03/16/12 16:44:38 Exhibit R Pg 1 of 77

2 4CHJLORM Motions 1 2 2 APPEARANCES 3 4 5 5 JEFFREY M. SWARTS, 6 Appearing pro se 6 7 8 WEIL GOTSHAL & MANGES, LLP 8 Attorneys for Appellee 9 BY: STEPHEN KAROTKIN, Esq. 9 SHAI Y. WAISMAN, Esq. 10 RACHEL B. EHRLICH, Esq. 10 Of counsel 11 12 13 AKIN, GUMP STRAUSS HAUER & FELD, LLP 13 Attorneys for Official Committee of 14 Unsecured Creditors 14 BY: DAVID H. BOTTER, Esq. 15 ABID QURESHI, Esq. 15 Of counsel 16 16 17 18 19 20 21 22 23 24 25 SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


3 4CHJLORM Motions 1 (In open court) 2 (Case called) 3 THE COURT: Mr. Swarts is going to appear for the 4 committee? 5 MR. SWARTS: Yes, sir. 6 THE COURT: And Mr. Karotkin from Weil Gotshal, on 7 behalf of the debtor -- the debtors, I guess I should say? 8 MR. KAROTKIN: Yes, sir. 9 THE COURT: And Mr. Botter from Akin Gump? 10 MR. BOTTER: Good morning, your Honor. 11 THE COURT: On behalf of the unsecured creditors? 12 MR. BOTTER: Yes, your Honor. 13 THE COURT: No other appearances? 14 All right. I want to be sure that we are in focus 15 here. This is an appeal from the decision of the bankruptcy 16 judge, denying the ad hoc stockholders' committee an examiner, 17 and all we have to face here is whether or not it is correct, 18 he made a correct decision under the law. We don't have to -- 19 I can't evaluate the financials of the -- or at least I don't 20 intend to examine the examinations of the debtor or attempt to 21 examine them. That's probably beyond my capabilities anyway, 22 but I can examine whether or not he followed the law in 23 deciding the motion which the stockholders' committee made. 24 The reason I say that is that I'm concerned that the 25 argument may stray into valuations, as they did at the motion SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


4 4CHJLORM Motions 1 for a stay, and I've heard that. I don't think it would be 2 conducive to the stockholders' committee's argument to get off 3 on to the valuation problems which they see. It is a matter of 4 whether or not the judge followed the law in failing to appoint 5 an examiner under Section 1104 (c)(2). 6 So I hope that's helpful to you, Mr. Swarts, because I 7 know you're not -- I believe you are not an attorney? 8 MR. SWARTS: I'm pro se as well, sir. 9 THE COURT: I don't want to -- I try to do this. I am 10 not trying to handicap you in any way, it is just that that is 11 what the issue is before me. If we get on to other things, it 12 detracts from thinking about the issue before me. With that 13 said, please go ahead, make your argument. 14 As I understand it, you all are relying on the papers 15 that you filed. As I read your papers, you asked for a speedy 16 hearing on the examiner's decision and said you were content to 17 rest your arguments on the points you've made in connection 18 with the stay and the various papers filed in support thereof. 19 Accordingly, I ordered the appellees to file briefs by 20 Wednesday, so that you'd know what they were saying and you'd 21 have an opportunity to respond or make any points which you 22 wish wished to make here this morning, all right? All right. 23 Please go ahead. 24 MR. SWARTS: Your Honor, my name is Jeff Swarts, 25 spokesman for the Loral Stockholders' Protective Committee. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


5 4CHJLORM Motions 1 I've been a stockholder of Loral for more than four years. My 2 great uncle once worked at a division that eventually was 3 purchased by Loral in Akron, Ohio, which was a segment of -- 4 THE COURT: Pull that -- arrange it so that that is in 5 front of your mouth and I'll be able to hear you. 6 MR. SWARTS: I have the same problem. 7 THE COURT: There is a problem in this courtroom, just 8 so you know. 9 MR. SWARTS: Did you miss what I just -- 10 THE COURT: I heard you, but I want to be sure I hear 11 you when you get to the meat of your argument. There is no 12 loud -- when they built this courtroom, they put no 13 loudspeakers over the judge or over the court reporter. 14 Loudspeakers start over counsels' table and in the spectators' 15 area, so whenever I have a jury here, I explain to them that 16 the architects thought that the judges' role was to sleep 17 during the proceedings. 18 Anyway, if you speak up a little bit, it makes it 19 easier for the court reporter and myself. 20 MR. SWARTS: At any rate, having grown up in Akron and 21 having a great uncle who worked at Goodyear, eventually that 22 segment of Goodyear was spun off during a green mail attempt by 23 Sir. James Goldsmith. Mr. Bernard Schwartz picked up a lot of 24 those divisions as a result of Goodyear having to assume 25 several billion dollars in debt. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


6 4CHJLORM Motions 1 Anyway, so I've followed the company for a long time. 2 My great aunt of 98, she just died about three or four weeks 3 ago, finally her husband had been a pensioner of Goodyear 4 Aerospace, so he was impacted by some of these events many, 5 many years ago. 6 I'm here today in place of Tony Christ. I am sure you 7 have heard the news. He attends most of the hearings because 8 of my geographic location. It is more conducive for him to do 9 that, but he can't be here because his 20-year-old son, Brian, 10 his only son, died suddenly early Wednesday morning. 11 Obviously, Tony is distraught. Brian was a great kid 12 in college and finding his way in the world. Tony has said 13 that despite this tragedy, he will continue his work with the 14 Loral Stockholders Committee. 15 Brian was a shareholder of Loral. It was a gift from 16 Tony to Brian and one of his daughters, Katelyn, and Brian had 17 recently sold his shares after becoming very discouraged about 18 what has been going on. 19 THE COURT: Tell me, just so I know, how many 20 stockholders does the ad hoc committee comprise of? 21 MR. SWARTS: It is about 30. I don't have a precise 22 number right now. 23 THE COURT: What percentage of the common stock do 24 they own? 25 MR. SWARTS: 9.5. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


7 4CHJLORM Motions 1 THE COURT: All right. 2 MR. SWARTS: But we are here to discuss the Loral 3 proceedings, not personal tragedies. Your introduction does 4 constrain me in what I had hoped to present to you. 5 THE COURT: I tried in my order to show what I 6 considered to be the issue before the court. 7 MR. SWARTS: Yes, sir. 8 THE COURT: And I tried to in the order indicate that 9 I had some concern about the orbital space station's evaluation 10 just from the argument that was made on the same motion, but I 11 didn't go beyond that. 12 MR. SWARTS: I will try to limit any comments that I 13 make on value to the orbital slots, since it was in your order. 14 THE COURT: It seems to me it is the only major, 15 significant -- it was the only place where there was a chance 16 for there to be significant value. It would place the -- 17 possibly place the -- possibly create a significant increase in 18 value to overcome the large debt outstanding and creditors' 19 requirements. That was just my reaction from hearing the stay 20 motion. 21 MR. SWARTS: These are esoteric technologies, and they 22 are difficult to understand. It is one of the reasons why I 23 still own the stock. Had I had a better understanding, as 24 management did, before the bankruptcy, I can assure you I would 25 not be holding that stock right now. Part of the reason I SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


8 4CHJLORM Motions 1 didn't have a better understanding was because of the actions 2 and words of Loral's fiduciaries, and we have talked about 3 that. 4 One of the primary elements of the examiner statute, 5 as I read it, is an examiner is to be considered when there are 6 allegations of misconduct. I think that we have done a 7 credible -- although I also believe the debtor's attorney will 8 argue with me about this -- a credible job of coming up with 9 the areas where that misconduct has likely taken place if, in 10 fact, it has taken place. 11 One of the difficulties about these esoteric 12 technologies in a business of this complexity is that we're not 13 alleging that there have been any, you know -- nobody has been 14 embezzling funds from Loral's treasury. We're not alleging 15 anything along those lines. What we're alleging is that the 16 statements made to shareholders and the financial markets, 17 which were obviously -- and financial markets -- their 18 valuation arguments, what we're alleging is that the misconduct 19 is within the context of those statements. 20 THE COURT: They would only be relevant normally to a 21 stockholders' derivative action or a class action, I suppose, 22 against management and whatever insurer's management may have 23 had indirectly. That isn't really, it seems to me, relevant 24 here. 25 The question here is whether there has been a failure SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


9 4CHJLORM Motions 1 to, as I understood you, to properly value the assets at the 2 time of the filing for Chapter 11 and subsequently because the 3 shareholders could have equity value as opposed to no equity 4 value under the proposed plan of reorganization, because under 5 the plan of reorganization, the present shareholders would be 6 wiped out and new shareholders would, as I understand it, be 7 formed and they would consist of the creditors who have not 8 been fully paid for the debt of the corporation that they hold. 9 So the issue is whether the bankruptcy proceeding, the 10 assets have been properly valued. If you're not contesting 11 that -- 12 MR. SWARTS: Oh, I am. We are. 13 THE COURT: All right. It really is irrelevant, you 14 see, about what transpired before the bankruptcy. 15 MR. SWARTS: The creditors will receive the lion's 16 share of the proceeds in the reorganization of the equity. 17 They will not receive all of it. Management will receive 6.5 18 percent in stock options, and a new vice CEO, Michael Targoff, 19 who we have serious questions about his behavior both prior and 20 post-bankruptcy, will receive .5 percent of the stock in the 21 company. 22 THE COURT: What is his role? 23 MR. SWARTS: His role currently as far as -- he will 24 be vice CEO, vice chairman I believe is the correct title. 25 Obviously, it appears that he has been groomed or he has SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


10 4CHJLORM Motions 1 positioned himself to be the successor of Bernard Schwartz, who 2 I believe he is 77 years' old now. He is probably looking to 3 retire before too long. 4 So there are issues, and the creditors obviously have 5 very legitimate claims on the estate. We're not contesting 6 that. We are contesting the 7 percent that will be moving on 7 to management and Mr. Michael Targoff. 8 We do have, we do have some questions about valuation. 9 As you say, this is not the proper location or the proper 10 jurisdiction, venue to be exploring those, but we also feel 11 that based on the assets that we feel have been minimized or 12 omitted, that, in fact, if those asset valuations followed the 13 course that we believe they should properly, we believe that 14 the creditors would be made whole, that they would have a 100 15 percent recovery, and the only issue is what, what is in -- and 16 they keep talking about the insolvency status based upon the 17 debtors' numbers that they pulled together. They keep talking 18 about insolvency, and we keep talking about numbers that show 19 solvency. 20 Orbital slots are important, patents are unvalued, 21 trademarks are unvalued. Loral has one of the most potent 22 satellite portfolios, patent portfolios in the world, nearly 23 500 patents worldwide. The EDS satellite, which failed, 24 they're expecting a $250 million insurance settlement on that, 25 probably adjusted down because it is still partially SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


11 4CHJLORM Motions 1 operational. Nevertheless, it will be in excess of $200 2 million. 3 Mr. Karotkin has stated that there is a contractual 4 obligation on that money. Loral has a contractual obligation, 5 I believe this is the only one, to replace Intelsat for its 6 Connexion Inflight Internet Service. There was an arrangement 7 there. 8 Now, this is sort of a tautological situation because 9 Boeing that owns Connexion is also the owner of Sea Launch, 10 which launched the EDS satellite and which there is significant 11 evidence that the launch vehicle was responsible for the damage 12 of the satellite. It was an event that occurred 77 seconds 13 into the launch prior to final separation. We have some 14 knowledge that the Boeing launch vehicle fairly failed under 15 the severe aerodynamic buffeting that occurred during that 16 launch. 17 What is going on here is you have one division of 18 Boeing, Connexion, holding the sithe over Loral's head, and on 19 the other side you have another division of Boeing who is 20 responsible for the EDS failure in the first place. Again I am 21 starting to slide off into valuation, and I don't want to 22 confuse the issue,. 23 Even if Loral does build that satellite, uses that 24 $250 million settlement to build that satellite, how is that 25 not an increase in the assets of $250 million to Loral, number SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


12 4CHJLORM Motions 1 one? 2 When the claim is paid, it will go to the cash figure, 3 $250 million will into the cash figure of Loral. When they 4 begin building the satellite, some of that money will transfer 5 down into contracts in progress. When the satellite is 6 complete, the rest of that value will transfer into property, 7 plant, equipment. The money will still be there. It will move 8 from one account in Loral into another account. Once it is 9 launched and fully operational, it will begin generating 10 revenues. 11 That $250 million is not on the balance sheet, sir. 12 It is simply not there. They have found a place for it in the 13 forecast, but it seems to disappear into thin air in 2006 and 14 beyond. So that is another area, the EDS satellite. 15 There are questions about the valuation of the 16 remaining satellite Fleet, which I served the debtor and 17 creditors and you with a description of the satellites of Loral 18 and the remaining transponders on the satellite, remaining 19 life. We believe that the numbers are depressed on Loral, and 20 the information that we supplied about a very congruent 21 company, New Skies, which has exactly the same number of 22 satellites in similar orbits, serving similar markets, they 23 value their property, plant and equipment for just the 24 satellite services company at $1.03 billion. 25 Loral, in its last monthly operating report, this is SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


13 4CHJLORM Motions 1 the October 22 report, talked about its valuation in property, 2 plant and equipment of I believe the number is $826 million. 3 But Loral not only has that congruent Satellite 4 Services Group, it also has an entire satellite manufacturing 5 group. So not only do you have about a $274 million smaller 6 amount relative to New Skies, but you also have this huge 7 satellite manufacturing division with all this incredible 8 intellectual property, sophisticated engineering staff, 9 proprietary designs. 10 They have the new satellite design, LS 2020, which has 11 never been built, but which the company spent hundreds of 12 millions of dollars developing. There is a brand new satellite 13 design just sitting there and it is not valued by the debtor. 14 It is not in the assets and liabilities schedule. It is just 15 not there. It is a no-issue. They spent all that money on it, 16 but it isn't there. 17 This is what I am talking about when I say with this, 18 with this debtor it is impossible to separate concepts of 19 misconduct from concepts of valuation because the two are 20 intertwined. That is why we desperately need a third party. 21 An examiner is what we have asked for with our motion 22 to the judge, what is on appeal here, would provide that 23 third-party investigation of misconduct regarding the asset 24 valuations of Loral. We're not contesting any of the 25 creditors' claims. They're very good at taking care of their SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


14 4CHJLORM Motions 1 own claims. We are not contesting that at all. They have 2 valid claims. 3 We believe we have valid claims also, but we do not 4 have an advocate. We are the advocate, two guys who own stock 5 who followed the company for a long time. We're it! 6 Mr. Karotkin, his filing that he sent in to you on 7 Wednesday, he is a very articulate man. That was a very artful 8 response. Mr. Bernard Schwartz is a very artful man, but I 9 noticed in reading through that, you specifically, you 10 specifically directed him, the debtor, not him, but Weil 11 Gotshal, to find out or to address the issue of whether proper 12 procedures in conducting their valuation analyses of the going 13 concern value of Loral, including the orbital slots, have taken 14 place. 15 Mr. Karotkin, I don't believe I saw the word "orbital 16 slots" in his filing to the court. He simply did not respond 17 to your order, as far as I can tell. 18 Now, why, why wouldn't he? 19 He is a very good lawyer. Weil Gotshal is an 20 excellent firm. The more I learn about it, the more impressed 21 I am with that firm. Very impressive! Why won't they address 22 this issue that they've been ordered to address? The reason 23 is: They're doing their job. They have to protect their 24 client, and if there has been misconduct, it is their job to 25 minimize any down-side to an investigation, an examiner's SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


15 4CHJLORM Motions 1 investigation. 2 In discovery, it matters not. They've told us that we 3 can come into confirmation, we can contest confirmation. We 4 are attempting to. There will be a hearing on Monday which I 5 will also attend, where we, we are attempting to go through a 6 discovery process. They have made a motion that says each 7 party can only ask 25 questions, 25 interrogatory questions. 8 That is their idea of discovery. 9 A corporation of Loral -- Loral has around 30 10 sub-corporations. How do you possibly ask relevant questions 11 about a debtor of Loral's complexity with 25 interrogatory 12 questions? We feel we need 250. 13 But this is the kind of thing that has been going on. 14 I don't fault them for it. They're doing their job, but I do 15 not believe that this process is fair, I do not believe that 16 when Congress wrote the examiner statute, that what they had in 17 mind was, one of the reasons they wrote it was to protect 18 shareholders from these kinds of self-serving Chapter 11 19 filings. 20 And yet we're told that an examiner has to serve all 21 parties, he can't serve one entity, but that is not what the 22 statute, in my reading, says. Now, there have been 23 interpretations by other courts that say that is what it says. 24 When I read it, I read that any party in interest can request 25 an examiner and, yes, it must be in the interests of the SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


16 4CHJLORM Motions 1 estate, but if there has been misconduct, how can an 2 investigation of that misconduct be anything but a positive 3 outcome in the long run for the corporate enterprise? 4 Mr. Schwartz, Mr. Bernard Schwartz, the CEO, following 5 many, many -- he is a deal-maker. He has made many corporate 6 deals. He's done very well for himself, but he's also 7 developed a reputation for not necessarily being particularly 8 fair with his partners, shall we say. 9 MR. KAROTKIN: Your Honor, excuse me. I don't mean to 10 impose here, but we're going way, way, way beyond the record 11 here. I really don't think it is fair. I know he is pro se. 12 I really don't think it is fair for him to go into allegations 13 not in the record about Mr. Schwartz. They're unsubstantiated. 14 He has no evidence. 15 THE COURT: It isn't, it isn't -- let me say, Mr. 16 Swarts, I think your presentation has been very good, but you 17 are straying into the matters that really aren't before me. 18 When you deal with those matters that you feel are 19 something that an examiner should look at in terms of the items 20 that he should look at and the balance sheets of the debtor, 21 that I thought you did move in a way that was very well done, 22 but when we get into these personal evaluations of the 23 individuals, that is not before me. 24 MR. SWARTS: It is a motive, and I apologize. 25 THE COURT: The issue is: Is there anything in the SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


17 4CHJLORM Motions 1 Chapter 11 valuations which should be examined? 2 MR. SWARTS: Okay. I will shift my emphasis as best I 3 can. 4 THE COURT: Under the statute as I read it, there is a 5 legislative history of attempting to protect public 6 shareholders in public companies, and that seems to me to be 7 the purpose of Section 1104 (c)(2). 8 MR. SWARTS: Well, it seems -- 9 THE COURT: The question is whether there should have 10 been such an appointment. 11 MR. SWARTS: It seems to me that in some respects, 12 Judge Drain has already answered that question for us. He did 13 offer us a provisional process examiner, on the budget of 14 $25,000. In my opinion, that is sort of like asking to 15 evaluate the valuation of Loral with 25 interrogatories. It is 16 simply not sufficient to address the allegations of misconduct 17 that we've made. 18 Following, following that hearing in which Judge 19 Drain, at his direction, provisionally offered that, I called 20 Mr. Karotkin, we had a phone call. I initiated contact with 21 him. In that phone call, he declined to consider any 22 pre-petition scope to a process -- 23 THE COURT: I am sorry. I missed that. I was 24 thinking about something else. What did you just say? 25 MR. SWARTS: He declined to consider any SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


18 4CHJLORM Motions 1 prepetition -- 2 THE COURT: Who declined? 3 MR. SWARTS: -- pre-petition scope, Mr. Karotkin, the 4 debtors' attorney. He declined that scope, that pre-petition 5 scope despite the fact that throughout the entire examiner's 6 hearing, that was a very important part of what we were 7 discussing, and he said that Judge Drain stated three times, 8 and he had it in his notes that he stated three times, that 9 that had been the directive of Judge Drain. 10 On a subsequent reading of the transcript of that 11 hearing, I can't confirm that statement. 12 THE COURT: I don't understand what you're talking 13 about here now. 14 MR. SWARTS: Well, we have -- 15 THE COURT: Are you suggesting that -- 16 MR. SWARTS: -- what I am saying is we made a 17 good-faith effort to discuss with the debtor, through counsel, 18 the appointment of a process examiner and to define what the 19 scope and budgetary requirements of that would be. That is as 20 far as it went. 21 Mr. Karotkin sent me a letter, and I have a copy of 22 that letter here, in which he doesn't itemize why those 23 discussions went nowhere, but that was the gist of the 24 conversation. I wrote this letter in response and copied the 25 debtor and Judge Drain on it, and it appears there are none of SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


19 4CHJLORM Motions 1 the criticisms of the SPC regarding our good-faith efforts to 2 work within the court with the debtor, to get an examiner. 3 Now, they're going to say well, you know, you tried to 4 get a committee formed three times, you went on and on and on, 5 you know, and finally when you didn't get the committee, you 6 decided you wanted an examiner. To a degree, objectively, that 7 is true, but there were reasons, important reasons for all of 8 those things that occurred. There were important reasons why 9 we didn't ask for an examiner earlier. 10 THE COURT: What were they? 11 MR. SWARTS: One thing is we're pro se. We did not 12 have a full understanding of our rights under the law. We 13 thought that once, once we have representation through a 14 shareholders' committee, that any needed procedures and funding 15 would have made all of the goals of our committee -- would have 16 realized the goals of our committee. 17 Whether there was value there or not, at least we 18 would have probed to see whether there was sufficient value and 19 whether there was misconduct regarding that valuation, and we 20 come out at the end there is not value, there is not value. We 21 get nothing. We're not arguing that. 22 What we're arguing is that there is no transparency to 23 this process, and every time we attempt to bring transparency 24 to the process, we're stymied in the process, like mostly by 25 procedural mechanisms, and there is one in Mr. Karotkin's SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


20 4CHJLORM Motions 1 latest filing. 2 We didn't make a separate brief, legal brief. We 3 thought that our statement of issues and the legal brief, that 4 they could be used for the same thing. Again, it is our 5 ignorance, from a pro se standpoint. That does not change the 6 content of what we've asked or why we've asked for it. 7 Anyway, Judge Drain obviously thought that on some 8 level an examiner was justified, but then we also have an 9 appeal on the shareholders' committee end, but when we 10 declined, we had reservations about dropping that appeal as a 11 basis for a very huge budget, a strict examiner, which is 12 essentially what Judge Drain was asking us to do. 13 We have very serious reservations about that. 14 Speaking to you now, four months later, I still have 15 reservations about the -- I hesitate to say "correctness" of 16 that judgment, but it just doesn't seem to me that you should 17 have to trade one right in order to receive another right, in 18 order to receive another right. It doesn't make sense to me. 19 In fact, if you look at the Mirant case, they had both 20 a shareholders' committee and an examiner appointed by the 21 court. You can have both. There is no statutory reason that I 22 can find why you cannot have both. 23 Again, Mr. Karotkin's pleading of this past Wednesday 24 did not address the question of orbital slots and how the 25 valuation of the company was done by the professionals in both SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


21 4CHJLORM Motions 1 the creditors and the debtors' camps. We do have -- and we 2 have been told to wait for confirmation, that is the proper 3 place to do it. We are not properly represented, I said that. 4 Mr. Chalmers, who is a shareholder, is helping us. He is from 5 California. He is going to help us with some of the procedural 6 aspects of discovery, but he is not a bankruptcy lawyer and he 7 is doing it for free. He is going to pay his own expenses. 8 That is not adequate representation. 9 THE COURT: What kind of a person do you envisage 10 would have to conduct an examination, do you feel would be 11 satisfactory? 12 MR. SWARTS: Typically, I would assume -- 13 THE COURT: Don't you have to have someone who has 14 knowledge of the satellite industry? 15 MR. SWARTS: I would assume -- 16 THE COURT: Are there many of those people? 17 I suppose they're a pretty limited group, aren't they? 18 Maybe I'm just speaking of showing my age and how out of date I 19 am, having been on the bench so long. 20 MR. SWARTS: Well, I guess the way I would see it is 21 that you would probably, you would hope that the U.S. Trustee 22 would appoint an examiner, would choose an attorney or legal 23 firm that has strong credentials in intellectual property and 24 space-based assets. It might be a firm with an intellectual 25 property-leaning patent attorneys and that sort of thing. Any SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


22 4CHJLORM Motions 1 other expertise that was not valuable directly to a firm like 2 that could be hired by the firm in order to do specific things, 3 like look at the orbital slot valuations, look at the patents, 4 look at the EDS. 5 THE COURT: What sort of person does that? 6 MR. SWARTS: Well, Mr. Christ has a friend who he has 7 worked with as a stockholder in the past, Martin Block, who is 8 a former NASA employee, considered one of the foremost experts 9 in the field of space-based assets. He stated he knows a man 10 who knows an awful lot about orbital slots who can help out 11 with such an valuation. There are people out there, but 12 certainly they're not going to do it for free and they can't do 13 it within, you know, two or three weeks before confirmation 14 plows along. 15 These are questions that we have been raising for six 16 months. They have not been answered by the debtor, for a 17 variety of reasons. Whenever we have raised these issues in 18 court, what we have gotten at the end was hollow 19 generalizations and denials. There are the irresponsible 20 allegations of the SBC's spokesman that we have no evidence, 21 but we were presented a 74-page motion full of evidence, in our 22 view, in lay view, of misconduct and valuation minimization. 23 It contained about 15 exhibits. 24 That, to us, was very substantial, but it hasn't been 25 corroborated. I admit they are allegations, but as allegations SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


23 4CHJLORM Motions 1 properly looked at, we could find out through a transparent 2 process whether they're real or not or whether this is just a 3 figment of our imagination and many, many other shareholders as 4 well. 5 THE COURT: All right. Thank you very much. 6 MR. SWARTS: Thank you very much. 7 THE COURT: Mr. Karotkin. 8 MR. KAROTKIN: If I may? 9 MR. SWARTS: May I make one more -- 10 THE COURT: Yes, go ahead. 11 MR. SWARTS: -- one more comment again on the issue of 12 orbital slots. This is one of our exhibits. It is a map of 13 the orbital slots that was from the 2000 annual report, Loral 14 Annual Report, Page 9, in which the orbital slots are described 15 as beach front property and prime real estate. 16 From the 1999 annual report, this is a similar 17 illustration, that shows all the orbital slots, all of the 18 satellite assets. What does it say at the top? "Loral's 19 Global Space Assets." 20 In 1999, the orbital slots were defined by Loral as 21 assets. In 2004, there is only one set of orbital slots that 22 are considered assets by Loral, and that's the KA Band, a 23 limited subset of KA Band orbital slots. 24 THE COURT: All right. You better show those exhibits 25 to Mr. Karotkin. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


24 4CHJLORM Motions 1 MR. SWARTS: I am sure he is familiar with them. 2 THE COURT: Give them to the Deputy Clerk, so he can 3 make them part of your record. 4 (Pause) 5 MR. SWARTS: There is one entry in the assets and 6 liability schedules for orbital slots: KA Band slots, $34 7 million. The only reason it is there is because they had an 8 intracompany transfer of those assets in 2000 for $34 million, 9 and it was right there in the books. They had to admit that, 10 but there are no others that I can find. 11 I've asked this repeatedly. No one has pointed out in 12 the 1200 pages of assets and liability schedules where those 13 assets are listed. Thank you, your Honor. 14 THE COURT: Hand your exhibits to Mr. Monteagudo here 15 so we have them in the court record. 16 MR. KAROTKIN: Your Honor, are these the exhibits? I 17 am a little confused. I thought that there is a record that 18 you're considering. I don't know that -- 19 THE COURT: I got a record on appeal on November 19th 20 from the bankruptcy court. It wasn't until then, and the 21 record on appeal is a box of fairly thick documents, and it is 22 very hard to know which documents they're specifically relying 23 on. 24 I think there is a counter-designation of appeal by 25 the appellees, and if what has been helpful to me, Mr. Swarts' SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


25 4CHJLORM Motions 1 presentation, is there has been more of a focus-down on what 2 their claims are. It is much more articulate than the prior 3 presentation, frankly, and it seems to me, in fairness to the 4 pro se, that they should have their record. They may want to 5 appeal whatever decision or you may want to appeal whatever 6 decision I make. 7 Since he has spoken of it, I don't think you can show 8 the picture that he was referring to or the statement in the 9 annual report that he was referring to unless it is made of 10 record, part of the record. 11 MR. KAROTKIN: Very well, sir. 12 First of all, Steven Karotkin. 13 THE COURT: You two all agree, it comes out of the 14 annual report, so it seems to me it is something that shows why 15 they have concern about the valuation. 16 MR. KAROTKIN: If your Honor please, Steven Karotkin, 17 from the firm of Weil Gotshal & Manges, for debtors. 18 With all due respect, and so there is no 19 misapprehension of what our position may be, there is a record 20 before the bankruptcy court. None of those documents were 21 admitted into evidence. On an appeal, I don't believe it is 22 appropriate to have any additional documents admitted into 23 evidence or considered before your Honor. I think that again 24 there is a record, the appeal is from the record in the 25 bankruptcy court. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


26 4CHJLORM Motions 1 THE COURT: Are you saying this wasn't -- 2 MR. SWARTS: This is the shareholders' committee 3 motion. 4 MR. KAROTKIN: There is nothing part of the record, 5 there is nothing admitted into evidence before the bankruptcy 6 court. Your Honor, Mr. -- 7 THE COURT: Nothing admitted? 8 MR. KAROTKIN: No, nothing was admitted into evidence, 9 nothing, zero. 10 THE COURT: Well -- 11 MR. KAROTKIN: There were no witnesses. There was no 12 authentication of any document. There was nothing. 13 THE COURT: Let me ask you a question. Mr. Swarts has 14 just held up something that is bound which he says was a brief. 15 I am not sure. Is that not a brief that was before the 16 bankruptcy court? 17 MR. KAROTKIN: I don't know what it is. 18 MR. SWARTS: This is the shareholders' motion. 19 THE COURT: Look at it, Mr. Karotkin, and tell me. 20 (Pause) 21 MR. KAROTKIN: This looks like a motion with exhibits 22 that they filed in the bankruptcy court, yes, sir, but what I 23 am saying is these exhibits were never authenticated. There 24 was never a witness authenticating anything. 25 THE COURT: I see. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


27 4CHJLORM Motions 1 MR. KAROTKIN: That is what I am saying. 2 THE COURT: It was before the bankruptcy court? 3 MR. KAROTKIN: It was before the bankruptcy court, but 4 it wasn't evidence. I will point out, your Honor, Mr. Swarts 5 talks about no one listened to him, no one listened to what he 6 had to say. 7 THE COURT: They didn't call any witnesses and what 8 have you? 9 MR. KAROTKIN: No, sir, not one witness. 10 THE COURT: Were they given an opportunity? 11 MR. KAROTKIN: Yes, sir, four times, four times they 12 had an opportunity. There were four hearings before the 13 bankruptcy court, and with all due deference, I know he is pro 14 se and I know he is a shareholder, and we have sympathy for the 15 shareholders, but four times they had the opportunity to 16 present competent evidence, competent evidence, and Judge Drain 17 listened to them three times, where they said the same thing. 18 He listened to them four times, where they said the 19 same thing, and he said nobody listens. These were raised in 20 the bankruptcy court. 21 THE COURT: Aren't they being hoisted on their own 22 petard there? 23 MR. KAROTKIN: No, sir? 24 THE COURT: Aren't they? Here they are pro se, and 25 you're asking them to present evidence as to the valuation SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


28 4CHJLORM Motions 1 problem. 2 MR. KAROTKIN: No, sir. 3 THE COURT: That means they have to get a witness who 4 has the expertise to give a valuation. 5 MR. KAROTKIN: No, sir. 6 THE COURT: Doesn't it? 7 MR. KAROTKIN: No, sir. 8 THE COURT: Why not? 9 MR. KAROTKIN: Because in our court system and under 10 the statute, they are required -- and you heard this yourself a 11 week ago, your Honor -- they're required to come forward with 12 credible evidence that warrants an investigation. 13 Now, if I may, and I don't mean to be repetitious, but 14 they presented the same arguments on four occasions to the 15 bankruptcy court as to what their quote-unquote credible 16 evidence was, your Honor. They were here last week before you 17 you, and Mr. Christ presented the same type of documentary 18 whatever it was. It wasn't competent evidence. It wasn't 19 authenticated. 20 It was a lot, a lot of it was his own notes and 21 creation, and what did the bankruptcy court find? Three times, 22 four times the bankruptcy court found it wasn't credible and it 23 was irresponsible. You, your Honor, with all due respect, when 24 we were here a week ago Monday, you found it was too 25 speculative. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


29 4CHJLORM Motions 1 THE COURT: To order a stay of the confirmation 2 hearing, that's correct. 3 MR. KAROTKIN: Yes, and, and -- 4 THE COURT: I am not going to order a stay on the 5 basis of -- I am not going to interfere with confirmation 6 hearing on the basis of that kind of presentation. 7 MR. KAROTKIN: The purpose of the statute, sir, the 8 purpose of the examiner's statute -- and Mr. Swarts was very 9 clear about this, he is looking for an examiner to be his 10 constituency's advocate. That is not the purpose of the 11 statute. It is supposed to be to investigate wrongdoing, and 12 there has to be credible evidence of wrongdoing. 13 Your Honor, there isn't any, and I think that is very 14 clear. As the bankruptcy court noted, sir, if under the 15 circumstances here, an examiner were to be appointed, then any 16 time anyone came off the street and made a naked allegation, 17 which essentially is what we have here -- there is no proof of 18 anything wrong -- any time that happened, there would be an 19 obligation to appoint a new examiner. 20 Just by way of example, because the information that 21 they presented yesterday, I have it here, what they faxed 22 yesterday to you, again it is not part of the record, it is not 23 authenticated. 24 THE COURT: I couldn't understand it anyway, so don't 25 worry about it. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


30 4CHJLORM Motions 1 MR. KAROTKIN: Let me just give you an example of how 2 misleading and wrong it is. It is just plain wrong. It is 3 factually wrong. 4 THE COURT: I haven't read it anyway. 5 MR. KAROTKIN: It is the fax you faxed to me 6 yesterday. 7 MR. SWARTS: Two days ago. 8 MR. KAROTKIN: No. Yesterday. 9 MR. SWARTS: Yes, okay. 10 MR. KAROTKIN: I don't know if your Honor has it in 11 front of you? 12 THE COURT: No, I don't. I didn't understand it, so I 13 just put it aside. 14 MR. KAROTKIN: But what this is designed to tell you 15 and what Mr. Swarts was actually telling you earlier today was 16 based on this piece of paper, and it was based on the value of 17 the transponders up in the orbital slots, okay? 18 If you just look at this, and take a moment, your 19 Honor, I don't mean to impose on you, just a couple of gross 20 errors, a couple of grosser errors. 21 Number one, Telestar 11. Do you see the reference to 22 Telestar 11, the second satellite, sir? 23 THE COURT: Yes. 24 MR. KAROTKIN: Okay. If go over to the column that 25 says "years left," it says "two." There are no years left. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


31 4CHJLORM Motions 1 That satellite basically is not performing at all. 2 If you go to Telestar 18, it says it has 14 years of 3 life left. 4 THE COURT: Yes. 5 MR. KAROTKIN: It has 13 years of life left. If you 6 look at -- there are a couple of paragraphs below the chart, 7 your Honor. There is one that has as asterisk next to it, it 8 says Loral also owns the 24 (c) transponders on Intelsat's 9 Telestar 13. Do you see the record? That is factually 10 incorrect. We do not own it, period. 11 MR. SWARTS: It notice in the -- 12 MR. KAROTKIN: Excuse me, Mr. Swarts. 13 We do not own it. It was sold to Intelsat. I don't 14 know what annual report you're looking at. I assume you're 15 looking to one prior to the time it was sold to Intelsat. It 16 doesn't exist. 17 Then if you look at the next piece of paper which 18 purportedly is supposed to tell what New Skies has and compares 19 apples to apples, I assume that is what they intended, was to 20 compare apples to apples, right? They don't compare apples to 21 apples because if you know, they don't have any column as to 22 years left and transponders years total, okay? 23 Now, if they were accurate and if they told you all of 24 the facts -- and again that is what we have been through here. 25 We have little pieces here, little assets there. A paper Mr. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


32 4CHJLORM Motions 1 Christ prepared that suggests these people have committed 2 wrongdoing, that is the quote-unquote evidence that is before 3 you and before the bankruptcy court. 4 If you look at this chart, I wouldn't accuse them of 5 trying to mislead you, but it would be nice if we had some 6 facts. The fact of the matter is, your Honor, the total number 7 of transponder years that New Skies has left is 3,396. The 8 total number that Loral has left is 1352, about a third of 9 that, about a third, okay? 10 Let's go to their chart and look at the second page. 11 New Skies values it. They value three times the number of 12 transponder years, three times the number, at a billion 13 dollars. What did Mr. Swarts say? We value a third of that, 14 not at 300 million, no, but we value it at 800 million. There 15 is no funny business here at all and there is nothing they can 16 point to about any funny business. 17 Again, naked allegations is not a basis to appoint an 18 examiner. 19 THE COURT: What case are you relying on? 20 MR. KAROTKIN: I am -- 21 THE COURT: I read your cases and I read your brief, 22 and I want to know what you're relying on? 23 MR. KAROTKIN: The Gleotech case specifically says 24 that. 25 THE COURT: What you're relying on with citation? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


33 4CHJLORM Motions 1 MR. KAROTKIN: In Re: Gleotech, your Honor. 2 THE COURT: I read Gleotech. 3 MR. KAROTKIN: That is in our papers. 4 THE COURT: That is a (c)(1) case. 5 MR. KAROTKIN: Pardon me? 6 THE COURT: That is an 1104 (c)(1) case. It is not an 7 1104 (c)(2). 8 MR. KAROTKIN: The Bradlees case by Judge Lifland. 9 THE COURT: Bradlee? 10 MR. KAROTKIN: Yes, sir, which is on Page 14. 11 THE COURT: That is a laches case. 12 MR. KAROTKIN: So is this. 13 THE COURT: That is different. It is a laches case. 14 MR. KAROTKIN: Your Honor, they moved under 1104 15 (c)(2), but let's look at the facts. 16 THE COURT: Judge Drain did not show any reliance, 17 state facts claiming reliance, claiming laches in his opinion. 18 MR. KAROTKIN: Why should we ignore that? Why should 19 we ignore that, your Honor? 20 THE COURT: Because I asked. I am trying to determine 21 whether or not an examiner should have been appointed -- 22 MR. KAROTKIN: Okay. 23 THE COURT: -- under the statute -- 24 MR. KAROTKIN: Yes, sir. 25 THE COURT: -- as it is written. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


34 4CHJLORM Motions 1 As I see, and maybe you should address this, there is 2 Circuit Court authority. It is true it is in another circuit, 3 but there doesn't seem to be any Circuit Court authority in 4 this circuit, but the only other Circuit Court authority says 5 appointment of an examiner is mandatory. 6 MR. KAROTKIN: Yes, sir. In fact, those decisions 7 have been addressed. 8 THE COURT: Not by a Circuit Court. 9 MR. KAROTKIN: No, no, but they have been addressed in 10 this district by the bankruptcy court. 11 THE COURT: The bankruptcy court does not overrule the 12 circuit courts of appeal. 13 MR. KAROTKIN: But certainly, your Honor, this court 14 is not bound by the 6th Circuit. 15 THE COURT: Yes, it is bound by the 6th Circuit. 16 MR. KAROTKIN: I don't -- 17 THE COURT: If you don't have any other authority, the 18 6th Circuit is what we have to look to. You should learn basic 19 law, if you make the statement that we're not bound by the 6th 20 Circuit. 21 MR. KAROTKIN: I apologize, your Honor, I apologize if 22 I made a mistake. Again, there are decisions in this district 23 by Judge Lifland and others who have considered and 24 acknowledged the 6th Circuit's decision, and has recognized the 25 split in the circuits. In fact -- SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


35 4CHJLORM Motions 1 THE COURT: What split? 2 MR. KAROTKIN: The split in the decisions. I 3 apologize. And have addressed it and considered it square-on 4 in their decisions. Judge Drain did as well, as you know. 5 THE COURT: I have looked at those decisions. Almost 6 all of them are (c)(1) decisions, not (c)(2). I have looked at 7 Coughlin on Bankruptcy, and similarly they hold that Revco is 8 the law. The only exception is laches, and Judge Drain did not 9 rely on laches, or at least he didn't state any facts stating 10 there were laches. 11 MR. KAROTKIN: What Judge Drain I think did rely on is 12 the fact that the reason and the purpose for which they were 13 seeking an examiner, which was -- and again I believe Mr. 14 Swarts referred to that today -- was to have a person do a 15 valuation in order to help their case, to be their advocate. I 16 don't think there is any question about that, he said that 17 today. 18 THE COURT: There is no question about that, and I 19 think Judge Drain, with respect to that, I think Judge Drain's 20 opinion was accurate. 21 MR. KAROTKIN: Yes, sir. 22 THE COURT: But, but, that doesn't end the matter. 23 MR. KAROTKIN: If I may? 24 Judge Drain, in the situation, and I think his 25 analysis was correct because what he said, sir, I think was in SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


36 4CHJLORM Motions 1 a situation where the motion, the purported motion seeking an 2 examiner seeks an examiner for an improper purpose. 3 Essentially, the court is not duty-bound to appoint an examiner 4 even if you were to construe it as mandatory. 5 I would like to point out, in the 6th Circuit case -- 6 THE COURT: Revco? 7 MR. KAROTKIN: The Revco decision. 8 THE COURT: Let me get it because I want to see what 9 you're pointing out. I've got it right here. 10 (Pause) 11 MR. KAROTKIN: If I may read something, sir? 12 THE COURT: Yes, sir. 13 MR. KAROTKIN: What the Revco decision states toward 14 the end: 15 "The debtors' claim that such a construction of the 16 mandatory, meaning the mandatory nature of it, invites abuse 17 and that the trustee or any other party in interest could 18 needlessly prolong the case with last minute demands for an 19 examiner." 20 The court went on to say: 21 "That is not the case before us, of course, and we do 22 not decide it, except to note that the bankruptcy court retains 23 broad discretion to direct the examiner's investigation, 24 including" -- 25 THE COURT: Judge Drain didn't rely on that. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


37 4CHJLORM Motions 1 MR. KAROTKIN: I think he did, sir. 2 THE COURT: Show me where, show me where in his 3 opinion he relied on that? 4 MR. KAROTKIN: He didn't cite the case, sir. I am not 5 saying he cited the case. 6 THE COURT: Okay. 7 MR. KAROTKIN: What I am saying is effectively -- not 8 effectively -- expressly what he was saying is they were 9 seeking an examiner for a totally improper purpose. 10 An examiner -- 11 THE COURT: I don't disagree with you. That isn't the 12 issue, though. 13 MR. KAROTKIN: The fact of the matter -- 14 THE COURT: That isn't the issue. 15 MR. KAROTKIN: -- they're seeking an examiner for an 16 improper purpose. It is almost as if there is not a motion for 17 an examiner. 18 THE COURT: Well, he made the point that what they 19 were seeking an examiner for was to be their advocate. 20 MR. KAROTKIN: No question. 21 THE COURT: And that, he said, is improper. 22 MR. KAROTKIN: That is exactly what Mr. Swarts said 23 this morning, exactly. 24 THE COURT: That doesn't end the matter. 25 MR. KAROTKIN: I think it does. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


38 4CHJLORM Motions 1 THE COURT: I don't believe that is what Mr. Swarts 2 said this morning, either. 3 MR. SWARTS: May I address that issue? 4 THE COURT: You'll have a chance. Make a note. I'll 5 give you rebuttal. 6 MR. KAROTKIN: Your Honor, what he said is they need 7 an advocate for their position because they can't afford it, 8 that is what he said. I don't think there is any mistake about 9 it. They said it four or five times. 10 Under Judge Drain's reasoning, I think that is 11 square-on. It is an inappropriate purpose. If the request is 12 for an inappropriate purpose, it should be denied, mandatory or 13 not. I think that is his reasoning. 14 Your Honor, we understand -- 15 THE COURT: Now, look at the purposes of the examiner. 16 You go over to 1164, right -- 1106. Excuse me. 17 MR. KAROTKIN: 1104. 18 THE COURT: 1106. 1106 (e). If you read (b) -- 19 MR. KAROTKIN: With all due respect, I believe it says 20 if the examiner is reported under Section 1104 (d). 21 THE COURT: (d)? 22 MR. KAROTKIN: (d). 23 THE COURT: (d), as in dog? 24 MR. KAROTKIN: Yes, sir. 25 THE COURT: Yes. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


39 4CHJLORM Motions 1 MR. KAROTKIN: That is an examiner with expanded 2 powers, and that is not what we're talking about here. 3 THE COURT: That is only if one is dead, is that it? 4 MR. KAROTKIN: No. This is an examiner appointed 5 with -- 6 THE COURT: Is that -- 7 MR. KAROTKIN: It only applies in a case with an 8 examiner with expanded powers, almost akin to a trustee. 9 THE COURT: Let me just see. 10 (Pause) 11 THE COURT: Where is the expanded powers section? 12 MR. KAROTKIN: (d). 13 THE COURT: 1104 (d)? 14 MR. KAROTKIN: Yes, sir. 15 THE COURT: I don't see that. 16 MR. KAROTKIN: Pardon me? 17 THE COURT: What I have deals with if the court orders 18 the appointment of a trustee or examiner, if the trustee or 19 examiner dies or resigns, or if the trustee fails to qualify 20 under Section 322 of this title, then the United States 21 Trustee, after consultation of the parties in interest, shall 22 point, subject to the court's approval, one disinterested 23 person other than -- 24 MR. KAROTKIN: Basically -- 25 THE COURT: To serve. That is only a replacement, I SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


40 4CHJLORM Motions 1 agree with you. 1104 (d) is does not apply. But -- okay. 2 MR. KAROTKIN: If your Honor please, I really don't 3 want to belabor the point, but I think it is, whether it is 4 under 1104 (d)(1) or (d)(2), I think that there has to be an 5 investigated purpose, and again the case law is clear, and I 6 don't think that -- again, what they're asking for is 7 completely, and as Judge Drain found, completely inconsistent 8 with the purpose of the statute. Although I know you perhaps 9 don't believe laches exist here, and I know you said that Judge 10 Drain -- 11 THE COURT: I said he doesn't seem to in any way in 12 his opinion have relied on facts which he claims would 13 constitute laches. 14 MR. KAROTKIN: He does, though, your Honor, rely on 15 the fact that they made a motion for the appointment of an 16 equity committee three times, and they failed. It is now 13 17 months into the case, where they're now making a motion for an 18 examiner, so I think to say that he ignored those factors may 19 perhaps not be the case, and I think again if you look at the 20 Bradlee decision, which is very, very similar to what happened 21 in extremely similar law because in that case they waited well 22 over a year. 23 They sought an examiner, as the court noted, to 24 advance their own position. Chief Judge Lifland at the time 25 said relying on Collier, the leading treatise in this area. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


41 4CHJLORM Motions 1 Not only was it an inappropriate purpose, not only that, it was 2 an inappropriate purpose under the statute, but they waited too 3 long. They waited too long. At that point in the case when 4 you're moving toward confirmation, it is inappropriate. 5 They had an opportunity. I understand they're pro se. 6 They could have come in a long time ago. We're sympathetic to 7 the fact that they are shareholders, we're sympathetic, and 8 again we are terribly terribly distressed about what happened 9 to Mr. Christ's son, and we send him our condolences, of 10 course. 11 The fact of the matter, and let's keep it in 12 perspective here, these people, these people want equity of a 13 company. They bought equity. They took the equity risk when 14 they decided to buy equity. The bankruptcy code, your Honor, 15 doesn't guarantee them the right to have an estate-funded 16 advocate for their purpose. It doesn't do it. They tried to 17 get one. They moved for a shareholders' committee three times. 18 In fact, your Honor, the preferred shareholders, who 19 are above them in the pecking order, I think $27 million, also 20 moved for an equity committee, and one wasn't appointed. They 21 were represented by counsel in that effort. As I said last 22 week, the bankruptcy code doesn't guarantee them that right, it 23 doesn't, and we're sorry. 24 There is nothing that they have pointed out, no 25 credible evidence that they have pointed out that something bad SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


42 4CHJLORM Motions 1 happened here. The bankruptcy court at the confirmation 2 hearing, your Honor -- which, by the way, hasn't been scheduled 3 yet -- is not going to happen in January. It hasn't been 4 scheduled yet. The bankruptcy court, as it always does, will 5 have a full opportunity to hear valuation issues. They will 6 have a full opportunity to present their case on value. 7 They are already involved in participating in 8 discovery. The issue of the number of interrogatories I think 9 is a strawman. 10 THE COURT: I am not going to get into what goes on in 11 discovery. That is a side issue. That is not my issue. My 12 issue is whether he made a correct decision. I am not going to 13 get involved in whether he made correct decisions in bankruptcy 14 or whether you're limiting them in their discovery in 15 bankruptcy. That is not before me. 16 MR. KAROTKIN: But I think we have to look at what 17 Judge Drain said after hearing the evidence, and I hesitate to 18 call it evidence, okay? 19 He heard everything three or four times. You heard 20 the same thing. He found it to be, in addition to not 21 credible, he found it to be irresponsible. He is the trier of 22 fact. In addition, your Honor, in addition, you heard I think 23 a two-hour presentation by Mr. Christ last week, two hours, and 24 at the end of that, you said the appellant's allegations, you 25 found them to be "too much speculation" and very unconvincing, SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


43 4CHJLORM Motions 1 to use your words. 2 Your Honor, there are other parties in interest 3 involved. This is not an issue of the debtors and the banks. 4 There are other creditors of these estates who didn't take 5 equity risks. There are mom and pop stores, mom and pop stores 6 who have legitimate claims against these directors. They're 7 entitled to get a distribution when this company comes out of 8 Chapter 11, they're entitled to that before his clients are 9 entitled to anything. 10 Under the circumstances of this case, to appoint an 11 examiner and for the estate to incur that expense, that delay 12 on the basis of these allegations is totally contrary to the 13 statute. 14 Those other creditors, those small businesses who 15 really are depending on a distribution from these debtors, a 16 lot of them are in rough shape. They shouldn't bear the 17 expense and delay, where there is nothing that they have 18 pointed to, your Honor, nothing, nothing credible that they 19 have pointed to to justify any examination whatsoever, any 20 examination. There is nothing that they have said here, 21 nothing to call into question the propriety of what happened. 22 Mr. Swarts said I wouldn't talk to him about 23 appointment of an examiner to deal with pre-petition acts. 24 What is the relevance of that? 25 If they have claims against the officers and SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


44 4CHJLORM Motions 1 directors, there are suits pending now against them. They can 2 pursue those rights. Nothing prevents that. We are talking 3 about the administration of a Chapter 11 case. We are talking 4 about getting these companies out of Chapter 11 so they can pay 5 their legitimate creditors. 6 Mr. Botter's clients, based on any reasonable view of 7 value here, these people are out of money by hundreds of 8 millions of dollars, hundreds of millions of dollars, and based 9 on this record, based on the record, your Honor, we think Judge 10 Drain's decision is amply supported by the law and certainly by 11 the facts, and I think you agree with him on the facts. 12 Thank you, sir. 13 (Recess) 14 THE COURT: Yes, Mr. Botter. 15 MR. BOTTER: Good morning, your Honor, Dave Botter, 16 from the firm of Akin, Gump, Strauss, Hauer & Feld, on behalf 17 of appellees, official committee of unsecured creditors. 18 Your Honor, I would like to follow on to what Mr. 19 Karotkin ended with, which is the use of estate funds and 20 impact upon creditors of these estates. 21 First, your Honor, we have talked a little bit about a 22 plan of reorganization that has been filed in the bankruptcy 23 court and which the confirmation process is unfolding. Your 24 Honor, that plan provides for distributions to unsecured 25 creditors, who are my clients. As Mr. Karotkin pointed out, SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


45 4CHJLORM Motions 1 there are various different types of unsecured creditors. They 2 range from people who bought the bonds issued by various Loral 3 entities all the way down, for example, to janitorial service 4 providers at Loral's facilities. 5 Your Honor, that plan in many instances for those 6 unsecured creditors provides for as little as a 29 percent 7 distribution on their claims, so they will lose, those 8 unsecured creditors, 71 percent of the claim that they have 9 against these estates. I think that is an important point. 10 I think that is an important point your Honor needs to 11 consider in the context of what has gone on in these cases. 12 THE COURT: Isn't this a matter of statute 13 interpretation? 14 MR. BOTTER: Your Honor, I guess it is, and we talked 15 for a moment about it, your Honor and Mr. Karotkin. Your Honor 16 and Mr. Karotkin discussed the 6th Circuit's discussion in 17 Revco and lower court decisions here in this circuit. Your 18 Honor said the only circuit that addressed the issue is the 19 Revco circuit. 20 THE COURT: That is all I found. 21 MR. BOTTER: That is correct, your Honor. 22 However, when we deal with the Circuit Court splits in 23 this country, what happens is that lower courts make 24 determinations in other circuits not necessarily, not bound, it 25 is not binding, a Circuit Court decision in another circuit on SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


46 4CHJLORM Motions 1 a lower court in a completely different circuit. 2 THE COURT: It is binding on me. 3 MR. BOTTER: Your Honor, lower courts make decisions, 4 and then they move up to the Circuit Court levels, and that 5 provides the circuit courts with the ability to make contrary 6 determinations. 7 THE COURT: That is true, it is not binding on the 8 Circuit Court, but it is binding on me. 9 MR. BOTTER: Your Honor, ultimately we could take 10 different Circuit Court disputes up to the Supreme Court, and 11 here we have had lower courts within this jurisdiction not 12 feeling that they have to be bound, in fact, by the Revco 13 decision. That is why we have contrary decisions. 14 THE COURT: The only one I found is a case where 15 laches apply or have found to apply, and in that, of course, 16 Revco acknowledged that laches apply. That is a different 17 matter. He, Judge Drain, didn't claim that laches apply. 18 MR. BOTTER: Well, your Honor, I think that laches 19 is -- 20 THE COURT: He didn't recite facts. If he did, he 21 didn't articulate it. 22 MR. BOTTER: Your Honor, Judge Drain -- 23 THE COURT: And he took four or five days to write his 24 opinion after he decided the matter from the bench. 25 MR. BOTTER: That's correct. I think it is important SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


47 4CHJLORM Motions 1 to note again the context of where we come from in these cases 2 and what the creditors -- again, I say the creditors are taking 3 substantial haircuts on their claims, and the creditors are 4 funding all of what we see here today and have funded three 5 separate motions for the appointment of a shareholder 6 committee. 7 They have exercised their rights. The bankruptcy 8 court has allowed them to exercise their rights. The estate 9 has been burdened on three separate occasions for the payment 10 of estate representatives, the debtors' counsel, our firm, 11 and that is the statute specifically provides for the estate to 12 fund the costs of that, but it doesn't provide for a party to 13 continually quote-unquote use the process solely to pursue 14 their own advocacy. 15 Your Honor, we have defended the first motion of the 16 objective committee seeking to have an official committee of 17 equity holders appointed to pursue exactly the issues that 18 we're hearing about today. Your Honor, at that first hearing 19 Judge Drain determined that the shareholders had no likelihood 20 of success in terms of getting a distribution in these cases. 21 That was repeated a second time and a third time and a fourth 22 time. Your Honor, you did ask a question during Mr. Swarts' 23 and Mr, Karotkin's presentation in the beginning, and that is 24 important. 25 The question you asked is: Aren't we considering SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


48 4CHJLORM Motions 1 whether or not the debtors and creditors' committee have failed 2 to properly value assets at the time of the filing of the 3 Chapter 11 cases and subsequently thereafter? I think that was 4 the inquiry that your Honor was most interested in. 5 Your Honor, I think it is important to note, and 6 certainly this was not in the record at the time of the 7 examiner motion, at the time of Judge Drain's determination, 8 but we talked a lot about a plan of reorganization that 9 subsequently was filed. 10 An important part of the plan confirmation process is 11 the formulation of a disclosure statement. Section 1125 of the 12 bankruptcy code provides that in order to go forward in the 13 plan confirmation process, we've got to provide information 14 adequate enough for a reasonable investor to consider what it 15 is that is going on and what they're being asked to do. 16 Disclosure statements are incredibly lengthy 17 documents, hundreds of pages, and I thought that today your 18 Honor would be interested in seeing the disclosure statement 19 and seeing what we have said about the valuation issues here 20 and seeing the work product of the debtors and the creditors' 21 committee in preparing to go to confirmation to satisfy all the 22 1129 standards which we must satisfy, one of which will be to 23 show that, in fact, equity is not entitled to be paid here. 24 The reason equity is not entitled to be paid here is 25 because my clients are not being paid in full. So with your SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


49 4CHJLORM Motions 1 Honor's permission, I would like to -- 2 THE COURT: Your clients are getting an equitable 3 interest in the corporation that comes out of bankruptcy. 4 MR. BOTTER: That is correct, your Honor, but the 5 equitable interest is valued substantially below what their 6 claims are, and the way the bankruptcy code works is, we look 7 at the value as of the confirmation. 8 THE COURT: I understand they valued it below. Their 9 problem is they think the valuations are wrong, for the reasons 10 that Mr. Swarts articulated. 11 MR. BOTTER: Your Honor, what I think would be 12 instructive is for your Honor to look at the section in the 13 disclosure statement which discloses all the normal and 14 appropriate expert processes that we've undertaken to value 15 these enterprises. 16 Your Honor will see, and I think your Honor talked 17 about discounted cash methodology last week and all the 18 appropriate ways in which valuation is done. We have an 19 expert. Now, obviously, they don't at this point. We have two 20 expert investment banking witnesses who will have to provide 21 credible and competent evidence to the bankruptcy court in the 22 confirmation process as to how they arrived at the valuation. 23 I think it would be important for your Honor to take a 24 brief look at our disclosure statement which describes all of 25 the analysis that has already been done which shows that, SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


50 4CHJLORM Motions 1 unfortunately, my clients are not going to be paid in full. 2 Therefore, that the equity is out of the money. 3 As we continue this process and as we continue to talk 4 about equity representation or an examiner, your Honor has to 5 consider that in the context of what the impact is on my 6 clients. If, in fact, an examiner is appointed with a full 7 panoply of experts, lawyers, investment banks -- 8 THE COURT: When was this filed? 9 MR. BOTTER: It was filed originally October 22nd. We 10 subsequently had a -- 11 THE COURT: That wasn't before the court on the date 12 of this decision. 13 MR. BOTTER: Your Honor, that is true. However, this 14 is -- 15 THE COURT: I am limited to whether this decision was 16 correct under the law. 17 MR. BOTTER: Your Honor, I think that part of the 18 process of whether or not shareholders have the appropriate 19 protection under the bankruptcy code and part of what Judge 20 Drain must have been thinking is that if we go to confirmation, 21 the debtors and the committee will be held to a standard of 22 Section 1129 of the bankruptcy code to demonstrate that their 23 valuation is correct and that, in fact, the outcome we think is 24 appropriate, however unfortunate that outcome will be vis-a-vis 25 shareholders and vis-a-vis my clients because we're talking SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


51 4CHJLORM Motions 1 such a substantial haircut, the judge knew in the confirmation 2 process in which the shareholders are entitled to purchase, we 3 have to prove, in fact, the valuation is correct. 4 You're correct that, in fact, this document was not 5 available to the judge at the time. It is the same fact 6 process in every single bankruptcy case. We must go to 7 confirmation, we must prove our values. That is why, to hire 8 or to appoint an examiner to act as an advocate in a process 9 where we will have to prove up to the bankruptcy court and, 10 your Honor, potentially an appellate court if, in fact, the 11 shareholders or someone else believes that we have done the 12 whole process inappropriately, your Honor, I think it is 13 important to know that we've gone through the normal 14 methodology that we will have to to take this methodology to a 15 bankruptcy court in a confirmation process, in a confirmation 16 process in which the shareholders are entitled to be engaged. 17 What is not appropriate, your Honor, is that my 18 clients are funding this entire thing. These are clients, 19 again the moms and pops, the janitors at their headquarters who 20 are not being paid in full are going to have to take a lesser 21 distribution to fund the pursuit of this advocate, this 22 entity's goals. I think that is inappropriate. 23 If it please the court, I would like for you to take a 24 look at what is contained in the document. 25 THE COURT: I am not going to look at anything that SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


52 4CHJLORM Motions 1 was not before the bankruptcy court. I can't do that. 2 MR. BOTTER: Okay, your Honor. 3 THE COURT: It was not part of the record. 4 MR. BOTTER: Your Honor, then let me briefly describe 5 for you the process that has been gone through. That was a 6 process that was -- 7 THE COURT: This is an issue of law, Mr. Botter. This 8 is a question of what the cases, the statute says and what the 9 cases interpreting the statute said. That is what it is, and 10 possibly the legislative history. I don't know if you want to 11 get into that. 12 MR. BOTTER: Your Honor, I will wrap up, but I do want 13 to point you back to Judge Drain's decision on the specific 14 statutory issue. In his decision, Judge Drain specifically 15 discusses the mandatory nature of the statute. 16 However, he says that he as well as your Honor has to 17 consider that mandatory direction in the context of the entire 18 title of Chapter 11. That is what he specifically says in his 19 decision. 20 What I am trying to show you, your Honor, that in the 21 context of Chapter 11, valuation is an issue that parties who 22 dispute it are entitled and will get an opportunity to contest 23 valuation at a confirmation hearing. That is what Section 1129 24 of the code says. 25 When you read 1104 (c)(2), you have got to take into SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


53 4CHJLORM Motions 1 consideration the fact that there will be an opportunity, an 2 appropriate opportunity for a party to contest valuation at 3 confirmation. 4 Nowhere in the statute does it say that we've got to 5 pay for this party's contest of confirmation. The only time 6 that the statute talks about creating an advocate is an equity 7 committee, where that would be an advocate to take this group 8 of shareholders down the road to confirmation. 9 Your Honor, three separate times the court determined 10 in well-reasoned decisions that, in fact, that advocate was 11 inappropriate because my creditors would have to burden those 12 costs when there was no likelihood these shareholders would 13 ever get paid. 14 I am submitting to your Honor that, yes, 1104 (c)(2) 15 does seem to be mandatory, I agree with Mr. Karotkin that it is 16 not mandatory for an inappropriate purpose, and I also submit 17 to your Honor that Judge Drain considered this very issue and 18 considered 1104 (c)(2) in the process of the confirmation 19 process, in the context of the remainder of Title 11, and 20 specifically made a determination that these shareholders would 21 have protection in the confirmation process and that my 22 creditors should not be further burdened, should not take 23 further losses in this company to pay for what an advocate for 24 shareholders should do. That is not what an examiner is 25 supposed to do and that is not what is contemplated by the SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


54 4CHJLORM Motions 1 code. Thank your Honor. 2 MR. KAROTKIN: May I clarify one thing? 3 I would just like to point out that I think your Honor 4 had asked the question whether Judge Drain relied on the laches 5 argument, and I think if you look at this decision, he actually 6 makes the following -- this is in his decision on Page 8. It 7 actually says -- 8 THE COURT: Talking about the footnote? 9 MR. KAROTKIN: No. It is a quote. 10 THE COURT: A footnote to a laches opinion, but he 11 doesn't -- 12 MR. KAROTKIN: He quotes Collier, where he says the 13 mandatory nature of Section 1104 (c)(2) was not intended and 14 should not be relied on to permit blatant interference with a 15 Chapter 11 case or a plan confirmation process. 16 THE COURT: I have one of his printouts. 17 MR. KAROTKIN: It is on Page 13 -- I am sorry -- do 18 you have the same one I do? It would be Page 17, perhaps? 19 THE COURT: I have got it. 20 MR. KAROTKIN: He goes on to say, your Honor: 21 "Failure to make a timely request for an appointment 22 of an examiner may provide the court for basis for denying the 23 request on the ground of laches." 24 Your Honor, taking into account the entire history of 25 this case, which he sets forth at the beginning of his opinion, SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


55 4CHJLORM Motions 1 the fact that they made a motion for the appointment of an 2 equity committee three times, were denied, then make a motion 3 for the appointment of an examiner again 13 days after the case 4 was commenced, based on this authority, it is clear he 5 absolutely did consider this. I don't think you can divorce 6 the facts in this quote from Collier which, of course, is the 7 leading treatise, and make any conclusion he didn't think about 8 this. 9 He also did, your Honor, putting aside the disclosure 10 statement, which I acknowledge was not before him, he did rely 11 on the fact, in recognizing his decision, your Honor, that 12 valuation would be discussed and fully aired at the 13 confirmation hearing, and I refer you to Footnote 13. I do 14 believe it was an integral part of his decision. You can't 15 ignore the facts. 16 THE COURT: All right. Thank you. 17 MR. KAROTKIN: Thank you. 18 THE COURT: Do you have anything to reply, Mr. Swarts? 19 MR. SWARTS: Yes, I have a few points to make, if I 20 may beg your indulgence. 21 Please bear with me. I am not accustomed to, 22 accustomed to immediately responding. I prefer to think 23 through things usually before I do so. There are several 24 points that I'd like to make. 25 First of all, with regard to Mr. Botter's comments to SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


56 4CHJLORM Motions 1 the court, it is true that many of the creditors that he 2 represents are mom and pop organizations and also trade 3 creditors such as the custodian at Loral, that sort of thing. 4 It is true that they are taking a smaller recovery than what 5 they had hoped for. 6 Let's not forget what the reorganization plan is based 7 upon that's critical. The reorganization plan is based upon 8 numbers provided by the debtor. The arguments and the 9 negotiations that occurred between the unsecured creditors -- 10 first, the secured creditors and the unsecured creditors and 11 the debtor, and once the secured creditors were paid off in 12 full, then this same process went on between the unsecureds and 13 the debtor for many, many, many months, and it was an entire 14 year later until they reached a consensus. 15 Obviously, there were a lot of issues that they had to 16 work through. In fact, many of these issues have only come to 17 light recently with the submission of the disclosures to the 18 court. Now, I know that you said that you cannot consider 19 those things if they were before the court post-Judge Drain's 20 decision. 21 However, this, this Docket 1510 is a transcript of a 22 hearing that took place in Judge Drain's courtroom on March 23 16th, 2004, in which the secured, unsecured creditors and the 24 debtor had a confidential hearing in which no other parties, no 25 shareholder constituencies were involved in that hearing, and SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


57 4CHJLORM Motions 1 in that hearing broad discussion took place with regard to an 2 aspect of the Intelsat sale, which is very pertinent to our 3 argument before this court; that is, the New Skies orbital slot 4 valuation and payment by 50-50 by Nortel and New Skies so that 5 would not fill an orbital slot they had rights to at 120.8 West 6 longitude. 7 There were many other outstanding issues that were in 8 this confidential document that we did not have access to until 9 October 22nd of this year. Had there been transparencies, we 10 could have talked, we could have been involved, made motions, 11 talked in a fair way with all parties, but this was a 12 confidential hearing. 13 It seriously disadvantaged us. They were in a strong 14 negotiating position, they understood the fact. They 15 understood why the EDS satellite failed. We had to dig it out 16 from the internet and other sources. They understood all sorts 17 of other aspects related to the Intelsat deal. 18 They keep telling us, you know -- 19 THE COURT: And then the trouble with that argument, 20 Mr. Swarts, is that then they would know the value of the 21 claims involving Intelsat and would be able to appropriately 22 determine whether the financials appropriately demonstrated 23 that value. 24 MR. SWARTS: But the creditors, unfortunately, do not 25 have incentive to probe for deeper value. The larger the value SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


58 4CHJLORM Motions 1 of the estate, the smaller the percentage that the creditors 2 will receive if it will to go over 100 percent. 3 THE COURT: The value of the estate is more than they 4 would receive because they were under water, the company is 5 supposedly under water. 6 MR. SWARTS: Post-bankruptcy on a valuation basis, if 7 we can prove there have been fraudulent omissions, misconduct 8 with regard to valuation, then that changes the entire 9 equation, and then had there been true equity at the outset of 10 these proceedings on the books, then we would have been part of 11 this hearing and we would have been involved in the 12 negotiations to determine the future of the company. So that's 13 why an examiner is so critical in this regard. 14 There are a couple of other issues. It has been 15 suggested that we made very little effort to provide expert 16 testimony or evidence. In fact, at our shareholders' committee 17 motion hearing on July 27th, we flew a patent expert in from 18 California at the committee's expense to discuss the value of 19 the patents. 20 You ask yourself, how can you find someone like this 21 who understands patents, understands space-based valuations. 22 Where are these persons? At that time it was the real world 23 situation that we had to cope with. 24 Mr. McCormack -- and that, too, there is a bio of him 25 in that shareholders' committee motion that expresses his SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


59 4CHJLORM Motions 1 background. He admitted he was not a valuation expert. 2 However, he is a patent expert, and we did attempt, we 3 did attempt within the confines of our budget and the time 4 available to bring in an expert as best we could. Our intent 5 was credibility. His testimony was essentially disallowed by 6 the court, and we have not challenged that, but we did attempt 7 to do that. 8 I would like to give you just a little bit of history 9 so that you understand why these processes kept occurring from 10 our point of view. First of all, the Loral stockholders' 11 protective committee as it now exists did not really come into 12 being until last summer. Prior to that, Tony Christ had acted, 13 had named the committee, and he had acted as a spokesperson of 14 sorts. He filed various motions, but there was no, there was 15 no organization to it, there was no organized effort. 16 The first shareholder committee motion was made, I 17 believe -- I don't know because I wasn't involved in it at any 18 time, and I was under the impression it was Mr. Yetnacough and 19 another ad hoc committee that made that argument, and he did 20 not make much of an argument on value. They talked about bond 21 prices and that sort of thing, but there was no direct movement 22 or effort to persuade on the basis of asset valuation, 23 fraudulent asset valuation. 24 Why not? The reason there wasn't was because the 25 debtor received an extension to file his assets and liability SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


60 4CHJLORM Motions 1 schedule of -- was it six weeks or eight weeks? Beyond the 2 statute, the time they were allowed by statute in which to get 3 those assets and liability schedules in. In fact, correct me 4 if I am wrong on this date, but I believe that that was in 5 November that that was ultimately filed. Those assets and 6 liability schedules were finally found. There were 1200 pages, 7 1200 pages. 8 The second motion for a shareholders' committee was 9 made prior to those assets and liabilities coming out. A 10 hearing took place about a week after, so it was not possible 11 for shareholders to make any credible analysis of the assets 12 and liabilities schedule during, at the second motion for an 13 official committee. Timing made it impossible to do so. 14 So from the point of view of making an valuation 15 argument, there was really no basis for shareholders to make an 16 argument before December. There were other outstanding issues. 17 The Intelsat sale was still very much up in the air. They were 18 arguing about it. They conducted a public auction. There were 19 other bidders who bid or did bid. Shareholders were sitting 20 there waiting for this deal to close, trying to figure out what 21 was going to happen with the proceeds from that sale. We, you 22 know, we didn't know the security creditors were going to get 23 out of that money. In fact, Mr. Botter argued very strongly 24 against the secured creditors getting all of that money. 25 In fact, the way it worked out is, the corporate SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


61 4CHJLORM Motions 1 structure of Loral is essential, and the way the bank debt was 2 applied to the various entities of Loral, that corporate 3 structure is what was responsible for all of the money going to 4 the secured debt holders, as I understand their pleadings. I 5 am probably incorrect. These are esoteric matters for me. I 6 am not a financial person. 7 So, in other words, the first two shareholder 8 committee motions have no basis on which to act on valuation. 9 There were no facts on which to act. As soon as those became 10 available, I began to do a lot of analysis. As soon as the 11 Intelsat sale closed at the end of March of 2003, I did a 12 tremendous amount of analysis on my own about what the outcome 13 of that sale would be, what was left of the Loral, what assets 14 were remaining from those assets and liability schedules post, 15 post-Intelsat sale. 16 All of that occurred in April. We first made the true 17 SPC, the first motion of the SPC was made in early June, as I 18 recall, and we were denied a hearing because of one day, 19 because we weren't able to -- we didn't give the 10-day notice 20 required of a motion, and Mr. Karotkin argued vehemently that 21 it could not be considered because they haven't received 10 22 days' notice. It took us from early June until, early June 23 until July 27th we had a hearing. That delay was not on our 24 making. The delay on the assets and liability schedules was 25 not on our making. When it was denied, when the shareholders' SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


62 4CHJLORM Motions 1 committee was denied by Judge Drain, we accepted it. I mean we 2 accepted it. There would not be another motion in that court. 3 We did appeal. 4 THE COURT: For that relief? 5 MR. SWARTS: Right. We decided at that point Judge 6 Drain had made a very convincing case, from my point of view. 7 THE COURT: But an appeal was filed. 8 MR. SWARTS: An appeal was filed based on the original 9 numbers. Judge Drain was making his decision based on those 10 original numbers. 11 All of the logic from those cases flow from the 12 original debtors' numbers, which we submitted again. These are 13 omitted assets. The New Skies valuation, when we raised that 14 in the July 27th hearing, I specifically alluded to the New 15 Skies' valuation of 32 million for one slot, and the creditors, 16 the debtors' attorney and Judge Drain, because this was all 17 done in a confidential, in a confidential hearing, all 18 pretended, from my perspective, that it didn't exist. There 19 was no admission. 20 Even as we pressed our claims on the orbital slot, 21 there was no admission that this had all been talked about at 22 the end of March. 23 THE COURT: What do you mean, talked about? 24 MR. SWARTS: It was in this hearing. 25 THE COURT: No admission of what? SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


63 4CHJLORM Motions 1 MR. SWARTS: No admission that an empty orbital slot 2 was purchased, 50-50, in essence. Well, the rights were -- the 3 orbital slot is not something that can be down-valued, but they 4 did sign an agreement, New Skies signed an agreement not to put 5 a satellite into that slot in return for $32 million, split 6 50-50, by the debtor and Intelsat. 7 That is a large number. There are brackets in there. 8 We were told our arguments were baseless. If you read that 9 again and again and again, they say they're baseless and 10 irresponsible. 11 What is responsible about this kind of a process that 12 denies us knowing the facts and having the transparency on 13 these issues so that, so that we can properly represent 14 ourselves? 15 We did try to get an expert. We did try to present an 16 alternative, or valuations for these orbital slots, and also in 17 that third shareholders' committee motion, we also mentioned 18 that we might want to ask for an examiner's motion. 19 In fact, Mr. Botter wrote an objection to the motion, 20 stating insofar as an examiner would be considered by the 21 court, that he objected to it. That is my recollection of what 22 occurred. Correct me if I am wrong, gentlemen. 23 MR. KAROTKIN: You're wrong! 24 THE COURT: Are you done? 25 MR. SWARTS: So, anyway, following the denial on July SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


64 4CHJLORM Motions 1 27th of the shareholders' committee motion -- and, sir, I must 2 say this: Judge Drain was out of chambers for 10 minutes 3 before he came back and delivered his summation, a written 4 summation, in which he denied our -- 5 THE COURT: That is the shareholders. I have nothing 6 to do with the shareholders. 7 MR. SWARTS: That is the shareholders. 8 What I am saying is, I believe he already made up his 9 mind before, before the hearing even took place, which leads me 10 to question was it legitimate? Why did we spend all that money 11 and make all that effort to go to a hearing if, you know, if it 12 was, if it was a done deal? 13 THE COURT: You heard me make up my mind right off the 14 bench on the last hearing. I hope you don't think that means I 15 came into the room with a decision already made. 16 MR. SWARTS: No. I know I have to be careful when I 17 state things like that. 18 THE COURT: That is all right. 19 MR. SWARTS: It was troubling to us. We did move for 20 an examiner forthwith following that denial, and it is true, I 21 did state today that we do see an examiner as an advocate for 22 us. 23 THE COURT: I want you to understand that the examiner 24 is supposed to be an independent examiner if he is appointed. 25 He is not supposed to be an advocate for one side or the other, SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


65 4CHJLORM Motions 1 but he is supposed to be appointed so that all parties will 2 have confidence in the procedures followed in a bankruptcy. 3 MR. SWARTS: I understand that. I hadn't finished my 4 point. I apologize. 5 THE COURT: I didn't mean to interrupt you. 6 MR. SWARTS: I also feel, and I think I stated this 7 earlier, I believe an examiner would also be helpful to the 8 estate as a whole. 9 If an examiner, for instance, hypothetically comes in 10 and finds that there are all these extra asset valuations out 11 there, the fact that the estate is valued at 200 million plus 12 equity, then, in fact, that custodian, that custodial company 13 working to December in Palo Alto will receive 100 percent 14 recovery, not a 29 percent recovery. Many of the trade claim 15 creditors have been squeezed down to almost nothing. 16 I believe something of them are in the 6 to 9 percent 17 range, if I read something correctly; and so, therefore, if 18 these numbers that started this whole process were not correct 19 to start with, and you, and you fix the numbers because they 20 weren't properly put together, if the numbers are fixed, you 21 come out with an entirely different scenario, where all parties 22 receive full compensation on a larger valuation for the entire 23 company. So in that case, an examiner would be an advocate for 24 all parties. 25 The reason, the reason that Mr. Botter and the SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


66 4CHJLORM Motions 1 unsecured creditors do not want an examiner is because they 2 would rather have -- I don't know what it is going to be, 94 3 percent of restructured Loral with only $200 million in debt, 4 than hypothetically 70 percent of a restructured Loral with no 5 debt. I mean, they come out before if equity is removed from 6 the equation. 7 THE COURT: Are you done? 8 MR. SWARTS: So I guess that was actually my last 9 point, believe it or not. 10 THE COURT: Good. 11 MR. SWARTS: I tried your patience as far as I could. 12 MR. KAROTKIN: May I have 30 seconds? 13 THE COURT: If it is in response to anything he raised 14 here? 15 MR. KAROTKIN: Yes, sir. 16 I would just like to make really one point, your 17 Honor. I think about two minutes ago Mr. Swarts said it all, 18 said it all. He said we seek an examiner as an advocate for 19 us. That is what the motion said. That was precisely what was 20 before Judge Drain. Your Honor, under those circumstances, I 21 don't see any basis to reverse Judge Drain's decision. It is 22 absolutely clear, it is absolutely clear Judge Drain considered 23 the laches argument as well. 24 We think based on the record and lack of any credible 25 evidence of the need for an examination or any alleged SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


67 4CHJLORM Motions 1 impropriety, we think your decision under the standard of 2 review should be affirmed. 3 MR. BOTTER: Nothing further, your Honor. 4 THE COURT: Thank you. 5 This is an appeal from the decision of Judge Drain 6 which was filed in the bankruptcy court on September 6th, I 7 believe, but written on September 2nd, following a hearing in 8 which he had denied the appellant's motion for an examiner to 9 be appointed some time during the month of August. I believe 10 it was August 26th or 27th. 11 The review of Judge Drain's decision demonstrates that 12 the statute involved is Section 1104 (c)(2) of Title 11 of the 13 United States Code. That section reads as follows: 14 "If the court does not order the appointment of a 15 trustee under this section, then at any time before the 16 confirmation of a plan, on the request of a party in interest, 17 or the United States Trustee, and after notice and hearing, the 18 court shall order the appointment of an examiner, to conduct 19 such an investigation of the debtor as is appropriate, 20 including an investigation of any allegation of fraud, 21 dishonesty, incompetence, misconduct, mismanagement or 22 irregularity, in the management of the affairs of the debtor, 23 of or by current or former management of the debtor, if: 24 1. Such appointment is in the interests of creditors, 25 any equity security holders and other interests of the estate; SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


68 4CHJLORM Motions 1 or 2 2. The debtors' fixed, liquidated, unsecured debts, 3 other than debts for services or taxes, or owing to an insider 4 exceeded $5 million. 5 Judge Drain recognized that in his opinion that the 6 debtors' fixed, liquidated, unsecured debts other than debts 7 for drugs, services or taxes or owing to an insider exceeded 8 $500,000. He also acknowledged in his decision that this was a 9 public company, which the legislative history of the statute 10 indicates was the purpose of Congress in providing the 11 limitation or threshold figure, he put it, of $5 million. 12 Judge Drain also recognized that the majority view is 13 that 11 United States Code, Section 1104 (c)(2) requires the 14 appointment of an examiner if the $5 million threshold is met. 15 He then quoted the language from in re: Revco, DS, Inc, 898 Fed 16 2d. 498, at 500, 501, a 6th Circuit case 1990, to the effect 17 that -- or the words that: 18 "The court shall prescribe the parameters of the 19 examiner's investigation as is appropriate." 20 This court believes that it is supposed to follow the 21 decision of circuit courts when there is no decision of the 22 Second Circuit. There does not appear to be a decision of the 23 Second Circuit interpreting that language. Accordingly, in re: 24 Revco is authority which this court is required to follow. 25 The decision in in re: Revco is also quoted, as Judge SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


69 4CHJLORM Motions 1 Drain noted, in 7 Collier on Bankruptcy, at 1104-03 (b)(2), at 2 1104-39-40. 3 The court then departed from the reasoning that he had 4 stated as to what the majority view is, to say without any 5 citation to any legal case as follows: 6 "Moreover, it is not at all clear that the court 7 should go the extra mile under Section 1104 (c)(2), to try to 8 conceive of an appropriate investigation if the movant has 9 sought a wholly inappropriate one." 10 There is no law for this statement, to support this 11 statement by this court to find by Judge Drain. Thus, the 12 bankruptcy court decided not to "prescribe the parameters of 13 the examiner's investigation as appropriate, as allowed by 1104 14 (c), and as required under the decision of in re: Revco and 15 the treatise Collier on Bankruptcy. 16 Instead he argued that unless the court appoints an 17 examiner sua sponte, "Consideration of the appointment of an 18 examiner must be conducted only on request of a party in 19 interest, after notice and hearing," citing 11 United States 20 Code, Section 1104 (c). 21 Accordingly, Judge Drain argued, "Why should the court 22 stretch to fashion a more appropriate job description, and that 23 in any event, reaching to find an appropriate role for an 24 examiner here is inappropriate." 25 He concludes: "Notwithstanding the legislative SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


70 4CHJLORM Motions 1 history of Section 1104 (c)(2), if the bankruptcy" -- I have to 2 have the -- "notwithstanding the legislative history of Section 3 1104 (c)(2) of the bankruptcy code, the appointment of an 4 examiner pursuant to the terms of Section 1104 (c)(1) and 5 (c)(2) of the bankruptcy code (terms) to conduct a going 6 concern valuation of the debtors should be denied." 7 In his final footnote to the opinion, however, Judge 8 Drain reveals that he had attempted to prescribe an 9 investigative role for the examiner and that he had suggested 10 to the appellants that instead of appointing an examiner to 11 conduct a going concern valuation of the debtor, as requested, 12 he might have appoint an examiner to review whether the debtors 13 and creditors committee professionals had followed proper 14 procedures in conducting their evaluation analysis. 15 The footnote says that the appellants responded 16 affirmatively, but then qualified their response by concerns 17 that the committee had not enough time to think about the 18 suggestion and that it would want some comfort about the 19 adequacy of the budget and the description of the examiner's 20 proposed duties. 21 The court then determined that it would not pursue 22 negotiations at the hearing. Thus, the court did prescribe 23 appropriate parameters for the examiner's investigation as 24 required by 1104 (c)(2), but declined to take that step. 25 (Pause) SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


71 4CHJLORM Motions 1 When the appellants did not consent to the proposal, 2 without further elaboration, apparently the court was motivated 3 also because the appellants did not react favorably to the 4 court's statement that it was inequitable for the debtors to 5 have to defend against the appellant's appeal of the court's 6 denial of the appointment of an official shareholders' 7 committee. 8 If -- outside of the appellate record -- the ad hoc 9 committee obtained the appointment of an examiner to conduct 10 the same valuation that the proposed official shareholders' 11 committee would have undertaken. 12 (Pause) 13 In response to this proposal, the opinion states that 14 the appellants again equivocated, stating they would not want 15 to relinquish their appeal until they were satisfied with the 16 nature of the examiner's appointment and investigation. At 17 this point, the court apparently denied the appellant's motion 18 for an examiner. 19 I am going to reverse the bankruptcy court's decision. 20 Its opinion acknowledges the majority view, including the 6th 21 Circuit opinion in in re: Revco and the authority of Collier 22 on Bankruptcy, to hold that the appointment of an examiner 23 under 1104 (c)(2) -- of which hold that the appointment of an 24 examiner under 1104 (c)(2) is required. 25 The court then fashioned an appropriate investigative SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


72 4CHJLORM Motions 1 role for the examiner, but failed to pursue it because it 2 wasn't agreed to by the ad hoc committee without reservations. 3 The court finds nothing in the statute that requires 4 agreement from the movants to the nature of the parameters of 5 the examiner's investigation set by the court. The court then 6 attempted to persuade the appellants to withdraw their appeal 7 of its denial of the official Stockholders Committee, and when 8 this failed, decided not to appoint an examiner, in blatant 9 disregard of 1104 (c)(2). 10 See in re: Revco. See Collier on Bankruptcy. 11 I have read the briefs of the respondents or appellees 12 and reviewed the authorities they've cited, and I do not 13 believe there is any reason, anything in those briefs which 14 would change my opinion in re: Gleotech, 305 Bankruptcy Court 15 832, at 836, is not a case under 1104 (c)(2), but under 1104 16 (c)(1). 17 I think the same is true of Schlepland and Mutual 18 Federal of Ohio, Inc. 19 In re: Gillman Services, I have to look at that one. 20 I made a note. I'll pass that one for the moment. 21 In re: Bradlee stores, Inc, really relies on the 22 laches argument, and in that case the appellant, or the person 23 requesting the examiner, had not previously requested an 24 examiner and had let various opportunities go by, and they had 25 raised its request very late in the Chapter 11 proceeding. SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


73 4CHJLORM Motions 1 Judge Drain, in his opinion, does not rely on laches. 2 He states no facts that show laches apply in this case, and 3 although that would be a valid reason to disallow or not 4 appoint an examiner, as stated in Collier on Bankruptcy, he 5 doesn't cite any facts to that effect, and he doesn't at the 6 conclusion of his opinion state that laches apply here. So I 7 don't read his opinion as stating that he is denying the 8 appointment of an examiner on the grounds of laches. 9 In re: Gillman is an 1104 (c)(1) case. In re: 10 Bellaire is an 1104 (c)(1) case. 11 Those are the cases cited in the brief. If did we 12 find one I passed over? I guess that was Gillman, right? 13 THE LAW CLERK: Yes. 14 THE COURT: Furthermore, on argument here, Mr. Swarts 15 has given reasons why the Stockholders' Committee was unable to 16 move sooner than May or June of 2004 on the issue of the 17 valuations and has shown that the Stockholders' Committee, in 18 view of their pro se status, acted pretty promptly subsequent 19 to that time. 20 This is a pro se case, and I am giving the defense 21 some latitude for their failure to follow all the ordinary 22 procedures in court. In fact, I received papers, and I had to 23 tell them how to serve -- I didn't tell them, I endorsed the 24 papers, saying you must file a notice of motion and what have 25 you in this case so that we could get this matter on for a SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


74 4CHJLORM Motions 1 hearing. 2 There is one other thing I wanted to cover. I just 3 don't remember what it is. I think it is well established that 4 although the bankruptcy court has to appoint an examiner 5 pursuant to the terms of the 1104 (c)(2), that there is 6 considerable discretion in designing the examiner's role which 7 lies with the court. It seems to me, though, that the court 8 should have in mind that there is a purpose in 1104 (c) in 9 allowing -- of giving some, some assurance to the parties that 10 the -- if they request it -- that the valuations have been 11 properly -- they followed the proper procedures to arrive at a 12 going value for the corporation. 13 Accordingly, I am going to reverse the decision of the 14 bankruptcy court and remand the case to the bankruptcy court to 15 appoint an examiner within 10 days, for whatever role the 16 bankruptcy court feels is appropriate under the statute. I 17 believe that the role, what is suggested -- it is suggested 18 that the policy is appropriate and that such an examiner should 19 receive reasonable compensation and have skills, or have skills 20 available to him to -- what is the phrase used -- to ensure 21 that the space assets were properly evaluated -- space-based 22 assets, I guess I should say, were properly -- proper 23 procedures were followed to -- I'll have to phrase this more 24 carefully -- let me go back and strike that. 25 Let me say that accordingly, I am reversing the SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


75 4CHJLORM Motions 1 decision of the bankruptcy court and remanding it to the 2 bankruptcy court to appoint a qualified examiner with adequate 3 budget to review whether procedures were followed particularly 4 in the valuation of the assets and particularly the value of 5 the space-based assets. 6 I think the point should take place within 10 days of 7 the date is this order. I think that is the opinion of the 8 court. I may have to make some English corrections, but the 9 crux of the opinion will be the same, and I may have to correct 10 the English I have used here in orally dictating my opinion. 11 I orally dictated it because I think it is of great 12 importance to the creditors and particularly this matter be 13 resolved quickly and there not be further delay from the 14 extensive opinion to -- and thereby possibly delay the 15 confirmation of the plan. 16 I do want to say that it is an independent, it is to 17 be an independent examiner. It is not an examiner who will 18 attempt to further create a litigation; in other words, not to 19 further a particular party's interest, but rather to further 20 the interests of the estate, ensuring that the going concern 21 value is properly arrived at. 22 So I don't, I don't disagree with the bankruptcy judge 23 it will be a big mistake to appoint at this stage of the 24 proceeding a particular, to appoint someone who will be an 25 effective lawyer's advocate for a position because it will be SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


76 4CHJLORM Motions 1 very cost -- it will result in costly and unnecessary 2 litigation because people can be hired to -- there are people 3 who come before the court, and I am not saying they have in 4 bankruptcy matters, but we get experts from time to time who 5 appeared and take positions that are less than well 6 substantiated and result in unnecessary litigation from time to 7 time. 8 I don't think that is in the best interests of the 9 estate or the stockholders' committee because in the long run 10 the evaluations are the decision of the expert's opinion is 11 rejected from time to time, after time after time, and it is 12 not what any of the parties seem to want in this case because 13 they're taking every one at face value. 14 All right. I think that is it. Do you have any 15 applications to make? 16 MR. KAROTKIN: Yes, sir. I would ask the court to 17 stay the order pending appeal. 18 THE COURT: I am not going to stay the order pending 19 appeal. 20 MR. KAROTKIN: Thank you, sir. 21 THE COURT: You are free to go upstairs -- 22 MR. KAROTKIN: Thank you. 23 THE COURT: -- if you want to. 24 (Court adjourned) 25 SOUTHERN DISTRICT REPORTERS, P.C. (212) 805-0300


1

UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK--------------------------------------------------------------------XIn re

LORAL SPACE & COMMUNICATIONS LTD., et al.

Debtors. 04 CIV. 8645 (RPP)---------------------------------------------------------------------X

OPINION AND ORDERLORAL STOCKHOLDERS PROTECTIVECOMMITTEE,

Ch. 11 Case Nos.Appellant, LEAD CASE 03-41710 (RDD)

03-41709 Through 03-41728 (RDD) - against - (Jointly Administered)

LORAL SPACE & COMMUNICATIONS LTD., et al.,

Appellees.--------------------------------------------------------------------X

ROBERT P. PATTERSON, JR., U.S.D.J.

The Appellants, Loral Stockholders Protective Committee (the “LSPC”),1 appeal pro se

the September 2, 2004 judgment of the United States Bankruptcy Court for the Southern District

of New York (the “Bankruptcy Court”), denying their motion for the appointment of an

examiner under Sections 1104(c)(1) and (2) of the Bankruptcy Code, 11 U.S.C. § 101 et seq. In

response to a December 7, 2004 letter from the LSPC requesting an expedited hearing on this

appeal and stating that it would rely on the papers it had already filed, this Court issued an Order

on December 8, 2004 directing the Appellees to file opposing briefs by December 15, 2004

directed “at least in part to the issue of whether Judge Drain was correct in determining that an

independent examiner should not be appointed for the limited purpose of investigating whether

1 The Bankruptcy Court referred to the LSPC as the “Ad Hoc Committee.” According to the

Bankruptcy Court, the LSPC represents approximately 8.4 percent of the outstanding common shares ofLoral.

11-10612-shl Doc 427-16 Filed 03/16/12 Entered 03/16/12 16:44:38 Exhibit S Pg 1 of 10

2

the debtors’ and the creditors’ committees’ professionals had followed the proper procedures in

conducting their valuation analyses of the going concern value of Loral Space &

Communications Ltd., including the orbital space slots.” The Court heard argument on this issue

on December 17, 2004. At the conclusion of the argument, the Court issued a ruling reversing

the Bankruptcy Court’s denial of the LSPC’s motion for the appointment of an examiner.

I. PROCEDURAL BACKGROUND

Based on the Bankruptcy Court’s opinion, the following is the procedural history of this

proceeding. Loral Space & Communications Ltd. (“Loral”) and its affiliated debtors and debtors

in possession (with Loral, the “Debtors”) filed their Chapter 11 petitions on July 15, 2003. The

LSPC, which proceeds pro se here as it did in all related proceedings in the Bankruptcy Court,

moved for the appointment of an official shareholders’ committee in September 2003, after

learning that the U.S. trustee did not intend to appoint such a committee on its own. The

Bankruptcy Court denied this motion after a hearing on September 19, 2003. The LSPC moved

again for the appointment of an official shareholders’ committee on October 27, 2003. Finding

that the Debtors were hopelessly insolvent, the Bankruptcy Court denied the LSPC’s second

motion at a December 2, 2003 hearing.

On May 2, 2004, after learning of the Debtors’ agreement with the Official Committee of

Unsecured Creditors (the “Creditors’ Committee”) that the Chapter 11 plan would provide for no

recovery by common shareholders,2 the LSPC moved for a third time for the appointment of an

official shareholders’ committee. In support of its motion, the LSPC argued that an official

shareholders’ committee could conduct a valuation of Loral that would support its view that the

Debtors and Creditors’ Committee had valued Loral at several hundreds of millions of dollars

2 Under the terms of the plan, the equity of the post-bankruptcy corporation would be split

between the corporation’s managers and its creditors.


3

lower than its true value.3 After a hearing on May 21, 2004, the Bankruptcy Court denied the

motion for the appointment of an official shareholders’ committee by order dated May 28, 2004.

The LSPC’s appeal of this order is pending.

On July 22, 2004, the Debtors announced their agreement with the Creditors’ Committee

on the terms of a Chapter 11 plan. Under this plan, Loral’s preferred and common shareholders

will not receive any distributions. On August 5, 2004, the LSPC moved for the appointment of

an examiner under 11 U.S.C. §§ 1104(c)(1) and (2). The LSPC argued that an examiner was

necessary “to provide a complete appraisal of the Debtor assets and liabilities in question.” The

Bankruptcy Court held a hearing on August 19, 2004, at which the LSPC made the same

arguments in support of the examiner motion as it had previously made in support of its motion

for the appointment of an official shareholders’ committee: the LSPC argued (1) that the Debtors

were undervaluing many of their most valuable assets; and (2) that the Debtors and Creditors’

Committee were improperly colluding to depress the valuations of Loral. The Court rejected the

LSPC’s motion at the August 19, 2004 hearing and issued a memorandum decision on

September 2, 2004. In re Loral Space & Communications Ltd., 313 B.R. 577 (Bankr. S.D.N.Y.

2004). The LSPC filed a Statement of Issues and Notice of Appeal of the denial of the motion

for the appointment of an examiner on August 19, 2004, the same day the Bankruptcy Court

issued its bench ruling denying the motion. This Court received the record on appeal from the

Bankruptcy Court on November 19, 2004.

3 The LSPC also argued that an official shareholders’ committee was necessary because the

Debtors’ management had engaged in numerous misrepresentations and self-dealing.


4

On November 18, 2004, the LSPC moved for a stay of the confirmation hearing

scheduled for January 31, 20054; the LSPC amended the motion on November 30, 2004. On

December 6, 2004, this Court heard argument on the LSPC’s motion for a stay of the Bankruptcy

Court’s confirmation hearing pending determination of its appeal of the Bankruptcy Court’s

denial of its motion for an examiner. At the conclusion of the argument, the Court denied the

LSPC’s motion for a stay. The motion for the appointment of an examiner was not before the

Court.

On December 7, 2004, this Court received a letter from the LSPC requesting an expedited

appeal of the Bankruptcy Court’s denial of its motion to appoint an examiner pursuant to 11

U.S.C. § 1104(c)(2) and stating that it would rely on the papers it had already filed. This Court

issued an Order the following day, December 8, 2004, that the Appellees file opposing briefs by

December 15, 2004 directed “at least in part to the issue of whether Judge Drain was correct in

determining that an independent examiner should not be appointed for the limited purpose of

investigating whether the debtors’ and the creditors’ committees’ professionals had followed the

proper procedures in conducting their valuation analyses of the going concern value of Loral

Space & Communications Ltd., including the orbital space slots.” The Court heard argument on

December 17, 2004. At the conclusion of the hearing, this Court reversed and remanded the

Bankruptcy Court’s decision to deny the LSPC’s motion for the appointment of an examiner and

ordered the Bankruptcy Court to appoint an examiner within ten (10) days.

II. APPLICABLE LAW

Section 1104(c) of the Bankruptcy Code provides the following with regard to the

appointment of an examiner:

4 The Appellees stated at the December 17, 2004 hearing before this Court that the confirmation

hearing will not be held in January and that a new date has not yet been scheduled.


5

(c) If the court does not order the appointment of a trustee under this section, thenat any time before the confirmation of a plan, on request of a party in interest orthe United States Trustee, and after notice and hearing, the court shall order theappointment of an examiner to conduct such investigation of the debtor as isappropriate, including investigation of any allegations of fraud, dishonesty,incompetence, misconduct, mismanagement, or irregularity in the management ofthe affairs of the debtor of or by current or former management of the debtor, if–

(1) such appointment is in the interests of creditors, any equity securityholders, and other interests of the estate; or(2) the debtor’s fixed, liquidated, unsecured debts, other than debts for goods,services, or taxes, or owing to an insider, exceed $5,000,000.

11 U.S.C. § 1104(c).5

III. DISCUSSION

Judge Drain recognized in his opinion, filed September 5, 2004, that the debtors fixed,

liquidated, unsecured debts, other than debts for goods, services, or taxes, or owing to an insider,

exceed $5,000,000. He also acknowledged that Loral was a public company and that the

legislative history of 11 U.S.C. § 1104(c)(2) indicates that the purpose of establishing the

threshold figure of $5,000,000 was to protect equity holders of public companies. Judge Drain

further recognized that the majority view of Section 1104(c)(2) requires appointment of an

examiner if the $5,000,000 threshold is met. He then cited In re Revco D.S., Inc., 898 F.2d 498

(6th Cir. 1990), which recognized that if the debt threshold is met, appointment of an examiner is

mandatory. Judge Drain also noted that under In re Revco, the Bankruptcy Court has discretion

to “prescribe the parameters of examiners’ investigations as is appropriate.” In re Loral, 313

B.R. at 586. The parties acknowledge that there is no Second Circuit opinion interpreting 11

U.S.C. § 1104(c)(2). Accordingly, In re Revco, which is cited with approval in Collier on

Bankruptcy, is the only circuit court authority on this issue. See 7 Collier on Bankruptcy

¶ 1104.03[2][b] at 1104-38 (15th ed. rev. 2004) (hereinafter “Collier”) (stating that the

5 This section was formerly Section 1104(b) of the Bankruptcy Code and many of the cases cited

in this Order reference it as such.


6

Bankruptcy Court has no discretion to deny a motion to appoint an examiner under Section

1104(c)(2) when the debt threshold is met and the motion is made by a party in interest).

The Bankruptcy Court, however, departed from the “majority view” to state, without

citation to any legal authority: “[I]t is not at all clear that the court should go the extra mile under

section 1104(c)(2) to try to conceive of an appropriate investigation if the movant has sought a

wholly inappropriate one.” Id. at 587. Thus, the Bankruptcy Court decided not to prescribe the

parameters of the examiner’s investigation, as allowed by Section 1104(c) and as permitted

under the decision in In re Revco and the treatise Collier on Bankruptcy. Instead, Judge Drain

argued that “[u]nless the court decides to appoint an examiner sua sponte, the statute requires

that consideration of the appointment of an examiner be conducted only on request by a party in

interest after notice and a hearing. 11 U.S.C. § 1104(c). If the only requested appointment [here,

to conduct an appraisal or valuation for the Ad Hoc Committee] is wholly inappropriate, why

should the court stretch to fashion a more appropriate job description for an examiner if none

would justify sua sponte appointment?” Id. (footnote omitted). He cites no authority for this

unspoken conclusion. Judge Drain concludes, “notwithstanding the legislative history of section

1104(c)(2) of the Bankruptcy Code, the appointment of an examiner pursuant to the terms of

sections 1104(c)(1) and (c)(2) of the Bankruptcy Code to conduct a going concern valuation of

the Debtors should be denied.” Id. at 588.

In his final footnote to the opinion, Judge Drain reveals that he had prescribed an

investigatory role for the examiner at the hearing. Instead of appointing an examiner to conduct

a going concern valuation as the Ad Hoc Committee had requested, he proposed at the hearing to

appoint an examiner “to review whether the Debtors and the Creditors’ Committee’s

professionals had followed proper procedures in conducting their valuation analyses.” Id. at 577


7

n.17. The footnote states that the Appellants responded affirmatively to the proposal, “but their

response was qualified by concerns that the Ad Hoc Committee had not had enough time to think

about the suggestion and that it would want to become comfortable with the adequacy of the

budget and the description of the examiner’s proposed duties.” Id. Thus, the court did prescribe

general parameters for an examiner as allowed by Section 1104(c)(2), but declined to take that

step because the Appellants did not consent to the proposal without receipt of further elaboration,

consent to which would have caused the order entered to be unappealable. The court then stated

that “it was inequitable for the Debtors to have to defend against the Ad Hoc Committee’s appeal

of the denial of the appointment of an official shareholders’ committee if—outside the appellate

record—the Ad Hoc Committee obtained the appointment of an examiner to conduct the same

valuation that the proposed official shareholders’ committee would have undertaken.” Id. In

response to this suggestion that they withdraw their appeal, the Appellants equivocated, “stating

that they would not want to relinquish their appeal until they were satisfied with the nature of the

examiner’s appointment and investigation.” Id. Upon hearing this, the court decided it did not

wish to negotiate and denied the Appellants’ motion for an examiner.

The Bankruptcy Court’s decision is reversed. On its face, Section 1104(c)(2) mandates

the appointment of an examiner where a party in interest moves for an examiner and the debtor

has $5,000,000 of qualifying debt. Furthermore, as Judge Drain noted prior to denying the

LSPC’s motion, “the legislative history of Section 1104(c)(2) reflects Congress’s desire to

provide extra protection to stockholders of public companies through the mechanism of an

independent functionary.” In re Loral, 313 B.R. at 585 (quoting In re Gilman Servs., Inc., 46

B.R. 322, 327 (Bankr. D. Mass. 1985)); see also 7 Collier ¶ 1104.03[2][b] at 1104-39 (reviewing

legislative history of 11 U.S.C. § 1104(c)).


8

The Second Circuit has not yet considered whether this provision of the Bankruptcy Code

is in fact mandatory. However, the Sixth Circuit, as well as a number of bankruptcy courts, has

stated that it is. See In re Revco D.S., Inc., 898 F.2d 498, 500-01 (6th Cir. 1990) (holding that

appointment of examiner is mandatory in view of the phrase “the court shall order”); In re UAL

Corp., 307 B.R. 80, 86 (Bankr. N.D. Ill. 2004) (same); In re Mechem Financial of Ohio, Inc., 92

B.R. 760 (Bankr. N.D. Ohio 1988) (same); In re The Bible Speaks, 74 B.R. 511, 514 (Bankr. D.

Mass. 1987) (same); In re 1243 20th Street, Inc., 6 B.R. 683, 685 n.3 (Bankr. D.D.C. 1980)

(same); In re Lenihan, 4 B.R. 209, 211 (Bankr. D.R.I. 1980) (same).6 In In re Revco, the Sixth

Circuit reviewed the two alternatives created by Section 1104(c) and concluded that unless

paragraph (c)(2) requires appointment of an examiner in cases exceeding the debt threshold, “it

becomes indistinguishable” from paragraph (c)(1).7 In re Revco, 898 F.2d at 501. As stated in

Collier on Bankruptcy, “Section 1104(c)(2) does not leave any room for the court to exercise

discretion about whether an examiner should be appointed, as long as the $5,000,000 threshold is

6 The Court has reviewed the cases relied on by the Appellees, many of which are interpretations

of Section 1104(c)(1) and not (c)(2). See In re Gliatech, Inc., 305 B.R. 832, 835 (Bankr. N.D. Ohio2004); In re Sletteland, 260 B.R. 657, 671 (Bankr. S.D.N.Y. 2001); In re Gilman Servs., Inc., 46 B.R.322, 327 n.2 (Bankr. D. Mass. 1985); In re Bel Air Associates, Ltd., 4 B.R. 168, 172 (Bankr. W.D. Okla.1980). The cases relied on by the Appellees that do interpret Section 1104(c)(2) are distinguishable. SeeIn re Bradlees Stores, Inc., 209 B.R. 36, 39 (Bankr. S.D.N.Y. 1997) (denying motion under Section1104(c)(2) based on finding of laches); In re Rutenberg, 158 B.R. 230, 233 (Bankr. M.D. Fla. 1993)(denying motion under Section 1104(c)(2) because debtor was an individual not a publicly heldcompany). Although Judge Drain quotes the discussion in Collier on Bankruptcy of the exceptionalcircumstance of laches in his review of the applicable law, see In re Loral, 313 B.R. at 586, he does notset forth any facts supporting a claim of laches nor does he state that he relied on laches for his decision.Furthermore, on argument Mr. Swarts gave reasons why the LSPC was unable to move sooner than Mayor August of 2004 on the issue of valuations; he also showed that the LSPC, in light of its pro se status,acted promptly. This is a pro se case and the Court should give the shareholders latitude.

7 A recent decision by the Bankruptcy Court for the Northern District of Illinois makes thisconclusion clear when it observes: “[I]f paragraph (c)(2) were not mandatory, then § 1104(c) would havethe following meaning: ‘If specified debt is less than $5 million, it is in the court’s discretion to appointan examiner; and if specified debt is more than $5 million, it is in the court’s discretion to appoint anexaminer.’” In re UAL Corp., 307 B.R. at 85 n.2.


9

met and a motion for appointment of an examiner is made by a party in interest.” 7 Collier

¶ 1104.03[2][b] at 1104-38.

“It is well established that when a statute’s language is plain, the sole function of the

courts—at least where the disposition required by the text is not absurd—is to enforce it

according to its terms.” Lamie v. United States Trustee, 540 U.S. 526, 534 (2004) (citations

omitted). In light of the straightforward language and legislative history of 11 U.S.C.

§ 1104(c)(2), this Court holds that the Bankruptcy Court had no discretion to deny appointment

of an examiner where, as here, the $5,000,000 debt threshold is met and shareholders of a public

company have moved for appointment of an examiner. See In re Revco, 898 F.2d at 501.

The Bankruptcy Court accurately stated that it is “well established that the bankruptcy

court has considerable discretion in designing an examiner’s role.” In re Loral, 313 B.R. at 585

(citations omitted). Indeed, it is that court’s duty to fashion the role of an examiner to avoid

substantial interference with the ongoing bankruptcy proceedings. To that end, the Bankruptcy

Court may exercise its discretion to limit the scope of the examiner’s investigation and the

compensation and expenses available to the examiner. See In re Revco, 898 F.2d at 501 (noting

that “the bankruptcy court retains broad discretion to direct the examiner’s investigation,

including its nature, extent, and duration”); see also 7 Collier ¶ 1104.03[2][b] at 1104-39.

IV. CONCLUSION

For the foregoing reasons, the Bankruptcy Court’s denial of the LSPC’s motion to

appoint an examiner is reversed and remanded to the Bankruptcy Court to appoint a qualified

independent examiner. In this Court’s view, the examiner should have an adequate budget and

expertise to review whether appropriate procedures were followed in valuing Loral’s assets,

particularly the space-based assets. That appointment should take place within ten (10) days of

this Order.


10

IT IS SO ORDERED.

Dated: New York, New YorkDecember 23, 2004

______________________________Robert P. Patterson, Jr.

U.S.D.J.

Copies of this Order sent to:

Pro Se for Ad Hoc Loral Stockholders Protective Committee

Tony Christ6635 Kennedy LaneFalls Church, VA 22042Tel: 703-533-3077Fax: 703-533-3605

Jeffrey M. Swarts308 South Cedar StreetDanville, Ohio 43014Tel: 740-599-6516Fax: 740-599-6516

Counsel for Loral Space & Communications Ltd.

Weil, Gotshal & Manges LLP767 Fifth AvenueNew York, NY 10153-0119By: Stephen Karotkin, Esq.

Rachel B. Ehrlich, Esq.Tel: 212-310-8000Fax: 212-310-8007


UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ----------------------------------------------------------------x In re

Chapter 11 LORAL SPACE & COMMUNICATIONS LEAD CASE 03-41710(RDD) LTD., et al., 03-41709(RDD) through

03-41728(RDD) Debtors. (Jointly Administered)

----------------------------------------------------------------x ORDER APPOINTING EXAMINER AND SPECIFYING EXAMINER=S DUTIES PURSUANT TO SECTIONS 1104(c)(2) AND 1106(b) OF THE BANKRUPTCY CODE

The District Court having reversed, by order dated December 17, 2004, that portion of

this Court=s September 2, 2004 order denying the motion of the Loral Stockholders Protective

Committee (the AAd Hoc Committee@) for the appointment of an examiner under section 1104(c)(2) of

the Bankruptcy Code, 11 U.S.C. ' 101 et seq., and the District Court having remanded the matter to

this Court to appoint a qualified independent examiner, it is hereby

ORDERED that pursuant to section 1104(c)(2) of the Bankruptcy Code, the United

States Trustee shall promptly appoint an examiner (the AExaminer@) in these jointly administered cases

solely to conduct the investigation set forth herein and to prepare and transmit a statement under section

1106(b) of the Bankruptcy Code (incorporating section 1106(a)(4) of the Bankruptcy Code) as

described herein, which investigation the Court finds is appropriate under section 1104(c) of the

Bankruptcy Code and consistent with the Court=s understanding of the District Court=s order; and it is

further

ORDERED that the Examiner shall have expertise in valuing assets and businesses as a

going concern, including assets and businesses similar to those of the above-captioned debtors and

debtors in possession (the ADebtors@), including Aspace assets,@ as well as in the financial restructuring

11-10612-shl Doc 427-17 Filed 03/16/12 Entered 03/16/12 16:44:38 Exhibit T Pg 1 of 4

2

of such businesses; and it is further

ORDERED that the purpose of the Examiner=s investigation shall be to determine

whether the Debtors, including their professionals, have used customary and appropriate processes and

procedures to value their assets and businesses for purposes of section 1129(b) of the Bankruptcy

Code, or, on the contrary, have employed improper processes and procedures in order to arrive at a

materially reduced valuation of their assets and businesses for purposes of section 1129(b) of the

Bankruptcy Code; and it is further

ORDERED that in conducting the foregoing investigation the Examiner shall rely

primarily on interviews of the Debtors= management and professionals (but also including of

representatives of the Ad Hoc Committee) and review of their work product, supplemented, in the

exercise of the Examiner=s discretion, by confirmatory due diligence; provided that the Examiner shall

not conduct his or her own Afull blown@ valuation of the Debtors= assets and businesses; and it is further

ORDERED that the Examiner shall complete the foregoing investigation within thirty

days of the Court=s approval of the Examiner=s appointment by the United States Trustee as

contemplated by section 1104(d) of the Bankruptcy Code; and it is further

ORDERED that the Examiner shall produce a draft of the statement under section

1106(b) of the Bankruptcy Code within fourteen days of the completion of such investigation, stating

whether the Examiner believes that the Debtors, including their professionals, have used customary and

appropriate processes and procedures to value their assets and businesses for purposes of section

1129(b) of the Bankruptcy Code, or, on the contrary, have employed improper processes and

procedures in order to arrive at a materially reduced valuation of their assets and businesses for


3

purposes of section 1129(b) of the Bankruptcy Code, as well as such description of the Examiner=s

methods of conducting the investigation as the Examiner believes in the exercise of his or her discretion

is appropriate; and it is further

ORDERED that the Examiner shall provide a copy of such statement on a confidential

basis to the Debtors, counsel for the Official Creditors Committee and representatives of the Ad Hoc

Committee for their review and comment, which comments, if any, the Examiner may accept or reject in

whole or in part, and the Examiner shall in any event file the final version of such statement within sixty

days the Court=s approval of his or her appointment by the United States Trustee as contemplated

under section 1104(d) of the Bankruptcy Code; provided that the Examiner shall conduct his or her

investigation and prepare and file his or her report as promptly as reasonably practicable consistent with

the foregoing two- week opportunity for review and comment; and it is further

ORDERED that the Examiner shall have a budget of $200,000 with which to conduct

the investigation and prepare and file the statement, which amount shall be paid to the examiner by the

Debtors= estates upon completion of the duties described herein, without the need for further Court

order; and it is further

ORDERED that the Examiner may, but is not required to, retain professionals to assist

in performing the duties described herein; provided that the Examiner=s budget shall not be increased for

such purpose; and it is further

ORDERED that no valuation materials, analyses, results or other material provided to

the Examiner shall be used in any valuation contest, including, without limitation, in any hearing on

confirmation of a chapter 11 plan in these cases, except as separately obtained by appropriate


4

discovery under the Bankruptcy Rules; and it is further

ORDERED that no material or information prepared by the Examiner shall be subject to

discovery or used in any valuation contest, including, without limitation, in any hearing on confirmation of

a chapter 11 plan in these cases.

Dated: New York, New York December 20, 2004

/s/ Robert D. Drain United States Bankruptcy Judge


11-10612-shl Doc 427-18 Filed 03/16/12 Entered 03/16/12 16:44:38 Exhibit U Pg 1 of 23

11-10612-shl Doc 427-19 Filed 03/16/12 Entered 03/16/12 16:44:38 Exhibit V Pg 1 of 11

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112 UNITED STATES BANKRUPTCY COURT3 SOUTHERN DISTRICT OF NEW YORK4 - - - - - - - - - - - - - - - - -x5 In the Matter of6 LORAL SPACE & COMMUNICATIONS 03-41710 (RDD)

LTD., et al., 03-41709 to7 03-41728

Debtors.8 - - - - - - - - - - - - - - - - -x9 October 22, 2003

11:15 a.m.10

United States Custom House11 One Bowling Green

New York, New York 100041213 HEARING pursuant to matters listed on 14 agenda.15 B E F O R E:16 HON. ROBERT D. DRAIN,17 U.S. Bankruptcy Judge.1819202122232425

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212 A P P E A R A N C E S:3 4

WEIL GOTSHAL & MANGES LLP5 Attorneys for the Debtors

767 Fifth Avenue6 New York, New York 101537 BY: STEPHEN KAROTKIN, ESQ.

RICHARD ROTHMAN, ESQ.8 MICHAEL KESSLER, ESQ.

LORI R. FIFE, ESQ. 9 JOHN STRASBURGER, ESQ.10

WILLKIE, FARR & GALLAGHER, LLP11 Special Counsel for the Debtors

767 Seventh Avenue12 New York, New York 1015313 BY: TUNNY K. HO, ESQ.14

AKIN GUMP STRAUSS HAUER & FELD LLP15 Attorneys for the Official

Committee of Unsecured Creditors16 590 Madison Avenue

New York, New York 1002217

BY: DAVID H. BOTTER, ESQ.18 ROBERT ALAN JOHNSON, ESQ.

DANIEL M. GOLDEN, ESQ.19 ABID QURESHI, ESQ.20

AKIN GUMP STRAUSS HAUER & FELD LLP21 Attorneys for the Official

Committee of Unsecured Creditors22 1700 Pacific Avenue

Dallas, Texas 7520123 BY: RUSSELL L. REID, JR., ESQ.

KEITH MILES AURZADA, ESQ.24 25


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312 A P P E A R A N C E S - continued3 4 BROWNSTEIN HYATT FARBER, ESQS.

For WildBlue Communications, Inc.5 410 Seventeenth Street

Denver, Colorado 802026

BY: MICHAEL J. PANKOW, ESQ.7 8 DAVIS WRIGHT TREMAINE LLP

Attorneys for Bloomberg L.P.9 1740 Broadway


BY: EDWARD J. DAVIS, ESQ.11 12 DAVIS, POLK & WARDWELL, ESQS.

Attorneys for The Bank of America13 450 Lexington Avenue


BY: MARSHALL SCOTT HUEBNER, ESQ.15 16 MORRIS, NICHOLS, ARSHT & TUNNELL, ESQS.

Attorneys for EchoStar17 1201 North Market Street

Wilmington, Delaware 1989918

BY: ROBERT J. DEHNEY, ESQ.19 20 SULLIVAN & CROMWELL LLP

Attorneys for Intelsat21 125 Broad Street


BY: ROBINSON B. LACY, ESQ.23 24 25


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412 A P P E A R A N C E S - continued3 4 PIPER RUDNICK

Attorneys for GECC5 1251 Avenue of the Americas


BY: JEREMY R. JOHNSON, ESQ.7 8 OTTERBOURG, STEINDLER, HOUSTON & ROSEN P.C.

Attorneys for Boeing Launch9 Services and Sea Launch

230 Park Avenue10 New York, New York 1016911 BY: JENETTE BARROW-BOSSHART, ESQ.12

REED SMITH, LLP13 Attorneys for The Civil Aviation

Bureau of Japan and Japan14 Meteorological Agency

375 Park Avenue15 New York, New York 10152

BY: CHARLES N. PANZER, ESQ.16 17 SONNENSCHEIN, NATH & ROSENTHAL, ESQS.

Attorneys for Aspen Advisors, LLC18 1221 Avenue of the Americas


BY: JOHN A. BICKS, ESQ.20 21 22232425


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51 LORAL SPACE & COMMUNICATIONS LTD.

2 P R O C E E D I N G S:

3 THE COURT: Please be seated.

4 Mr. Karotkin?

5 MR. KAROTKIN: Good morning, your

6 Honor. Stephen Karotkin from Weil, Gotshal &

7 Manges, for the debtor. It was my understanding

8 based on where we concluded last night, that

9 perhaps you were going first.

10 THE COURT: I'm going to give my

11 ruling after lunch on yesterday's motion. So I

12 think we should go with the agenda today. I know

13 most people are here for the sale matter, and I'll

14 leave it to you whether you want to deal with that

15 first or tell the other folks to wait and deal with

16 the unopposed matters first.

17 MR. KAROTKIN: I think we can deal

18 quickly with the unopposed matters and some of the

19 contested matters, a couple of which have been

20 resolved.

21 THE COURT: Okay. Let's do that

22 then.

23 MR. KAROTKIN: Do you have the

24 agenda letter in front of you?

25 THE COURT: Yes.


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2 MR. KAROTKIN: I believe we can skip

3 to page 4.

4 And items 1, 2, 3, 4, 5, 6, 7 and 8

5 are uncontested. And, your Honor, my second

6 suggestion is that we just furnish your chamber's

7 orders on the disk, unless you have any questions.

8 THE COURT: I've reviewed those

9 matters; I note the first one was intended to be

10 self-executing and there have been no objections to

11 it, and there have been no objections to the

12 others. So in light of that fact and my review of

13 those motions, I will approve the first item, the

14 claims transfer matter, the second one regarding

15 the rejection of the executory contract regarding

16 Loral Skynet and Hsin Chi Broadcast, the third one

17 regarding the settlement of pre petition directors'

18 fees, the fourth motion regarding the settlement

19 with National Union Fire Insurance, the fifth

20 motion, which is the Committee's motion for

21 retention of Jeffries & Company, the sixth one,

22 which is the motion to assume the credit card

23 agreements, and the seventh, which is the

24 Committee's motion to retain conflicts counsel; and

25 then the eighth motion, as well, which is to reject


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2 the contract with Honeywell. So I'll approve each

3 of those as based on the papers, and the absence of

4 any objection.

5 MR. KAROTKIN: Thank you, Judge.

6 THE COURT: The parties can submit

7 the orders, to the extent they haven't already been

8 submitted, with the revisions after the hearing.

9 MR. KAROTKIN: Okay. Thank you.

10 The first contested matter is the

11 debtors' motion -- I'm sorry, the motion of

12 WildBlue to set a deadline for the assumption and

13 or rejection of an executory contract. We would

14 suggest that we delay that until the end of the

15 hearing; I think there are some discussions going

16 on.

17 THE COURT: I think that's

18 appropriate.

19 MR. KAROTKIN: Item number two; I

20 believe, and I think Mr. Botter can confirm it,

21 that the Committee has withdrawn its objection.

22 MR. BOTTER: That is correct, your

23 Honor.

24 THE COURT: Okay. That's based on

25 your due diligence on the new lease?


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2 MR. BOTTER: Correct, your Honor.

3 We had our questions answered by the debtors

4 satisfactorily.

5 THE COURT: All right. Well, that

6 was the only issue I had on this motion as well, so

7 I will approve it. For the record, it's the

8 debtors' motion for an order approving settlement

9 between Loral SpaceCom and GECC with regard to,

10 among other things, GECC's allowed claim with

11 regard to its lease.

12 MR. KAROTKIN: The next matter,

13 number 3, is not the debtors' motion.

14 MR. ROTHMAN: It's the motion of

15 Bloomberg, your Honor.

16 THE COURT: Yes. I think it's

17 relative to the hearing, so I think we ought to

18 address it.

19 MR. DAVIS: Thank you, your Honor.

20 Edward Davis of Davis Wright

21 Tremaine. We represent Bloomberg L.P., Bloomberg

22 News Services. I want to thank the court for

23 hearing the motion of Bloomberg on an expedited

24 basis, and I thank the committee of secured

25 creditors and debtors' counsel for responding


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2 rapidly.

3 The Bloomberg News submitted a reply

4 to the joint objection to the debtors and the

5 creditors' committee yesterday.

6 THE COURT: I've read it.

7 MR. DAVIS: There seems to be that

8 there's no dispute to the access of court records

9 and no opposition for Bloomberg's request to

10 intervene and unseal documents here; also there's

11 no opposition for Bloomberg's request to receive

12 notice of service, or any future notices on matters

13 to be placed under seal so that the press will have

14 an opportunity to be heard on a certain public

15 interest and openness.

16 THE COURT: Is that correct; are the

17 debtors willing to -- you are willing to put

18 Bloomberg on the service list that they will give

19 him notice? It's stated there's no opposition, I'm

20 just not sure that's right.

21 MR. DAVIS: There's no opposition

22 that I saw in the joint objection of the debtors

23 and the creditors' committee.

24 MR. KAROTKIN: We don't see any

25 reason why they have to be on the service list as


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2 they are not a creditor.

3 MR. DAVIS: Bloomberg continues its

4 request to be added to the service list for the

5 purposes of receiving any notice in advance so that

6 the press can be heard in matters of public

7 interest and openness.

8 The one other issue is that under

9 the fundamental rules, the bankruptcy court

10 documents are presumed to be open to the public and

11 can be examined. Only under extraordinary

12 circumstances, when the court sees the need for

13 secrecy, can it apply seals where it outweighs the

14 need for openness in judicial proceedings

15 generally.

16 The creditors' committee and the

17 debtors haven't really done anything to justify

18 sealing the parts of the objection that are

19 primarily at issue beyond paraphrasing for sealing

20 in different ways. They told us nothing about the

21 nature of the information sealed and the specific

22 reason for withholding it. So there's nothing on

23 the record about that. There's nothing on the

24 record the debtors have to give away to remain

25 confidential in the joint objection, but they do


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2 have to provide a basis for the open record and to

3 seal the information they want sealed. It's not

4 enough to provide conclusory information about all

5 the items they redacted collectively.

6 I think the creditors' committee put

7 forth several different arguments it says are

8 important to ask the court to not approve the

9 proposed sale by Loral. The creditors' committee

10 claims the sale undervalues the assets and it will

11 impair the ongoing businesses, the remaining

12 businesses of Loral, but some of the bases for the

13 committee's opposition rather have been hidden, and

14 the committee hasn't identified what's been hidden

15 or the reason for the information to be shielded

16 from the public view. It seems what's been

17 redacted could be important to the public and the

18 public's understanding of this process, which the

19 court is supervising, to the shareholders' and the

20 employees, and it's valuable for the public to know

21 what information is before the court and the

22 parties before they make their decisions.

23 The introductory summary of the

24 reasons why the creditors' committee is opposing

25 the sale itself contains a very prominent


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2 redaction. The first reason in the objection for

3 the explanation, what we assume is the explanation

4 of why the creditors' committee believes the assets

5 are being undervalued, have been redacted in their

6 entirety of paragraphs 22 and 23 of the objection.

7 By the way, I would note that the

8 submission the debtors have made in response to the

9 creditors' committee's objection itself contains

10 several redactions that aren't explained. And if

11 any of this information could endanger the interest

12 of the public, it has a right to know it. And the

13 only way to do it is for the record -- the

14 creditors' committee and the debtors have repeated

15 the general information, reciting the information

16 if it's disclosed, would be detrimental to the

17 debtors; it could cause trading of securities, but

18 they haven't recited any particular rationale to

19 the redaction. And the only thing filed by the

20 debtors and creditors' committee is some of the

21 information covered by confidentiality agreements.

22 The court doesn't automatically

23 honor private parties' confidentiality agreements.

24 The court makes an independent review of whether

25 there are specific reasons that outweigh the public


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2 interest and openness and the court determines

3 whether there is something that needs to be opened,

4 that way the public knows its rights have been

5 protected if they can't be more specific than they

6 have already been. So the question here really

7 boils down to what degree of specificity is

8 required. Bloomberg believes it is not enough to

9 say that it may cause trading in securities and may

10 have a detrimental effect to the estate.

11 The creditors' committee and debtors

12 have to address why the particular information they

13 have hidden may cause particular results, and for

14 guidance we start with the decisions in the

15 creditors' committee's response, which were some of

16 the same decisions cited by Bloomberg. They have

17 redacted some types of information that can be

18 redacted and identified cases that Bloomberg

19 identified in which the courts evaluated whether or

20 not particular information would cause harm that

21 would warrant sealing.

22 And the contrast, I think, is quite

23 sharp. The joint objection doesn't describe any

24 information that's being redacted and it doesn't

25 tie any particular redactions to any particular


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2 harms. I'll start with the Second Circuit case in

3 Orion Pictures. In that case there were

4 promotional agreements between the debtor, which

5 was a movie company, and McDonald's, and the terms

6 of those agreements were protected from disclosure

7 because the disclosure would have undermined the

8 debtors' ability to negotiate in the future for

9 similar promotional agreements, and the court

10 identified the exact information being held and the

11 specific harm resulted from disclosing it.

12 The creditors' committee and the

13 debtors also cite the Nun Financial case, and that

14 was in the Southern District of New York. The

15 court described what information was to be withheld

16 there, and that was the particular provisions of a

17 certain outline of a business proposal. The court

18 made a factual finding that there were very active

19 trading claims in this case and that it would

20 probably cause active trading of securities and

21 mischief and disruption if the terms were

22 disclosed; so that was the particular harm that

23 sealing was supposed to prevent. The Bankruptcy

24 Court had sealed the entire document containing

25 portions of that confidential information but the


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2 District Court narrowed it to four sentences, so as

3 little as possible, while the parties were

4 protected by that possible harm or mischief.

5 The creditors and debtors also cite

6 the Barney's decision in the Southern District of

7 New York, which does outline the specific

8 information that was proposed to be sealed there

9 which were the terms of a preliminary proposal

10 letter, and that disclosing its identity and the

11 terms of this proposed investment would cause other

12 investors to offer only marginally better terms; so

13 the specific harm is identified. That's much more

14 of a rationale than the creditors' committee and

15 the debtors have provided here.

16 And the joint objection fails to

17 note, in citing Barney's, that the District Court

18 in Barney's denied the sealing -- even when there

19 was much more specific information, the court

20 denied sealing. It might also be constructive to

21 look at the Nun case which is cited only in

22 Bloomberg's briefs. In the Nunn case the court

23 restricted access to a customer list; that was the

24 only asset. And the court found disclosing that

25 list to the creditors could severely harm the


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2 parties and would be sealed under specific

3 application.

4 In the Epic case in the Eastern

5 District Court of Virginia, the court held a

6 confidential evidentiary hearing and received

7 information in that case, expert testimony. There

8 were findings that there had been runs on banks

9 associated with the debtor already. The debtors'

10 activities had created so to speak, a house of

11 cards. The court found if the proposed plan for

12 how to distribute some of the proceeds were

13 released prematurely, that it was likely that

14 unrelated financial entities, financial

15 institutions might collapse.

16 So that's the sort of specificity

17 that's required. The parties have to identify the

18 information being sealed, not just stating that

19 it's confidential and sensitive information about

20 the businesses or the business plans, and they have

21 to identify the harm that would come from

22 disclosing that exact information, more than just

23 saying it could possibly have a severe detrimental

24 impact to the debtors and cause trading in

25 securities. Any information could cause trading in


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2 securities. Keeping that information from the

3 public doesn't help build confidence in the capital

4 markets. What the debtors and the creditors have

5 to present to the court here is a description, at

6 least to the nature of the information being

7 disclosed and the nature of the harm that would

8 come from disclosing it, so that the court can

9 weigh those particular harms against the public

10 interest and openness in disclosing the information

11 and the public's general interest in having

12 proceedings.

13 Bloomberg News is certainly not

14 seeking access to confidential commercial

15 information that should properly be protected, but

16 the information available leaves the public with no

17 understanding at all as to why anything has been

18 sealed, and it leaves the reviewing court, if it

19 need be, with no record to review to determine

20 whether material has been properly withheld from

21 the public view.

22 THE COURT: Okay.

23 MR. DAVIS: Thank you, your Honor.

24 THE COURT: Mr. Botter?

25 MR. BOTTER: Thank you, your Honor.


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2 David Botter, from Akin Gump Strauss

3 Hauer and Feld on behalf of the Official Committee

4 of Unsecured Creditors.

5 Mr. Davis started his presentation

6 by saying it is not disputed that the general

7 principal of openness allows access. If we look at

8 Section 107 of the Code, 107(a) starts by saying,

9 except as provided in Subsection (b) of this

10 section, Subsection (b) allows a party to

11 specifically request and allows the courts sua

12 sponte to consider on its own motion, the sealing

13 of confidential information. Your Honor, Mr. Davis

14 also said that the sealing should not be granted

15 unless you are endangering a compelling interest.

16 Your Honor, here the information we

17 sought to be sealed, and frankly sought in both the

18 debtors' and I believe the bank's proceedings, is

19 the information that goes to the heart of this

20 case; it's information that any competitors of

21 these entities would love to see. The debtors and

22 the committee have an interest to maximize the

23 value of the estate. If this information, which is

24 projection related information, information that

25 both trading entities, competitors, any other


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2 stakeholder in these proceedings would very much

3 like to see and shouldn't be allowed to see. We

4 feel that this is appropriate to protect this.

5 Your Honor, we've read all the cases

6 in Bloomberg's motion. I think that you need to

7 take a look at the Second Circuit's decision in

8 Orion. Bloomberg cited this in support of its

9 original argument. In the Orion decision the

10 Second Circuit said first of all the debtors are

11 not required to show good cause for the issuance of

12 a sealing order, and you'll find that in page 28 of

13 the decision. It also talks about the Bankruptcy

14 Court being required to seal information that it

15 seems deems confidential. Your Honor, you have

16 seen the pleadings and unredacted version of these

17 pleadings. It is clear that the information we

18 seek to protect is in best interest of all the

19 estates.

20 I think also, your Honor, it would

21 be constructive to look at the Barney's case.

22 Bloomberg's reliance on Barney's is misguided as

23 well. It was not commercial in nature and did not

24 reveal the aspects of the debtors' operations.

25 The information we sought to seal


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2 and debtors sought to seal is specifically related

3 to the debtors' commercial operations and any

4 competitor would love to see that information. I

5 think, your Honor, we just need to go back to the

6 Code. I think Congress anticipated in a commercial

7 Chapter 11 case that there may very well be a need

8 for the court and certain parties to consider

9 confidentiality of certain commercial information.

10 That is why they drafted Section 107 of the

11 Bankruptcy Code the way it is.

12 We think this request is misguided.

13 We think by disclosing in our moving papers the

14 nature of the information we sought protected would

15 allow parties to guess as to what the information

16 itself was, and I think that it is unnecessary and

17 I think Bloomberg's request should be denied.

18 Thank you, your Honor.

19 THE COURT: Okay.

20 MR. KAROTKIN: Your Honor, I'll be

21 very brief, but I think Mr. Botter has hit upon all

22 the relevant points. And clearly under Section

23 107, the court has the power to seal the record

24 with respect to these matters. In fact, under the

25 Rules you can do it even without notice.


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2 The court and the parties here have

3 a paramount interest in maximizing the value of

4 these estates, and that clearly outweighs any

5 interest that counsel for Bloomberg has alluded to

6 or referred to. I would submit that the Loral

7 entities are publically reporting entities, and

8 that all material information is certainly

9 available to the public and they have full access

10 to that. I think it's really a simple issue of the

11 interests of these debtors in maximizing value,

12 which is clearly an essential element of this

13 proceeding and has to be respected by the court,

14 and the court has the power to do that.

15 THE COURT: Okay. I'm going to deny

16 the motion for the following reasons: As both the

17 committee and the debtor point out, while the

18 courts generally pay a great deal of deference to

19 the First Amendment, Congress has in Section 107(b)

20 and its corollary in Rule 9018, given the court in

21 light of the special nature of bankruptcy cases,

22 considerable leeway in protecting not only trade

23 secrets but commercial information which the Orion

24 case at 21 F. 3rd points out, is not the same as a

25 trade secret. It goes to the type of information


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2 that could materially and adversely affect the

3 interest of a debtor and its creditors in a

4 bankruptcy case.

5 The court's have recognized this in

6 the context of an auction process or a sale

7 process, which is one way or another what we are

8 involved in here. I refer specifically to Judge

9 Gerber's case in Global Crossing, Ltd. which is at

10 2003 WL-21728843 in July of this year, and also a

11 case that he cites from 2003 in re Foreign Line

12 290364-WE, Missouri, Judge Gentis. The court can

13 make the finding itself ex parte, but the Rules as

14 followed in the Southern District require if

15 there's to be a motion made to seal, to provide

16 both the redacted and unredacted document to the

17 court so the court can make its own determination.

18 In light of the policies set forth

19 in Orion and Global Crossing and other decisions on

20 this issue, most of which the parties have cited,

21 and based on my review of the redacted information

22 in the committee's objection which prompted

23 Bloomberg's motion, I concluded and continue to

24 conclude that that information is information that

25 is truly sensitive going to the value of the


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2 debtors' business in a way that if it were

3 disclosed would lead to two things:

4 First, it could put the debtor at a

5 significant commercial disadvantage with its

6 competitors, and as the testimony revealed

7 yesterday, this is a highly competitive business

8 where manufacturers of satellites and parties

9 engaged in the debtors' business compete heavily

10 for customers. So information going to projections

11 and fundamental business assumptions that have been

12 kept confidential, and any normal business would

13 keep confidential, would be detrimental to the

14 debtors' business.

15 Secondly, that information would be

16 particularly sensitive in connection with any

17 effort to attempt to sell that business either in

18 whole or part. And it is the committee's point in

19 its objection to the debtors' motion that is on for

20 today, that the debtor should in fact market itself

21 as a whole. And in my view, based on my review of

22 the information that the committee has redacted,

23 disclosure of such information would give those

24 parties interested in acquiring the debtor a

25 perspective leg up over the debtor and its


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2 creditors in a sale or emanating negotiations of a

3 sale, which would be to the detriment of the

4 creditors and to the estate.

5 As Judge Gerber and Judge Gentis

6 point out, that is an interest that 107 protects,

7 notwithstanding the court's deference to the media

8 and the First Amendment. So I believe that that's

9 the level of review that the court should

10 undertake, obviously, in making specific findings

11 as to why information needs to be filed under seal.

12 You can't describe the information itself or you

13 mitigate the whole purpose itself of 107. So in

14 terms of describing the redacted information

15 generically or by the type of information sought, I

16 concluded that the information going to the

17 debtors' projections, its internal valuations and

18 the like, is the type of information that is

19 confidential. I point out that this is consistent

20 with your policy that does not permit the discovery

21 of potential buyers as to how they come up with the

22 price as to the proprietary information. So for

23 that reason I'm denying the motion.

24 I'm also denying the request that

25 any party provide notice of a motion to file under


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2 seal to the news media generally, but Bloomberg

3 specifically. It's one thing to be a party in

4 interest with the right to seek to have information

5 unsealed. It's another to be involved in the

6 initial decision to seal, and I think it would

7 place an undue burden on the parties in interest,

8 the economic parties in interest in these cases, to

9 require that sort of notice. So Mr. Botter, you

10 can submit an order consistent with my findings.

11 MR. BOTTER: Thank you, your Honor.

12 THE COURT: Does that leave us with

13 the sale motion?

14 MR. KAROTKIN: Yes, sir.

15 Your Honor, apropos of the decision

16 that we just had in your ruling, the opening

17 statement I would like to make contains information

18 of the type that is contained in your ruling, and I

19 don't know how you would like to proceed.

20 THE COURT: Let me ask you, is it

21 truly specific or is it generic in the nature of

22 most of your reply to the committee's and

23 EchoStar's suggestions?

24 MR. KAROTKIN: Well, it's some of

25 both.


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2 THE COURT: So you actually have

3 facts and figures?

4 MR. KAROTKIN: Well, there are

5 figures, some of which are in our reply.

6 THE COURT: Is this something that

7 would be better brought out in any event in

8 testimony? Am I going to hear it again anyway?

9 MR. KAROTKIN: You will hear it

10 again, but I think it's important for setting the

11 tone in issues for today's hearing.

12 THE COURT: So are you making a

13 request that I invoke Rule 9018?

14 MR. KAROTKIN: Yes, your Honor.

15 THE COURT: Mr. Botter, are you

16 going to raise similar issues in your opening

17 statement?

18 MR. BOTTER: Mine is somewhat more

19 generic, and I suspect we will bring out the

20 testimony as to issues in both cases.

21 MR. KAROTKIN: I would just like to

22 err on the side of conservatism.

23 MR. BOTTER: I have no objection to

24 erring on the side of conservativism.

25 THE COURT: If you are actually


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2 going to get into the same type of information, to

3 figures and projections and the like, then I will

4 direct that the only parties who should remain in

5 the courtroom during the opening statement would be

6 those who are under confidentiality agreements or

7 obligations to the debtor.

8 MR. KAROTKIN: I don't know how you

9 are going to be able to address this.

10 THE COURT: You may be right. So

11 I'm going to ask, and I apologize for your getting

12 all stalled here, but we have discussed this before

13 today; I'm going to ask those parties who are not

14 subject to confidentiality agreements and

15 obligations to the debtor -- not just rule, I

16 direct that those parties leave the courtroom, and

17 we will bring you back as soon as those concerns

18 are not being raised.

19 (Pause in proceedings.)

20 MR. BOTTER: Your Honor, I think --

21 I'm wondering whether we ought to make the point to

22 the folks who are leaving that we may never open

23 up.

24 THE COURT: I don't think it's

25 necessary.


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281 CONFIDENTIAL


3 THE COURT: Is everyone remaining in

4 the courtroom subject to the confidentiality

5 agreement or obligations to the debtor?

6 (No response.)

7 THE COURT: I'm going to ask, and

8 this is the last time and there are consequences if

9 you disobey my ruling: I'm directing that all

10 parties who are not under a confidentiality

11 agreement or obligation with the debtor leave the

12 courtroom until further notified. So no one should

13 be in the courtroom other than those parties that

14 have confidentiality agreements or obligations to

15 the debtor.

16 Okay. Mr. Karotkin?

17 MR. KAROTKIN: Thank you, your

18 Honor.

19 By motion dated July 30, 2003 the

20 debtor sought an order of the court approving,

21 among other things, certain bidding procedures, a

22 break-up fee and expense reimbursement, and the

23 schedule of a sale hearing in connection with the

24 proposed asset purchase agreement between certain

25 of the debtors in these cases and Intelsat, Ltd.


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2 The sale pursuant to the asset

3 purchase agreement related initially, your Honor,

4 to primarily six satellites, one of which has now

5 been lost, owned by Loral SpaceCom Corporation and

6 by Loral Satellite, Inc., two separate and distinct

7 corporations with their own distinct assets and

8 creditor constituencies.

9 The motion, your Honor, and proposed

10 asset purchase agreement are the culmination of

11 literally months of exploration and analysis by the

12 debtors' management, its Board of Directors and its

13 professional advisors, including the analysis of

14 various alternatives and a variety of options to

15 address the debtors' over-leverage and liquidity

16 crisis that was threatening the debtors' survival.

17 After literally months of

18 deliberations and discussions, the debtors, in

19 connection with the Board, determined that the most

20 affective manner to achieve their need to

21 reconstitute their capital structure and obtain

22 liquidity, would be a sale of certain assets. And

23 by April of 2003, the only entity that materialized

24 and that was prepared to enter into substantive

25 negotiations to purchase assets was Intelsat. And


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2 these negotiations, as your Honor has heard before,

3 were hard fought, protracted, and in good faith,

4 and eventually culminated in the asset purchase

5 agreement with Intelsat which is before the court

6 today.

7 An initial hearing on the debtors'

8 motion, your Honor, solely to consider the bidding

9 and auction procedures and the approval of the

10 break-up fee and expense reimbursement was

11 scheduled for August 18, 2003. Prior to that

12 initial hearing, the creditors' committee undertook

13 an exhaustive review of the proposed bidding

14 procedures and auction process and put forward

15 detailed comments and suggestions as to how those

16 procedures and that process should be modified,

17 including by significantly extending the timetable,

18 to assure that a full, fair and complete marketing

19 process would take place and that that process

20 would produce the highest and best price for the

21 assets that were subject to the purchase agreement.

22 As a result, your Honor, the bidding

23 procedures and the auction process were in fact

24 expressly tailored and modified to incorporate the

25 committee's suggestions. And at the August 18th


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2 hearing, the committee fully supported the approval

3 of the bidding procedures and the auction process

4 before the court. The court similarly conducted

5 its own review of the bidding procedures as

6 modified to address the committee's concerns. And

7 at that hearing on August 18th, your Honor approved

8 those procedures and the auction process as well as

9 the notices to be implemented in connection with

10 the auction. And in ruling, your Honor, you

11 expressly noted, and I quote, "The heavy

12 involvement" of the creditors' committee in

13 finalizing the terms and bidding procedures, and

14 you also found and stated that the bidding

15 procedures will encourage an active sale process.

16 Also pursuant to your order of August 18th

17 approving the bidding procedures, you scheduled the

18 auction for October 20th, and the hearing to

19 consider the sale pursuant to that auction for

20 today.

21 Subsequent to the August 18th

22 hearing and the entry of that order, the sale and

23 auction process continued with all appropriate

24 notices being given in accordance with your Honor's

25 order, including nationwide publication of the


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321 CONFIDENTIAL

2 auction and the bidding procedures involved. In

3 addition, interested parties were permitted to

4 conduct full due diligence in accordance with the

5 bidding procedures on the North American satellite

6 assets that are subject to the purchase agreement

7 with Intelsat. It also should be noted, your

8 Honor, and as well to demonstrate in testimony,

9 that this entire process was preceded during the

10 prepetition period for several months with a

11 canvassing by Loral of the likely purchasers for

12 these assets as well as widespread and well

13 publicized knowledge, particularly in the industry,

14 that these assets were for sale.

15 Pursuant to the bidding process,

16 competing bids on the assets were required to be

17 submitted by October 15th. The only other bid

18 which was deemed to be a qualified bid was

19 submitted by EchoStar. For comparison purposes,

20 your Honor, the EchoStar bid which they submitted

21 on October 15th, exceeded Intelsat's proposed

22 purchase price in the contract by one million

23 dollars.

24 Thereafter, in accordance with the

25 bidding procedures, the auction was held in our


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331 CONFIDENTIAL

2 offices on Monday. At the outset of the session

3 Intelsat immediately enhanced its bid by agreeing

4 to what the debtors believed will be a 75 million

5 dollar upward adjustment in the purchase price

6 based upon a new transponder lease being finalized

7 by the debtors. And thereafter, your Honor, to be

8 completely blunt, EchoStar -- the committee's

9 complaint at the auction regarding our view that

10 this was not a clear enhancement to Intelsat's bid

11 and that it was not sufficient to constitute a

12 higher and better offer, Intelsat immediately

13 increased its base cash purchase price by 25

14 million dollars. EchoStar immediately dropped out

15 of the bidding process.

16 Accordingly, your Honor, the

17 debtors, in conjunction with the creditors'

18 committee and with the secured creditors, have

19 determined that the Intelsat bid is the highest and

20 best bid. And I would like to point out that the

21 proposed transponder lease has now been finalized

22 and executed and I believe that Intelsat can

23 confirm today that the 75 million dollar

24 enhancement is firm. I don't know if they are in

25 the courtroom. Their counsel is in the courtroom


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341 CONFIDENTIAL

2 and I think they can confirm that.

3 MR. LACY: I confirm that.

4 MR. KAROTKIN: Now, taking into

5 account the modifications made at the auction and

6 the potential adjustments under the purchase

7 agreement, the debtors are confident that the

8 purchase price will be 1.1 billion dollars.

9 Prior to today's hearing, your

10 Honor, the debtors received certain objections to

11 the proposed sale of the assets. All but two of

12 the objections relate to issues surrounding the

13 proposed assignment of contracts and disputes as to

14 cure amounts, and we believe those can be easily

15 resolved, and we defer consideration of those for

16 now. The remaining two objections were filed by

17 the creditors' committee and by EchoStar.

18 Now, your Honor, in connection with

19 today's hearing, I think it is extremely important

20 for the court to understand the corporate structure

21 of the debtors, the debtors which are the owners of

22 the assets proposed to be sold, and the creditors

23 of those particular assets -- and your Honor, if I

24 could direct your attention to the graphic to your

25 left; it's rather simple. I may approach?


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351 CONFIDENTIAL

2 THE COURT: Sure.

3 Is this the same one that's in your

4 response?


6 The selling entities under the

7 purchase agreement are Loral Satellite, Inc., over

8 on the left, and Loral SpaceCom Corporation. Loral

9 Satellite, Inc. is selling two satellites, and the

10 only debt of Loral Satellite, Inc. is secured bank

11 debt in the amount of 426 million dollars, which is

12 up here on the left. The other selling entity is

13 Loral SpaceCom Corporation. It is selling three

14 satellites, one of which is under construction, and

15 the debt of Loral SpaceCom, which is secured bank

16 debt, is 540 million dollars approximately, which

17 is over here on the left. And the only other

18 creditors of Loral SpaceCom amount to approximately

19 30 million dollars of other unsecured claims.

20 Now, I've noted on the chart, and I

21 think it's very telling, your Honor, no member of

22 the creditors' committee is a creditor of either of

23 the selling entities. They are not creditors of

24 Loral SpaceCom Corporation and they are not

25 creditors of Loral Satellite, Inc. And as I


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2 mentioned, the only creditors of Loral Satellite,

3 Inc. are the bank creditors.

4 And I think, your Honor, it's also

5 important to note that the sale is overwhelmingly

6 supported by every single creditor of Loral

7 Satellite, Inc. and by the overwhelming majority of

8 Loral SpaceCom, and no creditor of Loral SpaceCom

9 has objected to the sale of the assets pursuant to

10 transaction with Intelsat. And I think, your

11 Honor, it is difficult if not impossible to

12 question that the fiduciary duties of these selling

13 debtors of Loral SpaceCom and Loral Satellite are

14 owed first to their particular creditors and only

15 thereafter to the equity holders of those

16 companies.

17 Now, putting aside, your Honor, all

18 of the rhetoric and high pressure before you --

19 THE COURT: Before we get to the

20 putting aside, are any of the other debtors

21 guaranteeing anything under the Intelsat agreement?

22 MR. KAROTKIN: No.

23 THE COURT: They are not. Okay.

24 MR. KAROTKIN: Now, can we put aside

25 the rhetoric?


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2 THE COURT: Yes.

3 MR. KAROTKIN: I think based on the

4 pleadings before your Honor, one thing is

5 absolutely clear, and there is one thing that all

6 of the parties, meaning the debtors, EchoStar and

7 the committee and the banks have agreed upon, and

8 that the fundamental issue, and in fact the only

9 issue before you today, is whether the debtors'

10 determination to sell the North American satellite

11 assets, pursuant to the purchase agreement and the

12 auction process, is an appropriate exercise of the

13 debtors' business judgment. Whereas the Second

14 Circuit, your Honor, in the Lionel cases, there is

15 a business justification for the sale.

16 As we have stated in our responsive

17 pleadings, it is absolutely clear and implicit in

18 the business judgment test and explicit in the

19 legion of cases and law interpreting business

20 judgment that the established principle is that

21 absent patent and proper exercise of business

22 judgment, the debtors' business judgment must be

23 sustained. And your Honor, this is true even if

24 where there is a legitimate business agreement with

25 the debtors' business decision. So long as that


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2 decision and determination by the debtors was a

3 proper exercise of business judgment, it must be

4 upheld, even in the face of otherwise legitimate

5 alternatives.

6 Your Honor, indeed, inherent of the

7 exercise of any business judgment is the fact that

8 there may be more than one reasonable way in which

9 to proceed. And your Honor what's been resounding

10 in my mind since yesterday's hearing and since we

11 left here late last night, is a comment made by Mr.

12 Golden yesterday in his closing statement, which

13 I'm sure you'll hear repeatedly today; and that

14 statement, which I'm repeating it almost verbatim

15 is, this Chapter 11 case is very contentious

16 because the debtors do not do what the creditors'

17 committee wants them to do. And that is the

18 essence of the committee' position here today and

19 with respect to this motion.

20 The committee is demanding that this

21 court substitute the committee's judgment for that

22 of the debtors. And to go beyond that, your Honor,

23 to have this court wrest control of the

24 administration of these estates from the

25 debtor-in-possession and force a sale of all the


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391 CONFIDENTIAL

2 assets of the debtors' estates, this would be

3 unprecedented. And if the court were to accept the

4 creditors' argument and Mr. Golden's position, we

5 would turn the bankruptcy and bedrocks position on

6 their head.

7 As the evidence will clearly

8 demonstrate, your Honor, the debtors' case to

9 proceed with the sale of the North American

10 satellites to Intelsat pursuant to the agreement

11 and pursuant to the court sanctioned creditors'

12 committee auction process was far from the hazy

13 knee jerk secured creditor's position that the

14 committee and EchoStar would have the court believe

15 based solely on their conclusory and unsupportable

16 allegations, your Honor. Rather, your Honor, the

17 testimony you'll hear today, and tomorrow it looks

18 like, will clearly demonstrate that during the

19 months proceeding the Chapter 11 filings, the

20 debtors proceeded various alternatives and

21 liquidity needs. These alternatives included asset

22 sales, joint venturing equity swaps, contacts were

23 made and alternatives were explored by debtors and

24 their retained professionals, including virtually

25 all strategic employers in the industry as well as


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2 the major financial employers, including, your

3 Honor, detailed proposals to form a joint venture

4 with respect to the debtors' satellite business.

5 During this entire business, the

6 court on a regular basis was receiving advice and

7 input from senior management, which consists of the

8 most experienced personnel in the satellite

9 industry, and also was being advised by seasoned

10 restructuring professionals, including Mr. Miller

11 who has had 40 years experience in the

12 restructuring arena, and his credentials are

13 unparalleled. During this procedure, your Honor,

14 the Board was fully advised of management

15 activities and fully briefed on all alternatives.

16 The evidence will show that the

17 Board and debtors' management fully evaluated, on a

18 number of occasions and in a series of Board

19 meetings, the proposed meeting with Intelsat,

20 including a structure of the sale, and a complete

21 sale of the assets that would remain in fact. And

22 in direct contrast to the committee's assertions,

23 detailed presentations were made to the Board with

24 respect to the analysis of alternative strategies,

25 risk factors, and in particular, the financial


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411 CONFIDENTIAL

2 performance and prospects for the assets that would

3 remain, subsequent to total consummation of the

4 Intelsat sale.

5 This process also included, your

6 Honor, an analysis of the consequences of not

7 proceeding with the sale, confronting an immediate

8 liquidity crisis, and being faced with the process

9 of facing Chapter 11 with a cash collateralized and

10 a cramming down of one billion dollars of secured

11 bank debt. And in that analysis, your Honor,

12 considering the impact of this type of chaos and

13 impact on the debtors' operations and the ability

14 to instill confidence to the creditors' suppliers

15 and other parties as to the viability of enterprise

16 and maximization of value of all parties in

17 interest, including obtaining new satellite orders.

18 In fact, on May 27, 2003, Greenhill, the debtors'

19 financial advisers, made a 44-page presentation to

20 the Board of Directors which went through chapter

21 and verse, a complete analysis of the proposed

22 transaction with Intelsat, a detailed analysis of

23 the remaining assets and businesses of the debtors,

24 the cash flow, and every potential aspect of the

25 businesses, and how they could provide the basis of


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2 a successful restructuring. That also included a

3 complete analysis of alternative courses of action,

4 including not selling the North American assets.

5 Your Honor, this in and of itself is

6 a textbook case for the exercise of sound business

7 judgment. And it's easy for the committee to

8 cavalierly throw around cash collateral fights

9 obtaining primary debtor-in-possession financing

10 and cramming down one billion dollars of secured

11 debt. But I can tell you that I don't know of any

12 time or any case in which one billion dollars of

13 secured bank debt has been successfully crammed

14 down, and no one can determine the maintenance of

15 that to the issuance of a press release in

16 connection with the Chapter 11, and realize secured

17 creditor support in the working capital like these

18 debtors were able to accomplish here.

19 The Second Circuit in the Lionel

20 case stated that the assets must be salable and

21 have articulated and sound business reason. We

22 will give several: It presents the debtors with

23 the opportunity to sell certain assets at an

24 extremely attractive price, and perhaps even a

25 premium, and prevent debtors' from having the


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2 leverage problem which was threatening their

3 ability to survive the sale; it will generate

4 significant excess cash to support the continuing

5 operations and enhance the ability to attract new

6 customers and compete in the market facilitating

7 successful valuation.

8 In this matter, the Board's

9 fiduciary duties with respect to the assets to be

10 sold has demonstrated on the chart alternatives,

11 and assets were valuated to the Board, including,

12 your Honor, the fact that the remaining assets and

13 businesses have significant value and provide the

14 valuation for a successful reorganization. In

15 fact, the detailed presentations made to the Board

16 reflected that the remaining businesses, consisting

17 of five satellites, Space Systems/Loral, the

18 manufacturing entity and the satellite servicing

19 business, have projected and analyzed EBITDA of

20 over 39 million dollars in excess, and operating

21 cash flow in excess of 165 million dollars. And

22 that we will also show your Honor, despite the

23 committee's contention, that a North American

24 satellite presence is not at all necessary for a

25 viable and profitable operation, as clearly


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2 demonstrated by the likes of other satellite

3 operators such as Eutelsat and New Skies and Asia

4 Satellite, each of which is extremely profitable

5 and utilized without any North American Satellite.

6 Any assertion that the remaining

7 business will not have adequate capital is wrong,

8 and you've heard that yesterday from Mr. Zahler.

9 And you will hear that after confirmation of the

10 sale there will be approximately 25 million dollars

11 of excess cash in Loral Satellite which will be

12 available to its parent corporation. There are no

13 other creditors there. No one else is entitled to

14 that money. And there will be 138 million dollars

15 in excess cash at Loral SpaceCom, and that doesn't

16 even take into account, your Honor, the one million

17 dollar deposit, that in addition to the 1.1 billion

18 dollar purchase price, is to be paid by Intelsat

19 and will be furnished as a deposit to the new

20 satellite construction. The undisputed fact is the

21 debtors will have sufficient working capital to

22 pursue the business plan.

23 The committee's contention that the

24 debtors are selling its crown jewels and are left

25 with assets of little value is also controverted by


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2 undisputed facts, again, which we will demonstrate.

3 EchoStar, to whom the committee seemed to hitch its

4 wagon, has already placed a value of 7 million

5 dollars on the remaining assets, if we are to

6 believe their purported offer, and the committee

7 stated itself in its objection that EchoStar will

8 pay more. Moreover, SS/L is now poised, as you

9 heard yesterday, in view of the prospects for new

10 contracts with DIRECTV, to take advantage of the

11 projected rebound in the satellite manufacturing

12 business, as clearly evidenced by those events.

13 And I presume, in addition to the

14 three new orders from DIRECTV and PanAmSat and the

15 further order from Intelsat to which I just

16 referred, I presume EchoStar was acting in good

17 faith when it said it had a legitimate interest in

18 three or four satellites as well, and not just

19 taking a position to ensure that the competitor

20 didn't get the assets. The three new orders in

21 from DIRECTV as an asset will provide Space

22 Systems/Loral over 345 million dollars in revenue.

23 Indeed, your Honor, these recent events, the events

24 that you've seen, have corroborated and validated

25 the debtors' and the Board's business judgment that


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2 not only will the remaining assets be viable and

3 provide the successful foundation for

4 reorganization, but the realization and

5 reorganization of the debtors' turn around may

6 result in substantial value.

7 The primary thrust of the

8 committee's objection is that the projected and

9 expected proceeds from the Intelsat sale are

10 significantly lower than the value of the North

11 American assets. The committee's view apparently

12 is premised on Mr. Darrows' of Jefferies expert

13 report furnished to us this past Friday night, in

14 which he did a discounted cash flow valuation. And

15 in that report, your Honor, that reflects a volume

16 of approximately, in Mr. Darrows' view, 1.5 billion

17 dollars for the North American satellites assets.

18 With all due respect to their

19 investment banker's and models and formulas, the

20 Supreme Court noted in the LaSalle case that to

21 determine the true value, the best way to do that

22 is by a market test, and that's precisely what was

23 done here with the North American assets.

24 Moreover, your Honor, as I indicated, this test was

25 implemented under procedures specifically tailored


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2 to the committee's concerns. And for the committee

3 to now take the position that this market test

4 should now be ignored and instead the court should

5 rely on appraisals and the cash discounts, defies

6 logic. And even if, your Honor, it were

7 appropriate to ignore the market test, as the

8 committee apparently suggests, the valuation

9 contained in Mr. Darrows' expert report where in

10 his deposition I believe he said he was a

11 self-proclaimed restructuring expert, that report

12 has such egregious errors that it's not worth the

13 paper it's written on. Suffice it to say, your

14 Honor, his cash discount is based on cash flow

15 projections, and his basis for valuation totally

16 ignores elements such as capital expenditures,

17 corporate overhead, marketing costs and perhaps

18 most importantly, your Honor, the relatively short

19 projected life of the satellites being sold to

20 Intelsat.

21 The obvious consequence of ignoring

22 these factors is a grossly inflated value.

23 Moreover, Mr. Darrows expressly noted in his

24 deposition that projections are inherently

25 inaccurate. Yet despite the full market test, the


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2 committee nevertheless claims the value obtained in

3 the auction is too low and not fair value, and

4 further asserts that the owners of these assets,

5 meaning Loral SpaceCom Corporation and Loral

6 Satellite, Inc., should forego this sale based on

7 the committee's rank speculation as evidenced by

8 the following statement in their objection where

9 they say on page five, the committee believes that

10 EchoStar has not made it's final offer, and one or

11 more other businesses, including numerous other

12 apparently unidentified industry and financial

13 players would make bids for all or part.

14 So now apparently it's okay to sell

15 the company in pieces, whereas they were saying

16 before that it could only be sold as a unit for all

17 the parts that could provide vastly more assets to

18 the estate than under the Intelsat scenario, in

19 addition to the fact that the EchoStar purported

20 offer for the entire company, if the committee were

21 to abide by its own analysis, is woefully

22 inadequate; it's secured on pure speculation. And

23 the real risk from the value to be received from

24 the Intelsat transactions may never be received if

25 it does not go forward now. And I'll mention some


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2 of these risks: Intelsat has made it clear they

3 are not waiting around; you have to also consider

4 general economic conditions, the volatility of the

5 satellite industry, the problems with the

6 satellites being sold themselves. Some of them are

7 old satellites which in the industry have

8 "problems." The fact that the satellites

9 originally have a finite life, and therefore by

10 definition lose value with the passage of time,

11 perhaps the rather cavalier attitude of the

12 committee by asking the court to forego what you,

13 your Honor, have called the bird in the hand, by

14 the speculative value in the future is hopeful at

15 best. It's the secured creditors -- the secured

16 creditors who have the economic value of the

17 assets, and it's therefore, your Honor, the secured

18 creditors who will bear the entire risk if it

19 accepts the committee's speculative approach and

20 speculative bet and it turns out to be wrong. And

21 the committee harps, and you heard it yesterday, on

22 fiduciary duties, and it is the first to ignore

23 them when it suits their purposes. The committee

24 is asking the court to ignore the fiduciary duties

25 to Loral Space and compensate by rolling the dice,


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2 who are not even creditors of the entities of the

3 assets being sold. And I would just like to

4 mention in passing that both the committee's and

5 EchoStar's proposed sale to EchoStar is

6 self-interest. Aside from being unsettling, it

7 demonstrates the lengths to which they would both

8 go to in the blind pursuit of their own agenda when

9 neither can to prove any evidence of self-interest.

10 Secondly, there never, ever could be an internally

11 generated reorganization plan in a Chapter 11 case;

12 rather in all Chapter 11 cases, a sale of all the

13 assets of the parties would be mandated, your

14 Honor. You know, that's just not the norm.

15 A lot of energy in these cases has

16 been devoted to EchoStar and its purported offer to

17 purchase the entire company. And I think today

18 it's appropriate to put that so-called offer in the

19 proper perspective so that it can no longer serve

20 as a diversion. As evidenced again yesterday, and

21 despite the court's admonishment to the contrary,

22 EchoStar continues its behind-the-scenes covert

23 last minute shenanigans, rather than being up front

24 and straightforward, your Honor. We are only

25 confirming the concerns Mr. Zahler alluded to


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2 yesterday as to why he is concerned about

3 EchoStar's sincerity and good faith. But even more

4 importantly, even if it were a real bid, it does

5 not even approach, to use the court's words, the

6 blockbuster levels that would make it worthy of

7 further consideration.

8 The debtors have always maintained

9 that the bid was totally inadequate, and it

10 still questions its bonafideness. And as mentioned

11 previously, the creditors' committee, by

12 definition, that if they want to be consistent with

13 their own analyses, they have to, based on Mr.

14 Darrows' expert report which I referred to earlier

15 in which he values the North American satellite

16 assets at 1.5 billion dollars, EchoStar's so-called

17 bid for the remaining assets in the Creditors'

18 Committee's view has to be 350 million dollars, an

19 amount the committee previously dismissed out of

20 hand.

21 Your Honor, as I stated at the

22 outset, the issue before the court is very

23 straightforward, and everyone agreed on it; is the

24 proposed sale of the North American satellite

25 assets pursuant to a full and complete court


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2 approval and creditors' committee sanctioned

3 process under the reasonable exercise of the

4 debtors' business judgment, the answer has to be

5 yes. Not only are there the numerous business

6 justifications that I mentioned earlier, including

7 reducing leverage, facilitating successful

8 reorganization and premium price, and the debtors

9 and the Board has been validated by the evidence

10 which clearly confirms management and the Board's

11 judgment that there will be substantial and very

12 likely robust businesses that will remain after the

13 sale of the North American satellites to Intelsat,

14 and the plan for reorganization and will prove a

15 very successful emergence of the debtors from the

16 Chapter 11. The estate will realize significant

17 value from the sale, and their remaining businesses

18 will have substantial value, your Honor, and will

19 provide the foundation for the debtors' to

20 successfully emerge from Chapter 11, maximize value

21 for all parties in interest, as contemplated by

22 Chapter 11 of the Bankruptcy Code.

23 This certain opportunity,

24 your Honor, this bird in the hand, should not be

25 squandered and put at risk to appease the interests


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2 of the creditors' committee and its investigations

3 which are premised on pure hope and speculation

4 when they are not even creditors of these entities.

5 Thank you.

6 THE COURT: Mr. Huebner?

7 MR. HUEBNER: Good morning, your

8 Honor.

9 My presentation will not have

10 confidential information. On the other hand, I

11 have no desire to have a larger audience or disrupt

12 the court's flow --

13 THE COURT: They have a right to

14 come in.

15 MR. HUEBNER: May I put in a couple

16 of confidential comments?

17 THE COURT: No. They have a right

18 to be here.


20 THE COURT: Okay. I think you can

21 start.

22 MR. HUEBNER: Good morning, your

23 Honor. I'm Marshall Huebner of the law firm of

24 Davis Polk and Wardwell representing The Bank of

25 America. As your Honor knows, we are here on the


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2 motion of two debtors, SpaceCom and Satellite, Inc.

3 to sell certain of their assets. Your Honor, at

4 this point in the proceedings, I am tired of

5 hearing myself, hearing I'm Marshall Huebner from

6 Davis Polk and Wardwell on behalf of The Bank of

7 America.

8 Your Honor, today I'll use a

9 different opening. So the facts are crystal clear,

10 I am here on behalf of the 100 percent of the

11 426.25 million dollars in creditors of Satellite,

12 Inc., one of the two selling moving debtors. I am

13 also here on behalf of 95 percent of SpaceCom's 577

14 million dollars in creditors. Overall, your Honor,

15 it is my belief based on figures provided by the

16 debtors that we, the bank groups -- Bank of America

17 is owed 97 percent of the money of the two selling

18 debtors. Your Honor, unlike a lot of different

19 hearings over which bankruptcy courts proceed, this

20 hearing is not about secured creditors versus

21 unsecured creditors. It is not about liquefying

22 assets of the debtors now versus distributing funds

23 to the creditors later. There are no other

24 creditors of these debtors other than a small

25 amount of creditors who, as you will hear in a few


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2 moments, in the next few days will have hundreds of

3 millions of dollars in excess of their small amount

4 of remaining claims to satisfy those claims.

5 Your Honor, on July 15, 2003, at the

6 commencement of these cases, the debtors made what

7 is entirely typical, they made a joint

8 administration motion. It never occurred to me

9 that I should object to a joint administration

10 motion. The motion provided that the rights of

11 creditors will not be adversely affected by the

12 motion, as it requested, only administrative and

13 not substantive qualification of the estates.

14 Moreover, the order you signed only provided,

15 nothing in this order shall be deemed or construed

16 as directly or otherwise affecting the substantive

17 consolidation of any of the above-captioned cases.

18 In retrospect, I should have

19 objected, because had I objected and SpaceCom and

20 Satellite not been jointly administered, there

21 would be no official committee of creditors

22 objecting. There would be no one objecting,

23 because these debtors, the only debtors who are

24 moving to sell assets, would have come to this

25 Court with a transaction that pays their 1.04


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2 billion dollars of claims in cash in full and

3 leaves, as you will hear, upwards of 300 million

4 dollars of value left for a dividend upstairs.

5 THE COURT: Isn't that why the

6 committee says they do have standing, because this

7 is really not a creditor-creditor issue but a

8 creditor-shareholder issue?

9 There is value here, and we are only

10 talking about what goes to the shareholders, and

11 the issue is really adequate protection.

12 MR. HUEBNER: Your Honor, we do not

13 disagree that the committee has standing and do not

14 take issue with that in our brief. The issue is

15 are the creditors of equity holders of an

16 enterprise allowed to come in and say that the

17 assets and claims of the enterprise should be put

18 at risk to create the hope of a larger future live

19 debtor to equity holders. And to that report I

20 should point out that it's not the typical breach

21 of fiduciary case that the court's find its equity

22 holders in the attempt to maximize the value here,

23 it's a fortiori.

24 The equity holder, Loral Space &

25 Communications Limited, has done the right thing


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2 and said we don't gamble down at our operating

3 companies with their assets. The people doing the

4 wrong things are the creditors two levels up

5 structurally subordinated of the equity holder.

6 And that's why I think, your Honor, this is not

7 about creditor versus creditor. These are separate

8 discrete companies, and we think the law is very

9 clear.

10 Your Honor, the committee is not

11 shy. In fact, they are very straight forward about

12 admitting why they objected to the sale. They

13 object to the sale because they want to rob Peter

14 to pay Paul. They tell you right up front in their

15 brief that they want the cash flow from these

16 satellites to be used to fund the debtors' other

17 businesses. Again, your Honor, they want to take

18 the cash and the assets of discrete debtors and

19 spread it around the system to fund other debtors.

20 That substantive consolidation, which we surely

21 don't have, it's also a breach of fiduciary duty

22 and contrary to the law in this circuit of how the

23 debtors behave and maximize value.

24 Your Honor, I would like to echo

25 Mr. Karotkin's point because I think it's an


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2 important one, that to our knowledge not a single

3 creditor of either of the selling debtors, not one,

4 opposes the relief sought. Your Honor, I'm not

5 going to walk through the chart again. In part,

6 ours is so much smaller and cleaner than

7 Mr. Karotkin's and it would be embarrassing to do

8 so, but I want to point out a couple of additional

9 things. We know that the two selling debtors are

10 here. We know that the banks are the only

11 creditors of that selling debtor, and I think we

12 know that the banks are maybe 95 percent of the

13 creditors of this debtor.

14 But your Honor, what's also relevant

15 is that the banks have guarantees at other places.

16 And so the benefit of this transaction is, in fact,

17 not confined to what I think the law properly

18 advises us to analyze, which is the debtors who are

19 actually undertaking the transaction, but rather

20 the debtor family as a whole.

21 Your Honor, Mr. Karotkin began with

22 the fact that the satellite situation is very

23 straightforward. The satellite will have about 25

24 million dollars left in cash with no other

25 creditors to dividend up the chain to be used to


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2 satisfy the claims of whoever the debtors in this

3 court finds appropriately are entitled to that

4 money. Your Honor, the SpaceCom situation is even

5 better. Like satellite, SpaceCom, to our

6 knowledge, basically has no debt or a very small

7 amount, 31 million, other than the 46 million

8 dollars owed to the B of A. Your Honor, that's

9 what's left after all the liens and bank debt has

10 been paid off. What's left is 66 million dollars

11 of cash, minimum. And that's not counting the 200

12 million dollars that is likely to come in to SS/L,

13 its wholly owned subsidiary, next month, and

14 whatever your Honor decides on DIRECTV and EchoStar

15 on the issue we had so much fun with yesterday.

16 What's also left is EdS satellite, what's left is

17 250 to 350 million dollars, for this satellite

18 unincumbered with virtually no claims; there

19 SpaceCom's ownership of the Apstar satellite,

20 partial ownership, is worth a fair amount of money,

21 the TTNC business, and more importantly, which you

22 heard a lot about yesterday, is SpaceCom's 100

23 percent ownership interest in Space Systems Loral.

24 Space Systems/Loral, just for the benefit of those

25 who might not know, is the debtors' manufacturing


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2 business, that business has landed four or five

3 multi-hundred million dollar satellite orders in

4 the last few weeks, these are orders between 100

5 and 300 million dollars each, and the committee

6 wants to hold the cash which will circumvent those

7 orders by doing so. So I think it's pretty

8 straightforward, your Honor, from the perspective

9 of the creditors' entities, that this really is not

10 in our view a complex decision.

11 Your Honor, I'm not going to repeat

12 all the authority in our brief on the issue of the

13 committee's request that this court keep SpaceCom

14 and Satellite's cash flow hostage to fund the other

15 debts. I think the application, i.e. One Case,

16 Color Tile, Hechingers, Healthco., et cetera, make

17 it perfectly clear that they are robbing Peter to

18 pay Paul, least of all in bankruptcy, is illegal

19 and inappropriate.

20 Your Honor, the irony though is that

21 committee agrees with us, and they have agreed with

22 us time and time again. They agree with us on the

23 law, which is that the debtors have certain duties

24 to their creditors. How do we know this? Because

25 we've had a lot of hearings in this case, and at


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2 many of the hearings the committee showed up and

3 filed pleadings that say, your Honor, why should

4 Debtor X be guaranteeing something to debtor Y?

5 Debtor X has to show it's in the interest of its

6 creditors to take that step.

7 Your Honor, in its own sale

8 objection, the same document that we're talking

9 about, the committee argues that the parent company

10 should not guarantee the procurement contract

11 because the benefit may or may not ultimately flow

12 to it. How a fortiori can you get? Parent

13 companies guarantee their subsidiaries' liabilities

14 all the time, that's legal, because they hope that

15 they will get the benefit of the subsidiaries'

16 appreciation.

17 What the committee is demanding, is

18 that the objecting subsidiaries remain hostage

19 forever for the good of the parent company. That's

20 illegal. That's called a fraudulent transfer.

21 Your Honor, we can't ignore that, because we live

22 in a real world where the bonds are in this

23 company. With all due respect to the two trade

24 creditors who are on the committee out of seven who

25 we believe are only at Space Systems/Loral,


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2 although if they have some domain in this claim

3 elsewhere, it surprises us. We don't think it's

4 analytically relevant. We all believe this

5 committee is a chair who's -- five of whose seven

6 members are large bondholders. And where are the

7 bonds? They are not here (indicating), they are

8 not here (indicating), they are not here

9 (indicating), they are not even here (indicating),

10 your Honor. They are not even one level

11 structurally subordinated. They are actually two

12 levels structurally subordinated. The bonds are

13 unsecured obligations of the public holding

14 company. In one event the primary bond directly

15 pertains through direct obligations, but the much

16 larger bonds are totally unrelated. The company,

17 while it does business, owns its own satellites and

18 it's only interested in our proceedings at all

19 because of the parent company's guarantee.

20 If anybody should not be driving the

21 bus in this case, it is those people. But you know

22 your Honor, it's good to be conservative. And so

23 to be on the safe side, I'm actually happy to argue

24 the motion in the Kafkaesque legal regime

25 identified by the objectors because the sale passes


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2 muster just as easily. Let us argue by a rule of

3 law that says whenever a single debtor makes a

4 motion under 363 under a procedurally jointly

5 administered case, the relief of the joint

6 administered relief, the entire debtor family has

7 to be considered. To be fair, in this parallel

8 universe we are still talking about a 363 sale.

9 The Second Circuit is both straightforward and very

10 clear. 363 sales in the Second Circuit are

11 considered under the well-trodden business judgment

12 standard. As Judge Lifland said, where the debtor

13 articulates a reasonable basis for its business

14 decisions for, as distinct from a decision made

15 arbitrarily or capriciously, the court will not

16 entertain debtors' to the conduct. The other

17 courts rulings, i.e. Lionel, which I won't repeat

18 Mr. Karotkin's comments on, there's Integrated

19 Sources cited in our brief, and most recently in

20 the case of Global Crossing, which is so closely on

21 point it's almost painful. The debtors had a deal

22 to sell a share of the assets and somebody came

23 along and said, wait, I want to do a bigger

24 transaction holding. The court should not dictate

25 the means to achieve maximization of value; the


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2 court's ruling was that the debtors' business

3 judgment carried the day.

4 Your Honor, again, the question then

5 becomes did the Board of this company, continuing

6 to pretend that it's one company that has to worry

7 about everybody in all of its decisions, and that

8 the committee speaks for the creditors of that

9 single mythical company, did the Board take an

10 action that in its business judgment will maximize

11 value for the entirety of the entities? Your

12 Honor, I believe that the testimony that I read in

13 the depositions and that I believe will be given

14 here in court, will make it resoundingly clear that

15 the Loral Board, including its independent

16 directors, consider all of its options with extreme

17 thoroughness, consulting with multiple appropriate

18 advisors before approval. And I am working on the

19 Intelsat sale. The process was full and complete,

20 the Board was advised by the appropriate

21 professionals, and the Board was guided, as we

22 heard testimony yesterday in that context, and this

23 one as well, by a desire to maximize value. The

24 auction process was heavily negotiated with the

25 committee, was complete and fair, and the auction


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2 which was a live auction, with a 100 million dollar

3 purchase price, was achieved value.

4 Your Honor, why are they doing the

5 sale? Is it because people love banks more than

6 they love bondholders? I don't think so. We've

7 heard a little yesterday, and we'll hear a lot more

8 in the next few days; the debtors did the sale

9 because as Mr. Miller and Mr. DeWitt and Mr. Mallor

10 and Mr. Schwartz and several others testified under

11 oath, having bank debt of this amount at the actual

12 operating companies that built the stuff and trying

13 to attract customers was killing the company, plain

14 and simple. Customers were unwilling to sign up to

15 bet their business on multi year contracts costing

16 multi hundred million dollars with operating

17 companies that were burdened with a billion dollars

18 of secured debt and might not make it.

19 Is it a coincidence? Is it just a

20 coincidence that since this massive deleveraging

21 transaction that left the operating companies with

22 no funded debt was announced, SS/L is fighting off

23 the customers and has got new orders in the

24 hundreds of millions of dollars, and people are

25 litigating every three days before you for the


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2 right to wire money to SS/L? I don't think it's a

3 coincidence, and I don't even think the committee

4 thinks it's a coincidence.

5 But your Honor, let's go one step

6 further toward the rubric they would like us to

7 work in. From a pure short term, how big is the

8 wire transfer? Forget the business, let's just

9 talk about the money. Is this a fair price? Your

10 Honor, you'll hear a lot of testimony before you

11 about this from the debtors and Greenhill, that

12 they shot this deal all over the world repeatedly

13 contacted every player in this relatively small

14 market, Boeing, SES, PanAmSat, Apollo, Carlisle,

15 et cetera. You'll also hear in the quiet and very

16 dangerous world of e-mail that the committee's own

17 professional advisers were hearing the same thing

18 again and again from all of their cronies in the

19 investment banking world. One of these many

20 e-mails to and from Mr. Darrows, the committee's

21 star witness, was pretty surprising. Not only does

22 it say Greenhill got good price for these assets,

23 it says if the sender were asked, he would deny any

24 positive comment about Greenhill. Wow. I can't

25 wait to talk about those e-mails. Would there be


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2 expert testimony on the other side? Absolutely.

3 In fact, there are even going to be people who were

4 not paid to testify during this trial who think the

5 price wasn't full and fair. There's even a Bank of

6 America analyst who thought that this wasn't a fair

7 price. Of course I guess it's good proof that fire

8 walls work.

9 But more importantly is EchoStar's

10 game was to buy the satellite alone, which is way

11 more than 1.1 billion; he's just plain wrong. But

12 I think at the end of the day, your Honor, after

13 the evidence, and we'll hear hours of it to ensure

14 the price is fair. It's not really relevant. It's

15 not really relevant because there's rules of law.

16 The Supreme Court in LaSalle ruled that it was not

17 so interested in experts, the way you establish

18 value is exposure to the market. The Second

19 Circuit Court throughout this jurisdiction in

20 Colony Hill, Gucci, TWA, in fact, Judge Walsh made

21 a long speech in Polaroid, saying, from now on

22 there's a full and fair action. He's just not

23 going to listen to the experts because his decades

24 of experience show it's not where the action is,

25 showing what is a full and fair price.


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2 Your Honor, the rule of law

3 enunciated in LaSalle, that the best way to

4 determine value is to enunciate to the market, and

5 it is especially true in this case. One, the

6 committee heavily negotiated changes on the auction

7 procedures doubling the bid period, and after all

8 that supporting the procedures and leading to this

9 court's ruling that they were full and fair. Two,

10 this court employed somewhat unusual additional

11 obligations on the debtors in connection with this

12 auction. The obligation to provide due diligence

13 on assets not for sale, to facilitate a more robust

14 action that some wholly different course of action

15 chosen by the debtors' business judgment felt was

16 appropriate. Three, we had an actual auction.

17 Your Honor, let's not lose sight of

18 the fact that EchoStar sent in a fully conforming

19 topping bid and then was topped by Intelsat which

20 increased its bid by 100 million dollars and then

21 waited for EchoStar to counter. Indeed to show a

22 devotion to the auction process, EchoStar gave a

23 check for 28 million dollars to Weil Gotshal and

24 Manges, but they bowed out, your Honor, leaving

25 Intelsat the winner in a live auction.


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2 Your Honor, I'm not going to address

3 the committee's reliance on the appraisals and

4 other metrics. I'll do it on cross-examination.

5 But suffice to say Mr. Darrows in his reports,

6 indicated assets of 1.5 billion, which is

7 remarkably inconsistent with approaches he took

8 elsewhere. He did not take into account taxes that

9 have to be paid by the purchasers on the cash flow,

10 the change in the interest rates, the corporate

11 overhead, capital expenditures, the large cost of

12 130 million dollars for FA, which isn't even built

13 yet. So sure, if you assume robust revenues and

14 zero expenses, it's not a surprise that the applied

15 value of the purchase assets can be made to look

16 quite high. It's also not a price that the market

17 test bears no there's relationship to Mr. Darrows'

18 testimony.

19 Finally, your Honor, there is

20 EchoStar. The question is, should the debtors be

21 doing something other than the sale? Your Honor,

22 the law is the court's don't substitute their

23 business judgment and don't dictate their value

24 back to debtors. As a matter of fact, nothing

25 about the facts in this case suggest that a better


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2 path is in hand. You warned EchoStar. You told

3 them three times that if they wanted to stay

4 credible and serious they should come well before

5 the 22nd with a real hard bid.

6 We heard last night, your Honor, in

7 yet another piece of histrionic drama in the

8 hallway, they told the creditors' committee they

9 were taking out the due diligence condition. And

10 your Honor, Mr. Kelly was deposed yesterday

11 morning, and in his testimony Mr. Kelly admitted

12 that there were 10, 11, 12, 13, conditions

13 precedent to EchoStar's bid, with due diligence

14 being only one of them.

15 I don't even know what they are

16 offering anymore, but I do know it's certainly not

17 something anyone could take to the bank. I also

18 know everyone agrees it's grossly inadequate. It

19 was made before SS/L started production.

20 Ultimately that's not what's before us.

21 Your Honor, there are two other

22 points I would like to address before closing. One

23 is the committee's contention that this is the

24 illegal sub rosa plan, and I have three points

25 Braniff is not the law, and that's in our brief.


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2 Two, while I think there was some dispute or

3 purported dispute about how valuable and complex

4 the separate business operations are that remain

5 after the sale, there's no question that there are

6 hundreds of millions of dollars of assets and

7 hundreds of millions of dollars actually over a

8 billion dollars of liability. Moreover, your

9 Honor, it's almost breathtaking that the committee

10 could even make a sub rosa objection in light of

11 the fact that the committee has repeatedly raised

12 an objection to the sale of all the assets under

13 363.

14 On October 2, 2003 the committee

15 entered into a contract with EchoStar agreeing to

16 file motions on EchoStar's behalf, opening more due

17 diligence, and agreeing to support a bid for all

18 the assets made by EchoStar. It's okay for them to

19 do that; it's not a moral point. The point is,

20 it's obviously happening to a true arguable sub

21 rosa plan in the sale of all the assets of all the

22 debtors. Clearly the sale of some of the assets of

23 some of the debtors shouldn't bother -- apparently

24 there is the question of whether the banks should

25 be paid from the sale of the proceeds. The


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2 committee professes, and this is their word not

3 mine, to be mystified as to why these debtors would

4 agree to pay the debts down from the proceeds.

5 Let's forget the fact that we are

6 the only creditors of these entities. Let's forget

7 the fact that we have liens on the assets of all

8 the creditors of the entities. Let's talk about

9 the judicial reality. The cash collateral order

10 heavily negotiated by the committee and entered by

11 this court with the support of the creditors'

12 committee, requires in a final binding

13 nonappealable order that proceeds from the sale of

14 lender collateral be a pay-down to secured lenders

15 as part of the deal, which is from for consenting

16 to the debtors' access and use of cash collateral.

17 I'm not sure where the mystery comes from.

18 Moreover, as the debtors made clear

19 in their brief, the debtors' lenders consent to the

20 sale of their collateral as premised on the sum of

21 the proceeds. As a matter of law, it's the

22 position of the debtors and the lenders that you

23 can't adequately protect liens in cash collateral

24 other than by turnover of the cash collateral for

25 the negative arbitrage of paying the lender


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2 interest rate over what the debtors would make,

3 parking a billion dollars in the U.S. Trustee

4 sanction guidelines which is tens of millions of

5 dollars a year that comes right off the backs of

6 the unsecured creditors in this case.

7 And finally, your Honor, you'll hear

8 a lot during these proceedings about the main point

9 of the sale. The reason the debtors are doing it

10 is to deleverage their operating companies and send

11 the signal to their customer base, the marketplace

12 and the world, that their operating companies are

13 lean, mean and open for business. The only way to

14 achieve the goal is to achieve the goal.

15 Your Honor, when all is said and

16 done, there are the facts and there is the law.

17 The law that the selling debtors have a duty to

18 maximize value for the estate and can't gamble, and

19 certainly can't steal the creditors' recovery

20 assets. And for the benefit of other members of

21 the creditor corporate family, the law is that a

22 363 sale is reviewed under the differential

23 appropriate business standard. The law, with all

24 due respect, is that it is not the job of the court

25 to dictate the means a debtor chooses to maximize


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2 value.

3 And then there are the facts. The

4 facts, your Honor, are that there are only two

5 debtors before you seeking to sell assets. The

6 facts are that this sale will pay off 100 percent

7 of the over one billion dollars of claims at those

8 two debtors. The facts as I believe them to be

9 true are that no creditor of the selling debtors,

10 how could it be otherwise, have objected to a sale

11 that will pay them in full. The facts are that

12 between them, Satellite and SpaceCom, the selling

13 debtors will have hundreds of millions of dollars

14 of value to dividend upstairs. And then finally,

15 your Honor, the facts are that even by looking at

16 the estates as a whole, the pending deleveraging of

17 the operating companies has, in fact, already

18 turned out to be the golden key enabling them to

19 attract customers and enabling them to sore again

20 as the billion dollar creditor group actually owed

21 money by the selling companies.

22 We strongly urge you vote for the

23 motion.

24 THE COURT: Thank you.

25 MR. BOTTER: Your Honor, I think we


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2 may require, after a review of our papers, that the

3 people not subject to confidentiality agreements

4 leave.

5 THE COURT: I thought you said you

6 were going to be generic.

7 MR. BOTTER: Okay, your Honor. I

8 will try to be generic and change the language.

9 THE COURT: Okay.

10 (Pause in Proceedings.)

11 MR. BOTTER: Good afternoon, your

12 Honor. David Botter from Akin, Gump, Strauss,

13 Hauer & Feld, on behalf of the Official Committee

14 of Unsecured Creditors of all of these estates.

15 Your Honor, the story you are about

16 to hear is an information story of debtors who are

17 in a great rush to conclude a sale that makes sense

18 for only one constituency in these proceedings. As

19 you know, the debtors are selling the North

20 American satellites for slightly over one billion

21 dollars. Not surprisingly, the value is slightly

22 under one billion dollars and satisfied in full

23 from the proceeds of the sale. Everyone in the

24 courtroom knows that the appropriate standard for

25 your Honor to evaluate whether to approve or not


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2 approve is the business judgment test. However, as

3 we all know, in order for the debtors to satisfy

4 their duties to these estates and pass muster under

5 the business test, the debtors must demonstrate

6 that their business judgment was informed and due

7 care was exercised.

8 Your Honor, the evidence today will

9 show that the debtors have failed to exercise

10 informed judgment in connection with the proposed

11 sale. Your Honor, the evidence will show, because

12 of the debtors failure to inform themselves

13 properly, they are realizing insufficient value of

14 the sale of the North American satellite note and

15 these estates are substantially better off

16 reobtaining with the fleet intact. The evidence

17 will show that the value of the debtors' assets are

18 diminished by the law of the true tally of

19 strategic assets. Your Honor, the evidence will

20 further show that the debtors fail to show or

21 consider meaningful alternatives to the proposed

22 sale that would have provided significant value to

23 all of the creditors of these estates.

24 Particularly relevant to this last issue, your

25 Honor, is that the debtors have failed to consider


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2 deviating from the course they have set, despite

3 significant new events heralded by the banks that

4 have created value for these businesses and,

5 carefully considered, should have lead the debtors

6 to reconsider their chosen path.

7 Your Honor, the evidence will show

8 that there were numerous defects in the sale

9 process that the debtors ran for the sale of these

10 assets. Turning first to the Board of Directors of

11 the debtors to actively inform. First, the Board

12 that we all talk about who acted with respect to

13 the sale, is the Board of the parent company, Loral

14 Space & Communications Limited. We talk about that

15 company's business. We all know Mr. Huebner

16 mentioned Ms. Minard, Mr. Katz, Mr. Townsend, Mr.

17 Gittis Mr. Rudeman and Mr. Schwartz, these are

18 directors of the parent company who made all the

19 decisions with respect to the sale. And if Mr.

20 Huebner is correct and the operating companies are

21 solvent, then I think the Boards probably owed

22 additional duties other than to the creditors, only

23 creditors of those OPCOS.

24 Your Honor, turning back to Space

25 Communications Ltd, the evidence will show the


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2 Board was not opposed by any means to a full

3 analysis of the purchase price the. The sale

4 proceeds will be sufficient to pay off the secured

5 claims. Neither management nor debtors' investment

6 bankers prepared a formal analysis of the value of

7 the North American satellites. Rather, your Honor,

8 you will hear that the only analysis performed by

9 management to the value of these assets was done by

10 Mr. Schwartz on the back of an envelope which he

11 carried around with him for a while. Neither

12 Greenhill, Lehman, Lazar or Morgan Stanley, all

13 very legitimate investment banking firms retained

14 by the debtors at some point in the connection with

15 the sale of the assets. About the sale of the

16 assets subject to the sale, Mr. Schwartz in

17 management didn't need to know because the sale

18 price they obtained met their singular objective of

19 paying out their secured lenders.


21 that the Board was never made aware of appraisals

22 the North American Satellite done two months prior

23 to the sale, which showed appraised values

24 substantially in excess of the purchase price.

25 Your Honor, the evidence will show that the Board


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2 of debtors did not request and did not received a

3 fairness opinion in connection with a one billion

4 dollar transaction. The Board was also not made

5 aware of the debtors' amount to enter into the

6 United States market for FSS and unrealistic

7 production the debtors needed to meet for their

8 strategy to proceed.

9 Your Honor, most importantly in the

10 context of these Chapter 11 cases, in the debtors'

11 haste to conclude the sale, they have not properly

12 considered other sale or reorganization scenarios

13 that will lead to significantly better outcomes for

14 all of their creditor constituencies.


16 that the possibility of retaining the North

17 American Satellite and reorganizing around their

18 significant businesses, because as described in one

19 paragraph of the 44-page presentation by Greenhill

20 to the Board, rather than doing any independent

21 analysis of what seemed to be a logical

22 alternative, a standard Chapter 11 reorganization,

23 the debtors didn't rely on financial analysis but

24 rather relied on the 40 years of the experience of

25 a lawyer.


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2 We all know that with respect to

3 EchoStar the debtors have utterly failed to

4 consider the proposed sale of the entirety of these

5 businesses will benefit the constituency. We don't

6 know why they foreclosed those opportunities rather

7 than welcome EchoStar's participation in the

8 process. The court is well aware that the debtors

9 set up every possible hurdle for EchoStar to

10 participate. It was only at the committee's

11 insistence that EchoStar was given access to due

12 diligence information on other assets of these

13 estates.

14 The evidence will show that rather

15 than doing a full and complete analysis of

16 EchoStar's proposals and negotiating, which would

17 seem a logical conclusion, with EchoStar following

18 those proposals, the Board rejected the EchoStar

19 proposals using methodology similar to Mr.

20 Schwartz's envelope math.

21 Your Honor, the debtors and the

22 banks made a couple of points that I would like to

23 address. First, there was a lot of talk about a

24 committee-sanctioned auction process, and it is

25 true, I stood before your Honor and recommended


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2 approval of the bid procedures on August 18th. On

3 August 18th the committee had almost no information

4 whatsoever to evaluate the transaction. Your

5 Honor, it took until September 24th, following what

6 I could only characterize as the debtors' hide the

7 ball strategy, before we could get the critical

8 information to provide the transaction and take the

9 position we are taking today. Your Honor, the

10 debtors talked about inking the new transponder

11 lease, and Intelsat got up and said they are fine

12 with it. Unfortunately, your Honor, the debtors

13 have never even shared a draft of that new

14 transponder lease with the proposed committee.

15 Your Honor, let's look at the

16 charts, and it's the same comments for both charts,

17 the debtors and the banks, the banks it is plainer,

18 but it doesn't really matter. None of those charts

19 reflect that there was a guarantee of the bonds

20 from Loral and Orion from the parent corporation.

21 We know Mr. Huebner said the companies are solvent

22 and the parent company is going to get funds from

23 the sales. It seems to me the guarantees certainly

24 will be paid before equity, before the claims of

25 Space and Communications Limited. The guarantees


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821 CONFIDENTIAL

2 will be in the money, and I think they should be

3 reflected because they are relevant. And again,

4 your Honor, I will turn to and you will see that

5 all of the evidence regarding the Board's

6 deliberation is the parent and not of the OPCOS.

7 Your Honor, we talked about the

8 auction and we talked about the market test, and I

9 think it's important to note that this was not a

10 live auction. Mr. Huebner said that, your Honor,

11 Mr. Huebner had some questions about EchoStar's

12 seriousness. EchoStar showed up at the auction,

13 put 28 million dollars down and did not

14 participate. So one was really left to wonder

15 whether this was a true market test.

16 Your Honor, finally to close, this

17 is not -- this is very important, this is not a

18 case of the melting ice cubes where a sale is

19 required now. The evidence will show that the

20 assets to be sold are not declining in value and

21 are in fact cash flow positive. There is no need

22 to rush to conclude a sale that will have

23 substantially harmful effects to the unsecured

24 creditors on these estates. It is not enough to

25 rule on one man's scratchings on the back of an


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831 CONFIDENTIAL

2 envelope to the thoughts of the creditors. Real

3 analysis, real appropriate consideration of the

4 alternatives, real appropriate consideration of the

5 impact on all creditor constituencies, that was not

6 done here, your Honor. And as a result, the sale

7 should be denied.

8 THE COURT: Mr. Dehney, you know I'm

9 going to ask you to be brief.

10 MR. DEHNEY: Your Honor, I will be

11 brief.

12 Mr. Karotkin said the true test and

13 best way to determine value is a market test.

14 Everything you are going to hear today is going to

15 tell you the debtors, pick any Board, have done

16 nothing for a market test for valuation of the

17 assets. And I'm going to run through three or four

18 things you are going to hear, your Honor.

19 Number one, Mr. Schwartz testified

20 that neither he nor anyone at Loral's Board at any

21 level asked any one of the multitude of the

22 investments to do a valuation of the company as a

23 growing consideration. It was never considered,

24 never asked for ever, and every decision the Board

25 made was done without it in response to why would


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841 CONFIDENTIAL

2 you do without it? Anyone who would have an

3 interest in buying the whole enterprise would be

4 considered by liabilities. And back in May they

5 knew they were embarking on a 363 sale of the

6 assets; liabilities were not an issue.

7 Next, once they committed to file

8 again, there were no marketing efforts whatsoever,

9 everything that Mr. Karotkin said was these assets,

10 the North American assets. I'm not sure which

11 board considered what. We've heard that governance

12 didn't matter. It sounds like governance doesn't

13 matter, but whatever we heard, it was ill-informed.

14 They didn't have any information from outside

15 advisers. The only one they maybe relied on was

16 Mr. Schwartz. Another outside director, Minard,

17 testified that he understood the whole company was

18 for sale. Next Mr. Karotkin in August stated, and

19 in every pleading so far in fact, that the debtors

20 are not for sale. Board member Minard thought that

21 was kind of interesting. Next, after our offer to

22 purchase the whole company back in August and again

23 in October, Loral negotiated a deal with their

24 proclaimed white knight, DIRECTV, to give them a

25 life line with a termination if a competitor,


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2 perhaps us, acquires all the assets. It sounds

3 like a great poison pill mechanism to us, your

4 Honor.

5 Your Honor, we've heard a bird in

6 the hand and options and seriousness. We've

7 submitted what the debtors said was a valid overbid

8 for the Intelsat assets, a market agreement that

9 could be signed by the debtors, they qualified us

10 as a bidder that was a billion dollar bid hard,

11 they eliminated any talk about a bird in the hand.

12 And if they were concerned, they wouldn't have

13 considered us and asked Intelsat to overbid, if

14 they truly wanted to test the market, we eliminated

15 downside risk, we eliminated on the banks' part,

16 because they could have just said yes. Yes, they

17 could have set the process up again. They didn't.

18 Why? If they are worried about the ice cubes

19 melting, and there's testimony they're not, they

20 would have done it to look in a floor if they

21 wanted to test market value, as Mr. Karotkin said,

22 they had an option. They still rejected the

23 option. No explanation. This is about process

24 it's about governance and it's about entrenchment,

25 your Honor.


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2 Thank you.

3 THE COURT: Okay. I'm going to take

4 a lunch break and be back at 2:30.

5 (Whereupon a luncheon recess was taken.)

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2 A F T E R N O O N S E S S I O N


4 I said at the start of this

5 morning's hearing, I would rule this afternoon on

6 the debtors' motion to assume a contract with

7 DIRECTV and enter into additional new contracts

8 with DIRECTV; and the following constitutes my

9 ruling:

10 First let me put the motion into

11 context. As I said, the motion was to assume a

12 contract for the construction of a satellite with

13 what I'll refer to as SS/L and the satellite as VI

14 DS-7 and to build additional satellites. At the

15 first hearing on that motion which was brought on

16 by Order to Show Cause, there was an objection by

17 EchoStar that was in essence a competing proposal

18 for the treatment of the DS-7 satellite. That

19 objection elicited improvements to the original

20 transaction proposed by DIRECTV. In light of the

21 very fast moving nature of those developments,

22 which really frankly occurred if not in the

23 courtroom then right before the hearing, I

24 adjourned the hearing at the committee's request to

25 permit further evaluation of all the parties


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2 interest, including the committee, of the new

3 DIRECTV proposal, as well as giving an opportunity

4 for the parties to discuss with DIRECTV, with

5 EchoStar and among themselves, whether there should

6 be any sort of additional process or the like, so

7 the hearing was adjourned. There was further

8 analysis and further modification on the part of

9 both EchoStar and DIRECTV, and when we arrived at

10 the hearing on October 21st, DIRECTV had made a

11 proposal that again enhanced the original agreement

12 and the modified agreement of DIRECTV by an

13 additional 25 million dollars.

14 At the hearing it became clear to me

15 that EchoStar had also enhanced its original

16 proposal, or at least somewhat clarified it, by

17 providing a second alternative approach that would

18 have fully indemnified the estate against a

19 rejection claim, and as described on the record,

20 because this was all done orally and not in

21 writing, a further full indemnity against potential

22 antitrusts, intellectual property, tortious

23 interference claims and perhaps related claims, and

24 a payment to the estate of 60 million dollars

25 within two banking days of court approval. The


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2 other alternative offered was essentially the same

3 as before, a one hundred million dollar proposal.

4 Under either of EchoStar's proposals, it would have

5 also undertaken the additional ATPs for the new

6 satellites that DIRECTV was going to take under

7 substantially the same thing as -- not as EchoStar

8 suggested, but on somewhat better terms, although

9 obviously with regard to the DS-7 satellite which

10 is nearly complete, that contract would have to be

11 revised to deal with the substantial retrofitting

12 that the debtors believe would have to occur to

13 remove proprietary information related to DIRECTV.

14 With regard to that retrofitting, EchoStar said it

15 would pay the full cost of that activity also. But

16 in essence, EchoStar contended that it was offering

17 the estate in its 60 million dollar full indemnity

18 proposal, 35 million dollars more than DIRECTV was

19 offering.

20 Having heard those recent

21 developments I had a one hour adjournment, giving

22 both EchoStar and DIRECTV the opportunity to, if

23 they wished, improve upon their proposals either by

24 making proposals to the debtors or any other

25 interested party, including the committee. When we


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2 resumed, neither side had done so. We then

3 proceeded to a lengthy hearing which included four

4 witnesses and took place over roughly five hours.

5 Based on the results of that hearing

6 and my analysis of the facts, I'm granting the

7 debtors' motion. I should say just again for the

8 record, that while the DIRECTV October 21st

9 proposal which added 25 million dollars to the

10 consideration being provided by DIRECTV is, by its

11 terms, open only to the close of business

12 yesterday, at the end of the hearing, at my

13 request, DIRECTV extended that proposal through the

14 end of today.

15 I think it's first important to

16 point out the standards for consideration of the

17 debtors' motion. And first and foremost, the fact

18 that a motion to assume an executory contract is a

19 summary proceeding, as determined by the Second

20 Circuit in the Orion patents case, 4 F.3rd at 1095,

21 therefore, while my analysis takes into account a

22 number of legal issues and the particular points

23 raised by a number of the parties on antitrust and

24 similar issues, my determination on those issues is

25 not a determination on the merits, it's not a


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2 determination on res judicata or collateral

3 estoppel effect, but merely an element in my

4 evaluation of the business judgment in assuming the

5 contract and entering into the new contracts.

6 The parties have offered up various

7 permutations of the degree with which I should

8 review the debtors' decision to enter into these

9 agreements. I do not entirely agree with the

10 debtors or their bank lenders that such a review

11 should be undertaken pursuant to a highly

12 differential business judgment approach; I take my

13 guidance again from the Orion case at 1099, in

14 which the Second Circuit held that a Bankruptcy

15 Court in reviewing a debtor trustee's or debtor in

16 possession's position to assume or reject an

17 executory contract, should examine the contract

18 under certain circumstances and apply its best

19 business judgment to determine if it would be

20 beneficial or burdensome for the estate to assume

21 it.

22 On the same page, 1099, the Second

23 Circuit goes on to say that the Bankruptcy Court

24 sits as an overseer of the wisdom with which the

25 bankruptcy estate's property is being planned in


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2 the debtor-in-possession and not as to other

3 circumstances when there are disputes between the

4 creditors and the estate. In the process of

5 deciding a motion to assume, the Bankruptcy Court

6 places itself in the position of the trustee or

7 debtor-in-possession in determining whether

8 assuming the contract would be a good business

9 decision or a bad one.

10 Now, having said that, one has to

11 also agreed with Judge Gerber in the Global

12 Crossing case, 295 BR 276 of this year, that while

13 it's nice that the Second Circuit puts that much

14 confidence in the Bankruptcy Court's judgment, the

15 court's are not generally best suited to analyze

16 the minutia of business decisions made by companies

17 of this sort. So Courts first and foremost focus

18 on whether the process by which it reached its

19 decision was reasonable and fair, and of course

20 also focuses on the benefits of the debtors'

21 decision, whether it was in good faith and made

22 with due inquiry consistent with the board's

23 fiduciary duty of care and loyalty.

24 That being said, that's really a

25 precedent that is recognized, as Judge McKay says


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2 in the Integrated Business case, which can be

3 subject to overturning by the evidence presented.

4 And in particular, where a debtor is largely under

5 the control of one or at least a few very

6 strong-willed individuals, it's my experience and I

7 think the court's experience generally, that they

8 would pay a fair amount of deference to the views

9 of the creditors, and particularly an official

10 creditors' committee, in the process of evaluating

11 the debtors' business judgment.

12 Nevertheless, that is a difficult

13 process and a process ultimately where if the

14 objectants have not made a strong showing that the

15 Board did not act on an informed basis, did not act

16 in good faith, and did not act in the honest belief

17 that they were proceeding in the best interests of

18 the company, the burden really has not been carried

19 and the court will be differential to the debtors'

20 business judgment. The reason for that should be

21 obvious, but I'll give you one example. The

22 court's are quite clear, and I think that the

23 testimony was clear yesterday, that the officers

24 and directors of the debtor believe that they have

25 a duty to maximize value. But how one maximizes


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2 value is a difficult judgment call. The procedural

3 permutations of this motion are an example of that.

4 The committee has contended not only in connection

5 with yesterday's motion but today's, that the

6 debtor is kind of giving the cold shoulder to

7 EchoStar and basically playing hard to get. It may

8 be that the result of that approach, whether

9 intended or not, has gone to increase the value of

10 the original DIRECTV proposal substantially,

11 perhaps in the hundreds of millions of dollars,

12 thus simply proving that there is more than one way

13 to maximize value of the estate and that a suitor

14 may be much more eager in its pursuit if the other

15 party is playing hard to get. So ultimately, in

16 connection with evaluating the debtors' business

17 judgment, which is as noted again by Judge Gerber

18 in Global Crossing, a question of fact for the

19 Bankruptcy Court; one has to deal with the specific

20 facts of the transaction at issue.

21 Here no one disputes that the

22 DIRECTV transaction standing on its own is a very

23 good development for this company. I think in

24 Mr. Golden's words, again standing on its own, he

25 would welcome the transaction. What raises the


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2 issues in connection with this motion is the fact

3 that EchoStar, perhaps uniquely situated, has tried

4 to assert itself into that transaction and offered

5 substantial value to the debtors and their

6 creditors as part of that determination. It's

7 undisputed that EchoStar is offering more cash up

8 front, and perhaps if you look at the transactions

9 in isolation or compare the transaction in

10 isolation, more cash in toto; and I'll assume for

11 those purposes that it's offering 35 million

12 dollars more cash. EchoStar says that otherwise

13 its proposal and DIRECTV's proposal are apples to

14 apples and really there's no issue. I note that

15 when considering whether in fact that's correct and

16 therefore the debtors in evaluating the facts did

17 not exercise good judgment, that this state of

18 affairs resulted from if not a formal auction, an

19 auction in fact, and perhaps an auction that could

20 not have occurred otherwise given the provisions of

21 the DIRECTV agreement, including the schedule for

22 court approval that the DIRECTV agreement

23 contained; so that while I don't find that there

24 was a requirement that there be an auction in

25 connection with the DIRECTV motion, there was in


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2 fact an auction and or a market test which we heard

3 a fair amount about this morning.

4 Both the committee and EchoStar

5 asked to have a further auction or have the court

6 order an auction. Frankly I think that it's

7 already happened. As much as I want to increase

8 the value of this estate, I can't cause an auction.

9 You have to have two bidders to have an auction,

10 and frankly, over the course of the last ten days

11 plus the last hour of yesterday's hearing, both

12 parties have had the chance to put any higher and

13 better offer on the table if they wanted to, and

14 they didn't; so I'm left with evaluating the

15 DIRECTV proposal in the context of a competing

16 proposal by EchoStar.

17 The reasons offered by the debtor

18 for not accepting EchoStar's proposal and rejecting

19 the DIRECTV proposal and the DS-7 contract are

20 several, and they are somewhat complicated. And

21 while I don't necessarily ascribe to all of them as

22 passionately as the debtors do, I believe that when

23 added up together their business judgment is

24 supported by the facts.

25 First, and perhaps most important,


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2 the EchoStar proposal raises at least one serious

3 litigation issue. DIRECTV's response to EchoStar's

4 objection raises more than one litigation issue,

5 including issues like tortious interference with

6 contract that DIRECTV says will give rise to claims

7 against the debtors' estate. Frankly, I don't see

8 a tortious interference claim here, given the power

9 of a debtor under Section 365 of the Code to reject

10 a contract, and I don't see that giving rise in any

11 event to an administrative claim, given 365(g)(A)

12 and 502(g)(A) which state that a breach of contract

13 for a prepetition claim is a rejected claim.

14 On the other hand, not only DIRECTV

15 but also the office of the Attorney General of New

16 York State contends that EchoStar's taking over at

17 least the DS-7 satellite, could well be legally

18 optional under the antitrust laws. The debtors

19 have received letters from two other Attorneys

20 General that do not go as far as the New York

21 Attorney General, but the New York letter raises

22 issues in my mind regarding risks that the debtor

23 faces if it entered into the proposal that EchoStar

24 is seeking to persuade it to enter into. The

25 letter which is from J. Hyams, the chief of the


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2 Antitrust Bureau, states in part, "there is a

3 genuine reason to ask whether EchoStar is seeking

4 to use this proceeding improperly to supress

5 competition with potential harm to consumers not

6 only in New York but local geographical markets

7 nationwide." And then it further says that, "if

8 upheld, this objection, that is EchoStar's

9 objection, would enable EchoStar to intrude on the

10 affairs of its direct competitors that in a matter

11 absent this bankruptcy could well be legally

12 actionable," citing among other things Section 2 of

13 the Sherman Antitrust Act.

14 EchoStar offered legal analysis as

15 to why Mr. Hyams is incorrect in his concerns;

16 however, I take his letter seriously and am

17 unwilling to discount it in the business analysis

18 that I described earlier. And again, that's all

19 that this is, it's not supposed to be a full-blown

20 antitrust evaluation in this summary proceeding.

21 EchoStar further says that there

22 should be no concern in any event, because it's

23 fully indemnifying the debtor for any antitrust or

24 anticompetitive or predatory tort claims in

25 connection with its proposal; however, there is a


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2 body of law that says that antitrust violations are

3 a valid defense to enforcement of a contract where

4 the judgment of the court enforcing the contract

5 would be enforcing a contract made illegal by the

6 antitrust laws. Although that defense is a narrow

7 one, it is intended to avoid making the court part

8 of the carrying out of the very restraints

9 forbidden by the Sherman Antitrust Act. I'm

10 quoting from Lifemark Hospitals of Louisiana,

11 Liljeberg Enterprises, Inc., which is a decision by

12 the District Court, Eastern District of Louisiana,

13 61 BR 21, which quotes three or four Supreme Court

14 cases for that proposition. So there is a risk,

15 and perhaps a substantial risk given Mr. Hyams'

16 letter, that if I were to second guess the debtors'

17 business judgment, DIRECTV or some other party

18 would seek an injunction under the antitrust laws

19 of the EchoStar proposal.

20 That leads to the second concern

21 that the debtors raised, which is that despite

22 EchoStar's substantial cash position and apparent

23 ability to carry out the contract, it is more

24 interested in preventing DIRECTV from carrying out

25 its contract than actually ultimately performing


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2 the contract itself. In that regard I note that --

3 I take as quite credible, the testimony of the

4 debtors' officer, that ultimately in this industry

5 where contracts take so long to perform and require

6 ultimately quite a bid of good will on each side

7 because they were frequently modified in light of

8 the very complex nature of the underlying hardware,

9 that ultimately, other than having a lawsuit, SS/L

10 relies upon the true desire of its contracting

11 party to perform the contract.

12 Again, I don't know for sure whether

13 EchoStar really wants this contract for itself or

14 wants it to hurt DIRECTV, which it can do simply by

15 defeating the motion, but I do believe that there

16 are substantial issues that suggest that the latter

17 is more likely the case, which would mean that

18 potentially the debtors would not receive the

19 benefits of the agreement that EchoStar contends it

20 would receive and that the indemnity offered up by

21 EchoStar is in some meaningful measure a chimera,

22 or at least a problem waiting to happen. Certainly

23 no business of this size wants to enter into a

24 transaction of this size that could end up in a

25 lawsuit. I was not particularly satisfied by the


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2 stand-alone business reasons offered by EchoStar's

3 witnesses as to why suddenly now it wanted to spend

4 apparently substantially more than the market bears

5 for this type of contract. It's obvious from the

6 fact that the DS-7 is nearly complete that this

7 type of technology was in existence some time ago,

8 and yet EchoStar has not been interested in it

9 until now.

10 Secondly, although EchoStar's

11 witness said that the capabilities of the DS-7 are

12 somewhat weaker potentially, even materially weaker

13 than the 7S, EchoStar was not interested in taking

14 up the debtors' offer to be provided with a

15 substitute satellite. It never offered, in

16 addition, any testimony as to its view that it

17 could retrofit the 7A rapidly and get it into

18 service rapidly to give it a substantial

19 competitive edge over simply ordering a new

20 satellite, and it was the debtors' testimony that

21 it believed it would take roughly over eighteen

22 months to a year to do that.

23 Again, in connection with the burden

24 of overturning the debtors' business judgment, I

25 needed more from EchoStar as to why it really


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2 wanted the satellite for its own competitive

3 purposes rather than simply to knock DIRECTV out of

4 the competition before I could get comfortable that

5 in fact this contract would actually be performed

6 and that any indemnity obligations would be

7 honored, rather than leaving the debtor with at

8 least one or perhaps more lawsuits. My view on

9 this is bolstered further by the fact that we do

10 not have and the debtor has not been supplied with

11 any documentation with regard to the written

12 agreements, notwithstanding the testimony by

13 EchoStar's officer that these were agreements that

14 could be drafted in a matter of hours by a

15 second-year associate. I also note that the

16 officer or member of the executive team of EchoStar

17 that has been delegated to head up the process of

18 getting an agreement with Loral has never engaged

19 in that type of process before with regard to a

20 satellite agreement, raising further credibility

21 issues.

22 The last issue raised by the debtors

23 as to why, notwithstanding the fairly better cash

24 terms of the EchoStar proposal, albeit they wanted

25 to proceed with the DIRECTV deal, is the


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2 representational damage to SS/L that would result

3 from the rejection of the 7S contract and the

4 assignment of that contract to EchoStar. I confess

5 that when I first heard this argument I was

6 somewhat skeptical of it, particularly given the

7 fact that a few days before we had had the hearing

8 on the Japanese weather agency satellites and the

9 debtor was apparently quite willing to reject

10 another customer's satellite contract. However, I

11 think there is a meaningful difference, and that

12 is, as pointed out by both of the debtors'

13 witnesses, the DIRECTV satellite under EchoStar's

14 proposal will be given over to the primary

15 competitor of DIRECTV, which is an extremely

16 strategic business asset.

17 Obviously Section 365 gives the

18 debtor-in-possession a unique opportunity to cull

19 through the contracts and put pressure because of

20 its ability to reject certain contracts and gives

21 rise to a prepetition pennies-on-the-dollar claim

22 on the nondebtors' party to amend the terms of the

23 contract. However, an operating debtor that has a

24 business to protect and nurture obviously needs to

25 use that power judiciously because it's going to be


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2 dealing with its customers in the future, and such

3 a strategically harmful discussion could clearly

4 affect what the testimony has stated is with its

5 affiliates, "the major prospective contractor and

6 customer for this business," which is again

7 uncontroverted in the testimony, an extremely

8 competitive business where the financial condition

9 of SS/L is at this point the primary competitive

10 disadvantage of the firm, and therefore the debtor

11 runs the risk, if it rejects this contract, of

12 being tardy with its bankruptcy even though it

13 would be legitimately using a bankruptcy power. In

14 other words, it's a hard thing to explain to your

15 customers, particularly when you have your

16 competitors denigrating at the same time.

17 The testimony culminated with the

18 assertion that if SS/L in fact rejected the 7S

19 contract, SS/L would eventually, and rather

20 quickly, go out of business. I don't necessarily

21 accept that; I think this is a strong company. But

22 I do accept that there are substantial risks to the

23 business on a competitive level as well as simply

24 an economic level, as outlined earlier, in not

25 taking the DIRECTV transaction but instead


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2 accepting the EchoStar proposal.

3 I haven't addressed the one

4 remaining issue that did give me some cause for

5 concern, which is that EchoStar stated during

6 yesterday's hearing that it is no longer interested

7 in acquiring all or substantially all of the

8 debtors' assets if it's not able to acquire the 7S

9 satellite. I also note that there is an

10 antiassignment provision in the DIRECTV agreements

11 which under a number of circumstances, including an

12 assignment to a competitor, gives DIRECTV

13 cancellation rights. Now the damages resulting

14 from that cancellation I think would be relatively

15 minor as laid out in the hearing to SS/L, and in

16 effect they would have to give back the payments

17 they had received. But the real concern is would

18 my decision in effect limit the options that are

19 available to these debtors in connection with their

20 organization in an unacceptable way.

21 I have the following reaction to

22 that question: First, my reaction might well have

23 been different if EchoStar had more of a concrete

24 proposal on the table that was more acceptable to

25 the parties, but it doesn't. I note that despite


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2 fair warnings by myself as well as I'm sure other

3 parties in interest, EchoStar continued to modify

4 its global proposal, even as the hearing was about

5 to end. I don't think that in light of that moving

6 target, the debtors could put its reorganization on

7 hold and hope that at some point the EchoStar

8 global proposal would be anchored in reality. It

9 probably goes without saying that it's very hard to

10 ask a board to get its business judgment on a

11 proposal when the proposals are made in real-time

12 at hearings where the Board can't be reached.

13 Secondly EchoStar has, as pointed

14 out by the debtors' witnesses and as observed by

15 the court, in the past in this case frequently

16 modified its proposals, and I can't, despite

17 EchoStar's protestations to the contrary, assume

18 that its definitely out of the picture. But more

19 importantly, I'm not sure it's really in the

20 picture, given the proposals that have been made to

21 date.

22 Lastly, as to the antiassignment

23 provision, I question whether any such provision

24 that does not have read into it an element of a

25 reasonableness standard and good faith standard is


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2 enforceable. I note that just as a further that

3 DIRECTV has raised anticompetitive concerns in

4 connection with fending off the EchoStar objection

5 if DIRECTV asserted arbitrarily that the sale of

6 the business to a competitor would require it to

7 cancel the agreement without any showing, that that

8 would set a tide to a legitimate concern about the

9 future performance of those agreements by the

10 assignee, whether that assertion of the unassigned

11 provision would not in and of itself be a violation

12 of the antitrust laws, but more importantly,

13 whether they would be reasonable and in good faith;

14 so I'm not going to hold up the DIRECTV transaction

15 forwarding the assignment provision.

16 So that constitutes my decision and

17 findings. Mr. Karotkin, you should submit an

18 order. You can settle it on the objectants on

19 three days' notice.

20 MR. KAROTKIN: Very well. Thank

21 you, your Honor.

22 Can I impose on the court for a five

23 minute break?

24 THE COURT: That's where I was going

25 next. I actually would like to get a 10 minute


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2 break.

3 (Recess taken.)


5 MR. KAROTKIN: Should we proceed?

6 MR. ROTHMAN: Richard Rothman for

7 the debtors.

8 For our first witness we call

9 Bernard Schwartz.

10 B E R N A R D S C H W A R T Z, called as

11 a witness, having been first duly sworn by the

12 Notary Public, Denise Nowak, was examined and

13 testified as follows:

14 DIRECT EXAMINATION BY MR. ROTHMAN:

15 Q. Mr. Schwartz, would you please state

16 your name and address for the record?

17 A. Bernard Schwartz, 944 Fifth Avenue,

18 New York, New York.

19 Q. Mr. Schwartz, by whom are you

20 employed?

21 A. Loral Space and Communications, Ltd.

22 Q. What's your position with Loral?

23 A. I'm the CEO and Chairman of the

24 Board.

25 Q. Mr. Schwartz, would you briefly


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2 trace the course of your career for the judge?

3 A. Yes. I graduated in 1948 from City

4 College with a BS in finance. I began my business

5 career as a public accountant and was part of a

6 firm in New York and became a principal partner in

7 1958.

8 I left public accounting to become

9 CEO -- vice president of a New York Stock Exchange

10 company, APL. I then joined Vesco as president of

11 the company. In 1972 I joined Loral Corporation as

12 Chairman of the Board and CEO and was with Loral

13 Corporation until we reformed the company after

14 selling our defense operations to Lockheed Martin.

15 Q. In what business was Loral when you

16 joined the company?

17 A. Loral was a small conglomerate, but

18 the principal aspect was in the aerospace business

19 producing hardware for the US Government, mostly

20 defense projects.

21 Q. And would you briefly trace the

22 history of Loral from the time you joined it until

23 today?

24 A. Yes. In 1972, as I said, it was a

25 small company, somewhat of a conglomerate. Our


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2 strategy was to strip away the nondefense,

3 nonaerospace activities and divest ourselves of all

4 the noncore businesses, and from a very small base.

5 We then began to grow through acquisition and

6 through internal development into one of the

7 largest and perhaps most successful electronics

8 defense businesses in the states.

9 Q. And when did Loral first become

10 involved in the satellite business?

11 A. One of the business acquisitions we

12 made was to purchase Ford Aerospace, and one of the

13 principal businesses of Ford Aerospace was a

14 company in the commercial satellite business which

15 we renamed Space Systems/Loral. And since that

16 time we continued to develop the commercial

17 aerospace activities to the point where we evolved

18 in the manufacturing business into one of the five

19 largest global satellite manufacturers --

20 commercial satellite manufacturers in the world. I

21 think it's fair to say that in the United States we

22 -- of the three, we are second to Boeing in terms

23 of size. In terms of profitability, we probably

24 have been the most consistently profitable company

25 in that industry.


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2 I would guess it's about 1998 or

3 thereabouts that we bought the fixed satellite

4 service business from AT&T. At that time they had

5 one satellite, and we proceeded to build that

6 business into the fastest growing, most profitable

7 business in the fixed satellite business worldwide.

8 And today we have 11 satellites on order or under

9 construction.

10 Q. And what are the principal

11 businesses that Loral is in today?

12 A. We are in just those two businesses.

13 We are a satellite manufacturer and satellite

14 operator -- fixed satellite service operations.

15 Q. Who are the principal customers, by

16 type, of Loral?

17 A. In the satellite manufacturing

18 business, we serve a broad range of customers. The

19 government; we make weather satellites,

20 communication, and imaging satellites for the

21 government. We sell commercial satellites to the

22 telephone industry, to cable operators, business

23 broadcast companies, private companies who have

24 their own communication networks, and we serve into

25 the Intelsat segment communication of the business.


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2 Q. Who are the principal competitors,

3 again, by type, for the satellite services

4 business?

5 A. The competitors include SES, which

6 is the Luxemburg Company, a company called Eutelsat

7 operating out of France; New Skies which is a

8 European company which is a spinout of Intelsat.

9 Intelsat is also a company as well in the US,

10 PanAmSat, and several companies as well.

11 Q. And do nonsatellite companies

12 compete with Loral in any of its businesses?

13 A. Yes. If you're talking about in the

14 context of delivering communication and broadcast

15 signals and such, there are perhaps three broad

16 categories by which you can deliver those signals.

17 One is through satellites, which is the space

18 segment, and the others are included in the

19 terrestrial activities, that includes hard-wire

20 telephone companies, cable companies, fiber

21 systems, wireless systems underground.

22 Q. Mr. Schwartz, did there come a time

23 when Loral began to experience financial

24 difficulties?

25 A. Yes. The operations of the company


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2 were always successful and profitable, but about

3 two and a half years ago there was a significant

4 downturn in the global economy. And that in turn

5 made it difficult for many of our customers to

6 expand their products. Many of them had to close

7 down their expansion programs and many of them went

8 out of business. The economic downturn was a

9 severe one generally, but it had a particularly

10 negative impact on the communications industry.

11 In addition to that, the

12 communications industry has historically depended

13 on significant capital from the outside because

14 it's a capital intensive industry. The downturn in

15 the marketplace that we experienced over the last

16 two, three years, the so-called economic meltdown,

17 inhibited our customers from being able to raise

18 funds. Many of them went out of business; all of

19 them had to curtail expansion, and that in turn had

20 a very significant negative effect on both of our

21 businesses, the FSS business and the satellite

22 manufacturing business. In fact, the fixed

23 satellite service business, although we suffered in

24 that downturn, we continued to make significant

25 amounts of money. The impact on that business was


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2 that we could not realize the positive growth that

3 we had planned on going forward.

4 It was much more severe on the

5 satellite manufacturing side; there it was an

6 absolute disaster. We did not receive an order for

7 almost two years, and a manufacturing business that

8 does not receive an order for two years is in very

9 serious business indeed. We were able to sustain

10 ourselves for the first part of that period until

11 just about now. And we were able to sustain

12 ourselves by maintaining the critical skills in the

13 factory and maintaining as much as we needed or

14 were required to among our employees because of a

15 very large backlog. That backlog is now coming to

16 an end, and without new orders, the impact on the

17 company was very severe.

18 Q. And did the fact that you were

19 experiencing financial difficulty have any snowball

20 effect on your business?

21 A. It had several effects on our

22 business, but the fact that our customers were not

23 ordering satellites from us was a reflection of

24 their own negative downturn within the economic

25 environment. But we knew that there was going to


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2 be a swing in the marketplace because the nature of

3 our business is such that satellites have a finite

4 period of life, at the end of which they have to be

5 replaced.

6 There are some 250 commercial

7 satellites flying in the world, so one could expect

8 somewhere between 15 and 20 satellites every year

9 will be ordered. In that two-year period --

10 18-month period, the five or six or seven

11 satellites ordered was a very substantial downturn

12 from the normal order input. So it was a question

13 of hanging on long enough for the market to turn

14 around, and unfortunately we ran out of resources

15 before it turned.

16 Q. What did the management of Loral do

17 to try to address the problems you were facing?

18 A. Well, from an operating point of

19 view we were very aggressive in shaping the company

20 to the business requirements, that is to say we had

21 reductions in force, we reduced costs along the

22 way, we reshaped our business so it would be more

23 cost effective; we did, I believe, everything that

24 we could have that was consistent with good

25 business management and good behavior. We did


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2 everything we could to reduce the cost to sustain

3 ourselves during this period of time.

4 Q. And did you go outside the company

5 to look for solutions?

6 A. Not at the beginning, because at the

7 beginning we were eating off our reserves so to

8 speak until we got to the point where we couldn't

9 sustain ourselves any longer. The biggest problem

10 was that we were experiencing severe resistance

11 among our normal customers to enter into contracts

12 with us, particularly in the satellite

13 manufacturing business. And the reason for that is

14 the investment that our customers make in the

15 building of a satellite is significant. It could

16 be a much as 225 million dollars to get it into

17 orbit; however, the important thing from the

18 customer's point of view is not only the capital

19 investment to build a satellite to and launch it,

20 but also that they maintain a contract for the

21 purchase of satellites to sustain their business,

22 and they could not afford to enter into a contract

23 with us that took two years and not be assured that

24 they were going to get delivery. So Loral's

25 economic weakness, which was heralded in the


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2 industry unfortunately, everybody knew about it,

3 and our competitors made maximum use of that

4 weakness on our part. The fact that we could not

5 easily answer the concerns of our customers caused

6 us to lose business as it began to turn. As the

7 industry began to turn we were experiencing

8 nevertheless an inability to close orders.

9 Q. And what, if anything, did you do to

10 go outside the company to find a solution?

11 A. It was obvious that the biggest

12 problem that we had was the over-leveraged

13 financial condition of the company. And our

14 customers understood that we were over-leveraged.

15 It was our determination with the assistance and

16 advice from investment bankers and others that we

17 had to manage the over-leverage situation of the

18 company.

19 Starting a couple years ago, I

20 personally began exploring with all of the

21 strategic players in the industry as to their

22 receptiveness of entering into negations with Loral

23 for strategic transactions that included merging

24 the whole company, selling off part of our assets,

25 joint venturing and several kinds of operations and


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2 technologies in place, and I approached almost

3 every player in the industry, both in manufacturing

4 and in the fixed satellite servicing.

5 In addition to that, we engaged

6 several investment bankers over the course of that

7 time to help us in the analysis of the company to

8 determine whether or not there were other

9 alternatives, whether that meant capital financing

10 or some other opportunity, to bring equity and or

11 debt financing into the company. And in almost

12 every case we determined and were advised that

13 financing was not going to be the answer to our

14 problem because the market would just not sustain

15 that.

16 Q. Let me ask you this, Mr. Schwartz,

17 could you give the court several examples of the

18 companies that you sought out and contacted in an

19 effort to find an investor or partner?

20 A. Yes. I approached and had

21 discussions with SES, Eutelsat, New Skies,

22 PanAmSat, earlier on GE Americom before they were

23 merged into SES; indeed, every significant

24 corporate player in the FSS world I approached. In

25 addition to that I approached most of the strategic


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2 manufacturers in the country that would have an

3 interest in aerospace. And lastly, the last

4 category that I approached were financial investors

5 with the expectations that we could find some

6 solution from an equity point of view.

7 Q. And were you attempting to sell each

8 of those parties the North American assets?

9 A. I was attempting to engage them in a

10 discussion that was open to every possibility. And

11 every possibility was -- in fact, depending on whom

12 I was talking to, was including the sale of the

13 assets.

14 Q. What did you propose, if you recall

15 for example, to Eutelsat?

16 A. In Eutelsat's case I suggested that

17 we merge the company with two companies the markets

18 that we served were compatible with and reinforced

19 the markets that they served, and that we would be

20 a very good strategic partner. In addition to

21 that, I made full use of the knowledge that

22 Eutelsat was a company that needed to have an idea

23 and was discussing with financial bankers at the

24 time, over a period of time, going into an IPO.

25 And it was my suggestion to their management that a


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2 deal with Loral would enhance their success

3 possibilities.

4 Q. Intelsat or Eutelsat?

5 A. Eutelsat.

6 Q. Who were the manufacturers that you

7 spoke with?

8 A. Raytheon, Northrup, L3, General

9 Dynamics, and there were several others that were

10 approached by Lehman, and that included Ball,

11 B-A-L-L.

12 In addition to that Mr. Zahler or

13 I -- both of us approached Boeing and Lockheed

14 Martin.

15 Q. What was the nature of your

16 discussions with Boeing?

17 A. We presented a proposal to Boeing

18 that since there needed to be a consolidation in

19 the manufacturing industry, and since we were very

20 successful manufacturers, that we help the

21 consolidation by performing a joint venture in

22 which we would be able to rationalize the

23 duplication of development costs and manufacturing

24 capacity and by continuing individual marketing on

25 our own, but rationalize the manufacturing between


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2 us.

3 Q. Did you make any attempt to find an

4 equity investor?

5 A. We spoke to KKR, Carlisle on our

6 behalf, Texas Gas as a venture capital investor was

7 approached. There were one or two other strictly

8 financial types that we proposed some type of

9 explicit investment. In addition to that, we

10 engaged Morgan Stanley, Lehman Brothers, Lazard

11 Freres, to determine whether or not an equity

12 financing was possibility as well as with each of

13 them exploring the possibility of a strategic

14 partnering venturing sale with all of the above.

15 Q. Now, setting aside Intelsat, which

16 we'll come to in a moment, as of March 2003, had

17 any of these efforts borne fruit?

18 A. We didn't complete the transaction

19 if that's what you mean, but some of them bore

20 fruit in that there were a series of discussions at

21 management level that pursued a potential

22 transaction, and some of them went very far in

23 terms of actually defining structure, talking about

24 management, talking about financing and value. And

25 at least two that I know of on the manufacturing


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2 side went to their boards, and at least one or two

3 or three on the fixed satellite service side went

4 to their top management as well.

5 Q. Which were the two that went to the

6 Board level?

7 A. Boeing and Lockheed.

8 Q. And on the fixed satellites services

9 side, which were the most serious discussions?

10 A. Eutelsat went to the Board; SES told

11 me he discussed it with his board. I'm not sure

12 how many exactly went to the Board with it.

13 Almost all of those discussions went to their

14 senior management.

15 Q. Did you make any approach to

16 EchoStar?

17 A. Yes.

18 Q. Would you tell the court what

19 happened?

20 A. EchoStar was a good customer and we

21 had partnership relationships with them and

22 satellite activities. I approached Mr. Ergen on at

23 least four occasions over a year, year and a half

24 period. I approached him, I had meetings with him

25 three times in the first part of 2003, and in each


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2 case I shared with Mr. Ergen that we -- Loral was

3 having a, I would say a crisis at the moment, it

4 was developing towards a crisis of inadequacy and

5 liquidity; we had a liquidity issue and we would be

6 open to some sort of transaction that would help us

7 to resolve that. In each case I proposed something

8 with great specificity to Mr. Ergen, and in each

9 case we had some discussions, but he either

10 expressed that he wasn't interested in going

11 forward or he said that he was interested but never

12 got back to me.

13 Q. Did there come a point in time that

14 you retained the Greenhill firm?

15 A. Yes.

16 Q. When was that, and why did you do

17 it?

18 A. I think it was the early part of

19 this year, February of this year that comes to

20 mind. And the reason for that is that we had a

21 liquidity problem and we also had a problem with

22 our bank lenders. There were significant

23 accounting issues that developed at the end of the

24 year 2002, most of them were known to us, they were

25 not cash items, but nevertheless there was some


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2 question as to whether or not -- raised by Deloitte

3 & Touche, our accountants, whether or not they

4 would have to issue a going concern report on

5 Loral, a qualified opinion. They needed an

6 assurance that we would be able to meet all of our

7 covenants for a period that extended beyond

8 December '03 in order to give us a clean opinion in

9 '02. That brought us into a dialogue with our

10 banks to be able to determine the covenant and the

11 covenant language that would be imposed upon us in

12 order for us to be able to define for Deloitte &

13 Touche what those covenants would be.

14 Greenhill came on board to help

15 address that issue in particular, but also their

16 assignment included the analysis of the company,

17 its liquidity, its resources and to give us advice

18 as to whether or not we could have some kind of

19 financing and or strategic transaction that would

20 help alleviate the liquidity problem.

21 Q. And since retaining Greenhill and

22 Mr. Harvey Miller, have you relied on their advice?

23 A. Yes.

24 Q. And has the Board?

25 A. Yes.


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2 Q. Let's turn and talk now about

3 Intelsat. How did the discussions with Intelsat

4 begin?

5 A. Again, Intelsat is and was a very

6 valued and loyal customer and we were a very valued

7 and loyal supplier. We had built more than 50

8 percent of Intelsat's satellite requirements, more

9 than the entire three put together, so there were

10 close relationships between us and them.

11 Sometime in the latter part of '02 I

12 visited with the chairman, Connor Coleman, and

13 suggested that we consider selling some portions of

14 the company, all the company, or whatever, some

15 kind of transaction to Intelsat and explored

16 whether or not he had an appetite for that.

17 Q. And would you explain to the court

18 how those discussions progressed?

19 A. Yes. There was a receptivity on the

20 part of Intelsat. They said they would be

21 interested. They made it clear at the beginning

22 they were not interested in the satellite

23 manufacturing business. In fact, they expressed to

24 me on many occasions that it was in their interest

25 to see us remain as an important satellite supplier


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2 because they relied on our product. But they were

3 very much interested in extending their fleet, so

4 the FSS the satellite fleet became the focus of our

5 attention. And there were several discussions on

6 that level on or about the summer of '02; and in

7 December of '02 I began to make very specific

8 overtures to Intelsat and they were receptive to

9 doing something by which they would acquire our

10 fixed satellite service assets.

11 Q. Why did you focus on that to propose

12 to them?

13 A. Because that's what they were

14 interested in. I was sort of indiscriminate at the

15 time. There were several opportunities for me to

16 talk to companies that might be open to a

17 transaction, and I was willing to shape our

18 offerings to whatever would be successful and

19 whatever would satisfy the need of either fixed

20 satellite service provider or manufacturer. In

21 other words, we were very flexible in terms of

22 trying to shape a transaction. In Intelsat's case,

23 they made it clear that they did not want to be a

24 manufacturer, they made it clear that they wanted

25 to be a satellite operator, which they were, and


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2 they wanted to extend it and expand it. And it was

3 my judgment, and shared by my colleagues, that we

4 had something to offer the Intelsat company that

5 could be very significant to them.

6 Q. Who made the first offer on price as

7 between you and Intelsat?

8 A. We offered a suggestion of the

9 price.

10 Q. Do you recall as you sit here today,

11 what that suggestion was?

12 A. Well, there were several because we

13 had some difficulty in defining exactly what they

14 wanted and what we wanted. So before we got to the

15 point of valuation and price, we had to define what

16 it was we were talking about, then we were talking

17 about all of the FSS operations. There were

18 significant impediments for Loral at that time to

19 be able to conclude a transaction with someone who

20 really wanted a simple acquisition or simple

21 merger. We had contingent liabilities that were

22 very significant, undeterminable liabilities from

23 various places.

24 The weakness of the company was well

25 known from a financial point of view so there's


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2 always the specter of what happens if we have to go

3 into bankruptcy. All of those are issues which

4 complicated a transaction. At one point, I think I

5 would say it was around February of this year, I

6 suggested to Mr. Coleman, who is chairman of

7 Intelsat, that maybe a more practical approach here

8 would be for us to think in terms of Loral selling

9 specific assets, satellites, hardware, so that they

10 were not complicated with the corporate assessment

11 of what liabilities they were taking over. One of

12 the things I knew we would be able to agree upon

13 was the value of particular satellites, whether on

14 the ground or in orbit. That proved to be a

15 winning strategy and Mr. Coleman responded to that

16 very quickly.

17 At one point he said he was

18 interested in all the satellites. It evolved down

19 to, however, that their keenest interest was in the

20 North American satellites.

21 Q. Did you have a concern as to whether

22 you could survive as a competitor in the satellite

23 business if you parted with your North American

24 satellites?

25 A. Not at all. I think the history of


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2 the industry is replete with very successful

3 companies that have and are successful in fixed

4 satellite services without any coverage in North

5 America.

6 Q. Can you name a few?

7 A. Yes. Eutelsat, SES, Asian

8 Companies, New Skies.

9 Q. What was the first price that you

10 proposed to Intelsat again, if you recall?

11 A. It was a little bit north of 1.250.

12 I don't remember the exact amount, it would have

13 been about 1.3 billion. The first counteroffer we

14 got to that was something just short of a billion.

15 I think the number 975 range million sticks in my

16 mind.

17 Q. Let me show you a document that

18 we'll mark as Exhibit 1

19 (Whereupon, Debtors' Exhibit 1

20 marked for identification as of this date.)

21 A. May I get one of those, too?

22 Q. Mr. Schwartz, Debtors' Exhibit 1 is

23 a document dated April 17, 2003. Were you involved

24 in the preparation of this document?

25 A. I recognize most of the exhibits


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2 here, pages that is to say as those to which I had

3 some input. Most of them were prepared by Loral's

4 financial organization or by Mr. Zahler's

5 organization

6 Q. Do you know anything which was done

7 with respect to this document?

8 A. No.

9 Q. Let me direct you to page 15.

10 A. Fifteen?

11 Q. Yes. You see at the top of the page

12 there is something that says asset value?

13 A. Yes.

14 Q. And it says that a transaction

15 involving Telstar 4, 5, 6, 7, 8 and 13 would likely

16 take place in the 1.3 to 1.7 billion dollar range?

17 A. Yes.

18 Q. I take it that your offer to

19 Intelsat was below that range, or at least below

20 most of it?

21 A. Yes.

22 Q. Why was that?

23 A. We never offered this suite, the

24 four and the two are in construction at a price of

25 1.7 billion. I remember discussing in that range.


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2 I don't know who put this together and I don't know

3 to what purpose it was put. I would guess that the

4 presentation was one of putting the highest range

5 in order to return interest at those ranges.

6 Q. Did you believe --

7 A. It's more hope than I think

8 expectations.

9 Q. Did you believe that the price you

10 offered to Intelsat was an appropriate offer?

11 A. In negotiations I found that every

12 price is appropriate. I think it was very fair. I

13 think it was a good one for us. But I think it was

14 good for them too because it served their purposes.

15 Q. Let me direct your attention now to,

16 it would be the next two exhibits that we will mark

17 as Debtors' Exhibits 2 and 3.

18 MR. ROTHMAN: The first is a set of

19 minutes of a special meeting of the Board members

20 from April 24th, marked as Exhibit 2.

21 And the second is what I believe has

22 been referred to by Mr. Botter as the back of your

23 envelope presentation.

24 (Whereupon, Debtors' Exhibits 2 and

25 3 were marked for identification as of this date.)


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2 MR. ROTHMAN: Your Honor, we have

3 highlighted certain portions for your recognition.

4 Q. First of all, do you recognize the

5 first of the minutes that have been marked as

6 Exhibit 2?

7 MR. KAROTKIN: Your Honor, I have

8 highlighted the portion that I'll be referring to.

9 Q. Let me show you Debtors' Exhibit 2

10 and ask you if you can identify the document.

11 A. Yes, I can.

12 Q. What is it?

13 A. It's a copy of the minutes of the

14 April 24th, 2003 board meeting.

15 Q. Directing your attention to the

16 second page of the exhibit, and in particular to

17 the second paragraph, it says: "As the next topic

18 of discussion, Mr. Schwartz updated the Board on a

19 potential transaction with Intelsat involving the

20 fixed satellite services business. He reported

21 that we are still negotiating which assets would be

22 sold and price."

23 Do you recall that meeting, sir, and

24 that discussion?

25 A. The Board meeting?


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2 Q. Yes.

3 A. Yes.

4 Q. And did you, in fact, discuss the

5 Intelsat negotiations with the Board at that

6 meeting?

7 A. Yes.

8 Q. Let me direct your attention now,

9 sir, to Exhibit 3.

10 Mr. Schwartz, do you have Exhibit 3?

11 A. Yes, I do.

12 Q. Exhibit 3 is a five page document

13 bearing the title Intelsat/Loral Transaction.

14 Can you identify this document?

15 A. Yes, I can.

16 Q. What is it?

17 A. This is a memorandum that was

18 prepared for the Board of Loral to facilitate their

19 discussion and their understanding of the Intelsat

20 proposed transaction and to facilitate the

21 discussion.

22 Q. And when did you learn to type five

23 pages on the back of an envelope, Mr. Schwartz?

24 A. Well, I must have run out of

25 envelopes. This product was the product of an


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2 analysis that took two weeks to prepare. It went

3 through several iterations.

4 Q. Did you work on it by yourself?

5 A. I worked -- this is the product of

6 my efforts and Mr. Zahler's efforts, Mr. Townsend

7 Mr. Loney and Mr. Katz at the very minimum. There

8 were some others in the company who were involved,

9 and getting the data, getting the financial

10 analysis. This is a joint product.

11 Q. What was the purpose of this

12 document? What were you trying to do in here?

13 A. It was just to explain the

14 description of the proposed transaction and the

15 implications of the transaction, the effect it

16 would have on Loral and what the company would look

17 like on the consummation of this transaction. It

18 also -- that's how it's comprehensive.

19 Q. Could you take the court through the

20 document, not in detail but just to give the judge

21 an understanding of what you were trying to do in

22 your analysis?

23 A. It was to explain that this is an

24 analysis of the transaction for four satellites and

25 two others in construction, plus the orbital slots


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2 involved with each of those satellites. The

3 satellites were described giving the location, the

4 size and the type of service. It showed for each

5 of the satellites what the estimated revenue would

6 be in 2003 and the revenue expected in 2004 and

7 what the orbital insurance expense incurred by each

8 of the satellites is and the gross book value of

9 each one.

10 Q. Let me direct your attention to page

11 3. You see at the top of the page it says Loral

12 post transactions, Mr. Schwartz?

13 A. Yes. I just -- I believe the actual

14 exhibit that I presented to the Board is not this

15 one, it also had a plan 3 to it, I think this only

16 contains on the first page two alternatives. I

17 think I may have presented this, but I also

18 presented one that had three alternatives.

19 Q. Okay. Take a look at page 3 of this

20 exhibit.

21 A. Three?

22 Q. Yes.

23 A. Yes, sir.

24 Q. The reference to Loral post

25 transactions. What were you referring to there?


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2 A. What we tried to describe to the

3 Board was what the company would be like after the

4 Intelsat transaction would be completed, and we

5 wanted to demonstrate that in fact the company

6 would be an extremely viable company going forward

7 that would have cash flow and be able to sustain

8 growth.

9 Q. And the line at the bottom of the

10 page cash excess, what does that refer to?

11 A. That would indicate the expected

12 cash surplus after covering all expenses, interest,

13 coverage and debt, et cetera, for the years 2004,

14 2005, 2006.

15 Q. And turning now to page 3A, it's

16 entitled Loral Post Transactions.

17 A. Yes.

18 Q. What were you analyzing there?

19 A. It's the same thing, whereas page 3

20 addressed the issue of each satellites' annual

21 performance, cash performance, 3A was the

22 cumulative of cash at the end of each of those

23 years for each of the alternatives.

24 Q. And turning now to page four, what

25 were you examining there?


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2 A. It was a description of what the

3 company would look like from an asset point of

4 view, both book assets on page four, and I think

5 enterprise values on page five.

6 Q. What do you mean by enterprise

7 values, now turning to page five?

8 A. The enterprise value would be the

9 estimate of what the market valuation would be for

10 companies such as Loral would be measured by the

11 then acceptable norms of valuation.

12 Q. And what did this analysis conclude

13 with respect to the viability of the post sale

14 company?

15 A. This analysis reflected not only the

16 Intelsat transaction but a rationalization of the

17 debt of the company that was explained on one of

18 the pages here. And page five reflects what the

19 company would look like from an enterprise value of

20 approximately 1.5 billion dollars.

21 Q. Now, you said that you did another

22 iteration which had a plan three on it?

23 A. Yes.

24 Q. What were the differences between

25 this document and the other one you were referring


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2 to?

3 A. The other one had other conditions

4 of the Intelsat dialogue that we had with Intelsat

5 management and included the sale of a satellite to

6 Intelsat, a new satellite, and an advance of a

7 hundred million dollars on that order to Loral; and

8 finally an acceleration of an orbital accounts

9 receivable that we had proposed Intelsat pay us

10 accelerated payment of. Plan three reflected those

11 additional considerations.

12 Q. Now, are you certain in your mind as

13 to which one you presented to the Board on April

14 24th as opposed to some later date?

15 A. Yes.

16 Q. What is your best memory?

17 A. I think we included plan three,

18 unless I'm very much off, I believe that's exactly

19 what we did.

20 Q. Now, regardless of which one you

21 used, did you provide such a document to the Board?

22 A. Yes.

23 Q. And what was the board's reaction to

24 the presentation and the idea of the Intelsat

25 transaction?


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2 A. There was extensive discussion I

3 believe at the April 24th meeting; Greenhill was

4 present, if I remember correctly. It may have been

5 later on that they were, I'm not sure. But in any

6 event, there was extensive discussion.

7 Q. Is it fair to say that some of these

8 meetings run together in your mind at this point?

9 A. I'm afraid so, because we had a lot

10 of them.

11 Q. Okay.

12 A. But what happened was there was

13 extensive discussion of Intelsat, the implication

14 of not going forward, the implication of the

15 feasibility of that that we were making in the

16 presentation.

17 Q. Did there come a point when

18 Greenhill advised you and the Board with respect to

19 their views of the merging Intelsat transaction?

20 A. Yes.

21 Q. Let me direct your attention, sir,

22 to a document which we'll mark as Exhibit 4



25 MR. ROTHMAN: And we'll mark at the


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2 same time Exhibit 5.



5 Q. Mr. Schwartz, do you have before you

6 Exhibits 4 and 5?

7 A. Yes, sir, 4 and 5, yes.

8 Q. Can you identify the document that's

9 been identified as Exhibit 4?

10 A. I don't think I have 5. I have 9.

11 Four and 9.

12 Q. This is 4 and this is 5.

13 A. Thank you.

14 Q. What is Exhibit 4, Mr. Schwartz?

15 A. Exhibit four is a copy of the

16 minutes of the April 27th board meeting.

17 Q. And directing your attention to the

18 first page, the third paragraph.

19 MR. KAROTKIN: It's May.

20 MR. ROTHMAN: I'm sorry, did I say

21 April? I meant May 27th.

22 Q. The third paragraph says "Mr.

23 Schwartz then discussed the status of the Intelsat

24 transaction. The plan we are now considering is to

25 sell the North American assets to Intelsat. With


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2 the 1.1 billion dollars of proceeds from the

3 transaction, we would pay off the banks and use

4 some of the remaining cash and equity to

5 restructure and Loral's bonds."

6 Did you have a discussion about that

7 at the May 27th meeting?

8 A. Yes.

9 Q. Let me direct your attention to the

10 second page and the fourth full paragraph, it says,

11 "Harvey Miller, Brad Robins and Joe McMillan of

12 Greenhill joined the meeting at this time. Mr.

13 Miller then discussed the proposed transaction with

14 Intelsat in detail."

15 A. Yes, sir.

16 Q. Did Greenhill deliver a presentation

17 to the Board of the proposed transaction with

18 Intelsat at that meeting?

19 A. Yes. I think it's the one that you

20 had marked 5.

21 Q. What was Greenhill's advice to the

22 Board at this time with respect to the Intelsat

23 transaction?

24 THE COURT: I don't have 5.

25 A. Greenhill Associates were very


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2 supportive in Intelsat transaction along the lines

3 we were talking to them about, and a subsequent

4 approach to the creditors to rationalize the debt.

5 Q. Let me direct your attention to page

6 nine of Exhibit 5, the Greenhill presentation. You

7 see it's entitled Benefits of Proposed Transaction?

8 A. Yes, sir.

9 Q. Were the points on that page

10 consistent with the advice that Greenhll was giving

11 the Board at that time?

12 A. Yes.

13 Q. Now, was there a discussion at the

14 Board meeting with Mr. Miller and Mr. Robins with

15 respect to this written presentation?

16 A. Yes, there was.

17 Q. And what do you recall about that

18 discussion?

19 A. There was first of all a

20 presentation on the part of Mr. Miller and his

21 associates with respect to the contents of this

22 report. An exploration of the implication of being

23 able to complete a plan in which we would be able

24 to pay off the banks and make offerings of exchange

25 of then current debt to rationalize the capital


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2 structure of the company. It was an extensive

3 discussion and there were a fair amount of

4 questions and answers between and the Board members

5 and Mr. Miller.

6 Q. Let me direct your attention now to

7 Exhibits 6 and 7, sir. Exhibit 6 will be board

8 minutes from May 29th, 2003, and Exhibit 7 will be

9 board minutes from June 4th, 2003.

10 (Whereupon, Debtors' Exhibits 6 and

11 7 were marked for identification as of this date.)

12 A. Thank you.

13 Q. Mr. Schwartz, why were you meeting

14 so frequently at this time?

15 A. Well, there were a lot of things

16 going on that needed consultation with the Board.

17 We were considering a reverse split in order to

18 meet the minimum price requirements of the New York

19 Stock Exchange. We were considering the Intelsat

20 transaction. There were many discussions that the

21 management was having with several other companies

22 about whom we've cited early in the afternoon. It

23 was just necessary to keep them apprised of what

24 was happening, so we had a lot of meetings during

25 that time.


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2 Q. And directing your attention to

3 Exhibit 6, the third paragraph?

4 A. On page?

5 Q. On page 1. It's not highlighted,

6 but it says "Mr. Schwartz informed the Board we are

7 making progress on the Intelsat transaction. The

8 main issue is whether Intelsat will give us time to

9 solicit bondholder consents."

10 First of all, can you identify

11 Exhibit 6?

12 A. It is a copy of the minutes of the

13 May 29th meeting of the Board.

14 Q. And do you recall what the issue was

15 regarding the bondholder consents?

16 A. The plan at that time, because it

17 was an evolving plan, the plan at that time was

18 that Mr. Miller would approach the bondholders as

19 to whether or not an exchange offer would be

20 feasible and there were price levels that they

21 might be interested in, and there was pressure from

22 Intelsat that they needed to move forward because

23 they had a timetable, so there was some concern

24 whether we could rationalize those two objectives.

25 Q. I'm directing your attention to


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2 Exhibit 7 now. Can you identify that document?

3 A. It is a copy of the Board of

4 Directors minutes of June 4th.

5 Q. And did you update the Board on the

6 status of the Intelsat discussions on that date?

7 A. Yes, I did.

8 Q. Now, while the Intelsat negotiations

9 were going on, did you continue to seek other

10 alternatives to solve the financial difficulties

11 the company was facing?

12 A. Yes.

13 Q. What did you do?

14 A. I again renewed my contact with some

15 of the FSS companies to continue to monitor their

16 interest in a transaction with us. I had visited

17 with KKR during this time frame, I believe it was

18 during this time frame, to see if they wanted to

19 make an equity investment in the company. I

20 visited with Carlisle, had discussions with

21 Carlisle to see if they would be interested.

22 During this whole time period, as I said, we had

23 met with Lehman often to determine whether or not

24 we could find a strategic partner that would

25 alleviate the financial burden in an SS/L


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2 transaction. So there were several things going on

3 at the same time.

4 Q. Why did you continue to reach out to

5 other parties if you were in serious negotiations

6 with Intelsat?

7 A. Because we had not reached a deal

8 with Intelsat and I continued to explore all

9 possibilities, and that was not only on my own

10 initiative but at the urging of the Board as well.

11 Q. Let me direct your attention now to

12 a document which will be marked as Debtors' Exhibit

13 8.



16 Q. Mr. Schwartz, can you identify

17 Debtors' Exhibit 8?

18 A. Yes, it is a copy of the Board of

19 Directors minutes of June 26th.

20 Q. Directing your attention to the

21 fourth full paragraph second sentence, it says

22 referring to you, "he then discussed the status of

23 the sale of the North American fixed satellite

24 services business to Intelsat, the sale of the

25 Intelsat orbitals, the global settlement with


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2 Alcatel, and ongoing discussions with the sale of

3 SS/L." What was occurring in this period with

4 respect to the negotiations with Intelsat? Had you

5 agreed upon price at this point?

6 A. Not a final price. I think by that

7 time we had agreed to an estimated valuation that

8 would be agreeable to both sides, and that we were

9 going on -- our teams were then going through

10 issues of and contract language and other issues

11 that came up.

12 There were conversations going on

13 with other people as well in the two companies,

14 particularly with respect to the collection of the

15 Intelsat orbitals, Mr. Zahler was involved with the

16 president of Intelsat pursuing that issue. There

17 were other things going on outside as well, but

18 with respect to Intelsat, it was a whole range

19 because it was a complex transaction. There was a

20 whole range of activities going on.

21 Now sometime during this period, and

22 I'm trying to think of the exact date, we had

23 invited the Intelsat management to come to Loral's

24 office in which we made a full presentation to them

25 about the business of the assets that we were


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2 considering selling. This was in the nature of a

3 due diligence, a top level due diligence in which

4 there was a free exchange of a whole range of

5 subjects having to do with the satellite business

6 of North America.

7 Q. Let me direct your attention now,

8 sir, to the next exhibit, which we'll mark as

9 Exhibit 9.



12 Q. Mr. Schwartz, can you identify

13 Exhibit 9?

14 A. Yes. This is a copy of the minutes

15 of Board of Directors July 14th, 2003 meeting.

16 Q. And directing your attention to the

17 fifth paragraph it says, "Mr. Schwartz updated the

18 Board on developments since the last meeting and

19 informed the Board that the sale of the Intelsat

20 orbitals was completed and the Alcatel arbitration

21 was settled. Mr. Schwartz then discussed the terms

22 of the Intelsat agreement. He noted that the base

23 purchase price is one billion dollars, but if we

24 are successful in bringing in a large lease with

25 Cablevision, there would be a hundred million


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2 dollar price increase."

3 Had you by now reached an agreement

4 on the essential terms with Intelsat?

5 A. Yes.

6 Q. Now, in addition to the one billion

7 dollars, did Loral get any consideration from

8 Intelsat in connection with this deal?

9 A. Yes. They agreed to accelerate 60

10 million dollars worth of orbital receivables and

11 they agreed on to purchase one satellite, give us a

12 satellite order, and in connection therewith agreed

13 to advance a hundred million dollars against that

14 purchase on the signing of the contract.

15 Q. And was that satellite order of

16 value to Loral beyond the purchase price?

17 A. It was of extreme value, almost

18 incalculable in terms of the positive impact it had

19 to SS/L.

20 Q. Let me direct your attention to the

21 bottom of the second page of the July 14th minutes.

22 And the next to the last paragraph I see it says,

23 "Harvey Miller and Bradly Robins of Greenhill and

24 Lori Fife of Weil Gotshal & Manges, LLP joined the

25 meetings at this time."


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2 A. Yes.

3 Q. Did the Greenhill representatives,

4 in fact, participate in the meeting?

5 A. Yes.

6 Q. And did they advise the Board of

7 their views with respect to the transactions as it

8 had been negotiated?

9 A. Yes.

10 Q. What was their advice?

11 A. Their advice of this was a good

12 transaction for Loral and that the proposal to use

13 the proceeds to pay off the bank debt was a

14 desirable objective.

15 Q. Did you and the Board rely upon that

16 recommendation?

17 A. Yes, we did.

18 Q. Did the company then proceed to

19 enter into the Intelsat agreement?

20 A. Yes.

21 Q. Now Mr. Schwartz, the creditors'

22 committee has asserted that, among other things,

23 that the transaction is detrimental to the debtors

24 because you are selling the crown jewels and there

25 is no way to effectively reorganize around the


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2 remaining businesses. What is your reaction to

3 that, sir?

4 A. I very much disagree with that

5 assessment and of the proposed transaction to

6 reorganize around the existing assets as the

7 Intelsat transaction is a very viable one. And in

8 fact, there's no reason to believe that not only is

9 it viable in that we would be emerging from

10 bankruptcy in a cash positive position with our

11 debt rationalized, but that we would have resources

12 and business opportunities to build a business in

13 the future.

14 Q. Will this transaction, if it

15 proceeds, foreclose Loral from participating in the

16 North American market?

17 A. The agreement requires us to refrain

18 from marketing and taking the business in the North

19 American territory for a two-year period. We have

20 every expectation of being able to return to the

21 North American market after the two years. We will

22 have a satellite in orbit that will be able to

23 reach the North American markets.

24 In addition to that, we have several

25 very attractive, very valuable orbital slots in the


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2 North American continent that would serve the

3 American market. It would take us two years to

4 build such a satellite, so that in effect the

5 limitation of the two years as it relates to our

6 ability to get back into full force in that

7 marketplace, is quite manageable by Loral.

8 Q. What is your assessment of the

9 potential of the US market versus the non US

10 markets in which you will continue to operate over

11 the next two years?

12 A. There's no question that the North

13 American market is the most attractive fixed

14 satellite market in the world. Europe is quite

15 valuable as well. The drivers for the fixed

16 satellite service growth in the future is going to

17 be new applications. It's going to be the

18 extension of local to local markets to high

19 definition television. Those new innovations are

20 going to be experienced in the US market and there

21 will be sufficient consumer support of those new

22 applications, and therefore the growth of fixed

23 satellite services will be -- I believe it is a

24 common belief, will be most realized within the

25 United States. So this is very attractive from


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2 that point of view.

3 However it is the most competitive

4 market, not only from other satellite providers,

5 but from the infrastructure of communications that

6 exists in the United States that competes with the

7 satellite industry. In the United States we have

8 the most developed infrastructure for hard wire

9 telephone, and a very advanced deployment of

10 wireless cellular; we have an abundance of fiber

11 capacity in the United States. So although the

12 demand for services will drive the demand side of

13 the valuation, so too will be very aggressive

14 competition from existing suppliers, both space and

15 terrestrial.

16 That is not the same situation that

17 exists in other parts of the world. In areas of

18 Asia and South America, those countries are --

19 those geographic areas are significantly

20 underserved by terrestrial infrastructure. There

21 the buildup of telephone, DSL fiber, is not

22 anywhere near as robust as it is in the United

23 States. So the equation of the ability to grow,

24 the opportunity for growth is very attractive in

25 those underserved nations of the world. And I


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2 regard those as very significant potential global

3 areas for the FSS business.

4 Q. Allegations have been made in this

5 case, Mr. Schwartz, that attempting to reorganize

6 around the manufacturing business is not a sound

7 business plan. What is your reaction to that?

8 A. I disagree with that assessment as

9 well, because I believe there are two things that

10 will work in favor of the revival of the industry.

11 One is that there has been a surge of new order

12 input into the supply input, so there is a pent up

13 demand, if you will, that will have to be served.

14 The reason for that is the nature of the satellite

15 business, because as I said earlier, the finite

16 life of a satellite is shorter than the

17 requirement.

18 Our customers will have to, in order

19 to stay in business, replace their satellite

20 equipment they have in the sky, and the two-year

21 backlog is only going to exacerbate the demand and

22 increase it in on a continuing basis. But in the

23 meantime there's a consolidation of the industry.

24 It's not only a question of capacity, but many of

25 our competitors -- I'm sorry, there were only four,


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2 but among that universe our competitors are having

3 a difficult time sustaining their new technology,

4 integrating it into the hardware, and deploying

5 reliable satellites.

6 Boeing, as it is well-known in all

7 the press and media, is having a very significant

8 problem in terms of keeping up with the technical

9 requirements. Lockheed Martin has had a downsizing

10 over a period of time that, we believe, would tap

11 out their capacity, if it is not already tapped

12 out. Both of those companies are not primarily in

13 the commercial satellite business. Both of them

14 are in the defense business. This is not their

15 core businesses, and they have both announced from

16 time to time that they were going to exit the

17 satellite business and come back to the being

18 interested in their core business.

19 That kind of oscillating interest in

20 the marketplace gives us the opportunity to

21 demonstrate to the customer base that Loral is the

22 only company that is totally dedicated to

23 commercial satellites. And that is why over a long

24 period of time we have been able to successfully to

25 integrate the signs, it's technology into hardware


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2 and give the customers an excess of utilization

3 over their design life, give them the best

4 reliability, give them the best technology.

5 Q. How would your assessment of the

6 viability of the plan for the residual business

7 post sale compare between today and in July when

8 you entered into the Intelsat agreement?

9 A. For all the predictable reasons,

10 today's assessment is much more favorable. Part of

11 that is because the industry is changing, is

12 turning up. And secondly, we have been able to

13 secure for SS/L now four satellite orders, and we

14 have secured for ourselves, to the most recent

15 past, a favorite position with two or three of the

16 most valuable, the most dominant customers in the

17 communication business for satellites, and I

18 include in that PanAmSat or DIRECTV, Intelsat.

19 These are customers who will have the greatest

20 requirements going forward, and I believe we have a

21 preferred position in supply of their requirements.

22 That's a very powerful position to be in and a very

23 decided, dramatic change from where we were six

24 months ago.

25 Q. Why didn't you decide to scrap the


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2 Intelsat sale and put the whole company up for sale

3 when you got a proposal from EchoStar?

4 A. It was not clear to me then, it is

5 not clear to me now, that EchoStar was really

6 interested in buying the whole company. I think

7 there's a long history of why I believe there's

8 some scepticism about that, not the least of that

9 is which Charlie Ergen on a number of occasions

10 told me that he would not want to be in the

11 manufacturing business under any circumstances. He

12 made it very clear over a long period of time that

13 he did not want to be in that business, A, even

14 though I had proposed it to him earlier, and B,

15 that he wanted SS/L to continue in business because

16 he believed that he wanted to have SS/L as a

17 competitor

18 Q. Who is Mr. Ergen?

19 A. Mr. Ergen is the chairman of

20 EchoStar.

21 Q. Go ahead.

22 A. Again, we have had a relationship

23 for a long period of time, and he made it clear to

24 me that he was not interested in the whole

25 business. I said on several occasions -- on


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2 several occasions, as I testified earlier, four

3 times in the last year, three times within the

4 first six months of this year I visited and

5 initiated discussions with Mr. Ergen to determine

6 whether or not he would be interested in any kind

7 of transaction from merging the whole company and

8 taking over the whole company or parts of the

9 company.

10 Q. Did you believe that an offer of

11 1.85 billion dollars for the entire company was a

12 serious offer in any event?

13 A. I do not.

14 Q. Mr. Schwartz, let me mark as the

15 next exhibit, Exhibit 10. Exhibit 10 is a document

16 which is dated May 5th, 2003, which I believe is

17 another iteration of the presentation we looked at

18 before.

19 (Whereupon, Debtors' Exhibit 10 was


21 MR. JOHNSON: Objection. This was

22 not produced to us before.

23 MR. ROTHMAN: There were several

24 iterations of this document, we believe several

25 having have been produced. I believe that the one


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2 that was presented to the Board on April 24th was

3 the one we talked about, and this is a later

4 version of this document, but it reflects the three

5 plans that Mr. Schwartz referred to earlier.

6 MR. BOTTER: Your Honor, we received

7 one of these documents last night. It's been

8 marked as Debtors' Exhibit 3. We also have the

9 Debtors' Exhibit list, which does not have Debtors'

10 Exhibit 4 on it. Your Honor, I think that we, at

11 the very least, need time to analyze these new

12 exhibits that were never produced until late last

13 night, and frankly, don't even appear on their

14 exhibit list, and we would object to them as an

15 introduction of evidence.

16 THE COURT: Do you intend to offer

17 them as evidence? First of all, they have been

18 offered for identification?

19 MR. ROTHMAN: First of all, I

20 believe Exhibit H on our exhibit list is identified

21 as the Loral April 24th presentation to the Board,

22 so I think that they are wrong on the facts. But

23 on this one, Judge, I'm just introducing it to --

24 I'm just going to show it to the witness to refresh

25 his recollection.


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2 THE COURT: For application

3 purposes.

4 MR. JOHNSON: There is nothing on

5 the exhibit list, and as of nine o'clock last night

6 we were communicating with Weil Gotshal for a set

7 of exhibits, which we would have no objections on

8 both sides, the committee offered its exhibit list

9 to Weil Gotshal. Weil Gotshal failed to respond

10 with its own exhibit list, and then additionally

11 this document was produced by Weil Gotshal last

12 night, that part of which has been marked as

13 Exhibit 3. I asked specifically why it was being

14 produced on the eve of the hearing and what it was,

15 and counsel from Weil Gotshal could not or would

16 not give me an answer.

17 MR. ROTHMAN: Your Honor, I believe

18 that's the exact same one as Exhibit H which is on

19 the list.

20 THE COURT: May I see it?

21 MR. ROTHMAN: Yes.

22 THE COURT: I know you gave it to

23 me, but I don't see it in my folder.

24 MR. JOHNSON: This is the list

25 provided to me this morning.


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2 THE COURT: Well, the list you gave

3 me is marked Weil Gotshal & Manges draft. Is that

4 the one you agreed to with the committee?

5 MR. ROTHMAN: Judge, things have

6 been moving so quickly because the discovery has

7 been so expedited that that's just it. They have

8 been moving quickly, but my understanding, and I

9 didn't prepare the list, is that Exhibit L on the

10 exhibit list we gave them is one of the documents

11 that we had given. Now there are a few --

12 THE COURT: Did you have this

13 exhibit list?

14 MR. JOHNSON: We did not, Your

15 Honor, despite Your Honor's clear instruction last

16 week, Weil Gotshal failed to give us an exhibit

17 list. I was discussing it with Ted Tsekerides last

18 night. We discussed the questions that Mr.

19 Tsekerides had about the questions on our list we

20 clarified any questions that Mr. Tsekerides had and

21 still we had no response.

22 THE COURT: Still you had some

23 response, you had this list.

24 MR. JOHNSON: No. This list was not

25 given to us until we came to the court this


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2 morning.

3 THE COURT: In his opening remarks,

4 Mr. Botter referred to a business plan on the back

5 of an envelope by Mr. Schwartz; is that a different

6 document?

7 MR. JOHNSON: That document was

8 never provided to us.

9 THE COURT: I'm sorry. We are

10 talking about two different documents now. The

11 first one was identified as Exhibit 3 for

12 identification. Is that the one Mr. Botter was

13 referring to?

14 MR. JOHNSON: No. That exhibit was

15 provided to us for the first time last night at

16 nine o'clock. I asked specifically why it was

17 being produced at nine o'clock last night and why

18 this one was coming by fax, whereas the 115 boxes

19 two days prior arrived as regular day shipments.

20 And I asked what it was being used for and Mr.

21 Tsekerides said he had no answers for me.

22 MR. ROTHMAN: Your Honor --

23 MR. JOHNSON: Additionally, Your

24 Honor, the envelope has never been produced. I

25 specifically asked Mr. Schwartz about it last


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2 Friday.

3 THE COURT: What envelope?

4 MR. JOHNSON: The envelope he

5 referred to last Friday.

6 MR. ROTHMAN: Your Honor, there is

7 no envelope and I will check with Mr. Tsekerides

8 and verify it. But my understanding is that at

9 least one or maybe more iterations of this document

10 were produced.

11 THE COURT: Well, it's definitely

12 Bates stamped.

13 MR. JOHNSON: Perhaps it is now.

14 MR. ROTHMAN: I'm now being told,

15 Your Honor, that this document, which is the May

16 5th version, which bears Bates LSC 012992 was in

17 one of our first productions, so I don't know what

18 they're talking about.

19 MR. JOHNSON: That's a different

20 Bates number than we have here.

21 MR. ROTHMAN: It's the same

22 document. So the notion that you guys are

23 surprised is nonsense. You've had this document

24 and you've seen this document.

25 THE COURT: This is what I'm going


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2 to do. You say you are not introducing these into

3 evidence, you are just using it to refresh the

4 witness's recollection on the Board meetings.

5 MR. ROTHMAN: We may want to

6 introduce one of them, and we can ascertain which.

7 THE COURT: I'm going to let the

8 committee analyze this document overnight. You can

9 do it voir dire on the introduction of it, but I

10 think just to keep the flow going he can refer to

11 it just to refresh the witness's recollection. I

12 don't think we can get to cross until tomorrow

13 morning.

14 MR. ROTHMAN: Your Honor, we are

15 going to introduce the exhibits into evidence; we

16 will do that one at a time. But I'm just about

17 done with, Mr. Schwartz and we were hoping to go to

18 7 or 8 o'clock tonight and hopefully finish with

19 him tonight and start with Mr. Miller as well.

20 THE COURT: Well, I'm going to give

21 the committee some time to look at this to see if

22 it at all differs with the one they were looking at

23 after you finished with Mr. Schwartz, after you've

24 examined him.

25 MR. ROTHMAN: I'm going to say the


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2 one that they had is probably more extensive than

3 the one that we are showing them today.

4 BY MR. ROTHMAN:

5 Q. Mr. Schwartz --

6 MR. JOHNSON: One moment.

7 Your Honor, can I have back the

8 exhibit list which they gave us this morning? It's

9 the only one I have.

10 THE COURT: Yes.

11 MR. JOHNSON: Thank you.

12 BY MR. ROTHMAN:

13 Q. Mr. Schwartz, do you have the May

14 5th document in front of you?

15 A. If you give me a moment. Yes, sir.

16 Q. Do you see it bears the date May 5th

17 on the top of it?

18 A. Yes.

19 Q. And three plan options on the

20 bottom?

21 A. Yes, sir.

22 Q. Does that refresh your recollection

23 as to whether the document presented to the Board

24 was this one dated May -- let me rephrases it.

25 A. I really don't have a fair


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2 recollection of which one of these was presented to

3 the Board. I know that one of them was.

4 Q. Okay. Now, Mr. Schwartz, let me ask

5 you one final question, and that is how would you

6 assess the future prospects for Loral if this sale

7 is approved?

8 A. I'm very optimistic about the future

9 of Loral. It's a vision that not only I have, but

10 all of my colleagues have. It is a vision that is

11 shared by some of our customers. It is a vision

12 that I think is shared by Intelsat as well. The

13 prospects of the company are significantly greater

14 than it was five, six years ago when the SS/L

15 business, the manufacturing business was half of

16 the of the capacity it is today. At that time, we

17 only had one satellite. The only thing that we

18 differed from everyone else is that we had an

19 investigation of how we could grow this business,

20 and in fact in the ensuing five-year period, we

21 grew faster than any other satellite business, even

22 those of heavier interest and with greater

23 resources, we grew faster, more profitably. We had

24 the fastest growth in the industry, and I have no

25 reason to believe that our assessment of the


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2 marketplace and our capacity to meet those demands

3 is less than they are today.

4 I would add one other thing, though.

5 To a very large extent we are much more better

6 competitively positioned than we were at that time

7 in two respects. One of them is that there is an

8 ongoing rationalization of the satellite

9 manufacturing business and three, maybe four of our

10 competitors, but certainly three other competitors

11 are experiencing technical difficulties and

12 commitment difficulties in that business, and in

13 that regard we have a competitive advantage over

14 them.

15 And secondly, we have developed over

16 the last several years a morale in the FSS

17 business, a nonparalleled capability of integrating

18 additional services that have to do with

19 integrating our customers' requirements to

20 terrestrial capacity into the satellite delivery

21 business. We are far ahead of our competitors in

22 that regard, and I am very keen about the

23 opportunities that we have about going faster

24 because of that capability. Our current

25 competitors are only now saying they need that


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2 capability in order to keep pace with us.

3 In addition to that, lastly, the

4 opportunity to operate in underserved areas of the

5 world, developing areas of the world, is very

6 attractive opportunity for us. I believe that if

7 we can complete our plan, emerge from Chapter 11

8 with a very rational and reasonable debt level with

9 a very strong capital structure with a strong

10 revenue and EBITDA projection, I think we are in

11 much better shape than we were in the last ground

12 where we grew so well. So I have a great optimism

13 and it is shared by all the members of the Loral

14 team.

15 Q. Mr. Schwartz, is the Board of Loral

16 still in favor of this transaction?

17 A. Yes.

18 Q. And let me ask you a question which

19 I believe was raised before but I'm not sure you

20 got a chance to answer, and that is how does your

21 assessment of this deal and the prospects for the

22 company compare now than when you entered into the

23 deal in July?

24 A. We think our prospects are much

25 improved, mainly of course because of the success


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2 of the SS/L manufacturing company, which in July

3 appeared that it could be a drain on the business.

4 Now it looks to be like a very significant

5 contributor of cash and importance.

6 Q. So, sir, are you still in favor of

7 the Intelsat transaction at this time?

8 A. Yes.

9 MR. ROTHMAN: Your Honor, I have no

10 further questions for Mr. Schwartz.

11 What would be the court's preference

12 in terms of whether we should move the exhibits

13 into evidence now or --

14 THE COURT: Well, let's take them in

15 order and see if there were issues with any of

16 them. Some of them there may well not be, but I

17 expect there are at least two.

18 MR. JOHNSON: Your Honor, up until

19 an hour ago, I thought we were operating under the

20 instructions that the parties were going to

21 stipulate to the admissibility of defendants own

22 arguments, and obviously the committee was

23 surprised by what Weil Gotshal did. We object to

24 the entry of Exhibit 10 and of Exhibit 3.

25 THE COURT: Do you have any problems


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2 with the other ones?

3 MR. JOHNSON: No, your Honor.

4 THE COURT: Those will be admitted

5 then. Before we designate their numbers let me

6 hear you all on three and ten.

7 What is your objection

8 specifically?

9 MR. JOHNSON: The basis of the

10 objection, what I set forth earlier about Exhibit 3

11 is that it was a document produced late last night.

12 I specifically asked Weil Gotshal why it was

13 happening in such an unusual manner from the

14 remainder of the production which we have been

15 receiving in dribs and drabs throughout the last 15

16 days, including Exhibit boxes ten days ago. And

17 this was faxed last night with a cryptic note on it

18 saying out of an abundance of caution it was being

19 produced. I then inquired why it was being

20 produced and what it was and I was told by Weil

21 Gotshal was that they had no idea.

22 THE COURT: All right.

23 MR. ROTHMAN: May I respond?

24 THE COURT: Before you do, at least

25 my notes, while I think that Mr. Schwartz testified


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2 that he could identify the document and add some

3 input along with the other senior management

4 members of the debtor, he did not know whether

5 either of them was given to the Board, so I'm not

6 quite sure you are offering this other than to

7 reflect that management worked on an analysis.

8 Also the --

9 MR. ROTHMAN: Let me say a few

10 things, Your Honor, and let me start with the

11 question you asked last.

12 THE COURT: Okay.

13 MR. ROTHMAN: First of all, I think

14 Mr. Schwartz is unclear at this moment as to which

15 of the versions was presented to the Board, but

16 he's very clear that one such document was indeed

17 presented to the Board. And if there's any lack of

18 clarity on that we can ask him a few questions to

19 clear that up. I can speak with other witnesses to

20 see if it would make sense to put it in, three of

21 them, if that would avoid --

22 THE COURT: Why don't you do that

23 briefly --

24 MR. ROTHMAN: Okay. Second, as to

25 the accusations made --


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2 THE COURT: I'm less concerned about

3 that. I know you've both been working around the

4 clock, and I'm going to give the committee some

5 leeway as well if they come up with new items.

6 MR. ROTHMAN: We have been served

7 with expert reports and expert analysis hours

8 before by them --

9 THE COURT: All right, so --

10 MR. ROTHMAN: The fact of the matter

11 is, I'm not going to belabor it, but the situation

12 is exactly as you posed it. People have been

13 working around the clock. These folks over here

14 have slept only a handful of hours over the last

15 several days. We have not attributed the lateness

16 of committee productions to bad faith, and we are

17 proceeding on the assumption that both sides are

18 operating in good faith.

19 Now we are going to verify the facts

20 tonight regarding this document. I believe what

21 they would show, I could be wrong, but I don't

22 think so, that they have had one of these

23 iterations of this document since one of our very

24 early productions, and as you'll see, the document

25 we presented today as Exhibit 3 is merely a -- is


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2 essentially a subset. I'm not saying there aren't

3 any other differences, but --

4 THE COURT: It seems to me then you

5 can deal with this tomorrow, or if you get

6 comfortable talking during a short break with one

7 of your other witnesses, you could deal with it

8 through other witnesses.

9 MR. ROTHMAN: We will put it in

10 through another witness --

11 THE COURT: All right so --

12 MR. ROTHMAN: -- but we would very

13 much like to continue tonight and finish with Mr.

14 Schwartz and hopefully start with Mr. Miller.

15 THE COURT: That's fine. Let's

16 admit the documents that are agreed to with the

17 exhibit numbers. We are not going to change the

18 exhibit numbers. We'll set aside Exhibits 10 and 3

19 for now and deal with them later, and you can

20 introduce them as Exhibits 10 and 3 through another

21 witness.

22 MR. ROTHMAN: Fair enough. And one

23 last point, and we are happy to and would

24 anticipate sitting down with the committee and

25 stipulating to both admissibility and numbering,


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2 and again it's merely been a shortage of time that

3 has been prevented that from occurring.

4 THE COURT: Okay.

5 Do you want a short break or are you

6 ready to go?

7 MR. JOHNSON: Ready to go.

8 CROSS EXAMINATION BY MR. JOHNSON:

9 Q. Good afternoon, Mr. Schwartz. Just

10 to remind you, I'm Robert Johnson from Akin Gump

11 from the committee and I'm I took your deposition

12 last Friday?

13 A. Good afternoon.

14 Q. Mr. Schwartz, Loral had appraisals

15 done of these six specific satellites proposed to

16 be sold to Intelsat?

17 A. Yes.

18 Q. They were done by W.L. Prichard?

19 A. Yes.

20 Q. The appraisal 1.5 billion dollars?

21 A. Yes.

22 Q. Those appraisals were not shared

23 with the Board of Directors, were they?

24 A. I don't remember.

25 Q. Now, you also told us about the


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2 various financial advisers you had retained with

3 respect to the various transactions that were to be

4 done Greenhill Mortgage, Lehman Brothers Morgan

5 Stanley Lazard Freres, and there may have been

6 others. You didn't have any of those financial

7 advisers do a fairness opinion?

8 A. No.

9 Q. And you didn't have any of those

10 financial advisers do a valuation of the assets to

11 be sold to Intelsat?

12 A. No, but there was extensive

13 discussions with respect to the valuation of the

14 advantage to Loral, to the price parameters that we

15 were sitting on it. There was a lot of discussion

16 with those people about that.

17 Q. But I asked you last Friday, and

18 this is page 286, your deposition, "Question, Did

19 you ever have any of your advisers such as

20 Greenhill or Lehman do a proposed valuation of the

21 transaction?" And your answer was, "No;" isn't

22 that right?

23 A. Yes.

24 Q. Additionally, Mr. Schwartz, there

25 was a long list of potential financial buyers that


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2 had been identified by Greenhill as being

3 interested in buying Loral or making some sort of a

4 private equity investment. Do you remember seeing

5 that list prepared by Greenhill?

6 A. Yes. I'm not sure I would

7 characterize it as a list of individual companies

8 or investors who were interested in making an

9 investment of Loral. I interpreted it to be an

10 interpretation by Greenhill of those opportunities.

11 Q. I'm going to show you that list we

12 had marked it as the creditors' committee Exhibits

13 as Exhibit C 43, it's been provided to debtors'

14 counsel. But we have another set of the notebooks

15 here and I'm going to call your attention to the

16 last page.

17 THE COURT: Is this tab 43?

18 MR. JOHNSON: Yes.

19 MR. ROTHMAN: Which volume?

20 MR. JOHNSON: Volume 3.

21 BY MR. JOHNSON:

22 Q. Mr. Schwartz, this document was

23 prepared by Greenhill, correct?

24 A. I believe so.

25 Q. And on page 6 of the document that


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2 we have marked as C-43, there's a list of potential

3 financial buyers that were identified by Greenhill?

4 A. Yes.

5 Q. The list is Apex, Apollo, Wabaine,

6 B.C. Partners, Blackstone, Carlisle, Madison

7 Dearborn important Mira Quadrangle and Texas

8 Pacific?

9 MR. ROTHMAN: One second.

10 THE COURT: What page are you on?

11 THE COURT: Yes.

12 MR. ROTHMAN: This is C-43, it

13 doesn't say that.

14 MR. JOHNSON: It's page 6 of the

15 appendix.

16 MR. ROTHMAN: Oh.

17 THE COURT: Okay. So the first one

18 is Apex Partners and then Apollo Management.

19 That's the page?

20 MR. JOHNSON: That's the one.

21 Q. Of these potential financial buyers

22 you told us you talked to Carlisle; is that

23 correct?

24 A. Yes.

25 Q. And also if you spoke to Apollo?


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2 A. Yes.

3 Q. And I believe you said also someone

4 from Texas Gas but I believe you may have meant

5 TPG, Texas Pacific Group.

6 You didn't speak to any of these

7 other ones?

8 A. Blackstone. I did not talk to any

9 of the others.

10 Q. And, to your knowledge, Greenhill

11 didn't speak to any of these, did they?

12 A. Someone spoke to Quadrangle because

13 of the reports that's made, but I don't know who

14 did that and I don't know if they spoke to any of

15 the others.

16 Q. Now, when you took your deposition

17 last week, Mr. Schwartz, I asked you what analysis

18 had been done to determine whether a price range of

19 one billion to 1.1 billion dollars had been done.

20 And you told me you had spoken about it with your

21 colleagues. And you also gave me the following

22 answer when I gave you the following question.

23 Page 26 "Question. Was there any written analysis

24 that created which set form the considerations you

25 just describe your answer, "I wrote them down on


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2 the back of an envelope and carried it around with

3 me for a little while. You didn't tell me what you

4 last Friday what you had what was marked as Exhibit

5 3 prepared with your management team.

6 MR. ROTHMAN: I'm sorry.

7 MR. JOHNSON: 27.

8 MR. ROTHMAN: What line?

9 MR. JOHNSON: 19 to 24.

10 A. I don't know if I mentioned it or

11 not.

12 Q. We also took the deposition of Mr.

13 Zahler who was one of the individuals you

14 identified John?

15 MR. ROTHMAN: Your Honor, I object

16 because I don't -- I don't think the that the

17 characterization of the testimony that he's just

18 referred to but not shown to the witness is

19 accurate. And I don't think when you actually read

20 the testimony that he asked the question which

21 necessarily would have elicited the answer

22 identifying the documents that were marked as

23 Exhibit 3 and I would request that.

24 THE COURT: Well, what was the

25 question that you asked that elicited the back of


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2 the envelope.

3 MR. JOHNSON: The question was, was

4 there any written analysis created that set forth

5 the situation you just described.

6 THE COURT: One ahead.

7 MR. JOHNSON: "Question. When you

8 told me earlier that you hoped to get something in

9 the range of 1.3 billion or higher for these at

10 lights, can you tell me how you determined that a

11 one billion base price plus one hundred billion

12 purchase price upwards if sufficient leasing were

13 in place how that would have been a fair price?"

14 "Answer. I took into consideration

15 several things, the age of the satellites, the age

16 revenue of the satellites, location, customer base,

17 quality of the customer base, I took into the

18 consideration valuation and the most recent

19 valuation of the investment bankers of similar

20 assets and our assets and came to an arrangement

21 and determined a price that would be an appropriate

22 something for incentive core."

23 "Question. Was there any written

24 analysis that would set forth the considerations

25 you just described?"


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2 "Answer. I wrote them down on the

3 back of an envelope and carried them down with me

4 for a little while." All right.

5 MR. ROTHMAN: Question and the

6 answer had nothing to do would do with the analysis

7 we described. This question asked how he came up

8 with the price, how he was going to seek the price,

9 the presentation was an explanation of why the

10 transaction as it was emerging was in the interests

11 of the estate and what the plan for the residual

12 business would be. So for them to read the

13 question on page 27 without showing the witness

14 either the transcript or reading him the question

15 on page 21, I think is inappropriate.

16 THE COURT: But now I got a

17 background. I'll allow the question and accept the

18 answer for what it's worth in both cases.

19 MR. JOHNSON: All right. Thank you,

20 your Honor.

21 BY MR. JOHNSON:

22 Q. My question was, you did not reveal

23 the existence of what has been marked as Debtors

24 Exhibit 3; isn't that right?

25 A. I did not present that to you in the


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2 deposition, but I did not think that I was asked

3 about that.

4 Q. All right, I'll move on.

5 When I asked you what would be a

6 fair price or how you could calculate a fair price

7 for the FSS business, you gave me a methodology of

8 a range of a five and a half to seven and a half

9 times multiple of EBITDA, do you remember that

10 testimony?

11 A. I remember that number, but I would

12 like to be refreshed with respect to the actual

13 language.

14 Q. 31?

15 THE WITNESS: Your Honor, I have a

16 personal request, if I may. I foolishly promised

17 to take my wife to the ballet tonight. I would

18 just like to inform her that she should go on

19 without me. Can I have one of my colleagues do

20 that? Would anybody in Loral be nice enough to do

21 that?

22 THE COURT: You may be excused to

23 give her the good news.

24 MR. JOHNSON: Mr. Schwartz, here is

25 a copy of your transcript. Page 31 is up in this


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2 corner.

3 MR. ROTHMAN: What page?

4 MR. JOHNSON: 31 line 9.

5 THE COURT: I'm sorry, what was the

6 question again?

7 MR. JOHNSON: The question was

8 whether he recalled whether a fair evaluation of

9 the FSS business could be done with a five to seven

10 and a half valuation of EBITDA. I'm on page 31,

11 line 19. "Question. Okay. Did you use any

12 multiples with respect to trying to determine a

13 fair value of the satellites?"

14 "Answer. Well, EBITDA."

15 "Question. EBITDA. What was the

16 range of multiples that you thought appropriate?"

17 "Answer. That I thought

18 appropriate. I don't know how to answer the

19 question. The ranges that I looked at were between

20 five and seven and a half because that was

21 generally the general assessment that the community

22 and financial had applied to financial transactions

23 for satellite service."

24 A. And the question is.

25 Q. Do you recall giving that testimony


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2 that a fair methodology for valuating the

3 satellites would be five to seven and a half

4 valuation of EBITDA?

5 MR. ROTHMAN: Objection.

6 THE COURT: Because.

7 MR. ROTHMAN: Because I don't think

8 he's accurately characterizing the testimony. You

9 can ask him if he gave the testimony that he just

10 read.

11 MR. JOHNSON: That's the question I

12 just asked.

13 THE WITNESS: The word fair.

14 MR. JOHNSON: That's the question I

15 just asked.

16 A. In my answer I don't see the word

17 fair. I think the question says what was the range

18 of multiples you thought appropriate.

19 Q. All right. And the questions before

20 that I asked did you use any multiples for trying

21 to determine a fair valuation for the satellites.

22 All right, I'll move on.

23 Isn't it correct that FSS business

24 has projected EBITDA in 2003 of 170 dollars?

25 A. No.


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2 Q. What is it then?

3 A. Approximately 105 million.

4 Q. For the FSS segment and I'm

5 speaking --

6 A. Of the assets of the contemplated in

7 the sale.

8 Q. Mr. Schwartz, I'm speaking of all

9 the assets including those you proposed to sell to

10 Intelsat and those you would have remaining the

11 entire FSS business?

12 A. Okay.

13 Q. And my question was --

14 A. Yes. I don't recall the exact

15 number, this was for 2003. Yes, I'm sorry. I

16 think it was that was the number.

17 THE COURT: And what was the number,

18 173 million?

19 MR. JOHNSON: 173.

20 Q. If we use the high end of that, a

21 high end would lead to about 1.3 billion dollars.

22 Do you agree with that? I have a calculator

23 available, if you like.

24 A. Thank you, no. I would like to be a

25 little bit certain. There are some things that


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2 could refresh my memory for the EBITDA fleet, but

3 you're saying is that was the number 173 million,

4 is that what you said?

5 Q. Yes. And the multiple you apply to

6 it is what?

7 A. Seven and a half the top of your

8 range. Would be about a billion 3.

9 Q. And then we moved over to the

10 subject of SS/L and the testified that one times

11 revenue would be an appropriate valuation for SS/L?

12 A. In my judgment.

13 Q. And SS/Ls projected revenue is 487

14 million; is that right?

15 A. Yes.

16 Q. If we had 487 million to 1.3 billion

17 we get a total of 1.78 billion; is that right?

18 A. Yes.

19 Q. Now, in light of those calculations,

20 can you tell me why it was that upon receiving

21 EchoStar's bid on October 3rd at 1.85 until you

22 didn't have your financial advisors do any

23 financial analysis of the bid before having it

24 rejected as inadequate?

25 A. Because it was inadequate. The


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2 there was a difference in time for one thing

3 between the time of making this assessment and what

4 we call appropriate, and the time, in September,

5 that you are referring to, and by September and

6 October, the business of SS/L had considerably

7 turned around. And the value of that business was

8 substantially greater in my judgment. The -- it

9 did not also take into account other assets that

10 the company has available in the entire

11 corporation, slots over North America, slots around

12 the world. We had a very extensive valuable

13 terrestrial support system to the FSS business that

14 should have been included in that valuation. We

15 had investments in other assets that were not

16 counted in that calculation. So I thought it was

17 completely honorable the offer of EchoStar was

18 completely inadequate.

19 Q. Do you recall giving a something to

20 the committee in Palo Alto of the SS/L business?

21 A. Yes.

22 Q. And do you recall the valuation of

23 the SS/L business at that time?

24 MR. KAROTKIN: Now we are getting

25 into confidential information.


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2 MR. GOLDEN: Can you --

3 THE COURT: Are you going to ask get

4 the --

5 MR. KAROTKIN: The specific numbers.

6 MR. JOHNSON: Only with respect to

7 the numbers I asked a few moments go.

8 MR. KAROTKIN: That was a few

9 moments ago.

10 MR. JOHNSON: I was still asking

11 about 2003.


13 MR. KAROTKIN: If it's only 2003.

14 THE COURT: If it's historical

15 information, it's fine.

16 Q. That business plan presentation was

17 done on September 24th of this year, correct?

18 A. Yes.

19 Q. And you gave your testimony

20 regarding the one times revenue just last Friday,

21 correct?

22 A. Yes.

23 Q. And the projected revenue for 2003

24 in that business plan, which I can show to you,

25 we've marked it as our Exhibit C25. Your business


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2 plan shows a projection of 2003 of 487 million.

3 Would you like to see it?

4 A. That's fine I'll accept that.

5 Q. Isn't it correct that upon receipt

6 of that October 3rd bid, that you did not ask any

7 of your financial advisers to do any valuation or

8 analysis, financial analysis of the proposal?

9 A. EchoStar's proposal?

10 Q. Yes.

11 A. That's right.

12 Q. I'd like to walk back with the

13 exhibit that was marked as the Debtors' Exhibit 5.

14 It's identical to the document that we had

15 submitted or provided as Exhibit C42. Do you

16 recall seeing this document before, sir?

17 A. Yes.

18 Q. I'd like to have you turn to time

19 10, please?

20 A. Page 10?

21 Q. Page 10. Page 10 is a valuation

22 summary of the sale of the six satellites at

23 12/31/03?

24 A. I didn't.

25 Q. These projections were provided by


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2 the company to Greenhill; isn't that correct?

3 A. They are close to the projections.

4 I'm not sure they are the exact ones.

5 Q. Greenhill did not do any financial

6 analysis to create the projection of EBITDA

7 Satellites?

8 A. I don't think that that's true.

9 MR. KAROTKIN: Excuse me, again, I

10 believe that the piece of paper he is looking at

11 goes beyond 2003.

12 THE COURT: It's already been

13 introduced.

14 MR. KAROTKIN: He hasn't testified

15 as to it.

16 THE COURT: But it's been admitted

17 into evidence and not under seal. Frankly, I don't

18 think --

19 MR. KAROTKIN: Okay.

20 THE COURT: -- given the testimony,

21 I don't think this is particularly sensitive.

22 Q. The following page, page 11 has pro

23 forma financials. I won't disclose the numbers

24 with everyone in the courtroom, but it does

25 disclose to 2004 to 2006, these were proposed to


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2 Greenhill?

3 A. I don't know that.

4 Q. Do you know if Greenhill did any

5 financial analysis of assumption provided by the

6 company?

7 A. I don't know.

8 Q. Let's turn to Page 16. Page 16 is

9 captioned Alternative Courses of Action and it's

10 second alternative discusses, maintain North

11 American FSS and reorganized around existing Loral

12 businesses, do you see that?

13 A. Yes, sir.

14 Q. Following that, is a heading, a

15 single sentence. That was the full extent of the

16 Greenhill analysis set forth in Debtors' Exhibit 5

17 with the exception of the possibility of

18 reorganizing around the FSS business?

19 A. There was discussion about this with

20 Mr. Miller and the people in the audience. This

21 one sentence was not the total amount of discourse

22 with respect to this alternative.

23 Q. But Greenhill did not provide any

24 written financial report with respect to the second

25 alternative, did they?


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2 A. I don't know.

3 Q. Mr. Schwartz, there's a number of

4 exhibits that you were shown earlier today that

5 were minutes of board meetings. They were exhibit

6 numbers 2, 4, 6, 7, 8 and 9. Every single one of

7 those minutes were minutes of the meetings of the

8 Board of Directors of Loral Space and

9 Communications Limited, correct?

10 A. Yes, sir.

11 Q. None of those Communications of

12 Loral Satellite, Inc.?

13 A. Not presented to me today.

14 Q. And none of them Loral SpaceCom

15 Corp.?

16 A. No, no.

17 Q. Mr. Schwartz, do you remember

18 speaking to your shareholders meeting this year on

19 May 29th?

20 A. Yes.

21 Q. And did you tell the truth to the

22 shareholders?

23 A. I tried to, yes.

24 Q. Do you recall saying at the

25 shareholders meeting, "Loral's business plan, our


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2 structure today is to buy enough time so that we

3 can survive as a viabilities organization with

4 critical assets and human organization we will hold

5 on to these, because if we lose them they are lost

6 forever." Do you recall saying that?

7 A. Yes.

8 Q. And was that true?

9 A. Yes.

10 Q. And yet, you intend to enter into a

11 transaction in which you will agree not to compete

12 in the United States during the next two years?

13 A. I'm not inconsistent, I do.

14 Q. Do you recall saying that "The North

15 American Satellites were the gem of the industry"?

16 A. Yes.

17 Q. Do you recall, also saying, "If the

18 North American Satellites were sold, they would be

19 sold far above book value"?

20 A. I don't remember specifically saying

21 that.

22 MR. JOHNSON: No, Mr. Schwartz, I

23 put a flag by that portion of the shareholder

24 transfer, which we obtained from your website.

25 MR. ROTHMAN: One moment, could I


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2 have a copy?

3 Q. It's a on Page 8. This is

4 exhibit -- I'm sorry Chris, this is C8 in the book.

5 It's the third paragraph from the top of Page 8.

6 A. Yes, that's a good statement. I

7 will stand by that statement today.

8 THE COURT: I'm sorry, is this the

9 third paragraph on Page 2?

10 MR. JOHNSON: No, Page 8.

11 Q. I'd like you to take a look back at

12 what was marked earlier as Debtors' Exhibit 3,

13 which is the document I objected to.

14 A. Yes, sir.

15 Q. The bottom of the first page of

16 Debtors' Exhibit 3 provides gross value of each of

17 the three satellites. Sir, I'll represent to you

18 and give you my calculator that the total of those

19 numbers is 1.334 billion dollars for book value?

20 A. Yes, sir.

21 Q. That's less than what Intelsat is

22 going to pay; isn't that right -- sorry more than?

23 A. By some margin, it may be true, yes.

24 I would like to have Mr. Townsend look at that a

25 little bit more carefully. But I suggest on the


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2 face of it your statement is true.

3 Q. You testified a while ago that you

4 believed that it is viable for Loral to go forward

5 without competing in the United States during the

6 next two years, during the non-compete period?

7 A. Yes.

8 Q. Mr. Schwartz, do you recall being

9 interviewed by Fox News in 1998, regarding some of

10 the troubles you were having then in Southeast

11 Asia?

12 A. Yes.

13 Q. You spoke with a reporter by the

14 name of Neil Kavuto?

15 A. Yes.

16 Q. Mr. Kavuto asked you a question

17 about whether, given the troubles you were having

18 in Southeast Asia, you shouldn't pull out of the

19 area. And your response was, "We are talking about

20 Global Communications, you couldn't have Global

21 Communications with one big hole in it." Do you

22 recall?

23 A. I don't recall, but I believe I said

24 it and I stand by it today.

25 Q. If you provide with the Intelsat


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2 wouldn't you be having a global with one big hole?

3 A. No, we have coverage. We have slots

4 to allow us -- we have every intention of -- we

5 have a two-year inhibition which is hardly what I

6 call inhibitions inhibition. It was the intention

7 of the Intelsat transaction where we structured it,

8 that we were not foreclosing -- we were not selling

9 our opportunity to reenter that marketplace.

10 Q. But you will not be able to uplink

11 and downlink in the United States during 2004 and

12 2005?

13 A. It is a not given sacrifice. In

14 fact, it is a sacrifice the members of our time

15 will contest that assessment, but I am willing to

16 concede it's a possibility, but it's a small minute

17 negative as to what I consider a small opportunity

18 to the company. I might also suspect what I said

19 to Neil Kavuto is different than what you're saying

20 today.

21 In order to build on Global

22 Communication you have to have global coverage,

23 that's true. At the same time, what we are talking

24 about is not whether Loral should have global

25 coverage growth opportunity, whether we have a


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2 viable, I think that was your term, a viable

3 opportunity to ask. I testified that you need not

4 have a global coverage in order to have a very

5 viable FSS and profitable FSS operation.

6 Q. But as part of this transaction, you

7 will not be able to uplink and downlink in the

8 United States during 2004 and 2005?

9 A. I consider that a negative as

10 compared to weighing the positives and negatives of

11 the transaction and the positives could, I believe

12 outweigh the negatives.

13 MR. JOHNSON: I understand your

14 answer. Thank you I have nothing further.

15 EXAMINATION BY MR. HUEBNER:

16 Q. Mr. Schwartz, good afternoon. I'm

17 Marshall Huebner with the Law Firm of David, Polk &

18 Wardwell. I have approximately nine questions for

19 you, Mr. Schwartz.

20 A few moments ago Mr. Johnson turned

21 your attention to a --

22 MR. ROTHMAN: Could you speak up.

23 Q. Excuse me, he referred to a question

24 and answer from the shareholders meeting. I would

25 like to ask you to read that paragraph in its


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2 entirety and ask you two questions. The North

3 American fee is unique and very special, and if we

4 consider selling it, it will be a value to us

5 profitable par. Did you have the above book value

6 and use it to de leverage, and if it were a good

7 proposition, the Board, I assume, would vote for

8 that.

9 Mr. Johnson asked you about one of

10 the three prongs you had which was, was it above

11 book value and you weren't perfectly sure whether

12 it might or might not be. I would like to ask you

13 about the other two, would that sale delivery reach

14 the company as you indicated in this meeting was

15 for?

16 A. Yes.

17 Q. Is it your view to hit the third

18 prong that this is a good proposition for the

19 company as you indicated at his meeting?

20 A. Yes.

21 Q. So actually, two of the three prongs

22 that you indicated each sort of in this hostile

23 exhibit in fact were satisfied by the Intelsat

24 transaction; isn't that correct?

25 A. Yes.


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2 Q. Mr. Schwartz, in his opening

3 statement Mr. Botter intimated that once the per

4 price for Intelsat excited the bank debt, the

5 company at that point achieved its goal and stopped

6 negotiating for full value. Do you believe that to

7 be a true statement?

8 A. It is untrue.

9 Q. Mr. Schwartz, do you believe that

10 the announcement of the Intelsat deal is related to

11 the urgency of the SS/L?

12 A. Yes, absolutely.

13 Q. Mr. Schwartz, do you believe there's

14 a good business reason for the sale of these

15 satellites to Intelsat?

16 A. Yes.

17 Q. Do you believe there's a rationale

18 business purpose for this sale?

19 A. Yes.

20 Q. Mr. Schwartz, is Loral engaging in

21 this sale to appease the banks?

22 A. No.

23 Q. Mr. Schwartz, do you believe that

24 this transaction maximizes value for the creditors

25 of the selling debtors' Satellite and SpaceCom?


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2 A. I'm sorry, a repetition.

3 Q. Sure. Do you believe that the

4 Intelsat transaction maximizes value of the

5 creditors of Satellite and SpaceCom?

6 A. Yes.

7 Q. Do you believe that this transaction

8 maximizes the value of limits ultimate equity

9 interest in Satellite and SpaceCom?

10 A. Yes.

11 Q. Do you believe or do you understand

12 that it is your duty to maximize value for

13 creditors in these cases?

14 A. It is my duty to maximize the estate

15 for all of the shareholders.

16 Q. Do you believe the decision to sell

17 these assets was taken on an informed basis by

18 Loral?

19 A. Absolutely.

20 Q. Do you believe it was taken in good

21 faith by Loral?

22 A. Yes.

23 Q. Do you believe it is in the best

24 interest of Loral?

25 A. Yes.


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2 Q. Do you believe that it will aid the

3 debtors' ultimate reorganization?

4 A. Yes.

5 Q. I have one more question. Mr.

6 Schwartz, you testified under oath that if Loral

7 had enough cash to pay interest to the bank debt

8 you still think it would be a debtor idea to sell

9 these assets and leave the company which would

10 increase the future viability. Do you still

11 believe that your customer base wants that to

12 happen?

13 A. Yes.

14 Q. And you still believe that it is in

15 the best interest of the debtors?

16 A. Yes.

17 MR. HUEBNER: I have no further

18 questions.

19 THE COURT: Since that was a

20 friendly examination, Mr. Johnson, do you have any

21 pros on that?

22 MR. JOHNSON: If I could have one

23 moment, please.

24 BY MR. JOHNSON:

25 Q. Mr. Schwartz, in the maritime frame


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2 of this year, I believe you testified earlier that

3 there was a concern with Deloitte & Touche in

4 connection with your audit that you would be

5 offered a qualified opinion; do you recall that?

6 A. Yes.

7 Q. And isn't it right that you

8 negotiated a very difficult amendment of the bank

9 credit agreements that was done in late March of

10 2003 in order to resolve Deloitte's concerns?

11 MR. ROTHMAN: Objection, Your Honor.

12 THE COURT: Is this going to Mr.

13 Huebner's questions?


15 THE COURT: I'll let him ask a

16 couple more. He is talking about the banks which

17 Mr. Huebner was talking about .

18 BY MR. JOHNSON:

19 Q. Isn't it correct in March and April

20 of this year, you and your financial advisers

21 referred to having a bank problem because of these

22 covenants and this growing concern by Deloitte &

23 Touche?

24 A. Yes.

25 Q. And wasn't that in part the reason


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2 why you chose a path of selling assets to pay the

3 banks in full and eliminate the bank problem?

4 A. Yes, but I would remind you that we

5 had adopted that strategy long before March of '03

6 and we were pursuing long before that solution goes

7 to the over leverage position of the company. It

8 is true in March of '03 an additional reason for us

9 to be interested in such a transaction was to solve

10 some other problems as well, including the

11 collateral range with the banks.

12 Q. But didn't March of '03 become a

13 tipping point, because if you got a qualified audit

14 that alone would have been a covenant default with

15 the banks?

16 A. It may have been, but it was not the

17 motivation or instigation of the strategy to sell

18 these assets to Intelsat, which were being pursued

19 prior to the servicing of the Deloitte & Touche

20 issues with their audit.


22 THE COURT: Any further questions?

23 MR. ROTHMAN: No redirect your

24 Honor.

25 THE COURT: You may step down, Mr.


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2 Schwartz.

3 THE WITNESS: Thank you. May I

4 leave these here?

5 THE COURT: Why don't you give them

6 back to your counselor to use as exhibits.

7 MR. ROTHMAN: Your Honor, we can do

8 whatever the court would prefer, but what would be

9 comfortable?

10 THE COURT: You expect how many more

11 witnesses?

12 MR. ROTHMAN: Three.

13 THE COURT: And you say an hour for

14 each.

15 MR. ROTHMAN: I think an hour, maybe

16 a little less but on direct.

17 THE COURT: And Mr. Johnson and

18 Mr. Botter, how long do you think your witnesses

19 will take a direct?

20 MR. JOHNSON: Two hours.

21 THE COURT: Is that the total of

22 witnesses that I should expect at this point ?

23 MR. JOHNSON: We have also been

24 negotiating with Weil, Gotshal & Manges definition

25 excerpts from three defendants.


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2 THE COURT: Is there a problem if we

3 carry over? If we have to on Friday, do I have any

4 problems with your witnesses testifying on Friday?

5 At least one or two of them. I'm not sure we'll

6 have to do that, but I'm trying to figure out if we

7 go for another couple of hours.

8 MR. HUEBNER: I have a while, but

9 that we will be done by the 4 clock range. I have

10 no objection to that, but after that it will be

11 problematic from my perspective.

12 THE COURT: Why don't we do one

13 witness.

14 MR. ROTHMAN: Fair enough. Your

15 Honor, the Debtors call Harvey Miller.

16 MR. GOLDEN: Your Honor, can we take

17 a five-minute break?

18 THE COURT: Yes, that's fine.

19 (Recess taken.)

20 THE COURT: Please be seated. Would

21 you swear in Mr. Miller?

22 H A R V E Y R. M I L L E R, called as

23 a witness, having been first duly sworn by the

24 Notary Public, Denise Nowak, was examined

25 and testified as follows:


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2 DIRECT EXAMINATION BY MR. ROTHMAN:

3 Q. Mr. Miller, could you please state

4 your name and address.

5 A. Harvey Miller, 1060 Fifth Avenue,

6 New York City.

7 Q. And would you briefly apprise the

8 course of your career?

9 A. Graduate Brooklyn College and

10 Columbia Law School. I began to practice law in

11 1960. I joined a firm in New York City and shortly

12 thereafter joined the firm of Selocks and Morris,

13 where I worked for Professor Charles Selocks who

14 was preeminent in bankruptcy law and reassociation.

15 I worked with that firm from 1963 to approximately

16 1970 when the firm or a portion of the firm joined

17 Weil, Gotshal & Manges in the end. In December

18 1969 I practiced with Weil, Gotshal and Manges for

19 32 years, organizing and created the business

20 finance and restructuring group at that firm.

21 I also have been a member of the

22 adjunct faculty of NYU Law School since 1975, where

23 I taught creditors rights and taught business

24 reorganization in the fall. And for the past four

25 years I have been a lecturer in law in the adjunct


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2 faculty teaching corporate finance and

3 reorganization.

4 I've been a member of the National

5 Bankruptcy Conference since 1975 and many years

6 chairman of the Chapter 11 Committee. Since

7 September 1, 2002, I have been planning director

8 and a partner of Greenhill and Company. During the

9 course of my career I have testified at length

10 before Congress, a bankruptcy legislation, proposed

11 bankruptcy legislation, and in 1970 when Professor

12 Selocks son was appointed to the National

13 Commission on Bankruptcy Laws, I assisted him in

14 work for the commission.

15 I think it was in 1996, another

16 national commission was appointed and I was part of

17 an advisory group that worked with Professor

18 Elizabeth Warren from the Harvard Law School of

19 Aspects of the Harvard Law School Chapter 11

20 Reorganization of the bankruptcy pursuant to that

21 commission.

22 I also lectured extensively often at

23 the Federal Judicial Center at the regional

24 educational meetings at bankruptcy judges that are

25 held throughout the country.


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2 Q. Thank you, Mr. Miller.

3 When was Greenhill retained by

4 Loral?

5 A. Mid toward the end of February 2003.

6 Q. What were you engaged to do?

7 A. Greenhill was engaged to assist the

8 company in reviewing and developing strategic

9 alternatives.

10 Q. What were the problems that you were

11 seeking to help the company address?

12 A. Because of the downturn in the

13 telecommunications business, which had resulted in

14 an over capacity of transponder rentals and

15 restitution of SS/L a subsidiary manufacturing

16 facility, Greenhill had not received an order for a

17 construction of a satellite for two years.

18 Q. Do you mean SS/L?

19 A. Yes, SS/L. And the FSS business had

20 also suffered as a result of the downturn in

21 telecommunications business and the company was, I

22 would classify the company in this state of some

23 financial distress

24 CROSS EXAMINATION BY MR. ROTHMAN:

25 Q. What did Greenhill do in the early


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2 stages of its engagement?

3 A. Initially the objective was to get

4 familiar with the company to compete with the

5 financial people, Mr. Townsend, Mr. Mastoloni to

6 speak with Mr. Zahler and Mr. Schwartz to get our

7 arms around the financial condition of the company,

8 the corporate structure and become educated with

9 respect to the company.

10 Q. You were in court for Mr. Schwartz's

11 testimony?

12 A. Yes, I was.

13 Q. And you heard him talk about an

14 issue involving the auditors?

15 A. Yes.

16 Q. Could you explain to the court what

17 that issue entailed and what involvement it had, if

18 any?

19 A. Shortly after Greenhill was engaged,

20 we were informed that a problem had arisen,

21 unanticipated problem with the company's auditors,

22 Deloitte & Touche, with respect to writing off

23 certain non-cash items. The effect of writing off

24 those items would have resulted in breaches of

25 covenants in respective creditors' agreements that


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2 were in effect of two bank syndicates relating to

3 Loral Satellite, Inc. and Loral SpaceCom, Inc.

4 If there was no agreement waiver of

5 those covenants, Deloitte & Touche would have been

6 required to issue a qualified opinion. It was the

7 company's belief that a qualified opinion would be

8 a further detainment in its ability to obtain an

9 award for a satellite construction by SS/L and was

10 also a detainment in maintaining transponder

11 leases.

12 Q. And did you take part in

13 negotiations with the banks?

14 A. Yes.

15 Q. Could you explain briefly what role

16 you played and what you did?

17 A. I played a significant role in

18 meeting with the banks, which were lead by the Bank

19 of America as the agent for Townsend case as

20 testified earlier in this proceeding, Loral

21 Satellite, Inc. was indebted to the banks on a

22 secured basis for over four hundred million dollars

23 close to 435 million dollars and Loral SpaceCom,

24 Inc. was what you obligated for 538 million dollars

25 or something in that area. And we initiated


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2 communications with the bank, there had already

3 been some discussion with the banks, initially with

4 the Bank of America requesting a waiver of those

5 covenants that would be affected by the write-off

6 of these non-cash items.

7 Q. And what was the purpose of the

8 waivers?

9 A. So that Deloitte & Touche would be

10 in a position to issue a non qualified opinion.

11 Q. Were you able to obtain the waivers?

12 A. Yes, the waivers were obtained the

13 objective, was to retain the waiver so that Loral

14 SpaceCom, the parent holding company, could file

15 its 10-K within the time required under the

16 security laws, which was March 31st as I recall of

17 2003.

18 Q. Did Loral have to give any

19 consideration for the waivers?

20 A. There were a series of negotiations,

21 the respective creditor agreements were appointed.

22 There was the appointment of a steering committees

23 for the banks, and there were additional covenants

24 that were negotiated with each syndicate.

25 Q. Was the company subject to any new


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2 or additional requirements as a result?

3 A. There was substantial reporting

4 requirements that were negotiated with the bank

5 lenders.

6 Q. Did the waivers that were

7 obtained --

8 A. I should also add that a condition

9 of the appointed agreements was that the banks

10 would be entitled to engage Ernst & Young or

11 division of Ernst & Young to assist the banks in

12 monitoring the loans and have access to financial

13 information and operating information from Loral

14 and its subsidiaries.

15 Q. Did the waivers solve Loral's

16 problems?

17 A. Not at all.

18 Q. Why not?

19 A. Loral's problems had to do with

20 being over leveraged in terms of the outstanding

21 indebtedness of the Consolidated entry, and in

22 particular SpaceCom Inc. and Loral Satellite, Inc.

23 It was outstanding that approximately a billion

24 dollars in bank debt and a billion dollars in

25 public bond debt. The public bond debt was


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2 primarily in nonoperating companies, in the sense

3 that Loral and Orion had outstanding three -- well,

4 I should say one major issue of public bonds that

5 resulted in exchange offer done in 2001 of about

6 619 million dollars, and there were two stub groups

7 from bonds that had not been exchanged all together

8 that added up to about 700 million dollars. In

9 addition, there were 350 million dollars of public

10 bonds at the ultimate holding company in the

11 Bermuda Company that were outstanding. Other than

12 that, there was the bank debt which was totally

13 separate from the bond debt and the trade debt at

14 SS/L and some trade debt at SpaceCom.

15 Q. Did Greenhill review the company's

16 financial situation and provide advice as to how to

17 proceed?

18 A. Greenhill did a review with the

19 assistants of the financial group at Loral, lead by

20 Mr. Townsend and spoke at length with Mr. Schwartz

21 and Mr. Zahler and other members of the management

22 team. Spoke with some of the directors from time

23 to time, and at the same time, Loral engaged

24 consultant, Mr. Stephen Key, to assist the

25 financial section of Loral in reviewing projections


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2 and preparing the additional reports that were

3 required under the amended credit agreements.

4 Q. Which of the directors did you meet

5 with?

6 A. Gershon Kekst, Howard Gittis and Bob

7 Hodes.

8 Q. What were the purposes of those

9 meetings?

10 A. From time to time Mr. Gittis would

11 call, he would ask about the status of things at

12 Loral. Mr. Hodes has been a very active director

13 in the corporate governance area of the company and

14 its subsidiaries. And Mr. Kekst was very

15 interested in the affairs of the company and what

16 Reno was doing in connection with the company.

17 Q. Did there come a time when you made

18 a presentation regarding your views as to what the

19 company should do to address the financial

20 situation?

21 A. There was a continuous set of

22 meetings, first with the management with

23 Mr. Schwartz, Mr. Zahler, Mr. Katz and the other

24 members of the management team in which we reviewed

25 alternatives that were available to a company which


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2 is facing a financial distress and liquidity

3 crises.

4 Q. What types of alternatives did you

5 review and discuss with them?

6 A. We discussed with them the

7 possibilities of what was termed as an out of court

8 restructuring the possibility of a prepackaged

9 Chapter 11, the possibility of a pre-arranged

10 Chapter 11, and the possibility of a free-fall or

11 traditional Chapter 11. We discussed alternatives

12 of potential sale of assets, equity infusions and

13 the like.

14 Q. Now, you mentioned a free-fall or

15 traditional Chapter 11, and I believe the committee

16 counsel made reference to a standard Chapter 11 in

17 its opening remarks; what do you mean by a

18 free-fall or traditional Chapter 11?

19 A. A free-fall Chapter 11 would be the

20 commencement of a Chapter 11 case without any

21 preconceived plan of reorganization, without the

22 support of any creditor constituency and without

23 taking advantage of the Bankruptcy Code and the

24 provisions of the Bankruptcy Code to develop, over

25 the course of time, a proposal for a plan of


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2 reorganization without any commitments on the part

3 of the creditors' constituencies.

4 Q. And what advice if any did you give

5 the company with respect to the ability of pursuing

6 a free-fall or traditional Chapter 11?

7 A. Well, you have to remember this was

8 an evolving situation. At the time that Greenhill

9 was initially engaged, it was the sincere hope of

10 the company that bankruptcy would never occur with

11 respect to the company and that hopefully the

12 telecommunications industry would begin the turn

13 around as sort of a linchpin to the resuscitation

14 of the company's fortunes and would be able to

15 obtain orders or awards for the construction of

16 satellites. As I said, it has been two years since

17 an award had been granted to Loral. The management

18 team was working, I would call it ferociously, in

19 trying to obtain satellite orders. Some of the

20 projections that were prepared by the company's

21 financial section contemplated that there would be

22 a certain number of awards in the first half of

23 2003 and the second half of 2003 and going on into

24 future years, and that the transponder leasing

25 business would improve over that period of time --


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2 Q. Well, having --

3 A. -- so the first efforts have gone to

4 avoiding any kind of bankruptcy.

5 Q. Having reviewed the alternatives,

6 what advice, if any, did you give the company as to

7 what it needed to do or how it should proceed?

8 A. As we moved into the engagement, I

9 became fairly familiar with the company. It was

10 clear that a financial liquidity situation was

11 developing. The revenues were not meeting

12 expectations, no satellite awards were forthcoming,

13 there were reporting requirements under the amended

14 credit agreements; it appeared that there would be

15 further breaches of confidence in the amended

16 credit agreements. And at the same time, Mr.

17 Schwartz informed us that he had made various

18 efforts to seek joint venture partners, equity

19 infusions and he informed us of the discussions

20 which were then ongoing with PamAmSat.

21 Q. What role, if any, did Mr. Schwartz

22 ask Greenhill to play in connection with the effort

23 to find an investor or transaction that would help

24 address its problems?

25 A. Mr. Schwartz authorized, and the


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2 Board authorized us to seek out potential parties

3 who would have an interest in acquiring assets or

4 making equity infusions, and Mr. Schwartz invited

5 us to participate in said negotiations.

6 Q. Before we come to Intelsat, Mr.

7 Miller, what if anything did Greenhill do, having

8 been authorized by Mr. Schwartz to participate in

9 the effort, to find an investor or a transaction

10 partner?

11 A. After reviewing the financial status

12 of the company, we concluded that getting an equity

13 participant at that time was not a profitable area

14 to go down.

15 Q. Why?

16 A. The company was in a very down

17 period. There were lots of contingencies relating

18 to the company. There was a major arbitration

19 going on with Alcatel. There was already an

20 arbitration award that had been granted against the

21 company in an undetermined amount of damages, I

22 think the arbitration was going on in Switzerland.

23 The manufacturing entity was finishing up the

24 satellites that were in construction and had no

25 prospects of obtaining another, at least from our


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2 perspective, of getting another satellite order.

3 So efforts were made. Bob Greenhill was very

4 active in the industry as an M and A partner of

5 Greenhill, and prior to that Morgan Stanley; and he

6 knew a lot of people in the industry and he was

7 authorized to contact those people by Mr. Schwartz.

8 Q. And do you have an understanding as

9 to what, if anything, came of those efforts?

10 A. Yes. There was a lack of interest

11 in acquiring assets, particularly we made a

12 concentrated effort with respect to the North

13 American assets, and there was very little

14 interest.

15 Q. Were you a participant on any calls

16 with potential transaction partners?

17 A. Those efforts were primarily

18 undertaken by Mr. Greenhill and Brad Robins. I did

19 have one or two conversations with either Mr.

20 Joseph Wright of PanAmSat or his assistant, in

21 which he expressed to me they were not interested

22 in acquiring the North American assets.

23 Q. Now, I take it --

24 A. I may have also spoken with somebody

25 at SES; I don't recall.


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2 Q. Did Greenhill uncover any entity

3 that was willing to pay more than Intelsat for the

4 North American assets?

5 A. No.

6 Q. I take it that there came a time

7 that you learned that Mr. Schwartz was in

8 discussions with Intelsat?

9 A. Yes.

10 Q. Are you able to place in time

11 approximately when that occurred?

12 A. It probably would have been sometime

13 in April.

14 Q. And what was --

15 A. Maybe earlier. I think it was

16 actually earlier. It may have come up right after

17 the bank amendments were done, so that would have

18 been April, yes.

19 Q. And what was your understanding of

20 the state of the discussions at that time?

21 A. It had reached the point where it

22 had narrowed down to a discussion of the purchase

23 and sale of the North American assets consisting of

24 the four satellites that were in the air 4, 5, 6,

25 7, and two satellites 8 and 13 that were under


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2 construction.

3 Q. What if anything did Mr. Schwartz

4 ask Greenhill to do in connection with the Intelsat

5 negotiations?

6 A. To participate in the

7 communications, participate with Morgan Stanley,

8 which was the investment banker representing

9 Intelsat.

10 Q. And did you do so?

11 A. Yes, we do.

12 Q. Tell the court what role you played

13 in connection with the Intelsat negotiations?

14 A. Between myself, Bob Greenhill and

15 Brad Robins, we communicated with Morgan Stanley,

16 David Topper and Butch Rail. As I recall we

17 initially had a meeting with Mr. Topper, he

18 described the state of play, what the objectives of

19 Intelsat were. We had numerous discussions in

20 connection with the price of how far Intelsat was

21 prepared to go. There was no agreement on price

22 essentially until July basically. There was sort

23 of an agreement in principle of 1.1 billion. But

24 the final price wouldn't be agreed upon until the

25 weekend of July 12th and 13th.


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2 Q. What was your preliminary reaction

3 to the idea of the Intelsat deal as you became

4 familiar with it?

5 A. That because of the needs of

6 Intelsat, that it was a transaction which would

7 yield a higher value to SpaceCom and Satellite than

8 might otherwise be available. And based upon

9 conversations with regard to that, I was told about

10 Mr. Wright, who said he thought Intelsat was paying

11 250 to 3 hundred million dollars more than --

12 THE COURT: I'm sorry, who is Mr.

13 Wright?

14 THE WITNESS: He's with PanAmSat; he

15 is the CEO, Your Honor. And I participated in a

16 conversation with a gentleman from SES with Mr.

17 Schwartz, whose name will come to me in a minute,

18 in which he made statements basically of the same

19 nature.

20 Q. That Intelsat was paying more than

21 SES?

22 A. More than SES will pay for those

23 Satellites.

24 Q. Now, did you convey to management

25 your view that the Intelsat transaction appeared to


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2 be good idea?

3 A. After reviewing it with the company,

4 and actually having some extended conversations

5 with Mr. Topper trying to get Morgan Stanley to

6 recommend Intelsat to raise the price, and being

7 advised by Mr. Topper that Intelsat had hit its

8 limit, I had a view of it. I thought that it was a

9 very favorable transaction.

10 Q. Mr. Miller, did there come a time

11 when Greenhill delivered a presentation to the

12 Intelsat Board?

13 A. Yes.

14 Q. Let me direct your attention to

15 what's previously been marked as Exhibit 5. Do you

16 have that before you, sir?

17 A. Yes.

18 Q. Can you identify Exhibit 5?

19 A. Yes. It is a presentation that was

20 prepared by Greenhill to be made to the Board of

21 Directors at a meeting held on May 27th, 2003.

22 Q. And did you participate in a board

23 meeting of the Loral Board on May 27th?

24 A. Yes.

25 Q. This was a meeting of the Board of


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2 Directors of Loral Space and Communications LTD,

3 which is the same board as the US holding company?

4 A. I participated in that board

5 meeting.

6 Q. And tell the court what happened at

7 that meeting -- first of all how long were you in

8 that meeting for?

9 A. An hour, hour and a half, maybe two

10 hours.

11 Q. And what happened at the meeting?

12 A. Greenhill was invited into the

13 meeting to make this presentation as incorporated

14 in Debtors' Exhibit 5. Copies of the presentation

15 were furnished to each member of the Board of

16 Directors, Mr. Katz was also present and Mr.

17 Mastoloni, Mr. Townsend and Mr. Robins. And I went

18 through the presentation not page by page, but the

19 executive summary, what was contained in the

20 presentation. This was at a point in time where

21 the Intelsat transaction hadn't been finalized but

22 was moving in that direction. And it was also at a

23 time when there was a recognition that in all

24 likelihood there would have to be some

25 restructuring of not only SpaceCom and Loral


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2 Satellite, Inc., but of the outstanding bond debt

3 to create a company that would be sufficiently

4 delivered, so it could attract satellite

5 manufacturing orders SS/L and FSS business.

6 Q. Would you please turn to page 3 of

7 the May 27th presentation?

8 A. Yes.

9 Q. You see in the upper left-hand

10 corner there's a block, which says "Loral is

11 evaluating a potential sale of the North American

12 FSS business and solicitation of consents for a

13 prepackaged Chapter 11 plan that would effectuate

14 an overall restructuring of the company's balance

15 sheet."

16 How did you believe this sale of the

17 North American FSS business would be the basis to

18 effectuate an overall restructuring of the

19 company's balance sheet?

20 A. Assuming the consummation of an

21 Intelsat type sale, the result of that would be to

22 eliminate a billion dollars of secured debt and

23 remove all of the liens and encumbrances on the

24 assets of those selling corporations following

25 through on the concept of a prepackaged Chapter 11.


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2 It also contemplated a delivering of the

3 outstanding public debt through the medium of

4 exchange notes or securities so that you would end

5 up with a company -- a reorganized entity that

6 would essentially be free of secured debt or have

7 minimal secured debt and practically no other debt.

8 Q. Let me direct your attention to Page

9 7, sir. You see the first bullet that says

10 "transaction consideration."

11 A. Page 7?

12 Q. Yes.

13 A. First bullet, yes.

14 Q. And in this it says, "Cash: $1.1

15 billion." And under that it says, "new satellite

16 order" and below that "orbitals sale."

17 A. Yes.

18 Q. What did you understand the orbitals

19 sale to entail?

20 A. Loral SS/L had manufactured

21 satellites for Intelsat, and in connection with

22 those satellites there were orbitals incentives,

23 really accounts receivables relating to the

24 satellites that were paid over essentially the life

25 of the satellite. The orbitals sale was a


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2 monitorization of those receivables that they would

3 be paid immediately --

4 Q. Turn to page --

5 A. -- and would substantially ease the

6 cash needs of the company at that point in time.

7 Q. Turn to Page 8, if you would. You

8 see the first bullet on the top of the page says,

9 "eliminating the banks as a key objective due to

10 their security interests in SpaceCom and Satellite,

11 as well as stringent covenants, financial reporting

12 requirements and other burdens on management and

13 the company." Would you explain why, in the view

14 of Greenhill, that was an important objective?

15 A. It was an important objective

16 because in any company of this size, having a

17 billion dollars of secured debt is a factor that

18 anybody doing business with the company would take

19 into account. And in the context of where Loral

20 was in the industry at that point in time,

21 servicing that debt and all of the conditions

22 relating to that debt were in our view a

23 substantial impediment to the financial viability

24 of the company.

25 Q. Turn now, if you would, to Page 9,


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2 which is entitled Benefits of Proposed Transaction.

3 A. Yes.

4 Q. You see the first bullet is

5 attractive price, the second is repay bank debt,

6 the third is catalyst for restructuring, and the

7 fourth is rebound at SS/L. Do you see that?

8 A. Yes.

9 Q. Do you believe each of those was a

10 benefit of this transaction?

11 A. Absolutely.

12 Q. And does this reflect the advice

13 that you gave the Board of Loral?

14 A. Yes, it does.

15 Q. Take a look at Page 10 for a moment,

16 if you would?

17 A. Yes.

18 Q. Were you responsible for the various

19 numerical analyses that appear in this document

20 including on page 10?

21 A. No.

22 Q. Who was?

23 A. The Greenhill team, which was lead

24 by Brad Robins.

25 MR. ROTHMAN: Your Honor, Mr. Robins


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2 will testify tomorrow.

3 Q. Mr. Miller, would you please turn to

4 Page 13?

5 A. Yes.

6 Q. You see in the upper left-hand

7 corner it says "pro forma Loral will be

8 significantly de-levered and strategically better

9 positioned following a restructuring."

10 A. Yes.

11 Q. Would you explain why, in the view

12 of Greenhill, the company would be better

13 reconstructed?

14 A. Basically for the reasons I stated

15 before. You had outstanding a billion dollars of

16 secured debt subject to credit agreements that had

17 some substantial covenants that had to be complied

18 with. The transaction would leave, if consummated

19 would leave the company, and I said before

20 debt-free. You would have five satellites

21 orbiting and if SS/L was able to resuscitate

22 business during that time a manufacturing entity,

23 as well as, all the other assets that Mr. Schwartz

24 referred to in his testimony.

25 Q. Turn if you would, sir, to page 16


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2 which is entitled Alternatives Courses of Action.

3 A. Yes.

4 Q. And I want to direct your attention

5 now to the third bullet.

6 A. Yes.

7 Q. Which says, "retain North American

8 FSS business and reorganize around existing Loral

9 businesses." And the text says, "if a sale

10 agreement does not create a catalyst to a

11 restructuring, Loral could decide to commence

12 proceedings with or without prepetition

13 negotiations or agreements to implement a plan to

14 reorganization around the existing business." Is

15 that what you previously referred to as a free-fall

16 or traditional Chapter 11?

17 A. Essentially.

18 Q. And if you were here for the opening

19 statements and Mr. Schwartz's cross examination,

20 you heard the committee assert that Greenhill did

21 not do a formal written analysis of the

22 advisability this alternative. Is that the case?

23 A. Well, whatever we did was included

24 in this Exhibit 5. There was significant

25 discussion of that alternative during the course of


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2 the Board meeting.

3 Q. And what was your advice to the

4 company and the Board?

5 A. A traditional or free-fall Chapter

6 11 would, in the cases of Loral Satellite, Inc. and

7 Loral SpaceCom, Inc., whereas what you pointed out

8 in the opening arguments, in Satellite the bank

9 creditors represent one hundred percent of the

10 creditors, have liens on all of the assets in

11 SpaceCom; 90 plus, 95 percent of the creditors. A

12 free-fall Chapter 11 would have involved the

13 problem of adding more litigation than we have had

14 since this case started.

15 Q. Why is that, Mr. Miller? What would

16 you have envisioned if the company had tried to go

17 down that road?

18 A. There would have been, in my view,

19 issues about cash collateral, the use of cash

20 collateral. All of the cash of Loral went through

21 the banks. There would have been issues as to the

22 capability of getting debtor-in-possession

23 financing without the cooperation of the banks, we

24 would have been involved in a situation of trying

25 to prime the banks, which is a very difficult thing


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2 to do under the Bankruptcy Code, there was no

3 condition that you could establish that the banks

4 were over secured. And I would also add that in my

5 view and based on my experience, we discussed at

6 some length the subject of whether you could merge

7 all these corporations in a bankruptcy process

8 under the rubric of substantive consolidation. Our

9 analyses of Loral's operations were that these were

10 separate corporations independently operated. For

11 example, Loral Orion had a separate Board of

12 Directors, its assets were not subject to liens.

13 SS/L and SpaceCom maintain separate books and

14 records. There was no basis, in my opinion, that

15 you could effect a substantive consolidation,

16 therefore, if you went into a free-fall Chapter 11,

17 in the case of Loral Satellite, Inc., assuming

18 there was a lack of cooperation by the banks, we

19 could never confirm a plan of reorganization.

20 Q. What impact, if any, do you believe

21 a free-fall Chapter 11 would have had on the

22 ability of Loral to secure new satellite orders?

23 A. A free-fall Chapter 11 in which

24 there is litigation or contested proceedings as to

25 the use of cash collateral or the approval of


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2 debtor-in-possession financing is an interesting

3 legal exercise. But while the patient is bleeding

4 and hemorrhaging and the legal proceedings are

5 going on, the company has a high probability of

6 total failure. Who would order a satellite from a

7 company that had not straightened out its financing

8 in Chapter 11? Their concerns, being in Chapter

9 11, would have a negative effect to company and its

10 ability to transact leases and its ability to build

11 the satellites. As Mr. DeWitt said, it takes 24 to

12 28 months to build a satellite, and they are very

13 intricate machines to build, as Mr. DeWitt

14 testified; they are all handmade, there is no

15 assembly line.

16 Q. Let me direct your attention

17 Mr. Miller to Page 24, which is entitled Elements

18 of Orion Restructuring.

19 A. Yes.

20 Q. Can you briefly tell the court what

21 Greenhill was addressing in this part of the

22 presentation?

23 A. This part of the presentation had to

24 do with the possibility of either doing an out of

25 court restructuring or preparing for a prepackaged


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2 Chapter 11, and it contemplated an exchange offer

3 to the public bondholders in satisfaction of their

4 existing bonds that were outstanding --

5 Q. Now turn to Page 26, if you would --

6 A. -- this was the only alternative.

7 Q. I understand. -- which is entitled

8 elements of 350 million dollar holding company

9 notes restructuring.

10 A. Yes.

11 Q. Could you explain what Greenhill was

12 doing in this part of the presentation?

13 A. This was essentially the same thing,

14 but it related specifically to the holding company

15 notes, that is the public bonds that are

16 outstanding at Loral Space and Communications LTD,

17 the Bermuda company.

18 Q. And finally sir, turn to Page 30, if

19 you would, which is entitled summary overview.

20 A. Yes.

21 Q. You see in the left-hand corner up

22 on top it says, "Loral would emerge from a

23 prepackaged Chapter 11 as a stronger and more

24 flexible company." Did you personally believe

25 that?


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2 A. Yes.

3 Q. Did you believe that, at this time,

4 that it was likely that you could accomplish this

5 transaction and do an out of court restructuring?

6 A. In my contemplation, any

7 restructuring would ultimately have to be

8 formalized and affected through a Chapter 11,

9 either a prepackage or prearranged Chapter 11.

10 Q. Is this presentation consistent with

11 the advice you gave to the Board at the meeting on

12 May 24th?

13 A. Yes.

14 Q. Now, were you aware that at the time

15 that you were advising the Board that you thought

16 the transaction was a good one, that the North

17 American assets had been appraised at 1.5 billion

18 dollars?

19 A. Yes, I was.

20 Q. Did that affect your view as to the

21 adequacy of the price during the discussions with

22 Intelsat or whether the deal was a good one?

23 A. No.

24 Q. Why not?

25 A. In 43 years of doing this kind of


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2 work, I recall very few cases of which the

3 appraised value was realized in the context of a

4 distress situation. The appraisal at 1.5 billion

5 dollars, in my view, did not relate to market

6 value. And what was contemplated in the

7 transaction is that we would have a public auction,

8 and it was no secret that these satellites were for

9 sale. In fact, I think there's an article in Space

10 News, I believe in the early part of May, which is

11 a rather long article, front page, which detailed

12 the deal or the proposed deal with Intelsat. It

13 was common knowledge that these assets were for

14 sale; it was common knowledge that Loral was in a

15 financial condition in which it had to do something

16 to relieve the amount of financial obligations that

17 it had. So anybody who might have been interested

18 in those satellites, and this is a very small

19 universe in this industry, certainly should have

20 contacted Loral and Mr. Schwartz or Greenhill or

21 any of the other investment bankers that Mr.

22 Schwartz referred to.

23 Q. Mr. Miller, there's been a lot of

24 talk about DIP financing and why the company didn't

25 seek a DIP loan. Did you consider whether Loral


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2 should seek a DIP to replace the existing bank loan

3 instead of selling North American assets?

4 A. A DIP loan doesn't deliver the

5 company from its financial burden, all you are

6 doing is trading one billion dollars for another

7 billion dollars. And in the period that we are

8 talking about, before July of 2003, there wasn't an

9 issue of a DIP loan because the company was meeting

10 its obligations as they occurred.

11 If there had been a free-fall

12 Chapter 11 and no prearrangement and it was

13 necessary to get a DIP in the spring of 2003, the

14 DIP market was rather tight at this time, United

15 Airlines had just taken a huge DIP, GECC had

16 withdrawn from one syndicate because of its

17 exposure in Air Canada and a DIP of 700 thousand

18 dollars, and I had just been involved in a

19 transaction in which we were trying to do a DIP for

20 a billion 7 and having enormous difficulties with

21 what I would have considered to be better

22 collateral. There wasn't, in May and June, a need

23 to consider a DIP or to investigate the purposes of

24 a DIP, although there were discussions. There was

25 one decision with Intelsat representatives about


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2 the possibility of Intelsat providing a DIP to

3 bridge the Chapter 11 from the commencement to the

4 closing of the transaction if it was needed.

5 Q. What happened after the May 27th

6 meeting with respect to the negotiations with

7 Intelsat? In particular, what role did Greenhill

8 play?

9 A. As I said, we were involved in

10 discussions concerning the price. The negotiations

11 were largely carried by Mr. Schwartz and Mr.

12 Zahler, whose knowledge of this business I think

13 exceeds almost anybody's, and there were some

14 meetings with Intelsat representatives; there was

15 an intensive due diligence effort undertaken by

16 Intelsat at that point in time.

17 Q. Was Intelsat indicating that they

18 were comfortable with the 1.1 billion dollar price?

19 A. Actually, on I think it was July

20 11th, maybe the phone call was before July 11th, we

21 received a phone call from Morgan Stanley, I think

22 it was Mr. Topper, saying that the due diligence

23 had revealed problems from the Intelsat

24 perspective. There had been some degradation in

25 the revenues, particularly in the FSS business;


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2 there were no new orders in the FSS business, that

3 Intelsat was being -- relating to the four

4 satellites, there had been some deterioration in

5 the revenues by reason of the cancellation of the

6 transponders and the boxes, and there was some

7 concern about the four satellites.

8 A meeting was arranged on July 11th

9 at the offices of Loral. I attended that meeting

10 with Mr. Schwartz and Mr. Zahler, Mr. Coleman, CEO

11 of Intelsat was present, chief financial officer of

12 what you present and a representative of Morgan

13 Stanley. At that meeting, as I recall it, Mr.

14 Coleman said that they wanted to revisit the

15 pricing review. And if I recall correctly, they

16 were suggesting -- they made the demand that the

17 price be reduced, as I remember, something in the

18 area of 875 million dollars at the base price.

19 Q. Did you tell them that it had been

20 apprised at 1.5 billion dollars?

21 A. I think they were aware of that.

22 Q. How did those discussions conclude?

23 A. This was a meeting that went on late

24 into the evening, that was a Friday, and there was

25 an arrangement for Intelsat to complete some very


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2 intensive due diligence over the weekend of the

3 12th and the 13th, which as I recall was conducted

4 in the offices of Sullivan and Cromwell on Park

5 Avenue, New York. Various officers and management

6 teams of Loral were called in to review with them

7 Intelsat's various questions in relation to the due

8 diligence questions. Those negotiations went on

9 over the weekend, and Mr. Schwartz was heavily

10 involved in those negotiations.

11 And it was as a result of those

12 meetings, which started on July 11th, that the base

13 price went to a billion dollars, and it was at

14 those meetings that the concept of the 19

15 transponder leases came into play, that was a lease

16 that Mr. Schwartz had indicated he was working on

17 at the time that would have substantial value over

18 the course of the term of the lease and generate

19 approximately 300 million dollars of revenues and

20 should have a value of at least a hundred million

21 dollars to Intelsat.

22 As I recall, Mr. Coleman said as to

23 that kind of value they would increase the purchase

24 price by a hundred million dollars, and if that

25 occurred, they would monetize additional bills, the


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2 monetization was 25 million dollars.

3 Q. And where did you leave things at

4 the end of that meeting?

5 A. Saturday and Sunday was spent in

6 negotiations, and it wasn't until late that Sunday

7 that the price was finally fixed.

8 Q. Now according to Exhibit 9, the

9 minutes of the actual Board meeting, you and Mr.

10 Robins attended a meeting of Loral on July 14th.

11 Did you attend such a meeting?

12 A. Yes, I did.

13 Q. What transpired at that meeting

14 while you were there?

15 A. There was a discussion of the

16 conclusion of the negotiations with Intelsat. The

17 transaction was described by Mr. Katz, the general

18 counsel. The Board was apprised of the conditions

19 relating to the Intelsat transaction, including FCC

20 approval and Bankruptcy Court approval. The

21 process which had been previously explained to the

22 Board was reexplained in terms of what 363(B) is

23 under the Bankruptcy Code.

24 Q. Who explained that, you?

25 A. I explained it partially and I was


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2 superseded by Mr. Karotkin or Ms. Fife. I think

3 Mr. Karotkin was playing golf.

4 MR. KAROTKIN: If it was a Monday, I

5 object.

6 MR. HUEBNER: I object to that.

7 A. I'm sorry I said that.

8 I think Ms. Fife was at the meeting

9 with me, and Mr. Robins was there, and there was a

10 review of responsibilities and duties of a Board of

11 Directors in a Chapter 11 context. This meeting

12 was also in the context of authorizing a resolution

13 for the commencement of the Chapter 11 cases by

14 Loral and its subsidiaries. It was, in effect, a

15 joint meeting of all of the debtor entities, each

16 of the corporations that have commenced Chapter 11

17 cases in this court.

18 Q. Did the Board members actively take

19 part in the discussion?

20 A. There were discussions, questions

21 raised about the Chapter 11 process, whether the

22 Intelsat transaction would be finalized, and when I

23 say the Intelsat transaction, either Intelsat or

24 anybody else who bid at the auction at a higher or

25 better price.


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2 Q. Did you make a recommendation on

3 behalf of Greenhill at that meeting as to whether

4 or not the Board should agree to enter into the

5 Intelsat transaction?

6 A. Yes.

7 Q. What was that recommendation?

8 A. That it was a transaction which was

9 beneficial to SpaceCom and Loral Satellite, Inc.,

10 and those benefits would also be to the benefit of

11 the affiliated corporations.

12 Q. Now did there come a time when you

13 became aware that EchoStar had made some proposal

14 to Loral?

15 A. Yes.

16 Q. What was your understanding of what

17 they proposed?

18 A. My recollection is that there was a

19 hearing to approve the bidding procedures in

20 connection with the proposed Intelsat transaction;

21 it must have been on August 18th. And either at

22 that hearing or just before that hearing, a letter

23 arrived from EchoStar which basically said -- it

24 was an objection to the bidding procedures in the

25 form of a letter. It wasn't clear at that point


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2 whether EchoStar was a creditor or exactly what it

3 was doing. In any event, EchoStar was taking the

4 position that the bidding procedures should not be

5 approved, that EchoStar was prepared to bid five

6 million dollars above the base price, I think it

7 was the base price that Intelsat was prepared to

8 bid. It asked the court to strike the break up fee

9 and the reimbursement of expenses, and it said in

10 sort of a flippant way that it would also pay 450

11 million dollars for the balance of the Loral

12 assets, subject to -- I think it was subject to due

13 diligence and some other conditions.

14 Q. And what advice, if any, did you

15 provide to the company with respect to your views

16 on the EchoStar proposal?

17 A. At first I didn't deem it to be a

18 serious offer. It was certainly not complete in

19 terms of being a hard offer or a firm offer. At

20 the August 18th hearing, as it was explained to the

21 court, Loral was not offering for sale the

22 remaining assets, that it was pursuing a

23 reorganization that would achieve substantial

24 benefits to all the creditors rather than to force

25 a sale of those assets. And based upon the values


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2 that were being received for the satellites under

3 the Intelsat transaction and transforming those

4 values to the remaining assets of the company, an

5 offer of 450 million dollars was, I think the

6 terminology was woefully inadequate, and I think

7 that was stated on the record that day.

8 Q. Did EchoStar subsequently make a

9 second proposal?

10 A. Yes.

11 Q. Let me direct your attention, sir,

12 to what's been marked as Exhibit 11.



15 Q. Mr. Miller, can you identify Exhibit

16 11? Have you seen it before?

17 A. Yes, I have.

18 Q. What is it?

19 A. It's a letter addressed to the Board

20 of Directors of Loral Space and Communications,

21 Ltd., the Bermuda Holding Company, attention

22 Bernard Schwartz, chairman and chief executive

23 officer. It appears to be an offer to purchase all

24 of the assets of Loral Space & Communications,

25 Ltd., et al. collectively; it take it to mean all


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2 the debtor entities in the Chapter 11 cases.

3 Q. What was your reaction that to this

4 letter, sir?

5 A. At the August 18th hearing, if I

6 recall correctly, at a hearing before the

7 Bankruptcy Court, the court had stated that if

8 EchoStar came in with I think it was a blockbuster

9 proposal, some consideration would be afford to

10 that transaction. I assume that the October 3rd

11 letter was just EchoStar's view of a blockbuster

12 bid. It basically added 400 million dollars to the

13 prior 1.450 billion dollars that was contained in

14 the letter of August 18th or whatever the date of

15 that hearing was.

16 Q. Did you make any recommendation or

17 provide any advice to the company as to whether you

18 thought this was a viable offer?

19 A. This was a very compacted time

20 period here, August 3rd, and there were a number of

21 proceedings that were going on at that time in

22 connection --

23 Q. You mean October 3rd, Mr. Miller?

24 A. October 3rd, in connection with the

25 DIRECTV situation. And we had just come back from


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2 the meeting with the creditors' committee in Palo

3 Alto, California. There was a discussion with

4 management, and Mr. Schwartz was using the same

5 methodology that had been used in connection with

6 the 1.450 billion dollar so-called offer. It was

7 the company's conclusion that this was inadequate

8 and did not meet the threshold.

9 Q. Was there a Board meeting at which

10 this was discussed?

11 A. Yes.

12 Q. Did you participate?

13 A. Yes.

14 Q. And what advice, if any, any did you

15 provide to the Board?

16 A. We concurred with the management's

17 view of this offer.

18 Q. Why didn't you recommend taking the

19 Intelsat offer or transaction off the table and

20 offer the whole company for sale in order to see

21 what you get?

22 A. Loral, and I use Loral in the sense

23 of all of the debtors, had started to formulate a

24 concept for the reorganization. Maximum benefit to

25 creditors does not always include of all of the


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2 assets of the companies. One of the objectives of

3 Chapter 11 is for the company to reorganize to

4 create value, particularly selling assets in the

5 circumstances of an economy that was not robust at

6 the time, was not the only way of maximizing

7 benefits to the creditors.

8 Loral had developed with our

9 assistance and assistance of others, the concept of

10 a reorganization built around a company that would

11 have five active satellites for substantial growth

12 opportunities, the ability to exploit those assets,

13 and develop a value that would far exceed 850

14 million dollars, assuming there were substantial

15 motivations of EchoStar, much of which has been

16 validated in the last few days.

17 Q. If you had wanted to put the whole

18 company up for sale, what would it have entailed?

19 A. It would have entailed a marketing

20 effort. And I also have to say that the fact that

21 Loral has been in financial distress for a period

22 of time; there was no secret in the community that

23 Loral was in financial distress. This was the only

24 proposal. It was a proposal that contemplated a

25 purchase of the entire company and all of their


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2 assets; and as I said, there were real questions as

3 to the motivation of EchoStar.

4 But if that effort was to be

5 undertaken, it would require what I would call

6 universal marketing to every potential entity that

7 might have an interest both strategic and

8 financial, the creation of marketing books,

9 soliciting who within that great universe would

10 show interest in obtaining confidentiality

11 agreements, due diligence, and then finally

12 winnowing out until you got to entities who had a

13 real sincere interest. Now that kind of a process,

14 in my experience, has a negative impact and affects

15 the company in Chapter 11. People don't do

16 business with a company if they don't know who the

17 owners are going to be.

18 Q. And how long would you expect such a

19 process to take?

20 A. That kind of process would take

21 months.

22 Q. Did there come a time, Mr. Miller,

23 that an auction for the North American assets took

24 place?

25 A. Yes.


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2 Q. When was that?

3 A. That was this past Monday, October

4 20th.

5 Q. Let me mark as Exhibit 12, the

6 transcript of the auction.



9 Q. Mr. Miller, what role, if any, did

10 you play at the October 20th auction?

11 A. I conducted the auction.

12 Q. And is this the transcript of the

13 auction?

14 A. It appears to be. We had a court

15 reporter who transcribed what transpired at the

16 auction.

17 Q. And can you briefly explain to the

18 court the significant events that occurred at the

19 auction?

20 A. At the onset of the auction, I

21 requested -- there were two qualified bidders for

22 the purposes of the auction. And notwithstanding

23 the objections that had been interposed by Intelsat

24 as to whether EchoStar was a qualified bidder, for

25 purposes of the auction it was deemed a qualified


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2 bidder with reservations of all of the rights.

3 I asked each of the bidders if it

4 was prepared to make any further amendments or

5 revisions to the asset purchase agreements that it

6 posed to Loral for the North American assets. At

7 that time Intelsat read into the record a series of

8 amendments that it agreed to propose and was agreed

9 to by the company that would have yielded in the

10 valuation of the company, approximately an

11 additional 75 million dollars of value, and 50

12 million of that related to what was sometimes

13 referred to as the Cablevision lease, which earlier

14 today I think it was put on the record that that

15 lease is new, in effect.

16 And there was an adjournment because

17 EchoStar requested a recess. It was supposed to be

18 a 15-minute recess. Two hours later or more,

19 EchoStar took the position that it was not offering

20 a topping bid to the 75 million dollars, and we

21 went forward on the basis of cash. And Intelsat

22 increased its cash added to the baseline price,

23 plus left open and on the table, the amendments and

24 the asset purchase agreements that I previously

25 discussed. The increase in cash was 25 million


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2 dollars, which put on a cash basis, Intelsat ahead

3 of EchoStar by 24 million dollars. I asked Mr.

4 Moskowitz on behalf of EchoStar if he was prepared

5 to top the bid or words to that effect, and he

6 responded that EchoStar was not prepared to bid any

7 further, and the auction was closed.

8 Q. Mr. Miller, do you have an opinion

9 today as to whether the Intelsat sale is still in

10 the best interest of the debtors' estates?

11 A. I believe it is a very beneficial

12 sale.

13 Q. And why is that?

14 A. Because we have established through

15 the auction process what the market value of these

16 assets are. It is a sale, which I said before,

17 that will effect a de leverage of the company

18 through the elimination of a billion dollars of

19 secured debt. It is in best interest of the

20 creditors of those corporations, and it enables

21 Loral to formulate a plan of reorganization that

22 will be attractive to a potential equity investor,

23 a joint venturer, or even on a stand-alone basis

24 could result in a company that would be essentially

25 debt free. And also in the resuscitation of --


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2 maybe that's too strong a word, of SS/L that has

3 occurred over the past -- since September 24th when

4 Ms. Fife and I met in Palo Alto, California and

5 everything that has transpired since then, all of

6 benefits of the remaining companies.

7 Q. Mr. Miller, the creditors' committee

8 has asserted that in light of the fact that the

9 company will be getting 141 million dollars in

10 insurance proceeds as well as the proceeds of the

11 DIRECTV orders, that it should forego the Intelsat

12 sale and use its cash to pay interest on the bank

13 debt. Do you agree?

14 A. No.

15 Q. Why?

16 A. Paying interest on the bank debt

17 does not de lever the company. You still have the

18 outstanding debt and the same problems. Anybody

19 doing business with Loral will have to evaluate

20 Loral's capacity to view that debt, and someday you

21 will have to pay that debt; creditors actually

22 expect to get paid.

23 Q. Mr. Miller, having worked with Mr.

24 Schwartz and Loral's management since February,

25 what is your appraisal of their abilities?


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2 A. Based upon my experience and working

3 with a great numbers of CEOs from major companies,

4 I would say this is very professional management

5 team, the chairman and the CEO, looking at chairman

6 and management team who have been working 24-7,

7 even when the Yankees are playing and there's a

8 problem, he doesn't go to the game, notwithstanding

9 the fact that he is a real fan. He is looking for

10 constant value, looking for hands-on operators,

11 he's very dedicated to this company.

12 Q. Is there any doubt in your mind that

13 Mr. Schwartz is acting in good faith to maximize

14 the estate?

15 A. No doubt in my mind at all. Mr.

16 Schwartz has already suffered a substantial loss in

17 the value of his equity interest in the company.

18 He is not drawing a salary, he is working for the

19 benefit of increasing the value of these assets for

20 all of the shareholders.

21 Q. What is your assessment of how the

22 Board is conducting itself in connection with the

23 Intelsat transaction based on your observation of

24 the Board?

25 A. I believe this is a very responsible


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2 board. I have been present when the Board was --

3 lectured is the board's words, on its fiduciary

4 duties by both US counsel and by Bermuda counsel,

5 as to the fiduciary duties of a Board of Directors

6 in a company which is in the area of insolvency and

7 what their duties, care and loyalty are. This is a

8 very informed board.

9 Q. Last question, Mr. Miller. What do

10 you believe the likely consequences will be if this

11 sale were not opposed?

12 A. I think we then move into a

13 situation which will propel the reorganization into

14 a situation where there would be difficult

15 negotiations with the bank creditors, and they

16 would still have to deal with the problem of a

17 billion dollars of debt, secured debt. The issues

18 of adequate protection I think are signal issues.

19 We have achieved the cooperation of the banks

20 because they understand the consequences of

21 consummating the Intelsat transaction. I don't

22 know what the effect of not consummating the

23 transaction will have on the banks, and it may be

24 that the banks may want to propose their own plan

25 of reorganization for Loral Satellite, Inc. and


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2 Loral SpaceCom, Inc. which, in my mind, are

3 independent corporation s.

4 MR. ROTHMAN: No further questions,

5 Your Honor.

6 MR. HUEBNER: Five minutes.

7 THE COURT: Go ahead.

8 REDIRECT EXAMINATION BY MR. HUEBNER:

9 Q. Mr. Miller, in his opening statement

10 Mr. Botter indicated that once the purchase price

11 negotiated with Intelsat exceeded the bank debt,

12 the company achieved its goal and stopped

13 negotiating for further increases. Do you believe

14 that to be a true statement?

15 A. That's absolutely incorrect. Mr.

16 Schwartz negotiated that purchase price right up to

17 the last minute.

18 Q. Mr. Miller, do you believe the

19 announcement of the Intelsat deal has had a

20 positive effect to the resurgence of business in

21 SS/L?

22 A. Absolutely.

23 Q. And will that resurgence abound to

24 all the creditors of the estates?

25 A. Yes; which I did not refer to in our


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2 evaluation, a very important factor in the Intelsat

3 transaction was the order for one satellite, and

4 the hundred million deposit dollar deposit related

5 to that order.

6 Q. And that hundred million dollars

7 will be used by SS/L to refund its corporate?

8 A. General corporate.

9 Q. Is that a good reason for the sale

10 of these assets to Intelsat?

11 A. Yes.

12 Q. Do you believe this was, as viewed

13 from the perspective of the selling debtors or

14 debtors or their ultimate parent, that this was a

15 rational reason for the sale of the business?

16 A. Yes.

17 Q. Do you believe Loral Satellite is

18 was induced to sell these assets for the ultimate

19 purpose of appeasing the bank creditors?

20 A. I do not.

21 Q. Do you believe it maximizes the

22 value for Satellite and SpaceCom?

23 A. I do.

24 Q. Do you believe the transaction

25 maximizes the value of limited equity interest in


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2 equity in Satellite and SpaceCom?

3 A. It does.

4 Q. Do you believe the Board and the

5 management of these companies share your expressed

6 understanding of your duty to maximize the benefit

7 of these assets?

8 A. Yes.

9 Q. Do you believe the decision to enter

10 into the sale was entered into on an informed

11 basis?

12 A. Absolutely.

13 Q. Was it entered into in good faith?

14 A. Absolutely.

15 Q. Do you believe it's in the best

16 interest of the debtors?

17 A. Yes.

18 Q. Mr. Miller, you testified a few

19 moments ago about the debtors doubts about the

20 monetizations of EchoStar intending the 1.85

21 billion dollar offer of the October 3rd letter.

22 For the convenience for the parties, that letter is

23 marked Debtors' Exhibit 11.

24 Mr. Miller, for the moment, I'd like

25 to put the motivation of EchoStar aside and just


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2 ask you a few questions about the letter itself. I

3 would ask parties to accept the words that I'm

4 reading as being present in the letter. Mr.

5 Miller, the letter provides that the offer is,

6 "free and clear of all liens, claims interests and

7 encumbrances other than any agreed upon assumed

8 liabilities." Do you believe that in the

9 negotiations would be necessary to agree on the

10 agreed upon assumed liabilities in a transaction?

11 A. Absolutely.

12 Q. The offer is also subject to

13 EchoStar's rights to object any contracts and

14 assets. Do you believe that will result in a

15 further negotiation?

16 A. No question.

17 Q. The letter provides, next paragraph,

18 that their offer is "subject to the negotiation and

19 execution of mutually satisfactory transaction

20 documents." Do you think that will result in a

21 further negotiation?

22 A. Absolutely.

23 Q. And in your opinion can negotiating

24 mutually satisfactory documents been lengthy and

25 complex?


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2 A. It usually is.

3 Q. Mr. Miller, the letter goes on to

4 state that, the "purchase agreement shall include

5 mutually acceptable conditions to closing." Do you

6 view that as potential contingency?

7 A. Absolutely.

8 Q. "Among other things, EchoStar must

9 receive all necessary regulatory approvals." Do

10 you view that as another contingency?

11 A. Absolutely.

12 Q. Mr. Miller, the letter goes on to

13 say that, "the purchase agreement shall also

14 provide that the purchase price will be subject to

15 downward adjustment on a dollar for dollar basis,

16 if the net benefit to the estate of the insurance

17 proceeds for Telstar 4 is less than a hundred

18 million dollars." Is that a further contingency?

19 A. Yes.

20 Q. Their offer is, "subject to EchoStar

21 being permitted to complete its due diligence." Is

22 that seven? If I count looking at your fingers

23 it's seven?

24 A. Yes, that's what I get.

25 Q. "And EchoStar being satisfied with


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2 the results of its due diligence review in its sole

3 discretion." I think that's eight?

4 A. Yes.

5 Q. Mr. Miller, the offer letter also

6 demands certain things from this court, which is

7 not wholly surprising given certain conduct, which

8 is that, "the court must enter an order no later

9 than October 15th, providing for full due diligence

10 of all Loral's business and assets by EchoStar and

11 any other interested bidders, and full cooperation

12 by Loral," i.e. 12 days from the tending of this

13 letter. Do you believe that is another substantial

14 condition of the letter?

15 A. Yes.

16 Q. That's nine. I think the offer was

17 five.

18 MR. HUEBNER: Your Honor, I could go

19 on, but I'm going to stop. I have no further

20 questions.

21 THE COURT: Okay.

22 RECROSS EXAMINATION BY MR. JOHNSON:

23 Q. Good evening, Mr. Miller.

24 A. Good evening, Mr. Johnson.

25 Q. Earlier when you described your


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2 presentation to the Board of Directors on May 27th,

3 you were referring to a meeting of the Board of

4 Directors of Loral Space and Communications Ltd.,

5 correct?

6 A. Yes.

7 Q. Did you ever give a similar

8 presentation to the Board of Directors of Loral

9 Satellite, Inc.?

10 A. Not at the same presentation.

11 Q. Did you have a separate meeting with

12 Loral Satellite, Inc.?

13 A. July 14th.

14 Q. Who were the directors of Loral

15 Satellite, Inc.?

16 A. Mr. Zahler, Mr. Schwartz and Mr.

17 Katz, I believe.

18 Q. And Mr. Schwartz is also the

19 director of Loral Space and Communication, Ltd.,

20 correct?

21 A. I believe Mr. Schwartz is the

22 director of all of Loral companies.

23 Q. And Mr. Zahler, is he also a

24 director of all of the Loral companies?

25 A. I don't know that to be a fact.


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2 Q. He also a director of Loral Space &

3 Communications, Ltd?

4 A. I believe he is.

5 Q. Mr. Katz?

6 A. I don't believe he is.

7 Q. He's general counsel?

8 A. Yes.

9 Q. Did you ever have a separate meeting

10 with Loral SpaceCom?

11 A. Yes, on the 14th of July.

12 Q. Who are the directors of Loral?

13 A. Mr. Schwartz, Mr. Zahler, Mr. Katz.

14 Q. Did you have a separate meeting with

15 Loral or SpaceCom or all of the debtor

16 corporations?

17 A. There was a meeting of all of the

18 debtor corporations on July 14th.

19 Q. That was a joint meeting?

20 A. Yes.

21 Q. Is that reflected in the minutes of

22 the July 14th meeting?

23 A. I don't know if it's in the minutes,

24 but it's a resolution of each chapter meeting.

25 Q. Did you ever have a meeting with


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2 Loral Orion, Inc.?

3 A. Yes.

4 Q. Who are the directors of Loral

5 Orion, Inc.?

6 A. Mr. Schwartz, Mr. Hirsch, I forget

7 the name of the other direct, and Mr. Zahler, but

8 there are two independent directors on the Orion

9 Board.

10 Q. By whom is Mr. Hirsch employed?

11 A. I don't know.

12 Q. Is it correct that Mr. Hirsch is an

13 attorney with Carter Ledger?

14 A. I think it was he was with Carter

15 Ledger.

16 Q. Who has he provided services to? To

17 any of the Loral entities?

18 A. Not to my knowledge.

19 Q. What about the other director?

20 A. I don't believe so.

21 Q. You said you had a meeting with Mr.

22 Holtz?

23 A. Yes.

24 Q. Mr. Holtz is a partner at Willkie,

25 Farr & Gallagher?


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2 A. No.

3 Q. Former?

4 A. I believe so.

5 Q. And Willkie, Farr & Gallagher is the

6 formal counsel for Loral?

7 A. I believe so.

8 Q. By whom is Mr. Katz employed?

9 A. Himself.

10 Q. What kind of work does he do?

11 A. He does financial publication,

12 financial advisors and newspaper relations and so

13 on.

14 Q. Has he provided services to any of

15 the Loral entities?

16 A. I believe so.

17 Q. And Mr. Gittis, what kind of work

18 does he do?

19 A. He is a corporate executive, not

20 with Loral.

21 Q. Who does he work for?

22 A. McAnders & Firth.

23 Q. Now it's correct, isn't it Mr.

24 Miller, that Greenhill never did any kind of an

25 offering memorandum in connection with the sale of


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2 the North American satellites --

3 A. That's correct.

4 Q. -- into kind of a pitch book?


6 Q. And there was no sort of offering

7 memorandum pitch book prepared with respect to sell

8 off the assets of Loral?


10 Q. By the time you made the

11 presentation on May 27th, wasn't the status of

12 negotiations with Intelsat already at an agreement

13 in principle?

14 A. May 27th, yes, it was close.

15 Q. It was already determined that six

16 satellites were to be sold?

17 A. Yes.

18 Q. And the purchase price was close to,

19 if not 1.1 billion dollars?

20 A. It had not been finalized.

21 Q. Close to?

22 A. They were talking in that area.

23 Q. Let's take a look at some of the

24 parts of that presentation. Debtors' -- it's

25 Exhibit 5. Do you still have it there?


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2 A. Yes, I do.

3 Q. Turning first to page four in the

4 executive summary, issues to consider, there is a

5 pro forma of Loral. "Once completed, the business

6 plan for the company will determine the amount of

7 debt that can be supported and the amount of cash

8 available to be distributed via the plan of

9 reorganization"?

10 A. Yes.

11 Q. Had you done this sort of pro forma

12 analysis as of the May 27th presentation to the

13 Board?

14 A. On other parts of Exhibit 5, there's

15 discussion about the potential kinds of offers that

16 might be acceptable to the public bondholders, and

17 that the pro forma of Loral would essentially be a

18 company with a very reduced debt load.

19 If you look at the appendix B, it

20 shows the structural chart that was being

21 considered. And if you put that together with the

22 kinds of proposals that are described in Exhibit 5

23 in terms of -- and this was to some extent an

24 educated guess as to what might be acceptable to

25 the bondholders in terms of premiums over current


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2 marketplaces of those securities.

3 Q. The pages of Exhibit 5 that you were

4 referring to goes from page 29 to 35, appendix B.

5 There are actually 44 pages in the whole document,

6 the appendix starts on page 36, I think that's it.

7 I think Page 36 is an appendix of supplemental

8 prices?

9 A. Page 36?

10 Q. That's what it looks like.

11 A. My page 36 is a table of contents.

12 Q. With appendix C as a supplemental

13 both?

14 A. Yes.

15 Q. Turning to page 29, is that also a

16 table of contents?

17 MR. ROTHMAN: There are several

18 table of contents throughout the document.


20 A. Yes. Each subsection of the report

21 has a table of contents before the particular

22 subject matter. This one highlights pro forma

23 Loral.

24 Q. Page 30 had a summary overview with

25 an organization chart pro forma after the sale to


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2 Intelsat?

3 A. Yes.

4 Q. The next page is pro forma Loral

5 financial statistics?

6 A. Yes.

7 Q. Proforma 2004, 5 and 6?

8 A. Correct.

9 Q. That includes dates for FSS as well

10 as the SS/L segment?

11 A. I didn't prepare this, but I think

12 that's correct.

13 Q. This was prepared under the

14 supervision of Mr. Robins of Greenhill?

15 A. Of Greenhill, yes.

16 Q. The next page is pro forma leverage

17 and coverage ratios?

18 A. Yes.

19 Q. The 2004 to 6?

20 A. Correct.

21 Q. Including FSS and SS/L?

22 A. And on a consolidated base.

23 Q. Was this also prepared Mr. Robins?

24 A. Under his supervision, yes.

25 Q. Page 33 gives pro forma valuation


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2 and equity dilution?

3 A. That is correct, on basis of

4 dilution of 45 percent and 61 percent and resulting

5 in 35 percent and 50 percent premiums to the

6 bondholder over market price.

7 Q. What would be described here as an

8 exchange to bondholders and not --

9 A. Not necessarily.

10 Q. -- secured debt?

11 A. Not unless it would have been done

12 while the Intelsat transaction was pending

13 approval. In fact, that was one of the

14 contemplations.

15 Q. Was it contemplated, with respect to

16 page 33, that the Intelsat transaction would be in

17 progress --

18 A. Yes.

19 Q. -- and consummated?

20 A. Yes.

21 Q. On the left side of page 33, it

22 gives a claim based upon pro forma valuation of

23 Loral of 750 million dollars?

24 A. Um hum.

25 Q. Where did that pro forma valuation


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2 come from?

3 A. I think you have to ask Mr. Rolands

4 that question. This page 33 represents taking the

5 enterprise value of 750, 825 and 900 million

6 dollars, you would do an implied EBITDA down

7 multiple and show the dilution to the provision

8 based upon the premiums you were offering to the

9 bondholders.

10 Q. Page 34, this provides a pro forma

11 Loral statement to the effect of the transaction on

12 profit and loss and cash position?

13 A. Yes.

14 Q. And this presumes the sale of the

15 six satellites and also debt restructuring?

16 A. Yes.

17 Q. Page 35 provides pro forma capital

18 structure?

19 A. Yes.

20 Q. Isn't it correct, Mr. Miller, that

21 from the time of the filing of the petition,

22 shortly thereafter throughout July, August and

23 September, that the creditors' committee asked you

24 repeatedly for this type of information regarding

25 pro forma Loral after the Intelsat sale?


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2 A. No.

3 Q. You don't recall meeting Akin Gump

4 and Jefferies where they asked you that?

5 A. I remember the meeting clearly. I

6 remember Mr. Golden talking about the problem with

7 Bernard Schwartz, I remember very clearly.

8 Q. Mr. Golden asked you specifically

9 for data and projections after the Intelsat

10 transaction?

11 A. I remember the discussion, what

12 would be the value of the remaining assets.

13 Q. Why wasn't this analysis provided to

14 Mr. Golden?

15 A. It was being updated. This was an

16 evolving situation in a company that has

17 contingencies occurring every day. What we wanted

18 to produce for the Creditors' Committee's was a

19 refined product, which was produced September 24th

20 in a case that was filed in July, is a pretty good

21 job.

22 Q. So this type of pro forma

23 information was not provided September 24th?

24 A. This was provided in connection with

25 the possibility of doing a prepackaged Chapter 11.


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2 Figures changed, the company engaged CGG, there

3 were huge efforts to undertake a way to refinance.

4 And in addition to that, I think within two hours

5 after the committee engaged Akin Gump, I got a due

6 diligence request 60 pages or something like that.

7 And this information was being obtained directly

8 from the company in due diligence.

9 Q. But you already obtained it on May

10 27th, hadn't you?

11 A. Obtained what?

12 Q. Projections of pro formula Loral.

13 A. Those were changing.

14 Q. But those --

15 A. What this document provides -- all

16 the attention contained in this projected what the

17 effect would be on bondholders, what the effect

18 would be on stockholders, assuming you did a

19 prepackaged Chapter 11. This never came to

20 fruition.

21 Q. Let's back up to page 11?

22 A. Yes.

23 Q. Pro forma financials assumes sales

24 of the six satellites at 12/31/03. It's a pro

25 forma financial statement.


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2 A. Yes.

3 Q. This pro forma financial statement

4 was provided by the company to Greenhill, wasn't

5 it?

6 A. Yes. The underlying figures were

7 prepared by the company and reviewed by Greenhill.

8 Q. You didn't provide this to the

9 company before September 24th?

10 A. No.

11 Q. Let's look at page 22. Has a post

12 assets sale summary income statement assuming the

13 sale of the six satellites.

14 A. Yes.

15 Q. Greenhill did not make these

16 projections, did they?

17 A. They were provided by -- the

18 company's projections were provided by the company

19 and reviewed by Greenhill. This is the information

20 I originally furnished to Mr. Botter and Golden,

21 and at one point I think Mr. Hendricks.

22 Q. When?

23 A. We had a lot of telephone

24 conversation and meetings and said SS/L EBITDA to

25 80 plus to 90 million dollars, and a company could


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2 generate that kind of EBITDA without giving any

3 value to SS/L, is fairly good to create a

4 restructured reorganized entity out of it.

5 Q. Take a look at page 9, benefits of

6 the proposed transaction?

7 A. Yes.

8 Q. First bullet point attractive price

9 says "1.1 billion dollar price represents an

10 attractive 10 times multiple of expected 2003

11 EBITDA of sold satellites of 10 million dollars."

12 A. Yes.

13 Q. Greenhill made a point here of

14 telling the Board of Directors that a 10 times

15 multiple was an important benefit of the proposed

16 transaction, correct?

17 A. Greenhill stated that price achieved

18 undertook the post 2003. It's pure mathematics, 10

19 times the 1.1 billion dollar price was good price

20 based everything we learned about the satellites

21 and based on the information of learned people like

22 Mr. Wright and other people in the industry. And

23 of course what we estimated was the need of

24 Intelsat that it had to complete the requirement,

25 it had do the initial public offering by June 30,


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2 2004.

3 Q. Let's take a look at that

4 mathematical following on page 10. For 2003 it

5 shows sales proceeds of 1.1 billion dollars,

6 correct?

7 A. Yes.

8 Q. The base price in this transaction

9 was one billion dollars?

10 A. Not at this point in time.

11 Q. Here this was 1.1 billion for the

12 whole thing?

13 A. Base price 1.1 billion dollars, one

14 hundred million dollars.

15 Q. By the time --

16 A. By the time the Asset Purchase

17 Agreement was done, the base price was one billion

18 dollars. As I told you, July 11th Intelsat came

19 back and said they were overpaying and wanted to

20 reduce its purchase price. And July 13th, late

21 that evening and through early Monday morning, the

22 purchase price negotiated was 1 billion.

23 Q. With the possibility of an upward

24 purchase price of a hundred million?

25 A. For the so-called cable lease which


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2 was not in existence in May of 2003.

3 Q. That's why the line items, the 2003

4 EBITDA of sold satellites of 110 million did not

5 include any projection for revenue on account of

6 the Cablevision lease?

7 A. I believe that's correct.

8 Q. That's what you told me in your

9 deposition?

10 A. Yes.

11 Q. But at this point the sale proceeds

12 were 1.1 billion dollars assuming only the

13 Cablevision lease was in place?

14 A. At what point?

15 Q. Up until the day before yesterday.

16 Up until the auction?

17 A. The asset purchase agreement is

18 originally executed July 15th and provides for a

19 base price of one billion dollars subject to

20 adjustments and the possible increase of 125

21 million dollars. And based upon the auction, is at

22 that price.

23 Q. I'd like you to take a look page 13,

24 the left side. "Pro forma Loral would be

25 significantly de-levered and strategically better


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2 positioned following a restructuring."

3 A. Yes.

4 Q. Other than de-levering, how does

5 Loral strategically benefit?

6 A. As Mr. Schwartz testified and Mr.

7 Zahler testified the other day, the North American

8 assets are not critical to a successful business.

9 The FSS business, that would be continued by the

10 remaining companies and would be in a market less

11 competitive than in the US market. Mr. Schwartz

12 noted we don't have the problems with cable and

13 other competitive forces. There are greater growth

14 potentials there. The assets of SS/L would not be

15 subject to liens in favor of secured creditors. It

16 would be a much more attractive entity or entities

17 for customers of both the FSS business and SS/L

18 business and very attractive for potential

19 investors.

20 Q. And other than these financial

21 considerations you've just described, is there any

22 other non financial strategic efforts?

23 A. Bankruptcy, for purpose of relieving

24 financial distress.

25 Q. Let's take a look at page 16. The


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2 second alternative described under the alternative

3 courses of action retain North American FSS

4 business and reorganize existing Loral business.

5 Greenhill did not do any financial analysis of this

6 alternative course of action, did it?

7 A. Yes, it did.

8 Q. What analyses did Greenhill do?

9 A. The consequence of a traditional

10 Chapter 11 was discussed at length with management.

11 The option of a free-fall Chapter 11 was discussed

12 by the Board at the May 27th meeting.

13 Q. Is this where you told them that

14 based on your 47 years experience --

15 A. 43.

16 Q. 43, sorry. During your deposition

17 you said 40?

18 A. I felt younger that day.

19 Q. I think I did too. But there was no

20 financial analysis set forth in a document created

21 by Greenhill that addressed this alternative course

22 of action?

23 A. The analyses was to keep the assets,

24 have the EBITDA coming out of those assets in the

25 context of a traditional Chapter 11 and all of the


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2 problems generated in traditional Chapter 11s in

3 today's world.

4 Q. And you told us earlier with respect

5 to the issue of whether or not the Intelsat

6 transaction offered a fair price to Loral was based

7 on the phone conversation you heard in Mr.

8 Schwartz's office that he had with SES?

9 A. All information; Mr. Schwartz and

10 Mr. Zahler gave me contacts and I had discussions

11 with various people as well as my discussion with

12 Morgan Stanley people of their analysis of what the

13 values were and how much Intelsat was willing to

14 pay and taking into account a public auction.

15 Q. None of those advisers or members of

16 management did a discounted cash flow analysis of

17 the assets to be sold?

18 A. Intelsat did. They based their

19 purchase price on the discounted purchase price.

20 Q. And Loral didn't do one to make sure

21 the math was correct?

22 A. Yes. Mr. Schwartz and his team did

23 a discount cash flow analysis.

24 Q. In your 43 years of restructuring,

25 you wound expect the financial advisors of the


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2 company to do an evaluation?

3 A. I think we did our job.

4 Q. Isn't it correct that the value of

5 the six satellites is actually increasing?

6 A. No.

7 Q. Mr. Schwartz told us he thought we

8 were at the beginning of the recovery with respect

9 to satellite service.

10 A. If you examine the report to the

11 creditors' committee, I believe it's in there.

12 Actual FSS income has gone down.

13 Q. In what period?

14 A. In the period on review, right now.

15 The SS/L then that is generating, that is improved.

16 That's with the exception of the Cablevision lease.

17 Q. Going back to the spring of 2003,

18 and you said Loral over leveraged -- Mr. Schwartz

19 said over leveraged; did you consider paying the

20 banks in full, any sort of equitising of any

21 portion of the bank debt?

22 A. What?

23 Q. Did you consider doing an exchange?

24 A. I mentioned it to John Foley. He

25 through me out of the office bodily.


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2 Q. Did you consider refinancing any

3 portion of the bank debt?

4 A. In the financial condition that --

5 yes, we did actually.

6 Q. What did you do?

7 A. We considered the sale of one or

8 more satellites, paying down the bank debt to a

9 level and attempting to stretch out the banks.

10 Q. Is it your view today that the banks

11 are over secured?

12 A. On the basis of the auction, yes.

13 Q. Tell me what is your understanding

14 of the treatment of the loss of the T4 satellite

15 under the asset purchase price?

16 THE COURT: Doesn't it speak for

17 itself? I think that's something the lawyers

18 should address rather than Mr. Miller trying to

19 remember.

20 MR. JOHNSON: All right.

21 Q. Would you agree that the purchase

22 price would be adjusted down 141 million dollars

23 because of insurance document?

24 A. I think the document speaks for

25 itself. Revision in T4, which frankly I don't


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2 recall off the top of my head.

3 Q. When Loral determined to go forward

4 with the Intelsat transaction, why did Loral not

5 determine to sell the remaining assets?

6 A. It believed it could achieve greater

7 value for the economic stake holders rather than a

8 fire sale.

9 Q. Did Greenhill help Loral do that

10 analysis?

11 A. Yes.

12 Q. What further work, other than this

13 May 27th report, did Greenhill do in that regard?

14 A. We discussed potential plans of

15 reorganization, how to formulate a plan, the

16 possibility of attracting an equity investor or

17 joint venturer that could possibly result in the

18 payment in full of the creditors.

19 Q. Did Greenhill ever contact EchoStar

20 in its prepetition marketing of the company?

21 A. Mr. Schwartz advised me that he had

22 been in contact with Mr. Urban, and that he had

23 called Mr. Urban. I know for a fact he took two

24 trips out to see him in Denver. And in fact I

25 mentioned to Mr. Golden and Mr. Botter as well as


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2 Mr. Hagen that I did not understand why Mr. Ergan

3 did not return calls and get in contact with Mr.

4 Schwartz in an industry where transactions are done

5 on the basis of CEO/CEO communication. And

6 finally, I think it was October 10th as we were

7 leaving for the courthouse, and there was Mr. Ergan

8 Q. So the communications with Mr. Ergan

9 were done by Mr. Schwartz and not Greenhill?


11 Q. And --

12 A. I did listen to that telephone

13 conversation.

14 Q. Following the October 3rd letter

15 from EchoStar to the Board of Loral Space &

16 Communications, Ltd., did Greenhill do any

17 financial analyses?

18 A. We consulted with Mr. Schwartz and

19 participated in Board meetings which was not

20 offered for all the reasons that Mr. Huebner

21 presented.

22 Q. That was essentially where you did

23 not disagree with the Board's analyses at that

24 meeting?

25 A. Not at all.


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2 Q. Not at all?

3 A. Did not disagree at all.

4 Q. Let's go back to debtors' Exhibit 5

5 page 10.

6 A. Yes.

7 Q. Do you agree that this comparable

8 transaction implied EBITDA multiple is accurate

9 based on Greenhill's evaluation?

10 A. As I told you, I was not responsible

11 for the numbers in the report. I think you are

12 much better off asking Mr. Robins that question.

13 Q. I think earlier this evening you

14 said something to the effect that people don't do

15 business with a company unless they know who the

16 owner will be. Did you say something along those

17 lines?

18 A. Yes, I did.

19 Q. How do you explain the DIRECTV and

20 EchoStar orders at SS/L when this company is in

21 restructuring?

22 A. The Intelsat -- faith on giving an

23 order to SS/L as part of a transaction I think went

24 a long way to saying to the marketplace that

25 somebody has confidence in the management and


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2 somebody has confidence in the manufacturing. In

3 connection with DIRECTV, it was certainly tied to

4 the delivery of 7 S and I would also say DIRECTV.

5 Let me put it this way, we had discussions with

6 other potential acquirers of satellites who

7 requested letters of credit, financial guarantees

8 from third parties. DIRECTV was willing to go to

9 SS/L because it had confidence that SS/L was on the

10 way back to rehabilitation and would fill its

11 needs, and as Mr. DeWitt testified, it produces a

12 superior product.

13 Q. At this point I would like to ask

14 some questions comparing the pro forma analyses

15 from the May 27th report with what was presented to

16 the committee on September 24th. I suspect the

17 debtors have concerns regarding confidentiality

18 regarding those points?

19 MR. KAROTKIN: That's right.

20 THE COURT: Mr. Karotkin?


22 THE COURT: I don't know who's left

23 from the bar community, but anyone who is not bound

24 by confidential contract of the debtor must leave

25 the courtroom at this point; probably gratefully.


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2 THE COURT: Before they go, Mr.

3 Johnson, do you think they are going to get back to

4 something these folks might want to hear, or should

5 they go home?

6 MR. JOHNSON: I think they should

7 assume they can go home.

8 THE COURT: Just for your

9 information, I'm going to resume tomorrow here at

10 11.


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2 THE COURT: You may continue, Mr.

3 Johnson. Exhibit C 25.

4 Q. Mr. Miller would you please first

5 identify for us if a copy of the business plan was

6 presented at the meeting we discussed September

7 24th in Palo Alto?

8 A. You tell me it is and I'll accept

9 it.

10 Q. It is?

11 THE COURT: C 25.

12 MR. JOHNSON: C 25.

13 Q. C 25 has three tabbed suggestions --

14 in the original there were tabs between them, first

15 Loral commitment go with the meeting?

16 A. I'm sorry.

17 Q. September that?

18 A. What were you referring to?

19 Q. Cover issues is what you were

20 referring to.

21 A. That's right. Hold on, the original

22 was not stapled this way.

23 Q. I think the original tabs and some

24 sort of spiral winding?

25 MR. ROTHMAN: Where are they?


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2891 CONFIDENTIAL

2 MR. JOHNSON: C title page.

3 MR. ROTHMAN: First one.

4 A. Yes, sir.

5 Q. Please go to page 19 of this

6 exhibit?

7 A. Yes.

8 Q. Page 19 is captioned post

9 transaction key business metrics?

10 A. Yes.

11 Q. Are you with me?

12 A. Yes.

13 Q. What I would like to you to do is

14 have you compare what is before you here C 25 page

15 19 which is the business plan presented to the

16 creditors' committee on September 24th, with the

17 pro forma analyses, Debtors' Exhibit 5, which was

18 the Greenhill presentation to the Board on May

19 27th, 2003.

20 A. Can you referred me to a page?

21 Q. Page 11.

22 MR. ROTHMAN: Objection, your Honor.

23 THE COURT: Basis?

24 MR. ROTHMAN: One is the two

25 documents speak for themselves, so I'm not sure


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2901 CONFIDENTIAL

2 what the question is. But beyond that, Mr. Miller

3 has testified that he is not the one who prepared

4 these analysis and Mr. Robins is the person under

5 whose supervision the Greenhill analysis was

6 prepared. So I'm not sure why we're going through

7 this.

8 THE COURT: Let Mr. Johnson ask his

9 question. And you may be right, if Mr. Miller

10 can't really make such a comparison because he

11 doesn't have a basis for talking about Exhibit 5, I

12 take your point.

13 MR. JOHNSON: If I could try to ask

14 two or three questions.

15 THE COURT: Ask the questions first.


17 Q. First let me ask you, although you

18 didn't prepared these pages, do you have enough

19 experience in reviewing financial analyses that you

20 can interpret them?

21 A. I can't tell you until you ask the

22 question. The formats are different.

23 Q. What I would like to direct your

24 attention to is the production your SS/L EBITDA

25 Exhibit 5, page 11, 2004, 2005 and 2006. The


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2911 CONFIDENTIAL

2 projections had SS/L EBITDA 2004, 2005 and 2006,

3 right?

4 A. Right.

5 Q. Exhibit C 25 the line item SS/L

6 EBITDA we see a projection of 34.12 million 41, now

7 shows 125 million in 2006?

8 A. Right.

9 Q. Why the increase in EBITDA SS/L

10 happened May and September 24?

11 A. It was based upon a projection that

12 SS/L would get I think three satellite orders.

13 Q. But as of September 24th, when

14 Exhibit C 25 was presented to the creditors'

15 committee, none of the orders had been placed, had

16 they?

17 A. The one order was the Intelsat order

18 and Mr. DeWitt thought he was fairly close with

19 DIRECTV.

20 Q. Did Greenhill work with Mr. DeWitt

21 in the preparing the projection set forth a page 19

22 of C 25?

23 A. Not to my knowledge.

24 Q. So as of that point Mr. DeWitt

25 thought it likely to get additional orders?


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2921 CONFIDENTIAL

2 A. This was prepared by the marketing

3 team and directors at SS/L.

4 Q. Let me ask you about there Intelsat

5 order. Isn't it correct that before the asset

6 purchase agreement was signed, if you go back a

7 couple of weeks, Intelsat was originally not

8 interested in entering into a new procurement order

9 for a new satellite?

10 A. When?

11 Q. May or June.

12 A. I can't answer that question, I

13 don't know what Intelsat was thinking. The

14 original request was for two orders.

15 Q. Original request from who?

16 A. Loral from Intelsat.

17 Q. What was the response?

18 A. It could use one order.

19 Q. It didn't say we don't want to order

20 any?

21 A. Not in my presence.

22 Q. Mr. Miller, have you ever been

23 qualified as an expert in the area of providing

24 financial advisory services?

25 A. Yes.


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2931 CONFIDENTIAL

2 Q. In what instances?

3 A. In connection with expert witness in

4 the case of Springboard New York and --

5 Q. What was the name of their case?

6 A. It was American Felt, and -- it was

7 a case against Rogers and Wills relating to the

8 valuation of a company coming out of Chapter 11 and

9 whether the values were correct in connection --

10 THE COURT: Can I interrupt?

11 You are not offering Mr. Miller as

12 an expert on financial services, are you?

13 MR. ROTHMAN: No.

14 THE COURT: We didn't go through his

15 expert qualifications. I'm not sure where this is

16 going.

17 MR. JOHNSON: Very well. Thank you.

18 I'm finished.

19 THE COURT: Do you have any

20 redirect?

21 MR. ROTHMAN: No redirect.

22 MR. HUEBNER: One question.

23 THE COURT: Okay.

24 MR. HUEBNER: Maybe two.



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2941 CONFIDENTIAL

2 EXAMINATION BY MR. HUEBNER:

3 Q. Mr. Miller, you testified that on

4 September 24th you thought the debtors were pretty

5 close to signing documents with DIRECTV?

6 A. Correct.

7 Q. If I told you the debtors filed

8 documents with the court only six days later full

9 executing SPDs, would that surprise you?

10 A. No.

11 MR. HUEBNER: Thank you.

12 THE COURT: Before you step down,

13 Mr. Miller I have two questions, although I think

14 it's probably better to ask them of counsel than

15 Mr. Miller, but I would like them to addressed them

16 tomorrow. The first is by its terms, was

17 EchoStar's qualified bid still open or is was it

18 closed based on the debtors' determination that it

19 didn't win the auction?

20 THE WITNESS: Did they leave it open

21 indefinitely or was there --

22 THE COURT: From the time it had --

23 THE WITNESS: If your Honor wants --

24 THE COURT: Do you know the answer?

25 THE WITNESS: I spoke to Mr.


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2 Moskowitz and he said they were finished.

3 THE COURT: This is a little

4 different. I'm just curious whether -- I

5 appreciate that, but I'm curious whether they

6 actually left it open beyond that.

7 THE WITNESS: I think the offer was

8 fired on October 15th.

9 MR. KAROTKIN: You are talking

10 about --

11 THE COURT: The 15th or the 21st of

12 the --

13 MR. KAROTKIN: Which bidder are you

14 talking about.

15 THE COURT: The North American asset

16 bid.

17 THE WITNESS: Oh, no. There was no

18 expression. They left the auction.

19 THE COURT: They just left the

20 auction?

21 MR. KAROTKIN: They said we are not

22 bidding any more.

23 MR. HUEBNER: Your Honor, the

24 transcript of the auction makes clear in EchoStar's

25 view that bidding was closed. In accordance with


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2961 CONFIDENTIAL

2 the bidding procedures, Intelsat was declared the

3 final winner.

4 THE COURT: The second question is

5 the two year non compete, does that prohibit the

6 debtors from working on a satellite that would go

7 in service after expiration of two years?

8 MR. KAROTKIN: No, not at all.

9 THE COURT: Okay. Thank you. You

10 may step down, Mr. Miller.

11 THE WITNESS: Thank you, your Honor.

12 THE COURT: So I'll resume tomorrow

13 at 11, and hope we can finish by the end of the

14 day.

15 MR. KAROTKIN: Thank you, very much.

16 THE WITNESS: Thank you.

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2971 CONFIDENTIAL2 C E R T I F I C A T E3 STATE OF NEW YORK }

} ss.:4 COUNTY OF WESTCHESTER )5 I, Denise Nowak, a Shorthand 6 Reporter and Notary Public within and for 7 the State of New York, do hereby certify:8 That I reported the proceedings in 9 the within entitled matter, and that the 10 within transcript is a true record of such 11 proceedings.12 I further certify that I am not 13 related, by blood or marriage, to any of 14 the parties in this matter and that I am in 15 no way interested in the outcome of this 16 matter.17 IN WITNESS WHEREOF, I have 18 hereunto set my hand this ________ day of19 _________________, 2003.20 21 ___________________________

DENISE NOWAK22 23 24 25


11-10612-shl Doc 427 Filed 03/16/12 Entered 03/16/12 16:44 ...

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Transcript of 11-10612-shl Doc 427 Filed 03/16/12 Entered 03/16/12 16:44 ...